In the retail sector, brand names are king, often influencing buying decisions more than price or product features, which is why most retailers go to great lengths to protect their intellectual property. In contract negotiations with vendors, safeguarding brand assets such as the retailer's name, logos, trademarks and other IP, is a key objective, and most retailers will insist that vendors seek their prior consent before using their IP.
Despite this focus, retailers can unknowingly provide consent just by accepting the terms in a vendor's order form or simple vendor agreement, effectively diluting any time, effort and investment already spent on IP protection. It can also impact potential licensing revenue opportunities, and expose the retailer to reputational and financial harm. One way to prevent such inadvertent grants of consent and protect IP assets is taking the time to carefully review vendor agreements, including not "clicking to agree" to online terms without first reviewing them.
This 2-part blog series explores the hidden risks to retail IP that may be lurking in vendor agreements, identifying the most common risks in vendor contracts and online terms, and reviewing best practices for mitigating these risk and preserving control over IP assets.
Part One: Hidden Risks in Vendor Contracts
It is common for vendors to include, in both their template agreements and online terms, the right to use a retailer's name, logo, and/or other trademarks in their marketing materials, press releases, website posts, etc. Some vendor agreements may also require the retailer to act as a reference for the vendor, or consent to provide case studies. While the retailer may be eager to enter into the core agreement, especially with vendors believed to be reputable, a hasty acceptance (signing or clicking without reviewing the contract terms) can result in unintentionally granting the vendor the right to use its brand assets.
For example, imagine a scenario where a retailer's trademarks are featured on a vendor's website: what if that vendor is later discovered to have engaged in unethical, illegal or negligent behavior, or suddenly appears in the news for a data breach that exposes its customers' personal information. In both situations, if your brand is associated with that vendor because it appears on the vendor websites and is featured in their marketing or case studies, the vendor's wrongful behavior may unfairly implicate the retailer, resulting in reputational damage, and financial losses.
In the 1990s, Nike faced this exact issue, suffering a significant blow to its brand reputation and sales, when a third party manufacturer of its products was accused of major safety violations. Even though the misconduct belonged solely to the third-party vendor, Nike itself was accused of overseas sweatshop labor violations.
Thomson Reuters recently highlighted how a rise in vendor data breaches is impacting retail customers and employees in its report, The Cost of Data Breaches. Despite vendor negligence, many retailers are ultimately bearing responsibility for such breaches at an average cost of $4.88 million per incident, which includes the cost to consumers, post-breach credit monitoring services, government fines and/or penalties, lawsuits, investigations and containment costs, investments of money and resources to update IT systems, and lost profits from customers and potential customers who have lost trust in the company.
In the event a vendor is given unrestricted permission to use a retailer's IP, the implications may carry forward even beyond the term or termination of the vendor agreement. For instance, unauthorized use of the retailer's mark could imply the retailer's involvement in or support of a specific project, causing customers to incorrectly associate its products or services with the vendor, and any misdeeds or negligence associated with the vendor. Moreover, the retailer could be left without a legitimate cause of action against the vendor if the retailer unknowingly consented to the vendor's use of its marks in the vendor agreement.
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.
