Scarica CONTRACT LAW (INGLESE) e più Appunti in PDF di Diritto dei contratti solo su Docsity!
CONTRACT LAW, GLOBALIZATION AND DIGITAL MARKETS
LEZIONE UNO (4 FEBBRAIO 2021)
Fairness and efficiency 9/10/12 mid-term test How to expand marked position while focusing adequate resources on research and product quality? What is the winning formula in the world of digital economy? What’s the future for traditional stores in this “e-commerce” stores era? Digital economy is for sure the future, is an important development, but social interactions are important, so it is difficult to imagine in the future a completely digitalized economy. People need to have a contact with the goods, need to touch them, to see them, to try them on (talking about clothing stores). we will see both channels in the future “time-saving” experience from digital economy, but also social time-saving” experience from digital economy, but also social interactions given by the real stores. The problem was very simple how to expand the market without having the money to do so? It is impossible to improve always doing the same things, how can we go over a dramatic period? We need to consider some pioneers:
- 1955: Ray Kroc founded McDonald’s, it’s a model.
- KFC: Colonel Sanders creation of a new network (4032 KFC locations in USA) KFC: Colonel Sanders is the pioneer of franchising. In 1939 experimented with a new type of fried chicken preparation, in 1963 the KFC chain has over 600 franchised restaurants in the USA and Canada. Efficiency, Homogeneity of the distribution networks are needed. We need to support INNOVATION (new techniques: marketing, IT etc.) new contractual typologies overcoming the rigid contrast between traditional distribution models. Two models of distribution:
- DIRECT DISTRIBUTION MODEL : the distribution directly manages both the design phase and the marketing phase, the distribution of the goods on the market. The same company manufactures and sales.
- PROS: are of course Homogeneity of the philosophy of the brand and of the sale network, strong control of both manufacturing and the distribution + maximizing sales.
- CONS: a lot of investments, it is very expensive (stores, hiring people, marketing investments) + assumption of the risks. (ex. TESLA is an example of direct distribution; the same is ZARA). IT IS A RETAILING MODEL. Typical case is INDITEX (owner of Zara).
- INDIRECT DISTRIBUTION MODEL : there is a distinction between the phase of design and manufacturing (manufacturer) and the phase of distribution (independent businesses: distributors, franchisees etc.). The company focuses on the designing and manufacturing process. They delegate the distribution phase to an independent player (the distributor takes the risks). The manufacturer sells the products to independent businesses.
- PROS: the manufacturer’s resources are concentrated on the first phase (the productive phase): focus on products and their quality QUALITY improvement + strong specialization.
- CONS: no identity on the market, delegated to independent players (not connected). No direct control on the phase of selling the product to the consumers (so no control on the phase of
distribution of his products/services), each seller is independent, the distribution is carried out by independent businesses (individual skills are important since the level of efficiency of distribution network basically depends on individual skills od resellers. Each seller is focused on his own profit, no common strategy, no common path, no stable basis brand owner has no control over their activities). Lower efficiency of distribution and no homogeneity in distribution chain. RETAILER : direct sale of products or services to consumers (retail sales) carries out retailing activities. WHOLESALE : the opposite of retailing. It’s a business-to-business model: sales made by one entrepreneur to another entrepreneur. How to overcome those two models of distribution (direct and indirect distribution)? Towards a new model of distribution, in order to overcome the rigid contrast between direct and indirect distribution a new philosophy of distribution New model: INTEGRATED VERTICAL DISTRIBUTION still the model of reference of the modern economy. What does it mean?
- Integration : creation, a close relationship between the brand holder and the retailer. Formal control of the brand owner on the distribution phase. Creation, through the contract, of relationships of vertical integration between businesses (manufacturer/retailer).
- Vertical : the two players operate at two different level of the market no competition between them since they play at different levels of the production or distribution chain (vertical relationship). They don’t play in the same market, so they are not competitors. No partnership, they remain different players.
- Cooperation : maximizing sales as common objective for the parties. Control of the brand owner even on the promotion, distribution and sale of the product. Even in this scenario they are and remain INDIPENDENT entities. Common objective maximizing the sale on the market the more for the distributor is the more for the manufacturer. Circular relationship, achieving goals that are common ( maximizing sales ; maximizing profits ; strengthening of the brand ) Ex. Fashion brands, underwear, parfums models of integrated vertical distribution. Distribution contracts don’t regulate single sales of goods or services, they create and govern a durable relationship between the parties DURABLE RELATIONSHIP. The new model of distribution summarizes the merits of the two traditional models:
- We have money-saving.
