Trademark Coexistence Agreement Explained
A trademark coexistence agreement is an arrangement in which two or more parties agree to peacefully co-exist without infringing on each other’s trademark rights. Such agreements typically occur when the parties utilize their trademark in overlapping product or service markets but do not expect significant consumer confusion between the parties’ marks. Coexistence agreements are beneficial because they help the parties avoid future infringement and litigation costs and can provide a simple pathway to resolving trademark disputes and avoiding uncertainty in future planning .
While trademark registration is not a prerequisite to entering into a trademark coexistence agreement, that most certainly is strong incentive to get a federal registration in your relative territories so the agreement can be recorded and filed with the filing offices to put other parties on notice that the parties have reached a mutual understanding and have agreed to the terms in the agreement. Such an agreement usually provides some additional evidence of a date of first use which may be helpful in determining priority for a mark that is not registered on the principal register.
Reason to Implement a Coexistence Agreement
Conditions and reasons for considering a trademark coexistence agreement are those where there is currently non-conflicting use of, or registration of, a subject mark in the same territorial area by multiple entities which is likely to continue, based on certain commonalities or channel of trade. There is no rule that excludes the possibility of such agreements if it is statistically possible that an element of consumer confusion could occur. The conditions for the entry into an agreement for coexistence for a business include:
An example scenario could be good faith prior use of similar marks or designations by a business in a relatively small community, without consumer confusion, in a specific channel of trade where the products or services are not directly competitive in any of the channels of trade.
Another example could include a prior good faith user in the use of the designation as a name or surname without ever with consumer confusion that is not likely to result in consumer confusion in the future, with limited use of the designation by others and a feature condition of some sort on use.
A third example could include two business entities that are geographically separated, without overlapping territory, and who have been using trade designations that are somewhat similar for relatively limited time periods. The trade designations may be possessive or descriptive or suggestive in nature wherever the parties use them for doing business, and as part of a larger product line.
Commonalities in the parties’ marks include, for example, where the relevant marks are at least in some manner similar, even if only suggestively similar, with limited products or channels of trade, and where there is no evidence that the actual use of the respective parties’ marks has resulted in consumer confusion or is likely to cause consumer confusion in the future.
A broader example of the element of good faith may exist in the event that two parties are using similar designations without trademark registrations, for a significant period of time, with limited or no evidence of consumer confusion. In addition, even after knowledge of the first party’s use, the second party continues to use the similar mark without regard to the potential likelihood of confusion. Equitable elements of the good faith between the respective parties are at issue.
Essential Components of a Coexistence Agreement
The key components of a trademark coexistence agreement are a plan for the ongoing uses of the parties’ marks, and the territories that the parties will occupy. Each party typically agrees to use its own mark and not the other party’s mark in a defined territory. This territorial agreement can be made on a country-by-country basis or worldwide. Parties should clearly identify the scope of allowable use – for example, whether it entails use on or in connection with all of the parties’ goods and services or only some, or whether the parties’ own use can occur in the other’s territory (and under what conditions). The agreement should also define how claims of infringement are to be addressed (e.g., direct communication between the parties without involvement of counsel, or the involvement of an independent expert). Exclusive use outside a defined territorial area may be predicated on absence of objection by the exclusive user or approval by the other user. An agreement may also expressly permit non-exclusive use outside a defined area contingent on either party being able to rescind the use at any time without notice.
Legal Considerations and Effects
The legal implications of trademark coexistence agreements can be significant. Such agreements, often entered into to avoid litigation, can have serious consequences if the parties fail to consider all of the necessary aspects of this complex area of intellectual property law.
Where such agreements involve assumptions or conditions that are not met in the future, they can create unforeseen obstacles and liabilities for the trademark owners involved. It is therefore essential to seek legal advice both before entering into a trademark coexistence agreement and before modifying or terminating an existing agreement.
Courts will suspend, cancel or even strike down trademark registrations that are subject to coexistence agreements where the parties have not complied with the terms of their agreement. In 2011, the Court of Appeal for the Federal Circuit in Eli Lilly Canadian Inc. v. Novopharm Limited (2011), 95 C.P.R. (4th) 239, upheld a lower court decision that had been made in this context. The trial judge in Eli Lilly found that significant material changes in the circumstances of the parties had occurred since the filing of the trademark application that reflected the coexistence agreement. The Court of Appeal of the Federal Circuit concluded that the trial judge did not consider the exchanges between the parties as sufficient to address or rectify the significant material changes. As a result, the Court of Appeal of the Federal Circuit agreed with the trial judge’s decision not to register the coexisting trademarks in the face of the material changes.
