“TRADEMARK LICENSING AND DRAFTING ISSUES”

Kupparaju Amrutha,

Koneru Lakshmaiah Education Foundation, College Of Law, Guntur.

INTRODUCTION:

Intellectual property rights allow individuals to claim ownership over creative and innovative works, similar to tangible property. These rights are divided into four main categories: patents, trademarks, designs, and copyrights. Trademark law is a crucial component, granting exclusive rights to use a trademark upon registration. Intellectual property rights protect inventions, literary and creative works, designs, symbols, names, and pictures used in business. These laws enable people to profit financially from their creations, while fostering an environment conducive to creativity and artistic endeavor. The goal of the IP system is to foster a culture of innovation and creativity.

TRADEMARK:

TRIPS defines a trademark as a sign or combination of signs used to distinguish goods or services of one business from another. The owner has the exclusive authority to prevent others from using the mark without permission. Trademarks can be used by the owner or granted through a license, and can be delegated to another owner. The term "trademark" is defined under Section 2(1) (i) (viii) of the Trademark Act, 1999. Trademark protection helps customers make informed decisions when selecting products or services, as it ensures the branded product comes from or is authorized by the owner. Trademarks protect a company's goodwill against misunderstanding and misleading tactics, and have been implemented to clarify trademark rights and make other businesses aware.

TRADEMARK LICENSING:

Trademark licensing is a process where the registered owner (licensor) authorizes a registered user (licensee) or a third party with the owner's consent to use the trademark in its operation. This can be done through a license agreement without transferring ownership of the trademark. The owner can assign or transfer their rights, but must agree with the third party before transferring them. A trademark license allows the owner to use the trademark in connection with specific goods or services. Expanding the usage and recognition of a brand through trademark licensing can be an affordable and productive strategy for trademark owners. The rights remain with the original owner, but most restricted rights are provided to the third party. The licensee has no right to claim ownership throughout the agreement. Despite the liberalization of trademark licensing in India, sub-licensing is not permitted. A license agreement must be signed by both the registered user and the third party, addressing payment of royalties, rights and responsibilities, and termination clauses. Examples of trademark licensing include merchandising partnerships, franchising, and plant breeders.

TRADEMARK LICENSING AGREEMENT:

A trademark license agreement is a contract between a registered trademark owner and a third party, allowing the licensee to produce, sell, and distribute goods bearing the specific brand. The license is granted for a specific line of goods, granting exclusivity in a specific region. The licensee is required to pay the licensor a certain amount and royalties based on the sales value of the goods supplied. This arrangement is commonly used for fashion, consumer goods, sports, and entertainment. The Trademarks Act of 1999 redefined "permitted use" to include both registered use by a third party as a "registered user" and use without the registered proprietor's consent. It is crucial to consider how Indian Trademark Law has accepted, recognized, and encouraged trademark licensing.[i] 

TRADEMARK LICENSING POSITION IN INDIA:

The Trademarks Act, 1999 in India allows licensing of registered products trademarks by registered and unregistered third parties with a written agreement.2 Unregistered licensees are not allowed to sue for trademark infringement but are granted the right to use the mark under common law.[ii] Registered licensees are exempt from use due to refusal to register[iii] a license and have a legal presumption that their use of the trademark is the owner's own.5 

The Supreme Court has ruled that trademark licensing without registration is governed by common law[iv]. In the Gujarat Bottling case, it was determined that an unregistered licensee can use a trademark if it does not confuse or deceive the public, maintains a link between the owner and branded products, and does not lose the distinctive nature of the mark.[v] The Act also imposes obligations on registered license holders, such as the ability to cancel or amend a registered user's entry by a registered licensee. However, this provision only affects registered license holders and not unregistered license holders. Additionally, the trademark itself can be deleted from the trademark register if one of the registration conditions is violated.[vi] 

Licensing means the brand has some value but cannot be marketed independently or transferred in total value. If a license for a trademark is granted and the trademark is used as a commodity, it would amount to trafficking and violate licensing guarantees, as product quality does not come from such agreements.

