demarcation agreement or license

If a certain similarity exists between two brands, the parties can leave themselves open to a trademark dispute, or they can determine the future behavior of their brands through a demarcation agreement. This is recommended, particularly when there is a danger of a mistake in identity between the two brands, for example, because of variability of the industries or when there are not enough distinguishable characteristics between the brands and therefore the outcome of a procedure for both sides is uncertain.

The demarcation agreement is a civil contract through which the parties agree to respect the other party's rights and to cease certain actions that might cause injury. Thus the parties promise each other: "not to fish in the other party's pond". The agreement therefore serves as a non-aggression treaty, rather than a separation license, to settle any controversy.

Usually, the owner of the younger brand declares that he will only use his brand for goods or services and the industries or classes of goods, which the other trademark owner's protection does not include. Often it must also commit itself not to emphasize those 'mistakable' aspects of the brand and not to develop those aspects any further. The owner of the older brand then usually permits the owner of the younger brand to continue to use that brand. Thereby there is no transfer of rights and no change to the scope of protection offered to the older brand. Such an agreement works only between the parties, not between their legal successors and not between third parties.
The contract should therefore contain an obligation that the parties include their legal successor, or purchaser of the trademark, to the agreement. As opposed to a demarcation agreement, a license differs in the way that the rightful owner transfers the right to use the brand, either totally or partially, to the licensee. This takes place usually through the payment of a royalty. The purchaser of the license receives the absolute rights to use the trademark. These rights apply against everyone, including third parties.
One differentiates between exclusive and simple licenses. These terms of the copyright mean that the exclusive licensee can assign sub-licenses and can also forbid the actual trademark owner from the further use of the brand. The simple licensee, however, may use the brand and can claim against third parties, but the rights still remain with the trademark owner, or licenser. Licenses can be limited temporally and spatially or be limited also to certain persons, articles, quantities or kinds of use. A retailer can, for example, be given the license to sell beach umbrellas with the label COCA COLA in Germany alone and for one summer only.

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