The Dichotomy OF Registered And Permitted Users Under The Trade Marks Act, 1999 - Trademark

Article by Vijay Pal Dalmia, Advocate, Supreme Court of India and Delhi High Court, Partner & Head of Intellectual Property Laws Division, Vaish Associates Advocates, India

Introduction

The creation of a trademark results in the rise of certain proprietary rights, which can be exclusively exercised by the proprietor. These exclusive rights do not only provide them with the unequivocal authority to utilize and employ their mark, but also the exclusionary authority to control and regulate its use by any other entity. An effort to the effect of the latter is licensing of a trademark, which, from its positive aspect, allows proprietors to expand their brand in another territory, product base, target market, etc. and in its negative aspect, to limit and exclude its use in the market by competitors. This exploitation and commercialization of a mark is viewed as an indispensable method of harnessing intellectual property for strategic competitive advantage.¹ It allows a proprietor to preserve the image and goodwill of their brand, while retaining its distinctive nature in the market and avoid confusion amongst the consumers.

On dissecting the Trade Marks Act, 1999 (hereinafter referred to as 'the Act'), one can observe that the term 'license', irrespective of its vitality and significance in the world of trademarking, has not been mentioned at all. Rather, the Act prefers to approach the concept by providing the scope for a 'permitted use', under Section 2(1)(r), while retaining the essence and principles of common law licensing. The provisions of permitted use operate as a mechanism to surpass the action of infringement and allow a proprietor to grant the licensee with the right to utilize their mark on mutually agreed terms. It allows an external entity to indulge in the use of the trademark, only through the consent and agreement of the proprietor.

This section creates a bifurcation, on the basis of whether the trademark license entered into has been registered or not with the Registrar of Trademarks. This division results in the two types of users of a license: a registered user and an unregistered or permitted user. Considering that the registration of a license is not a mandatory provision under the Act, it does provide the user with plentiful rights and immunities, as explained in depth below.

Categorization of Section 2(1)(r)

Section 2(1)(r) of the Act is of considerable importance as it is through this section itself that the domain of trademark licensing is carved. This section defines 'permitted use', which is the application and employment of a registered trademark by any person, except the registered proprietor themself, within the lawful limits of the Act as well as the licensing agreement.

The two categories of permitted users that have been carved under this section are registered users, under sub-clause (i), and a person other than the registered proprietor and registered user in relation to goods or services, under sub-clause (ii). Under sub-clause (i), in order for an entity to qualify as a registered user of the trademark, the following four conditions need to be satisfied:

The use must be in relation to the goods or services with which they connected in the ordinary course of trade
The trademark must have been registered at the time
The user must have been registered as a registered user as per the provisions of this Act
The use must be compliant with the terms and conditions of the registration.

All these conditions are to be harmoniously interpreted so that a user can optimize their use of the mark as a registered user. On the other hand, permitted or unregistered use under sub-clause (ii) mostly functions on the same lines, except for the condition under Section 2(1)(r)(ii)(c) forming the ground of distinction between a registered and a permitted user. Sub-clause (ii) reads:

"(ii) by a person other than the registered proprietor and registered user in relation to goods or services—

...

(c) by consent of such registered proprietor in a written agreement; and..."

For a permitted user, in the absence of registration, there would be no governing authority or instrument over the license. This would lead the process of licensing into muddy waters and could even result in trafficking of trademarks², or bare licensing³. In order to combat this issue, Section 2(1)(r)(ii)(c) requires the consent of the registered proprietor in order to authorize the license, which would be governed by a written agreement. This agreement plays a significant role as it controls and directs the unregistered use.

Hence, Section 2(1)(r) provides the regulation of permitted use by a licensee either through the process of registration with the Registrar or through a licensing agreement between the registered proprietor and the user.

Registered User

A registered user, as provided under Section 2(x) read with Section 48, is a person except for the registered proprietor of the trademark, who has been registered as an authorized user of the mark, under the aegis of the proprietor. Registration of a license is used as a tool in order to enforce the effectiveness of a license and substantiate its validity, by acting as a stamp of authentication. Primarily, as enunciated in Himalaya Drug Co.⁴, registration serves as a permanent symbol of the validity of the agreement and allows it to form a part of the record or evidence in the event of possible legal disputes.

