Quality control in trade mark licensing - a privilege or an obligation? : With a law and economic perspective it is examined how EU trade mark law deals with quality control within trade mark licensing.

Abstract: Licensing agreements are commonly used when, for instance, exploiting new areas or countries. Trade mark licences are one such example. A trade mark licence gives the proprietor the opportunity to keep its exclusive rights at the same time as another party uses the trade mark in commercial purposes. When licensing an EUTM to a third party, it is possible to include quality control clauses in the agreement in order for the licensor to control that the licensee uses the trade mark correctly. The possibility to include quality control implies that there is no such obligation within EU trade mark law. Yet, in the US, quality control is not only a possibility but also an obligation in order to keep the trade mark registered. Therefore, it is of interest to examine European trade mark law in relation to quality control in licensing. The American view of quality control is examined for illustrative purposes. Within the EU, the essential function of an EUTM means the ability to identify the origin. In addition, one single undertaking is responsible for the quality that is needed for the trade mark to fulfil its essential role in the system of undistorted system. Quality is seen as an economic function of the trade mark and therefore it should not be an obligation to include quality control in trade mark licences. The proprietor should bear the responsibility him- or herself when not including quality control. As a contrast, in the US, the consumers must be protected from deception and therefore it is a requirement for the proprietor to control and maintain the quality by including quality control in trade mark licences. If a trade mark licence does not include quality controls, the licence is considered invalid and the trade mark is considered abandoned. Furthermore, a law and economics perspective is included in the thesis and specifically the theory of TCE and the belonging terms or bounded rationality, opportunism, uncertainty and trust. While the EU seems to value trust more when settling licence agreements, the US seems to value opportunism and uncertainty more due to de fact that consumers must be protected from the proprietors. Since quality control within trade mark licensing appears to lock the proprietor into a situation where it is difficult to differentiate and change the direction of the trade mark, it should not be an obligation to include quality controls in trade mark licences. It should be a privilege for the proprietor to decide on whether to use or not and bear the consequences of that choice.