Trade Mark Licensing in India

Trade Mark Licensing in India

A business’s trademarks and brands are among its most valuable assets. Through strategic trademark licensing arrangements brand owners can not only increase brand awareness but also generate significant income. Trademark Licensing, in essence, allows the Registered Proprietor (“Owner of the Trademark”) to let others use the trademark (“Mark”) without assigning the ownership of the Mark. Trademark license agreements can enhance brand equity and produce revenues for a brand owner. Each licensing structure is different and the reality of trademark license agreements can be complex. A well-structured licensing agreement is important to maximize the value of a trademark while safeguarding against possible ramifications and risks.

Trade Mark Licensing: Relevant Provisions under Trade Marks Act, 1999
(i) Sec 2(zb) r/w Sec. 2(m) of Trade Marks Act, 1999: Definition of Trade Mark
(ii) Sec 2(1)(r) of Trade Marks Act, 1999: Permitted Use
(iii) Sec 39 of Trade Marks Act, 1999: Assignability and Transmissibility of Unregistered Trade Mark
(iv) Sec 48 of Trade Marks Act, 1999: Registered User
(v) Sec 49 of Trade Marks Act, 1999: Registration of Registered User
(vi) Sec 50 of Trade Marks Act, 1999: Variation and Cancellation of Registered User
(vii) Sec 54 of Trade Marks Act, 1999:  Registered User not to have right of assignment or transmission

Diff between Licensing and Assignment
(i) License: Allows others to use the Mark without assigning the ownership for all or some of the goods and services covered. Rights, Term, and Territory given to the Licensee can be restricted with respect to the products or services. Registration of License is not compulsory.
(ii) Assignment: The owner transfers all its rights with respect to a Mark to another entity, including the transfer of the rights such as the right to further transfer, to earn royalties, etc. Assignment can be complete or with respect to only some of the goods/ services. Assignment can also be with goodwill (the consumer perception of the brand) or without goodwill. Registration of Assignment is compulsory. 

Types of License Users
(i) Registered User: A Licensee whose title as such is recorded with the Registrar of Trademarks.
(i) Unregistered User / Permitted User: An unrecorded or common law Licensee, who is permitted to use the registered Mark by consent of the proprietor through a written agreement.

Permitted Use other than Registered User
(i) If the permitted use is by a third party without registration as a registered user, then the following conditions must be met:
(ii) The Mark should remain in the register for the time being and;
(iii) Should be used by a permitted user in the course of his trade.
(iv) Permitted user has to take the consent of the registered proprietor in a written agreement.
(v) The permitted user must abide by the terms and conditions of which the registration of the Mark is subjected to and those which have been laid out by the Registered proprietor.

Benefits of Trademark Licensing
(i) Royalty: The Licensor enjoys its rights to the Mark by getting the royalties for its use.
(ii) Promotion of the Trademark: Licensee uses the Mark as an extension to the Licensor, and thus, the promotion of the Mark becomes more aggressive
(iii) Quality Workload Reduction: With the Quality Check Clause in the License, Agreement, the Licensor can reduce the quality standard workload by assigning the same to Licensee.
(iv) Easy to Set Up: A Licensee can benefit from this type of arrangement because it requires less money from them to start a business opportunity. They can purchase a license instead of outright ownership, then begin to make profits right away.
(v) Entry in Foreign Market: It is much easier to enter foreign markets in this manner, as the license allows for the brand/Mark to jump border requirements.
(vi) Freedom to develop Unique Marketing Approach: A Licensee knows their market much better than the average Licensor. This knowledge allows the Mark to be marketed in a way that is more attractive to the average consumer.
(vii) Quality Maintenance: With the Quality Check Clause in the License Agreement, the Licensor can reduce the quality standard workload by assigning the same to Licensee.
(viii) Brand Recognition: The Licensee may help the Mark be advertised in areas/territories where the Licensor could not.
(ix) Expansion of Trademark: IP Rights being territorial rights, License Agreements can help the Mark being recognized in other territories, which can convert it to Well-Known Mark.
(x) Market Operation Expansion: The Licensee is able to expand its market operations by using the brand and developing its reputation.

Requirements of Trademark Licensing
(i) Under Trade Marks Act, 1999: There must be a written agreement between the Licensor and Licensee regarding License of Mark. The Mark can be registered or unregistered at the time of entering into the agreement for the License. Licensor must be the Registered Proprietor / Owner of the Mark.
(ii) Under Indian Contract Act, 1872: Parties must be competent to enter into a contract. There must be lawful consideration. The contract must be made free from coercion, undue influence, abuse of bargaining power. Fraud and/or Misrepresentation, if committed by either of the parties to the Agreement, can make the contract void.
(iii) Competition Act, 2002: Section 3(5)(i) of the Competition Act, 2002 focuses on activities and agreements that hinder competition or unnecessarily hamper the functioning of the market forces, which are essential to healthy competition. It imposes strict bans on anti-competitive agreements and cartels that have, or are likely to have, an appreciable adverse effect on the economy.

Types of Trademark Licenses
(i) Exclusive License: An Exclusive License means that no person or company other than the named Licensee can exploit the relevant Mark.
(ii) Non-Exclusive: A Non-Exclusive License grants to the licensee the right to use the Mark, but means that the licensor remains free to exploit the same Mark and to allow any number of other licensees to also exploit the same Mark.
(iii) Sole License: Licensee is permitted to use the intellectual property, however, such rights cannot be transferred to any third party.

