The legal ramifications of exclusivity agreements
Exclusivity agreements may be common in the Middle East, but it’s important that all stakeholders consider the potential legal ramifications of such deals
Dubai Parks and Resorts (DPR) will open in October 2016, initially consisting of three theme parks, a water park, and associated leisure amenities. Work has now begun on the project’s second phase, which will include a fourth park: Six Flags Dubai.
When it comes to number of properties, Six Flags is the world’s largest amusement park company. Six Flags Dubai will be one of its first projects outside of North America; the firm is also planning parks in China.
Previously, only DPR had the right to develop Six Flags-branded amusement parks in the GCC region. However, earlier this year, reports emerged that Six Flags was considering opportunities in Saudi Arabia. The news followed confirmation from HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, and Ruler of Dubai, that DPR would not seek to enforce its exclusivity arrangement. Consequently, third-party negotiations to initiate a Six Flags development in the kingdom no longer infringe DPR’s legal rights.
Exclusivity arrangements are common in the Middle East. They usually take the form of licensing agreements, which allow the owner of intellectual property (IP) rights to commercially exploit them in a way that minimises capital expenditure and risk. These arrangements also allow owners to utilise developers with knowledge and expertise of markets that could allow commercial opportunities to be more easily realised. The advantage for developers is access to IP, which can take the form of brand names and trademarks, as well as particular know-how and registered designs.
These types of agreement commonly regulate not only the risk, but also the level of control that parties can exercise over such rights, and can therefore be difficult to negotiate. Such agreements are usually bespoke, but there are common issues that must be considered at the outset.
Firstly, there is the issue of scope. This is generally a matter of defining the IP rights to which an agreement is subject. However, there is sometimes tension between parties seeking to either narrow or broaden definitions. What’s more, the issue of scope cuts both ways; rights-holders may seek to limit the extent to which licensees are able to hold similar rights with comparable companies, or in related industries. The term ‘exclusivity’ is rather generic and can encompass ‘exclusive’, ‘co-exclusive’, and ‘sole’ licences. What matters is not the label, but a proper and detailed consideration of the rights to be transferred, and how such rights can be exercised properly.
Secondly, there is the issue of extent. Where ‘exclusivity’ is expressly linked to clearly defined territories, the scope for dispute is reduced. However, one can also see that where exclusivity is linked to intergovernmental unions, such as the GCC, issues can arise upon accession to or resignation from such bodies. Ensuring that an agreement relates to specific countries can help to avoid such difficulties.
Finally, there is the issue of time. The period of exclusivity may be limited, and provisions that deal with renewal – a right of first negotiation and/or refusal, for example – can often lack specificity and lead to disputes. One must also consider when each party has the right to terminate. There may be targets relating to revenue or number of sites to develop in an effort to strike a balance between stymied development and over-development, with the ultimate aim of protecting reputation. Protections are also usually in place to guard against insolvency.
Ultimately, the laws that govern agreements are key. Stakeholders should consider the regulatory framework to which an agreement is subject, not to mention issues relating to contract law: good faith in negotiations, required termination formalities, the applicable insolvency regime, and so on.
It’s clearly advantageous for all parties to enter into a well-structured and carefully considered exclusivity or licensing agreement. In the instance of Six Flags Dubai, the relatively rare step of relinquishing exclusivity in a territory also highlights the potential political capital that such agreements can hold.
Zulfikar Khayum is a barrister at UK-headquartered Atkin Chambers.