IPR Laws“What’s in a name ? That which we call a rose, by any other name would smell as sweet.”
— Juliet from Romeo and Juliet, Shakespeare.
Businessmen today may however choose to disagree with this oft-quoted Shakespearian view, for in the current era, a name as in trade marks or brand names is an extremely valuable asset. Companies, in fact, incur huge expenditure to promote, establish and protect their trade marks and also, in turn, reap benefits of the repute of their trade mark. To quote Mr. Pierre Cardin, “My name is more important than myself.”
A trade mark is normally exploited in two ways, firstly by the proprietor using the trade mark himself in respect of his goods or services and secondly, by the proprietor licensing the trade mark to others. For the purposes of this article, I shall be dealing primarily with the latter.
Licensing of Trade marks
A trade mark licence has been defined as ‘a contractual arrangement whereby a trade mark owner permits another to use his trade mark, where but for the licence the other would be a trade mark infringer.’1 Therefore, licensing of a trade mark is a process whereby a trade mark owner allows, permits and/or authorises another entity the right to use the trade mark, subject to the terms and conditions specified in the licence.
A trade mark licence could be exclusive or non-exclusive in nature. An exclusive licence is one where the licensee is allowed to use the trade mark to the exclusion of everyone else, whereas in case of a non-exclusive licensee there could be more than one licensee.
The Trade Marks Act, 1999 (‘the Act’) does not contain a definition of a trade mark licence, however, it defines the term “permitted use”. Section 2(r) de-fines permitted use in relation to a registered trade mark to mean, inter alia, use by a registered user or use by a person other than the registered proprietor or registered user in relation to the goods and services, subject to other conditions mentioned therein.
The Act defines a registered user to mean someone who is registered as such u/s.49 of the Act. A registered user, put simply, is also a licensee of a registered trade mark, but one who has been so registered under the Act. Such registration can give additional benefits to a registered user such as a right to institute infringement proceedings in his own name.
It may be relevant to note that the definition of permitted use under the Act is broader than the definition of permitted use under the Trade and Merchandise Marks Act, 1958, whereunder only a registered user was recognised as being a permitted user. The new Act, however, clearly recognises use by a registered user or use by any person other than the registered user and the registered proprietor. Hence, statutorily a new category of permitted user has now been recognised. Licensing of unregistered trade marks is commonly known as common law licensing and is governed by the general principles of trade mark law and contract.
Thus, in a nutshell a trade mark licence is an agreement whereby a trade mark owner (licensor) agrees and allows a licensee to use the trade mark for either manufacturing, distributing, selling, etc. products under the licensed trade mark. If not for the licence, use by any other person of a trade mark would be in violation of the trade mark owner’s rights in and to the trade mark.
There are several important conditions that are to be considered whilst drafting a trade mark licence such as the specific goods in respect of which the trade mark is to be licensed, the territory of use, etc. One of the essential factors to be considered while licensing a trade mark is to ensure the maintenance of quality control and/or supervision by a licensor over his licensee in respect of the goods and/or services to be manufactured, sold and/or marketed under the licensed trade mark, for in the absence of such a provision and effective exercise thereof, certain adverse consequences, as are explained hereinafter, as to the licensed trade mark could follow.
Concept/Function of a Trade mark
In order to appreciate the relevance and necessity of maintaining quality control and supervision by a licensor over a licensee, it would be helpful to understand the concept of a trade mark.
Trade marks have evolved from being a strict badge of physical origin2 to being quality and source indicators,3 from being non licensable to being extensively licensed, etc.4
The original purpose of trade marks was to indicate ownership. However, with the development of commercial trade, trade marks have come to serve a different function — identification of the source of goods offered for sale in the market place.5 The recognition of a trade mark as a special form of property right, based on the goodwill embodied in the mark, was integrally linked with the notion that the mark served to indicate the source of the goods.6
The Act defines a trade mark, inter alia, as being” a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others …. a mark used or proposed to be used in relation to goods or services for the purpose of indicating or so as to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right, either as proprietor or by way of permitted use.’7
Thus, it may be appreciated that the primary function of a trade mark is, inter alia, to indicate a connection in the course of trade between the proprietor of the trade mark and his goods or services. Hence, a causal connection must be maintained between the goods or services and the proprietor of the trade mark. The reasoning and/ or rationale for maintaining this causal connection could be attributed to the fact that a trade mark indicates to a consumer the source from which the goods or services emanate and consequently, a certain quality as associated with that source and it is on this basis that the consumer buys certain trade-marked goods as opposed to others.
