Introduction
Overview of a Trade-mark License
By definition, a license is a permission granted to a person to do what he/she may not be authorized to do, usually with geographical and temporal limitations.
1. Contractual Mechanism
Prior to contemplating licensing intellectual property, one of the foremost issues that should be addressed is the existence of a validly registered and subsisting trade-mark right in the target market. The trade-mark right must be able to stand by itself, independent of any contractual agreement. A license is not a right; rather it is only a contractual mechanism. This means that the owner of a trade-mark issued in Spain has no registered trade-mark rights to license in Canada, unless the owner has filed for a corresponding Canadian trade-mark. A potential licensor should therefore always attempt to secure the registration of its trade-mark prior to commencing licensing negotiations.
By licensing a trade-mark, the licensor seeks to expand the use and coverage of his/her asset. While undoubtedly great benefits can be reaped, it can also be equally perilous. The loss of distinctiveness of a trade-mark is the most fatal occurrence, and this may arise in several ways in a licensing agreement. To avoid this predicament, a careful analysis and compliance with section 50 of the Trade-marks Act R.S.C. 1985, c. T-13 (hereinafter referred to as TMA) is in order. Subsection 50(1) of the TMA provides:
For the purposes of this Act, if an entity is licensed by or with the authority of the owner of a trade-mark to use the trade-mark in a country and the owner has, under the licence, direct or indirect control of the character or quality of the wares or services, then the use, advertisement or display of the trade-mark in that country as or in a trade-mark, trade-name or otherwise by that entity has, and is deemed always to have had, the same effect as such a use, advertisement or display of the trade-mark in that country by the owner.
2. Written Agreement
First, it is prudent to have a written license agreement. The license agreement must provide express powers that allow the licensor to have direct or indirect control over the quality of the wares or services. Lack of control or improper management could result in the loss of a trade-mark’s distinctiveness.
The control provisions should be detailed, giving the licensor contractual rights to all that is necessary to maintain the quality and distinctiveness of the trade-mark, including for example, inspections, product pre-approvals, service guidelines and the treatment of customer complaints.
Second, the agreement should address cases of infringement and the duty of either party to protect the trade-mark. Again, this issue goes to the root of the trade-mark’s distinctiveness. Subsection 50(3) of the TMA provides:
Subject to any agreement subsisting between an owner of a trade-mark and a licensee of the trade-mark, the licensee may call on the owner to take proceedings for infringement thereof, and, if the owner refuses or neglects to do so within two months after being so called on, the licensee may institute proceedings for infringement in the licensee’s own name as if the licensee were the owner, making the owner a defendant.
This requires the licensor of trade-mark to protect its licensee against infringement by a third party. However, this obligation may be transferred to the licensee and if so, it should be stated in the license agreement.
3. Drafting Points
a) Scope of license & Subject matter
What intellectual property is being licensed?
- Description, registration numbers and issue dates
- Serial numbers and filing dates if applicable
b) Grant of license
- Intent of license
- Exclusive, sole, non exclusive
Exclusive
- All future licenses
- Excluding all licensees including present ones
- Excluding the licensor
- Can be made exclusive subject to rights of licensor
Sole
- Does not exclude licensor
- No other licensor will be granted to 3rd parties
Define
- • What rights are granted that exclude all others
- Rights reserved for licensor above
- Rights reserved for the licensor’s use and 3rd parties now and hereafter
- Limited
- Conditions
c) Duration of license
- Irrevocable
- Revocable (breach)
- Cancellation
- Renewal
d) Field of use
- Use, abuse and disposal limitation clause or Manner of use
- Use, reproduced, modify, make, manufacture, have made or manufactured, market, promote, sub-license, sell, distribute, transmit etc.
- Quality standards, quarterly reports, inspection, samples, pre-approval
e) Trade-mark Rights
- Acknowledgment of license and validity of trade-mark
- Registered and unregistered
- Agreement not to contest validity or assist others directly or indirectly
- Acknowledgment of ownership of trade-mark
- Maintenance/prosecution of trade-mark registration/application
f) Infringement
- Scope of admission
- Indemnity
- Compensation
- Insurance
g) Transfer of Rights
- Sub-licensing
- Consent required
- Control of sub-licensee
- Assumption agreement by licensee
h) Termination – Default – By Licensor
- Control quality
- Field and manner of use
- Failure to pay compensation
- Bankruptcy/material change
i) Licensee
- If trade-mark held invalid
- Failure to enforce trade-mark against 3rd party
j) Mutual termination
k) Post termination clauses
l) Rights of License
- Sale of inventory products
- Limitations (marketing)
m) Rights of Licensor
- Buy-back of licensee products (price formula)
- Audit and inspection of records
- Payment of Royalty
n) Governing Law
o) Insurance and indemnification
p) Responsibility for liability insurance
q) 3rd party infringement
r) Product liability
s) Warranties
- Ownership
- Authority to act
- Right to license
- Validity of trade-mark
- Non-infringing, or confusing trade-marks
- Distinctiveness
- Continuous use