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Settlement Agreements Involving Trademark Licenses: Important Terms to Be Included

By Howard J. Shire and Amy Feinsilver Bersh
May 31, 2006

In a recent decision involving a trademark settlement agreement, the U.S. Court of Appeals for the Fifth Circuit in Liberto v. D.F. Stauffer Biscuit Co., Inc., found that a final judgment in a trademark infringement action did not preclude a further action involving claims of trademark infringement, breach of contract, and the defense of incontestability. 441 F.3d 318 (5th Cir. 2006). The case highlights the significance of including certain important terms in a settlement agreement involving a trademark license.

Frank G. Liberto has manufactured and distributed snack foods using packaging containing yellow and red stripes since 1950. He registered his trademark with the U.S. Patent and Trademark Office in 1986. In 1987, D. F. Stauffer Biscuit Co., Inc. ('Stauffer') began using red and yellow stripes on the packaging for its animal crackers and applied for a trademark registration in 1988, which issued in 1989.

Liberto filed an initial action against Stauffer in 1996. After 3 years a settlement agreement was executed, by which Liberto agreed to dismiss the action and grant an exclusive license to Stauffer to the trademarked design. Stauffer agreed to enforce the mark against other food manufacturers and pay Liberto royalties for its use of the design. The agreement contemplated that the parties would continue to negotiate specific terms of the license. The parties made a joint motion for final judgment, and the court entered the settlement agreement as final judgment in the case.

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