Unit 4: Commercial exploitation of trademarks

1. Rights of a Registered Proprietor

The registration of a trademark confers a bundle of exclusive rights upon the proprietor. These rights are foundational to the commercial exploitation of the mark and are primarily governed by Section 28 of The Trade Marks Act, 1999.

1.1 The Exclusive Right to Use the Trademark

• Core Right: The primary right granted to the registered proprietor is the exclusive right to use the trademark in relation to the goods or services for which it is registered.
• Meaning of "Use": Use of a mark is not limited to its physical application on goods. It includes:
  • Affixing it to goods or their packaging.
  • Offering or exposing goods for sale, putting them on the market, or stocking them for those purposes.
  • Importing or exporting goods under the mark.
  • Using the mark on business papers, invoices, or in advertising.
  • Using the mark in a digital environment, such as on a website, in domain names, or as a keyword in online advertising.
• Scope: This exclusive right is limited to the specific classes of goods and services for which the trademark is registered. For example, the owner of a trademark for "PYTHON" for footwear cannot prevent someone from using "PYTHON" for programming languages.

1.2 The Right to Prevent Infringement

The exclusive right to use is meaningless without the corresponding right to prevent others from unauthorized use. This is the right to sue for infringement, governed by Section 29 of The Trade Marks Act, 1999.

• What is Infringement? A registered trademark is infringed by a person who, not being a registered proprietor or a permitted user, uses a mark in the course of trade which is:
  1. Identical Mark & Identical Goods/Services (Section 29(1)): Using a mark that is identical to the registered mark on identical goods/services. This is the clearest form of infringement and confusion is presumed.
  2. Identical/Similar Mark & Identical/Similar Goods/Services (Section 29(2)): Using a mark where:
     • The mark is identical to the registered mark, and the goods/services are similar.
     • The mark is similar to the registered mark, and the goods/services are identical or similar.
     • In these cases, infringement occurs if the use is likely to cause confusion on the part of the public, or is likely to have an association with the registered trademark.
  3. Identical/Similar Mark & Different Goods/Services (Section 29(4)): This applies to well-known trademarks. Infringement occurs if:
     • The registered mark has a reputation in India.
     • The infringing mark is identical or similar to it.
     • The use is on goods/services not similar to those for which the mark is registered.
     • The use is without due cause and takes unfair advantage of, or is detrimental to, the distinctive character or repute of the registered trademark. (e.g., using "Mercedes" for a line of pencils to trade on their reputation for quality).
• Infringement by Advertising (Section 29(8)): Using a registered trademark in advertising constitutes infringement if such advertising:
  • Takes unfair advantage of the mark's reputation.
  • Is detrimental to its distinctive character.
  • Is against the honest practices in industrial or commercial matters. (This covers comparative advertising that disparages the trademark owner).

1.3 The Right to Obtain Relief for Infringement

Upon successful proof of infringement, a proprietor can seek several remedies from a court:

• Injunction: A court order restraining the infringer from further using the mark. This can be temporary (interlocutory) or permanent.
• Damages or Account of Profits: The proprietor can choose either:
  • Damages: Compensation for the financial loss suffered due to the infringement.
  • Account of Profits: An order for the infringer to hand over all profits made from the unauthorized use of the mark.
• Anton Piller Order: An ex-parte order for inspection of the infringer's premises and seizure of infringing goods and documents, preventing the destruction of evidence.
• Destruction of Infringing Goods: An order for the delivery up and destruction of the goods bearing the infringing mark.

1.4 The Right to Assign and License the Trademark

A trademark is a form of intellectual property and can be commercially dealt with like any other asset. The proprietor has the right to:

• Assign: Transfer the ownership of the trademark to another party, either with or without the goodwill of the business.
• License: Grant permission (a license) to another party to use the trademark, without transferring ownership.
  These two rights are the core of commercial exploitation and are detailed further below.

2. Licensing of Registered Trademarks: Scope and Limitations

Licensing allows a trademark owner (the "Licensor") to permit a third party (the "Licensee") to use the trademark in a controlled manner, typically in exchange for royalties. This is a powerful tool for market expansion, brand extension, and revenue generation.

2.1 The Concept of "Permitted Use"

The Trade Marks Act, 1999, does not use the term "license" extensively but instead focuses on the concept of "Permitted Use" under Section 2(1)(r). Permitted use is the use of a trademark by a person other than the registered proprietor, which is deemed to be use by the proprietor himself. This is crucial because continuous use is required to maintain a trademark registration.

There are two main categories of permitted users:

1. Registered User (Sections 48-53): A licensee whose name is formally entered on the Register of Trade Marks.
2. Unregistered User/Licensee: A licensee under a written agreement where the proprietor maintains quality control, but who is not formally registered as a "registered user."

2.2 Scope and Essential Elements of a License Agreement

A well-drafted license agreement is critical. The most important element is Quality Control.

