Trademark Licence: How to Let Someone Use Your Brand Safely

Why Letting Someone Use Your Brand Is a Big Decision

Picture this. You have spent ten years building a tea brand in West Delhi. Your packets are on every kirana shelf in your colony. A friend in Bengaluru loves the product and asks if he can manufacture and sell tea under the same name in Karnataka. You both want this. He has the capital and the local distribution. You have the brand and the customer trust. The deal sounds simple, almost like a handshake.

It is not simple. The moment a second person starts selling goods under your brand, the law starts watching. If the arrangement is loose, your trademark loses what made it valuable in the first place — its ability to tell the customer that goods carrying that name come from a single trustworthy source. Done badly, a casual permission can lead to your brand being removed from the register or attacked by competitors as no longer distinctive. Done correctly, a written licence lets your brand grow into new cities, new states, even new countries, while you keep ownership and control.

This article walks you through the safer path.

What Exactly Is a Trademark Licence?

In ordinary words, a trademark licence is a written permission. The owner of a brand allows another person — the licensee — to use that brand on the licensee's own goods or services for a defined period, in a defined area, on agreed terms. Ownership stays with the original proprietor. The licensee gets only the right to use, never to own.

The Trade Marks Act 1999 calls this arrangement "permitted use". Sections 48 to 53 set out the framework. Section 2(1)(r) recognises two flavours of permitted use — use by a person registered as a "registered user", and use by a person who is not registered with the Registry but uses the mark by written agreement subject to certain conditions.

The reason the law gets involved at all is straightforward. A trademark exists to tell the public who is responsible for the quality of the goods. If two unconnected people sell goods under the same name with no link between them, the customer is misled. To prevent that confusion, the law allows licensing only when there is a real trade connection between the proprietor and the licensee — and the proprietor exercises actual control over the quality of what the licensee sells.

Registered User vs Unregistered Licensee

This is the most important fork in the road. Both routes are legal, but they are not the same.

The registered-user route

If your trademark is registered with the Trade Marks Registry, you can take an extra step and have the licensee recorded as a registered user under Sections 48 and 49. Both sides apply jointly. The Registry adds the licensee's name against your trademark. From that moment, use by the registered user is treated as use by you under Section 48(1). That matters because it protects you against a later challenge that the mark is being abandoned. The registered user also gets the right under Section 52 to call upon you to take infringement action and, if you fail, to file infringement proceedings in his own name.

The Calcutta High Court explained the purpose of these provisions in Cycle Corporation of India v T.I. Raleigh Industries Pvt. Ltd. (1991), holding that the registered-user provisions were enacted to protect both the proprietor and the user of the trade mark.

The unregistered (common-law) licence

You can also licence without going to the Registry, by a written agreement only. The Supreme Court in Gujarat Bottling Co. v Coca Cola (1995) recognised that such common-law licensing is permissible provided three things hold true: the licensing does not cause confusion or deception among the public, it does not destroy the distinctiveness of the mark, and a real trade connection in the course of business continues to exist between the goods and the proprietor.

The unregistered route is faster and cheaper to set up but riskier. The licensee has no statutory right to sue infringers. Use by him does not automatically count as use by you for non-use cancellation purposes in the same neat way that registered-user use does. For one-off pilots or short experiments, an unregistered licence may be enough. For anything serious or long-term, the registered-user route is usually worth the extra paperwork.

Form TM-U and the Registry Process

Form TM-U is the prescribed form by which the registered proprietor and the proposed registered user jointly apply to the Trade Marks Registry. It is filed online with the prescribed fee. Along with the form go two important documents — a copy of the licence agreement, and an affidavit by the proposed registered user.

Section 49 of the Trade Marks Act 1999 lays down what the affidavit must cover:

1. Particulars of the relationship between the registered user and the registered proprietor — for example, whether the user is a subsidiary, a franchisee, an unrelated third party, or a joint-venture partner.
2. The degree of control to be exercised by the proprietor over the permitted use of the mark.
3. The statement of goods or services in respect of which the mark is permitted to be used.
4. The conditions or restrictions as to mode or place of permitted use — territory, channels, packaging.
5. Whether the registered user will use the mark for a period or without limit of period.
6. Any other statement the Registrar requires.

