In business, trademark registration has become essential. They determine the source of services or goods and help consumers trust the quality of what they’re purchasing. But there is something else in trademark law called naked licensing that can be troublesome for trademark owners if not effectively managed. This blog reviews naked licensing, its ramifications and how it is treated in various legal systems.
Understanding Trademarks and Their Functions
A trademark is a picture, word, or phrase which signifies a business or its merchandise. The main function of a trademark is to differentiate one company’s services or goods from those of other people. This establishes the source of what consumers are purchasing and assures some amount of quality.
The quality function is a key function of a trademark. What this means is that all goods which bear exactly the same trademark have to be of comparable quality. Consumers expect this consistency when they make buying decisions. For instance, you expect a product from a big brand name to meet specific standards since you trust that brand.
What Is Naked Licensing?
Naked licensing is licensing by a trademark owner (licensor) which enables an additional party (licensee) to use their trademark without having superiority over the merchandise offered under that trademark. In other words, the licensor doesn’t warrant that services or goods supplied by the licensee are of equivalent quality as those supplied by the licensor. This might result in consumer misunderstandings and harm the trademark reputation.
Why is Quality Control Important in Naked Licensing?
Quality control is a condition in trademark licensing agreements. A licensor which licenses a licensee must contain provisions that permit them to monitor and control the quality of the products or services produced by the licensee. This guarantees customers the exact same quality they want from the trademark, regardless of who produces the services or products.
Without quality control, the trademark is intrinsically ruined. Customers might get substandard services or products and also lose trust in the company. This could harm the licensor’s image and cause monetary damage.
Legal Impacts of Naked Licensing of Trademarks
Naked licensing is generally forbidden under trademark law. If a trademark proprietor is discovered to be engaged in naked licensing, they forfeit all those trademark rights. This is because the trademark is no longer indicating a regular source of quality services or goods.
United States
In the United States, naked licenses are well established. U.S. courts have determined that a trademark proprietor that neglects to exercise sufficient quality control over his licensees could lose those trademark rights. This is because the trademark is abandoned when it no longer reflects consistent quality.
A landmark case here is El Du Pont De Nemours and Co. v. Celanese Corporation of America. In this particular instance, the court said that insufficient quality control might result in the trademark registration being canceled. Another important case is Freecycle Sunnyvale v. Freecycle Network, where the court held the licensor granted a license without quality control and thus abandoned the trademark rights.
India
The naked licensing idea isn’t explicitly addressed in the Indian Trade Marks Act, 1999. Nevertheless, there are provisions hinting quality control in trademark licensing. Sections 49 and 50 of the Act require the registered owner of a trademark to keep control over the quality of services or goods supplied by the licensee.
For instance, under Section 49 (1) (b) (i) the registered proprietor has to affidavit of the level of control over the allowed use when registering a licensee as a registered user. Section 50 (1) (d) allows cancellation of the registration associated with a registered user in case quality control procedures aren’t implemented or observed.
Although these provisions tackle quality control, they’re applicable just to registered users and registration isn’t necessary in India.
Indian courts also have recognized the necessity for quality control in trademark licensing. The court in Schott Glass India Pvt. Ltd. v. Competition Commission of India observed that a trademark is meant to reassure customers of predictable quality. This function can not be fulfilled without quality control.
The court in Rob Mathys India Private Limited v. Synthes Ag Chur stated that in some cases the relationship between the licensor and licensee itself entails sufficient control. For instance, explicit quality control procedures might not be needed in a holding subsidiary relationship. However the licensor still must exercise real control over the quality of services or goods.
Yet another noteworthy case is UTO Nederlands B.V. v. Tilaknagar Industries where the court examined the proof of quality control methods in a license agreement and then determined they had been unenforceable. The court said the licensor’s inaction to enforce quality control was a naked license.
Implications of Naked Licensing in India
India has no explicit provisions against naked licensing, so licensors are left to general concepts of trademark law to avoid the dangers of naked licensing. The key concern is staying away from customer confusion, that is the reason Sections 9 & 11 of the Trade Marks Act enable the Registrar to refuse registration of a mark in case he establishes the mark will probably mislead the people.
Section 57 is concerning the rectification of the Register and provides that the Registrar or the High Court may terminate a trademark in case it’s held to be deceptive. This means a naked license could cause customer misunderstandings and risk the trademark being terminated.
Conclusion
Naked licensing can damage the worth and integrity of a trademark. Providing a trademark to another party without quality control methods means the licensor will lose the trademark rights and destroy their brand name. U.S. and Indian law likewise emphasize quality control in trademark licensing, though the specifics might differ.
To avoid naked licensing, trademark owners should make quality control provisions in their licensing agreements enforceable. This will maintain consumers’ trust and confidence in the brand and safeguard the trademark.
FAQs
How is trademark licensing done?
Trademark licensing is the procedure by which the trademark owner (licensor) enables another person (licensee) to use the trademark on their services or products. This extends the brand reach while maintaining the quality standards of the trademark.
What is licensing of copyright?
Copyright licensing permits the copyright holder to let another party use their copyrighted materials. This includes replicating, distributing or exhibiting the work. Licensing agreements set terms as scope and duration of use to make certain the copyright owner manages the work.
What are the advantages of trademark licensing?
Trademark licensing offers brand expansion, additional income streams and market penetration without investing much. It enables trademark owners to use resources and industry knowledge of the licensee with quality control protecting brand reputation.
What assignment & licensing of trademark section means?
Assignment and licensing of trademarks are the legal provisions and processes under trademark law transferring ownership (assignment) or usage rights (licensing) of a trademark. This specifies how trademarks are assigned to new owners or licenced to various other entities.
What are assignments & licensing?
Assignment and licenses are ways of transferring intellectual property rights. Assignment passes ownership entirely from a single party to the next, whereas licensing enables use of the IP subject to certain conditions without transferring ownership. Both help maximize the commercial benefit of intellectual property.
What is the difference between assigning and licensing patent rights?
The real difference is ownership transfer. Assignment of patent rights involves transferring many rights in the patent to the next person, whereas licensing allows for the usage of the patent under specific terms without transferring ownership. Assignment is permanent while licensing is generally temporary and conditional.
