Trademarks, Licences, and Trademark Licence Agreements: What You Need to Know

In recent years, the rapid growth of the entrepreneurial ecosystem has pushed branding processes into ever earlier stages. For start-ups, e-commerce ventures, and scalable business models in particular, a trademark has become not merely a name or logo but an asset that directly generates economic value. Alongside this development, licensing the use of a trademark to third parties — licence relationships and trademark licence agreements — comes up more and more often in practice.

Although at first glance a trademark licence agreement may be perceived as a simple relationship of "permission to use the trademark", in reality these are long-term agreements that give rise to continuing obligations and carry serious legal risks. In practice, significant disputes arise where the licence agreement is not made in writing, its scope is not clearly defined, control and quality provisions are overlooked, or the trademark owner's rights are not sufficiently secured.

For entrepreneurs in particular, the most frequent problems are the trademark effectively slipping out of the owner's control, the licensee misusing the trademark, the trademark losing value, or the rights and obligations remaining unclear when the licence relationship ends. Such risks are often noticed only after the agreement has been concluded and the trademark has begun to be actively used in the market.

Yet in trademark law, where the licence relationship is not set up correctly, consequences can arise that threaten not only the contract but the trademark right itself. A trademark licence agreement should, beyond protecting the parties' commercial interests, also secure the legal safety of the trademark.

In this article, we address the questions most frequently encountered in practice regarding trademarks, licences, and trademark licence agreements, and explain — within a legal framework, that of Turkish law — the legal nature of a trademark licence, the types of licence, the parties' rights and obligations, termination of the agreement, and the most common risks.

1. What is a trademark, and is registration alone enough?

A trademark is a sign that serves to distinguish the goods or services of one business from those of other businesses. Names, logos, slogans, shapes, and even, in some cases, sounds can be protected as trademarks. Although registration provides the trademark owner with legal protection, it is not enough on its own.

As is often seen in practice, incorrect or uncontrolled use of a registered trademark can weaken the trademark's distinctiveness and even put its legal protection at risk. Where permission to use is granted to third parties in particular, the loss of actual control over the trademark can seriously reduce its value.

For this reason, a trademark should be regarded not merely as a registered right, but as an asset that must be actively managed and protected.

2. What is a trademark licence, and how does it differ from an assignment?

A trademark licence is where the trademark owner, without transferring ownership of the trademark, grants a third party the right to use the trademark under certain conditions. In this respect, a trademark licence is entirely different from a trademark assignment.

In an assignment, the trademark right passes in its entirety to the new owner; in a licence relationship, the trademark right remains with the trademark owner. The licensee may use the trademark only within the limits set out in the agreement.

In practice, overlooking this distinction leads to "have I given away my trademark?" anxieties and to serious disputes. Licence agreements that are not clearly and precisely drafted can carry the risk of effectively producing the result of a trademark assignment.

3. Must a trademark licence agreement be in writing? What happens if it is not registered?

In Türkiye, the validity of a trademark licence agreement depends on written form. Under Article 148/4 of the Industrial Property Law No. 6769, legal transactions concerning a licence relationship must be made in writing, and this written-form requirement is not a rule of proof but directly a condition of validity of the agreement. A trademark licence agreement concluded orally between the parties is therefore not regarded as legally valid. That said, for the agreement to be valid it need not be drawn up before a notary or approved by any official authority. Indeed, the notarial approval required for trademark assignment agreements is not prescribed by law for licence agreements. In practice, however, to make proof easier in any future dispute, it is often preferred to sign licence agreements before a notary or at least to have the signatures certified.

A trademark licence agreement may, at the request of one of the parties, be recorded in the trademark register at the Turkish Patent and Trademark Office. Under Article 148/5 of the SMK, on payment of the required fee, the licence transaction is entered in the register and announced in the Official Trademark Bulletin. Registration is declaratory, not constitutive; therefore, a failure to register the licence agreement does not remove the validity of the agreement. However, rights arising from unregistered licence transactions cannot be asserted against good-faith third parties. Because this creates a significant risk for the licensee, registering the licence agreement in the Turkish Patent register is particularly recommended in practice, in order to protect those rights. In addition, exclusive licensees recorded in the register have the power to bring infringement proceedings directly, whereas non-exclusive licensees can exercise the right to sue only in a limited way — with the trademark owner's consent, or where the trademark owner does not act within a reasonable time.

4. What is the difference between an exclusive licence and a non-exclusive licence?

An exclusive licence is a type of licence under which only a single licensee is permitted to use the trademark within the defined scope. Unless expressly reserved in the agreement, even the trademark owner cannot use the trademark itself.

Unless expressly agreed in the contract, a licence is not exclusive.

Under a non-exclusive licence, the trademark owner may continue to use the trademark and may license the same trademark to more than one person.

This distinction is extremely critical for entrepreneurs. Choosing the wrong type of licence can limit the trademark's reach and also lead to unexpected competition problems.

