Two companies, one similar trademark

Why it pays to seek an agreement before a lawsuit arrives

The owner of a trademark has the exclusive right to use it. No one else may, without their consent, use in the course of trade an identical or similar sign for identical or similar goods or services if this gives rise to a likelihood of confusion, including the likelihood of association (Section 8 of the Trademark Act under Czech legislation). A dispute over a similar brand therefore often begins with a letter in which one party threatens the other with an injunction against using the brand and with damages.

Likelihood of confusion is a legal concept, and the outcome of a dispute over it cannot be reliably predicted. The office or court compares the similarity of the signs, the similarity of the goods or services, and how the public perceives them. Each of these criteria can be interpreted in different ways, so the outcome is open to reasonable debate. Anyone who decides to litigate risks losing. They also risk a Pyrrhic victory after two years, during which the brand has lost value or the market has changed.

An agreement is faster, cheaper, and, above all, predictable compared to a dispute. Both parties determine for themselves what is acceptable to them and do not have to wait for a decision from an office or court. They also avoid a public dispute that is watched by competitors and customers alike and that damages both brands. For a company building on its brand, this is often the most important argument.

However, an agreement may not always be the most suitable solution. It makes sense particularly where both companies act in good faith, operate in partially overlapping yet mutually separable market segments, and have an interest in preventing disputes in the long term. It does not make sense where the other party intentionally exploits someone else's reputation or where the agreement would mislead customers. In such cases, the options remain an opposition, a lawsuit, or buyout negotiations.

What happens to oppositions when the parties reach an agreement

The owner of an earlier identical or similar trademark may file an opposition, and the office will then not register the applied-for sign if there is a likelihood of confusion (Section 7 of the Trademark Act under Czech legislation). Oppositions can thus block the registration of a new brand. Its applicant then chooses whether to defend themselves or seek an agreement.

The consent of the opponent terminates the opposition proceedings. If, after filing the opposition, the opponent gives written consent to the registration of the applied-for trademark, they are deemed to have withdrawn their opposition, and the office will terminate the opposition proceedings (Section 7(3)). An agreement with the owner of the earlier trademark is therefore the most direct path to registration, as the office does not have to decide on the likelihood of confusion at all.

In practice, the owner of the earlier trademark usually grants consent only as part of a broader agreement. They often make it conditional on specific concessions from the other party, such as limiting the scope of use of the brand, differentiating it, excluding activity in certain market segments, or financial compensation. Consent is therefore usually granted only after all terms of the agreement have been negotiated. By granting it prematurely, the owner of the earlier trademark would lose a substantial part of their negotiating position.

How to file an opposition and by when is discussed in the text on what to do when someone has applied for a trademark similar to yours. An agreement does not replace an opposition but represents an alternative way of resolving the dispute. Even the party that filed the opposition can propose an amicable settlement at any time. Filing an opposition signals to the other party that the owner of the earlier trademark is prepared to actively defend its rights.

It is usually better to open negotiations with a factual letter than with a threat. The letter describes both brands, states where the company sees a risk of confusion, and proposes a meeting. A harsh tone pushes the other party into a defensive stance and often prolongs negotiations. A factual letter, by contrast, opens up space for agreement. The company does not need to send a legal analysis; it is enough to have it ready in case negotiations fail.

The basic questions of registration, i.e., how to choose a sign, which classes to select, and how to file an application, are summarized in the text on how to register a trademark. Anyone who is just applying to register their brand can prevent running into an earlier similar trademark right at the stage of choosing the sign.

What the agreement must contain

A good agreement answers six questions. First, what specific goods or services each party offers under its brand. Second, in which territory. Third, how both brands will be visually and verbally differentiated, for example, by color, font, additional word, or logo. Fourth, what each party is allowed and not allowed to do in the future. Fifth, what penalties apply for breach. Sixth, how long the agreement lasts.

The precise definition of goods and services is the core of the agreement, as the office and the courts assess the likelihood of confusion based on their similarity. The class numbers of the international classification serve only as an auxiliary criterion: two services in the same class do not have to be similar, and two services in different classes can be similar. The parties can agree that one company will use the brand only for software and the other only for consulting. Territorial division within the Czech Republic is difficult to maintain in the context of the internet and e-commerce. It is therefore better to define the field of activity rather than a geographical area.

