In April 1998 a brief form of words appointed Passion for Life Products (“PFL”) exclusive UK distributor of the claimant’s (“MedGen”) Snorenz product until the end of 1998.
Who: MedGen Inc. and Passion for Life Products Ltd
When: August 2000
Where: Chancery Division of the High Court, London
In April 1998 a brief form of words appointed Passion for Life Products ("PFL") exclusive UK distributor of the claimant’s ("MedGen") Snorenz product until the end of 1998. The contract said little else. In August 1998 PFL did two key things. It applied to register Snorenz as a UK and Community trade mark. This was done in PFL’s name and without telling MedGen. Secondly it arranged with Medgen to change the Snorenz packaging for the UK market. The new packaging mentioned PFL but made no reference to MedGen. Likewise, such advertising for the product as appeared in the UK referred only to PFL.
By April 1999, the parties had failed to agree terms for a new UK licence and MedGen discovered PFL’s UK and CTM Snorenz trade mark applications. Predictably relations deteriorated after that to a point where in the autumn of 1999 PFL developed its own snore retardant spray and launched it in Snorenz style packaging under the name Snoreeze. In the passing off proceedings this triggered, the crucial question for the court was whether to uphold PFL’s argument that it was PFL not MedGen that owned all the goodwill in the business done in Snorenz in the UK. If it did, MedGen’s case would collapse, and that is exactly what happened, MedGen losing all UK rights in Snorenz at a stroke. Persuasive factors for the Judge were the absence of any business done by MedGen in the UK, the absence of any reference to MedGen in Snorenz packaging or advertising in the UK from August 1998 onwards and awareness in the trade and general buying public of only PFL as the source of the product in the UK.
Why this matters:
MedGen may well appeal this judgment, but for the moment this unhappy outcome for the US medical product giant underlines the dangers of two line distribution/selling licences and the absence of any rule in English law that the goodwill generated by trading activities of either a wholly owned subsidiary or an exclusive distributor belongs automatically to the parent or, in the case of a distribution licence, to the manufacturer. Also noteworthy in the case are the relatively short period of trading activity under the name in the UK and the modest advertising spend (£22000 in 1998 and £13000 in 1999) and sales (just over 200,000 from 1998 to 1999). It is crucial, therefore, that brand owners appointing distributors or agents in the UK to conduct any trading activity around a brand, however limited, ensure without delay that a contract is in place stating clearly that all goodwill generated by the agent’s activity in relation to the brand is held on trust for the brand owner. Clear provisions should also be included dealing with trade mark registration applications!