When a dis­trib­u­tor­ship ends – who gets the nam­ing rights?

Intro­duc­tion

When an exclu­sive dis­trib­u­tor­ship between an over­seas prin­ci­pal and an Aus­tralian dis­trib­u­tor ends, the issue of the own­er­ship of intel­lec­tu­al prop­er­ty gen­er­at­ed or used dur­ing the dis­tri­b­u­tion peri­od should log­i­cal­ly be addressed in the dis­tri­b­u­tion agree­ment. Unfor­tu­nate­ly, this issue is often not addressed ade­quate­ly and dis­putes can arise between the prin­ci­pal and its ex-dis­trib­u­tor with respect to the own­er­ship and use of brands and names. The main heads of such dis­putes can include trade marks, rep­u­ta­tion, domain names and con­trac­tu­al issues. 

Trade marks

It is usu­al prac­tice for the trade marks of import­ed goods to be reg­is­tered in the name of the over­seas prin­ci­pal. How­ev­er, if these trade marks have not been reg­is­tered in Aus­tralia by the prin­ci­pal, the Aus­tralian dis­trib­u­tor may be tempt­ed to reg­is­ter these marks itself. Such a prac­tice by the dis­trib­u­tor usu­al­ly proves to be unsuc­cess­ful. The prin­ci­pal, by virtue of its export of the labelled goods to Aus­tralia is gen­er­al­ly the ​“first user” and there­fore the ​“true own­er” of the trade marks in Aus­tralia under sec­tion 58 of the Trade Marks Act (“Act”). As a con­se­quence, the over­seas prin­ci­pal would be expect­ed to suc­ceed in an oppo­si­tion or can­cel­la­tion of marks which its dis­trib­u­tor has pur­port­ed to register. 

Some­times a dis­trib­u­tor may trade under the prin­ci­pal’s name in Aus­tralia as a retail­er or whole­saler and sub­se­quent­ly the dis­trib­u­tor may seek to reg­is­ter the prin­ci­pal’s name as a trade mark for retail­ing and whole­sal­ing ser­vices in class 35 of the reg­is­ter. This prac­tice is also unlike­ly to be suc­cess­ful. As the ​“true own­er” of the trade mark for the import­ed goods, the prin­ci­pal might well be seen to also be the ​“true own­er” of that mark for dis­tri­b­u­tion ser­vices on the basis that these ser­vices are ​“inte­gral” to the com­mer­cial sale of the import­ed goods: South African Air­ways Pty Ltd v Vir­tu­oso Lim­it­ed (2012) 93 IPR 494

Occa­sion­al­ly, a prin­ci­pal may allow its Aus­tralian dis­trib­u­tor to become the reg­is­tered own­er of its marks in Aus­tralia. The rea­son for this prac­tice is that such reg­is­tra­tion can be an effec­tive means of dis­cour­ag­ing par­al­lel impor­ta­tion of the prin­ci­pal’s goods to Aus­tralia. Under sec­tion 128 of the Act, a prin­ci­pal can­not take trade mark infringe­ment action in Aus­tralia against ​“gen­uine goods” which are acquired over­seas and sub­se­quent­ly import­ed into Aus­tralia by third par­ties. How­ev­er, this pro­vi­sion is gen­er­al­ly not applic­a­ble where the rel­e­vant trade mark is reg­is­tered in Aus­tralia by a par­ty oth­er than the prin­ci­pal. If the dis­trib­u­tor is the own­er of the sub­ject trade marks in Aus­tralia, the dis­trib­u­tor would gen­er­al­ly be enti­tled to take trade mark infringe­ment against the par­al­lel importer because the trade mark own­er in Aus­tralia is some­one oth­er than the prin­ci­pal. Most prin­ci­pals are very reluc­tant to assign their Aus­tralian trade marks to their dis­trib­u­tor but they may be pre­pared to do so if the dis­trib­u­tor­ship agree­ment includes a pro­vi­sion that the dis­trib­u­tor must re-assign the trade mark to the prin­ci­pal when the agree­ment ter­mi­nates. The exis­tence of such agree­ments have gen­er­al­ly not been seen by Aus­tralian courts to pre­vent Aus­tralian dis­trib­u­tors tak­ing trade mark infringe­ment action against par­al­lel importers: Mon­tana Tyre Rims & Tubes Pty Ltd v Trans­port Tyre Sales Pty Ltd (1998) 41 IPR 301