- The manufacturer agrees to entrust the marketing of the products to an independent entrepreneur.
- Costs and risks related to distribution are borne by distributors.
- Stronger cooperation even after the delivery and the payment of the goods.
- Through the contract the manufacturer reserves a marked power of control and interference in the distribution phase.
- At the basis of all of these things there is the contract.
- We capitalize the benefits of the direct model, without having the negative effects. Totally different from the “time-saving” experience from digital economy, but also social traditional sale”.
Two main factors of selective distribution:
- Limitation of the numbers of authorized distributors (it can generate a selection of distributors) high quality standards for sale and/or after-sale phase. This could rase problems with anti-trust law. This kind of agreements do not produce a direct limit to the number of retailer, but only a qualitative selection.
- Restriction to resale possibilities ex. restrictions on online sales. We face with the creation of a “time-saving” experience from digital economy, but also social closed” network of distributors, selected by manufacturer on the basis of defined requirements. Selective distribution systems can have restrictive effects on competition: it puts one brand against another brand (ex. Apple vs. Microsoft) infra-brand competition. Ex. Luxury goods, needing of a specific protection of the image of the brand. The limitation is destined to protect high standards qualities for consumers. 3 criteria must be fulfilled:
- NATURE OF THE PRODUCT: which makes quantitative selection necessary (ex. luxury or technological products, and in general products that by their nature, in order to preserve their characteristics and correct use, require the selection of retailers).
- SELECTION OF THE RETAILERS: through objective criteria (non-discrimination).
- CRITERIA MUST GO BEYOND WHAT IS NECESSARY. EXCLUSIVE DISTRIBUTION : one distributor in a given territory. A territorial protection of the distributor, just one authorized distributor in a certain territory. Is different from the selective distribution because in the selective one the number of authorized distributors does not depend on the number of territories but on the specific selection criteria of authorized distributors. Ex. 1 the Firm ALFA appoints an exclusive distributor by continent, so the number of distributors depends on the number of continents this is an example of exclusive distribution (only one distributor per continent). Ex. 2 the Firm BETA decides to create a selective distribution network made up of selected distributors based on qualitative criteria (such as level of qualification of sales personnel, types of after-sale assistance services offered and so on) and pre-established quantities this is an example of selective distribution (distributors chosen by following selected criteria). LEZIONE DUE (5 FEBBRAIO 2021) NEGOTIATION: “time-saving” experience from digital economy, but also social like it or not, you are a negotiator. Negotiation is a fact of life” (R. Fisher). Negotiation is used to create agreements, contracts. Most of the contracts are bad contracts talking about efficiency. Everyday millions of contracts are signed. The more attention is paid to respective positions, the less attention is devoted to meeting a mutual gain solution. Negotiation is a science, is a multidisciplinary science it requires studying and preparation. 1979 : Harvard Negotiation Project special project based on interdisciplinary studies of negotiation. Negotiation is an art and a science according to Harvard studies. They try to better understand negotiation through different lenses such as law, business, psychology, economics, arts etc. this project was created with the purpose of promoting the theory of “time-saving” experience from digital economy, but also social principled negotiation”.
The “time-saving” experience from digital economy, but also social Harvard Program on Negotiation” (PON): dedicated to developing the theory and practice of negotiation and dispute resolution 3 WAYS OF NEGOTIATING:
- Soft negotiation : aims to avoid personal conflicts to reach an amicable resolution (making concessions easily), to reach an agreement. The object is not obtaining a durable agreement, they just want to reach any agreement (it’s better to have a bad agreement rather than having none).
- Hard negotiation : aims at taking extreme positions to impose his/her will the aim is to WIN, obtain my goal (not to lose my position), it usually brings to bad agreements (ex. BREXIT agreements).
