The Concept

The provision regarding the licensing of trademarks in favour of the registered users was introduced for the first time in the United Kingdom by the Trade Marks Act, 1938 on the recommendations of the Goshen Committee which suggested the relaxation of common law principle that there could be no separation or splitting up between the proprietorship of the mark & the trade origin of the goods bearing such marks. Cogently put, Trademark Licensing is an authorization by the proprietor granting to another person the right to exploit his trademark, either on an exclusive or non-exclusive basis. In international trade, licensing is in the present day is much more extensive as compared to the domestic market & has now assumed importance as an indispensable tool of business organization on an international level.

The law governing the licensing of trademarks (The Trademarks Act, 1999) & registration of the registered users has been substantially modified to reflect the approach towards the modern trend of business. A Licensee would fall under the definition of a permitted user under the 1999 Act, where ‘Permitted Use’ means not only the use by a third person of a registered trademark as a registered user but also use by a third person of a registered trademark by consent of the registered proprietor in a written agreement without that person being a registered user. Though the Act is mute on the question of licensing of an unregistered trademark, yet the courts have endorsed the same as common law licensing.

Registered proprietors of trademarks find it beneficial to enter into licensing agreements for various reasons:

Grant of license for the use of their trademark to subsidiaries / independent manufacturers

To meet a large demand for the goods or services bearing such marks, which they are not incapable to meet through their own operations

The profitability quotient which accrues to the proprietor through an exchange for a license fee or royalty.

The territorial limits of a license agreement for a registered trademark are determined by the consent of the parties. The owner of an unregistered trademark selling his goods in a particular territory acquires the right of trademark in that territory only. The same trademark can be used by any other person outside the territory without violating the trademark rights vested in the owner.

There is no fixed term for the grant of license under the Act & the same is dependent on the terms of license agreement entered into between the licensor & the licensee. Nevertheless, the law provides for a confirmation at any time by the Registrar of Trademarks from the proprietor, as to whether the registered user arrangement still subsists.

As the maker of goods seeks to acquire & maintain a reputation for the quality of his goods, the licensor has the right to exercise control over the quality of the products manufactured & marketed under the trademark license. The owner also has the means to review the manner in which the trademark is being used by the licensee. The licensor has a right for the ‘permitted use’ of his mark to be considered as use by him & so no application can be filed by anyone for revocation of the trademark on the grounds of non-use, if there is a permitted use of the trademark in that period. Further, the registered licensor has the right to maintain the continuing distinctiveness of the trademark.

Since the function of the trademark is to indicate the trade origin of goods & services, to prevent any deception of the public, the Act imposes an obligation on the licensor/owner of the trademark to maintain a connection in the course of trade with those goods & services. The registered proprietor also has an obligation to confirm to the Registrar as to whether the Agreement filed before the Registrar continues to be in force.

A registered user has a right to use the registered trademark in relation to the goods or services for which it is registered, but does not get any assignable or transmissible right to use the mark. However, the registered user has the right to file suit for infringement in his own name, making the registered proprietor a defendant. The rights & obligations of such registered user must be concurrent with those of the registered proprietor. A ‘permitted user’, however will have no rights to institute any proceedings for any infringement. The obligations of the licensee can be introduced & the existing ones can be further qualified by the stipulations under the License Agreement.