2.2.1 The Doctrine of Quality Control (The Cornerstone of Licensing)

• Why is it essential? A trademark's primary function is to indicate the source and, by extension, a certain standard of quality. If a licensor allows a licensee to use the mark without controlling the quality of the goods/services, the mark can cease to signify a single source of quality. The public may be deceived, and the trademark risks losing its distinctiveness.
• Naked Licensing: A license without any quality control provisions is called a "naked license." This is legally dangerous and can lead to the trademark being deemed abandoned and its registration cancelled.
• How to exercise control? The licensor must have and exercise control over the nature and quality of the goods/services provided by the licensee. This can be achieved through:
  • Supplying key ingredients or components.
  • Providing manufacturing specifications and standards.
  • Regular inspection of the licensee's facilities and products.
  • Requiring pre-approval of all products, packaging, and advertising materials bearing the mark.

2.2.2 Key Clauses in a License Agreement

• Grant Clause: Clearly defines the scope of the license (e.g., exclusive, non-exclusive, sole).
• Territory: The geographical area where the licensee is permitted to use the mark.
• Duration: The term of the license agreement.
• Royalty/Payment: The financial consideration (e.g., lump sum, percentage of sales).
• Quality Control: Detailed provisions on how the licensor will monitor and control quality.
• Scope of Use: Specifies the exact goods/services on which the mark can be used.
• Infringement: Outlines the duties of both parties in case of third-party infringement.
• Termination: Conditions under which the agreement can be terminated (e.g., breach of contract, insolvency).
• Sub-licensing: Whether the licensee is permitted to grant further licenses to others.

2.3 Limitations on Licensing

• No Trafficking in Trademarks (Section 49): The Registrar will not register a person as a registered user if it appears that the arrangement is merely for "trafficking" in the trademark. This means trading in a mark as a commodity in its own right, without any bona fide intention of using it in connection with goods or services to indicate a connection in the course of trade.
• Must Not Create Confusion: The licensing arrangement should not be designed in a way that deceives or causes confusion among the public. The quality control provision is the primary safeguard against this.

3. Assignment of Trademarks

Assignment is the transfer of ownership of a trademark from one party (the "Assignor") to another (the "Assignee"). Unlike a license, where only permission to use is granted, an assignment transfers the title and all proprietary rights in the mark.

3.1 Types of Assignment

The Trade Marks Act, 1999, allows for flexible assignment, moving away from the rigid common law requirements.

3.1.1 Assignment with Goodwill (Complete Assignment)

• Definition: The trademark is transferred along with the goodwill of the business associated with it. The assignee acquires the mark and the business reputation it represents.
• Effect: The assignee steps into the shoes of the assignor, inheriting the entire business value connected to the brand.
• Example: A local bakery with a famous brand name sells its entire business, including the recipes, premises, and the trademark, to a new owner.

3.1.2 Assignment without Goodwill (Assignment in Gross)

• Definition: The trademark ownership is transferred without the underlying business goodwill. The assignor retains the business but sells the brand name.
• Governing Law: This is permitted under Section 39 of the Act, subject to conditions to prevent public confusion.
• Conditions/Safeguards: The law recognizes that separating a mark from its source of goodwill can be confusing for consumers. Therefore, certain conditions apply:
  1. The assignment is only valid if the assignee advertises the assignment in prescribed newspapers as directed by the Registrar of Trademarks. This puts the public on notice that the ownership (and thus the source of goods/services) has changed.
  2. The assignment takes effect only after the assignee applies to the Registrar for directions regarding the advertisement and complies with them.
     • This ensures that consumers are not misled into believing they are still purchasing goods from the original source.
• Example: A large conglomerate owns multiple brands. It decides to stop producing a particular line of clothing but sells just the brand name (the trademark) to another company that wants to use it for their own line of clothing.

3.2 Assignment of Unregistered Trademarks

• Governed by Section 39: An unregistered trademark can also be assigned.
• Key Condition: It can be assigned with or without the goodwill of the business concerned. The same principles and safeguards applicable to registered marks generally apply. This acknowledges the property rights that exist in a common law trademark through use.

3.3 Restrictions on Assignment (Section 40)

The Act places restrictions on assignments that would lead to market confusion. An assignment is invalid if it results in the creation of exclusive rights for more than one person for:

• The same or similar goods/services, and
• The use of those trademarks in different parts of India would be likely to deceive or cause confusion.

Example: The owner of the trademark "AQUA" for bottled water cannot assign the rights for "AQUA" in Northern India to Company X and the rights for "AQUA" in Southern India to Company Y. This would create a scenario where two different companies are the rightful owners in different parts of the country, leading to inevitable public confusion.

3.4 Procedure for Assignment

1. Assignment Deed: The assignor and assignee execute a formal, written assignment agreement.
2. Application to Registrar: The assignee must apply to the Registrar of Trademarks to be registered as the new proprietor. This is done by filing Form TM-P.
3. Time Limit: The application should ideally be filed within 6-12 months of the assignment.
4. Registrar's Approval: The Registrar examines the application and the assignment deed to ensure it complies with the Act.
5. Advertisement (if required): In cases of assignment without goodwill, the Registrar will issue directions for advertisement.
6. Entry in Register: Once satisfied, the Registrar will enter the assignee’s name in the Register of Trade Marks as the new proprietor. This entry is crucial as it serves as prima facie evidence of the assignee's title to the mark.