One of the drastic turnarounds caused by the introduction of the new Trade Marks Act, 1999, repealing the old Trade Marks Act, 1958 was broadening the definition of the phrase ‘permitted use’. In the new Act, the use of a registered Trade Mark is now permitted not only by the registered user, but also by a third person who is permitted to use the captioned registered Trade Mark with the consent of the registered user. A license agreement would be signed between the registered user and the third party. The clauses would mainly include granting of rights, royalty payment, duties and obligations of both the parties, arbitration/mediation clauses, termination and its consequences, to name a few. This practice is called Licensing which is treated as a part and parcel of any business these days.
The Trademarks Act does not mention the term ‘License’ but the concept under the Act is mentioned as that of a ‘Registered User’.
Trademark licensing is advantageous to both the parties. While the licensor enjoys its rights to the mark by getting the royalties for its use, the licensee is able to expand its market operations by using the brand and developing its reputation.
The advantage of Licensing is that it widens the scope of the product that the Trade Mark covers and extends its growth in terms of value and reputation. It is a win-win situation for both the proprietor of the Trade Mark who has already established himself in the business arena (the licenser) and for the person who might be just a start-up company (licensee).
Licensing, the licensor is open to license the rights over the trademark in manner it may like. The Licensor can restrict the rights of the licensee in a trademark or brand with respect to the products or services wherein the licensee can use such brand, with respect to time for which it can use such mark, with respect to area within which it can use such mark.
The main difference between patent licensing and Trade Mark licensing is that a patent holder can solely license his invention as a patent whereas under the Trade Mark law, a Trade Mark cannot be used solely for the purpose of licensing.
When it comes to determining what exactly constitutes ‘quality control’, McCarthy in his book ‘Trademark and Unfair Competition’ has observed that under the understanding of the quality theory, the consumer assumes that products sold under the same trademark will be of equal quantity regardless of the actual physical source or producer of the goods. This means, as per the expectations of the potential consumer, the legal form of ownership and control of a Trade Mark should not affect the final produced goods or service. Hence, whatever be the form of quality control exercised by the registered proprietor over the use of the Mark by the registered user, the provision of the quality control and the expectations to provide the same, must be written in an agreement (which is between the licensor and the licensee) as one of the stipulated condit.