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In a commercial environment, many multinational corporations centralise the ownership of intellectual property, including trademarks, within a holding company, while operational use of the brands is undertaken by subsidiaries across different markets. This structure offers strategic advantages, but must comply with the specific requirements of local trademark law.
In South Africa, the Trade Marks Act 194 of 1993 governs how trademarks may be owned, used, licensed, or transferred within such structures.
The Territorial Nature of Trade marks
Trade marks are territorial, meaning that protection in one jurisdiction does not automatically confer rights in another. South Africa is not a member of the Madrid Protocol (allows for registration in multiple jurisdictions), so trade marks must be filed directly with the Companies and Intellectual Property Commission (CIPC). As part of global filing strategies, multinational groups often register marks centrally in a holding company, then establish protection in South Africa either through direct national filings or under the Paris Convention priority system.
Use Requirements and the Risk of Non-Use Cancellation
Under Section 27(1)(b) of the Trade Marks Act, a trade mark may be removed from the register if it is not used in South Africa for a continuous period of five years from the date of registration. To maintain the validity of a registration, the mark must be used in the course of trade by the proprietor or by another party with the proprietor's consent.
Where a local subsidiary uses the trade mark, it is critical that such use qualifies as "authorised use" under the Act. This can be achieved either through a valid licence agreement or by recording the subsidiary as a registered user under Section 38.
Licensing vs Registered User Status
While the Trade Marks Act does not mandate that licences be in writing or recorded, it is best practice to formalise any licence in a written agreement and, where appropriate, register it.
The concept of a registered user, detailed in Sections 38, refers to a person or entity (often a subsidiary) who is permitted to use a trade mark under a recorded arrangement with the proprietor. Once registered, the use by that entity is deemed to be use by the proprietor for all legal purposes, including enforcement and to preserve the mark from cancellation. Registration also provides the registered user with standing to take action against infringement in certain circumstances.
The registered user arrangement must be approved by the Registrar, who may consider factors such as the nature of the relationship between the parties and the terms governing the use of the mark. The application must include a copy of the licence agreement, and may require an affidavit affirming the genuineness of the arrangement.
Assignment of Trade Marks
Where ownership of a trade mark is transferred, it is considered an assignment, governed by Section 40 of the Act. An assignment may occur with or without the goodwill of the business. Importantly, to be enforceable against third parties, the assignment must be recorded with the CIPC.
An assignment must be in writing and must fully transfer ownership; any attempt to retain residual rights over the mark by the assignor would conflict with the statutory requirement for a full transfer of title. Once recorded, the assignee becomes the legal proprietor, and only they may authorise others to use the mark.
In group structures, assignment may be appropriate where a local subsidiary must own the mark for regulatory or commercial reasons. However, in most cases, global groups retain ownership in a central entity and rely on licence or registered user mechanisms to authorise use by subsidiaries.
Key Contractual Considerations
Where licensing is used, whether or not registered, agreements should include:
- " The scope of permitted use (territory, goods or services)
- " Whether the licence is exclusive or non-exclusive
- " Duration and renewal provisions
- " Quality control standards to protect brand reputation
- " Payment or royalty terms (if applicable), ideally on arm's length terms
- " Clauses acknowledging that the licensor retains ownership of the trade mark and any goodwill generated through use
- " Provisions preventing the licensee from challenging the validity of the mark
Tax authorities may scrutinise inter-company royalty arrangements, and companies should ensure their transfer pricing policies comply with relevant regulations.
An example of how this would work in practice is as follows:
A global technology company might hold its trade marks in a Netherlands-based IP entity. The South African operating subsidiary uses the marks in its marketing and sales activities. To ensure valid use and preserve the marks under South African law, the group records the South African company as a registered user under Section 38, with a supporting licence agreement filed at the CIPC.
Alternatively, the parent may choose not to register the user but ensure that the licence agreement contains robust clauses to document authorised use, with provisions for quality control and acknowledgment of central ownership. Periodic reviews and documented use in the local market help preserve the marks from cancellation under Section 27.
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.
