Nowadays, trademark licensing plays an important role in commercial activities globally. Licensors gain revenue and access to broader markets, while licensees benefit from established brand recognition with lower business risks. When operating trademarks and managing licensing in Taiwan, companies should bear the following legal considerations in mind. Here is an overview of trademark licensing for foreign businesses that are interested in operating brands in Taiwan.
According to Article 39 of the Trademark Act, a registered trademark may be exclusively or non-exclusively licensed by the proprietor, for all or some of the registered designated goods or services, in a particular designated area. There are three types of licenses that exist in Taiwan:
a. Exclusive license: An exclusive license grants the licensee the exclusive right to use the trademark, including sub-licensing and taking legal enforcement actions unless otherwise prescribed in a licensing contract. It also excludes the owner and any third party from using the trademark.
b. Non-exclusive license: A non-exclusive license grants the licensee a limited right to use the trademark, while the owner retains the right to use it and grant licenses to others. The licensee of a non-exclusive license does not have rights to sub-license and take legal actions for the trademark.
c. Sole license: A sole license is a non-exclusive license that is not explicitly mentioned in the Trademark Act, but commonly used in Taiwan. Under a sole license agreement, the trademark can only be licensed to a single entity, and the owner may use the trademark.
Recordation of the License Agreement
Some jurisdictions require trademark license agreements to be officially recorded in order to be considered valid. Taiwan has no such requirement. As long as a valid contractual relationship is established, the license agreement is considered legally binding and enforceable between the parties in Taiwan, regardless of whether it has been registered at the Taiwan Intellectual Property Office (TIPO).
However, registering the license agreements functions as public notice and further legal protections for the parties. With registration, the licensee of an exclusive license can enforce their rights against third parties. Furthermore, the new owner is bound by the existing registered license agreement when the trademark is transferred. Additionally, when a non-exclusive license is registered and a subsequent exclusive license is granted, the exclusive licensee must respect the rights of the earlier non-exclusive licensee.
Obligations of the parties
a. Flexibility in Trademark Licensing
Taiwan imposes minimal requirements on the content and form of license agreements, providing flexibility and freedom in drafting and customizing license agreements. License agreements can be created orally or in writing. The limitation or obligations in trademark use in licensing agreements depends on the content of the agreement between the parties.
While the Trademark Act and Taiwan courts have no specific requirements for the parties involved, it is worth noting that such agreement must adhere to relevant regulations in Taiwan. For example, in some cases, trademark owners with stronger negotiation power prefer to provide a standard form contract for licensing, which is crafted by the trademark owner for general use and its terms and conditions are unnegotiable by the licensees. However, Article 247-1 of Taiwan’s Civil Code requires a standard of fairness in contracts, and provides protection from unfair terms by deeming “obviously unfair” provisions void. Licensing terms containing the following circumstances would likely be deemed invalid:
- To release or reduce the responsibility of the party preparing the standard form contract;
- To increase the responsibility of the other party;
- To make the other party waive its rights, or to impose restrictions on their exercise of any rights; or
- Other matters gravely disadvantageous to the other party.
Therefore, it is important to ensure that the agreements adhere to the principles outlined in Article 247-1 when licensing trademarks via standard form contracts.
b. Quality Control
Quality control is not a mandatory requirement for the licensor in Taiwan, meaning a naked license would not result in invalidation of the licensed mark. During licensing, the management structure of a business organization and its allotment of key decision making power to affiliates do not affect the validity of the trademark. Parties can include quality control provisions in the agreement, and the duty to conduct or supervise quality control can be delegated to an affiliate or a licensee based on the parties’ considerations.
While the absence of quality control does not invalidate the trademark, it is worth noting that lacking quality control may harm the customers and thus cause legal risks to the licensor and licensee. Under some circumstances, both the licensor and licensee should take responsibility for the product’s quality, according to relevant regulations in Taiwan (i.e., the Civil Code, Consumer Protection Act and Fair Trade Act).
Taiwan offers an accommodating framework for trademark licensing. The laws in place allow relative flexibility in affiliate involvement, quality control, and optional registration of licensing agreements, which allow companies to adjust their strategies based on their specific needs. Overall, brand owners enjoy the flexibility to operate their brands in Taiwan.
Nevertheless, it is still important to err on the side of caution and carefully consider the legal implications, to prevent the provisions in the license agreement from being invalidated (such as violation of regulations on standard form contracts) and avoid legal liability arising from non-compliance with other relevant laws.