Country Index: Licencing Special
Originally published on www.country-index.com
License agreements are the main legal tool available for business partners located in different countries to appropriately secure their own economic interest and legal rights including the enforcement of the licensed trademarks against infringing third parties.
In this brief we are going to mentioned some of the most relevant factors to bear in mind when dealing with these sorts of agreements, which may be included in others like franchising, distribution and the like.
1. Mandatory formats of licensing agreements.
According to the locals Civil Code and trademark law, license agreements of trademarks "per se" are not subject to any specific formal requirement in order to be valid and binding for the parties.
However, Article 1193 of Civil Code, firstly, establishes that, in relation to proof purposes, agreements having a commercial value higher than $10,0001 must be done in writing, and, secondly, prohibits the use of witnesses in order to prove the existence of the agreement.
Therefore, a license agreement is binding for the parties since the date of its execution without the need to comply with any other requirement but proving its existence is indeed subject to certain limitations.
2. License of unregistered trademarks.
In Argentina, where as it happens in almost all other countries worldwide trademark rights are acquired based on the first to file system, unregistered or "de facto" marks have been increasingly protected by case law since a couple of years ago but the scope of such protection varies according to particular legal standards to be applied in each particular case.
Thus, although licensing unregistered trademarks is an uncommon legal strategy, in certain cases it may be an unexpected consequence imposed by business reality, especially considering today's global economy and the exponential growth of commercial activities on the Internet.
Overall, it is worth pointing out that for most industries there is no local general or particular laws prohibiting the license of unregistered trademarks. Yet, the risks and problems of doing so clearly outweighs its benefits so at least filing a trademark application before entering a license agreement is must from both legal and business points of view.
3. Recordal of licenses with INPI2.
Recording a trademark license agreement with INPI is not necessary for the contract to have full effects for its parties nor does it provide "erga omnes" effects against third parties, which is a major difference with some other Latin American countries where this sort of recordal is necessary for them to have "erga omnes" consequences.
The situation is different regarding the recordal of assignment or transfer of marks, which, according to article 6 of local TM Law, is necessary in order for that act to have "erga omnes" effects and thus to be binding against third parties.
Despite the fact that recording a license agreement with INPI does not provide those effects, it has certain benefits such as facilitating the proof of its existence as well as the date of its execution.
The most important benefit derived from the recordal of a license agreement between foreign and local parties is that then they may be able to claim important tax benefits.
The tax treatment of payments to non-residents originated originating from international transactions with intangible assets is regulated by Section 93 of local Income Tax Law (hereinafter ITL) and, especially, by the Law of Transfer of Technology (hereinafter LTT) dated from 1981 (Law No. 22,426)3
Overall, Section 93 ITL establishes different non-rebuttable presumptions over the net income obtained by the non-resident transferring technology and trademarks to Argentina. Said presumptions also generate the effective withholding tax rates that are to be retained by the local party in regard to the payments to non-residents originating from:
Section 93 (a)(1): technical assistance, engineering or consultant services;
Section 93(a)(2): licensing and/or assignment of patents and other industrial rights such as trademarks, industrial designs, etc, which are not included in Section 93(a)(1);
Section 93 (c) licensing and/or assignment of certain copyrights including software but not those mentioned in Section 13 ITL.
Briefly, when both parties (the local and the non-resident one) comply with the requirements set forth by the ITL and the LTT and a license agreement is recorded with INPI then they can obtain the benefits of a smaller effective rate regarding their due local income tax and the possibility to deduct certain expenses from their due local income tax.
4. Importance of entering a license when trademarks are owned by a foreigner and proving their use is necessary to defend them from a "cancellation actions for non-use".
If the licensed mark is owned by a foreign company or individual who exclusively licenses it in Argentina it may happen that a third party comes up to file a cancellation action based on its lack of use.
Then, depending on the terms of the license agreement, both the licensor and the licensee may be able to defend the trademark by proving that it has been genuinely used in Argentina within the required period4, as long as the licensee is authorized to do so, which might be assumed in cases of related companies (foreign parent and local subsidiary.
Thus, having a license agreement in writing is very useful in order to avoid the risks and costs of proving the existence and scope of such authorization.
Likewise, according to case law, the owner can benefit from the use performed by a licensee to repel a cancellation action as long as the identity of the registered and the used trademarks is observed.
Last but not least, it goes without saying that the authorization should be granted before the cancellation action is filed.
5. Observance of antitrust regulations when drafting license agreements
The compliance with local antitrust regulations, which are not set forth in trademark but in antitrust law No. 25.156, is a factor becoming more and more relevant due to growing number of actions brought up by local authorities as well as by private parties.
Although there has not been a case dealing directly with anticompetitive conducts involving directly the license of trademark rights, it is worth mentioning the existence of some cases that indirectly tackled transactions with such rights, particularly when conducting legal analysis of merger and acquisitions, which go beyond the space available herein.
Yet, bearing in mind the potential infringement of antitrust regulations is a must when drafting license agreements of trademark and other intellectual property rights.
Given all these reasons, entering a license agreement is always advisable in order to avoid eventual problems for the parties including enforcing and defending trademark rights.
In those cases in which a foreign title holder is interested in receiving tax benefits related to the income tax due in Argentina, then the license agreement must be recorded with the Direction of Transfer of Technology that depends on the INPI.
1. Argentine pesos, which equal approximately u$s 230 as by December 2011.
2. "INPI" Instituto Nacional de Propiedad Industrial, which is the Argentine Trademark and Patent Office.
3. Section 13 LIG regulates the non-rebuttable presumptions applying to determine the local net income originated in the exploitation of: movies, video and audio works recorded abroad; radio and tv transmissions originated abroad; as well as any foreign means to broadcast, reproduce, transmit and diffuse images and sounds.
4. Anytime after the fifth year counted from the registration date but always before a cancellation action is filed)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.