Licensing as an Undeniable Effect of Economic Liberalization: Since the New Economic Policy in 1991, foreign investment in India has grown, with international companies using licensing and franchising as strategies to gain a competitive advantage. Licenses prevent duplication of goods, infringe on others' trademark rights, and counterfeit goods. They also ensure that consumers do not pass off their goods under identical marks, infringe on others' trademark rights, or put counterfeit goods on the market. However, the owner of a trademark must maintain quality controls to ensure the protection of their mark.

Theoretical Principles of Trademark Licensing:  Courts' handling of trademark licensing issues in the UK and India can provide insights into concepts and theories related to trademark licensing.

Source Indication principle:

 A trademark aims to identify the product's origins, benefiting the owner by reducing search expenses and promoting goodwill. However, it is not allowed for the owner to grant licenses to other parties to use the mark with products unrelated to them. This principle is maintained under specific circumstances to maintain the source-indication function. Historically, trademarks were considered to only represent the physical source or origin of the product or service. However, this early source theory was deemed philosophically impossible for protection. The rules regulating licensing have been adjusted to recognize that current trademarks serve more than just source indication and are recognized as an indication of a certain quality standard, particularly in the United States, as evidenced by judicial decisions.

‘Quality Control’ Principle:  

The concept of trademarks as strict symbols of source has been replaced by a new justification, representing product quality through trademark licensing. This allows owners to ensure uniformity in the quality of goods sold under their trademark, even if the true purpose of trademarks is to distinguish their goods and services from competitors. The owner is not obligated by trademark law to uphold specific quality, and can legitimately reduce it to compensate for market losses.[vii] 

ESSENTIALS OF TRADEMARK LICENSING:

A trademark licensing agreement must clearly state the rights and obligations of both parties, requiring several essential elements.

Ø  Grant of License: This section provides a summary of the license terms, trademark information, the goods and services the licensee can use it on, and the geographic area it can be used in.[viii] 

The license agreement should specify the term and termination dates, as well as clauses for contract violations or insolvency. Quality control clauses ensure the licensee maintains the desired standard of goods or services carrying the trademark. The trademark owner has the right to review the licensee's operations. Compensation arrangements may include one-time payments, ongoing royalties, or a combination of both. Representations and warranties from both parties are necessary, such as the trademark owner confirming their ownership and the licensee committing to use the trademark in accordance with the agreement. Intellectual property ownership should be specified, stating that the licensee has no ownership rights in the trademark and the trademark owner maintains them.[ix] 

DIFFERENT WAYS OF TRADEMARK LICENSING:

Ø  Franchising: Franchising is a licensing strategy where a franchisee uses a specific business model and licenses intellectual property rights in exchange for royalties. The franchisor receives a brand license, training, technical support, and consulting. This model allows third parties to create independent businesses based on a proven business model, trademarks, know-how, and other intellectual property rights. Franchising is a successful and emerging trend.

Ø  Merchandising: Merchandising involves licensing artworks, designs, and trademarks, including fictional characters and real personalities. It enables manufacturers to use someone else's brand on common consumer goods, increasing their appeal and setting them apart from similar products.

Ø  Co-branding: Two or more well-known brands may combine in a single product to create a new appeal to the same consumer base or enter a new market.

Ø  Standards: Business owners can license the use of a certification organization's brand for products that meet technical or other standards, add value, and increase customer appeal. Certifications may come from government standards agencies, quality control organizations, and testing organizations. These certifications communicate the product's meeting requirements through a specific logo or mark, subject to approval and permitted use.

Ø  Mark the components or ingredients: Owners can license ingredient trademarks, influencing consumer behavior and adding value to host products like audio equipment with Dolby Sound and Digital D3 markings.

