Those familiar with the United Arab Emirates and specially Dubai are well aware of the importance of brands in the country. With an area of 83,600 km2; approximately 10 million residents and around 16 million (pre-Covid) visitors every year, the country boasts almost all premium brands from Europe, Americas, Australia and Asia. Finding such a splendid mix of global brands at one place is a rare site, anywhere other than the UAE.
Historically such brands find their way in the UAE through an agency, distributorship or franchising model.
Lucrative as it is for the brand owners to enter the UAE market, non-compliance with intrinsic legal requirements at times results in complex legal issues, which may include, payment of compensation and difficulties in agency termination.
UAE has stringent agency laws which, to some extents, are favorable to the local agent. Distributorships and franchises, if registered as an agency are also dealt under the Commercial Agencies Law. On the other hand, so far, there is no law governing franchises, per se, and if not registered as an agency, such agreements are dealt with under the different civil and commercial laws.
In accordance with the UAE Commercial Agencies Law, an agent can either be a UAE national; a company wholly owned by a UAE national; a Public Joint Stock Company (PJSC) with at least 51% shares owned by a UAE national or a company wholly owned by a PJSC with at least 51% shares of a UAE national. Agency contracts which are registered with the Ministry of Economy cannot be terminated, unless with mutual consent or due to gross violations of the contract by the agent, which should be established through documentation before the Commercial Agencies Committee or the UAE Courts. The same provisions apply to termination at the time of renewal of fixed-term agency contracts. In addition to the later, the exiting agent may claim compensation for losses sustained due to the termination of agency and may also be able to restrain import of goods by the new agent, until the agency is deregistered through an order of the Committee or Court.
The above provisions also apply to a distributorship or franchise, which is registered as an agency with the Ministry of Economy. That said, if the distributorship or franchise agreement is not registered with the Ministry, it is not governed under the Agencies Law.
Licensing of Trademarks
A better alternate to enter the UAE market is through licensing of trademarks. The law provides that in order to record a trademark license, the trademark should be registered in the United Arab Emirates. The duration of appointment cannot exceed the validity period of the trademark registration, however, can be renewed once the trademark registration is renewed. Similarly, the scope of license should be restricted to the goods or services protected under the trademark registration.
Once the license agreement is executed, it should be recorded with the UAE Trademark Office or else it does not provide any rights to the licensor or licensee against third parties. In the event the license agreement is executed inside the UAE, it is required to be notarized; on the other hand, agreements executed outside the UAE, require notarization as well as legalization from the UAE consulate in the country where the agreement is signed.
As compared to agency agreements, it is relatively easier to termination or deny renewal of a trademark license agreement. In order to do so, it is essential that the License Agreement clearly provides the authority of termination and non-renewal to the Licensor. In case such powers are not delegated to the Licensor in the agreement, either the Licensee's consent shall be required at the time of termination or non-renewal or the Licensor will have to obtain a favorable decision from the Court of competent jurisdiction in the UAE.
The UAE Trademark Law states that the Licensor cannot impose unnecessary conditions in the license agreement; however, it is permitted to include the following conditions:
- Limitation of jurisdiction, that is, a license agreement can either be for the whole of the UAE or restricted to some areas and emirates.
- It can either be exclusive or non-exclusive.
- Sub-licensing can be restricted.
- Limitation on the duration of license can be imposed.
- Quality control provisions can be included.
- Provisions to protect the goodwill related to a trademark, that is, not to take any action or inaction which results in brand dilution can be agreed between the parties.
In addition to the aforementioned, use of a trademark by a Licensee is considered sufficient use in order to avoid non-use cancellation of a trademark.
In essence, trademark licensing is a good option for brand owners to create and maintain their presence in the UAE.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.