Once an entity which has attained the authorization to use a trademark, their use of the mark would be viewed to be parallel and in coherence with that of the proprietor. For all interpretive purposes, Section 48(2) mandates the use by both parties would be viewed similarly in the eyes of the law. This is valid to such an extent that wherever a registered proprietor has been mentioned under the Act, especially with respect to establishing the exclusive use of the mark, a registered user has also been mentioned complementarily in the same capacity. On these lines, the court held in Cycle Corporation⁵ that the inclusion of a registered user under the Act has been done in order to protect both the proprietor and user of the mark and Section 48(2) is a clear example of such a mechanism.

Despite that the registration of a licensing agreement is not a mandatory provision, it is rather advisable as a registered user can enjoy various privileges and benefits. However, the absence of the same does not render the license invalid and does not act as a sine qua non for its execution before the law. In consideration of the same, one might ponder over the need to register a license, considering its voluntary nature. The same can be understood by analyzing Chapter VI of the Act, which provides certain rights and immunities exclusively to a registered user.

Procedure and Conditions of Registration

The registration of a license is governed by an intricate web of provisions provided under Section 49, along with the Trade Mark Rules, 2017 (hereinafter referred to as 'the Rules'). Section 49 brings the process of registration in motion by requiring the proposed user and the proprietor to apply together in writing to the Registrar of Trademarks, in the manner prescribed in Form-TU⁶. The application must contain the following:

The written agreement entered into between the proprietor and user, pertaining to the terms and conditions of the permitted use.
An affidavit on behalf of the proprietor containing the particulars of the relationship of the parties to the license, most notably the extent of quality control to be enforced by the proprietor on the registered user's use. The affidavit would also contain details relating the relationship of the proposed registered user with the other subsisting users, the subject matter of the license and its duration.
Any other documents that the Registrar may mandate within their authority.

The licensing agreement provided must disclose that the use of the trademark by the licensee is by way of permitted use. The proprietor must provide a clear transfer of the right to use and not engage in misrepresentations, or any other grounds that may shake the tenets of a valid contract under the Indian Contract Act, 1872. In Gujarat Bottling Co.⁷, the agreement entered between the registered proprietor and user is a necessary condition for the purposes of registration and cannot be circumvented or surpassed.

Further, Rules 86-92 of the Rules define the process with more clarity. Filing for registration of the licensing agreement must take place within six months of the commencement of the term of the agreement.⁸ The approval of the Registrar can either be absolute or conditional and in case of a conditional approval, the Registrar must afford the parties with a reasonable opportunity to be heard and provide the result of the same in writing.⁹ Following the hearing conducted by the Registrar with the parties, the necessary order may be passed to either accept or refuse the application. Notice to any other existing registered users, or licensees, of the same trademark must be issued.¹⁰

Once the application for registration and its accompanying documents are deemed to be in compliance with the provisions of the Act, and the Rules thereunder, the Registrar is obliged to formalize the registration of the agreement.¹¹ This is done by the way of entering the agreement into the register and subsequently the Trademarks Journal, containing all necessary particulars surrounding the registration.¹²

As the Registrar can grant registration, they can also vary or cancel the registration, as per Section 50. The motion for cancellation can either be raised by the Registrar on their own, the registered proprietor, any of the registered users or any person on the fulfillment of certain grounds. The grounds for cancellation include violation of the terms of registration, use of the mark in a deceptive manner, engagement in misrepresentation, etc.¹³

Permitted User

Use of a trademark ought not to be restricted to only the use by the proprietor or the registered user, but must also be extended to include the use by a bona fide authorized user.¹⁴ On the contrary to a registered user, a simple license agreement in the nature of permissive use results in a permitted or an unregistered user. It entails permitted use under the Act without registration as a registered user. While establishing a relationship of permitted use, a written agreement is of the essence as it is the only mechanism to enforce checks and controls over the permitted use. Moreover, it has been determined as a sine qua non under Section 2(1)(r), in order to allow an entity the permitted use. Such an agreement is viewed to be the qualifying distinction between infringement and permitted use.¹⁵ In certain situations, an oral license can take the form of an implied contract, dependent upon facts and circumstances of the case or conduct of the parties, as the court held in Allianz Asset Management¹⁶, "the absence of a written agreement does not preclude the existence of an oral agreement".