Trademark License: Procedure for Registration
Registration of Trademark License is not compulsory, as per Section 48(1) of Trade Marks Act, 1999 wherein it use of the word “may”  implies that the parties have the option to register the license agreement. However, it is strongly suggested to register the license agreement to preserve it for use as evidence if any dispute arises out of it, or in relation to it, in the future. The process for registration is as follows:
Step 1: Parties have to file a joint application before the Registrar of Trademarks under Form TM-28, within 6 months from the date of entering into such an agreement.
Step 2: Registrar may accept the application completely or conditionally. If accepted completely, the registration of the application will be on an AS-IS basis. If accepted with some conditions, conditions/restrictions/limitations are put on the permitted use provided in the license and a notice is sent to the applicants. 
Step 3: Parties can apply for a hearing in case they receive a notice from the Registrar regarding conditional acceptance. The time is appointed within 2 months from the date of such communication.
Step 4: If all goes well, the application is accepted. If not, Section 91 allows for appeal against the Order of Registrar of Trademarks, in the concerned High Court,  within 3 months from the date of such Order.
[Note: By way of registration of the license agreement, a licensee becomes a "Registered User" as per Section 49 of Trade Marks Act, 1999.]

Cancellation of Trademark License
The Registrar of Trademarks is empowered to cancel the registration of the Registered User on the following grounds : 
(i) On the application in writing in the prescribed manner by filling form TM-U of the registered proprietor or of the registered user or of any other registered user of the Mark.
(ii) That the registered user has used the Mark otherwise than in accordance with the agreement under section 49(1)(a) or in such way as to cause or to be likely to cause deception or confusion.
(iii) That the proprietor or the registered user misrepresented or failed to disclose, some fact material to the application for registration which if accurately represented or disclosed would not have justified the registration of the registered user
(iv) That 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
(v) 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.
(vi) The Registrar either on his own motion or on the application in writing in the prescribed manner by any person can cancel the registration on the ground that any stipulation in the agreement between the registered proprietor and the registered user regarding the quality of the goods or services in relation to which the Mark is to be used is either not being enforced or is not being complied with.
(vii) To cancel the License Agreement, form TM-U must be duly filled.
(viii) Refer to Section 50 of Trademarks Act, 1999 r/w Rule 94 of Trademarks Rules, 2017.

Leading Case Laws
(i) Gujarat Bottling Co. v. Coca-Cola Co. [(1996) PTC 89]: It was held that so far as a connection in the course of trade with the Trade Mark continues to exist between the goods and the proprietor of the mark, licensing of Trademarks, registered or unregistered may be permitted.
(ii) UTO Nederland BV v. Tilaknagar Industries Ltd [MANU/MH/1827/2011]: It was held that the license could have been rendered invalid, had the performance and terms of the agreement suggested the existence of facts that implied no quality control.
(iii) Bowden Wire v. Bowden Brake [RPC 45, p. 850]: It was held that a trademark license ceases to be valid if there is no connection in the course of trade with the registered proprietor
(iv) Himalaya Drug Co. Pvt. Ltd., Bangalore v. Arya Aushadhi Pharmaceutical Works, Indore [AIR 1999 MP 110]: It was held that if a company fails to prove that it is a registered user then the suit is liable to be dismissed.
(v) M/S Hilton Roulunds Ltd. v. Commissioner Of Income Tax, Delhi High Court [ITA 325/2005]: The High Court of Delhi framed questions that would aid in determining whether an arrangement is a license or an assignment.
(vi) Sant Lal Jain v. Avtar Singh [AIR 1985 SC 857]: Hon’ble Supreme Court held that "a Licensee, and could not, therefore, set up a title to the property in himself or anyone else". “The respondent was a licensee, and he must be deemed to be always a licensee. It is not open to him, during the subsistence of the license or in the suit for recovery of possession of the property instituted after the revocation of the license to set up title to the property in himself or anyone else."

Trademark License Agreements: Key Considerations
(i) Term: Duration for which the Mark is being licensed to the Licensee.
(ii) Scope of License: Purpose for which the Mark is being licensed to the Licensee.
(iii) Exclusivity: Whether the Mark License is exclusive to the Licensee or not.
(iv) Sub-License: Whether the Licensee has the right to sub-license the Mark to a third party.
(v) License Fee: Amount of Consideration to be paid by Licensee for availing the Trademark license from the owner of the Mark.
(vi) Royalty: If the Licensee will be paying a certain percentage of the total profit, to the Trademark Owner,  generated from such Mark license provided by the Trademark Owner. 
(vii) Confidentiality: It is important to keep all vital information of the companies as confidential to avoid any misuse of the information.
(viii) Dispute Resolution: Whether the parties will be referring the dispute to arbitration, or whether the dispute will be decided by a court of competent jurisdiction.
(ix) Indemnity: Whether the Trademark Owner will be indemnifying the Licensee for any damage to the Licensee due to wrongful representation by the Trademark Owner.
(x) Quality Control: The most direct method for demonstrating adequate quality control is through an express written licensing agreement obligating the licensor to actively monitor the nature and quality of products bearing the licensed mark. Because the license transfers some of the goodwill associated with the mark, the trademark owner must maintain quality control over the mark.  Without such control, the agreement is called a "naked license" and it may be argued that the owner has abandoned trademark rights. Therefore all provisions for the licensing of trademarks should provide some means of regulating the nature and quality of the licensee's goods or services associated with the mark.

Sample Trade Mark License Agreement

Great trademark licenses do the heavy lifting. They can help you expand markets, brand recognition and valuable partnerships. License agreements must strike the right balance between safeguards and commercial viability. The Parties to the Trademark License Agreement must bear in mind the legal requirements and, as such, are strongly suggested to have lawyers help them out in their avoiding any risk regarding trademark licensing.

[This article is only a general overview of licensing agreements; it's not intended to be complete and shouldn't be used to prepare a legal document. Using a template you find on the internet is dangerous because it can't address specific laws and your own situation.]