Rep­u­ta­tion

Unless there is a pro­vi­sion impos­ing a post-con­trac­tu­al restraint on a dis­trib­u­tor, the ex-dis­trib­u­tor may decide to con­tin­ue to sell ​“gen­uine goods” bear­ing a prin­ci­pal’s trade mark after the dis­tri­b­u­tion agree­ment has end­ed. The dis­trib­u­tor might obtain such gen­uine goods from its exist­ing stock or from over­seas sources. If the prin­ci­pal owns the sub­ject reg­is­tered trade marks in Aus­tralia, the ex-dis­trib­u­tor would be enti­tled to sell such ​“gen­uine goods” in Aus­tralia. How­ev­er, although the ex-dis­trib­u­tor may offer such goods for sale, it should be care­ful to trade under its own name rather than that of the prin­ci­pal. The right to sell brand­ed prod­ucts does not pro­vide the dis­trib­u­tor with the right to sell under that name. Such activ­i­ties could con­sti­tute mis­lead­ing and decep­tive con­duct under sec­tion 18 of the Aus­tralian Con­sumer Law (“Law”). These activ­i­ties could also con­sti­tute false rep­re­sen­ta­tion as to spon­sor­ship, approval or affil­i­a­tion under sec­tion 29(1)(h) of the Law. Such mis­ap­pro­pri­a­tion of the prin­ci­pal’s rep­u­ta­tion can eas­i­ly occur where the ex-dis­trib­u­tor is attempt­ing to retain its orig­i­nal cus­tomer base in com­pe­ti­tion with the prin­ci­pal or its new distributor.

Domain names

Some ex-dis­trib­u­tors may decide to include the name of their ex-prin­ci­pal in a domain name and even elec­tron­i­cal­ly link this domain name to the dis­trib­u­tor’s own web­site. Such behav­iour is like­ly to con­sti­tute trade mark infringe­ment and mis­lead­ing con­duct. In addi­tion, it may be dif­fi­cult for a dis­trib­u­tor to con­tin­ue to main­tain reg­is­tra­tion of a domain name which is not based on a reg­is­tered trade mark. It is impor­tant to note that the reg­is­tra­tion of a com­pa­ny name, busi­ness name or domain name does not pro­vide legal pro­pri­etor­ship in a name. Such legal pro­pri­etor­ship can only be acquired by trade mark reg­is­tra­tion. As a con­se­quence, the prin­ci­pal may suc­ceed in an action under UDRP pro­vi­sions to have the ex-dis­trib­u­tor’s domain name can­celled or assigned to the principal.

Con­trac­tual issues

Near­ly all of the above issues can be addressed in a suit­ably draft­ed dis­tri­b­u­tion agree­ment under which the intel­lec­tu­al prop­er­ty of the prin­ci­pal can be defined and the dis­trib­u­tor makes under­tak­ings that it holds no rights in the intel­lec­tu­al prop­er­ty of the prin­ci­pal. How­ev­er, the dis­trib­u­tor may jus­ti­fi­ably claim that it has its own intel­lec­tu­al prop­er­ty in its func­tion as a dis­trib­u­tor. The rights of the dis­trib­u­tor in its own name need to be defined and pro­tect­ed in the agree­ment, par­tic­u­lar­ly where the dis­trib­u­tor is enti­tled to sell com­ple­men­tary third par­ty or house-brand­ed goods. The dis­tri­b­u­tion agree­ment should be draft­ed so that the prin­ci­pal retains all rights in its brand­ed names and rep­u­ta­tion in rela­tion to its goods while the dis­trib­u­tor retains respec­tive rights in its dis­tri­b­u­tion activ­i­ties under its own name. The own­er­ship of any future intel­lec­tu­al prop­er­ty gen­er­at­ed by the par­ties dur­ing the course of the dis­tri­b­u­tion agree­ment might also be split along such func­tion­al lines.

Con­clu­sion

Prin­ci­pals and dis­trib­u­tors should attempt to avoid poten­tial IP dis­putes at the out­set by address­ing the rel­e­vant issues dis­cussed above. Dis­trib­u­tors who attempt to cir­cum­vent the IP rights of prin­ci­pals by clan­des­tine trade mark reg­is­tra­tion may also fall foul of sec­tion 62A of the Act which pro­hibits trade mark appli­ca­tions being filed in ​“bad faith”. The test of ​“bad faith” has been defined as ​“con­duct falling short of accept­able com­mer­cial stan­dards”. This test is quite broad and is being more fre­quent­ly employed to pre­vent par­ties such as dis­trib­u­tors from engag­ing in con­duct which might deprive prin­ci­pals of their legit­i­mate trade mark rights.