Trademark registration by distributors in Ukraine


There is a substantial amount of issues that should be considered in details before entering into a legal relationship with the distributor in any country. Ukraine is not an exception.
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Analytic of enforcement

Distribution agreements is one of the most common and negotiated agreements. Despite this, the Ukrainian legislation does not regulate distribution agreements specifically. By its legal nature distribution agreement is an agreement on the subsequent resale of goods. In our opinion, this agreement is symbiosis of several contract types.
Most of all, this type of agreement is similar to the contract of sale or supply. That means statutory provisions of the Ukrainian legislation on sale or supply contracts can be applied. These provisions are governed by chapter 54 of the Civil Code of Ukraine and, chapter 30 (paragraph 1) of the Commercial Code.
Distribution agreement is frame agreement between the supplier and the distributor. It contains all basic rights and obligations of the parties, as well as substantial reservations, which subsequently can affect the quality of performance of the contract.
In this article, we will present one of the striking examples how negligence in agreement drafting could create substantial problems of its sides and give recommendations on how to avoid such situations in the future.

Background

Few weeks ago a client required to our company with a problem that can confound even the most experienced lawyers in the sphere of intellectual property. The essence of the problem was the fact that the distributor of large manufacturing company in Ukraine registered on his name a number of manufacturer trademarks. Noticeable, that he also accused the producer himself as well as retail chains in Ukraine which are working with other suppliers and, in violation of trademark rights.
After analysing court decisions and current situation, we came to conclusion, that there is a great number of issues that should be considered in detail and provided before entering into a legal relationship with the distributor in any country. Here some of them.
How to formalize legal relations with representative?
What are existing risks in IP rights protection cases?
How effectively resolve intellectual property issues in distributor’s territory?
How to monitor the observance of the manufacturer’s intellectual property rights on the territory of the distributor?
How to resolve intellectual property issues at the expiration of the distribution contract?

The question arises whether is necessary to conclude agreement with distributor, agent, dealer, or other similar, which would indicate the presence of the relevant legal rights and regulate them? And why this issue is important for IP rights protection.
According to Article 6 septies of the Paris Convention, trademark owner has the right to prevent the brand registration in the country of its agent/representative. The purpose of this provision is to protect trademark owners against their abusive partners and illegal usage of rights.
For usage of Article 6 septies of Paris Convention in the future, between the owner of the brand (manufacturer) and its distributor must be established distribution relationships.
Basing on the Ukrainian practices associated with the representation of non-residents trademark holders interests, distribution relationship can be:
- Legal (the contract is concluded between manufacturer and distributor)
- Actual (fact of relationship presence should be proves in court by a variety of documents that will certify the right not only to the sale of goods in a particular area, but also the provision of related (marketing, advertising and other) services, in distribution relationship).
Let us turn to the first variant - legal. Directly it should be noted that this option is more reliable, because a distribution agreement allows settling the issues of intellectual property and assume all risks and also indicate ways to ensure the fulfillment of obligations.
Please pay attention, that Ukrainian legislation does not contain rules governing the distribution relationship, basically they are guided by more than the logic and experience of others. Ukrainian court practice indicates that distribution admits as distribution on the essence of the contract.

Court practice
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As for trademarks ‘FІTOLІZIN’ and ‘PHYTOLYSIN’ Ukrainian courts reasonably pointed out that: ‘the license agreement and a supplementary agreement to the license agreement are distribution agreements,’ and find out that ‘the defendant acted as a mediator of the plaintiff, as received from the plaintiff not only drug ‘Phytolysinum’ but also technical documentation necessary for contract fulfilment in accordance with the product, its packaging, quality control, the use of marketing. Ukrainian courts also recognize supply contract in conjunction with promotion of products on the Ukrainian market as the distribution contract. Such case was in the proceedings for trademark ‘Dragflow’.
In many cases, despite the simplicity of establishing distribution relationships between the trademark owner and distributor of the court, it often happens that the owner of the certificate of Ukraine for the specific brand is director, but not a distributor. In such cases it is impossible to use Article 6 septies of the Paris Convention - say Ukrainian courts. This situation grounds on point that the distributor is a legal entity and not a natural person - the owner of the certificate.
This kind of unfair actions are not a one-time situation - such examples are Ukrainian trademarks ‘FILTRON’ and ‘ART VISAGE’.