- Principled negotiation (studied and developed by the Harvard Law School) : totally changed the prospective, it is an alternative to positional negotiation, it’s a third way between hard and soft negotiation. Focused on the merit of the interest, to deal with issues on their merits. The aim is to achieve a mutual gain solution. This kind of negotiation has an extensive application on a wide range of subjects, such as international conflicts, business negotiations, cases of discrimination, intercultural conflicts, family conflicts. Bargaining over position parties are stuck on their own positions. Typical of hard negotiators, they tend to remain focused on their own positions and interests without trying to understand the other part’s point of view. This method is clearly inefficient, but unfortunately it is also the most common and instinctive approach to negotiation. Bargaining over interests negotiation is based on interests. The dynamics of positional bargaining each part takes a position, they argue their position, they make concessions the result is usually a bad agreement. Positional bargaining can be described as an unwise negotiation, since the parties are bound to their respective initial positions. Bargaining over position is inefficient because it increases the time and cost of reaching an agreement, since the more extreme the position and the smaller the concessions, the more time and efforts it will take. Criteria of assessment of a method of negotiation:
- If negotiation produces a wise agreement
- If the agreement reached is efficient
- If the agreement reached improves (or at least not damages) the relationship between the parties involved You are a good negotiator if your negotiation produces a WISE agreement. If the agreement reached improves the relationship between the party, optimality and agreement’s efficiency are reached. Whenever you can meet the legitimate interests of both parties, we can talk about wise agreement. Wise agreement test:
- If meets the legitimate interests of both parties
- If resolves conflict interests fairly
- If the (durable) relationship between the parties is considered as a value (by taking common interests into account) Principled negotiation: investing time and efforts on durable relationship between the parties is a basic rule of the principled negotiation. Case 1 : the nuclear issue between USA and URSS in 1961. Discussion about control over nuclear weapons. USA started a negotiation for a comprehensive ban on nuclear testing:
The one-text procedure is a great help for two-party negotiations involving a mediator. It is almost essential for large multilateral negotiations. They need to find a way to simplify the process of decision-making without lowing the quality of the outcome. Ex. the Law if the Sea negotiations started making significant progress only when they began using a prototype of the one-text procedure. So, even if the other part is not willing to talk to you directly (or vice versa), a third party can take a draft around. FRANCHISED NETWORKS : born in the USA. It is a contractual model raised during the Second World War, it is a representative example of international circulation contractual models. It is the most important model of integrate vertical distribution. Entitolment of the distributor to use the brand in order to carry out the business all over the world. Under what condition would you be willing to grant the use of your valuable brand to independent entrepreneurs? The SELECTION is fundamental. NETWORK is the keyword whenever we deal with franchising. Is based on a CONTRACT: it is a vis a vis contract. The franchisor grants the franchisee the use of its trademark, the franchisor’s know-how, the franchisor’s business and model and in general Franchisor’s IPRs and the authorization to produce or to sell products or services (commercial franchising) by inserting the franchisee within franchisor’s network. Creation and development of a network worldwide. Two parties: the franchisor and the franchisee They are both independent. Commercial or industrial (typical in the USA for the beverage system, like soft drinks) franchising. CONTRACT : to allow the franchisee to carry out a given activity. In Italy the contract is called “time-saving” experience from digital economy, but also social contratto di affiliazione”. It has an international nature, thanks to its capacity to penetrate. Peculiar feature of franchising network: the aim is to create a uniform external perception of all franchisees as being part of the same franchisor’s stores channel. Mutual gain situation, the franchisor expands its brand all over the word thanks to the franchising network. It’s a very complex model. External image of the network key concept when a franchise network works, consumers are induced to think that they are purchasing goods or services directly from the franchisor. They have common elements, they want to create an external image. Destined to the creation of chains and networks. Distribution franchising: distribution of goods and services – ex. Fashion, luxury, sporting goods, food, hotels (also technology today, it’s a recent application). Ex. Chains of hotels, great example of franchising model. Very frequent in USA (for instance for beverage and soft drinks). Goods : clothing; cosmetics; luxury; sporting goods Services : hotels; travel agencies; real estate agencies; internet services; beauty salons etc. Very wide application of this model all over the work.
