Trademark

Is Sub-Licensing of Trademarks Permitted under Indian Law? : An Alternate Interpretation


We’re pleased to bring to you a guest post by Kapil Wadhwa on the issue of permissibility of sub-licensing of trademarks in India. Last week, Latha had discussed this issue on the blog, arguing that sub-licensing is not permitted under Trade Marks Act. In this post, Kapil provides a different interpretation of the statutory provisions and argues that the Indian law does permit sub-licensing of trademarks.

Kapil is an intellectual property law practitioner based out of New Delhi and a Partner at Wadhwa Law Chambers. He graduated with an LL.M. in Law, Science & Technology in 2013 from Stanford Law School. He is the editor of Venkateswaran on Trade Marks & Passing Off (5th edition, 2010, LexisNexis).

Is Sub-Licensing of Trademarks Permitted under Indian Law? : An Alternate Interpretation

Kapil Wadhwa

I recently came across an interesting post on the blog on whether sub-licensing of trademarks is permitted under the Trade Marks Act, 1999 (Act) and wish to add to the discussion putting forth a different interpretation of the statutory provisions.

An owner of the brand/ registered proprietor (‘RP’) himself usually undertakes the manufacturing/ marketing and thus directly controls the use of the mark in print or other visual representation. However, quite often the owner does not have the capacity to undertake all brand-related activities on his own. And therefore they might wish to outsource the manufacturing to another entity, while at the same time ensuring that the quality/ specifications of the outsourced product matches with the quality of the owner’s original products. License agreements typically detail the dos and don’ts with conditions regarding quality control, royalties, geographical restrictions etc. Such use of a mark by a third party under a license/ agreement under the relevant circumstances is recognised as permitted use and any goodwill accrued from such permitted use is deemed to be accrued to the RP. In today’s day and age licensing has become a prevalent practice adopted by brand owners to expand their footprint across the world.

Several international brands have also adopted sub-licensing/ franchising as a business model, having created one entity that owns the intellectual property, and further licenses it through subsidiaries in each country. The subsidiary licensee in such transactions enters into sub-licensing agreements with local manufacturers/ suppliers or appoints a franchise. Below I will assess whether the use of the mark by a sub-licensee (SL) is permitted use or not.

As I see it, trademark licensing/ permitted use can be of both (1) registered trademarks & (2) unregistered trademarks. I will deal with registered trademarks first.

Permitted Use of Registered Trademarks

Section 2(2)(b) of the Act lays down that any reference to the ‘Use of a Mark’ shall be construed as a reference to the use of printed or other visual representation of the mark. The definition of “Permitted Use” under section 2(1)(r) relates to registered trademarks only. The section is further sub-divided based on use by (i) a registered user  (RU) or by (ii) person other than the RP or the RU. The considerations laid down in in sections 2(1)(r)(i) & 2(1)(r)(ii) are quite clear and some relevant considerations are underlined below:

Section 2(1)(r) “permitted use”, in relation to a registered trade mark, means the use of trade mark –

(i) by a registered user of the trade mark in relation to goods or services

  1. with which he is connected in the course of trade; and
  2. in respect of which in the trade mark remains registered for the time being; and
  3. for which he is registered as registered user; and
  4. which complies with any conditions or limitation 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.

  1. with which he is connected in the course of trade; and
  2. in respect of which the trade mark remains registered for the time being; and
  3. by consent of such registered proprietor in a written agreement; and
  4. which complies with any conditions or limitation to which such user is subject and to which the registration of the trade mark is subject;

Section 2(1)(r)(i)

It is not mandatory to record a license agreement with a permitted user with the Trade Marks Registry, however doing so comes with a few benefits such as a RU has a right to institute proceedings for infringement in his own name as if he were the RP.

It is pertinent to note that there is no use of the word license/ sub-license/ Franchise or any other reference to a particular kind of ‘use’ which would qualify as permitted use. For registering as a RU, the requirements of section 49 have to be satisfied:

Section 49 Registrations as registered user

(1) Where it is proposed that a person should be registered as a registered user of a trade mark, 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

  1. 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 trade mark; and
  2. an affidavit made by the registered proprietor or by some person authorised to the satisfaction of the Registrar to act on his behalf—
  3. 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 restrictions as to persons for whose registration as registered users application may be made;
  4. stating the goods or services in respect of which registration is proposed;
  • 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;
  1. 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
  2. such further documents or other evidence as may be required by the Registrar or as may be prescribed.

(2) ……..

(3) The Registrar shall issue, notice in the prescribed manner of the registration of a person as a registered user, to other registered users of the trade mark, if any

(4) …….