Graphic differentiation is the second pillar. The parties determine how the brands should differ and describe this specifically: colors, font shape, logo placement, and additional signs. A general provision stating that "the parties will differentiate themselves" is not enough, because in the event of a breach, it will not be clear who breached what. A good agreement therefore contains an annex with examples of permitted and prohibited designs.

An expansion ban prevents the agreement from becoming meaningless over time. A company that makes software today might start providing consulting under the same brand tomorrow, thereby entering the other party's field. The agreement therefore stipulates that expanding activities into the other party's field requires their consent. It also anticipates that both brands will grow and the market will change.

If both companies are competitors, the restrictions in the agreement may go only as far as resolving the trademark conflict requires. The law prohibits agreements between competitors whose object or effect is the distortion of competition, and explicitly names market sharing and the limitation of production and sales (Section 3 of the Act on the Protection of Competition under Czech legislation). Such an agreement is prohibited and void unless its impact on competition is only negligible or it falls under one of the statutory exemptions. How far the restrictions can go is assessed by the Czech legal team at the ARROWS law firm based on the market position of both companies.

The agreement can also include a procedure for future disputes. The parties can stipulate that in the event of a disagreement, the management of both companies will meet first, then they will try mediation, and only then will they turn to court. Such a provision prevents every misunderstanding from turning into a dispute and preserves the relationship that the agreement is meant to protect.

Brand use and licensing as part of the solution

An owner who does not put the trademark to genuine use within five years of registration, or who does not use it continuously for five years, faces statutory consequences unless they have proper reasons for non-use (Section 13 of the Trademark Act under Czech legislation). Use with the owner's consent is also deemed to be use by the owner (Section 13(3)). This is important where the agreement gives the other party the right to use the brand. Simply signing a license is not enough; the trademark must actually be used in practice.

Therefore, the agreement can also include a license. The owner may grant the right to use the trademark by a license agreement for all or only some of the goods or services for which it is registered, as an exclusive or non-exclusive license (Section 18 of the Trademark Act under Czech legislation). The owner may invoke the rights conferred by the trademark against a licensee who has breached the agreement regarding the duration, the form of the brand, the scope of goods or services, territory, or quality.

A license is effective against third parties only upon its entry in the register (Section 18(4)), which is why it makes sense to register it. However, registration only affects the license for the specific trademark for which it was granted. Other obligations from the agreement, such as the ban on entering a field, mandatory differentiation, or contractual penalties, do not become effective against future acquirers through the registration of the license. A license, transfer, or pledge is entered in the register.

A coexistence agreement differs from a license in that each party uses its own brand and does not grant anything to the other. It is not a relationship between a licensor and a licensee, but a mutual restriction. In practice, both models are combined: the agreement sets the boundaries, and the license governs exceptions where one party is allowed to use an element of the other's brand.

The agreement and the sale of a company: what happens to the agreement upon transfer

A trademark may be transferred even without the business establishment, for all or only some of the goods or services. The transfer must be made by a written agreement (Section 15 of the Trademark Act under Czech legislation) and takes effect upon entry in the register (Section 15(3)). The new owner thus becomes the owner of the trademark, but the agreement concluded by the original owner may not bind them on its own.

The agreement should therefore also provide for a possible transfer of the trademark. One option is to oblige the transferor to ensure that the acquirer accedes to the agreement or assumes the obligations arising from it. Compliance with this obligation can be secured by a contractual penalty. Another possibility is an assignment of the contract, which requires the consent of the other contracting party. A mere provision stating that the agreement "binds legal successors" may not be sufficient, as a contract in principle only binds its parties.

In the sale of a company, the agreement becomes part of the due diligence. The buyer asks whether the trademark is restricted by any agreement, who is allowed to use it, and under what conditions. An agreement that is not in writing or is unclear reduces the company's value and triggers demands for guarantees. Conversely, a clear agreement is an asset, as it proves that the brand is protected and disputes are resolved.

