Guest Post: Bare Licensing in India

Anubha Sinha, a 4th year student from Dr RML National Law University brings us an interesting post on the concept of Bare licensing - a topic that I believe our blog hasn't touched upon before. She takes us through the concept in foreign jurisdictions as well as in India and concludes that bare licensing in India will lead to an abandonment of the trademark. This is her first submission in the SpicyIP Fellowship applicant series. 

Quality Control in Indian trademark licensing: Bare licensing is an oxymoron 

Background to licensing: 

Trademarks may be assigned, conveyed or licensed in connection with goods or services associated with the mark. Licensing is an important business strategy to extract value out of any intellectual property. More specifically under trademark law, a licence is a contract which generally grants a person (user or the licensee), other than the registered proprietor(licensor) a specific interest in the trademark in terms of use by duration, form in which the mark is used, use with respect to all or some of the goods or services, territory or quality. 

The origins of the single-source principle which was definitive of the purpose of a trademark can be traced to common law. The purpose was to maintain uniformity in quality of the products by ensuring a single source. If the same mark delivered goods of varying degrees of quality, that would amount to deception and thus render a trademark invalid. The concept of unrestricted licensing was directly in contradiction with this principle, thus lawmakers legalised licensing with a mandatory caveat- that the proprietor shall exercise adequate quality control over the licensee’s products. It must be noted that the proprietor is not obligated under trademark law to meet a certain quality standard. The focus is solely on uniform and consistent quality between like products of the same mark. The Indian Trademarks law has a few provisions giving effect to the same principle [Sections 49, 50 and, s.57 read with s.9 of the Trademarks Act, 1999]. 

Bare licensing in foreign jurisdictions: 

A Bare licence [Naked Licence in the US] is one where the user is subject to no quality control checks by the registered proprietor. In Barcamerica International U.S.A. Trust v. Tyfield Importers Inc.[2002] the U.S. 9th Circuit Court of Appeals found that the licensor of a trademark had inefficiently supervised the nature and quality of the goods being sold under that licensed mark and therefore had a "naked" license, which justified canceling the licensor's trademark registration. The court deemed the naked license to constitute an abandonment of the trademark itself. 

On the other hand the House of Lords in Scandecor Developments AB v Scandecor Marketing AB seemed rather inclined to validate bare licensing. They however declined from expressing a final opinion on the issue (case was referred to ECJ). It must be noted here that the licensee was an exclusive licensee, i.e. the goods were licensed to be produced to the exclusion of the proprietor. The Court reasoned that at any given point in time only one entity was engaged in production. By a creative extension of the single source theory Lord Nicholls observed “..During the licence the goods come from only one source, namely the licensee, and the mark is distinctive of that source.” The basis of the Court’s reasoning was that the 1994 UK act was highly permissive and as long as the product comes from one source, the mark remains distinctive and does not become deceptive. It may be reasonably deduced that grant of a bare licence does not imply that a mark was liable to mislead. The matter was settled between the parties before the ECJ could adjudicate upon this issue. 

Is bare licensing in consonance with provisions of the 1999 Trademarks Act? Can a person risk abandonment of the marks by way of bare licensing in India? 

Section 49 of the Trademarks Act prescribes a mandatory clause in the licensing agreement regarding degree of quality control. Most recently, UTO Nederland BV v Tilaknagar Industries Ltd [Bom HC 2011], briefly discussed the concepts of quality control and licensing. The Court seemed inclined to suggest that the licence could have been rendered invalid, had the performance and terms of the agreement suggested existence of facts which implied no quality control. 

This publication offers an excellent macro view on the subject of trademark licensing. The author however asserts that section 2(1)(zb) which allows use of the mark by the registered proprietor or the user, implies that the legislature did not intend a trademark to signify only one source. And he concludes on this basis that bare licensing is not inherently deceptive (which I believe is a rather weak argument). 

I agree with the author that section 2(1)(zb) of the act can be interpreted as use of the mark by the registered proprietor or the user. However, if circumstances so arise where the products are sourced from a single entity- licensee or the licensor, it still remains to be seen how the express provisions of the Indian Trademarks Act to ensure quality control can be overridden. A quick reading of section 49(1)(b)(i) makes it evident that the contract should have an express term regarding degree of control exercised by the licensor over the licensee. Moreover, section 50 also makes it incumbent on the proprietor to ensure quality control. And under the same section the licence is liable to be revoked if any member of the public makes an application to the registrar stating non existence of quality control, and the finding is confirmed by the registrar. Thus, as per the Indian framework on trademark, the concept of licensing is still deeply rooted in a strong protection of the mark by ensuring quality control. The two concepts ‘licensing’ and ‘no quality control’ evidently are an inherent contradiction under the current framework. In my opinion, bare licensing, insofar as current provisions of the Indian Trademarks act suggest, will definitely result in an abandonment of the trademark.