It's a Licensee Eats Licensee World. Or Is It?

These days, it is commonplace for companies to license multiple parties in various distinct geographical areas to use the same trademark. The ACME coffee cake you eat in Mississippi may be made by a different licensee than the ACME coffee cake you eat in Oregon. Because different licensees may be competitors of one another in different product lines, the question often arises as to whether one licensee may challenge another's right to use a licensed mark and, if so, where. With the predominance of Internet marketing now continuously eroding what might be considered the traditional geographic “territories” of different licensees, the potential for conflict only becomes more acute.

It's not clear where the legal line is, either. When might one licensee have a right to sue another licensee? And how might the sued licensee best protect itself in the event of a dispute over the licensed mark?

Following ICEE Distributors, Inc. v. J&J Snack Foods Corp., 445 F.3d 841, 78 U.S.P.Q.2d 1447 (5th Cir. 2006), an exclusive licensee does not have a judicially recognizable claim for trademark infringement against a subsequent licensee. In ICEE, a group of exclusive licensees of ICEE sued ICEE, the licensor, along with a subsequent licensee and a retail store, for trademark infringement and dilution. These same licensees also pursued a breach of contract claim against ICEE.

Facing these several claims, the Fifth Circuit first held that the trademark dilution claim must fail because the distributor-licensees were not the owner of the ICEE trademark, and thus did not have standing to sue under the Federal Trademark Dilution Act. See, ICEE Distributors, Inc. v. J&J Snack Foods Corp., 325 F.3d 586 (5th Cir. 2003).

The Fifth Circuit then affirmed the district court's grant of summary judgment for the defendants on the trademark infringement claim, stating that because the rights of a licensee are derivative of the rights of the trademark owner, a claim of infringement by a licensee is impossible where the trademark owner could not bring such a claim because it entered into an agreement with the subsequent licensee.

The Fifth Circuit's opinion was right in line with a previous decision reached by an entirely different tribunal, in Ballet Makers, Inc. v. U.S. Shoe Corp., 633 F. Supp. 1328, 230 U.S.P.Q. 247 (S.D.N.Y. 1986). There, an exclusive licensee of the CAPEZIO trademark for use on dance tights had sued a subsequent licensee of the same mark in the hosiery field for trademark infringement. The claim was dismissed by the court, which held that the second licensee's goods are genuine and authorized and cannot create a likelihood of confusion as defined by the Lanham Act.

Clearly, Internet marketing will precipitate clashes of this sort. But under current law, as evidenced by the above-referenced decisions, when an exclusive licensor grants a second license under the same mark for the same goods to a subsequent licensee, the first licensee's suing a subsequent one for trademark infringement and unfair competition is not the proper course of action. It would appear that any trademark infringement or dilution claim that one licensee would bring against a subsequent licensee would be dismissed under current law.

Alternatively, however, the first licensee can sue the licensor for breach of contract, though it will be for counsel to advise that first licensee if such a claim is warranted. If a first licensee is successful in a breach of contract claim against its licensor, then any subsequent licensee may be enjoined from selling any products under the licensed mark.

This was the case in ICEE. While claims for infringement and trademark dilution were disallowed, the breach of contract claim was affirmed. The Fifth Circuit affirmed the district court's issuance of an injunction barring sales of the product by the second licensee, the retail store distributor. Even though no trademark infringement or dilution was found against the second licensee, its sales were still enjoined as a consequence of the licensor's breach of contract.

As a result of these decisions, any secondary and subsequent licensee of a trademarked good will want to protect themselves against trademark use claims by third parties ' that is, other licensees. If a subsequent licensee were to take a license from the licensor, it should urge the licensor to indemnify it against any claims by third parties, including other sub-licensees, regarding use of the trademarks. It should argue as well that it be indemnified for any losses resulting from any third-party claims against the licensor that affect the subsequent licensee's ability to use the licensed mark.

In preempting the costs of resolving inter-licensee disputes, a little foresight and a lot of negotiating can go a long way ' ensuring settlement quickly and economically.

Scott J. Slavick is a shareholder at Brinks Hofer Gilson & Lione. His practice focuses primarily on trademark prosecution and trademark litigation, as well as licensing, non-compete agreements, international filing and digital trademark matters. He can be reached at [email protected].

