INTRODUCTION
A trademark license is an agreement between the owner of a trademark and a third party, permitting the third party to use the trademark for certain duration and in respect of particular goods and services, and for a particular amount of consideration or royalties. There is no absolute transfer of trademark in a process of licensing. The ownership to the mark is retained by the owner/holder and only a limited right to use, sell products under the mark are given to the third party. Licensing of trademarks may be done to franchise a business, increase the supply of the products covered by the trademark, expand a business, or simply to increase the popularity of the trademark.
PREREQUISITES TO DRAFT AN ASSIGNMENT AGREEMENT
- The assignment agreement must be in writing;
- One of the most important elements of License Agreement is the quality control provision to protect the goodwill of the trademark rights. The quality control provision of a license agreement must ensure that the licensor of the trademark has set standards to maintain the goodwill attached to the trademark. Quality control provision of a license agreement may include, but are not limited to the ability to audit the licensee’s accounting records or bookkeeping, inspection of the licensee’s facilities, internal audits of the licensee’s protocols, and review of media use printed in connection with use of the mark.
- Other clauses include definitions, geographical scope, time limitation/license duration, royalty rate, exclusivity clause and general contractual terms.
REGISTRATION OF LICENSE AGREEMENT
Trademark licensing is governed by the provisions of the Trade Marks Act, 1999 under the terminology registered users/ permitted users. Registration of License Agreement/ Registered User Agreement is not compulsory but advisable to be registered with the Registrar of Trade Marks.
Section 49 of the Trade Marks Act, 1999 provides that the owner of the mark and the proposed user should jointly apply for the prospective user to become a registered user of the said mark. The application is made in Form TM-U. It is to be noted that the application has to be made along with the License Agreement and Affidavit within six months of date of the agreement. On receipt of the requisite application, the Registrar of Trade Marks shall register the user as the ‘registered user’ of the mark and publish it in Journal and intimation of the same shall be sent to the trademark proprietor and other registered users for the same mark.
Cancellation of Registered User
A cancellation of registered user may be made in same Form TM-U. A cancellation could be initiated by the proprietor or the registered user or any other registered user of the same mark. The request for cancellation may be made under following circumstances:
- violation of the written agreement;
- use of mark as to cause deception/confusion;
- misrepresentation or non-disclosure of some material fact(s) by either of the parties;
- the circumstances have changed since the date of registration in such a way that at the date of such application for cancellation they would not have justified registration of the registered user;
- that the registration ought not to have been effected having regard to rights vested in the applicant by virtue of a contract in the performance of which he is interested.
Any cancellation or any omission which the Registrar might make shall be notified to the other registered users who are inclined to be affected by such cancellation and also to registered proprietor.
FAQS
There are two types of trademark licenses: (1) Exclusive license, and (2) Non-exclusive license.
When an exclusive license is granted, the licensee is given the right to use the trademark to the exclusion of all, this includes the licensor. Thus, the licensor cannot use the trademark for the term of the license.
Whereas, in a non-exclusive license, the licensee is given the right to use the trademark., however, the licensor can also use the trademark, and it reserves the right to license the trademark to another party, apart from the licensee.
The licensor does not lose any right over the trademark upon licensing it.
The proprietor does not lose its right over the trademark when it is licensing it.
Yes, a proprietor can license its trademark to more than one licensee.
Registration of a License Agreement with the Trade Marks Registry is not compulsory. However, it is always advisable to register the License Agreement, as only a registered user of a trademark can institute an infringement suit. Whereas a permitted user is not vested with such a right under the provisions of the Trade Marks Act, 1999.
A naked license is a license agreement which is devoid of any provision or clause with respect to the quality control measures taken by the Licensor to ensure the quality and standard of the goods licensed to the Licensee.
A trademark can be sub-licensed. However, the License Agreement must explicitly provide for the Licensee to obtain the Licensor’s permission before sub-licensing the trademark.
A licensee does not have the right to assign or transmit the trademark to another person. The right to assign or transmit lies solely with the registered proprietor of the trademark.
Only a registered user has right to sue for trademark infringement. Thus, a licensee can sue for infringement only when the License Agreement is registered with the Registry.
A trademark can be licensed to any person or entity outside India.
It is important for a licensor to exercise quality control over the licensed trademark to protect the reputation of his trademark. The trademark, when licensed, is capable of losing its value and reputation, if the licensee does not maintain the quality or standards of the goods or services licensed to it. Thus, the licensor must ensure that the licensee produces the same quality of goods or services, as offered by the licensor, if not better.
A Licensor must clearly lay down the terms and conditions of the license when licensing its trademark. This includes clauses with respect to:
- term or duration of the license;
- the geographical extent of the use of the trademark;
- the goods and services in respect of which the trademark can be used;
- the quality and standards that need to be maintained with respect to the goods and services;
- whether the trademark can be sub-licensed, and the conditions of sub-licensing;
- the royalties payable on the use of the trademark by the licensee.