Frequently Asked Questions on Trademark Licensing Agreement: Practical Tips in Licensing a Trademark
Under the provision of Article 1 paragraph (5) of Law Number 20 of 20016 on Marks and Geographical Indications (the “Trademark Law”), trademark right is an exclusive right granted by the state to the owner of a registered trademark for a certain period of time, to utilize the trademark proprietarily or by giving the permission to other party(ies) to use the trademark (without transferring the trademark right). So to speak, the owner of the trademark rights may utilize the benefit of owning the full right of a registered trademark either by using it personally or let the other party(ies) use its registered trademark.
To grant a permission to the other party(ies) to use its registered trademark, a written agreement can be entered into by and between the owner of the trademark (“Licensor”) and the party who will receive the right to use the registered trademark from the Licensor (“Licensee”). The Licensee then may utilize the registered trademark to generate benefit for the Licensee within the territory of the Republic of Indonesia or within the agreed specific area only (e.g. Surabaya or Bandung only) within the Republic of Indonesia, legally under the trademark licensing agreement (“Licensing Agreement”).
Based on some of our experiences in assisting various clients on trademark licensing activities, specifically concerning the arrangement of Licensing Agreement for trademark utilization, we have prepared the following brief overview of the frequently asked questions on trademark Licensing Agreement:
- Does the Licensor lose its right to the registered trademark once the Licensor grants the right to use its registered trademark to the Licensee under the Licensing Agreement?
No. the Licensor does not lose its exclusive right as the owner to the registered trademark when the Licensor entered into a Licensing Agreement as the Licensor only grants the Licensee the right to use its registered trademark, not transferring its exclusive trademark right to the Licensee under a Licensing Agreement.
Please bear in mind that trademark licensing is a different matter from transfer of an exclusive right on a registered trademark. Trademark licensing is the act of granting a permit to use the registered trademark within the territory of the Republic of Indonesia (in accordance with the applicable laws and regulations), meanwhile, a transfer of exclusive trademark right is an act of transferring the trademark ownership to another party resulting in the transfer of all rights of the registered trademark to another party, so that the trademark right ownership changes hands.
In practice, the Licensor will usually emphasize in the Licensing Agreement, among other things, that:
- The Licensee shall not make any representation or do any act which may be taken to indicate that it has any right, title or interest in or to the ownership or use of any of the trademark(s) except under the terms of the Licensing Agreement;
- The Licensor shall not have any right to sublicense or permit any third party to use the trademark(s) without the prior written approval of the Licensor;
- Is there an obligation to register a Licensing Agreement to the relevant authority?
Yes. A licensing Agreement must be applied for to be recorded to the Directorate General of Intellectual Property ("DGIP") at the Ministry of Law and Human Rights of the Republic of Indonesia ("MOLHR"). This is regulated under the Trademark Law specifically in Article 42 paragraph (3) and under Article 7 paragraph (1) of the GR 36/2018.
Further, the application for the recording of a Licensing Agreement must attach, at least, the following documents:
- The copy of the Licensing Agreement;
- The trademark certificate;
- A Power of Attorney (if the application is submitted by a proxy); and
- The proof of payment of the recordation fee.
Pursuant to Article 42 (5) of the Trademark Law, failure to register the Licensing Agreement will result in the Licensing Agreement having a non-legal effect to any third party. In other words, any interested third party(ies) may deem that the Licensee is not the rightful licensee. This may pose a problem if the Licensee intends to sub-license the trademark to another party (as agreed under the Licensing Agreement). The sub-Licensing Agreement may not have the intended legal effect.
- With regard to the period of a Licensing Agreement:
- Is there any specific validity period of a Licensing Agreement set out by the relevant applicable laws and regulations?
From strict reading of the applicable laws and regulations, there is no specific provision set out in the Trademark Law and/or the Government Regulation No. 36 of 2018 on the Recording of Intellectual Property Licensing Agreements ("GR 36/2018") that govern the validity period of a Licensing Agreement. This means that the validity period is subject to the agreement of the contracting parties.
However, it is reasonable to think that the terms of a Licensing Agreement must observe the provisions under Article 35 (1) of the Trademark Law on the protection duration of a registered trademark (which is valid for 10 (ten) years). This is also in accordance with Article 4 of GR 36/2018 which states that the trademark licensing may only be granted from the Licensor to the Licensee if the registered trademark is still valid (i.e. its protection period has not expired and the trademark still exists (not erased or deleted)).