In order to clarify the demarcation between a registered and permitted user, Haldiram (India) Pvt. Ltd.¹⁷ held that a permitted user cannot be viewed as the registered proprietor and can exercise no rights granted to the latter, in the absence of registration. The rights granted to a registered user u/s. 48(2) do not spill over to a permitted user, even on the consent of the proprietor and in no circumstance can the use by an unregistered user be equated to that of the registered user. Even though an unregistered license would be considered binding and valid in the eyes of law, due to the omission of its registration, it cannot be enforced against third parties to the same extent as its counterpart.¹⁸

In re, Bostitch Trade Mark¹⁹, the non-registration of a license can lead to the creation of reservations in the minds of the court with respect to the distinctiveness of the mark and whether it has been able to retain a connection between the proprietor and the goods. But contrary to this, according to Ciba-Geigy Ltd.²⁰, there lays no bar for the unregistered use of a license as long as there is a connection in the course of trade between the user and proprietor. Further, Cycle Corporation²¹ held that unregistered licensing would be deemed lawful and valid as long as a considerable level of quality control has been provided for and executed, even if it is de facto quality control.

Basis OF Differentiation

Initiating Suits for Infringement

Since a registered user has been put at a level of parity with the proprietor, all the accruing rights and obligations of the registered user would be deemed congruent with those of the registered proprietor. This is valid to the effect that the right to sue any entity for infringement of a mark is solely reserved for registered users, along with the proprietor. The right to sue for infringement under Section 134, provides for the institution of suits before the District Court and entitles a registered user with the similar powers as a registered proprietor to enforce the trademark against the third party. This extends to the institution of suits for infringement of a registered trademark, a suit relating to any right in the mark or a suit for passing off. The right of a registered user to assume the capacity of the proprietor, can be enforced even against the proprietor's consent, or due to their inability or unwillingness to sue.

The mandate behind this is enshrined under Section 52, which allows registered users to sue in their own name, as if they were the registered proprietor. Section 52(2) even extends the right to include the registered proprietor as a defendant in the proceeding. In the Himalaya Drug²² case, the court allowed the registered user to initiate infringement proceedings against the proprietor in case the use of the mark has been refused or neglected for three months. In case legal action has been brought by or against the proprietor, only a registered user can be statutorily impleaded within them as a party, under Section 136. This right is provided to the registered user in order to allow them a reasonable opportunity to be heard in the infringement of a mark in which they have a direct interest.²³

As for a permitted user, Section 53 provides the express prohibition of their right to initiate suits for infringement. As upheld by the Hon'ble Delhi High Court in P.K. Sen²⁴, permitted users are barred from exercising the right under Section 134 as they merely possess the right to sue for passing off. This proves to be rather disadvantageous for a permitted user as the burden of proof for a passing off is considerably higher and as suits for passing off fall within the scope of the Civil Procedure Code, a permitted user can only be entitled to civil remedies and not criminal remedies. Also, whatever action has been taken by a permitted user, it must be done with the consent of the proprietor.²⁵

Sub-licensing Rights

The pre-requisite for the right to sub-license is the authorization of the proprietor and the introduction of a sub-licensing clause in the licensing agreement. With regard to whether a registered user possess such a right, the act remains silent. However, a sub-licensee can be viewed as a valid permitted user of the same mark through the provisions of Section 2(1)(r)(ii). According to the Section, a person, except for the registered proprietor and user, can qualify as a permitted user through the consent of the registered proprietor in a written agreement, under sub-clause (c). Hence, a sub-licensing clause within the agreement between the registered user and the proprietor passes the criteria of the proprietor's consent, allowing the registered user to sub-license and the sub-licensee to act as a permitted user.

The language of Section 2(1)(r)(ii) does not require any agreement between the sub-licensee and the proprietor, but mainly the latter's consent. Additionally, with respect to quality control under the sub-license, it would solely be dependent upon the primary agreement between the registered proprietor and licensee on whether the proprietor would exercise the degree of control themself or delegate it to the licensee/sub-licensor.

Courts have held unfavorable views with respect to sub-licensing powers of an unregistered user, most vehemently in Rob Mathys²⁶. The Court viewed the right of a permitted user to sub-license to be beyond the scope of the Act and while the Act's application is restricted, common law provisions would apply. Similarly, in Cycle Corporation²⁷, the sub-licensing rights were disregarded as the Court believed that even though Section 2(1)(r)(ii) provides a scope for an unregistered user, it is not broad enough to include sub-licensing, considering the Act intentionally abstains to provide for the same. In the light of the judgments, there exists a grey area of uncertainty on the sub-licensing powers of a permitted user.

