Lawyers are wordy. Often the wordiness doesn’t matter that much, “I hereby demand that you cease and desist” instead of “you must stop now” both get the point across. But never, ever write a contract that is wordy without a good reason, because that can put you into litigation hell.
Defendant 4EverYoung, Ltd., a UK company, had a Sales Distribution Agreement with plaintiff Derma Pen, LLC for distribution of a micro-needling device. Derma Pen terminated the agreement according to its provisions but then refused to comply with its post-termination obligations. Here’s the clause that causes 4EverYoung significant pain:
As part of acknowledging the Distributors ownership of the Derma Pen Trademark in the US, The Distributor hereby acknowledges that should this distribution agreement be terminated in accordance with Section 11, the Distributor agrees to offer the Dermapen Trademark in the US for sale to 4EVER YOUNG and 4EVER YOUNG has the first right of refusal for such trademark. The Distributor and 4EVER YOUNG further agree that the value of the Dermapen US Trademark will be determined by independent auditors of which one will be appointed by both parties.
Should a satisfactory agreement on the price of the Dermapen US Trademark not be obtained within 30 days from the appointment of each independent auditor, both the Distributor and 4EVER YOUNG agree that the value will be determined by the courts of the land that is governing this contract and their decision will be final and binding upon both parties.
There was an identical provision for the dermapen.com domain name.
What were the parties trying to do? My guess is that 4EverYoung wanted to make sure it could get the trademark rights in the US when the distributorship ended. But Derma Pen wasn’t going to give them up for nothing, and 4EverYoung didn’t want to get screwed on the price, so they provided a mechanism for coming up with a fair market value.
So, can we all agree that this is horrible contract drafting? Let’s start with “As part of acknowledging the Distributors ownership of the Derma Pen Trademark in the US ….” Why say it? It implies there are other parts of the agreement that address the parties’ ownership in their respective territories, so what does this add? And if ownership isn’t clear in other provisions, this surely is a feeble way to get there.
Going on, “the Distributor hereby acknowledges that should this distribution agreement be terminated in accordance with Section 11 ….” I don’t know what “The Distributor hereby acknowledges that” adds – it’s redundant to acknowledge that one has a duty to perform, because it is manifest in the fact that you entered into the agreement in the first place. But at least no harm, no foul.
And now we get into the meat of the problem – “the Distributor agrees to offer the Dermapen Trademark in the US for sale to 4EVER YOUNG and 4EVER YOUNG has the first right of refusal for such trademark.” Why have a provision that makes the seller perform another act, in addition to terminating the contract, to get the ball rolling on the sale of the mark? Why not just say “Upon termination of this distribution agreement in accordance with Section 11, 4EVER YOUNG has the right to purchase the trademark,” followed by a mechanism for valuation? I can’t think of any reason you need to go through the exercise of making an offer, and my guess is that it comes about when someone thinks a lot of words makes it sound more lawyerly.
And what a nightmare the language created for 4EverYoung. Even though Derma Pen terminated the agreement, and the agreement provides 4EverYoung with a pretty bulletproof mechanism for gaining ownership the trademark, Derma Pen sued 4EverYoung for trademark infringement and moved for a temporary restraining order and preliminary injunction. 4EverYoung at first dodged the bullet when the district court denied the motion: “4EverYoung has the right to purchase those rights and has made attempts to do so, to which Derma Pen has been non-responsive. Derma Pen’s rights in the trademark are waning and will be extinguished once 4EverYoung completes the purchase of the Domain Name and the United States trademark rights to Dermapen.” But the Court of Appeals reversed:
We agree with Derma Pen, LLC, concluding that it is likely to prevail. The existing record would likely require findings that
– Derma Pen, LLC owns the U.S. trademark rights until they are sold, and
– no sale has taken place.
Thus, Derma Pen, LLC likely remains the owner of the trademark and the district court erred in predicting the outcome.
Luckily for 4EverYoung, it might still be able to avoid the preliminary injunction. While the preliminary injunction was on appeal, 4EverYoung moved for a order of specific performance to force the sale of the trademark. A December 30, 2014 decision parses the contract language to figure out exactly what performance is required, concluding “specific performance could require Derma Pen to make an offer to 4EverYoung and appoint an independent auditor, and to actively participate in and pay half the costs of filing in the United Kingdom to determine valuation.” So even when 4EverYoung gets an order of specific performance it will only kick the can a little down the road, ordering Derma Pen to make an offer. This is a hard-fought battle, with three decisions in three different courts in 11 days, so more process just gives Derma Pen more opportunity for further obstruction.
The court’s clause-by-clause analysis of the entire provision is worth a read; in it you’ll also see that the parties’ use of “right of refusal” probably doesn’t mean what they intended it to mean.
The third decision was in bankruptcy court. Derma Pen had filed for bankruptcy but the court found that the petition was a litigation tactic, an “improper attempt by the Debtor to re-start the contract and trademark battle with the Movants in a new court” rather than a good faith effort to reorganize, so it dismissed the case.
Derma Pen has been a vigorous opponent and significantly delayed the inevitable, at least in part because of a poorly drafted contract provision. Don’t be that wordy writer.
Derma Pen, LLC v. 4EverYoung Ltd., No. 2:13-CV-00729-DN-EJF (D. Utah Dec. 30, 2014).
In re Derma Pen, LLC, No. 14-11894 (KJC) (Bankr. Del. Dec. 19, 2014).
Derma Pen, LLC v. 4EverYoung Ltd., No. 13-4157 (10th Cir. Dec. 9, 2014).
Derma Pen, LLC v. 4EverYoung Ltd., No. 2:13-CV-00729-DN-EJF (D. Utah Aug. 4, 2014).
Derma Pen, LLC v. 4EverYoung Ltd., No. 2:13-CV-00729-DN-EJF (D. Utah Oct. 19, 2013).
The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.
Leave a Reply