Given the above, from practical point of view, it is advisable (particularly for the licensee) to have another set of agreement (e.g. a cooperation agreement) as the umbrella agreement for the Licensing Agreement which sets out the cooperation period between the Licensor and the Licensee. Therefore, even if the Licensing Agreement ‘expires’ due to the expired 10 (ten) years trademark protection (e.g. because the Licensor fails to extend the trademark protection in time or other reasons/complication, etc.), the Licensee and the Licensor are still bound by the umbrella agreement to continue/renew the Licensing Agreement after the extension process of the trademark protection is completed.
- Can the term of a License Agreement be extended?
As long as (i) the registered trademark protection period is still valid and (ii) the Trademark still exists (not yet deleted or erased) as set out in the Article 4 of GR 36/2018, and subject to the provisions of the Licensing Agreement as agreed by the Licensor and the Licensee, yes, the term of a Licensing Agreement may be extended by the Licensor and the Licensee as agreeable by the parties.
With regard to the extension of the Licensing Agreement period, as required under Article 17 of the GR 36/2018, the parties need to re-submit the application of the Licensing Agreement extension to be recorded to the DGIP at the MOLHR.
- In case where the Licensee and the Licensor decided to terminate the Licensing Agreement before the expiry of the Licensing Agreement (early termination), what should be done by the parties?
The early termination of the Licensing Agreement can be conducted according to the agreed termination provisions under the Licensing Agreement. However, following the termination of the Licensing Agreement between the parties, it means that the granting of the right to use the registered trademark by the Licensee is also coming to an end. By this termination, practically, the Licensee must be required to immediately cease using the registered trademark in connection with all of the Licensee’s business activities involving the registered trademark. Upon the agreement of the parties, either the Licensee or the Licensor shall also immediately notify the DGIP in all mediums regarding the cessation of use of the registered trademark by the Licensee.
- In the event of trademark infringement by a third party, what should the Licensor and Licensee observe in taking action against the third party?
The particulars of the actions in the event of discovering an infringement of the trademark are subject to the parties’ agreement. However, in general it is reasonable to expect that the Licensor would want to take control of any action against the infringer. Therefore, if the infringement is discovered by the Licensee, the Licensee would then be required to notify the Licensor of the infringement and inform the Licensor of the full particulars on the known infringement. It is also advisable to specify a duration in which the Licensor is required to take some action after the Licensee’s notice to the Licensor.
In addition, since the Licensor controls the course of action, the Licensee should not, without prior (written) approval of the Licensor, commence any settlement negotiation with the infringer, let alone accept any settlement package from the infringer.
- Any other practical tips to be observed in drawing up a Licensing Agreement?
I. Licensor to Maintain the Protection/Registration of the Trademark.
In our view, the Licensor as the owner of the exclusive rights to the registered trademark, must diligently monitor and carry out the necessary actions to maintain the protection/registration of the trademark (e.g. payment of all filing, renewal and other fees and expenses) and applications thereafter at the Register of Trade Mark (Daftar Merek) so that its ownership of the registered trademarks continues to be protected under the laws of the Republic of Indonesia.
II. Reputation and Goodwill
Since the Licensee will carry the Licensor’s brand names/trademark in its business activities, it is imperative for the Licensee to do all it can to grow and more importantly preserve the reputation that comes along with the trademark. In light of this, the Licensor may require under the Licensing Agreement that the Licensee, among other things, to comply with all applicable laws and regulations (for example: to promptly and diligently pay all taxes and duties arising from the Licensee’s businesses and provide the evidence of payment to the Licensor in a timely manner), and to comply with the ethical standard of business (as may be agreed in the Licensing Agreement).
III. Proper Bookkeeping
Although it is common to require the Licensee to have a proper bookkeeping in relation to its business (involving the Licensor’s trademark) and to allow access to the Licensor to audit the Licensee’s bookkeeping periodically, it may be worth to consider placing a Licensor’s representative in the Licensee’s office to supervise bookkeeping of the Licensee.
The above are only a handful of questions we commonly encounter when we assist our clients on the arrangement of trademark licensing. Since the commercial arrangement always differ from one case to another, the complexity of trademark licensing arrangement may vary from simple to quite challenging (including involving the assistance of offshore legal and/or IP consultant – depending on the scale of the transaction).
The above is a summary prepared by Solis Advisors – Attorneys and Consultants (“Solis”), an Indonesian based Law Firm. It is only intended to inform generally on the topics covered and should not in any way be treated as legal advice or relied upon when making investment or business decisions. If you have any questions/comments on the matter set out above, or other subject(s) you wish to inquire, please contact your usual Solis contact or email us at email@example.com.
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