What is a trade mark licence agreement?
Is a trade mark licence agreement enforceable in South Africa?
“38(1) Where a registered trade mark is used by a person other than the proprietor thereof with the licence of the proprietor, such use shall be deemed to be permitted use for the purposes of subsection (2). (2) The permitted use of a trade mark referred to in subsection (1) shall be deemed to be use by the proprietor and shall not be deemed to be use by a person other than the proprietor for the purposes of section 27 or for any other purpose for which such use is material under this Act or at common law. (3) Subject to the provisions of this section, a person, other than the proprietor of a registered trade mark, who uses such trade mark with the licence of the proprietor, may be registered as a registered user thereof in respect of all or any of the goods or services in respect of which the trade mark is registered.”
“Consolidated, amendment-tracked text of the Trade Marks Act 194 of 1993, including section 38 (permitted use / registered users), section 27 (removal of a mark for non-use, for which permitted use counts as use by the proprietor), and section 10(13) (a mark removable where, as a result of the manner in which it has been used, it has become likely to deceive or cause confusion).”
“The Supreme Court of Appeal upheld partial expungement of the INFINITY mark for the relevant goods under section 27, holding that the proprietor had no bona fide intention to use the mark for those goods — a vulnerability that, under section 38, controlled permitted use by a licensee (deemed to be the proprietor’s own use) can answer, so a registration not genuinely used or controlled is liable to removal.”
When you need a Trade Mark Licence
- When you own a brand and want another business to trade under it — a franchisee, a licensed manufacturer, a local distributor, or a merchandising partner — and need their use to be controlled “permitted use” so the goodwill accrues to you and the mark stays protected.
- When a holding or brand-owning company in a group lets operating companies, subsidiaries, or related entities use the group brand: an intra-group licence records the permitted use, keeps the registration alive against non-use attack, and supports the royalty flow for transfer-pricing and tax purposes.
- When you are the one being given a brand to use (the licensee) and want certainty about your scope, territory, exclusivity, royalty, term, and the right to be recorded as a registered user so you can act on infringement.
- When you license a character, logo, design, or name for merchandising, sponsorship, or a co-branded product and need quality control, approvals, and an audit right so a partner cannot devalue or endanger your mark.
- When you want to record the licensee as a registered user at the trade marks office, which the proprietor applies for on Form TM7 supported by an affidavit or a certified copy of the licence agreement.
What a Trade Mark Licence should contain
Grant of licence (scope, exclusivity, territory, goods/services)
The operative clause: identify the exact registered mark(s) and registration numbers, the goods or services they may be used on, the territory, and whether the licence is exclusive, sole, or non-exclusive. State that ownership of the mark stays with the proprietor and that the licensee acquires no rights in the mark beyond the permitted use — this engages section 38 of the Trade Marks Act.
Quality control and approval rights
The clause that protects the mark. Because under section 38 the licensee’s permitted use is deemed to be the owner’s own use, the owner must set quality standards, require pre-approval of how the mark is applied (packaging, marketing, product specs), and keep inspection or audit rights. An uncontrolled “bare” licence risks the mark becoming deceptive and removable under section 10(13).
Royalties, fees and reporting
How the licensee pays — a fixed fee, a running royalty on net sales, minimum royalties, or a combination — plus reporting, audit of sales records, payment timing, VAT, and any withholding tax. For cross-border or intra-group licences, the royalty rate should be defensible at arm’s length and may need Reserve Bank exchange-control approval.
Ownership, goodwill and registered-user recordal
Confirm that all goodwill from the licensee’s use accrues to the proprietor, that the licensee will not register, attack, or adopt confusingly similar marks, and whether the licensee will be recorded as a registered user under section 38 (applied for by the proprietor on Form TM7). Recordal is optional but gives the licensee prima facie proof of permitted use and standing on infringement.
Infringement, enforcement and cooperation
Set who polices the mark and who bears the cost. Typically the owner controls enforcement, the licensee must report suspected infringements and assist, and the parties agree how recoveries are shared. A registered-user licensee may be able to call on the proprietor to sue and, failing that, to act itself, so spell out those steps.
Term, termination and post-termination run-off
Fix the duration, renewal, and the triggers for termination (breach, insolvency, change of control, loss of the registration). Critically, set the run-off: a hard deadline to stop using the mark, sell-through of existing branded stock, removal of signage and marketing, and the licensee’s acknowledgement that it has no residual rights — so it cannot keep trading off your brand afterwards.
Warranties, indemnities and product liability
The owner warrants it owns and may license the mark; the licensee warrants its goods or services meet the agreed standards and applicable law (including the Consumer Protection Act). Allocate liability and indemnities for product defects and consumer claims, since the public attributes branded goods to the brand owner.
Assignment, sub-licensing and change of control
State whether the licensee may sub-license or assign (usually only with the owner’s written consent), and what happens on a change of control of either party. Uncontrolled sub-licensing breaks the chain of quality control and can endanger the mark, so this should be tightly restricted.
