Last month, I had blogged about the feasibility of a sub-license under the Indian copyright law. In this blog post, I will examine the issue whether the Indian Trade Marks Act, 1999 (“the TM Act”) permits sub-licensing of trademarks. An oft-discussed issue while working on corporate deals which involve IP licensing is the insistence by a licensee that its “right to sub-license” the mark must be provided for in the agreement. In my opinion, it is not permissible under the TM Act. My reasons are discussed below.
Relevant provisions of the TM Act
The relevant provisions of the TM Act for this discussion are as follows:
Section 2(1)(r)
“Permitted use”, in relation to a registered trademark, means the use of trademark-
(i) by a registered user of the trademark in relation to goods or services-
(a) with which he is connected in the course of trade; and
(b) in respect of which the trademark remains registered for the time being; and
(c) for which he is registered as registered user; and
(d) which complies with any conditions or limitations to which the registration of registered user is subject; or
(ii) by a person other than the registered proprietor and registered user in relation to goods or services-
(a) with which he is connected in the course of trade; and
(b) in respect of which the trademark remains registered for the time being; and
(c) by consent of such registered proprietor in a written agreement; and
(d) which complies with any conditions or limitations to which such user is subject and to which the registration of the trademark is subject;
Section 48(2)
The permitted use of a trademark shall be deemed to be used by the proprietor thereof, and shall be deemed not to be used by a person other than the proprietor, for the purposes of section 47 or for any other purpose for which such use is material under this Act or any other law.
Section 49(1)
49.- (1) Where it is proposed that a person should be registered as a registered user of a trademark, the registered proprietor and the proposed registered user shall jointly apply in writing to the Registrar in the prescribed manner, and every such application shall be accompanied by-
(a) the agreement in writing or a duly authenticated copy thereof, entered into between the registered proprietor and the proposed registered user with respect to the permitted use of the trademark; and
(b) an affidavit made by the registered proprietor or by some person authorised to the satisfaction of the Registrar to act on his behalf,-
(i) giving particulars of the relationship, existing or proposed, between the registered proprietor and the proposed registered user, including particulars showing the degree of control by the proprietor over the permitted use which their relationship will confer and whether it is a term of their relationship that the proposed registered user shall be the sole registered user or that there shall be any other restriction as to persons for whose registration as registered users application may be made;
(ii) stating the goods or services in respect of which registration is proposed;
(iii) stating the conditions or restrictions, if any, proposed with respect to the characteristics of the goods or services, to the mode or place of permitted use, or to any other matter;
(iv) stating whether the permitted use is to be for a period or without limit of period, and, if for a period, the duration thereof, and
(c) such further documents or other evidence as may be required by the Registrar or as may be prescribed.
Section 54
Nothing in this Act shall confer on a registered user of a trademark any assignable or transmissible right to the use thereof.
It is also relevant for this discussion to note that the predecessor of the TM Act, the Trade and Merchandise Marks Act, 1958 (“the TMM Act”) did not provide (see sections 48 & 49) for unrecorded licenses within the purview of permitted use.
Indian law does not permit trademark sub-licensing
From a reading of the above sections, my conclusion is that sub-licensing is not provided for under the TM Act. My detailed reasons are below:
a) Section 2(1)(r) of the TM Act provides for two kinds of licenses or “permitted uses” of a registered trademark. The first one is by a “registered user” of a mark, namely, by a licensee whose title as such is recorded with the Registrar of Trade Marks. The second one is by an unrecorded or common law licensee, who is permitted to use such registered trademark by consent of the proprietor through a written agreement. Read with section 49(1)(a), section 2(1)(r)(i) (recorded license) and section 2(1)(r)(ii)(c) (unrecorded license) indicate that a trademark license must be in writing by the proprietor to the licensee. Nowhere do sections 2(1)(r) or 49 contemplate a licensee to further license such rights.
b) One of the requirements to record a licensee with the Registrar of Trademarks under section 49 of the TM Act as a “Registered User” is an affidavit, in which, among others, the proprietor of the mark is to furnish proof of the degree of control by the proprietor over the permitted use. Since the provisions of the TMM Act, including the ones cited above, do not envisage naked licensing situations, it is important for a proprietor to demonstrate that there is quality control exercised by the proprietor in any license. Since the provisions of the Act envisage quality control by the proprietor (and not the licensee), sub-licensing is not possible in the Indian scenario. A Division Bench of the Delhi High Court in Rob Mathys India Private Limited v. Synthes AG Chur held that the object of the TMM Act is to prevent trafficking in trademarks and in view of the limited and restricted meaning of “permitted use” under that Act, it would not appear plausible to accept user by a sub-licensee as user by the proprietor of the trademark. The Court’s observation suggests that sub-licensing is not envisaged under the Indian trademark law. The same principle would apply under the TM Act which now includes even common law / unrecorded licenses within the purview of permitted use.
c) Section 54 of the TM Act stipulates that a registered user of a trademark cannot assign or transmit the right to the use mark. So the rights of a licensee to further license or transmit the rights is curtailed.
d) Under Section 48(2) of the TM Act, permitted use of a trademark by a licensee is deemed to be use by the proprietor for any purpose material under the TM Act or any other law. The language of the section does not speculate any use by a sub-licensee.