Degree of Quality Control by the Proprietor

The premise of the difference between a registered and permitted user is based on the degree of influence and control exerted by the proprietor. The basis of registration of a user is the existence of an agreement in writing, highlighting the extents of the permitted use, whereas an unregistered user is authorized merely on the consent of the proprietor. The degree of quality control varies considerably as the proprietor is at a greater position to exercise their control through the provisions of an enforceable agreement for a registered user. The agreement, as well as the process of registration act as a mechanism for the proprietor to regulate the actions of the regulated user, of which quality control is one of the tools.

Not only so, but the affidavit for registration to be submitted under Section 49(1)(b)(i) requires the declaration of the degree of control exercised by the proprietor over the permitted use. Quality control plays a valuable role in the registration of a user to the extent that United Breweries²⁸ held that whether the proprietor can exercise proper control over the use of the mark is a qualifying factor and can be a ground for the refusal of registration. In consonance with this, Section 50(1)(d) enlists the disregard to quality control provisions and its non-compliance as a ground for the cancellation of the license.

Regarding permitted users, the Act omits to provide for any scope of quality control. As the eligibility of a permitted user is based on the proprietor's consent, not an agreement, and considering that the consent of the proprietor cannot be regulated, quality control provisions cannot be assigned to a permitted user.

Application of Statutory Law v. Common Law

The statutory powers afforded to a registered user are wide and varying, often exceeding the powers granted to an unregistered user. In addition to the rights discussed above, under Section 46(1)(b), the registered user is immune from the revocation of registration on the basis of non-use of the mark, as long as an intention to utilize the marks is evident. Additionally, the use of the mark by the registered licensee would be regarded to be at par with that of the proprietor, for any purposes under the Act or any other law. Not only does the statutory law afford rights to the registered user, but also restricts and controls their functioning, for example, Section 53 limits the registered user's right to assignment or transmission of the proprietor's trademark. Irrespective of the wide scope of rights granted to the registered user, they cannot supersede or undermine the authority of the registered proprietor by committing acts that exceed the proprietor's authority or curb their proprietary rights.

While considering the application of the appropriate body of law on an unregistered licensee, the Hon'ble Supreme Court has held in Gujarat Bottling Co.²⁹, that common law provisions with respect to trademark licensing would be applicable to an unregistered user. This was held to compensate for the lack of provisions under the Act to govern and regulate unregistered users. This ruling, however, was substantiated with a caveat that the application of common law principles was subject to the conditions that the unregistered use does not evoke confusion or deception amongst the public, it does not discredit the distinctiveness of the trademark and the connection between the proprietor and the goods persist through the unregistered use.

Despite the visible disadvantages to an unregistered user, they are exempt from the cancellation or invalidation of their licensing agreement, as compared to the revocation of the registration of a registered user under Section 50. This is once again due to the lack of provisions of unregistered users under the Act.

Multiplicity of Users

Even though the multiplicity of registered users has not been categorically provided for under the Act, it can be inferred through the bare reading of its multiple provisions, as well as its Rules.

While analyzing the procedure for registration of a user, Section 49(1)(b)(i) provides the scope for multiple users as the registered proprietor has an obligation to notify the Registrar of any subsisting users while registering the proposed user. In addition to this, Section 49(3) requires that in the situation that a new user has been registered, then the Registrar would provide an intimation to the existing registered users, notifying them of the registration. This must be read in agreement with Rule 91, which further solidifies the duty of the Registrar to inform the existing registered users of the same trademark. Also, any of the registered users can move for the cancellation of the registration of any user on an application under Section 50(1)(b). Hence, reading these provisions in harmony, it can be concluded that the scope for multiple registered users is provided. However, the Act is silent yet again regarding unregistered users.

