Trademark licensing is when a trademark owner allows another party to use the mark without transferring ownership of the said trademark. Such a licensing arrangement can be in the form of franchising and/or merchandising. Licensing of a registered trademark does not confer any proprietary rights upon the licensee, but is merely a permission to use the marks.
Licensing has become a common practice among the owners of a trademark. The fundamental benefit of licensing is that it allows the owner of the mark to branch out his business by way of franchising and/or merchandising. Both the parties benefit from this arrangement. The owner gains from the consideration received by way of royalty on the sales of the product or services licensed and the licensee gains from the brand value of the trademark.
Essentials of Trademark Licensing
Like any other contractual arrangement; the licensor and licensee enter into a written license agreement which specifies the rights and obligations of both the parties. There are no statutory provisions prescribing the terms and conditions of the licensing agreement. However, the agreement must be submitted with the Registrar of Trade Marks in the form of an application, wherein the particulars of the user/licensee and owner/licensor are specified. The Registrar of Trade Marks once satisfied with the application made may then proceed with recording the proposed user/licensee in respect of the said goods and services.
Registering the license agreement under the Trademarks Act, 1999 (“TM Act”)
Registering a person or an entity as the licensed user of the trademark with the Registrar of Trade Marks is not mandatory. Whilst the validity of the licensing arrangement will not be questioned merely because the licensee is not registered, however, an unregistered trade mark user has no right to proceed against any third party for infringement of the mark.
For recording the license agreement with the Registrar of Trademarks, an application is to be made within 6 (six) months from the date of entering such an agreement. For the purpose of registering a person as a registered user/licensee of a particular mark, the registered proprietor/licensor and the proposed user are required to jointly apply to the Registrar of Trademarks by way of Form TM-28 accompanied with:
- The agreement in writing or a duly authenticated copy thereof, entered into between the registered proprietor/licensor and the proposed user/ licensee with respect to the permitted use of the trademark.
- An affidavit made by the registered proprietor to the satisfaction of the Registrar of Trademarks specifying details such as:
- Relationship between the registered proprietor and proposed user;
- Goods and services in respect of which registration is proposed;
- Conditions or restrictions relating to the use of mark, if any;
- Duration of usage of the mark by the proposed user, if any.
- Power of attorney in favor of the Agents.
- Any other documents or evidence required by the Registrar of Trademarks.
Assignment of trademarks refers to the process of assigning the rights in respect of the trademarks by one party (assignor) to the other (assignee). Assignment of trademark is covered under Section 45 of the TM Act, which requires the assignee of a trademark to apply for registering its name as the proprietor of the trade mark in respect of the goods or services in respect of which the assignment or transmission has effect, with the Registrar of Trademarks by way of prescribed forms TM-23 or TM-24 along with the requisite documents and fee. In case of unregistered trademark, in terms of the TM Act the trademark may be assigned or transmitted with or without goodwill of the business concerned.
Trademark Assignment & Licensing – A comparison
The differences between licensing and assignment are vital. Assignment is a form of permanent transfer, while a license is a temporary transfer. The strategic difference between the two is that the ownership of the mark is not transferred in a licensing agreement whereas; assignment of trademark is the transfer of proprietorship. Therefore, an assignment involves a change of ownership as the assignee becomes the owner of the trademark and possesses the associated rights, title etc. Assignment may be with or without goodwill; a partial or a complete assignment. Furthermore licenses are revocable in nature while assignments are not.
Claim over Goodwill – a Controversy
Though a license agreement proves to be beneficial for both the parties, the licensee is obliged either under contract or otherwise to spend a substantial amount on the mark for the purpose of marketing and advertisement. The licensee is required to maintain the standard of the mark and not compromise on the quality of the goods and services offered under the said mark. Therefore it can be observed that, if a particular mark is not well known in India, the licensee is then required to invest a considerable amount of money for advertising the said mark. This investment contributes towards the goodwill of the mark; however, once the license agreement stands terminated the licensee has no claim over the goodwill of the said mark.
Trademark licensing holds an important position as this practice allows the regulated exploitation of a trademark and creates synergies. It is most advantageous for foreign companies who aspire to find their own niche in India without having to compromise on their ownership over the same mark.