Software providers and IT consultants: Be careful to what you agree to, even in the absence of a written agreement.

In a recent ruling by the Court of Appeals of Grenoble (CA. Grenoble, June 4, 2015, n°2009J386), the company CIMM Franchise, which exploits a network of 120 real estate agencies, ordered from the consulting company E-Développement Conseil the creation of software to improve the management of its assets. E-Développement Conseil entrusted the conception of such software to a company called 3C Evolution.

It should be noted that no agreement or technical specifications were formalized in order to detail the missions of both providers or the conditions of the software’s creation.

However, meeting minutes helped establishing that the parties decided the software to be delivered on January 2008.

The ordered software was finally delivered in June 2008, and showed many malfunctions, making it unfit for use. CIMM Franchise consequently decided to sue both providers in order to have the agreements terminated, to be reimbursed for all sums already paid, and to be granted damages.

The Court of Appeals of Grenoble, considering that:

• the developer had breached its obligations by not respecting the delivery date, such an obligation being an obligation of results, even in the absence of an agreement or of technical specifications;

• the developer had also breached its obligations by not providing software conforming to the client’s needs, such an obligation being an obligation of results as well, even in the absence of an agreement or of technical specifications;

• the consulting company had breached its obligation of counseling because, on the one hand, they did not organize a call for bids before selecting the developer and therefore did not assess its competency and, on the other hand, had not detailed the technical specifications expressing the needs of the client,

decided to terminate the agreements to the exclusive fault of both service providers and to order the reimbursement of the down payments. However the court refused to grant damages.

Clearly, the lack of written agreements proved to be detrimental to the two service providers.[:]

Is a trademark coexistence agreement sufficient to protect your trademark?

The question is legitimate, as reveals the decision of the French Supreme Court (Cour de Cassation) from February 10, 2015 (Cass. Com., n°13-24979).

In this case, the company Laboratoires Lehning, which manufactures pharmaceutical preparations, is the owner of the French and European trademarks “Lehning” in connection with, notably pharmaceutical veterinary and disinfectants products registered in class 5. Having realized that the company Ecophar had registered the French trademark “Lehring Naturellement efficace” (“Lehring naturally efficient”) before the French trademark office (INPI), to designate products that overlapped with some of the products bearing Lehning’s trademarks (also in class 5), Lehning opposed this trademark application. The dispute was settled when the two companies signed a coexistence agreement in June 2008. However, during the year 2012, considering that Ecophar had not respected its undertakings under the coexistence agreement, in particular because they reproduced the word “Lehring” alone and in big lettering on its website, Lehning filed a lawsuit against Ecophar on the basis of trademark infringement and unfair competition.

On appeal, the Court of Appeals of Paris judged that because Ecophar had generally performed the coexistence agreement, there could not be a finding of trademark infringement, nor of unfair competition. The Court of Appeals had simply drawn a simplistic parallel between coexistence agreement and counterfeiting or unfair competition. The general performance of the former implying automatically the lack of materialization of the other.

Nevertheless, the Supreme Court overturned the decision from the Court of Appeals, explaining that the Court should have analyzed “as it was invited to, whether, due to the similarities of the trademarks and the products designed to be registered, the failure to perform the agreement could generate a risk of confusion in the eye of the public…”

The Supreme Court then used the same reasoning for the unfair competition claim.

The consequence is that a finding of infringement and/or unfair competition is in no way automatic. The breach of an agreement constitutes infringement and/or unfair competition only in so far as it impacts the monopoly of the trademark owner, in accordance with the applicable law. It thus falls upon the injured party to prove the infringement and the unfair competition, regardless of the breach of the coexistence agreement.

Consequently, the signing a coexistence agreement only offers a relative protection of the trademark subject to this agreement[1].

Therefore it is important to be particularly careful when drafting such agreements and potentially to tie the breach of these agreements to a constraining indemnification clause which will deter the co-contracting party from breaching the agreement.

[1] Even more so since, as decided by the European Court of Justice (ECJ, 3rd ch., Sept. 19, 2013, case C-661/11), no one is bound to remain in a state of coexsitence.