India: Permitted User Of Trademark: A Brief Study

Trademark Rights are exclusive rights provided to an owner, after the registration of trademark, for use in the course of business or trade. These rights can also be passed on to others by different means such as license, assignment etc. The use of a trademark by any third party with the permission of the proprietor of trademark is described as Permitted use under the Indian Trademark Act and hence the same will not be treated as infringement. As regards to the permitted user, the Act is silent, thereby creating confusion regarding the same and it is not sure whether the permitted user can also be someone who is allowed the use of the mark under an oral agreement.

Permitted use under the Indian Trademarks Act, 1999

According to the statute, there can be two kinds of permitted uses by third parties. Firstly, any use by a third party who is a registered user under the Act and secondly, permitted use by a third party without registration as a registered user.

The statute defines permitted use under Section 2(1)(r), which mandates that if the permitted use is by a third party without registration as a registered user, then the following conditions must be met:

  • The trademark should be remain in the register for the time being and;
  • should be used by permitted user in the course of his trade.
  • The permitted user has to take the consent of the registered proprietor in a written agreement.
  • The permitted user must abide by the terms and conditions of which the registration of the trademark is subject to and those which have been laid out by the Registered proprietor.

Under the Act, the written agreement between the parties is an important element for proving that any use by a third party is a valid use under the Act as a permitted use and is not an infringement of rights of the owner of the trademark.

Validity of permitted user under an oral arrangement:

It is pertinent here to mention that the Act provides the circumstance under which an infringer can prove that his use is a permitted use and that it is governed under the Act as a permitted use. It should be kept in mind that the Act defines permitted use and not permitted user and hence does not put up any condition on the registered proprietor to enter into any agreement with the permitted user for the use of his registered trademark. If the proprietor is of the view that any user of his trademark is a permitted user under an oral arrangement, in my view it should be taken as such.

For instance, A starts a business with his trademark 'Z'. A is the registered proprietor of the trademark. After sometime, he enters into an oral agreement with B wherein he permits B to use the trademark Z. In a few years, they start their own company together under the trademark Z. If in the succeeding years, there is any dispute between A and B, can A be divested off his proprietary right to trademark 'Z' lose control of his trademark simply because he has no written agreement as per the definition of the permitted use under the Act?

Though the Act offers no explanation on this front, there are several precedents laid down by the Courts that state that the absence of a formal licensing agreement does not mean that the use cannot accrue to the benefit of the licensor. In case of Allianz Asset Management of America L.P. v. Middlefield Capital Corporation it was held by the Federal Court that "Questions regarding the lack of quality control in the absence of documentation, limit of use of the trademark are all pertinent questions that may arise here. However it has to be kept in mind that absence of documentation governing the terms of use is one factor. A proprietor can keep a check on the products and govern its quality even in the absence of a written agreement. Even if no formal license arrangement was found to exist, that does not preclude the existence of an oral license."1

A written license agreement with respect of the use of a mark is not required to maintain control over a mark.

It is required to be seen the importance of an agreement in case of a license and as held in the above case, it is safe to presume that in order to put some checks and control over the use of a trademark by a permitted user, the proprietor can have all the terms and conditions in writing. However, even in cases where there is no written license among the licensor and licensee and the trademark is used under an oral arrangement, it would not jeopardize the claim of the proprietor over his trademark.

In the above case, it was further held that "A licensing agreement can be inferred from the facts of the case. A written license agreement in respect of the use of a mark is not required to maintain control over a mark. Maintenance of control over the trademark can be inferred from the condition and quality of the goods being manufactured or services being provided."2

The absence of express licensing and governing provisions to inspect and supervise a licensee's operations is not material and it is the actual inspection/control/supervision that is important. Further, the fact remains that the licensor is the owner of the trademark and any use by the licensee, in any way whatsoever cannot not take away rights of the licensor in the trademark. A licensee cannot become the owner of trademark under any circumstances unless there is an express transfer of rights under the Trademark Act, 1999.

Treatment of permitted use under section 48 (2):

Section 48(2) expressly provides that any permitted use of a trademark shall be deemed to be used by the proprietor of trademark and would not be taken as being used by a person other than the proprietor and hence the permitted user under any condition, cannot claim rights over a trademark even if he was permitted to use it under an oral arrangement.

In the case of Sant Lal Jain v Avtar Singh, reported in AIR 1985 SC 857 wherein it was held by the Hon'ble Apex Court of India that "a Licensee, and could not, therefore, set up a title to the property in himself or anyone else". On the question of rights of the licensee after the termination of license, the Hon'ble apex court held that "the respondent was a licensee, and he must be deemed to be always a licensee. It is not open to him, during the subsistence of the license or in the suit for recovery of possession of the property instituted after the revocation of the license to set up title to the property in himself or anyone else."

An oral license is an implied contract. Implied contracts are inferred from the facts and circumstances of the case or the conduct of the parties. The lack of a written license agreement may weaken the claim regarding control of the mark but a written agreement is not required to maintain control or ownership over a trademark.

Now it is also to be taken into consideration that a licensee is also a permitted user but the conditions mentioned under section 2(1)(r) for the permitted use, are for the cases wherein the owner of the trademark alleges infringement and not for the cases where the owner is not disputing the fact that the use of the trademark is with his own permission under an oral license. Hence the two cases of permitted use need to be seen accordingly.

Conclusion:

The Act doesn't define permitted user anywhere and hence the definition of the permitted user can be deduced from the fact and circumstances of each case and where use is not in dispute then the defendant cannot take the plea that he is permitted user. Although the permitted user if recognized by the proprietor himself, cannot be challenged on the ground that there is no written agreement in this regard. A written agreement is a condition imposed upon a user of a mark which according to him is permitted for use by the owner of the trademark.

Footnotes

1 Allianz Asset Management of America L.P. v. Middlefield Capital Corporation available at https://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/72355/index.do  

2 Allianz Global Investors of America LP v. Middlefield Capital Corporation available at https://decisions.fct-cf.gc.ca/fc-cf/decisions/en/item/72399/index.do  

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