Written by Steve Sidkin
11 April 00
There are many advantages for a company in appointing an agent or distributor. Correspondingly there are some disadvantages. One that is often overlooked is the possibility that the product being sold may become associated with the name of the distributor or, to a lesser extent, the agent.
This can be a serious matter. In 1998 a US corporation sought to sell a healthcare product under the trade name “Snorenz”. It appointed a UK company to act as its exclusive distributor for the sale of the product in the UK. The distributor rose to the task.
It designed packaging for the product for the UK market. For eighteen months it marketed and sold the product under the name “Snorenz” in the UK market. The packaging bore the distributor’s name. The US supplier’s name did not appear.
Subsequently the parties failed to agree on the terms of a new distributorship agreement and the relationship ended. As a result the distributor developed a product which was similar to that of the US company. It marketed the new product under the name of “Snoreeze” (having previously registered the name as a trade mark at the UK Trade Marks Registry). Its packaging was virtually the same as that which it had used for “Snorenz”.
The US company alleged passing-off. It claimed that it owned the goodwill associated with the name “Snorenz” and the packaging which had been used.
Recently the High Court decided against the US company. The court decided that what was relevant was the fact that marketing and sale of the product had been undertaken by the UK company in its own name. Within the UK market it was known as the source of the product. The facts that the US company had developed and was manufacturing the product were irrelevant.
Accordingly in a distributorship agreement the key is to prevent the goodwill associated with the product shifting to the distributor. If the distributor is to create packaging, the distributorship agreement needs to provide for copyright in the packaging to be owned by the principal.
At the same time the agreement should require the packaging to carry the supplier’s own name. The agreement should also prohibit the distributor from obliterating the supplier’s name on the packaging.
Taking these steps should go some way to assisting a supplier in retaining ownership of the goodwill in the territory where a distributor has been appointed.
This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any member of the Fox Williams’ agentlaw team.(www.agentlaw.co.uk)