Trademark licensing strategies and restrictive practices

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Do you want to know the Trademark Licensing
Strategies and Restrictive Practices?
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Enterprises seeking to maximize profits may
sometimes engage in practice while exploiting
trademarks by way of licensing seeing them as
valid practices, but which in fact are dubbed as
restrictive practices. The knowledge of
restrictive practices and the efforts to curb
them is necessary for the licensors, licensees,
the government officers, lawyers and all others
concerned with trademarks, for engaging in
successful business negotiation.
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Foreign Collaboration
In India, in mid and late twentieth
century, licensing the use of the trademarks was
associated with establishing production
facilities, which more often were in the nature
of import substitution. The foreign enterprises
entered in India and collaboration with the
Indian party for joint ventures known or referred
as Foreign Collaboration. The Indian party
could be in a local business sector or else its
been already undertaking foreign company in India
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Foreign enterprises
The foreign enterprises can supply the capital
goods, technology and participate in the equity
finance and would grant the license to the joint
venture unit. The guidelines for the industries
in order to use the trademark were published in
the year 1955.
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From the commencement of the foreign exchange
regulation act, 1973 on 1 January, 1974, foreign
equity in such foreign collaboration units was
normally restricted to 40 percent, excepting a
few cases in which foreign interests were allowed
51 percent equity. Such JVs were allowed to
raise foreign equity to 51 percent in
post-1991-period. Now in various cases, foreign
equity at various levels of 51, 74 or even up
to 100 is allowed, except in the small scale
sector, in which foreign equity of only 24 is
allowed. At the same time it should be kept in
mind that the equity holding is not the test for
indulging in the strategies or restrictive
business practices associated with licensing of
trademarks.
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Restrictive business practices associated
with trademarks
If the managerial powers of the joint venture
with the foreign corporation, there is no need
for it to insert the restrictive clauses in the
agreement which are necessary for assuring
itself. When the day-to-day control and
management is not under the control of the
trademark owner, then to secure its position the
restrictive clauses would be inserted in one of
the agreements out of a set of agreements, which
are entered into for the completion of the
foreign collaboration including the use of
trademark. If Indian parties seek to license
their trademarks abroad, it can be safely
presumed that they would normally behave in the
same manner, as the MNCs coming from developed
countries behave. The responses too would be
somewhat near to what were seen in developing
countries during the relevant times.
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Agreements are secret
The parties treat these agreements as
confidential. The government also does not
divulge the data on terms and conditions of
collaborations for which there is some
justification as the agreements represent
business secrets.
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Restrictive practice listed
The power of exercising quality control by the
trademark owner over the actual
manufacturer/licensee unit is ordinarily cited as
the business and legal justification for these
practices. The presence of following restrictive
practices has been established in technology
transfer (which includes the use of the
trademark) agreements

• Export market allocation
• Restricting handling of competing technology or
  products
• Tying the source of raw materials and parts
• Restricting production volume
• And the use of transferred technology after the
  expiration of the trademark franchise
• Restricting prices
• Unilateral determination of sales promotion
  expenses
• Disguised charges in the form of royalties or
  over-pricing the raw material or spare parts
• Restricting marketing channel and methods

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• In case the collaboration is coupled with equity
  investment or control of managerial power in the
  hands of proprietor of IP
• Restricting technology for some crucial parts or
  processes or delaying the same unduly
• Forces royalties on non-contract technology
• Unilateral transfers of improved technology

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Curbing restrictive practices in India
At approval stage

• The restrictive practices may be curbed firstly
  at the stage of initial foreign collaboration
  approval when the government screens the
  investment-cum-technology transfer proposal from
  all angles. All the known restrictive practices
  may be minimized at that time.  The restrictive
  practices were sought to be curbed, only after
  the governments, became aware of these practices
  in the mid-sixties and seventies.
• The knowledge about the ill effects of MNCs
  started resulting in strenuous regulation to curb
  the same. But , the MNCs belonging to developed
  countries took a still harder position. They took
  steps whereby they liquidated the regulation. It
  is submitted that now after the WTO-Trade Related
  Investment Measures (TRIMS), the regulation on
  FDI is minimal.

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Curbing at operational level

• The restrictive practices can also be curbed at
  the actual operational stage under various
  national laws, prominent of which are the
  industries (Development and Regulation Act (IDRA)
  and the competition act, 2002. There are powers
  vested with the authorities under these laws
  whereby such practices can be curbed. Before the
  structural adjustment programme (SAP) of 1991,
  insistence on the use of the trademark of the
  transferor (licensor) foreign enterprise of the
  technology and or insistence on higher foreign
  equity participation in the marketing operation
  of the local enterprise were itself considered as
  a restrictive practice.
• Despite the fact that many a time the technology
  itself is refused, if the product is not,
  marketed under the trademark of foreign parent.
  The government of India kept insisting at not
  allowing the trademarks as such. The government
  had, in the late seventies, given way by allowing
  the use of the hybrid composite trademarks
  consisting of an Indian part and the FTM. It had
  found moral justification by treating the hybrid
  as an Indian mark.

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