Industrial franchising : where the manufacturer (franchisor) grants the franchisee the right to use its trademarks and/or patents and know-how for the production of goods. McDonald’s : great example of franchising, it continues to be recognized as a premier franchising company around the world. More than 80% of McDonald’s restaurants all over the world are owned and operated by franchisees. We can see an increasing role of franchising in the food and drink sector (fast food, bars etc.), for ex. Burger chains. Franchising in Italy : its an increasing business, about 52,000 stores and 1 thousand brands/companies. Franchise is governed by the Italian law (129/2004) was introduced in Italy as an atypical (innominate contract). This is an example of “time-saving” experience from digital economy, but also social commercial or distributive franchising” based on the marketing of goods and services (not on manufacturing). Franchise is governed by the Italian law 129/2004 : Contract between the parts contracting parties are businesses financially and legally independent purpose of marketing certain goods or services in the country. FRANCHISING : granting of the rights of using franchisor’s intellectual property rights in relation to its trademarks, commercial names, trade names, utility models, designs copyright, know-how. Patents. Technical assistance or consultancy. Payment of considerations is required (royalty, entry fee). Purpose of placing the franchisee within the franchising system. Know-how : is an immaterial heritage of the company formed by the complex of knowledge skills, experiences and pieces of information collected by the years. A package of non-patented practical information collected over the years by the company. Know-how must be secret, substantial and identified (not generally known). We need to verify that those specific features do exist.
- Secret : not generally known and available or easily accessible
- Substantial : significant and useful to the buyer for the use, sale or resale of the contract goods or services
- Identified : must be described in a sufficiently comprehensive manner, in order to make possible to verify that it fulfills the criteria of secrecy and substantiality. Only if those features are achieved, we have a genuine know-how. The absence of a valid know-how having the requisites above makes null and void the agreement. Formal agreement (introduced by the Italian norm): franchising must be in writing under penalty of nullity. No oral agreements anymore, must be concluded in writing. Franchisee protection: transparency of the contract, protection of the party that is supposed to be the weak one. It is important to provide the franchisee with complete information , before the sign of the contract (pre- contractual disclosure) a set of info must be given to the franchisee at least 30 days prior the contract (awareness of the significance and the implications of the contract), a copy of the agreement must be delivered to the prospective franchisee. What kind of info?
- Info on the franchisor (ex. copies of the financial statements for the last 3 years)
- Specification on the trademarks used
- Description of the features carried out by the network Pre-contractual disclosure (information to be given the franchisee) :
- Starbucks : almost all of its stores are directly owned by the Company. Starbucks officially declares they don’t franchise their stores in order to sustain the project of international expansion, it recently started to enter into license agreements with domestic and foreign partners (ex. with Marriot): “time-saving” experience from digital economy, but also social Starbucks Licensed Stores allow you to offer customers more than the great coffee and handcrafted beverages they love. From custom store design to robust ongoing support, our Licensed Stores allow you to immerse every customer in the full coffeehouse experience they cherish and seek out”. NEGOTIATION (II) Case 2 : the dispute between the Iraq and oil companies after the fall of Saddam Hussein. Dispute between farmers in Iraq and a very important oil company in USA. USA wanted the farmers to leave the territory. Us company requested the intervention of the police in order to stop the protests of the farmers and to be sure that the project wouldn’t have stopped due to the farmers (that threatened not to leave the land). Us company wanted the land free from the farmers in time in order to respect the schedule time. The farmers didn’t want to lose the outcome of their work on the land and they didn’t want to remain without a job. Hard situation: both parties have a legitimate interest. The police were ready to enter into action in order to avoid that the farmers block the project, when a police officer had an idea asked two questions:
- how long is the time you need before starting the production, the answer was 3 YEARS.
- Then another question: during those 3 years what are the activities planned on the land? The answer was mapping and checking the underground. An agreement has been reached:
- Farmers were allowed to harvest their crops (ready in 6 months).
- Oil companies were not impeded to make their preliminary activities.
- Farmers leaved the land after the harvest and most of them were hired by the oil company. Thanks to the information given by the official’s questions, the farmers had their harvest, and the oil companies had the land in time. They created the elements for a future positive relationship. Most of the farmers were hired by the Us company and get a job, they obtained a long-term job (typical example of MUTUAL GAIN SOLUTION) the information was key in this dispute , without the information given by the police officer, maybe no agreement would have been reached. Thanks to the information you know the interests of the other part. This case in fundamental to understand that:
- To achieve a mutual gain solution, each party must understand the other party’s objectives
- A phase of disclosure of reciprocal interests is required to this end
- Each party must put the other party in condition to put its objectives on the table of negotiation Information is fundamental, information and communication. Communicate in order to obtain certain information. The more information you have, the more you can communicate. In this case, only after the intervention of the police officer, he obtained a certain information. That information was fundamental to solve the dispute, to reach a wise agreement of compatible interests. This case is the essence of the principled negotiation, based on the research of a mutual gain solution through three elements:
- Disclosure: in order to achieve a mutual gain solution, you have to invest on relationship since the negotiation phase, in order to obtain a mutual disclosure of information.
