When concluding distribution, supply of goods and other trade-related contracts, the parties usually pay a lot of attention to the contract terms and conditions governing the delivery of goods, payment, liability, but often do not include provisions on the protection of intellectual property in the contract, wrongly assuming that the registration of a trademark or design or holding a patent ensures sufficient protection of the intellectual property which they own, or that if it turns out that the purchased goods infringe the intellectual property rights of other persons, the liability will arise only with the manufacturer of the goods. The reality is different, and if your company sells goods purchased from another party, there may be situations where claims for illegal use of intellectual property and damages will be filed against you and not the manufacturer. There are situations where a partner registers a manufacturer’s trademarks or designs in his own name in other countries and it is not easy for the real owner to recover them.

So what provisions are necessary in contracts to protect your intellectual property and avoid damages due to the infringement of intellectual property rights of other parties?

1. The contract shall define what shall be considered intellectual property within the scope of the contract. It is important to make this clear so that the parties to the contract have a common understanding of what is considered intellectual property and what shall be protected. In cases where the contract grants a party the right to use the intellectual property of the other party, it shall be clearly and specifically indicated what entitlement to use intellectual property rights is granted, the scope of the granted rights, the territory where these rights are allowed to be used, and the term for which the rights specified in the contract are granted. In any case, it is recommended to define intellectual property rights more broadly than just registered trademarks, designs or patents.
2. The contract should contain a clear prohibition for a party to register in its own name intellectual property rights belonging to the other party related to goods (trademarks, patents, designs), not limited to a prohibition for a party to register intellectual property rights already registered in the name of the other party. It is important to think not only about the protection of registered trademarks and designs, but also to provide that the other party to the contract cannot register in its own name also such trademarks and designs that are confusingly similar to the registered trademarks and designs, and trademarks that would be an analogue of the party’s trademark in another language, a slogan or other sign not registered as a trademark that is used to advertise goods, a domain name, a social network account the name of which would be directly or indirectly associated with the goods of the other party, etc.
3. It is important to remember that online websites and social network accounts, the names of which are often related to registered or unregistered trademarks, company names, and slogans used by the party are often used for trade and advertising nowadays. Therefore, the contract should also discuss in whose name the domains and social network accounts intended for sales and their promotion will be registered, and agree on their prospects after the termination of cooperation between the parties, so that later the competitor’s goods would not be sold on the website or social network account whose name is the same as or similar to the trademark used by the party and where its goods were sold.
4. It is also important to clearly prohibit the promotion or sale of goods without the consent of the party with changed packaging of the goods, removed or changed trademarks, because such actions may not only damage its reputation, weaken the brand awareness or confuse consumers, but not using the trademark such as it was registered, may result in a request to recognize the trademark as invalid due to non-use. For example, the registration of a trademark registered in Lithuania, as well as a trademark of the European Union, can be cancelled if it has not been used to mark the goods or services for which it was registered for a continuous period of five years. Similar terms are provided in other countries.
5. A partner operating in another country has greater opportunities to notice infringements of intellectual property rights, and the earlier the infringement is noticed and action is taken, the greater is the chance of successfully defending oneself and not incurring significant damages. Therefore, where possible, consider including in the contract the obligation for the partner to monitor whether intellectual property rights are infringed and to inform about infringements of intellectual property rights committed by third parties, and if necessary to cooperate in order to eliminate these infringements.
6. It is important to provide in the contract liability not only for late payment or delivery of goods, but also for infringements of intellectual property rights. Provisions regulating liability not only have a preventive function, but also help to defend one’s rights in the event of an infringement.
7. The current ESG standards encourage the inclusion of contractual terms and conditions related to the non-infringement of third-party intellectual property rights and the use of your intellectual property items only for activities aligned with ESG standards, e.g. not to become a sponsor of an event whose purpose is clearly incompatible with the principles of sustainability.

When purchasing goods from foreign entities, they should be checked for infringement of intellectual property rights of other parties, i.e. whether your seller/supplier is the owner of trademarks, designs, copyrights, patents, and where it is not the owner, whether it has a legal basis to use the intellectual property belonging to other parties, whether the rights granted to it have not expired, or whether there are any legal disputes about them. This is important because claims of intellectual property infringement will be made primarily against the party selling the goods, not the party that manufactured them or sold them to you. A party whose intellectual property rights have been infringed can demand not only the termination of the infringement, the withdrawal of goods from circulation, but also can demand compensation for both material and non-material damages due to the infringement of its intellectual property rights. Therefore, in order to protect yourself, when purchasing goods, it is necessary not only to inquire, but also to include in the contract confirmations and guarantees from the seller/supplier that it is the legal owner or user of intellectual property, does not infringe the rights of third parties, while also including provisions providing for liability and compensation if it turns out that the confirmations and guarantees provided were false and/or the buyer receives claims for infringement of third party intellectual property rights.

Even having well thought out actions for the protection of intellectual property and having included provisions protecting intellectual property in the contract, prior to starting to trade in other countries, you shall take care of protecting your intellectual property in advance by registering trademarks, designs, patents in those countries, and then shall not lose vigilance and always check whether partners do not infringe the terms of the contract, as well as whether there are no other parties trying to take advantage of the success of your product.

It is important to remember that intellectual property has great value and must be protected, and in the event of its infringement, action should be taken without delay to protect it.

For more detailed advice, contact info@trinitijurex.lt.