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License agreement or actions under the rightholder’s control

Dec. 11, 2017

In the course of cooperation between the company which is a trademark rightholder and the company which manufactures the goods marked with this trademark, in cases where the manufacturer does not intend further putting the goods into civil circulation, but on the contrary, the goods manufactured are returned in full to the Rightholder for the further realization, the issue often arises about the need to conclude a license agreement. In the majority of cases, such an agreement is concluded, however there are situations when the Rightholder avoids concluding a license agreement, motivating his refusal by the fact that the legislation stipulates the possibility of using the trademark “under the rightholder’s control.”

The indicated possibility, stipulated by Paragraph 2 of Article 1486 of the Civil Code of the Russian Federation, gives another company the right to use the trademark at the Rightholder’s will without the conclusion of a license agreement.

The explanations on the use of the trademark under the rightholder’s control are given in the Official Document approved by the decision of the Presidium of the Intellectual Property Rights Court on August 7, 2015 No. SP-23/21: “According to the general principle, the rightholder’s will to the use the trademark by a third party can be expressed in an agreement concluded with this third party; such agreements may be: a commercial concession agreement (Chapter 54 of the Code), a simple partnership agreement (Chapter 55 of the Code), an independent-work agreement (Chapter 37 of the Code), the paid services agreement (Chapter 38 of the Code), a preliminary agreement (Article 429 of the Code), including a license one, etc.”

However, this issue has various aspects when the correct legal framework for the cooperation between the parties is forming.

According to the established practice, the trademark Rightholders often do not have a possibility to manufacture the products by themselves, and they turn to the manufacturers who manufacture the goods and place the corresponding trademark on them. In such a situation, the Rightholder faces the issue on a legally correct registration of the relations with the manufacturer, in order to exclude the illegal use of the trademark and avoid the possible disputes with the tax authorities. Also, there may be concerns about the additional responsibility before the consumers, if the rights to the trademark have not been registered properly.

The law stipulates various options and ways to use the trademark. The main thing is that it is realized with the Rightholder’s permission.

The use of the trademark is the realization of an exclusive right to the trademark by the person who holds such a right on any grounds. The Rightholder can realize his exclusive right, for example, by placing the trademark on the goods, labels, packages of the goods which are manufactured, sold or otherwise put into civil circulation (Paragraph 2, Article 1484 of the Civil Code of the Russian Federation).

The disposal of an exclusive right to the trademark occurs by the conclusion of appropriate agreements. The law stipulates two ways of disposing an exclusive right to the trademark – by concluding an agreement on the alienation of such a right or by concluding a license agreement (Articles 1488, 1489 of the Civil Code of the Russian Federation). The Civil Code does not prohibit the use of other forms of agreements on the use of the trademark as well. However, essentially these agreements will also be license ones.

In addition to the indicated two options, the Civil Code of the Russian Federation stipulates another way of using the trademark – under the Rightholder’s control. The appearance in the law of the phrase “the use of the trademark under the Rightholder’s control” was caused by the established practice, however this concept is used in the vast majority of cases to prove the use of the trademark in case of a threat of the termination of the legal protection.

If, however, it is intended to use the trademark for the purposes of realizing an exclusive right, then it can be done legally only on the basis of a written agreement, and granting the right of the use under which is subject to the state registration. The lack of the registration of granting the right under a license agreement has mainly the civil and legal and tax consequences. The tax consequences are mainly related to the need to include the payments under such an agreement in costs when calculating a profit tax.

The need for a license agreement depends on the model of the relationship between the Rightholder and the company-manufacturer, but the manufacturer must justify the appearance of the right to place the trademark on the products. And, in spite of the fact that the manufacturer does not intend further putting the products into civil circulation, the justification for the right to use the trademark is necessary. This is necessary for the confirmation of his good faith in case of inspections carrying out by the supervisory authorities and claims from the Rightholder and the consumers.

As mentioned above, the agreement under which the parties interact may be a supply agreement, an independent-work agreement, etc., however, if according to its provisions the Rightholder grants the right to use his trademark, then in this part it will be a license agreement and granting the right under shall be registered.

Among other things, it should be noted that an important element of the agreement, which is a license agreement, is the existence of the provisions on the control of the Rightholder of the quality of the products manufactured by the Manufacturer.

The quality control is an important and necessary condition for a license agreement: the Licensee is obliged to ensure the appropriate quality of the goods manufactured or sold by him, on which he places the licensed trademark of the Rightholder. The requirements to the quality of the goods shall be established by the Rightholder, he also has the right to control the compliance with this condition. In this case, they both bear joint and several liabilities on the requirements to the Licensee as a manufacturer, (Paragraph 2 of Article 1489 of the Civil Code of the Russian Federation).

Summarizing the above, we confirm that license agreements are not the only kind of agreements on the basis of which the trademarks can be used with the permission of their holder. They may be commission agreements, supply agreements, independent-work agreements, as well as agreements of a mixed kind. However, the use of other agreements different from the license ones does not eliminate the need for their state registration by Rospatent.

Paragraph 1 of Article 1490 of the Civil Code of the Russian Federation regulates the form of the agreements on the disposal of an exclusive right to the trademark. According to this provision: “... the license agreement, as well as other agreements according to which the exclusive right to the trademark is exercised, shall be concluded in writing.”

According to Paragraph 2 of Article 1232 of the Civil Code of the Russian Federation “In cases where the result of the intellectual activity or the means of individualization is subject to the State Registration according to this Code, the alienation of an exclusive right to such a result or to such means under an agreement, the pledge of this right and granting the right to use such a result or such means under an agreement, as well as the transfer of an exclusive right to such a result or to such means without an agreement, are also subject to the state registration, the procedure and terms of which shall be established by the Government of the Russian Federation.”

Thus, granting the right to use under the agreements of any kind mentioned above, which contain the elements of a license agreement, requires the state registration.

Based on the above arguments, in order to make the contractual scheme of cooperation determinate and to minimize the possible risks during its realization for the Rightholder and the Manufacturer, it is possible to recommend the realization of the activity under a license agreement granting the right to use the trademark, with the further registration of granting the right under an agreement at the Federal Institute for Industrial Property.

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Author of article

Natalya Nazarova

Natalya Nazarova

Agreement’s Lawyer