Sri Lanka regulates trademark licences more closely than most of the region, and it does so in the statute rather than through practice. A licence agreement drafted for another market and signed for Sri Lanka can be void on arrival.
Quick reference
| Definition | A contract by which the owner grants a licence to use the mark for all or part of the registered goods or services |
| Formality | In writing, signed by or on behalf of the contracting parties |
| Quality control | Mandatory — without it the contract is null and void |
| Licensee’s use | Deemed to be use by the registered owner |
| Default territory and term | The whole of Sri Lanka, the whole period of registration including renewals, all registered goods |
| Default on sub-licensing | Not permitted |
| Default on exclusivity | Non-exclusive |
| Royalties paid abroad | May be referred to the Governor of the Central Bank |
| Recordal | On the prescribed form, with only the particulars the parties wish recorded |
The quality control requirement
Section 128(1) is the provision to read first:
A licence contract shall be null and void in the absence of stipulations ensuring effective control by the licensor of the quality of the goods or services in respect of which the mark may be used.
Not voidable. Not unenforceable in part. Null and void.
So a Sri Lankan licence has to contain real quality control terms — specifications, inspection or approval rights, a mechanism that gives the licensor actual control rather than a recital that quality will be maintained. A short-form trademark licence, or a brand clause buried in a distribution agreement with no control mechanism, does not satisfy this.
The consequence of getting it wrong is not merely a weak contract. If the licence is void, the licensee’s use is not licensed use, which undermines the use that was keeping the registration alive, and the licensee has no rights at all.
Section 129 then backs this up on an ongoing basis: the Court may, on the application of any person showing a legitimate interest or of any Authority including the Director-General, annul and cancel the contract if the licensor has lost effective control over quality, or if the licensee has used the mark so as to mislead or confuse the public.
So quality control is not a drafting exercise that is finished at signature. It has to be operated.
Restrictive clauses
Section 128(2) voids any clause in so far as it imposes on the licensee restrictions not derived from the rights conferred by the Act on the registered owner, or which are unnecessary for safeguarding those rights.
Three categories are expressly saved and are not treated as such restrictions:
- restrictions on the scope, extent, duration of use, the geographical area, or the quality or quantity of the goods or services;
- restrictions justified by the quality control stipulations; and
- obligations on the licensee to abstain from acts capable of prejudicing the validity of the registration.
That last one is worth using. A no-challenge style obligation directed at the validity of the registration is expressly within the permitted category.
What falls outside is the ordinary commercial over-reach — tie-ins, restrictions on competing products, obligations unconnected to the mark. Those are void to the extent of the excess.
Use by the licensee is use by the owner
Section 124(2) provides that use of the mark by the licensee shall be deemed to be use of the mark by the registered owner.
This is what makes licensing safe from the non-use perspective. A mark worked in Sri Lanka only through a local licensee is being used by the owner for the purposes of removal proceedings under section 136. See nullity and removal.
The practical corollary is evidential: the licensee’s invoices, packaging and advertising are the owner’s proof of use, and they need to be obtainable. A licence that does not oblige the licensee to provide use records leaves the owner dependent on goodwill at exactly the moment the relationship may have ended.
The default terms
Where the licence contract is silent, the Act fills the gaps — and the defaults are generous to the licensee on scope and restrictive on everything else.
Section 126 — the licensee’s position by default:
- entitled to use the mark throughout Sri Lanka;
- for the entire period of registration, including renewals;
- in respect of all the goods or services for which the mark is registered; and
- not entitled to assign or transmit its rights, or to grant sub-licences.
Section 127 — the licensor’s position by default:
- the licensor may grant further licences to third parties and may use the mark itself; but
- where the contract provides the licence to be exclusive, the licensor shall not grant further licences or use the mark itself, unless the contract says otherwise.
That second point is the one to notice. In Sri Lanka, an exclusive licence excludes the licensor’s own use by default. A brand owner granting exclusivity to a local partner while intending to keep selling directly must say so expressly, or lose the right to do so.
And on the other side: a licence silent on territory, term and goods is a licence covering everything, for as long as the registration lasts. Narrower grants have to be written.
Recording the licence
On a request in writing signed by or on behalf of the parties, and on payment of the prescribed fee, the Director-General records in the register such particulars relating to the contract as the parties wish to have recorded — and section 125(2) expressly provides that the parties shall not be required to disclose or have recorded any other particulars.
That is a useful piece of drafting. The commercial terms stay confidential; what goes on the register is what the parties choose to put there.
Recordal matters for the same reason it does with assignments. A recorded licensee must be made a party to nullity, removal and licence-cancellation proceedings, and a recorded licensee’s consent is required before the owner can renounce the registration, unless waived in the contract.
An unrecorded licensee has neither protection.
Royalties paid abroad
Section 130 is the provision foreign licensors should know about.
Where the Director-General has reasonable cause to believe that a licence contract, or any amendment or renewal of it, which involves the payment of royalties abroad — or which by reason of other circumstances — is detrimental to the economic development of Sri Lanka, the Director-General must communicate that to the Governor of the Central Bank and transmit the relevant papers.
Where the Governor confirms that view, the Director-General shall cancel and invalidate the record of the contract in the register.
The same provisions apply to sub-licences, and mutatis mutandis to assignments and transmissions.
In most ordinary arrangements this will not bite. But a royalty structure that looks disproportionate is exposed, and the consequence is the loss of the recordal with everything that depends on it.
If the registration falls
Section 131 handles the consequence. Where the registration is declared null and void before the licence contract expires, the licensee is no longer required to make payments under the contract and is entitled to repayment of payments already made — except so far as the licensor can prove repayment would be inequitable in the circumstances, in particular if the licensee has effectively profited from the licence.
A licensor should therefore be confident in the registration before taking royalties against it, and a licence can sensibly address what happens to paid royalties if the mark falls.
Expiry and termination
The Director-General records the expiry or termination of a recorded licence on a written request signed by or on behalf of the parties, and records any annulment or invalidation under the Act.
Leaving a terminated licence on the register is untidy in the ordinary case and actively unhelpful in a dispute, because the former licensee remains a party who must be joined to proceedings about the mark.
Frequently asked questions
Does a Sri Lankan trademark licence have to include quality control? Yes. A licence contract is null and void in the absence of stipulations ensuring effective control by the licensor of the quality of the goods or services.
Does use by my licensee keep the registration alive? Yes. Use of the mark by the licensee is deemed to be use by the registered owner.
If I grant an exclusive licence, can I still use the mark myself? Not by default. Where the contract provides the licence to be exclusive, the licensor may not grant further licences or use the mark itself unless the contract says otherwise.
Can my licensee sub-license? Not unless the contract provides for it. The default position is that the licensee may neither assign its rights nor grant sub-licences.
Do I have to disclose the commercial terms to record a licence? No. The Director-General records only such particulars as the parties wish to have recorded, and the parties cannot be required to disclose others.
Is there any control over royalties paid out of Sri Lanka? Yes. A licence contract involving the payment of royalties abroad may be referred to the Governor of the Central Bank, and if it is found detrimental to economic development the record of the contract is cancelled and invalidated.
Useful official resources
- National Intellectual Property Office of Sri Lanka — recordal forms and fees
- Intellectual Property Act, No. 36 of 2003 — sections 124 to 133
- Intellectual Property Regulations No. 01 of 2006 — regulation 29
See our related notes on trademark assignment in Sri Lanka, nullity and removal and trademark renewal.
Licensing a brand into Sri Lanka on an agreement drafted for somewhere else? Talk to us.