All you need to know about the concept of trading on trademarks

This article has been written by Nagesh Karale and edited by Shashwat Kaushik.

A trademark may be any word, phrase, symbol, design, or a combination of these things that is used for recognising the source of a product or service. It gives customers visual clues to distinguish products from others. It may be registered or unregistered. A company logo may be used as a trade mark. A registered trade mark is shown by the symbols ® or ™. As long as the company uses a trademark, it protects the product or service for which it is used. The word or phrase used in a trade mark does not give it ownership. The strong trademark is inherently distinctive. It is suggestive, fanciful, or arbitrary. A trademark that is descriptive or generic in nature is treated as a weak trademark.

A trade mark is part of the branding strategy of any product or service. A brand deals with the image of a company. It is a general impression about a company or its products. A trade mark not only provides legal protection for a brand but also protects against counterfeiting and fraud. Trade mark rights are territorial. A registered trademark provides broader rights and protections.

Trading on trademarks deals with generating profits by using the brand’s worth and popularity in the market. Famous trademarks give the company a unique position and competitive leverage to generate new markets and profits. Proper brand strategies build strong trademarks. The strong IP policies protect the trademark effectively. This leads to brand dominance in the market. Trading on trademarks primarily deals with  activities related to selling, buying and licencing trademarks.

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Here are some key aspects of trading on trademarks:

  1. Licencing and franchising: In licencing arrangements, valuable trademarks are allowed to be used by other parties. The licencing agreements determine the use of trademarks. The licenced company gets the benefit of the licensor’s popular brand. In exchange, the licensee gives royalties or fees to the licensor. In a franchising arrangement, the different franchisees use a similar business plan provided by the company. The franchisees take advantage of the product’s brand image and the good will of the company. They use the same brand name.
  2. Trademark sales and assignments: Trademarks are sold as property. Through written assignments, the purchasing company gets ownership of trademarks. The purchaser then benefits from the brand’s image and popularity.
  3. Mergers and acquisitions (M&A): In this business process, trademark ownership transfers to the acquiring company. Before M&A activity, the valuation of the trademark is carefully done. Then the registrations are updated to ensure the transfer of ownership. The newly acquired trademarks should be matched with the new company’s brand strategy.
  4. Trademark valuation: The trademark valuation is carried out before merger or acquisition activity. The trademark valuation depends on the popularity of the trademark, its market share and reputation. This important information is useful for financial tracking and taxation purposes.
  5. Brand extension and merchandising: Popular trademarks are further used for new products through brand extension. This gives company additional income through                                                                                             merchandising.

The infringement of trademarks leads to dilution and confusion among existing customers. The trademark infringement must be stopped to avoid losing business. For that, trademarks should be monitored to detect any infringement or improper use of trademarks. Legal action should be promptly taken against the infringer.

If the product brand is internationally famous, then the associated trademarks are registered in multiple countries for protection. Due to the growth of E-commerce, the trademarks have become beneficial for creating customer trust and loyalty globally on various online platforms. Nowadays, companies maintain their trademarks, copyrights, patents, and other intellectual property assets in different portfolios.

Under restructuring, mergers, or acquisitions, companies acquire popular brands, which leads them to enter  new markets. They can also offer new product categories. As a result, the image of the company is enhanced.

The company can sell or licence their unused trademarks to raise funds. Acquiring global trademarks allows companies to grow internationally. While trading trademarks, the overall benefits and drawbacks are considered to avoid risk.

Under a licencing agreement, the licensor allows the licensee to use a trademark. The use may be exclusive or non-exclusive. The written terms and conditions in the agreement determine the use of the trademark. The licensor should take care of the quality of the products to avoid damaging their trademark reputation. He should monitor the quality of the product or service throughout the licenced territory. This helps the brand image stay intact.

Trademark licencing takes various forms, like franchising, merchandising, brand extension and co-branding. The licencing strategy generates more revenue by entering new markets. Licencing old, underutilised trademarks gives extra revenue to the company. Licencing reduces overall advertising costs.

In licencing, there is a big danger of damage to brand image due to the poor quality of the product. So it is the responsibility of the licensor to control the quality of the product to avoid damaging the brand’s reputation. Misuse of trademarks is another problem. Excessive licencing may lead to consumer confusion and the trademark may lose distinctiveness in the market.

