• When “Exclusive Licensee” Equals “Registrant”

    by  • July 8, 2013 • trademark

    Heraeus Germany makes dental products and distributes them in the United States through a sister company, plaintiff Heraeus Kulzer LLC (Heraeus America). Defendant Omni Dental Supply imports gray market products it claims are made by Heraeus Germany but intended for distribution in other countries, primarily China. In order to stop Omni, Heraeus Germany made Heraeus America the exclusive importer of the dental products and granted “an exclusive right and license to use trademarks, trade names and other marks owned and/or used by Heraeus [Germany].”

    Heraeus America sued Omni under Section 32, et al., of the Lanham Act. By its terms Section 32 is limited to actions brought by the “registrant,” but some courts define the registrant to include exclusive licensees. The First Circuit, the controlling court for this case, is one. Quabaug Rubber Co. v. Fabiano Shoe Co., 567 F.2d 154, 160 (1st Cir.1977). The theory is that where the license is equivalent to an assignment, the exclusive licensee has standing. See Fin. Inv. Co. (Bermuda) Ltd. v. Geberit AG, 165 F.3d 526, 531-32 (7th Cir. 1998) (“a truly exclusive licensee, one who has the right even to exclude his licensor from using the mark … is equated with an assign[ee] since no right to use [the mark] is reserved to the licensor, and the licensee’s standing derives from his presumed status as an assignee.”); see also Calvin Klein Jeanswear Co. v. Tunnel Trading, 98 CIV. 5408 (THK), 2001 WL 1456577, at *4 (S.D.N.Y. Nov. 16, 2001) (quoting cases). My non-comprehensive review of the case law suggests that the focus on the ability to enforce trademark rights against the owner as the de facto definition of an exclusive license stems from Quabaug (“Quabaug admits that it does not have the power, under either the original 1964 agreement with Vibram or the 1974 amendment, to exclude importation of soles bearing the VIBRAM mark. However, an owner, assignee, or ” exclusive licensee” of a registered United States trademark would have such power. 15 U.S.C. § 1124; Bourjois Co. v. Katzel, 260 U.S. 689, 43 S.Ct. 244, 67 L.Ed. 464 (1923).”).

    In Heraeus, defendant Omni claimed that merely reciting in the agreement that Heraeus America was an “exclusive licensee” wasn’t good enough. Omni claimed that Heraeus America wasn’t an exclusive licensee because the agreement didn’t specifically give Heraeus America the right to exclude Heraeus Germany itself from selling product directly into the United States, or grant Heraeus America the power to bring infringement claims.

    But it’s a bit of a circular argument — we often use “exclusive” and “non-exclusive” in the grant of rights and expect that they have a commonly understood meaning. Indeed, I thought that referring to a license as “exclusive” meant that the licensor was itself excluded from using the mark. But the court approached it this way:

    It is true that merely terming a license agreement “exclusive” is “not conclusive as to its legal effect” if the actual rights granted under the agreement are inconsistent with the characterization. In the trademark context, an exclusive licensee is more often defined by what it is not, rather than what it is. It is clear that to earn the badge of exclusivity, a licensee must have the power to: (1) exclude importations and sales in its licensed territory by others, including the trademark owner; and (2) to enforce the licensed trademarks in court. See Quabaug Rubber, 567 F.2d at 159 (plaintiff was not an exclusive licensee where it lacked “the power to exclude importations and sales by [the trademark owner] and its foreign licensees in the United States.”). While nothing in the Distribution Agreement gives Heraeus America the explicit right to forbid Heraeus Germany from selling dental products in the United States, there is also no language in the Agreement that would prevent it from doing so. In light of the silence of the Agreement on the issue, the court looks to the conduct of the parties to the Agreement for guidance. In this regard, it is telling that there is no evidence whatsoever that Heraeus Germany or any of its foreign affiliates have ever attempted to circumvent Heraeus America by selling dental products directly in the United States. In other words, Heraeus Germany has always behaved consistently with the understanding that Heraeus America has the “exclusive right and license” to use its marks in the United States. Thus, Heraeus America is an exclusive licensee of the Heraeus marks.

    (Citations omitted.) So at least this court doesn’t agree with me that by definition an “exclusive” licensee has the right to exclude the licensor; instead it examined not only all the terms of the agreement but the behavior of the parties, too.

    But is this even the right question to ask? Shouldn’t it be “are you a registrant?” rather than “are you an exclusive licensee?”

    First off, I agree with McCarthy that the statute says “registrant” and should be interpreted to mean what it says:

    Author’s Comment: I believe that the statute and the majority of cases interpreting it creates a clear and bright line rule: only the registrant of record has standing to sue for the rights and remedies provided by Lanham Act § 32(1) for the owner of a registered mark. No amount of judicial interpretation or manipulation of words can turn an exclusive licensee into an assignee. A trademark assignment and license are two quite different transactions with widely different impacts. I believe that the minority view cases which allow an exclusive licensee to sue because it is “almost like” or “tantamount to” an assignee are not following the statute. If an exclusive licensee wishes to sue in federal court, it can do so only under Lanham Act § 43(a), unaided by the benefits of registration. Those benefits can only be invoked by the registrant.

    6 McCarthy on Trademarks and Unfair Competition § 32:3 (4th ed.) Nevertheless, even if we don’t strictly require that it be the registrant who brings suit, the legal question shouldn’t be “is the licensee exclusive,” but rather “is the plaintiff a de facto assignee?” In the trademark context that must include the right to exclude even the trademark owner, but really should include all of the rights of the owner, such as the right to license the mark or take actions that affect the goodwill of the mark. Examining whether Heraeus Germany imported through other distributors hardly answers the question.

    However, a lesson for license drafters: in the trademark context, don’t assume that “exclusive” has any meaning. You still need to spell out at least that it will be a breach of contract for the licensor to use the mark itself in the territory and that the licensee has the right to enforce the mark. Better yet, if you want to ensure that all the remedies to which the trademark owner is entitled under the Lanham Act are available, either fully assign the mark or have the true trademark owner file the lawsuit.

    Heraeus Kulzer LLC v. Omni Dental Supply, No. 12-11099-RGS (D. Mass. July 1, 2013).

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