Businesses everywhere are seeking ways to exploit their intangible assets, licensing being one of them. For foreign companies interested in the Indian market, one of the simpler modes of having a presence in India is by licensing technology, patents, trade secrets, trademarks, designs and copyright to entities in India.
A “licence” in legal parlance is a permission given by the owner to use its property on certain terms and conditions. With an exclusive licence, the licensee has the right to use the property to the exclusion of others, while a non-exclusive licence permits others to be granted a licence to the same property.
Licensing helps entities boost revenue and profitability and derive value for an asset on which they have expended money, time and labour. While some entities create intellectual property and license it for commercial exploitation, others seek to benefit from intellectual property generated by others by obtaining a licence for commercialization. Licensing transactions are usually preceded by confidentiality and non-disclosure agreements and a due diligence exercise depending on nature of the intellectual property involved.
Examples of technical collaborations or licensing include technology transfers, in-licensing, out-licensing, franchising, joint ventures and manufacturing contracts. Joint ventures are generally chosen as a mechanism for technical collaboration when there is need for continued contribution of expertise, continued loyalty of the collaborating partner and permanent access to the technology or invention. Due care has to be taken in formulating non-compete provisions and obligations of confidentiality so as to ensure that they are not prohibited as being in restraint of trade under the Indian Contract Act, 1872.
In the case of a patent licence, the Patents Act, 1970, requires persons who become entitled to an interest or a part-interest in a patent as a licensee to apply to the patent office to record their interest.
Trademarks can be licensed in different arrangements including franchising, joint ventures, manufacturing and supply agreements, pure trademark licensing agreements and hybrid licensing agreements with other forms of intellectual property. A trademark serves as a source indicator, indicative of a particular degree of quality and origin. Therefore, licensing of trademarks requires close supervision and control over the licensee.
It is not mandatory to record a trademark licence at the trademarks office but a licensee of a registered trademark may become a registered user of the trademark by filing the licence agreement, an affidavit stating certain prescribed particulars and other documents with trademarks office.
Copyright licensing is largely seen in the media, entertainment and software industries. Under the Copyright Act, 1957, the owner of copyright in an existing work or the prospective owner of copyright in a future work may license any one or all of the rights granted under copyright. The licence has to be in writing and signed by the owner or its authorized agent. A copyright licence has to identify the work, the rights licensed, the duration and the territorial extent of the licence. If the duration is not specified, it is deemed to be for five years and if the territorial extent is not mentioned, it is deemed to be in respect of India. It is not mandatory to record a copyright licence at the copyright office.
Broadcast reproduction rights in a broadcast and performer’s rights in any performance may also be licensed by the owner of the rights under the above provisions of the Copyright Act. However, if a broadcast involves copyright or a performer’s right, no licence can be granted in the broadcast without consent of the owner of the copyright or performer’s right or both.
Newer kinds of licensing such as character merchandising, image and personality merchandising have gained momentum in recent times. Character merchandising refers to licensing the use of fictional characters, titles, emblems and logos of sports teams in respect of products and services. Character merchandising may involve licensing of trademarks, copyright and designs. In image and personality merchandising, different elements or characteristics of a celebrity’s image are used for selling goods and services.
The Competition Act, 2002, also has to be considered while drafting intellectual property licensing agreements. The act prohibits agreements which cause or are likely to cause an appreciable adverse effect on competition within India but it does not restrict a person’s right to impose reasonable conditions for the protection of their rights under various intellectual property statutes. “Reasonable” is not defined.
Since December 2009, the Indian government has allowed royalty and lump-sum payments to be made abroad for transfer of technology or licensing of a trademark or brand without the need to obtain approval of the government’s Project Approval Board. As a result, India has become an attractive destination for licensing and technical collaborations.
Kavita Mundkur Nigam is an associate at Krishna & Saurastri Associates.
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