5. For which goods and services can a trademark licence be granted, and how is the scope determined?

A trademark licence can be granted for all or part of the goods and services for which the trademark is registered. The scope of the licence is limited to the classes of the trademark registration, and any use going beyond those limits cannot benefit from legal protection.

One of the most frequent problems in practice is the failure to define the scope of the licence clearly and precisely. Yet a trademark licence agreement should set out in detail:

• which classes of goods and services are included in the scope;

• the geographical limit of the licence (country, region, city); and

• the manner of use (manufacture, sale, marketing, advertising, and so on).

Otherwise, the licensee may make a use that exceeds its authority; this can result not only in breach of contract but also in infringement of the trademark right.

In addition, under Article 24/3 of the SMK, unless expressly permitted in the agreement, the licensee cannot assign the licence right or grant a sublicence. A failure to regulate this point clearly in the agreement can lead to the trademark being opened up to third parties in an uncontrolled way.

6. Can the licensee register the trademark in its own name, and what happens if it misuses the trademark?

Where the licensee, exceeding the right of use obtained from the trademark owner, attempts to register the trademark in its own name or uses the trademark in a way outside the agreement, this is regarded as bad-faith conduct.

Such situations not only constitute breach of contract; they can also amount to infringement of the trademark right. In particular, the licensee's registering the trademark in its own name, or attempts to prevent the trademark owner's use, are clearly accepted as bad faith in both legal scholarship and case law.

However, the existence of bad faith is assessed separately in each specific case and must be proved. Where bad faith is present, the trademark owner may:

• terminate the licence agreement;

• oppose the trademark application;

• request the invalidity or transfer of the trademark; and

• seek compensation for the losses it has suffered.

For this reason, a trademark licence agreement should clearly provide that the licensee cannot file a registration application for the trademark, and should set out the sanctions for cases of misuse.

7. Why do quality, audit, and control provisions matter in a trademark licence agreement?

A trademark represents a certain perception of quality in the consumer's mind. If the licensee does not maintain that quality when using the trademark, the trademark's distinctiveness and reputation can be seriously damaged.

For this reason, a trademark licence agreement should always include:

• production and service standards;

• quality criteria;

• the trademark owner's audit power; and

• reporting and control mechanisms.

A trademark owner that is not granted an audit power effectively becomes unable to control how its trademark is used in the market. This can, over time, lead to the trademark losing value and even to its legal protection being weakened.

8. How is the trademark licence fee determined? Are fixed fees, revenue shares, or hybrid models possible?

The trademark licence fee can be determined in different ways according to the parties' commercial expectations and the market value of the trademark. In practice, the following are often preferred:

• a fixed licence fee;

• a certain percentage of turnover; and

• hybrid models in the form of a fixed fee + revenue share.

But determining the licence fee is not merely a commercial matter. In revenue-based models in particular, the audit, reporting, and accounting obligations should be clearly regulated.

In addition, the tax and accounting consequences of the licence fee should not be overlooked. Because licence income can give rise to withholding tax and other tax obligations for the parties, these matters too should be taken into account when the agreement is set up.

9. If the trademark licence agreement ends, can the licensee continue to use the trademark?

As a rule, when a trademark licence agreement ends, the licensee's right to use the trademark also ends. After the agreement is terminated, the licensee cannot continue to use the trademark.

In practice, however, problems can arise because of goods in stock, products already placed on the market, and ongoing commercial relationships. Here, the principle of exhaustion of the trademark right becomes important.

For products placed on the market in accordance with the licence agreement, the trademark right may be regarded as exhausted. But carrying out new production after the agreement has ended, or continuing to use the trademark in advertising and promotion, is unlawful.

For this reason, the agreement should clearly regulate the fate of stock after termination, and the date on which, and the manner in which, use is to end.

10. How do the invalidity or revocation of the trademark affect the licence agreement?

The subject matter of a trademark licence agreement depends on the existence of the trademark right. For this reason, the invalidity or revocation of the trademark directly affects the licence agreement.

The extent of this effect varies according to the stage of the agreement at which the trademark's invalidity or revocation occurs:

• If the trademark right ceased to exist before the agreement was concluded, the agreement may be invalid from the outset for impossibility.

• If the agreement was concluded and had begun to be performed, the termination of the trademark right may result in subsequent impossibility for the remaining term.

In these situations, the parties' fault, good faith, and the provisions of the agreement become important. In some cases, the licensee may claim compensation for the losses it has suffered.

11. What are the most common legal mistakes made when drafting a trademark licence agreement?

The most frequent mistakes encountered in practice are the following:

• failing to define the scope of the licence clearly;

• not regulating the prohibition on sublicensing and assignment;

• leaving the audit and quality provisions incomplete;

• failing to register the agreement; and

• not including clear provisions for termination and its aftermath.

These mistakes can turn a trademark licence agreement into an area of serious risk for the parties.

This article provides general information on Turkish trademark law and does not constitute legal advice. For advice on a specific matter, please contact OKAB — Oğuz Kara Avukatlık Bürosu.