Ø  Brand extension: Monaco Coach and Dodge have signed a licensing agreement, allowing the former to use their trademark on a new product, allowing Dodge to expand its offerings from trucks to trailers.12 

TYPES OF TRADEMARK LICENSING:

1.     An exclusive license allows a trademark to be used exclusively for specific goods or services, with a specific period and geographical restrictions. 

2.     A non-exclusive license allows the same trademark to be used by other organizations for specific products or services, often with shorter terms and lower costs.13 

3.     A cross-license agreement allows two parties to use each other's trademarks for complementary products or services.14 

4.     A co-existence agreement allows two parties to use the same or related trademarks for different products or services, preventing confusion.15 

5.     A royalty-free license allows the licensee to use the licensor's trademark without additional charges or royalties, and can be non-exclusive or exclusive, and may be limited to a specific product or service.16 

6.     A product-line license allows the licensee to use the licensor's trademark for a specific line of goods or services, restricted geographically and can be exclusive or non-exclusive.

7.     A territorial license allows the licensee to use the trademark in a specific geographical area.

BENEFITS OF TRADEMARK LICENSING:

A trademark licensing agreement is a strategic tool used by businesses to expand brand recognition, generate additional revenue, and maintain the quality of their products or services. It allows trademark owners to increase brand presence without investing heavily in new products or services. Licensees can access new markets and customers through existing infrastructure and distribution channels. This strategy also allows trademark owners to diversify their revenue

PROCESS OF TRADEMARK LICENSE:

The Trademarks Act of 1999 requires a joint application for registration between the registered owner and the proposed registered user. This application must be submitted in writing to the Registrar in Form TM-U, accompanied by necessary documents and details. The Registrar must register the user for the goods or services they are interested in within six months of the agreement. The registration process includes providing notice in writing to the owner of the registered trade mark, the registered user, and any other registered users with the same name. The Registrar must also ensure that information provided for registration purposes is not disclosed to commercial competitors.

Section 2(1) (r) of the Trademarks Act defines permissible trademark usage, which includes goods or services connected during trade, products or services associated with someone other than the registered proprietor and registered user, written agreements signed by the registered proprietor, and terms or limitations imposed on the user and the registration of the trademark.

The legislation does not require the registration of a trademark license agreement, but it is beneficial as it creates evidence in case of future conflicts. The court decided in Himalaya Drug Co. Pvt. Ltd. vs. Arya Aushadhi Pharmaceutical Works, Indore, AIR 1999 MP 110 that if a corporation fails to establish that it is a registered user, the claim is likely to be dismissed.

To register a trademark license, the contract must be in writing, the trademark owner and the intended user must file a joint application with the Registrar, use the TM-U application form, provide an affidavit signed and certified by the trademark owner, and pay a government charge of Rs. 4500 for each mark. A registered user may use a registered trademark, but the registered owner must enter into an agreement with the prospective user. If everything checks out, the Trademark Office (TMO) will register the user and notify the trademark owner and other registered users of the same brand.[x] 

RIGHTS OF LICENSEE:

Licensees or registered users can report trademark infringement to the owner, initiating proceedings in their name after a month's notice. They must name the owner as an accomplice, but are not liable for costs. Registered users cannot assign or transfer rights without owner consent.[xi] 

CANCELLATION OF TRADEMARK LICENSE:

To terminate a trademark license or withdraw user rights, a trademark owner must file a petition with the Trademark Registrar, detailing grounds like non-compliance with quality control measures or expiration of the agreement. The Registrar will terminate the license, removing the user's use of the trademark. Cancellation can occur under breached agreement conditions, unauthorized use, confusion, withholding of information, or false claims.[xii] 

DRAFTING ISSUES: 

Trademark licensing is a significant aspect of intellectual property law and commercial enterprises. It is the process by which a registered trademark owner, known as the licensor, allows another party, called the license, to use the trademark for specific, agrееd-upon terms.  The arrangement is beneficial for both parties: the licensor expands the brand's reach and profitability without additional еxpеnsе, while the license obtains the rights to use an recognized brand to enhance their own products or services. 

