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Supplier supply and distributors distribute - a regular blog, December 2019
Why the dog should wag the tail
As a supplier how important is your name or brand? The answer which is invariably given by most suppliers is that it is extremely important. Name or brand – they mark you out from your competitors. They identify you to customers and potential customers.
However, given this importance it is remarkable that so little thought appears to be given to ensure the protection of the name or brand of the supplier in the case of many distributorship agreements.
Take the situation where a supplier sells branded goods to a distributor for a particular country. In respect of the terms of the distributorship agreement, it is to be hoped that the supplier has applied to register the brand as a trade mark. Failure to do so can be costly in itself.
But this is only the beginning of protection. This is because it is possible that during the course of the distributorship agreement that a third party will assert that the use of the brand in the distributor’s territory infringes the third party’s rights. Equally possible is that a third party infringes the rights in the supplier’s brand.
What then is to happen in either situation?
The answer depends on the terms of the distributorship agreement.
Where the distributor is appointed on an exclusive basis, the distributor is likely to have an implied (if not express) exclusive licence to use the registered trade mark in the distributor’s territory. But if the distributorship agreement does not provide otherwise, trade mark law provides that the distributor can require the supplier to take proceedings against the infringer. If the supplier fails to do so, the distributor can bring the proceedings in its own name as if it was the supplier!
Similarly, unless the distributorship agreement provides otherwise if the supplier brings infringement proceedings the distributor can intervene in those proceedings for the purpose of obtaining compensation for the loss suffered.
The reverse situation – where the third party alleges that the supplier’s brand infringes its rights – is not covered by statute law. It is, however, the case that the legal development of an implied duty of good faith in distributorship (and other) agreements could mean that the supplier owes a duty to have regard to the distributor’s interest in its defence of any proceedings brought by a third party against the supplier.
Putting to one side the legal position, it would seem counterintuitive that a supplier would be happy in any event to allow a distributor free rein in dealing with a third party infringing of or alleging infringement by the supplier’s brand. The supplier should have control – and the distributorship agreement spell out this control – not least as without it the distributor could, for example, reach a settlement with a third party which affected the value or use of the supplier’s brand elsewhere in the world.
And if ever there was a situation of the tail wagging the dog, that would be it!