The Registrar today does not consult the Central Government. That role, which used to exist under the 1958 Act, has been withdrawn. The Registrar now functions broadly as a "post office" — if the formalities are satisfied and the agreement is on record, the user is registered.

Why Quality Control Is the Heart of Every Licence

If you remember nothing else from this article, remember this: the legal foundation of a trademark licence is your continuing control over the quality of the licensee's goods or services. Without it, what looks like a licence becomes "renting" of the brand, and that is dangerous.

The reason is principled. A trademark indicates a single source that controls and is responsible for the nature and quality of the goods. If the proprietor takes royalty but exercises no real control, the public is misled. The mark stops doing its legal job. Indian commentary describes this as "trafficking in trade marks" — dealing in a mark merely to make money out of it without any genuine trade connection — and traces it to the early Dristan case (AIR 1986 SC 137) and the English Holly Hobbie TM (1984) decision.

The phrase "actual quality control" is doing the heavy lifting. The mere right to control quality on paper is not enough. The right has to be exercised. Specifications must be written down. Inspections must happen. Failures must be acted upon. The Registrar can, on his own motion or on application, cancel a registered-user entry under Section 50 if any stipulation in the agreement is not enforced or not being complied with.

The Pioneer Hi-Bred International v Pioneer Seeds Co. (1990) case is a useful illustration. The American proprietor suspected its Indian registered user of not complying with seed specifications. The proprietor went to court, not to stop the defendant from selling seeds, but to stop them from selling seeds under the proprietor's mark. The court granted an injunction, treating the breach of quality and specification obligations as good ground to restrain use of the mark.

A licence that exists only on paper, with no real inspection regime behind it, is one of the easiest things for a competitor to attack later.

Royalty-Bearing or Royalty-Free?

The Trade Marks Act 1999 does not require a royalty. You can license your brand for money or for free. The choice depends on your business model and your relationship with the licensee.

Royalty-bearing licences are the standard commercial pattern. The licensee pays a fixed fee, a percentage of net sales, a tiered amount tied to volume, or some mix of all three. If you go this route, build in a clear definition of the royalty base, an audit right, a minimum guarantee where useful, and a dispute mechanism for accounting disagreements.

Royalty-free licences are common inside corporate groups — parent to subsidiary, or one group company to another — and for short collaborations or joint promotions. They are also used as sweeteners in larger commercial deals. Just because there is no royalty does not mean the agreement should be casual. Quality standards still matter, the territory still matters, the term still matters. A royalty-free licence with no quality control is just as risky as a paid licence with no quality control.

Whatever you choose, document it clearly. The Allahabad High Court in BD Ltd. v State of U.P. & Karam Chand Thapar (1991) underlined what the Supreme Court has said in many cases — the terms of the agreement between the parties are supreme, and courts will hold parties to those terms.

What a Good Licence Agreement Should Cover

Think of the licence agreement as a long instruction manual for a future relationship that may go through good days and bad days. Cover at least the following.

• Identification of the mark. Exact word mark or device, class, registration number, and any conditions of registration.
• Goods and services covered. List them precisely. Avoid open-ended phrases like "and related goods".
• Territory. A defined geography. National, state-wise, city-wise, or online — say so plainly.
• Term. Start date, end date, and renewal mechanism. Avoid perpetual licences unless you really mean them.
• Exclusivity. Is the licensee the sole user in the territory? Can you compete? Can you appoint other licensees?
• Quality standards and inspection. Specifications, testing protocols, inspection rights, frequency, and remedies for failures.
• Royalty and audit. Rate, base, payment schedule, late-payment interest, audit rights, and confidentiality of audit data.
• Sub-licensing. Either prohibit it or require your prior written consent.
• Use of brand in trade name and online. Whether the licensee can use your brand in its company name, domain name, or social-media handles, and what happens to those after termination.
• Termination triggers. Breach of quality, non-payment, insolvency, change of control, criminal activity.
• Post-termination obligations. Stop using the mark, return marked stock, withdraw advertising, change company name where used.
• Dispute resolution. Indian courts or arbitration; place; governing law.