- Relationship
- Interests: negotiation on interests (not on position) to reach a mutual gain solution, a win-win solution) Thanks to those elements, you can reach a mutual gain solution. In order to achieve a mutual gain solution, each party must understand the other party’s objectives. The most important phase is the DISCLOSURE PHASE : in order to understand reciprocal interests, to properly understand the other party’s interests. Each part must put the other party in condition to put its objectives on the table. This kind of negotiation is the opposite of the bargaining position. Mutual gain: focus on the parties’ interests, to try to construe together a real win-win solution. NEGOTIATION ON INTERESTS + MUTUAL GAIN = AGREEMENT Bargaining over position is inefficient small concessions, a lot of time to reach an agreement which lasts to be bad and non-profitable. Does not consider the merit and the interests (opposite of the principled negotiation which is based on the interests of the parties involved). 4 basic principles of principled negotiation :
- You have to separate people from the problem. The other part is not an enemy. You need to find a solution for a common problem. If you see the other part as an enemy, you will never find a compatible solution for both the parties. It is important to ask questions.
- You need to focus on interests, not on position. You can’t be linked only to the final goal. In order to find a compatible solution, you need to focus on interests.
- Invent multiple opinions to achieve mutual gains. Once you start to consider the other as a college and not as an enemy, it is possible to reach a wise and profitable agreement. If you know your interests and the other party’s interests, you can built proposes able to match both your and the other part’s interests. You can propose win-win solutions.
- The result must be based on some objective standard. 3 stages of an advanced negotiation strategy :
- The study stage : analysis stage, to diagnose the situation, to gather information, to organize. Studying is fundamental in order to reach a solution, you need to study very hard and with a very professional approach.
- Planning stage : when you reach a complete comprehension of the case than you can have further discussions on the 4 elements above.
- Discussion stage : disclosure, interests, solutions, agreement. Being transparent is very important Information asymmetries: there is always something that you know that the other part doesn’t and vice versa. Negotiation steps:
- LEARN: gathering info from the other party is key (see the Iraq farmers case). Active listening, be transparent (to obtain transparency).
- INFLUENCE: to influence the other party in other to get what you want.
- ADAPT: after gathering info, a good negotiator must be rapidly updating its strategy on. Capability of interacting with counterparts, to convince them of the value of the offer.
How to compare a bad BATNA or a good one? It is based on the final outcome and it depends on the comparison between the economic values. If profits increase, it means that the company has a good BATNA, if not, then it has a bad one. A strong BATNA : a strong alternative to a negotiated agreement, is a prerequisite for credible threat of leaving the table of negotiation, as negotiation tactic (a good BATNA strengthens bargaining power). Whenever your BATNA is better than what you have on the table of negotiation, you have to leave le negotiation. According to Harvard PON, the method of principled negotiation is based on 5 key points (rather than only 4 points): the fifth rule that needs to be considered is: DEVELOP YOUR BATNA (your walkaway is there is no deal). Your B plan if the negotiation you are following fails. If you start losing money, then leave the table. The 5 key points:
- Separate the people from the problem
- Focus on interest, not on position
- Invest multiple options looking for mutual gains
- The result must be based on objective criteria
- DEVELOP YOUR BATNA 4 steps to properly assess a BATNA: - List your alternatives: what are your no deal options? - Evaluate your alternatives - Establish your BATNA: what’s the course of action you should pursue in the event your current negotiation fails? - Determine your RESERVATION VALUE You need to establish the course of action you should pursue in the event your current negotiation fails. Take into consideration the economic value and the outcome. Evaluate your alternative: the first alternative is the best alternative. Determine your reservation value: it is the value of your best alternative of the negotiated deal. It is the economic value that marks the moment in which you have to leave the table of negotiation. Bad BATNA: brings you to leave the table when is the moment to stay in, is a “time-saving” experience from digital economy, but also social false friend”. LEZIONE 5 CONTRACT LAW Licensing: just like franchising agreement, two parties that are both undertaking. Key element of licensing is the BRAND of the licensor. In franchising model, the network is core, while license is not aimed at creating and developing a network. LUXOTTICA: worldwide leader in licensing (eyewear), huge portfolio of licensees. Es. Agreement signed by Luxottica and Armani Group : for the manufacturing and the distribution of eyewear. It is an EXCLUSIVE license, it’s a key element. There is a wide scope of the contract, in this case we can see both elements: manufacturing and distributing worldwide, all activities related to design, manufactory and distribution: it is an exclusive worldwide license. The two parties announce that they signed an exclusive license agreement for the design, manufacturing and worldwide distribution of sun and prescription eyewear under the Giorgio Armani exchange brand.
