Who Holds Control in a Trademark Licence? Exhaustion of Rights, the Licensee, and Post-Termination Risks

Under Turkish law, trademark licence agreements are not merely technical documents granting permission to use a mark. More often than not, they are long-term commercial relationships in which the licensee makes serious investments, develops the market, and adds economic value to the trademark. For this reason, one of the most critical questions in a trademark licence relationship is how the economic balance between the parties should be struck.

A trademark right grants its owner powers that are, in nature, monopolistic. But these powers are not absolute or unlimited. Were it otherwise, the trademark owner could control even the circulation of products already placed on the market — a result that would be incompatible with the principle of free trade. This is precisely where the legal order imposes certain limits on the exercise of a trademark right. One of the most important of these limits is the principle of exhaustion of the trademark right.

The exhaustion principle means that, once the trademark owner has placed a branded product on the market — whether personally or, with its consent, through a third party — its power of control over that product comes to an end. In other words, once the product has lawfully entered the market, the trademark owner can no longer prevent that product from being resold, transferred, or put back into circulation. This principle carries great weight in distribution, dealership, and trademark licence relationships in particular.

In a trademark licence agreement, the licensee may manufacture using the mark and place the resulting products on the market. For branded products that the licensee manufactures and supplies in accordance with the agreement, the trademark owner's powers are exhausted. This provides the licensee with an important legal safeguard, because the trademark owner cannot arbitrarily interfere with the subsequent circulation of products that reach the market through licensed manufacturing.

In practice, licensees often:

• bear the costs of entering the market,

• build a distribution network,

• create a customer portfolio, and

• increase the trademark's recognition.

All of these activities give the trademark a concrete economic value. Yet when the trademark licence ends, the fate of the licensee's contributions becomes a matter of debate.

On termination of the trademark licence agreement, the licensee loses the right to use the mark. The customer base and market structure that the licensee has built, however, often become available for the trademark owner to use.

At this point the following question arises: is the economic value created by the licensee simply left without any consideration?

Under Turkish law, the goodwill (equalisation) claim provided for commercial agents — the denkleştirme claim under the Turkish Commercial Code — is, in certain situations, also discussed in relation to trademark licence agreements. In particular, where the licensee:

• has been in a continuous relationship,

• has brought the trademark a lasting customer base, and

• suffers a significant loss on termination of the agreement,

the question of whether the goodwill claim can be applied by analogy may come onto the agenda.

In conclusion, trademark licence agreements do not merely establish a permission-to-use relationship between the parties; they also sit at the centre of long-term economic investments and commercial expectations. For this reason, the legal balance in a trademark licence relationship should not be assessed only for the duration of the agreement. During the licence, the trademark owner's powers are limited by the exhaustion principle, which secures the licensee's activities in the market; on termination, the question arises whether the licensee can be protected in respect of the customer base and economic value it has brought to the mark. Seen in this light, trademark licence agreements require the interests of both parties to be weighed in a balanced way, both while the agreement is in force and after it ends. To pre-empt disputes that may arise in practice, it is of great importance that a trademark licence agreement set out clearly and predictably not only the conditions of use, but also the post-termination effects and any potential claims.

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.