A trademark is a distinct identifier that helps a person differentiate himself or his product. For an average consumer, a trademark constitutes an identity of the product or service they plan to avail. Not only is a trademark essential for the consumer, but for businesses without a trademark, a company may lose out on customers or profits, as trademarks are quintessential for successful business advertising.
How to Franchise your brand name
A business’s trademark is not just its marker but also a representation of its goodwill and its way to ensure that an average purchaser does not confuse it with a different brand. As per Section 2(m) of the Trade Marks Act, 1999 (“Act“), a trademark can be a specific heading, label, name, brand, signature, word, numeral, a combination of colors, shape of goods, packaging or any variety of the things mentioned above.
Whether big or small, any business seeks to expand and flourish beyond its boundaries. The most popular way for companies to expand beyond their geographical limitations is to go ahead with franchising. The Indian laws do not per se discuss the specifics of franchising a business. However, they do discuss similar concepts of licensing and assignment.
Lincesing and assignement
Licensing and assignment are two methods for the transfer of trademark rights. Licenses are temporary and revocable, while assignments are irrevocable and permanent. The concept of licensing is what is usually employed to franchise a business. The exciting aspect is that the Act does not use the word license or licensing. Still, relevant provisions relating to the concept can be found in the Act while discussing the rights of a registered user.
In the Act, Section 2(1)(r) discusses the concept of “permitted use,” wherein a registered user may use the trademark for goods and services. To license, a registered user is a licensee.
Section 2(1)(r)(ii) more specifically pertains to the use of the trademark by a person other than a registered user or registered proprietor concerning matters of trade, with the consent of such user or proprietor or user while complying with the limitations and conditions laid down by the Act.
Also, Section 48(1) of the Act, when read with Section 49, discusses that a duly authorized written agreement is needed for a registered user to use the proprietor’s trademark.
Section 48(2) also says that the use of the trademark by such duly consented persons will not be considered as different from the usage of a brand by the proprietor as far as the Act’s provisions are considered.
Section 52 of the Act also discusses that a registered user may institute proceedings for infringement in his name as if he were the registered proprietor. The rights and obligations of such registered users will be considered concurrent with those of the registered proprietor.
However, Section 53 of the Act clearly states that a “permitted user,” as defined in Section 2(1)(r)(ii), may not be allowed to go ahead with a suit alleging infringement.
Importance of Agreement
Since a trademark is directly connected to the reputation and goodwill of the brand it represents, it is necessary to ensure that the brand value is not diminished due to the actions of any registered user, that is, the licensee. The most crucial section in this regard is Section 49 of the Act. This section mandates the existence of a written agreement. Still, it also ensures that the agreement must demarcate how the licensor and licensee wish to deal with the quality control issue.
This provision also provides that while the licensee uses the proprietor’s trademark, the use should be such that it does not reflect that someone entirely different from the proprietor is using it since the purchaser will have a specific image attached to that particular trademark in his mind.
Example Case
In the landmark American case of Barcamerica International USA Trust v. Tyfield Importers Inc. [289 F.3d 589 (9th Cor. 2002)], the Court held that “naked and uncontrolled licensing” when allowed to be carried on, then would adversely affect the trademark’s function of being a symbol of quality wherein it appears that the registered proprietor has abandoned the trademark. In the case of UTO Nederland BV v. Tilaknagar Industries Ltd [Suit No. 632 of 2009], the Bombay High Court ruled that the license issued to the registered user in the case could have been rendered invalid had the performance and terms of the agreement suggested the existence of facts which implied no quality control.
Licensing steps for franchising your trademark
In India, if a person wishes to franchise their business or seeks to obtain a license for another’s business, the person may undertake the following steps:
a) Filling TM-P and the necessary documentation and other documents and evidence/information as the Registrar may call upon.
b) A supporting affidavit will also be drafted to discuss the relationship between the proprietor and user, degree of control, period of use, etc.
c) Finalizing a license agreement, including the specifications in the supporting affidavit and terms concerning royalty.
d) Filling the Application through the filled form TM-P online or offline.
e) The filed application may be accepted unconditionally or conditionally by the Registrar. Suppose the acceptance by the Registrar is conditional. In that case, a notice is issued to the applicants, and a hearing occurs, after which the application may be accepted or rejected altogether. When accepted, the Registrar records the proposed registered user as a registered user in the register.
f) When the Registrar records a newly registered user, a notice is issued to all other registered users, if there are any.
After completing the above, a licensee can begin carrying out the business and thus aid in expanding the proprietor’s initiative.