In franchising arrangements, the franchisee gets permission to use another party’s trademark to sell a product or service. In exchange, the franchisee gives royalties and fees to franchisors. The franchisor provides business plans and training to carry out business. The big brands, like McDonald’s and Clarks Shoes, are examples of franchising.

In trademark assignment, ownership is transferred to the assignee from the assignor. The goodwill of a trademark may be transferred through an assignment agreement. The new trademark owner gets permission to exploit the transferred trademark.

Trademark assignments can be done in many ways. In a complete assignment, all the rights, along with royalties, are transferred to the assignee. In partial assignment, as it is partial, not all but some goods and services rights get transferred. In an assignment with goodwill, the rights, value and entitlements get transferred to the assignee. Trademarks for unused goods and services are generally assigned without goodwill.

Before assignment, many factors affecting trademarks are considered. It includes ownership, validity verification, existing licences and the territory of trademarks. The legal disputes against any trademarks are also taken into consideration. The decision about the type of assignment, such as complete or partial, with or without goodwill, will be taken after thorough research. The assignment of a trademark should be beneficial to both parties. After due diligence, the risk can be minimised.

During the assignment of trademarks, all the related legal documents should be made available. The assignment agreement should be well structured to avoid disputes in the future. The agreement should include scope, consideration, dispute resolution, confidentiality and indemnity clauses. The local law and stamping rules should be followed.

Before mergers and acquisitions, the brand’s ownership and possessions should be checked. Any existing legal dispute may create problems in the future. Next, the trademarks should be checked for registration status. The assignment agreements should include warranties, indemnities, and pre-completion corrections to lower the risk.

After the transfer of trademarks, the assignments should be recorded with authority within specific time limits to avoid loss of entitlement to remedies and enforcement. The assignment agreement should include a “further assurance” clause to bind the assigner to provide post-assignment assistance. In agreement, a domain name and social media account transfer clause should be added. The help of a legal specialist ensures the smooth transfer of trademarks. After proper transfer, the trademarks will be exploited and enforced properly.

Online shopping allows global consumers to buy products from anywhere in the world. The ease of online purchasing and secure payments contributed to the growth of different internet platforms. These websites, like Amazon, attract sellers around the world to sell their products at competitive prices on their websites. But there are risks to cyber security and the online sale of counterfeit products.

Third party help for trademark infringement is the major problem faced by the online seller. To detect online infringement of trademarks, it requires monitoring real name authentication and indirect information collection. Deciding the jurisdiction for infringement and enforcement of the law is the other big problem. Selling products imported in a different way in online stores can lead to legal problems.

To avoid online brand piracy, the seller should register their brand’s name and symbols. Continuously monitoring for online infringement and promptly taking strong legal action against infringement is the best policy. Facebook and Google also help to stop infringements.

The companies can educate their online customers about their brand using special symbols that show it’s their brand.

As more and more companies are selling their products internationally, foreign traders should register their trademarks in multiple countries to avoid disputes. The Indian courts take care of the protection of unregistered and foreign trademarks. The trans-border trademark reputation of foreign trademarks is protected by Indian courts.

The changing technologies and global business practises compel the countries to modify their trademark laws .The major problems are  fake websites and domain name infringements.

There is a new challenge in drafting trademark laws for non-traditional trademarks like sound, colour, and smell marks. As  businesses are rapidly growing globally, the trademark laws of each country should have common and simple registration procedures. The compatibility of trademark laws between countries makes international business easier.

With the help of artificial intelligence, it will become easy to find out the trademarks that are already in use by searching the trademark databases. The trademark registration process can become safer by using  block chain technology. Domain name conflicts will become a prominent problem due to the increase in internet use.

Trademark offices use AI tools to check trademark applications and search trademarks in their databases. Online tools can help  find unauthorised trademark use and take action against trademark infringements.

A trademark is a business tool to protect a brand. Trademark trading gives many opportunities to become unique in the market and expand business globally. For trademark trading purposes, licencing, franchising, sales, assignments, mergers and acquisition strategies are used. In this digital age, trademarks play a vital role in increasing revenue, international trade and preventing infringement. Future technologies like AI and blockchain will shape trademark law. Proper trademark trading will ensure the success of businesses and their competitive position in the future.

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