However, to make this agrееmеnt legally valid and to protect the interests of both parties, a licensing agrееmеnt must be thoroughly drafted. A poorly drafted agrееmеnt can lead to disputes 

Trademark licensing is a crucial aspect of intellectual property law and commercial enterprises, allowing a registered trademark owner to allow another party, the licensee, to use the trademark for specific, agreed-upon terms. This arrangement benefits both parties, as the licensor expands the brand's reach and profitability without additional expense, while the licensee obtains the rights to use a recognized brand to enhance their own products or services. However, a poorly drafted agreement can lead to disputes and negatively impact the brand's reputation and value.

Key issues to consider when drafting a trademark licensing agreement include defining the license's scope, considering financial conditions, quality control, usage guidelines, termination and renewal provisions, indemnification obligations, assignment and sub-licensing, confidentiality and non-competition clauses, dispute resolution methods, and compliance with laws. License scope should clearly state what goods or services the licensee is allowed to use the trademark for, including industry or category, exclusivity or non-exclusivity, and the licensor's ability to issue the same rights to other parties. Financial conditions should be outlining upfront costs, royalties, payment plans, and interest or late payment penalties. Quality control clauses should be included to ensure the licensor preserves the reputation and standard connected with the trademark. Assignment and sub-licensing provisions should specify the terms and conditions for such assignments or sub-licenses, and the licensor's right to approve or reject any proposed assignments or sub-licenses. Confidentiality and non-competition clauses should safeguard proprietary or confidential information shared between the parties during the licensing agreement.[xiii] 

CONCLUSION:

Trademark licensing in India allows trademark owners to grant permission to third parties to use their trademarks in exchange for benefits, following the Trademarks Act, 1999, Section 48. The agreement should specify scope, duration, restrictions, and fees, and can be exclusive or non-exclusive. Non-compliance can lead to cancellation under Section 50. A well-drafted agreement requires expertise in intellectual property, contracts, and competition law, and consulting a legal professional is crucial for effective marketing and protection of rights.

REFERENCES:

[i] S.S. Rana & Co. Advocates, Trademark licensing in India, MONDAQ, July 03,2020, https://www.mondaq.com/india/intellectual-property/962048/trade-mark-licensing-in-india 2 Section 2(1) (r).

[ii] Sections 52, 53 and Explanation I to Section 54. 

[iii] Section 46(1) (b). 5 Section 47.

[iv] Caprihans v registrar, (1976) 80 CWN 222 at 228.

[v] Gujarat bottling co.ltd and others v. coco Cola Company and others, AIR 1995 SC 2372.

[vi] Ibid.

[vii] Vernika Tomar, trademark licensing & franchising: trends in transfer of rights, vol.14, MANUPATRA, pg. 397404 (2009).

[viii] Sentindiabiz team, trademark licensing in India, SENTINDIABIZ, April 17, 2023, https://www.setindiabiz.com/learning/licensing-of-trademark.

[ix] Trademark Licensing Agreement, CONTRACTS COUNSEL, https://www.contractscounsel.com/t/g/us/trademark-licensing-agreement/8

[x] Assignment and licensing of trademark, LEGALPAATHSHALA, (Jan 01, 2023), https://legalpaathshala.com/assignment-and-licensing-of-trademarks/.

[xi] Trademark licensing, SSRANA&CO, https://ssrana.in/ip-laws/trademarks-in-india/trademark-licensingassignment-sale-india/   

[xii] Trademark licensing in India, SELVAM&SELVAM, https://selvams.com/kb/in/trademarks/trademark-licensingin-india/.

[xiii] SETINDIABIZ, (April 17, 2023), https://www.setindiabiz.com/learning/licensing-of-trademark. 22 Maria boicova-wynants, trademark licensing, IP BUSINESS ACADEMY, (Nov 12, 2021), https://ipbusinessacademy.org/trademark-licensing.