In many situations, a manufacturer and distributor refuse to sign the contract for various reasons. It should be noted that this option is often more risky and the court's decision will depend on what evidence is confirmed by the fact of distribution relationships.
Ambiguous in these matters court practice. Thus, in a dispute between STYX Naturcosmetic GmbH and LТD ‘NVP PAVA’ trial court's decision was not in favor of the plaintiff. But the appellate court, taking into account contracts for the sale of cosmetic products, advertising materials, in which the defendant confirmed themselves as the official representative in Ukraine, correspondence of parties, magazines, advertising products and services for beauty salons and so on, admitted actual distribution relationships. At the same time, the court decision № 20/379 concluded that the invoices relied upon by the plaintiff, the defendant's letter, bank statements, receipts for the calculations between the plaintiff and the defendant can not be used as evidence of the agency relationship between the parties.

To be forthright, we can understand the desire of the distributor. He works with retail networks, wholesalers, reclamation. And of course he wants to build a long-term business without dependence of the manufacturer.
However, remember that while building relationships with the partners, you should always think about the consequences of such cooperation. Pay attention to the fact that there may be disputes and you will be able to oppose arguments in court.

Consent of the owner for registration TM by distributor: risks

Further, complicated is the situation when the TM owner besides factual legal relationship with a distributor, agrees to TM registration in the distributor’s country. And then learns about the unscrupulous actions when the distributor registered on his name other trademarks. Or due to the deterioration of relations manufacturer wants to disable usage, and sometimes invalidate the certificates for these trademarks. How should we act in such case?
To answer this question we should turn to the practice of filing letters of consent to the identical or confusingly similar trademarks registration with those that were filed before in this country or to the international registration.
World Intellectual Property Organization (WIPO) held research in 58 countries on the letters of consent issue. WIPO has established that 68% of agencies surveyed countries responded that the letter of consent can be adopted and is able to overcome the TM register provisional refusal on the basis of the "elder" trademark presence that is identical or confusingly similar. In 50% of surveyed countries letters of consent can be evidence as a result can protect the trademark in court.

Almost in every country there are certain requirements of filing letters of consent based on legal or court practice.
In Ukraine, compilation and submitting an application for a certificate TM rules provide that if during the examination similar marks for similar goods or services were found, the applicant may be asked to provide a letter of consent of the owner of the registered or previously submitted for registration trademark.
But Patent office of Ukraine cautious about this Rules disclaimer and prefer to have more reason to make a decision in favor of registration than just a letter of consent. For example, evidence showing the use of TM.
What if there is a need to revoke the letter of consent? In most countries, this option is provided by the adoption agency decision on registration of the trademark.

During the WIPO research question was raised: ‘Is it possible to revoke letter of consent after the registration of a trademark on that basis?’ 67.2% of agencies surveyed countries responded negatively, and only 10.4% confirmed this possibility.
Ukrainian court practice does not contain cases of invalidation of a certificate based on the revocation or invalidation of letters of consent. However, the interesting case of the registration trademarks in Ukraine on subsidiary Nemiroff Holdings Limited. By the circumstances of this case a subsidiary registered in its name a number of trademarks, the decision on registration of which were adopted based on letters of consents. But, assuming that the sign of Nemiroff was recognized well-known in Ukraine, the court ruled on the invalidity of the challenged evidence, as these signs are not protectable on the basis of the Law of Ukraine ‘On Protection of Rights to Marks for Goods and Services’.

Issuance letters of consent: how to protect your right?

Returning to the question of the distribution legal relations, should be noted that the granting letters of consent for distributor to register trademarks, manufacturer goes huge risk, but the rights of the trademark owner can still be protected.
For this purpose it is necessary to demonstrate presence on the basis of earlier registered trademark in the distributor territory. That is, the action of the international registration of identical or similar trademarks, recognition of the trademark as well known on this territory. There is still an option to insist in court on that letter of consent can not be absolute ground for a positive decision.
It should be mentioned that some distributors in Ukraine, using this standard features of the registration Rules for private second level domain names in the domain .UA ask companies to give permission for such registration. In this case, you should not go on about the distributor and though registered as a trademark and the domain in his name.

Conclusion

Summarizing, we would like to pay attention the following points:
1. Will be easier to calculate the risks in order to avoid further undesirable consequences.
2. Note that any legal relations are not eternal. Considering that you need to conclude distribution agreements, and also prescribe in detail intellectual property issues in them.
3. If for any reason you consider impossibility of distribution agreement conclusion, it is necessary to conclude an additional agreement that resolves issues intellectual property, for example license. In this case you will be able to protect their rights.
4. If there are no legally binding contractual relationship between you and the distributor, you should keep all documents (correspondence, product photos and so on). It can serve as evidence of the actual contractual relationship between you and your distributor.
5. Try to avoid granting letters of consent. You are still required to provide them? Calculate what are the risks in connection with such action, and include items that will protect you from the adverse consequences in the contract.

See also:
What we need to know about Registration of Trademarks in Ukraine?
Opposing a Trademark Application in Ukraine
Trademark use requirement according to Ukrainian legislation