An Ounce Of Prevention Is Worth A Pound Of Cure: How OEMs Can Protect Brand Strength In A Dealer Termination

With the dramatic expansion of e-commerce in automobile sales in recent years, particularly during the COVID-19 pandemic, many now predict that this shift to online will create a permanent change in automotive retailing and in consumer shopping preferences. The shift to digital and online retailing and advertising, coupled with the explosion of social media as an important means of consumer outreach and advertising, means automakers must be more vigilant than ever about controlling their brand power online. Automakers need to have policies and procedures in place to ensure that the digital presence of dealers, including social media, is consistent with the OEM’s online and digital strategy and that terminated dealers take the steps necessary to deactivate all websites, social media accounts and abandon all domain name registrations that incorporate the OEM’s names and marks.

Use of the automaker’s brand and trademarks by dealers is generally governed by the dealer agreement between the dealer and the manufacturer and accompanying OEM policies in which the OEM grants a nonexclusive license for the dealer to use those marks during the term of the dealer agreement. The OEM maintains authority and control over the manner of use of the marks throughout the term of the agreement. Contractual controls, including up-to-date and comprehensive policies, coupled with regular monitoring and policing of dealer use of marks, are essential not only to controlling the brand’s online messaging but to avoid falling victim to loss of trademark rights or consumer confusion.

Other than addressing certain aspects of advertising, OEM policies traditionally have been deferential to the discretion of individual dealers. This may not be sufficient for brand protection in today’s marketplace. While advertising at brick-and-mortar locations is still important, no longer is trademark enforcement limited to facility image standards and signage. OEMs need to be ever more vigilant about what is actually being said and promoted, not only on dealer websites but on social media and other digital outlets. Dealer agreements almost universally require compliance with OEM policies, manuals or instructions regarding the use of the OEM’s marks. Now those policies not only need to address all aspects of brand and trademark usage during the relationship, including the messaging on social media platforms such as Facebook, Instagram, and Twitter, but also upon termination of the dealer agreement. With the ebb and flow of individual dealer agreements, overarching OEM policies and controls over digital content are key to maintaining long-term brand integrity.

Upon termination of a dealer agreement, the limited license to use OEM trademarks is terminated and the dealer must immediately cease all further use of the brand names and logos in all forms and on all venues and media. But in many instances, the language contained in OEM standard termination procedures and, for example, in termination notices, has not caught up with the realities of e-commerce. Cessation of use is addressed generally, and dealers are prohibited from holding themselves out as authorized to sell or distribute branded products. This certainly should include cessation of all trademark use online, including social media accounts, but often there is no agreement or policy language expressly prohibiting continued digital presence. The best practice for OEMs when notifying dealers of a termination, involuntary or otherwise, and outlining the post-termination obligations is to leave no room for doubt. In addition to addressing other common post-termination issues like equipment and vehicle buybacks and removal of facility branding and signage, the OEM’s procedures need to ensure cessation of all e-commerce activity and online presence. This includes deactivation of existing websites and social media accounts as well as and the abandonment or assignment of all domain names that incorporate the OEM’s names and marks. The dealer should not only be instructed to discontinue any use of the domain name, website, or any social media account previously associated with the dealership but also immediately take all steps to delete and terminate such accounts. Preserving such accounts for a replacement dealer often is important. Because most dealer agreements provide a right of set off, enforcing the post-termination trademark related obligations along with the other traditional post-termination obligations incentivizes dealer compliance and provides the OEM with powerful enforcement rights.

Failure to take these steps could result in consumer confusion and distracting litigation for manufacturers. In many ways, unresolved disputes over the websites, domain name registrations and social media accounts used by a terminating dealer are akin to disputes over the removal of trademarked signage and imaging from dealership property after termination. Once terminated, a former dealer has very little incentive to cooperate in protecting an OEM’s marks; if the termination was not voluntary, then the terminated dealer may actually be hostile to a manufacturer’s efforts to protect its intellectual property rights. Consumers also are likely to be frustrated at the brand in general if, when surfing for cars online, they are routed to outdated web content. And existing and incoming dealers can become equally frustrated when persisting web content about the former dealer’s business draws traffic away from their websites or certain domain names or social media handles are not available.

In addition to the set off rights in the dealer agreement, manufacturers have a range of options available to them when a terminated dealer refuses to cooperate. The 2020 Trademark Modernization Act, which was signed into law late last year, created a new statutory presumption of irreparable harm to help trademark owners obtain injunctive relief upon a showing of likelihood of success on the merits of a trademark infringement claim. Moreover, lower cost options such as extrajudicial takedown procedures through various social media platforms and website hosts, along with the ICANN Uniform Domain-Name Dispute Resolution Policy (UDRP), exist to help trademark owners recover digital property that is being used improperly. But taking earlier precautions—including establishing and implementing comprehensive policies and expressly documenting the disposition of existing websites, domain names and social media accounts at termination and following up with a terminating dealer to ensure that they have acted as agreed—can in many cases avoid the hassle and expense of litigation.