Permitted Use of Unregistered Trademarks

Taking into account that Section 2(1)(r) of the Act expressly limits the scope of permitted use to only registered trademarks, the enforcement of licensing of unregistered trademarks goes unchecked. As a corollary to this, it seems virtually impossible to be a registered user of an unregistered mark as the proposed user of a mark that itself is not recognized by the Registry cannot be registered. However, without the express prohibition of a registered user of an unregistered trademark, the abovementioned cannot be blindly inferred and would be subject to the interpretation by the court. With regard to an unregistered user, this would be effectuated by a valid licensing agreement between the parties. Courts in India have held the viewpoint that common law provisions would apply and would govern over the terms and conditions of the use of an unregistered trademark by a permitted user.³⁰

Conclusion

Under the Trade Marks Act, a dichotomy of status has been created between registered and unregistered licenses.³¹ By creating this distinction, the Act offers exclusive privileges to a registered user in return for greater involvement of and control by the Registrar. With the help of Section 48, the ground for, and more importantly, the legal recognition of licensing agreements has been established through registered users. These regulatory provisions provide elaborate precautions and play a significant role in preventing abuse of the privilege granted under the Act to permitted users.

The use of a mark de hors the provisions of the Act does not only jeopardize the validity and strength of the trademark license, but also the trademark itself. The effort and cost of registering a license is marginal as compared to the costs that may be payable in a lawsuit in order to defend an unregistered license.

Vijay Pal Dalmia, Advocate

Supreme Court of India & Delhi High Court

Email id: vpdalmia@vaishlaw.com

Mobile No.: +91 9810081079

Linkedin: https://www.linkedin.com/in/vpdalmia/

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Footnotes

1. Vernika Tomar, Trademark Licensing & Franchising: Trends in Transfer of Rights, 14 J Int. Prop. R 397 (2009).

2. American Home Products Corporation v. Mac Laboratories Pvt. Ltd. and Anr, AIR 1986 SC 137.

3. Double Coin Holdings Ltd. and Anr. v. Trans Tyres (India) Pvt. Ltd., 181 (2011) DLT 577.

4. Himalaya Drug Co. Pvt. Ltd., Bangalore, v. Arya Aushadhi Pharmaceutical Works Indore, AIR 1999 MP 110.

5. Cycle Corporation of India Ltd. v. T. I. Raleigh Industries Pvt. Ltd. and Ors, AIR 1996 SC 3295.

6. Rule 86(1), Trade Mark Rules, 2017.

7. Gujarat Bottling Co. v. Coca-Cola Co, AIR 1995 SC 2372.

8. Rule 86(3).

9. Rule 88.

10. Section 49(3).

11. Section 49(2), r/w Rule 87.

12. Rule 89.

13. Section 50(1)(c)

14. Cycle Corporation of India Ltd. v. T. I. Raleigh Industries Pvt. Ltd. and Ors, AIR 1996 SC 3295.

15. See Section 29.

16. Allianz Asset Management of America L.P. v. Middlefield Capital Corporation, (2014) 457 F.T.R. 153 (FC).

17. Haldiram (India) Pvt. Ltd. and Ors v. The Registrar of Trade Marks, MIPR 2013 (2) 273.

18. Sections 52 & 53.

19. Re, Bostitch Trade Mark, [1963] RPC 183 (Ch D).

20. Ciba-Geigy Ltd. v. Torrent Laboratories Ltd., (1993) 34 (1) GLR 325.

21. Cycle Corporation of India Ltd. v. T. I. Raleigh Industries Pvt. Ltd. and Ors, AIR 1996 SC 3295.

22. Supra note 4.

23. Cluett Peabody and Co. Inc. v. Super Threads (India) and Ors, 2008 (37) PTC 303 (IPAB).

24. P.K. Sen v. Exxon Mobile Corporation and Ors, 2017 IIAD (Delhi) 1.

25. Babul Products Private Ltd. v. Zen Products, 2005 (31) PTC 135 (Guj).

26. Rob Mathys India Pvt. Ltd. v. Synthes Ag Chur, 1997 (17) PTC 669 (Del).

27. Cycle Corporation of India Ltd. v. T. I. Raleigh Industries Pvt. Ltd. and Ors, AIR 1996 SC 3295.

28. United Breweries Limited v. State of Karnataka, 2014 (80) Kar LJ 344.

29. Gujarat Bottling Co. v. Coca-Cola Co, AIR 1995 SC 2372.

30. Gujarat Bottling Co. v. Coca-Cola Co, AIR 1995 SC 2372. See Also, NARAYANAN, TRADE MARKS AND PASSING OFF, 423 (6th ed., 2004)

31. Kunal Ambasta, Trademark Licensing and Trafficking in Trademarks: Does the law promote it, 4 Ind. J. Int. Prop. L. 65, 74 (2012).