Trademark licensing is a common practice worldwide, as it provides benefits to both the licensor and the licensee. The licensor can benefit from the mark’s increasing reach and popularity, and can earn income through royalties. On the other hand, the licensee can use the mark for commercial purposes. However, it is essential to carefully review the license agreement as the mark’s reputation can be negatively impacted if proper checks are not conducted. Therefore, it is important to include quality control provisions in the licensing agreement to ensure that the products or services provided under the mark meet the required standards. Failure to maintain quality control may result in the termination of the license agreement by the licensor.
Trademark Licensing and its governing Law
When a trademark owner licenses their trademark to a third party, they grant them the right to use it in the course of business in exchange for a fee based on the sales of products or services using the trademark. The most common form of trademark licensing is “classical trademark licensing,” which allows the licensee to manufacture and sell products using the trademark. Other forms of licensing, such as merchandising and franchising, are also available. In essence, trademark licensing permits a third party to use the registered trademark without transferring ownership to them. Instead, the trademark owner receives a royalty on the sales of products or services that are licensed under the brand.
Although the terms ‘License’ or ‘Licensing’ are not defined under the Trademarks Act of 1999, the Act regulates trademark licensing through Sections 48 to 55. The term ‘registered user’ is similar to the term ‘license.’ According to Section 48(1), the licensing agreement does not need to be registered.
Who issues the Trademark License and to Whom is it granted?
Only the registered trademark owner has the authority to award a trademark license. The trademark owners can offer a license to any person or third party that wants to use a trademark. Trademarks, both registered and unregistered, can be transferred in India by way of license or assignment. In India, there are two types of licenses for registered trademarks: a simple license agreement for permissive usage and a Registered User license agreement that is filed only with the Registrar of Trademarks. According to the statute, the licensee has various rights under this license.
Reason for Grant of License
A trademark license is an agreement that permits a third party to use a Registered Trademark legally. International corporations, especially those in the IT industry, commonly offer TM licenses in other countries to exploit their trademarks. For instance, a brand owner can provide a license to another individual to use the trademark in the course of their business for both services and goods. When a registered trademark license is granted, the trademark itself is not sold. The license simply grants the authority to use the trademark, and the trademark remains the sole property of the owner. The rights provided are time-limited and may include the right to use the trademark, distribute goods, and other related activities. An exclusive or non-exclusive TM license may be obtained. According to Section 48 of the Trade Marks Act, a person who is not the registered owner of a trademark may register as a registered user. Therefore, the rules of this act may allow the use of a registered trademark, but only if both parties meet the essential circumstances.
The Advantages of Trademark Licensing
Financial Gain:- Because the Trademark is widely exploited for profit and royalties is paid to the owner, both parties can benefit financially. The Licensor, who previously couldn’t profit from their Trademark owing to a lack of exposure or resources, can now take advantage of the Licensee’s resources by granting them the licence and making more money. The Licensee is also entitled to a portion of the profits.
Increase the popularity of a Trademark:- The Trademark automatically gets popular as it reaches a large number of clients. This results in higher income from increased sales, as well as more Trademark Licensing.
Assist with Business Expansion:- As the owner’s business grows, so does his or her reach into other countries. The Licensee can also use their distribution abilities to expand the business rather than limiting it to a single area.
Trademark Recognition:- A trademark becomes well-known as a brand in previously unknown countries. The Licensee is free to advertise the product using their own resources.
Obtaining a Trademark License: Step-by-Step Instructions
A licensee is regarded as a “registered user” within Section 49 of the TM Act of 1999. Within six months of the date of the agreement, the joint application must be filed with the Registrar using Form TM-U. For each mark, the government charges Rs 4500. This is how it works:-
- Filing of the form TM-U – The form should be completed in triplicate and include the following papers: Licensing agreement/duly verified copy; Document/Correspondence, if applicable; Affidavit; Additional documents/information as requested by the Registry;
- Affidavit Drafting– This should include the following information: Connection between registered proprietor and prospective user; Particulars proving level of control by the registered proprietor; Goods and Services; Conditions/Restrictions imposed; Period of time during which a mark may be used;
- Ensure that the License Agreement contains: All information provided in the affidavit; Terms for royalties and other remuneration; Methods for terminating permitted use;
- Application submission to the Registrar via Form-28, either online or offline.
- Registrar Acceptance– The application will be approved in its entirety or on a conditional basis.
- Conditional Acceptance Hearing– The parties may request a hearing in order to receive notice from the registrar. The registrar would set a time limit of two months after the hearing. The registrar may approve or deny the application totally or conditionally after the hearing.
- Registrar Entry– After the proposed user is accepted, the Registrar adds the user to the register as a registered user.
- Acknowledgement to other Registered Users, if any– After the entry is made, the registrant ensures that notice is sent to all other registered users. The Trademark Journal is updated with this information.
Trademark licensing is a powerful tool in preventing trademark infringement, benefiting both the licensee and the licensor in their commercial development. Moreover, it helps to enhance the brand image since the licensee is required to maintain strict control over the quality and standards of the products and services sold or offered under the mark. To avoid misunderstandings and confusion, it is essential that the parties explicitly state their intentions, which necessitates a well-drafted and structured agreement. Additionally, it is important to consider local tax concerns with regard to royalty payments.
It should also be noted that trademark licensing agreements should contain certain provisions that govern the relationship between the licensee and the licensor. These provisions may include a description of the licensed trademark, the scope of the license, the duration of the agreement, the payment of royalties, quality control measures, and dispute resolution mechanisms. It is important to consult with a qualified attorney to ensure that the license agreement is legally binding and enforceable.
- TRADEMARK LICENSING IN INDIA, Selvam and Selvam, https://selvams.com/kb/in/trademarks/trademark-licensing-in-india/
- Licensing of Trademark in India, Vakilnol.com, https://www.vakilno1.com/legal-news/licensing-of-trade-marks-in-india.html
- Trademark licensing – Indian context, Legal Service India – Law, Lawyers and Legal Resources, https://www.legalserviceindia.com/legal/article-4019-trademark-licensing-indian-context.html#:~:text=Trademark%20licensing%20in%20India%20is,provisions%20relating%20to%20registered%20users.
- Aparthiba Debray, Trademark licensing in India – trademark – India Trademark Licensing In India – Trademark – India (2020), https://www.mondaq.com/india/trademark/889878/trademark-licensing-in-india
Authored by Dhruv Kaushik Legal Intern, LawDiktat
Edited by Sahid, Team Member, LawDiktat.