Setindiabiz Team |Updated : September 23, 2024

Importance of Consideration in Trademark Assignment: legal implications in India

Overview : Consideration is the price/payment or compensation transferred between the assignor/transferor and the assignee/Transferee in return for transferring the proprietary rights in the trademark under assignment/transfer. In this blog, we are trying to answer whether consideration is necessary for trademark assignment.

In India, the Trademark Act, 1999 (the Act) does not explicitly mention the requirement of consideration for the assignment of a trademark. However, Section 37 of the Act deals with the power of the registered proprietor of a trademark to assign and issue a receipt as proof of transfer of consideration by the assignee to the assignor.

The general principle of contract law, as provided by the Indian Contract Act of 1872, which applies to all agreements and deeds, including trademark assignments, defines a contract as “an agreement enforceable by law.” For an agreement to be enforceable, it must be based on a lawful consideration. Thus, the assignment deed to be a valid contract must be supported with consideration except in the cases of gift between related parties out of love and affection or the transmission of the trademark right as per the law of inheritance due to the death of the proprietor of the trademark.

Section 37 of the Act provides the right to the registered proprietor of a trademark to assign (transfer) the trademark to another party and further authorises them to issue a receipt for the consideration (payment) paid for such assignments. Thus, this section provides a legal requirement for trademark assignment.

It is inferred from the wording of section 37 of the Act that the issuance of valid receipts by a registered proprietor (assignor) as proof of transfer of consideration could have been provided in the Act only when the Act implies consideration as an integral part of the assignment of trademark rights. Additionally, this receipt issued by the assignor upon receiving the consideration is valid proof of the completion of the agreed-upon transaction between the parties in the terms of said assignment.

Circumstances where consideration is integral:

This consideration is essential to formalising the relationship between the parties to the trademark assignment. The nature of the consideration may vary as per the terms of the assignment deed detailed below:

• Monetary Payment: Normally, parties agree on an amount in lieu of trademark assignment, and after the said amount is paid, the assignor provides a receipt acknowledging that they have received the agreed payment from the assignee
• Consideration received in Kind, not in cash: Sometimes, the consideration may not be in cash, bank transfer, or cheque but in other forms, such as other assets, shares, or services. Even in such cases, these considerations must be recorded in the assignment deed, and the assignor can issue a receipt acknowledging the value of the transferred assets, shares, or services to make it a valid legal document.
• Assignment Without Consideration: Under inheritance law, no receipt for consideration is needed in cases where the trademark is assigned without consideration, such as a gift or by transmission.

Consideration is an essential element in Trademark Assignment:

• Trademark assignment is a contract, and consideration is an essential element of it. The assignment of trademarks, coupled with consideration, might be recognised as a valid contract under contract law, except in cases of inheritance or gift. An assignment without consideration, except in exceptional circumstances, may be deemed void and unenforceable in law, potentially resulting in legal disputes and the loss of trademark rights.
• Receipts for consideration also serve as evidence that the agreed value has been exchanged, which is essential when disputes arise over the assignment’s payment terms and validity.

Therefore, the issue of a receipt under Section 37 of the Act is valid only when consideration is an integral part of the assignment deed. Additionally, Contract Act 1872 provides that a contract without a valid consideration is void and not enforceable. Thus, it is always suggested that trademark rights be assigned for a valid consideration unless it is a gift or transmission under the law of inheritance to avoid any legal dispute over the validity and enforceability of such assignment deeds. The consideration will not only provide stability to the transaction entered out of such assignment by ensuring the validity and enforceability of the assignment deed but also reduce the chances of legal dispute, providing a sense of security to the parties to the said assignment.