These days, it is commonplace for companies to license multiple parties in various distinct geographical areas to use the same trademark. The ACME coffee cake you eat in Mississippi may be made by a different licensee than the ACME coffee cake you eat in Oregon. Because different licensees may be competitors of one another in different product lines, the question often arises as to whether one licensee may challenge another's right to use a licensed mark and, if so, where. With the predominance of Internet marketing now continuously eroding what might be considered the traditional geographic “territories” of different licensees, the potential for conflict only becomes more acute.

It's not clear where the legal line is, either. When might one licensee have a right to sue another licensee? And how might the sued licensee best protect itself in the event of a dispute over the licensed mark?

Following ICEE Distributors, Inc. v. J&J Snack Foods Corp., 445 F.3d 841, 78 U.S.P.Q.2d 1447 (5th Cir. 2006), an exclusive licensee does not have a judicially recognizable claim for trademark infringement against a subsequent licensee. In ICEE, a group of exclusive licensees of ICEE sued ICEE, the licensor, along with a subsequent licensee and a retail store, for trademark infringement and dilution. These same licensees also pursued a breach of contract claim against ICEE.

Facing these several claims, the Fifth Circuit first held that the trademark dilution claim must fail because the distributor-licensees were not the owner of the ICEE trademark, and thus did not have standing to sue under the Federal Trademark Dilution Act. See, ICEE Distributors, Inc. v. J&J Snack Foods Corp., 325 F.3d 586 (5th Cir. 2003).

The Fifth Circuit then affirmed the district court's grant of summary judgment for the defendants on the trademark infringement claim, stating that because the rights of a licensee are derivative of the rights of the trademark owner, a claim of infringement by a licensee is impossible where the trademark owner could not bring such a claim because it entered into an agreement with the subsequent licensee.

The Fifth Circuit's opinion was right in line with a previous decision reached by an entirely different tribunal, in Ballet Makers, Inc. v. U.S. Shoe Corp., 633 F. Supp. 1328, 230 U.S.P.Q. 247 (S.D.N.Y. 1986). There, an exclusive licensee of the CAPEZIO trademark for use on dance tights had sued a subsequent licensee of the same mark in the hosiery field for trademark infringement. The claim was dismissed by the court, which held that the second licensee's goods are genuine and authorized and cannot create a likelihood of confusion as defined by the Lanham Act.

Clearly, Internet marketing will precipitate clashes of this sort. But under current law, as evidenced by the above-referenced decisions, when an exclusive licensor grants a second license under the same mark for the same goods to a subsequent licensee, the first licensee's suing a subsequent one for trademark infringement and unfair competition is not the proper course of action. It would appear that any trademark infringement or dilution claim that one licensee would bring against a subsequent licensee would be dismissed under current law.

Alternatively, however, the first licensee can sue the licensor for breach of contract, though it will be for counsel to advise that first licensee if such a claim is warranted. If a first licensee is successful in a breach of contract claim against its licensor, then any subsequent licensee may be enjoined from selling any products under the licensed mark.

This was the case in ICEE. While claims for infringement and trademark dilution were disallowed, the breach of contract claim was affirmed. The Fifth Circuit affirmed the district court's issuance of an injunction barring sales of the product by the second licensee, the retail store distributor. Even though no trademark infringement or dilution was found against the second licensee, its sales were still enjoined as a consequence of the licensor's breach of contract.

As a result of these decisions, any secondary and subsequent licensee of a trademarked good will want to protect themselves against trademark use claims by third parties ' that is, other licensees. If a subsequent licensee were to take a license from the licensor, it should urge the licensor to indemnify it against any claims by third parties, including other sub-licensees, regarding use of the trademarks. It should argue as well that it be indemnified for any losses resulting from any third-party claims against the licensor that affect the subsequent licensee's ability to use the licensed mark.

In preempting the costs of resolving inter-licensee disputes, a little foresight and a lot of negotiating can go a long way ' ensuring settlement quickly and economically.

Scott J. Slavick is a shareholder at Brinks Hofer Gilson & Lione. His practice focuses primarily on trademark prosecution and trademark litigation, as well as licensing, non-compete agreements, international filing and digital trademark matters. He can be reached at [email protected].