This article has been written by Arkadyuti Sarkar, pursuing the Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho.
Raghav owns a restaurant at Connaught Place in New Delhi. His business is doing good and has become immensely popular with time. Now he wants to expand his restaurant to other regions of New Delhi. But there is a little problem. He cannot afford the funds to establish a new setup. Sattel is a world-known toy manufacturer. It is planning to launch a new product in India that will be based on an Indian superhero by the name of Z Man. Hence, they are looking for some Indian company that would manufacture the products solely in the Indian market. Ronda, a famous Japanese automobile manufacturer is looking for an engagement in the Indian market for launching its motorcycle range. Mero accepts Ronda’s call and they decide on jointly manufacturing the motorcycles. All these are just a few examples of business engagements where trademark licensing shall come into play. In this article, we will elaborate upon the concept of trademark licensing and its process and benefits from the Indian perspective.
The term trademark license is undefined in the Trademark Act, 1999. A license generally permits the licensee in doing an act. By the process of trademark licensing the trademark owner, i.e. the licensor can permit another person or party, i.e. the licensee to use the trademark owned by him, on the basis of mutually agreed on terms and conditions. Trade Mark licensing is a form of merchandise agreement where the licensor receives a certain monetary amount or royalties, a percentage of all sales, etc. in exchange for sharing the trademark he owns. These considerations are also known as compensation. The licensee usually creates a trademark licensing agreement, however, the licensor is also capable of such creation. Both the parties generally agree upon the agreement terms before agreeing.
Issues involved with trademark licensing in the past
Trademark licensing was supposed to be impossible at one point in time. Because the prime function of a trademark is indicating its origin. The fact that a commodity is produced or delivered by a licensee (a person authorized to use the trademark by its owner/proprietor) means that such commodity is originating from a source other than the owner. Hence, it would create a false or deceptive representation to the consumer since the actual source of the commodities involved. However, trademark licensing became acceptable where the trademark owner (the licensor) retained control over the nature and quality of the commodities sold in association with the trademark. Therefore, quality control is the core of trademark licensing. It provides the means to guarantee that the licensee’s use is at par with the licensor’s interest in the mark. Also, licensing ensures that the buyer will essentially receive the same quality good or service irrespective of where it is purchased or the service is availed by him.
Different types of trademark licensing
This is a form of specialized license permitting a franchisee (the licensee) to use a particular business model and license a bundle of IP rights in return for a fee. Franchisees are provided trademark licenses and supported by training, technical support, and mentoring from the Licensor. When a business model is successful and replicable at other locations, then it permits the interested 3rd parties to establish independent businesses. Such businesses are based on a proven business model, alongside its attendant trademarks, know-how, and other intellectual property rights (like designs, patents, and copyright). Franchising has proven to be a highly successful and rapidly emerging trend. The key factor in franchising involves licensing of IPR, especially trademarks. Raghav’s situation mentioned in the introduction is a perfect example of prospective franchising.
Merchandising broadly encompasses the licensing of artworks, designs, trademarks, including fictional characters (protected under these rights) and real personalities. Permitting manufacturers of ordinary consumer goods including plates, mugs, towels, caps, clothes, to inscribe the trademark of another on their products.
This immediately increases the appeal of an otherwise commonplace object and distinguishes them from other similar products in the marketplace. Sattel’s scenario in the introduction fits the example of merchandising perfectly.
In this case, two or more reputed trademarks may join together in one product to create a new appeal to the same consumer base or enter a new market. The Ronda and Mero collaboration mentioned in the introduction is a perfect example of co-branding
A business owner whose products comply with certain technical or other standards while adding value and increasing customer appeal can license the right to use the trademark of the certifying entity. There may be government standards-setting organizations, quality control institutions, and testing organizations certifying that a product meets that standard, quality, or requirement in question. Such certification is issued if a particular product satisfies the standard, quality, or other requirements, This conveys to the purchaser through the use of a particular logo or mark belonging to that approving institution and licensed for such use. For eg: FSSAI certification, FPO mark, ISO Certification, ISI mark, etc.
Component or ingredient branding
An owner may license the right to use the trademark of an ingredient. Using the trademark of such an ingredient in the packaging, advertising, or on the host product itself influences the consumer behaviors towards that product. The reputation of the trademark of an ingredient adds value and appeal to the host product. Example: Personal Computers using Intel Processor or NVIDIA Graphics card marks, Audio devices with Dolby Surround Sound and Digital D3 marking, Teflon marks in cooking utensils.
In this scenario, a company may agree with another company, provided with the right to use the former’s trademark on a new product. Example: Monaco Coach, a manufacturer of luxury recreational vehicles entered into a licensing agreement with Dodge, a manufacturer of trucks, to use the Dodge trademark and logo on their trailers. By this agreement Dodge successfully extended their product (trucks) into (trailers)
Person to be granted a trademark license
The holder/proprietor/owner of a registered trademark is authorized to grant a trademark license. However, under Indian law, both the registered and unregistered trademark can be transferred, either through licensing or through an assignment. Trademark licensing in India can happen either through a simple license agreement concerning permissive use, or a registered user agreement where the license agreement is registered with the Trade Marks Registrar. The trademark license can be granted to any person or a third party of whom the proprietor is desirous of letting the exploitation or use of the trademark.
- Trademark assignment refers to the absolute selling of the trademark, whereas trademark licensing refers to the renting of the trademark through mutual agreement.
- Assignment deeds must be in written form, but the license may either be oral or written.
- Trademark assignment is permanent. However, the trademark license is temporary and time-specific.
