First Question:
What is the difference between “Trademark licenses”, “distributorships” and “franchises” under Thailand practice?
Trademark Licenses
Trademark Licenses refer to a grant of rights to use registered trademark (including service mark or collective mark) to other persons, either for all or some of registered products/services. A licensor seeks revenue in the form of royalties while a licensee seeks permission to use the licensed trademark. Typically, Trademark License will limit a licensee to use the licensed trademark for a specific purpose and it also allows a licensor to control how licensee uses the licensed trademark. However, it does not allow a licensor to control the licensee’s overall business operations. Trademark Licenses can take a variety of forms i.e., exclusive, sole or non-exclusive, subject to many kinds of restrictions and limitations, and also for varying lengths of time or for the entire term of the trademark registration and its renewals.
- Governing Law: Trademark Licenses will specifically be governed by Thailand Trademark Act B.E. 2534 (1991), As Amended by Act (No. 3) B.E. 2559 (2016) (Trademark Act)
Distributorships
A distribution agreement generally grants a distributor the right to sell products of trademark owner or supplier in an assigned territory or to a specific consumer base. Distributorships can be excusive or non-exclusive, and the distribution fees would not be considered royalties if they were not paid in return for the right to use trademark or other intellectual properties or industrial know-how. Distributorships may or may not require a distributor, by using the owner’s trademark, to promote and advertise the branded products to potential customers so as to generate sales, and it can be for varying lengths of time.
- Governing Law: Since there is no specific law, Distributorships will basically be governed by the Thailand Civil and Commercial Code (CCC).
Franchises
A franchise is seemed to be a combination of licenses and distributorships. A franchisor grants a right to engage in a business to a franchisee, which includes a right to distribute goods or services, under a marketing plan or marketing program as well as a license to use a trademark or other identity associated with franchisor’s business. In exchange, a franchisee pays some form of fee such as royalty and marketing fees based on a percentage of franchisee’s revenue. Unlike Trademark Licenses and Distributorships, Franchises allows a franchisor to exercise a significant control over the franchisee’s method of operation of its business.
- Governing Law: Thailand does not currently have any specific law on franchises – thus, it generally be governing by both Thailand Trademark Act and CCC.
Next Question:
Whether these THREE —each of which may have an element of trademark use—need to be registered with the DIP?
Section 68 of the Thai Trademark Act clearly states that:
“The owner of a registered trademark may license another person to use the trademark for all or some of the goods for which the trademark is registered.
Trademark license agreements under the first paragraph shall be in writing and registered with the Registrar…”
Failure to do so, such agreement concerning the trademark use will become invalid, according to Section 68 of the Thai Trademark Act and Section 152 of the Civil and Commercial Code, and hence, unenforceable under Thai law.
However, as there is no clear definition of the term “use”, the question often arises as to whether those types of ‘trademark use’ by a distributor in Distributorships and a franchisee in Franchises are governed by Section 68? and, thus, must be registered with a Registrar?
The Supreme Court decision, Bangchak Petroleum Public Company Limited v. Sanpatong SR Petroleum Limited Partnership et al. [Dika case 10207/2553], in 2010 has showed the court’s attempt to draw some guidelines for answering to this question.
“… The Court ruled that even if there was an element of use of the mark BANGCHAK with the products, the mark was in fact used by its owner. The defendants bought products from the plaintiff, and then sold such goods to the public. This was not a case in which the defendants sought to obtain their own supply source, and then used the plaintiff ’s trademark with the supplied products, with the plaintiff ’s authorization.
Therefore, the agreement in this case was not a trademark license agreement that must be formally registered…”
According to this Supreme Court decision [Dika case 10207/2553], if two parties have a transaction wherein one party only acts as a middleman to distribute or sell the other party’s products to consumers, such a transaction is not considered to be use of a trademark, but a ‘Straightforward Distributorship’. Thus, it must not be formally registered under Section 68.
Here are some of the basic guidance for those ‘Straightforward Distributorships’:
- the owner provides the equipment and ready-to-sell products to the distributor; and,
- the distributor is not likely to have control of market activities and cannot produce any advertisements using or mentioning the owner’s trademark, since all these marketing activities were undertaken by the owner.
Unlike Distributorships, Franchises can mostly include terms governing the use and presentation of the brand, to ensure a consistent customer experience. In this regard, if a franchisee can take control of market activities and can produce any advertisements using or mentioning the owner’s trademark on its own decision, this is considerably to be use of a trademark and must be formally registered under Section 68.
For more information, please contact us at mail@weintellectual.com.
The Authors
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Saowaluck Lamlert (APPLE) Managing Partner |
Tatchaporn Natprasertkul Partner |
