Licensing of trademark is a relatively recent development in the history of trademarks. Since the primary function of a trademark is to indicate the commercial origin of goods, products originating from a source other than the trademark owner may not carry the trademark of the licensor unless there is deception involved. Indeed, granting a trademark license can potentially impact the licensor with allegations of non-use and requests for trademark cancellation. The idea of licensor quality control over products bearing the licensed trademark by the licensee opens up the notion that such control is a measure to avoid trademark cancellations. This visionary idea forms the basis for the registered user provisions established in most trademark laws over the past 40 years.
Registered user provisions compel participants in trademark licensing to submit a contract to the registration authority for review, ensuring that the content and scope of quality control will be implemented by the trademark licensor. The registration authority is obliged to ensure that the registration of these contracts is in line with national interests and has the duty to reject the registration of contracts that pose a risk of facilitating unlawful trade activities. However, it is important to note that registration cannot be considered a mandatory condition for the validity of a trademark licensing agreement. Registration requirements are voluntary and non-compulsory. As long as the licensor maintains quality control over the licensed goods and retains a connection with the products bearing the trademark, it is possible to avoid trademark cancellations.
Trademark licensing agreements can be granted together with or separately from patent or technical know-how licenses. Among other provisions, here are common clauses found in trademark licensing agreements:
Permission to Use: Allowing the use of one or more related trademarks is typically the foremost provision in most trademark licensing agreements. Specific details about the trademarks are usually listed in an appendix or schedule, along with the corresponding products using those trademarks.
Number of Licensees: It’s important for the licensee to know how many other licensees are using the trademark within the licensed territory. Another crucial aspect is whether the licensor intends to distribute goods or services beyond the designated territory. Finally, the licensee should be informed if there are other licensees in place to ensure that competitors are also subject to similar terms.
Quality Control: As mentioned, a key point in any registered user agreement is the stipulation that the licensee will not use the trademark for products that do not meet the quality standards defined by the licensor. Quality control provisions specify that the licensee will receive all descriptive information, data, and technical secrets from the licensor to enable compliance with the quality standards. Essentially, this requires regular submission of product samples by the licensee to the licensor and permits inspections of manufacturing facilities, storage, production methods, and the use of raw materials for the licensee’s products. The contract may also allow the licensee to remedy non-compliant products, provided that those products do not carry the licensed trademark.
Marketing: The trademark licensing agreement will specify the geographic areas where the trademark can be used. This often includes prohibitions on commercial activities outside the designated territory and may include clauses prohibiting the licensor from operating within the licensed territory. Advertising materials used by the licensee may need the licensor’s approval.
Financial Arrangements: Besides fees or royalties for the use of the trademark, the licensor may require payment for sending experts to guide the licensee’s staff regarding relevant materials to achieve the required quality standards specified in the licensing agreement. Agreements may be reached to allocate costs for sample product creation. Lastly, the licensee must maintain detailed records and files about the sale of trademarked products.
Breach of Agreement: The licensee is typically required to notify the licensor of any infringements that occur regarding the licensed trademark, and the licensor will handle all such infringements.