- Once a trademark is assigned to another person the owner loses his/her rights over the trademark. Whereas, trademark licensing does not involve any loss of the right of the owner over the trademark.
By registering the license agreement, the licensee becomes a “registered user” under Section 49. For registering a registered user, a joint written application needs to be filled to the Registrar under TM-28 Form within 6 months from the date of the licensing agreement. The following is the step by step elaboration of the registration procedure:
1. Filling under TM-28
The form TM-28 needs to be filled in triplicate endorsed by the following documents:
- The license agreement between the registered user and the licensee or a duly authenticated copy thereof.
- Any available document and correspondence, or a copy thereof.
- Affidavit in support.
- Such other documents and evidence/information as required by the Registrar.
2. Drafting Supporting Affidavit
The supporting affidavit should include the following:
- The exact relationship existing between the registered proprietor and the proposed registered user.
- Particulars depicting the degree of control by the licensor.
- Commodities in respect of which registration is proposed.
- Imposed conditions or restrictions under the license.
- Period of permitted use of the licensed mark.
3. Ensuring that the license agreement includes:
- All particulars are mentioned to endorse the affidavit.
- The terms concerning royalty and other remuneration.
- The means terminating the permitted use.
4. Filling of the application
The applications under Form TM-28 can be filed either online or offline to the Registrar.
The Registrar may subject the application to either complete or conditional acceptance. A conditional acceptance is made when the conditions/restrictions/limitations are imposed on the permitted use under the license. In such a scenario, the registrar will notify the applicant.
6. Hearing in the case of conditional acceptance
Upon the issuance of the notice by the Registrar, the parties may go for a hearing. Upon receiving the application for hearing, the Registrar may appoint time within 2 months.
After the hearing, the Registrar may accept completely or conditionally, or entirely reject the application. The Registrar must communicate the same in writing. It is noteworthy that if the party fails to apply for a hearing within 1 month of the notice issuance, the Registrar may accept the agreement with the conditions and limitations he has imposed.
7. Entry in Register
Upon acceptance, the Registrar enters the proposed registered user as a registered user in the register.
8. Notifying other registered users
After entering in the register, the Registrar has to ensure the issuance of such entry to every other registered user of the trademark (if any). The Registrar must also guarantee that this fact is published in the Trade Mark Journal.
The following are some of the advantages or benefits of licensing a trademark.
- Sharing instead of shouldering
Running a business is a heavy burden on the shoulder. This becomes an issue for the small to medium traders. With a trademark licensing agreement, these small or medium trade persons team up with a professional partner who can share the burdens. There are additions of new pressures, such as monitoring the trademark use and compliance with the license agreement. But with someone in the assistance having the common goals, the level of liability distribution evens up.
- Gaining experience
A trademark owner may lack the essential skills, capital, or commitment required for the commercial exploitation of such trademark. Such an owner may have limited but not all and every expertise. Therefore, this is part of the reason for selecting an appropriate licensee. This type of licensing agreement can offer a partnership with experience in the areas that the proprietor still requires some time to learn.
- Reaching new markets
Consumers usually build their purchasing decisions on either or both of these 2 aspects:
a) Brand reputation; and
b) Personal experience with a certain brand.
Newer licensors, therefore, have an opportunity to build partnerships that can leverage an existing reputation. The business should expand through the licensee’s existing marketing and distribution channels, increasing awareness for the proprietor, and automatically surging the trust in his mark due to the association with the better-known brand. This can benefit both the owner and the licensee in the long term.
- Earning passive revenue
Each of the previously mentioned advantages is finally an attempt for boosting the financial returns for the trademark owner. Regardless of where the owner is positioned in the branding process, a licensing agreement may allow him a relatively passive income without losing any ownership rights. On one side, the manufacturers are often willing to pay significant royalty rates for the indemnification rights of their goods with an established and widely recognized trademark. On the other hand, increasing awareness of the owner’s brand by associating with another well-known brand generates additional revenue for the owner too.
- An effective mitigation tool
Trade Mark infringement can result in a huge shock to the Trade Mark owner. The first thing that pops up in the mind at such a moment is filing an infringement suit. However, for companies lacking extensive legal resources, such suits can be an expensive deal. Sometimes a better solution lies in mitigating the damage and quite possibly improves the business too – by proposing a trademark licensing agreement to the infringer rather than threatening a suit. This approach is great for forming relationships, supporting goodwill, and fostering consumer confidence.
Cancellation of registered user status may be made in the same Form TM-U. A cancellation could be initiated either by the proprietor or the registered user or any other registered user of the same trademark. The circumstances permitting for the cancellation are as follows:
- Violating the written agreement
- Using the mark purporting to cause confusion/deception.
- Misrepresentation or concealment of some material facts by either of the parties.
- The change of circumstances, since the date of registration, in such a way that at the date of such cancellation application that they would not have justified registration of the registered user.
- That the registration ought not to have been affected per the applicant’s rights, by a contract, in the performance of which he is interested.
Any cancellation or any omission which the Trade Mark Office might make shall be notified to the other registered users who are likely to be affected by such cancellation and also to the registered proprietor.
Therefore, a trademark license can only be granted by the owner/proprietor of a registered/unregistered trademark to any other person. It can be done through franchising, merchandising, co-branding, brand extension, etc. The trademark licensing can bring in benefits like heaving commercial burdens, expanding to new markets, gaining new experiences, earning passive revenue, etc for the proprietor of the mark. Trademark licensing agreements, although non-mandatory, can always come in handy for any future dispute that may arise. A trademark license can also be canceled on violation of the license agreement, using such mark for confusion, or deception, change of circumstances post-registration, non-execution of the mark under the applicant’s rights, etc.
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