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The possibility of concluding a commercial concession agreement without a trademark

Dec. 15, 2018

When our clients address to us with an intention to draft a franchise agreement, there are
very frequent cases when a potential franchisor has a successful and “widely promoted” business
model, however, he either does not have a registered trademark at all, or he has only filed an
application, when there is still a long period of time before obtaining legal protection.
Is it worth it in such a situation to abandon the franchise model before registering the
trademark or is it possible to provide for other possible options for contractual cooperation?
According to the legislation, namely Article 1027 of the Civil Code of the Russian
Federation, under a franchise agreement, one party (the right holder) is obliged to grant to the
other party (the user) for remuneration, for a term or without indicating a term, the right to use in
the user's business activity the complex of the exclusive rights belonging to the right holder,
including the right to the trademark and servicing mark, as well as the rights to other subject
matters of the exclusive rights stipulated by the agreement, in particular to the commercial
designation and the production secret (know-how).
Thus, a mandatory condition for concluding a franchise agreement in the context of Article
1027 of the Civil Code of the Russian Federation is the fact that the right holder (franchisor) has
the right to the trademark (service mark) registered in the established manner.
At the same time, it is obvious that, on average, the registration of a trademark is a long
procedure, which can take up to 18 months, therefore, sometimes, it is not possible to wait for
the end of registration and to formalize the relationship of the parties in a “classic” form.
Therefore, it is necessary to seek other legal solutions of the issue of granting the right to use.
Under the franchise agreement, it is also possible to use the commercial designation,
business reputation and commercial experience of the right holder in the scope determined by the
parties.
Since the relations on the use of the intellectual property subject matters being transferred
are the licensed ones by their nature, the regulations on the licensing agreement contained in Part
IV of the Civil Code of the Russian Federation shall be applied to a franchise agreement.
The mandatory form of the agreement is a written one. Failure to comply with the written
form shall entail the invalidity of the agreement. In addition, granting the right to use the
complex of the exclusive rights belonging to the right holder under a franchise agreement is
subject to the state registration with Rospatent. In case of non compliance with this requirement,
granting the right to use shall be deemed to have failed to take place.
In this article we will not deal with the issues of invalidity of the agreement in the absence
of the registration, in full, or in part, if its subject involves a trademark, and the extensive judicial
practice on considering this aspect, but we shall consider the options for other correct legal
mechanisms, when the agreement involves a simple written form and it does not require the
registration.
One of the possible options for the implementation of cooperation is the work under an
agreement, when its subject involves not a trademark, but a commercial designation, which also
underlies the filed application for a trademark. This agreement, due to the fact that its subject
does not involve a trademark, will be a license agreement granting the right to use with respect to
a commercial designation, the commercial information, know-how, copyright subject matters,
etc., this legal mechanism will provide a possibility to cooperate before obtaining legal
protection with a possibility of charging license payments. Further, when the trademark is

registered, the minor adjustments to the agreement will allow to file smoothly grating the right to
use it for the registration.
Also, the cooperation of the parties during this period is possible under a preliminary
agreement, when the parties determine all essential terms of the main agreement and agree that
during the period of the absence of the trademark, the relationship will be governed by the
preliminary agreement made in a simple written form.
Article 421 of the Civil Code of the Russian Federation makes it possible to implement the
cooperation within the framework of a mixed agreement. For example, it may be a distribution
agreement under which the Client/Purchaser obtains a product from the Supplier/Right Holder
with the right to use a commercial designation, advertising materials, etc., when it is further
introduced into civil law transactions.
This can be agreements for the provision of consulting services, when the Right
Holder/Contractor tells the User/Customer how the business scheme, business processes,
marketing, advertising in this field are arranged and transfers to the User/Customer the standards
of service, product presentation and so on and so forth.
However, it is not possible to recommend mixed agreements with respect to, among other
things, intellectual property, without a thorough analysis of the situation, while otherwise the
rights of the franchisor may turn out to be completely unprotected.
Thus, the company that has a working and successful business model and the brand, which
the consumers associate with this business model, and the buyer, who is ready to invest in this
business and obtain a franchise are not limited to the need to conclude a franchise agreement, but
they will be able to find different convenient and correct, from the point of view of the legal
rationale, scheme of their further successful cooperation.

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Author of article

Natalya Nazarova

Natalya Nazarova

Agreement’s Lawyer