In my post regarding copyright sub-licensing, I had concluded that it is possible for an “exclusive licensee” under the Copyright Act, 1957 to further sub-license the rights granted, provided such exclusive licensee has been granted such right by the licensor in the agreement. However, unlike the Copyright Act, there is no ‘exclusive license’ envisaged under the TM Act or its predecessor, the TMM Act. Even if an agreement were to permit a licensee to further sub-license the use of the mark, it would be an agreement that would be contrary to the TM Act and hence, unenforceable as a contract.
From my research and inquiries, it appears that India may be one the rare countries where it is not possible for a trademark licensee to further license the marks.
[Editor’s note: Please click here to view a guest post by Kapil Wadhwa providing a different interpretation of the statutory provisions and arguing that the Indian law does permit sub-licensing of trademarks.]
Refer (ii)(c) in the defn of Permitted Use – does not indicate that the written agreement setting out the registered propreitor’s consent for use should be executed with the user to whom consent is provided.
Also section 49 only sets out the conditions for registering a person as a Registered User. If there is no mandate under the TM Act to register every license (or if permitted, sub license), not sure how this provision can be read to say that the right to sub-license does not exist.
Interesting question though, and thank you for putting down your thoughts succinctly.
Dear JA – Thank you for the query.
As for the query regarding 2(1)(r)(ii)(c), you seem to be concerned that the word “user” is not appearing in the section. The “person” referred to in that section is the common law licensee or an unrecorded licensee with whom the proprietor would be entering into an agreement.
What i am arguing is that there is no provision in the TM Act that specifically permits sub-licensing. Since there is also no provision specifically prohibiting it, we need to read the existing provisions and look for validity of the proposition therein. One common stipulation in 2(1)(r) and 49 is the requirement for a written agreement “by the proprietor” – as opposed to “by the user”. My argument is that, if sub-licensing were possible, these sections would have provided for the written agreement between the “user” (the licensee) and another party “the sub-licensee”). This is further stressed by the requirement on the part of proprietor to carry out quality control. Nowhere do these sections mandate a user or a licensee to carry out quality control. This is further confirmed by the case law I have discussed in the blog.
I hope to have clarified it?
Hi Latha,
Thank you for this insightful post. Could you please provide reference to any case law which clarifies that a “person” referred to in Section 2(1)(r)(ii)(c) is the common law licensee or an unrecorded licensee with whom the proprietor would be entering into an agreement?
Many thanks!
Dear Huzaifa,
Thank you. I am not aware of any case law that discusses this. But Section 2(1)(r) defines “permitted use” which in other words is “license”. In the context of a license, the parties are naturally, licencor and licensee, unless otherwise provided by through explicit language in the section.
Best regards, Latha
Thanks Latha for setting this out so clearly. Just thought I’d throw in the 1996 Supreme Court ruling in Cycle Corp v. Raleigh into the mix as well, for the sake of completeness.
It isn’t much direct use on the sub-licensing issue, but there is a straight line between it and Rob Mathys – a spiritual parentage of sorts that I thought should be acknowledged.
The absence of statutory language to permit room for a sub-licensee, as you say, is the clincher.
Dear Eashan – thank you.
Indeed, Cycle corporation, which was decided under the 1958 Act, was a harbinger to the expansion of the scope of permitted use in the 1999 Act to include unrecorded/ unregistered licensees.
Best regards, Latha
Dear Latha, thank you for this insightful post. I was wondering how do companies with franchising model operate without sub licensing? Also for the purpose of manufacturing, licensee would have to grant a limited sub license to the chosen 3P? Any thoughts on this?
Dear Viji – thank you for your comment and the query as well as for your patience. I apologize for the delay in reverting to you as I had an extremely busy June and July.
What you are raising is a very important practical query. While I am unable to comment on how others do it, I can explain how my firm and I advise our clients on this issue. Franchise models require a multitude of agreements under various statutes between the franchiser and the franchisee. One such agreement, as you know, would be a trademark license agreement between the proprietor of the mark (the licensor) and the licensee wherein the licensee is licensed to use the licensor’s mark. However, due to the large-scale operations often involved in franchising, the licensee cannot always directly manufacture the goods on which the mark would be affixed and would require sub-contractors to effectively execute the franchise. At the same time, the licensee is bound by the agreement with the licensor to ensure quality control in the manufacturing process to ensure that the trademark license is a valid one and that the mark is used as per the terms of the license.
While there is a statutory vacuum on sub-licensing in India, this can still be addressed through a tripartite agreement among the proprietor of the mark (i.e., the franchiser), the Licensee (franchisee) and the sub-contractor who is actually manufacturing the goods. In any such agreement, the consent to affix the mark on the goods would be granted by the proprietor to the sub-contractor. Further, the sub-contractor would warrant in the agreement, among others, that: (i) the proprietor is the owner of the mark; (ii) that the right granted is a limited one for the purposes of carrying out the manufacturing of the goods as prescribed in the agreement; (iii) all rights of use of the mark by the sub-contractor as well as any goodwill accrued thereto would inure to the proprietor; (iv) that the mark will be used only for the purposes of the agreement and as stipulated in the agreement etc. In the absence of such a tripartite agreement, the rights of use of the mark by the sub-contractor would not inure to the proprietor [48(2)]. Besides, this would be a good way to prevent any misuse of the mark by the sub-contractor.
Trust that answers your query.
Viji – please correct the third line in the second para of my comment above to read as “multitude of compliance”. I inadvertently wrote it as “agreements”