TERRITORIAL CONTRACT RESTRICTIONS

IVAN HOFFMAN, B.A., J.D.


        Here is the situation: you are a rights owner (“Owner”) and are entering into an agreement (“The Agreement”) for the exploitation in another territory by another party (“Licensee”) of some or all of the rights you own.  What are some of the issues that are presented by what might otherwise seem like a simple issue?

        The “you” in this article can be you as a publisher, trademark owner, web site owner, web site designer or other form of rights owner.  The rights involved may include rights to a book or other writing, a trademark (although you should read “Naked Licensing of Trademarks”), artwork, graphics or other materials on a web site and so on.

Do You Even Own the Rights?

        Initially, the concept of being a rights owner entails some preliminary discussion.  If you are not the sole and exclusive creator of the work and instead have acquired some or all of the rights in the work from that creator, then of course you must actually own the respective rights before you can enter into The Agreement to have the Licensee use and exploit those rights.  This may seem self-evident but often parties believe they own rights but in fact do not.  This is often because there is either no written agreement transferring those rights exclusively to the Owner or the agreement is woefully deficient or vague and uncertain.  Read “Precise Contract Language.”   In the event that there is no sufficient written agreement between the creator and you, then you have a very legally uncertain situation, one that makes effective exploitation of the rights all but impossible.  Read “A Legal Nightmare: The Unwritten License.”

        Thus, you have to examine the written contract you have with the creator to make sure that you in fact own the respective rights, exclusively, including the exclusive rights to market, sell and distribute the work in the territory in question and that you have the express right to transfer and assign your rights to another party.  The latter, underlined provision, is often overlooked and if you do not have that express right, then you may not be able to enter into the transaction.  Read “The Right To Transfer Copyright Licenses.”

        But let’s assume that you have these rights exclusively.

The Territory Defined

        The territory can be either a geographically defined territory or one defined by other factors, such as language.  In the latter instance, the territory can be further geographically defined such as the right to sell and exploit a work in a given geographical region in a given language and thus the grant of rights provisions in The Agreement would define limitation this as well.  So let’s say that you are granting the right to translate a book into Spanish for sale somewhere.  The concept of territory has to be defined in terms of where the translated work can be sold.  If it is to be sold only in Spain, then that must be defined as the “territory.”  But in the European Union, the license must include the right to sell the translated work throughout the EU and thus that factor must be included within the definition of territory.  Thus, if the initial deal is for sale in Spanish in Spain, then it is in fact a deal for sale in Spanish throughout the EU.

        There are additional issues that relate to “territory” in the above context.  Are the rights to sell in Spanish exclusive rights or do you have the right to make other Spanish language deals?  And if the rights to sell the work in Spanish are exclusive, are those rights exclusive only in Spain or throughout the EU?  Spanish is a very important language since there can be many, many different deals negotiated for exploitation in that language.  It can be a deal as above for the EU but it can also in Spanish in Latin America (as defined), in Spanish in the United States, worldwide Spanish and other variations.  Thus the concept of “territory” is very important especially when discussing exploitation in a language spoken in many parts of the world.

        But what if the Licensee wants to sell the book within the geographic and language-territory but to a party who is intending to sell it outside the geographic territory?  In other words, the Licensee can claim that it is in fact selling the book in the language in the territory, although the intent of the parties is to prevent sales outside the territory.  As you can see, merely saying in The Agreement that the Licensee may only sell the book (or in other instances, use the trademark etc.) within the territory is not sufficient and creates the likelihood of confusion at best and litigation at worst.  A contract should always solve more problems than it creates and in this instance, leaving it as indicated (or copying it from a form etc.) is likely to be the source of the problem.  Thus, the agreement must restrict the Licensee from either exercising any rights to sublicense or at least engaging in this sort of situation.

        As indicated, there are similar issues related to licenses for the use of a trademark in regard to specific goods or services within a defined territory as well as the use of other rights in other forms of intellectual property.

        Some agreements may talk about “open market” sales.  This generally refers to a situation in which, although the territory is defined and the rights granted in that territory stated to be exclusive, the Licensee is granted the further right to sell the book, use the trademark etc. non-exclusively in the rest of the world, the so-called open market.  This is a potential legal disaster from the Owner’s standpoint.  Not only does it grant rights for what amounts to no additional fees, but significantly reduces the likelihood that Owner can make other deals in those “open market” territories since there may be a market for only one version of the book, product etc. and if the Licensee is already in the market, the Licensee will likely absorb that market, leaving the Owner without the ability, as a practical matter, to make another deal.  Indeed, the mere fact that the Licensee has non-exclusive rights within that “open market” by definition will prevent the Owner from making any exclusive deals within the same “open market.”

The Role of the Internet

        Now along comes the technology complications presented by the Internet.  It is one thing to restrict sales within a geographic territory in the off line world.  But given that the “territory” online is everywhere, what provisions must be included in The Agreement in this regard?  If the deal involves translation language rights, then The Agreement must indicate whether the Licensee may sell the work in that language online and if so, from what specifically defined web site.  If the deal involves English language rights to a work, then The Agreement must state which party, Owner, Licensee or both, has the right to use the work online.

        If however, the deal involves the use of a trademark on goods or services, then the “territorial” restrictions have to be defined in such as manner as to allow or restrict the Licensee from selling the goods or services via the Internet in ways the parties negotiate.  As part of The Agreement, it should specifically cover the right or the lack of the right on the part of the Licensee to use a domain name that is or includes or is confusingly similar to the trademark of the Owner.  There are many cases involving claims by licensees, affiliates and related parties as to the right to register and use a domain name that includes a trademark.  Read “Affiliate’s Rights to Domain Names.”

Conclusion

        Clearly the above represent only a small sample of the “territorial” issues presented by any sort of license or other agreement.  This article is certainly not intended to be exhaustive of all of the said issues or indeed of the many other issues presented by any sort of license or other agreement.  The point however is that what may seem self-evident is in fact and in law, not self-evident at all.  Any party, whether Owner or Licensee, contemplating getting into any form of such transaction should always be represented by an attorney experienced in these areas of the law.

        Trying to save money by “doing-it-yourself” can turn out to be quite expensive if things go wrong.  Read “The Do It Yourself Publishing Lawyer.”

© 2003 Ivan Hoffman.  All Rights Reserved.

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This article is not intended as legal advice and is not legal advice.  This article is intended to provide only general, non-specific legal information.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on United States law.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship.

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No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author.

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