Article: Can A Licensee Sub-License a Registered Trademark?

Author: Aishwarya Pande

Introduction:

Trademark licensing refers to the process by which a trademark owner can allow third parties to commercially exploit his/her mark in exchange for royalties. While the Trade Marks Act 1999 (“Act”) provides for licensing of a trademark, the Act is silent on the right of a licensee to further sub-license the mark. This article examines the scheme of the Act to determine if sub-licensing can be permitted under the Act.

Licensing under the Act:

The Act does not use the word ‘license’ per se, instead uses the term permitted use. Section 2(1)(r) of the Act provides for two kinds of permitted uses by third parties, viz. “…(i) by a registered user of the trademark in relation to goods or services…”; and “(ii)…by a person other than the registered proprietor and registered user in relation to goods or services.”

Section 48(2) of the Act stipulates (underlining supplied by Author)-

“… (2) The permitted use of a trade mark 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…”

Section 49 of the Act lays down procedure and requirements for registering as a registered user of a trademark:

“… the registered proprietor and the proposed registered user shall jointly apply in writing to the Registrar… and every such application shall be accompanied by—

 (a) the agreement in writing…entered into between the registered proprietor and the proposed registered user with respect to the permitted use of the trade mark; 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…”

Section 54 of the Act specifically states that a registered user shall not have “any assignable or transmissible right to the use thereof”.

Two Sides of the Coin:

From a plain reading of the above-stated provisions, it is clear that the Act allows licensing of a trademark but is silent on the sub-licensing aspect. While Section 48 and 54 of the Act impliedly disallow sub-licensing, yet in the absence of an explicit prohibition, the ability to sublicense a trademark can be read into the Act. Two opposing views in the regard are presented below-

Firstly, Section 2(1)(r) limits the meaning of permitted use to include viz. (a) use by a registered user; and (b) use by any other person in pursuance of a written agreement with the proprietor. It does not envision the right of a permitted user to further sub-license the mark. This view was also supported by a Division Bench [Lahoti R.C., J & Kapoor S.N., J] of the Delhi High Court, in the case of Rob Mathys India Pvt. Ltd. vs Synthes Ag Chur [1997(17) PTC 669 (Del), wherein the Court refused to accept “…user of a trademark by a sub-licensee (who is not a registered user) as user by the proprietor of the trademark…”.

However, the above interpretation of the Court neglected the rights of a bona fide licensee to use a trademark merely because they are not recorded as a ‘registered user’ under the Act. This position was rectified by a three judge-bench of the Apex Court [Ramaswamy K., J, Faizanuddin, J, & Pattanaik G.B., J] in Cycle Corporation of India Ltd. v.  T. I. Raleigh Industries Pvt. Ltd. and Ors. [AIR 1996 SC 3295], which led to the addition of Section 2(1)(r)(ii), giving recognition to “unregistered licensees”. In view of the same, an argument can be made that the scope of Section 2(1)(r)(ii) is broad enough to bring sub-licensees under the ambit of “unregistered licensees”. A closer look at the provision shows that unregistered licensees are also bound by the same conditions as those of a registered user. The only difference being that a registered proprietor must consent to such use of the mark. As such, where a written agreement between the registered proprietor and registered user allows sub-licensing, the same should be considered as valid.

In assessing the above argument, Section 49 (1) (b) warrants attention. The provision mandates that the registered proprietor will assert control over the quality of goods and services bearing the licensed trademark. Absence of these quality control clauses will result in the registered user agreement being disallowed. The issue here arises from the fact that a registered proprietor might not be privy to the sub-licensing agreement between the registered user and the sub-license. Naturally, this raises concerns about the exercise of quality control by the registered proprietor as mandated under the Act.

On the other hand, a purposeful reading of Section 49 shows that sub-licensing may be permitted if the agreement between the registered proprietor and the registered user explicitly allows it. Moreover, the requirement of exercise of quality control (mandated under Section 49) by the registered proprietor can also be detailed in such agreement.

Conclusion:

There seems to be a statutory ambiguity with respect to sub-licensing of registered trademarks. The courts not having encountered the issue recently, this creates a judicial vacuum and leaves the statute open to interpretation. From a business perspective, a sub-licensing agreement seems economical for a brand owner (licensor) as it allows expansion and popularization of the mark. Accordingly, until the issue is brought up before the courts again, a legislative review of the Act in this regard may, perhaps, fill the void.

End Notes:

1. Rob Mathys India Pvt. Ltd. vs Synthes Ag Chur [1997(17) PTC 669 (Del)]
2. Cycle Corporation of India Ltd. v.  T. I. Raleigh Industries Pvt. Ltd. and Ors. [AIR 1996 SC 3295]

Disclaimer: Views, opinions, interpretations are solely those of the author, not of the firm (ALG India Law Offices LLP) nor reflective thereof. Author submissions are not checked for plagiarism or any other aspect before being posted.

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