Key implications on the use of registered trade marks of Licensors in local trade names of Licensees in the Middle East
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In the Middle East, it is a common request from licensees, franchisees and/or distributors ("Licensees") to use the franchisor's/manufacturer's trade mark within their local company name ("Licensor"). This however can cause many issues upon the expiry and/or termination of the agreement between the parties and therefore, it is important to consider whether the use of the Licensor's trade mark in the Licensee's business/company name is permitted.
While trade marks are owned by the Licensor and can be licensed through various commercial arrangements, a trade name is the local legal name of the company, under which it operates its business activities in the UAE. The legal name of a company cannot be shared or used by another entity in the UAE.
UAE Trade Marks Law
Article 2 of Federal Law No. 37 of 1992 on Trade Marks (as amended by Law No. 19 of 2000 and Law No. 8 of 2002) (the "Trade Marks Law") provides a more detailed definition of a trade mark, being "any distinguished form of names, words, signatures, letters, figures, graphics, logos, titles, hallmarks, seals, pictures, patterns, announcements, packs or any other marks or group of marks if they were used or intended to be used either to distinguish goods, products or services from whatever sources or to indicate that certain services, goods or products belong to the owner of the trade mark because of their provision, manufacturing, selection or trading". Similarly to other jurisdictions worldwide, the UAE allows businesses (whether based inside the UAE or otherwise) to register trade marks at the Ministry of Economy. This presents a form of protection to the Licensor in a sense that the trade mark in question is deemed solely owned by them. The registration of a trade mark also ensures that any use of such trade mark by an unauthorized third party constitutes a breach of the Federal Trade Marks Law.
On the other hand, the registration of a trade name in the UAE requires the establishment of a company. One risk to flag in that regard is that a third party (or Licensee) registers a trade name that is identical to a registered trade mark (which is owned by the Licensor).
Potential issues of using trade marks
We have recently encountered a number of issues where Licensees used the franchisors/manufacturers trade mark in their company name leading to a number of difficulties for the international brand/Licensor. In one example, a franchisee sold their F&B outlet as an asset sale, however as they retained the company/trade name (which included the franchisor's trade mark), this has led to the new franchisee having difficulties with the municipality for signage approval due to the competing trade name/trade marks. In another example, a previous distributor, whose distribution agreement had come to an end, had used the Licensor's trade mark in their company name which has now prevented the Licensor from using their own trade mark in their new UAE company name until such time as the distributor has completed their company wind-up processes. Since the termination of the agreement in place will not automatically cancel the Licensee's trade name (unless the Licensee voluntarily cancels or amends it), this scenario often leads to a situation where the Licensor may need to reach a settlement with their previous Licensee to either change their trade name or otherwise wind up their legal entity, both of which may take up to one year to be completed (if not more).
Recommendations for licensees
It is therefore recommended that any request by a licensee to use the licensor's trade mark in their company name is strongly resisted and where necessary enforcement actions/administrative complaints are undertaken where unauthorized third parties are involved. Further clear provisions in any agreement with a licensee should be included to make it clear that the licensee is not permitted to use the trade mark in their trade/company name.