This is a durable relationship, is a long-term agreement: 10 years license agreement (from January 2013) we can see the win-win relationship, a strong growth talking about sales (Armani is expected to generate strong growth, with annual sales targeted to exceed 200 million annually), revenues and profits for both companies, for both the licensor and the licensee. The integrated vertical model is perfectly identified in this case. Luxottica and Chanel : license signed by Lux and Chanel, the scope of the business is designing, manufacturing and distributing eyewear under the Chanel brand. In this case we are talking about a renewal of an existing exclusive license agreement for the development, production and worldwide distribution. Luxottica Group: is a leader in the design, manufacture and distribution of eyewear. It has a huge portfolio that includes property brands such as Ray-Ban, Oakley, Persol ect. And a huge portfolio of licensed brands including: Armani, Chanel, Bulgari, Prada etc. We are talking about luxury brands, all very exclusive. Specific items, sunglasses and prescription eyewear. Those brands do sale other items, not only sunglasses, also bags, shoes and so on. In this case the parties are both manufactures. Both parties do manufacture high quality goods, the goods belong to different fields of activities: in one case Luxottica has sunglasses and eyewear, on the other hand the other brands manufacture not only sunglasses bat also bags, shoes, clothes etc. Is different the typology of the parties involved. It’s a win-win formula there is a chance for very important international brands to expand their opportunity of obtaining revenues from the valuable brand they own in different fields of activity. By delegating the licensee, by authorizing the licensee to use their trademark (that are very valuable) to enter into new markets and fields of activities in order to capitalize, even if we are talking about activities that are fare from the core business of the international brand. At the same time, Luxottica can benefit from the importance of the trademark licensed, by profiting from the valuable trademarks of the licensor. This is for sure a win-win formula because it’s able to extend the pie for both parties, the licensor and the licensee. The licensor would have to make huge investments in order to enter the new market of eyewear, at the same time, the licensee can manage its own portfolio of specialized items by benefitting from the very valuable and reputable trademark of the licensor in order to expand the market and the offer, in order to take control of the field of the business (Luxottica manages most of the brands in the field of eyewear and sunglasses). License allows the brand owner to capitalize the value and the attractive capacity of their own brand for fields of activities that are far from the core business of the brand owner. This happens by enlarging the offer, items in different sectors. The win-win formula is underlined by :
- The fact that the licensee benefits from the value of the licensed trademark
- The brand owner benefits from the reputable quality of the licensee, and benefits by entering into new fields of business
- Investments in skills and expertise An object that is medical prescribed becomes a luxury good, this is the formula at the basis. The huge impact of this model on the market:
- 9 billion is the annual turnover of Luxottica Group
LICENSING vs. FRANCHISING Similar aspects:
- Right to use the licensor’s/franchisor’s trademark, trade name, patents or other intellectual property rights (IPRs).
- Licensor/franchisor remains the owner of its IPRs, granting to the licensee/franchisee only the right to use (by paying considerations).
- Payment of royalties for the use of licensor’s/franchisor’s IPRs Differences:
- In FRANCHISING we find a more complex function of franchising agreements, which aims at placing the franchisee within the franchisor’s network or franchising system (by the creation of a retail network). Entailing the creation and the develop of a distributive network which is identified by a specific and unique external image. The trademark becomes the external distinctive element.