The primary requirement is for a RP and a proposed RU to jointly apply by filing a written agreement specifically executed between RP & RU, along with an affidavit by RP as per section 49(1)(b). The Act does not give a specific format for such an agreement between RP & RU. Nor does the Act provide any restrictions for such an agreement to provide for a sub-licensee. As to the degree of control to be exercised by RP, the same can be detailed in the SL agreement between RU & SL or even mentioned in the agreement between RP & RU. Such a SL can be argued to be a valid permitted user under section 2(1)(r)(ii). The agreement between RP & RU allowing for sub-licensing can also amount to ‘consent’ of the RP as required for permitted use under section 2(1)(r)(ii)(c). The affidavit requirements also contemplate the existence of more than one RUs in section 49(1)(b)(i), therefore such sub-licensing can be formalised as another RU by complying with section 49.

Unregistered licenses by way of ‘consent’

Use of a trademark by any person other than the RP or the RU can also amount to permitted use. Such use is commonly referred to as an unregistered license which as per section 2(1)(r)(ii)(c) requires the ‘consent’ of the RP in a written agreement. The word ‘consent’ has a much broader meaning than a ‘license’ and therefore consent given to the licensee for a SL to use the trademark can suffice for a SL’s use to amount to a ‘Permitted Use’. The language does not specifically require that an agreement be signed directly between the owner and the SL. Therefore, as long as A (licensee) has been permitted by C (owner) to sub-licence the brand X, A can sub-license the Brand X to B (SL). The consent given to A by way of an agreement with C should be enough to satisfy the requirements of Section 2(1)(r)(ii)(c). As to the degree of control to be exercised by RP, it is possible that RP would have to directly ensure that quality control is maintained by the SL as well. However, quality control could arguably be contracted out by the owner to A.

It is pertinent to note that the statutory language for a RU under section 2(1)(r)(i) r/w section 49(1)(a) is not as broad as section 2(1)(r)(ii)(c), as the former specifically requires that the written agreement qua the permitted use is entered into between RP & RU. Therefore, in view of the stark contrast in the provisions, the stipulations for an RU cannot automatically be applied to an unregistered license.

Permitted Use of Unregistered Trademarks

The Act does not contain any provision prohibiting the licensing of an unregistered trademark. The Act does allow assignment of an unregistered trademark under section 39 which states:

Section 39. Assignability and transmissibility of unregistered trade marks:

An unregistered trade mark may be assigned or transmitted with or without the goodwill of the business concerned.

Therefore, in the absence of an express bar against licensing of an unregistered trademark, the same would be governed by common law. The terms of a written agreement would operate between the licensor & the licensee and such an agreement could also provide for a sub-license to be granted. Such agreements would have to be carefully drafted to restrict the licensee/ SL from claiming any rights in the goodwill in the business along with stringent quality control mechanisms to be exercised by the licensor.

If common law licensing is not recognised, the owner of the mark would not be able to claim goodwill arising out of use by a licensee, and this would lead to a precarious situation whereby a brand owner would not be able to licence/ exploit its brand until a trademark registrations is granted. This could also be misused by a licensee of a foreign company not present in India who can apply for and obtain a trademark registration in its own name and claim to be the owner of the goodwill in India. In such instances the agreement between a licensor and a licensee/ SL ought to be treated as a valid license and any goodwill in respect of business carried out by the licensee/ SL should accrue to the licensor. Indian courts have been privy to some instances where brand owners have sued for passing off against a licensee who is also a registered trademark holder. They’ve have so far come to the aid of the foreign brand owners.

Conclusion

Therefore, in my opinion a sub-license can exist for a registered and an unregistered trademark in India. Such licenses/ sub-licenses should be drafted with utmost care with safeguards incorporated therein for a licensor to maintain its trademark rights and not to result in naked licensing.

Featured Image from here

[Editor’s note: Please click here to view Latha’s response to this post.]

2 comments.

  1. AvatarAnon

    I agree with the author. It would be very difficult to say our statute did not allow for sub-licensing when according to me and as correctly pointed out by the author, the clear language of the provision leaves enough room for this interpretation.

    Reply
    1. AvatarAnon

      Hi Kapil, this is the same anon as before and the same one that has now commented on Latha’s rebuttal post. I have re-read your post and wanted to compliment you. There is fantastic clarity, structure and articulation here – missing from my own comments obviously. And i find it very difficult to find any loopholes with your arguments. I do hope we get to see more posts of yours on Spicy IP. Cheers mate!

      Reply

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