The broader context of brand protection, including unfair competition, is discussed in the text on trademark protection and unfair competition. Where an agreement fails or the other party does not comply with it, the trademark owner returns to this tool. Whether an agreement pays off depends on how close the two signs and the two offerings actually are, which is why the Czech legal team at the ARROWS law firm assesses this on a case-by-case basis.

From analysis to execution: five steps to a brand agreement

The first step is to find out how strong a position the company has. It verifies whether its trademark is registered, when it was applied for, and how it is used. A registered earlier trademark is a strong argument; a later application or an unused trademark, by contrast, is a weak one. The company chooses the tone and demands of the negotiations accordingly. First analysis, then the offer.

The second step is to assess whether there is a real risk of confusion. A lawyer compares the signs as well as the goods or services and estimates the chance of success in a dispute. If confusion is unlikely, the company does not need to back down. If it is likely, an agreement with restrictions is more reasonable than the risk of an injunction. The estimate is based on the evolving practice of the Industrial Property Office and the courts, and is therefore always only indicative.

The third step is negotiation. The parties state their goals, business plans, and the boundaries they are willing to concede to. A good agreement is based on what both companies actually need, not on maximum demands. Negotiations progress fastest when the management of the companies or their lawyers meet and discuss specific examples of brands and sales channels.

The fourth step is drafting the agreement and its annexes. The agreement contains definitions, scope, differentiation, penalties, and duration; the annexes contain brand examples and the list of goods and services. The fifth step is execution: the opponent submits the consent to registration to the office, the parties register the license, and each of them adjusts its materials to comply with the agreement. An agreement that no one puts into practice is just paper. It therefore pays to designate a person on each side to monitor compliance and to set up control mechanisms after signing.

Domains are covered in the text on what to do when someone has registered a domain with your trademark. A brand agreement can also cover domains and social media accounts so that the dispute does not move from the register to the internet.

Four mistakes that will turn an agreement into just paper

The first mistake is giving consent prematurely. A company agrees to the registration of a similar brand before all conditions are negotiated. Once consent is granted, it can no longer continue with the opposition proceedings, thereby losing its main leverage. The result is an agreement that restricts nothing and a brand that is practically unprotected in practice.

The second mistake is an agreement without specific differentiation. The parties commit to differentiating themselves but do not describe how. After a year, it turns out that each of them understands differentiation differently. A dispute arises that the agreement was supposed to prevent.

The third mistake is forgetting about the transfer of the trademark. Two companies conclude the agreement, but the trademark is later sold to another company. The new owner of the trademark is not bound by the agreement unless they have acceded to it, and the other party must litigate again. The fourth mistake is failing to execute the agreement: the parties sign it but do not register the license or implement the differentiation in practice. What poses the greatest risk in a particular agreement depends on how closely the two companies are linked and where they plan to grow, which is why the Czech legal team at the ARROWS law firm prepares a tailor-made agreement, including the steps for execution and compliance monitoring.

Risks of a similar brand without an agreement

Final summary

An agreement on a similar brand is usually faster, cheaper, and more predictable than a dispute, provided it is drafted precisely. The article has shown three things. The opponent's consent terminates the opposition proceedings. The agreement must define the goods and services, territory, and differentiation. And it must also address the transfer of the trademark, as it will not bind a new owner on its own.

For company management, this implies a clear procedure: first, assess the strength of your own position, then negotiate an agreement with specific differentiation, and only finally grant consent to registration. In the reverse order, the company loses its main leverage, and the agreement fails to protect the brand that was the subject of the negotiations.

Delay comes at a price. The opposition period runs regardless of the negotiations, and every month of parallel use of similar brands makes later differentiation in the eyes of customers more difficult. A company considering an agreement should therefore start with the analysis immediately after the first letter or after the publication of the other party's application.

The Czech legal team at the ARROWS law firm assesses disputes over similar brands, negotiates coexistence agreements, prepares licenses, and arranges for their registration in the register. Write to us at consultation@arws.cz or review our service for contracts and negotiations.