A trademark is used by a person to distinguish wares or services from those of others. A trademark must be distinctive and any goodwill that results from the use of a trademark is to the exclusive benefit of the sole owner. The “single source” theory is the foundation of trademark law in Canada. Traditionally, licensing a trademark would create multiple sources for the associated wares or services and would impair the distinctiveness of the mark thereby resulting in its abandonment.
Often a trademark owner and its user(s) may not be one and the same. Where a parent corporation owns a trademark and its affiliates (including wholly-owned subsidiaries) are the actual users of the trademark for the purposes of marketing and selling the business’s goods and services, parties run the risk of diluting their trademark rights and losing the distinctiveness of their trademark. Similarly, where a trademark owner and its affiliates all use a trademark the mark’s distinctiveness may be lost.
The Trade-marks Act permits the licensing of a trademark, registered or unregistered, if the owner of the trademark under the license arrangement has direct or indirect control of the character or quality of the wares or services in association with which the trademark is used.
A trademark licensing agreement, which provides the trademark owner with control of the character or quality of the wares or services in association with which the trademark is used, protects registered and unregistered marks from dilution and the Canadian Trade-marks Act deems use by a licensee to be use by the owner. Use of a trademark by an unlicensed non-owner (even an affiliate or subsidiary) can inadvertently weaken the distinctiveness of a valuable mark.
In order to protect a registered or unregistered trademark a written trademark license agreement should exist between the trademark owner (as licensor) and the trademark user (as licensee) whereby the licensor can exert control over quality.
The Licensing Agreement
The need for a license agreement may not be intuitive, particularly where there is little risk perceived of infringement proceedings between ‘related parties.’1 However, the use of a trademark by an unlicensed non-owner exposes the mark to expungement proceedings for non-use and may be detrimental to the trademark owner if an unrelated third party infringes the owner’s trademark rights.
A licensing agreement between related parties and/or affiliates need not be complicated. The Trade-marks Act does not specify the form that the license should take and the law applicable is that governing license agreements in each province. A trademark symbolizes a specific assurance of the quality of specific goods and services. So long as the trademark owner maintains consistent quality, it may license the mark to any number of licensees.
A valid trademark license should provide a method for quality control by the licensor and identify the wares and services the licensee is permitted to use the trademark in association with. A licensing agreement can be indefinite in duration and can provide for nominal (if any) royalties. In some cases, a license granted by an owner may permit a licensee to grant sub-licenses.
The license to use a trademark need not be in writing. In absence of a written agreement, the Trade-marks Act presumes that a license is deemed to exist when a licensee discloses on its goods that it does not claim ownership of the trademark that it uses and identifies the owner of the trademark and publicly acknowledges that it uses the trademark under license. Use under these conditions has the same effect as use of a trademark by the owner.
It is recommended that businesses who place value in their trademarks seek the advice and counsel of a lawyer with experience and expertise to review their intellectual property portfolio to incorporate an appropriate trademark licensing strategy. The following is a non-exhaustive list of relationships in which a party is related to an entity: associates, joint ventures, management personnel, family members, and parties under direct or indirect control of a principle.