Licensing & commercialisation

Under s20 of the Act, the proprietor of a registered mark has the exclusive rights to use that mark in relation to the goods and/or services in respect of which the mark is registered. They also have the right to authorise others to use the mark.

The benefits enuring to the owner derive from the marketing advantage of having goodwill in a name or logo. Proprietors of trade marks  treat their trade marks as disposable assets to be sold, licensed, assigned, bequeathed or mortgaged.   Registered trade marks are characterised legally as personal property under S21 of the Act.

Under the present legislation it is also possible to assign a trade mark which is either registered or in the process of being applied for pursuant to S106.  A person who becomes entitled, whether by virtue of a transfer of the registered mark or the right to apply for the mark, must apply to the Registrar to be registered as the proprietor of the mark in respect of the goods/services in respect of which the assignment has effect. ( S107)  A clear distinction must be made between licensing and assignment, as once the Assignor parts with ownership of the relevant mark, they no longer have the right to use it, unless the Assignee licenses back a right of use to the Assignor.

Licensing has some distinct advantages as a means of exploiting trademarks, as it provides flexibility to parties.  The Trade Marks Act provides for the formal recordal of a trade mark licence but has dispensed with any substantive examination of the licence agreement.

An assignment of a trade mark can be partial in respect of some goods or services or in respect of the area in which the mark is to be used. It isn’t necessary for the assignment to be in writing although the Registrar will require some kind of documentary evidence that establishes the title of the Assignee. (r10.1 Trademark Regulations)

The ability of the owner of the trade mark to license the trade mark is a highly desirable feature of the commercialisation and marketing strategy. Licensing can include manufacturing goods through a Licensee, or appointing authorised distributors and franchising.

A license of a trademark need not be put in writing although it is considered good practice for the licensor and licensee to do so. One of the critical aspects of maintaining a trademark’s ongoing validity of ownership is to establish that the registered owner has used the trademark.  Under the Act use of the trademark by an ‘authorised user’ will be taken to be use by the registered owner for this purpose. To qualify as an ‘authorised user’ it must be demonstrated that the licensor has ‘control’ over the use of the trademark.( S8)

S8 indicates what types of user will  be regarded as constituting control for the purpose of the Act. Perfect control over the trademark will not exist if the Licensor retains the ability to control the quality of the goods or services to which the trademark is being applied S8(3) or exercises financial control over the trading activities in relation to which the trademark is being used S8(4)

Despite the existence of these provisions,  Courts have sometimes  held that the fact that the trademark owner has granted a licence, (regardless of the level of control required or allowed by the terms of the licence contract), is been sufficient to satisfy this test.  The reason is because the section isn’t addressed to the control of the mark’s use, rather control of the provision of the service in relation to which the Licensee uses the mark.  It makes sense for the proprietor to retain some control over the activities of the Licensee’s activities even if only slight. For instance there is a real risk that where a Licensee exploits a trade mark they may become associated in the public perception with the mark, to the extent that the mark no longer represents a trade connection with the Proprietor, thereby compromising the validity of their registration.

The definition of ‘authorised user’ may encompass a broad range of subsidiaries of a trade mark owner, whether or not there is any formal licence agreement. Any person who claims an interest in relation to a mark can have their claim recorded in the Register, although such a record doesn’t constitute proof of it’s accuracy S116.

Under S111 when a person requests to be recorded as having some claim or right in a trade mark other claimants are informed of any assignments.

Licenses can present both risks and opportunities and the contract is the mechanism by which the allocation of risk can be managed. In the drafting of license agreements the Licensor should consider the scope of the licence, whether the license is granted on an exclusive basis in the sense that the Licensee is the only person with permission to use the trademark, even to the exclusion of the Licensor. An exclusive licensee may do all things the owner is entitled to do subject to what is agreed between the parties in their licence contract. A Licensor can limit an exclusive or sole license to territory, fields of use and/or duration. It is important to ensure that the granting of the license is not deemed to be anti-competitive under the Trade Practices Act 1974.

Another important consideration is the transferability of the licence. It is common for clauses in licences to stipulate that a licence is non-transferable, so that the Licensee is not authorised to permit another person to use the trademark. It is wise to include in any licence minimum performance obligations, methods of payment, provisions as to the duration of the licence and territorial operation, including whether the licensee has the ability to sub-license. Other provisions will provide for quality and trading approvals, in respect of the Licensor’s requirements for the standards to be met by the Licensee in relation to the production and distribution of the licensed products; inspection of samples of the licensed product before it is produced in significant quantities, and a right to reject samples or demand alterations to satisfy the Licensor’s specifications. The right to be provided with samples of the production run of the licensed product is another mechanism to protect the Licensor’s trademark.

As the goal of merchandising is to generate revenue and achieve market penetration, whilst maintaining the integrity of the brand, the licence should address: a) the setting of minimum sales and/or production goals, and if they aren’t achieved the appointment of either an additional or alternative licensor. b)set guidelines for the use of the licensor’s brand c) set quality standards for the merchandise to be produced or sold by the Licensee d) reserve an entitlement to inspect samples and final items of the product or serve and if not satisfied, require the samples to be remade e)specify the style of retail outlets that the products are to be sold through.

Licenses should contain clauses dealing with intellectual property, including any indemnifying the Licensee against third party infringement claims. A licensor who granted an indemnity would normally reserve to the licensor the right to manage the proceedings. The Licensor may also consider whether to grant to the Licensee the contractual right to bring infringement proceedings against unauthorised use of the licensed product, particularly if the License is exclusive for a particular territory in which the Licensor has no presence and isn’t in a position to monitor the market. There would be requirements to notify the Licensor of infringing activity and indemnifying the Licensor against claims arising from the licensee’s infringement action. Proceeds from infringement actions are usually applied towards the costs of infringement action, with the remainder distributed between the parties.

The advantages of licensing of a trademark are that it allows or brand extension, where the Licensor licenses its brand name to products and services related to its core product or service, allowing them to leverage off their IP with minimal investment in product development or distribution.

Disclaimer:  This site is intended to operate purely as an informational  resource, a general overview of intellectual property and other related legal issues arising online.   It isn’t a substitute for professional legal advice from a lawyer certified to provide legal advice in your jurisdiction.  Neither is it intended to create an attorney-client  relationship.   The law varies in each jurisdiction and we do not warrant the accuracy, completeness or usefulness of any material you read here.

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