It's in the drafting - a recent trade mark case involving Morley's highlights the importance of express sub-licensing rights

A recent trade mark case involving the "Morley's" fried chicken fast food restaurant/takeaway joint considered  the notion of the "average consumer" when assessing likelihood of confusion (which is required for the trade mark infringement test under section 10(2)(b) of the Trade Marks Act 1994), amongst other matters.   The case, Morley's (Fast Foods) Ltd v Nanthakumar & Ors [2025] EWCA Civ 186, also raised an interesting point on the construction of a settlement agreement and, namely, whether this permitted sub-licensing.

One of the defendants in the case, "KK", had previously entered into a settlement agreement with Morley's in respect of a previous claim. The other defendants in the case were franchisees of KK.

Under the settlement agreement, KK was "permitted to use in the course of trade"  a "Metro's Peri Peri & Fried Chicken Burgers BBQ Ribs Wings" sign (the "Metro's Sign").

One of the issues considered was whether the settlement agreement gave KK the ability to (sub-)license the Metro's Sign to third parties. KK argued it did. One reason for making this argument appeared to be to defeat a claim for non-use of its Metro's Sign. For context, an application to revoke a trade mark can be made on the grounds of five years of non-use (under section 46(1) of the Trade Marks Act 1994). Although it is not completely clear from the judgement,  KK appeared to be arguing that, as the settlement agreement allowed KK to (sub-)license use of the Metro's Sign to the franchisee defendants, the franchisee defendants had been using the Metro's Sign and this "use" should be considered when considering any claim that the Metro's Sign should be revoked for "non-use".

KK argued that it was "permitted to use in the course of trade"  the Metro's Sign and the words "use in the course of trade" included use by a third party with the consent of KK (ie, (sub)-licensing rights). The judge found that the settlement agreement did not permit KK to (sub-)license use of the Metro's Sign to a third party. The judge stated that "There is no principle of trade mark law which dictates that a licence must include a power to sub-license, however. Whether a licence includes the power to grant sub-licences depends upon whether the parties have agreed that it should. In the case of the [settlement agreement] no such agreement is contained in the express terms. Nor is it either necessary, or so obvious that it goes without saying, that such a term should be implied".

In our view, this issue highlights the importance of being express on any sub-licensing rights in agreements which grant rights to any IP. In commercial licence agreements, it is usual practice to address sub-licensing rights and conditions expressly and at a level of detail. However, as can be demonstrated from this case, parties should also generally consider if sub-licensing rights should be laid out (and at a level of detail) in other agreements containing rights granted to IP, eg, settlement agreements.  Section 28(4) of the Trade Marks Act 1994 provides that a licensee may grant a sub-licence "where the licence so provides". This wording indicates that there must be an express provision in the licence agreement that permits sub-licensing. The parties could make an argument that the legislation allows for permissions to sub-license to be implied into a licence agreement – however, as illustrated in this case, being express is best.