It may be appreciated that at early common law, trade mark proprietors generally were not permitted to licence their marks to others because trade marks were viewed solely as indicators of physical source of goods.8 However, trade mark licensing was subsequently sought to be permitted so long as the trade mark owner exercised control over the quality of the trade marked goods that were produced by the licensees.9 This is also reflected in a judgment of Lakshmanan J., wherein the Learned Judge has held that,
“These changes have been reflected in our statutory trade mark law in, for example, the broadening of the definition of a trade mark, in the recent provisions of assignment without goodwill and in the recognition in the registered user provisions that a trade mark can be licensed without causing deception or confusion, provided the owner of the trade mark retains control over the character and quality of the goods sold under the mark.”10
It may also be appreciated that the Hon’ble Supreme Court has held that licensing of a trade mark,
“is permissible, provided (i) the licensing does not result in causing confusion or deception among the public; (ii) it does not destroy the distinctiveness of the trade mark that is to say, the trade mark, before the public eye, continues to distinguish the goods connected with the proprietor of the mark from those connected with others; and (iii) a connection in the course of trade consistent with the definition of trade mark continues to exist between the goods and the proprietor of the mark.”11
Quality Control
Quality control and/or supervision of a licensee by a licensor is imperative so as to ensure that there is no confusion amongst the public as to the nature of the goods manufactured, sold and/or marketed under the trade mark. To illustrate, let us take a case where A has licensed his trade mark to Band C to manufacture and sell certain goods under his trade mark. Now, if A were not to maintain quality control and / or supervision over the goods manufactured by either B or C or both, a situation could arise where the goods manufactured by Bare of poorer quality than those manufactured by C or vice versa or that the goods are generally not of the quality which is associated with A. Thus, in such a situation, confusion and/or deception would arise in the market place which could be harmful to the consumers. It is in order to prevent such harm from arising to a consumer that the licensor is required to maintain quality control and/ or supervision over his licensee so as to ensure that a “connection in the course of trade” remains between himself and his goods or services. This protects consumers who rely on the quality statement made by a trade-marked product from being misled as to the quality of the product.
Further, it may be appreciated that in such a case the public would associate goods sold under the trade mark as emanating from A or in any event, as indicating that all the goods sold under the said trade mark since they emanate from a single source as being of identical quality, but since no effective control is being maintained by A i.e., the proprietor of the trade mark, this would result in the trade mark not being able to perform one of its essential r functions. Consequently, the rights in the trade mark would get diluted/ diminished as the trade mark would no longer indicate a connection in the course of trade or provide the assurance of consistent quality. Thus, it could be urged that the licensor has abandoned his trade mark and therefore, the trade mark is no longer distinctive of his goods and hence, may be rectified and/or removed from the Register of Trade Marks.
Quality control must not be understood to mean that the goods or services must be of a high quality but that they must be of a consistent quality, since that is the assurance which a consumer relies on whilst availing himself of a particular trade-marked product or service.
It may also be noted that US Courts have constantly found that licensing without quality control or naked licensing is “a fraud on the public and unlawful”12 and “is inherently deceptive and constitutes an abandonment of all rights in the trade mark and results in cancellation of its registration.”13 Even in U.K., Courts have held that the grant of a bare licence (i.e., a licence without quality control) could result in the proprietor losing his rights in and to the trade mark.
The Act also empowers the Registrar of Trade Marks in this regard to vary or cancel the registration of a registered user on the ground that any stipulation in the agreement between the registered proprietor and the registered user regarding the quality of the goods or services in relation to which the trade mark is to be used is either not being enforced or complied with.14 This power may be exercised even suo mota by the Registrar.
Hence, it is urged that uncontrolled licensing or licensing without quality control also known as naked licensing (USA) or bare licensing (U.K.) can have negative effects on the licensor’s rights in and to the trade mark.
The Scandecor Judgment
It may be appreciated that Courts normally apply a per se rule to cases where absence of quality control is pleaded, that is, once a case is made out of absence of quality control, it is assumed that the trade mark has been abandoned and/or that the trade mark owner ceases to control the trade mark and hence, the same must be rectified and/or removed form the Register of Trade Marks. Thus, whilst applying a per se rule no further factual inquiry is necessary to establish whether the trade mark has actually been abandoned or whether it has lost its distinctiveness after the absence of quality control has been established.
A different view, however, has been taken by the House of Lords in the U.K. in the case of Scandecor Development AB v. Scandecor Marketing AB et al.15 The House of Lords, in the instant case, was dealing solely with use by an exclusive licensee and held in this regard that it was no longer appropriate to apply the per se rule, but that it would be more beneficial to adopt case by case analysis in such matters. Their Lordships held that customers do not rely on a legal guarantee of quality assurance, but rather on the trade mark owner’s economic interest in protecting his trade mark and hence, in the event of absence of quality control by the proprietor of the trade mark, a further enquiry should be made to determine whether or not the trade mark has actually been abandoned and / or lost its distinctiveness. It may be noted that the House of Lords does not hold that quality control is not necessary, but only holds that mere lack of it should not result in a presumptive finding of abandonment and that a further inquiry would be necessary in such case. Also it may be noted that the said judgment only dealt with the case of an exclusive licensee.
In light of the above, it must be appreciated that if effective quality control is not maintained by the licensor, adverse consequences as regards the distinctiveness of the trade mark would follow. Uncontrolled or naked licensing may result in the trade mark ceasing to function as a symbol of quality and may be deemed to be abandoned16 thus, possibly depriving a proprietor of his rights in and to the trade mark.
Developing a trade mark is an expensive and time-consuming process and a proprietor must be extremely weary of losing out on his reputation and goodwill on account of not maintaining the necessary control over a licensee as required by law.
Therefore, it is extremely important to maintain and exercise proper quality control and supervision over a licensee so as to ensure that the proprietor’s rights in and to his trade mark are not diluted nor deemed to be abandoned.