- In LICENSING there is not a direct objective of creating a network, when Armani enters in the license worldwide agreement with Luxottica, this is not intended to create a network or stores under the trademark Armani, the purpose of the companies involved is that of expanding their business by allowing Luxottica to manufacture the eyewear line under the trademark Armani and to delegate Luxottica the distribution of Armani eyewear (not the creation of networks or stores). Distinction between LICENSING and MERCHANDISING: merchandising is similar to licensing. Merchandising is an activity that is becoming key for sport and entertainment companies. It is a contract through which the owner of a trademark, which has become widely known to the public in a certain sector, grants to the other party, undern the payment of a consideration, the right to use that trademark to mark products related to sectors which are very different as compared to those in relation to which the trademark has become known. For applications that are completely far from the core business of the brand owner, the typical case is that of the soccer teams the wide application of the sport teams’ trademark in gadgets that are very far from the activity. Ex. Manchester United soccer team, huge revenue they monetize their global grand via three revenue streams: sponsorship; retail; merchandising; apparel and product licensing; mobile and content. To widespread the capacity of the brand, wide application of the trademark. Distinction between:
- Distributive license: the contract is for the purpose of distributing the licensor’s products in a certain territory. Not for creating an organized network, but to enter into a given market.
- Productive license: the use of info, know-how in order to manufacture goods. In this case the licensing agreement is signed for the manufacturing of certain products. Is very important to specify the scope of the contract , this is key in any license agreement. It is very important to specify what are the trademark covered by the license (the license may include all the licensor’s products, or just some of them). Defining the purpose of the use, the ultimate scope covered by the license contractual definition of the scope of license.
If you don’t pay attention to these elements, licensing becomes a losing game for the licensor. Exclusive license : the licensor undertakes not to grant other licenses for identical products or businesses in the contractual territory of the licensee. Non-exclusive license : the licensor is allowed to appoint other licensees for identical products or businesses within the contractual territory of the licensee. Art. 23 2nd par. Italia Industrial Property Rights Code
- A trademark may be licensed, also on a non-exclusive basis, for all or part of the goods or services for which it was registered and for all or part of the territory of the Country, provided that, in the case of a non-exclusive license, the licensee expressly agrees to use the trademark to identify goods or services identical with the corresponding goods and services put on the market or provided in the territory of the Country with the same trademark by the owner or by other licensees. Not all the licenses are exclusive, we can also find non-exclusive ones. In general, the legal systems are not so confident with non-exclusive licenses, legal systems may introduce limits or strict requirements on entering into non-exclusive license. The reason is always the protection of consumers, the fact of having more than one licensee operating in a same territory, could be negative. For ex. having different manufactures of the same good, of a same product in the same territory, whenever we have two or more licensees, manufacturing the same product, we may have different level of quality of products that are identical (at least under an external point of view). And this is bad, because the quality needs to be the same, same level of quality in order to protect consumers. The purpose is protecting consumers , who are led to believe that identical products bearing the same trademark offered in the same territory are of the same quality. When we face with the case of exclusive license, very likely the licensor in order to protect its-self requests a minimum turnover level. Granting an exclusive license means having just one licensee in the territory, the licensor is exposed to the risk of losing share of the market. The contractual protection in order to prevent this risk is that the licensee must grant the licensor a minimum level of turnover from the license activity. The consequence of not fulfilling the terms (minimum level of turnover) of the license agreement is the termination of the contract by the licensor model of minimum sales target clause , the licensee undertakes to achieve for each season the minimum seasonal sale targets per collection. In the event the licensee should fail to achieve the minimum sale target for two consecutive seasons, the licensor will be entitled to terminate the agreement. License agreement played a fundamental role for Italian trademarks worldwide and has shown it-self to be a flexible tool for the purpose of the internationalization of domestic business (particularly in the fashion and luxury sectors, made in Italy). Licensing:
- Is particularly suitable for maximizing the power of attraction of trademark
- Allows the use of the trademarks in sectors of activity other than those of the trademark owner (ex. use of fashion brand in the perfume, bags, watches etc.)
- Allows the economic exploitation of trademarks patents and other IPRs
- Enables the owner of the trademark to maintain strict control over the use of the license and the qualitative standards of the products
No boundaries, no limits upon the circulation od goods between countries in EU. Parallel imports are based on the fact that a certain product is placed in different markets (i.e. different countries) at different prices. The same car is sold in different countries at different prices for ex. It is the application of free circulation of goods. The parallel importer presumably incurs lower costs than the exclusive distributor or authorized resellers (frequent application in automotive). THE EBAY-L’OREAL CASE Preliminary information:
- L’OREAL is French based company, a manufacturer and supplier of perfumes, cosmetics and hair- care products
- L’Oreal operates a closed selective distribution network in which authorized distributors are restrained from supplying products to other distributors. Strong power of limitation and control based on a qualitative selective distribution model, only selected and authorized distributors are entitled to distribute l’Oreal products.
