March 28, 1995
WHEREAS, the trademark laws of many countries contain a requirement that trademark licenses must be recorded in the patent and trademark office or with other governmental agencies; and
WHEREAS, such requirement is burdensome to trademark owners and creates difficulty in enforcement and maintenance of trademark rights;
BE IT RESOLVED, that it is the position of the International Trademark Association that mandatory trademark license recording requirements should be eliminated.
The earlier Task Force reports "Trademark Licensing Requirements in the EC and EFTA Countries," "Licensing Recordal Requirements in Asia and the Pacific," and "Licensing Requirements in Latin America- Caribbean" reveal that the trademark laws of many countries (among them the Benelux countries, Greece, Turkey, China, Taiwan, Korea, Thailand, Indonesia, Brazil, Ecuador, Paraguay and Colombia), require licenses to be recorded. Section 22.3 of the WIPO Model Law and article 117 of the Cartagena Agreement also require recording.
In several countries, e.g., the Benelux countries, the failure to record a license does not affect the validity of the license or of the trademark registration itself. In these countries recording is only necessary in order for the license and the rights of the licensee to have effect against third parties (e.g., in the event of infringement or of an assignment of the trademark). However, in other countries such as Korea, failure to record a trademark license can invalidate the trademark registration, as demonstrated by the Federal Express case 92 HU 162 (Supreme Court, July 28, 1992). In this decision, the Korean Supreme Court held that the Federal Express registrations were invalid since Federal Express failed to record its agents as trademark licensees
The disadvantages of mandatory trademark license recording requirements to the trademark owner are numerous, especially in those countries where failure to record within a certain period of time makes it possible for the government and/or third parties to cancel or invalidate the registration of the trademark (China, Taiwan, Korea), i.e., use of the registered trademark by an unrecorded licensee is not officially recognized and does not inure to the benefit of the registrant. Thus, recording requirements are used by third parties in order to challenge a trademark owner's rights. Failure to record provides a sometimes successful defense to infringers.
Complying with mandatory license and registered user requirements is expensive and inconvenient, and causes delay when the requisite formalities conflict with commercial practices. Formal requirements vary from country to country, and recording requirements are often technical and complex, both procedurally and substantively.
Costs of recording are even higher for multiple licensees (e.g., franchise agreements) or multiple class applications/registrations (e.g. in countries where a separate trademark registration is issued for each class). The costs and inconvenience of recording arise not only upon the initial filing, but also as circumstances change and the recording requires updating.
Recording the license often requires the contents of the agreement to be published and open for public inspection. Often, a change in a license agreement must be recorded before it will become effective
In those countries where governmental approval of the agreement is required to determine its compliance with the laws, such as Greece, Thailand, Brazil, Ecuador and Colombia, there is uncertainty and a lack of consistent interpretation of the law. This often leads to arbitrary and unfair treatment of the trademark owner.
It is the Task Force's view that the penalties imposed for nonrecordal are too harsh, and that compliance with such recordal requirements are costly, cumbersome and commercially unrealistic.
In Canada, for instance, prior to the recent amendment to its licensing laws, recordal: (1) was mandatory; (2) had to occur before use by a licensee; and (3) could not technically take place until registration of the mark(s). Such a system created serious difficulties for franchise operations such as fast food chains and major licensing operations such as sports organizations and leagues.
Many major businesses were unaware of the existence of Canadian registered user recordal requirements. Even if they were, they often did not realize the ultimate penalty for noncompliance, namely, the loss of their trademark rights. Moreover, recordal was costly in terms of time and money for those who complied. Many took the risk of non-compliance knowingly or unknowingly. Canada's recent revision of its law to eliminate mandatory registered user recordals reflected that country's acknowledgement of practical commercial realities.
The issue of proper licensing should be left to be challenged or proven when the owner seeks to enforce its mark. There are other more viable statutory vehicles by which the government may control these concerns than by imposing arbitrary, mandatory recordal requirements.
In conclusion, mandatory license recordal requirements are unduly expensive. More importantly, the penalty for non-compliance is disproportionate to the infraction. The only possible benefit to the country is inflated government fees, since any "protection of its citizens" would be artificial in that the invalidity of the trademark registration could only benefit local infringers or disloyal licensees who seek to misappropriate the mark.
The Task Force, having established the extent of the problem (the number of countries which require recording of licenses) and the serious impact of the disadvantages to the trademark owner, considered whether the disadvantages of the recording requirements are justified or whether their purpose may be served by means less disadvantageous to the trademark owner.
Historically, the following reasons have been given to justify mandatory recording requirements:
- the need to examine the terms of the contractual relationship to determine whether the agreement violates provisions of local law (anti-trust, technology transfer, exchange controls, foreign capital and taxes);
- the wish to enable the public (consumers) to determine whether the products or services meet the standards of the licensor and whether the licensee is authorized to use the mark;
- the wish to protect the trademark owner by providing that use by the licensee inures to the benefit of the licensor for the acquisition or the maintenance of the licensor's trademark rights, particularly where the licensor is not itself using the mark in the country; and
- the wish to protect the licensee from third parties by allowing it to join infringement proceedings and claim indemnification for its own damages, and by making it impossible or difficult for the licensor to assign, cancel or encumber the licensed trademark without licensee cooperation
The Task Force has determined that the above reasons can be served by other, less disadvantageous means as follows:
- If a license agreement fails to comply with laws other than trademark law, this may result in the invalidity of the agreement or of certain clauses thereof and/or the imposing of fines. However, sanctions regarding the validity of the trademark registration are not necessary or reasonable. Invalidity or unenforceability of a trademark registration is too drastic a sanction for non- compliance with administrative recording requirements.
- The recording of a license provides no guarantee of quality control. The identity of the trademark owner can be established by consulting trademark registers or through other means. Complaints about quality can be directed to the appropriate entity. Moreover, consumers rarely, if ever, consult official registers. Here too, invalidity or unenforceability of a trademark registration is too drastic a sanction for non-compliance with recording requirements.
- If a country's law provides that use by a licensee automatically inures to the benefit of the trademark owner, mandatory recording is not necessary. Increasingly, countries are acknowledging this fact by eliminating the license recording requirement (Benelux, Brazil and Section 50 of the new Canadian Trademarks Act).
- Generally, it is possible to provide in a license agreement that the licensee under certain circumstances may join infringement proceedings and claim compensation for its own damages. Licensees can negotiate for the inclusion of other protective provisions in the license agreement.
Certainly, where reasons (3) and (4) are meant to protect the trademark owner and the licensee, invalidity or unenforceability of a trademark registration is a drastic and unreasonable sanction. The law simply can recognize the relationship of the parties and their right to contractually protect themselves, as in the United States.
In summary, there are other effective means to address the concerns of mandatory recording statutes. The disadvantages of mandatory recording requirements are not justified.
INTA should adopt a resolution stating the Association's opposition to mandatory trademark license recording requirements.
This report was prepared by the Licensing Standards Task Force consisting of Paul Steinhauser (Leader), Praxedes Castillo Baez, Utz Kador, Kenneth McKay, Jana Sigars and Anita Yeung.
Group Leader: Clark Lackert
Steering Council Liaison: Toni Polson Ashton