Author: Mugdha Phadke, V year of B.A.,LL.B from Dr Ambedkar College, Nagpur.
Trademark Licensing is an agreement between a trademark owner (“licensor”) and another party (“licensee”) wherein the licensor consents to the licensee using its trademark in commerce based on mutually agreeable terms.
A trademark owner, known as the Licensor, grants permission to an individual, known as the Licensee, to use his trademark on mutually agreed-upon terms and conditions. Trademark owners also license their trademarks to third parties for use locally in the country where they conduct their own business. The key significance of the possibility is, however, the key significance of the ability to license the use of trademarks; however, lies in its utility in international business relations. Licensing is the primary method by which international firms' trademarks are used by local businesses.
Such license agreements are very common between partners from various developed countries, and they do occur between partners who both are both in developing countries or even between a licensor in a developing country and a licensee in a developed country.
(A)QUALITY CONTROL IN TRADEMARK LICENSING
In the beginning, trademark licensing was considered impossible considering that one of the functions of a trademark was to indicate the source of the product. The fact that a licensee produces or delivers a product or service indicates that the good or service is coming from somewhere other than the owner. As a result, it will be a misleading or deceptive portrayal of the true source of the goods to the user.
However, trademark licensing has become acceptable where the licensor who is the owner of the trademark remains in control of the nature and quality of the goods or services sold in association with the trademark. To protect the trademark's origin-indicating purpose, the owner must exert control over the licensee's use of the mark.
Thus, trademark licensing is all about quality management, ensuring that the licensee's usage is compatible with the licensor's trademark interest while also ensuring that the customer receives exactly the same quality product or service regardless of where the trademarked good is purchased or the service is received. From a licensor’s perspective, the provisions of quality control of a trademark license are the most vital.
The licensor must constantly ensure that the licensee's products/services follow a certain quality, or the licensor's trademark value can suffer. Furthermore, licensors frequently request approval of all advertisement and promotional materials produced by their licensees prior to public dissemination. When a licensor fails to claim and impose strict quality control, the licensor's trademark becomes vulnerable to attack by third parties, and the trademark is eventually considered abandoned.
(B) DIFFERENT WAYS OF LICENSING TRADEMARKS
(1) Franchising: Franchising is a limited license in which a franchisor allows a franchisee to use a specific business model in exchange for a fee and is granted a package of IP rights, including trademarks, as well as training, technical support, and mentoring. When a business model is popular and replicable in other places, interested third parties are allowed to start their own companies Based on a popular business model, trademarks, know-how, and other intellectual property rights (such as designs, patents, and copyright), has proven to be a hugely successful and increasingly growing trend. The licensing of intellectual property rights, especially trademarks, is crucial to franchising.
(2) Merchandising: Merchandising refers to the licensing of trademarks, designs, artworks, as well as fictional characters (protected by these rights) and actual people. Allowing ordinary consumer goods manufacturers to use another's trademark on their items, such as dishes, mugs, towels, instantly adds appeal to an otherwise mundane item and a means of distinguishing themselves in the market place.
(3) Brand Extension: A trademark licensing arrangement allows a corporation to partner with another and grant them the right to use the trademark on a new product. For instance, Monaco Coach, a luxury recreational vehicle manufacturer, has a licence agreement with Dodge, a truck manufacturer, to use the Dodge trademark and logo on their trailers. Dodge was able to effectively extend their product (trucks) into (trailers).
(4) Co-branding: Two or more well-known trademarks, not necessarily of equal standing, which combine in one product to create a new appeal for the same clientele or to break into a new market. Consider the following scenario: Lexus, Toyota's luxury car, and Coach, known for its high-quality leather accessories, teamed up to create the Lexus Coach Edition, a Lexus luxury car with a Coach interior finishing in coach leather products.
(5) Standards: Products that meet a technical or other requirement that adds value to the product and, as a result, consumer appeal will license the right to use the certifying entity's trademark. Government standards-setting bodies, quality-control institutions, and testing organisations may certify a product when it meets the norm, quality, or other requirement, certify that the product meets the specified level, quality, or necessity such information is communicated to the consumer by the use of a specific logo or symbol that belongs to the authorizing organization and has been approved for that purpose.
(C) BUSINESS BENEFIT OF A TRADEMARK LICENSE
Additional Revenue Stream An owner of a trademark can license the use of the mark to as many users or licensees as he or she wants, and each of these users can generate additional revenue.
Territorial Expansion: Allowing a company to grow into a new country or area by allowing it to import products or provide services for which the right to use a company's trademark has been granted through a trademark license agreement.
Benefit from another's manufacturing, distributing, sales or marketing capacity: A business can team up with another partner to profit from that partner's producing, distributing, distribution, or marketing ability without having to invest in building that capacity within its own establishment through trademark licensing.
New channels of distribution or segmenting the market: A business can enter a new channel of distribution or new markets in the same geographical area by licensing its marks, giving the mark a new or different appeal.
Discontinued Marks: Due to mergers and acquisitions, bankruptcy, and the decision to converge on a few or even one perfectly valuable mark, the owners of these marks can abandon them. An owner of such a mark could keep it but license it to someone else so that, although it is no longer doing business under that mark, it is not lost to the public domain and can still make money from it.