- EBAY operates a digital marketplace that allows private sellers to list goods they wish to sell, either through auction or at a fixed price. It is an internet service provider. Very wide area of application and activity.
- The private sellers have registered for that purpose with eBay and have created a seller’s account with it. It’s an e-commerce for goods or services through the platform.
- eBay enables prospective buyers to bud for items offered by sellers.
- eBay charges a percentage fee on completed transactions. It gets commissions from every transaction carried out through its website.
- By means of a system known as “time-saving” experience from digital economy, but also social Buy It Now ”, sellers can also set up online shops (a virtual shop) on eBay sites.
- Sellers and buyers must accept eBay’s online-market user agreement: one of the terms is the prohibition on selling counterfeited item and on infringing trademarks. They suspend immediately the sale of such products. The seller of counterfeited items is not eBay, but third sellers. Is it possible for the brand owner to suit directly eBay? L’Oreal sent eBay a letter expressing its concerns about the widespread incidence of transactions infringing its intellectual property rights on eBay’s European websites , it requested an immediate intervention. L’Oreal brought actions against various Member States, including an action before the UK High Court of Justice (England and Wales). The action was based on several l’Oreal’s complaints: eBay and the individual defendants (the private sellers) are liable for sales of 17 items made by those individuals through the web site www.ebay.co.uk. It was not a simple violation of the trademark, on the platform were sold products that were: - Either goods that were not intended for sale (such as tester products, not to be sold but only to show the features of the products, to promote the sales of the product.) - Or goods bearing l’Oreal trademarks intended for sale in North America and not in the European Economic Area. Were sold in Europe products that should have been sold only in North America. Sales of products destined to a specific market.
- Some of the items were sold without packaging. Moreover, the action was built on the fact that according to l’Oreal’s lawyers eBay was responsible for the infringement of l’Oreal’s trademark, due to the fact that products not intended to be sold were freely offered to consumers through the eBay platform. According to l’oreal appeal eBay was directly responsible for the infringement. Because: - Trademarks are displayed on eBay’s website without l’Oreal consent. - Sponsored links triggered by the use of keywords corresponding to the trademarks are displayed on the websites of search engines, such as Google when an internet user entered the words “time-saving” experience from digital economy, but also social Shu Uemura” (l’Oreal’s international trademark “time-saving” experience from digital economy, but also social Shu Uemura”) searching it on Google, the following eBay advertisement was displayed in the “time-saving” experience from digital economy, but also social sponsored links”: Shu Uemura Great deals on Shu Uemura Shop on eBay and Save! Third element of the action brought: l’Oreal has claimed that, even if eBay was not liable for the infringements of its trademark rights , it should be granted an injunction against eBay and eBay should immediately stop any sale of the counterfeited items. THE HIGH COURT OF JUSTICE noted that: - eBay has developed a system that is intended to provide intellectual property owners with assistance in removing infringing listing from the marketplace. - L’Oreal has declined to participate in the above program, contending that the program is unsatisfactory. - eBay applies sanctions such as the temporary (or permanent ) suspension of sellers who have contravened the conditions of use of the online marketplace Is there any matter of exhaustion in this case? The principle of exhaustion cannot be applied in this specific case since eBay altered the image of the brand by selling the item without the packaging + sales of counterfeited products. There is an alteration of the image. About the testers, they are not intended to be sold, but in this case is not a matter of alteration of the image of the brand. So, there is an exception for testers: in this case there is not a first sale, the testers were not sold on the market by the brand owner or with his consent, it is simply an unlawful sale. It is not a matter of exhaustion. LEZIONE 7 (11 MARZO 2021) Contracts for internationalization Distributorship agreement for national and international distribution: typical model of European contract for the distribution of goods and services. It’s an ancient agreement, features typical of vertical distribution. Also called the sale/purchase agreement. DISTRIBUTORSHIP AGREEMENT : the agreement between two undertakings, a manufacturer (a “time-saving” experience from digital economy, but also social supplier”) and a distributor, that undertakes to purchase the manufacturer’s products, undertaking to resell such products in a defined territory, by promoting the sale of the products in the given territory. This model is typically used in the field of automotive.
