Termination of Trade Mark Licences: Lessons from Zaha Hadid Ltd v Zaha Hadid Foundation

We are frequently asked by clients to assist with drafting or interpretation of intellectual property licences. Common questions arise around duration and termination, in particular, how long a licence should last and whether termination for convenience, termination for breach, or both, are appropriate. These questions often become critical where the licensed rights form part of the core identity or goodwill of the business.

These issues can become even more complex where a founder grants a licence to a business or charity they have set up, allowing it to use their name or other personal trade marks. Difficulties often arise if the interests of the individual and the organisation later diverge, particularly where governance or ownership changes over time. Similar problems can also occur in other trade mark licence arrangements, particularly where the terms are unclear or the agreement does not properly address how the licence can be terminated.

A recent Court of Appeal decision in Zaha Hadid Limited v The Zaha Hadid Foundation highlights an important point on the termination of trade mark licences and the difference between agreements of indefinite duration and those which are truly perpetual.

Background

In 2013, the famous architect Dame Zaha Hadid entered into a trade mark licence agreement with Zaha Hadid Limited her architectural firm (the “Company”), granting it the right to use the “ZAHA HADID” name. The Company operated an international architecture practice founded by Dame Zaha. At the time the licence agreement was entered into, the Company was under the sole control of Dame Zaha. The licence therefore reflected arrangements put in place while the licensor and licensee were, in practical terms, aligned.

Separately, Dame Zaha also established The Zaha Hadid Foundation (the “Foundation”), to preserve her work and legacy.

Following Dame Zaha’s death in 2016, ownership of the trade marks transferred to the Foundation, which then became the licensor under the existing licence agreement.

The agreement was a relatively conventional trade mark licence, permitting the Company to use the marks in return for a licence fee set at 6% of the Company’s net income. Payment of the royalty was not conditional on use of the marks by the Company instead, under the terms of the licence, the Company had to pay the royalty for as long as the agreement was in force.

The dispute

Whilst the Company wished to continue using the trade marks, it sought to renegotiate the financial terms of the licence, arguing that the licence fee had become commercially unreasonable. When negotiations failed, the Company contended that it was entitled to terminate the licence on reasonable notice as a matter of contractual interpretation.

The Foundation disagreed, maintaining that the licence was perpetual and could only be terminated by the licensor.

This gave rise to two key issues:

1. Was the Company entitled to terminate the licence on reasonable notice?
2. If not, was the licence an unreasonable restraint of trade and therefore void?

The termination provisions

The licence provided that it would “continue indefinitely, unless terminated earlier in accordance with the terms of this clause 12 [the duration and termination clause]”. Clause 12 expressly allowed the licensor to terminate:

• without cause on 3 months written notice; and
• with immediate effect in certain circumstances, including non-payment, material or repeated breach, or insolvency.

There was no express right in the Agreement for the Company to terminate. The question was therefore whether there was an implied right to terminate and if so, on what basis.

The High Court decision

At first instance, the High Court held that the agreement did not confer a right on the Company to terminate on reasonable notice. The judge concluded that the licence was perpetual in nature and that clause 12 set out an exhaustive list of the circumstances in which the licence could be terminated. If the parties had intended the Company to have a right to terminate then it would have set that out in clause 12. The judge also rejected the Company’s restraint of trade argument.

The Company appealed.

The Court of Appeal decision

The Chancellor of the High Court, sitting in the Court of Appeal, overturned the first‑instance decision. Applying the two‑stage approach derived from Winter Garden Theatre, the Court first considered the common intention of the parties, and then asked how that intention could be given effect as a matter of construction.

The Court held that an agreement described as continuing “indefinitely” is not synonymous with a “perpetual” agreement. Where parties intend an agreement to endure for an indefinite period, rather than forever, it will ordinarily be inconsistent with that intention for only one party to have the power to bring it to an end unless the wording clearly points to that outcome.

In this case, the Court of Appeal held that the only construction that gave effect to the parties presumed common intention was that both parties should have the ability to terminate the agreement on reasonable notice. Accordingly, the Court inferred a mutual right to terminate, despite the absence of an express termination right for the licensee and notwithstanding the terms of clause 12.

The Court therefore held that a right to terminate on reasonable notice should be implied. Given this conclusion, the Court did not need to determine the restraint of trade argument.

Key takeaway

While this decision is very much fact specific (not least because there was limited evidence as to the intentions of Dame Zaha at the time the licence was entered into), it underlines the importance of commercial context when drafting IP licence agreements and in ensuring that the language is clear and precise.

The key takeaway is that if parties truly intend a licence to be perpetual or to confer one-sided termination rights, then that intention should be made explicit in the drafting in clear and unambiguous terms. Otherwise, the courts may be willing to infer a mutual right to terminate on reasonable notice.

If you have any questions about trade mark licences or other IP arrangements, please get in touch with any of the contributors to this blog.

We are also delighted to offer clients full trade mark services, including advising on proposed trade marks and managing ongoing trade mark portfolio support.

Please contact us if you would like to discuss further.