It is commonly assumed that there is no risk arising from trademark coexistence agreements among international corporations. This is untrue. Some are even written into corporate policies and guidelines that are implemented globally. Where such policies are formalized in writing, they can be used as evidence of the intentions of the parties.
In Toronto-Dominion Bank v. Canadian Bank of Commerce (1938), 60 C.P.R. 169, the defendant corporation’s new practice of using the same logo as the plaintiff corporation led to an injunction prohibiting it from doing so. The fact that the defendant had previously used the logo in publications and other media without signing a written agreement did not prevent the court from granting an injunction. The defendant was also required to pay damages on the basis that the parties had entered into a joint venture in 1937, in which the plaintiff shared the use of the logo with the defendant. While the transfer of rights under the agreement was found to have been limited by its terms, the plaintiff suffered harm to its business as soon as the defendant began using the logo. The defendant was obligated to compensate the plaintiff for the harm suffered because of its breach.
In Bilodeau et al v. ALC Alcon Holding Ltd., 2013 FC 616 (CanLII), the plaintiff had learned of the defendant’s use of its logo when the defendant had a billboard put up featuring the logo. Sometime after this lawsuit was commenced, the plaintiff announced its interest in initiating discussions about the issue, but was only provided with the terms of the application shortly before a case conference.
The Federal Court agreed with the plaintiff that it had not acted in bad faith and was not responsible for the parties’ failure to resolve their dispute. However, the court was not persuaded that the defendant had done so, after careful consideration of the circumstances. The plaintiff’s actions were therefore classified as "litigious misconduct" which prohibited the defendant from claiming its costs.
Coexistence agreements can become quite complicated, particularly when a number of parties outside of the main parties to the agreement are involved. These parties will need to adopt a different approach than if they were bystanders. A number of things must be taken into account to avoid causing confusion and imposing risks and liabilities on the parties involved that should have been avoided.
The primary goal of a coexistence agreement is to maintain the parties’ trademark rights while making it clear that the parties are not permitted to acquire each other’s rights. When drawing up such an agreement, the parties will want to avoid any confusion between their respective trademark rights, and must take care to distinguish them appropriately.
While the default under the Trade-marks Act is for registration to give rise to the exclusive right to use the registered mark throughout Canada, it is possible to contract out of the Act. One way this can be done is by requiring a coexistence agreement before the transfer of "exclusive right to use" all occurrences of a registered trademark in a given geographical region. An example of this is Co-Op Atlantic Wholesale Ltd. v. Co-Operate Aquaculture Canada Ltd., 2011 FC 926.
Creating and Negotiating Agreements
The process of drafting and negotiating a trademark coexistence agreement is essential for ensuring that all parties’ interests are properly considered and addressed. The negotiating process typically begins with the parties exchanging their basic terms for the coexistence agreement, which often includes the following: limitations on geographic area, limitations on the classes of goods and/or services for which the trademarks are used or registered, importance of trademark use for one or both parties’ businesses, commitment to file applications and other actions with trademark offices, level of due diligence required, and a requirement that the parties assist each other in legal actions.
When exchanging the basic terms, it is important that each party be flexible, and be prepared to negotiate with the other so that the final agreement will represent an equitable balance between the parties’ interests. In addition, the initial proposal should include proposed limits on future actions by either party. For example, will either party be permitted to seek an injunction? If so, under what circumstances?
Once the parties have agreed on a basic framework for the coexistence agreement, it is advisable to address the following terms in order to ensure that they are fairly reflected in the final agreement:
The parties should also pay particular attention to the term sheet that describes the goods and services associated with each trademark, and how these are to be limited under the terms of a coexistence agreement . Unintended consequences may arise if the goods and services are not described adequately. For example, if the terms are vague and not narrowed properly, the agreement may permit a party to use its mark in connection with a different type of goods and services than intended; conversely, a lack of detail may exclude certain types of goods and services that would otherwise be permitted.
