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A trademark is a distinctive sign or indicator used by an individual, business organization or other legal entity to identify a particular product or service as coming from a single source and to distinguish the product or service from those of others. entities.
Trademark licensing essentially involves the authorization granted by one registered trademark owner, known as the licensor, to another, known as the licensee, to use their trademark in cases where a such use would otherwise result in counterfeiting if carried out without such authorization. A license agreement is usually made in writing to serve as proof of the granting of the license and to detail the scope of the license as well as the rights and obligations of both parties. It is therefore imperative that the Licensee performs the acts specifically described in the License Agreement (“the Agreement”) between the parties in order to avoid an action for infringement. When a trademark license is granted, the ownership of the trademark remains with the licensor / holder while the licensee has the power to exercise all or part of the owner’s rights to the extent permitted by the agreement between the parties. This can be likened to a lease contract where a landlord transfers possession and not ownership of his property, so that a tenant can enjoy it for a certain period, subject to the payment of rent; and at the end of the period, the property is taken over by the owner. Licensing is generally preferable to outright sale or transfer, as it gives the owner significant control over the use of the mark and, more importantly, ownership remains with the licensor.
Section 33 of the Trade-marks Act (“the Act)1provides for a trademark license. It states that “Subject to the provisions of this article and the following article, a person other than the owner of a mark may be registered as a registered user thereof with regard to all or part of the products for which it is registered (other than as a defensive mark) and with or without conditions or restrictions “.2 It is relevant to note that the term Licensee is referred to as “registered user” in the Act.
This article provides an overview of what is involved in trademark licensing.
TYPES OF BRAND LICENSES
There are a number of ways that a brand owner can explore their licensing options:
- Single license: This occurs when the owner authorizes a single licensee to use the mark for a specified period of time. Thus, the owner as well as the licensee can use the mark and it cannot be transferred to another licensee.
- Exclusive license: This occurs when the owner grants a licensee an exclusive commercial right to use their mark. Here, the licensor has no commercial right to the mark.
- Non-exclusive licenses: This occurs when the owner authorizes one or more licensees to use the mark.
It’s important to quickly differentiate between a trademark license and a franchise, because of the perceived similarities between the two concepts. In a trademark license, the licensee only acquires the right to use products and goods, but the property remains with the licensor; however, in a franchise agreement, the franchisee benefits from the ownership of the business on behalf of the franchisor instead of a fee when the processes are tightly controlled by the franchisor.
ADVANTAGES OF BRAND LICENSE
Here are some of the perks or perks of trademark licensing:
- Improves residual income: The owner tends to make a profit and acquire a passive income stream by licensing the brand to various licensees. This therefore improves the incomes of the holder while retaining his intellectual property rights as the owner of the mark.
- Quick Entry into Foreign Markets: Licensing a brand helps the product enter new markets much more easily than if the brand were used only by the owner. Thus, the onerous border and regulatory requirements which include tariff barriers are avoided due to the use by a national company.
- Provides New Business Opportunities: It helps a licensee to start a new business opportunity as this type of arrangement requires less capital and maximum profit. The licensee’s business also benefits from the reputation and brand awareness of the brand among consumers, and when the licensee decides to improve a product, they can get a little more out of it.
- Increased Consumer Protection and Recognition: This easily increases the use and recognition of the brand and ensures that consumers are protected by its use.
DISADVANTAGES OF THE TRADEMARK LICENSE
There are also some setbacks or disadvantages of trademark licensing, which are listed below:
- Threat to reputation: the brand can be affected when it is poorly managed by the parties to the contract. Thus, the reputation of the brand can be reduced and when several licensees are involved, the reputation can be affected globally, thus affecting several companies which are not involved in the situation. It is therefore imperative that a good quality management practice is in place and well written into the Agreement, thus creating consistency within the brand across all licenses.
- Trademark theft: Licensing a trademark exposes the trademark to the market, thus creating an opportunity for theft, as the owner cannot control the use of the trademark, especially when it has been licensed. licensed to different licensees.
- Increased competition in the market: When an owner licenses a brand to various licensees, there is usually competition in the market, as a business tends to lose by selling intellectual property in the same way. Thus, it is relevant to include geographic barriers to protect against a competitive market.
After having seen the pros and cons of licensing a trademark, it is relevant to stress the importance of drafting a licensing agreement between the parties where various clauses are put in place detailing the rights and obligations of the parties.
Here is a checklist of a license agreement:
- Details of the parties
- The type of license offered
- Description of the mark
- The territory where the holder must operate
- Authorized use of the mark
- The products or services that the licensee can offer with the registered trademark
- Effective dates
- Duration / Termination clause
- Remuneration / royalty clause
- Provision for quality control
- Dispute resolution clause
The benefit of licensing a brand cannot be overstated as it contributes to greater brand recognition and parties tend to benefit from the deal as well and reap the benefits. However, trademark licensing could be at a disadvantage when one party acts in a manner inconsistent with the agreement between the parties.
It should be noted that once the agreement has been drafted and signed by the parties, the owner must ensure that the licensee is entered in the register of marks. Thus, the owner must provide the registrar with the required information, evidence and documents that may be required under the by-law.3 The registrar can therefore register the licensee after a proper examination of the application and the documents, unless this is contrary to the public interest or if it appears to him that such attribution would tend to facilitate trade in a mark.4
1. CAP T13, Laws of the Federation of Nigeria 2004.
2. Section 33 (1) of the Act.
3. Section 34 (1) (d) of the Act.
4. Subsections 34 (2) and (3) of the Act.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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