Trade mark licence vs trade mark assignment in South Africa
| Feature | Trade mark licence agreement | Trade mark assignment |
|---|---|---|
| What moves | Permission to use the mark | Ownership of the mark itself |
| Owner after the deal | Licensor keeps ownership | Assignee becomes the new owner |
| Governing provision | Section 38 (permitted use / registered users) | Section 39 (assignment of registered marks) |
| Who collects goodwill | Goodwill accrues to the licensor | Goodwill passes to the new owner |
| Quality control | Essential — licensor must control use | Not applicable once transferred |
| Typical use | Franchising, group brands, merchandising | Selling a brand or business, group restructure |
| Recordal | Optional registered-user recordal (Form TM7) | Assignment recorded against the registration |
Common South African pitfalls
- Granting a “bare” licence with no real quality control: under section 38 the licensee’s permitted use is deemed to be the owner’s own use, so if you let a licensee use the mark without standards, approval rights, and audit rights and the mark becomes likely to deceive or confuse as to source or quality, the registration is vulnerable to removal under section 10(13). Always retain and actually exercise control.
- Treating the licence as an assignment: a licence keeps ownership with the proprietor, but loose drafting that lets the licensee register the mark, build separate goodwill, or adopt confusingly similar marks can hand away the brand. State expressly that ownership and goodwill stay with the owner and that the licensee acquires no rights beyond the permitted use.
- Forgetting that a licence keeps the mark alive against non-use: if the owner is not trading under the mark and there is no recorded, controlled licensed use, the registration can be removed for non-use under section 27. Permitted use under section 38 counts as the owner’s use — but only where the licence and the control are real, as Etraction v Tyrecor illustrates for use-based attacks.
- No clean exit or run-off: without a hard deadline to stop using the mark, sell-through limits on branded stock, and removal of signage and marketing, a former licensee can keep trading off your brand after termination — a common and avoidable source of post-deal disputes.
- Ignoring exchange control and tax on royalties: cross-border and intra-group royalties may need South African Reserve Bank exchange-control approval and must be set at a defensible arm’s-length rate; getting the rate or the approval wrong creates transfer-pricing and remittance problems later.
Frequently asked questions
Is a trade mark licence agreement legally enforceable in South Africa?
Yes. A trade mark licence is enforceable in South Africa as an ordinary contract and is given statutory effect by the Trade Marks Act 194 of 1993. Under section 38, a licensee’s use of the mark with the owner’s permission is “permitted use” and is deemed to be use by the owner — provided the owner retains genuine quality control over how the mark is used.
Why is quality control so important in a trade mark licence?
Because section 38 deems the licensee’s permitted use to be the owner’s own use, the goodwill — and any harm — from the licensee’s trading accrues to the owner. A licence with no real quality control or approval rights (a “bare” licence) can make the mark likely to deceive or cause confusion through the manner of its use, which exposes the registration to removal under section 10(13). Control is therefore essential, not optional.
Does a trade mark licence have to be in writing or registered to be valid?
A licence does not have to be recorded at the trade marks office to be valid — a properly concluded contract is enforceable, and it should always be in writing to fix the scope, royalties, quality control, and term. The owner may optionally record the licensee as a registered user under section 38 (applied for on Form TM7). Recordal gives the licensee prima facie proof of permitted use and clearer standing to act on infringement.
What is the difference between a trade mark licence and an assignment?
A licence gives someone permission to use the mark while the owner keeps ownership and the goodwill; an assignment is an outright transfer of the mark to a new owner under section 39 of the Trade Marks Act. You licence when you want to keep your brand and let others trade under it (franchising, group brands, merchandising); you assign when you are selling the brand or restructuring ownership.
Can licensing a trade mark protect it from removal for non-use?
Yes. Under section 27 a registered mark can be removed if there has been no bona fide use for a continuous five-year period, but section 38 deems controlled permitted use by a licensee to be use by the owner. So a properly controlled, ideally recorded, licence lets the owner keep the registration alive even where the owner itself is not trading under the mark — as long as the licensed use and the control are genuine.
How are royalties handled in a South African trade mark licence?
Royalties can be a fixed fee, a running royalty on net sales, minimum royalties, or a mix, with reporting and audit rights so the owner can verify them. For cross-border or intra-group licences the rate should be defensible at arm’s length for transfer-pricing purposes, and the remittance of royalties offshore may require South African Reserve Bank exchange-control approval.
Can a licensee sub-license or assign the trade mark licence?
Only if the agreement allows it, and it usually should not without the owner’s written consent. Uncontrolled sub-licensing breaks the chain of quality control on which the licence depends and can render the mark deceptive and removable, so sub-licensing and assignment of the licence are normally tightly restricted and tied to the same quality standards.
What happens to the brand when the licence ends?
The licensee must stop using the mark. A well-drafted licence sets a run-off: a deadline to cease all use, a limited sell-through period for existing branded stock, removal of signage and marketing, and the licensee’s acknowledgement that it retains no rights in the mark and will not use anything confusingly similar — so it cannot keep trading off your brand after termination.
Sources & authority
- Trade Marks Act 194 of 1993, s 38 (permitted use and registered users; s 38(3)/(6) registered-user recordal)
- Trade Marks Act 194 of 1993 — LawLibrary consolidated version (s 27 non-use; s 10(13) deceptive use; s 39 assignment)
- Etraction (Pty) Ltd v Tyrecor (Pty) Ltd [2015] ZASCA 78 (Supreme Court of Appeal — removal for non-use and bona fide use)
- Etraction (Pty) Ltd v Tyrecor (Pty) Ltd [2014] ZAWCHC 4 (Western Cape High Court — court of first instance)
This guide is general information, not legal advice. It reflects the law as at June 2026.