Negotiation strategies for a trademark coexistence agreement should be approached methodically. First, parties should consider conducting a comprehensive review of their respective trademark portfolios to identify gaps and weaknesses in their respective rights. This review process, including the potential addition of new trademarks to the agreement, could be built into the coexistence agreement itself as some of the terms sought by the parties. Second, a conference call between the parties, their in-house legal counsel, and/or external IP counsel should be scheduled after exchanging initial terms to discuss any issues, and to obtain further clarification on the basic terms originally proposed.
During the negotiation session, the parties should be able to review the basic terms and any other legal issues that arose, in order to confirm that none were omitted. Once all terms are agreed upon by both parties, an attorney skilled in trademark law should draft the final agreement that represents the parties’ intentions and understanding.
Examples of Coexistence Agreements
The application of trademark coexistence agreements can be illustrated with three real-world examples:
Johnson & Johnson and Johnson & Johnson
Both Johnson and Johnson are not the same legal entity, and their products are not the same, and both have products in the hair care, diaper and pharmaceutical markets, for example. In 1986, the two parties entered into a trademark coexistence agreement and since then have worked relatively harmoniously. However, in 2016, one of the parties, Johnson & Johnson Ltd., apparently decided that it no longer wanted to continue the agreement and sought to have it declared unenforceable. The plaintiff (L.Johnson) argued that the agreement was unambiguous, while the defendant further asserted that it was unenforceable on other grounds.
The parties ended up settling the case, but it’s clear from the litigation that issues of similarities, where there are trademarks that relate very closely to each other, or where parties just have a habit of coexisting, can lead to tensions that need to be defused through negotiation.
Gant v Unibic
This is a practical example of a coexistence agreement based on common sense and good negotiations. Unibic, the Australian biscuit manufacturer, applied to register its name as a trademark in Australia in 1989, for the first time. Gant, a US cookie manufacturer, applied to register the same name for the same type of product in Australia in 1995. Given that the companies did not have the same product in the Australian market, and given that Gant had consented to Unibic registering the name in the Australian market, Unibic agreed to Gant continuing to use the name for its cookies in Australia on certain terms, to Gant consenting to Unibic continuing to use the name for biscuits in Australia, and to Unibic agreeing that Gant could continue to use the name for cookies in the rest of the world.
In 2004, Unibic sought to register the same name in the United States for "cookies, biscuits and crackers" and the application was observed by Gant. Gant’s senior counsel called the Unibic senior counsel and said that his client had been very successful with the mark in Australia and the United States, Gant product sales had not suffered in Australia as Gant had good brand recognition, and the parties had been aware of each other and trading happily together for years in Australia (albeit that there were five years between Gant’s application to register the name in the United States and Unibic’s application in Australia). The parties decided to enter into a coexistence agreement for the use of UNIBIC and permitted the application for registration of UNIBIC for "cookies, biscuits and crackers" in the United States to normally proceed to registration.
Cricut v Cricket
When Cricut, a company that produces manual cutting machines, entered the hitherto unbranded market in the United States, it found itself confronted by an unexpected claim from another company called Cricket, seeking to prevent it from using that name because Cricket produced machines as well. A clever marketer will often take the name of a product (e.g. "soda" or "tea") and alter its spelling so that it can be registered as a trademark. That is what happened to Cricket. Cricket, the company, challenged Cricut’s decision to register its name by pointing out that the company also made cutting machines, and that the name was too close to Cricket, the trademark.
A coexistence agreement was discussed but a compromise could not be reached. As a result, Cricket pressured Cricut, apparently unsuccessfully, to withdraw the application. Cricut went ahead and obtained registration, so Cricket sued Cricut to have the registration declared invalid. Cricut tried to have Cricket’s lawsuit dismissed on grounds of laches because of the amount of time that had passed. Ultimately, the case got to the stage where the presiding judge felt that a mediation session might resolve the situation. Cricut was prepared to change its actual trading name to something else and to apply to register a new trademark in another jurisdiction. Leaving aside these details, it is clear that here you had two companies that had taken similar approaches to registering their trademarks. By the time they sought to coexist, it would seem that the battle had by that stage become an irretrievable situation. So we have here a coexistence agreement that does not work.