For wider commercial questions about negotiating the underlying agreement — non-compete clauses, exclusivity, indemnity, termination — see our writing on contract drafting and negotiation.

Termination, Audit and Post-Termination Use

Most disputes between brand owners and licensees explode at termination. By then, the licensee has stock, signage, packaging, distribution networks, and possibly a corporate name carrying your brand. A well-drafted licence anticipates that mess.

Build in clear termination triggers. Standard ones include failure to maintain product quality and specifications, non-payment of royalty, breach of territorial restrictions, sub-licensing without consent, change of control of the licensee, and material breach of any other obligation. The agreement should also have a "termination for convenience" clause for the proprietor with adequate notice, so you can exit without proving fault.

Audit rights matter. Without the right to inspect books, you are at the mercy of self-reported royalty figures. A typical clause gives you the right to appoint an independent auditor, on reasonable notice, to inspect the licensee's books for the past two or three years, with the cost borne by the licensee if a meaningful underpayment is found.

Post-termination use is where lawyers earn their fees. The Bombay High Court in Optrex v Optrex (1992) distinguished between use of a mark on goods and use of a name in the corporate identity of the licensee, and held the parties strictly to the terms of their agreement. The Supreme Court in Baker Hughes Ltd. v Hiroo Khushalani (1998) went further and directed the licensee to drop the brand from its corporate name when the agreement so required, observing that continued use after termination amounts to misrepresentation.

Spell out, in plain language, exactly what the licensee must do within fixed days of termination — stop manufacturing under the mark, recall and either return or destroy marked stock, take down online listings and signage, and amend the company or trade name if the brand was incorporated into it.

If the negotiation gets technical or the relationship is high-stakes, this is the right point to bring in a lawyer. Pinaka Legal regularly drafts and negotiates trademark licences for Delhi-based brand owners who are scaling out across India and overseas, including the Form TM-U paperwork.

What Should I Actually Do Now?

If you are about to grant a licence, work through this checklist before you sign anything.

1. Confirm your registration status. Pull up the Trade Marks Registry record. Note the registration number, classes, conditions of registration, and renewal date.
2. Decide registered-user or common-law route. For anything beyond a short pilot, take the registered-user route under Sections 48 and 49.
3. Write quality specifications. Sit with your operations team and put product or service standards on paper. Specific. Measurable. Testable.
4. Decide territory, term and exclusivity. Put boundaries on paper. Avoid pan-India exclusivity unless you really intend that.
5. Pick royalty model. Fixed, percentage-based, or hybrid. Think about minimum guarantees and audit rights.
6. Get a lawyer to draft the agreement. A poorly drafted agreement is the single biggest risk you can introduce into a brand you spent years building.
7. File Form TM-U. File jointly with the licensee, attaching the agreement and the licensee's affidavit covering the points listed in Section 49.
8. Set up an inspection calendar. Schedule the first inspection within 90 days of going live and document it. Keep doing it.
9. Diary the renewal date. Both for the trademark itself and for the licence term.
10. Plan for exit from day one. Make sure your post-termination clause is something you can actually enforce — including, if needed, by filing a suit.

Frequently Asked Questions

What is a trademark licence in simple words?

A trademark licence is a written permission from the brand owner to another person to use the brand on their own goods or services, while the ownership stays with you. The Trade Marks Act 1999 calls this permitted use. You stay in charge of how the brand is used, what quality the goods must meet, and where the licensee can sell. If anything goes wrong, you keep the right to pull the licence back.

Do I need to register my trademark before licensing it?

Not strictly. You can license an unregistered mark under common law, and Indian courts have allowed it as long as the public is not deceived and the mark stays distinctive. But a registered trademark gives you the option to file a Form TM-U and get the licensee recorded as a registered user under Sections 48 and 49 of the Trade Marks Act 1999. Registered-user status gives the licensee certain statutory rights and gives both sides far better protection.

What is Form TM-U used for?