Common Mistakes and Prevention Strategies
A common pitfall in trademark coexistence agreements is for the parties to ignore the disputed characteristics in their haste to achieve a settlement. The outcome of this is that the agreement itself, once executed, leaves the parties having widely differing beliefs as to the enforceability of the agreement in trademark litigation. As a result, when confronted with a future dispute, one party takes a hard line with enforcement and the other believes that neither party has any right to sue the other because the agreement seeks to put aside just such disputes.
Another pitfall is when an attorney describes a search as "clean" and despite that same attorney’s strong recommendation to enter into a coexistence agreement at a cost of several thousand dollars, the client is asked to do a budget search at a quarter of the cost having no more than a minute review of the report by the client. While it is indeed the responsibility of the attorney to quantify the risks and for the client to accurately review and base budgeting on those risks, it is only fair to say that the trademark attorney should have known better.
Yet one more pitfall occurs when the trademark office in finalizing a trademark, leaves an office action outstanding pending the submission of the executed coexistence agreement. This may happen with or without the consent of the parties. If the agreement is sufficiently detailed, the parties could be legally bound by the agreement, which appears to have been made pursuant to a court order and therefore enforceable in court, even if that is not the intent of the parties. While this may be the case where the agreement requires the parties only to file the fully executed coexistence within a certain time frame, such an agreement is essentially open-ended (e.g., agree to tailor-made conditions for each specific product or service and to meet quarterly and at the end of three years, re-apply). In the latter, where the coexistence is not court ordered, the result in my experience is a hand shake that proves un-enforceable in court.
This serves as a reminder that as one negotiates a coexistence agreement, the parties must make time to understand the associated risks with trademark adoption, filing for registration and enforcement. One should not push too hard for a quick resolution. As with anything legal, haste truly makes waste.
Enforcement & Resolving Disputes
Enforcement of the Agreement and Dispute Resolution
Once agreed-upon, a trademark coexistence agreement must be strictly followed. This is true particularly before the arrival of an impending dispute. Coexisting businesses often find it all too convenient to bend their respective agreed-upon territorial restrictions and product usages when beginning to compete with one another after an agreement is reached. To protect each business, breach of a trademark coexistence agreement is typically treated under various contract or license theories as a violation of intellectual property rights. In that connection, if a business knowingly represents to the world that the use of its mark in certain territory is permissible when it knows that such use is actually in breach of a trademark coexistence agreement, courts are extremely reluctant to protect that representation from discovery by an accused infringer (or even worse, allow such party to profit from it) where the accused infringer has not agreed to abide by its strict terms. A well-constructed trademark coexistence agreement will typically set forth the duty to enforce its provisions. That is, the parties will agree to notify one another if it appears that a third party is using a mark similar to the marks used by the parties in a manner that might cause confusion to consumers in the geographic area where the third party use occurs. In addition, the parties will agree to initiate oppositions or cancellation actions against registration or claims of registration of any third party marks that are similar to the parties’ respective marks in the geographic area covered by the agreement . These types of provisions will serve to show that the agreement is not a device for either party to do nothing while third parties successfully exploit the confusion between its and the other party’s coexisting marks. If the trademark coexistence agreement does not include a mechanism for dispute resolution, the parties will be required to rely on the remedies provided by applicable law. To prevent the fortunes of the parties becoming inextricably bound in protracted litigation, it is therefore common practice to include a provision in a trademark coexistence agreement mandating the parties to undertake Mediation as a first step in resolution of any dispute arising thereunder. The parties will agree to disclose relevant documents that establish infringement prior to submitting to Mediation. The parties will also agree to abide by any ruling by the Mediator, or if default judgment is entered against one party for failure to attend Mediation, the agreement will deem the party in breach and liable for damages. If the Mediation fails, the parties will typically agree to submit disputes to binding arbitration. The key benefit to Mediation and Arbitration in the context of a trademark coexistence agreement is that it does not require governmental adjudication. The parties will avoid the expense (and the embarrassment) of litigating in a public forum and in addition, will avoid the rules of evidence which would exclude relatively anecdotal or informal evidence generally admissible in contract(licensing and assignment) actions. As a result, the parties will tend to settle underlying disputes based upon this criterion rather than engaging in discovery.