Form TM-U is the joint application by which the registered proprietor and the proposed registered user ask the Trade Marks Registry to record the licensee as a registered user of a registered trademark. It is filed with prescribed fees, the licence agreement, and an affidavit from the proposed user describing the relationship between the parties, the degree of control, the goods or services covered, the territory, and the period of permitted use.

What is quality control and why is it so important?

Quality control means you, the brand owner, decide and supervise the standards the licensee must meet, and you actually inspect to make sure those standards are kept. Indian commentary and case law treat this as the heart of any valid trademark licence. If you take royalty but exercise no real control over what the licensee makes or sells, you risk being seen as having abandoned the mark, and the trademark may become vulnerable to challenge.

What is the difference between a registered user and an unregistered licensee?

A registered user is recorded with the Trade Marks Registry under Sections 48 and 49. The use by the registered user is deemed to be use by you, and the registered user can in some situations sue infringers in his own name under Section 52. An unregistered permitted user uses your mark by written agreement but is not recorded with the Registry, has no right to sue infringers, and depends entirely on the licence agreement and common-law principles for protection.

Can a trademark licence be free of royalty?

Yes. The Trade Marks Act 1999 does not require a royalty. Many groups grant royalty-free licences inside the same corporate family, between a parent company and its subsidiary, or for a brief promotional collaboration. What the law cares about is not the money but the control. Even a royalty-free licence must show that you continue to set quality standards and supervise use, otherwise the licence loses its legal foundation.

What should I include in the licence agreement?

At a minimum, name the trademark and registration number, list the goods or services covered, define the territory, fix the term and renewal options, set out quality standards and inspection rights, state whether the licence is exclusive or non-exclusive, fix royalty if any and audit rights, prohibit sub-licensing without consent, list events of termination, and spell out what the licensee must do once the licence ends. The Supreme Court has repeatedly held that the licence agreement is supreme between the parties.

Can I cancel the licence if the licensee does not maintain quality?

Yes. Failure to maintain product quality and specifications is a standard ground for termination in trademark licences, and Section 50 of the Trade Marks Act 1999 also empowers the Registrar to cancel a registered-user entry if any stipulation in the agreement is not enforced or is not being complied with. To keep this remedy meaningful, your agreement must define quality clearly and you must actually inspect, document, and act on findings.

What happens to the licensee after the licence ends?

After termination, the licensee must stop using your trademark on goods, packaging, signage, advertising, and online listings. In many cases the licensee must also drop the brand from its corporate or trade name. The Allahabad and Delhi High Courts have enforced such clauses strictly. Build a clear post-termination clause into the agreement, including return or destruction of marked stock and a sell-off period for finished goods, so that there is no ambiguity once the relationship ends.

Can I license my trademark to many people in different cities?

Yes, you can grant non-exclusive territorial licences to several parties, each operating in a different region. The Act does not cap the number of registered users. But every additional licensee multiplies the quality-control burden on you. Indian commentary warns that uncontrolled multiple licensing can amount to trafficking in the mark and can endanger its distinctiveness, so build a strong supervision system before you scale out.

Does my trademark get diluted if many people use it under licence?

Only if you let it. Properly run, a multi-licensee model can grow brand reach without dilution, because the public treats all goods as coming from one source that controls quality. The risk arises when quality slips between licensees or when the brand is sold off as a name only without any real connection to your business. Courts have called the latter trafficking in trademarks, and it can lead to removal or invalidation of the mark.

Should I take a lawyer's help to draft the licence?

Strongly yes. A trademark licence affects the legal status of an asset that may be your most valuable business right. A lawyer will draft definitions tightly, set realistic quality benchmarks, build in audit and inspection rights, draft clean termination triggers, and make sure the agreement is consistent with Sections 48 to 53 of the Trade Marks Act 1999. The cost of a lawyer at the drafting stage is small compared with the cost of cleaning up a bad licence later.

For more articles on Indian law, visit the Pinaka Legal Blog. Written by the Pinaka Legal Editorial Team. For queries, call +91 8595704798 or email info@pinakalegal.com.