Trademark Licence Agreement (Hong Kong)

A trade mark licence under the Trade Marks Ordinance (Cap. 559) is a contract by which the owner (licensor) of a registered trade mark grants another party (the licensee) the right to use the mark in relation to specified goods or services, for a defined territory and period, without transferring ownership of the registration. Section 22 of Cap. 559 defines a licence as an authorisation by the proprietor or a sub-licensor to use the trade mark.

A licence may be exclusive — granting the licensee sole rights to use the mark to the exclusion of all others, including the licensor — or non-exclusive, where the licensor retains the right to use the mark and to grant further licences to other parties. The licence may cover all or part of the goods and services for which the mark is registered under the Nice Classification, and may be limited to a specific territory such as the Hong Kong Special Administrative Region.

Section 23 of the Trade Marks Ordinance (Cap. 559) gives an exclusive licensee the same rights and remedies as the proprietor against infringers, including the right to bring infringement proceedings before the Court of First Instance in their own name where the proprietor fails or refuses to act. A non-exclusive licensee has more limited rights and generally cannot bring infringement proceedings independently without joining the registered proprietor as a party.

Trade mark licences should be in writing to ensure enforceability under Hong Kong common law and to facilitate recordal with the Trade Marks Registry of the Intellectual Property Department (IPD). An unrecorded licensee's rights may be affected if the licensor subsequently assigns the mark to a third party without notice of the existing licence.

Under the Trade Marks Ordinance (Cap. 559), a trade mark licence does not need to be recorded at the Trade Marks Registry of the Intellectual Property Department (IPD) to be legally effective between the licensor and licensee. However, recording is strongly advisable for several reasons.

First, Section 24 of Cap. 559 provides that a licence is a registrable transaction. An unrecorded licensee cannot bring infringement proceedings in their own name without joining the registered proprietor, whereas a recorded exclusive licensee acquires independent standing under Section 23 to sue infringers before the Court of First Instance. Second, recording puts third parties on notice of the licence — important if the licensor assigns the mark, grants a charge over it as security to a lender, or becomes insolvent. An unrecorded licensee may find their rights subordinated to a subsequent recorded dealing.

The recordal application is made using the prescribed form filed with the Trade Marks Registry, accompanied by the applicable fee (HKD 230 per mark via e-Filing). Where the licence is exclusive, the IPD requires evidence of the exclusive nature of the grant — typically a copy of the signed licence agreement or a certified extract.

The Intellectual Property Department processes most straightforward recordal applications within four to six weeks of submission. Once recorded, the Trade Marks Registry's IPSEARCH database reflects the licence, and third parties conducting due diligence on the mark can confirm the licensee's status. For brands with significant commercial value, recording provides essential legal protection for the licensee's investment.

Royalty arrangements in Hong Kong trade mark licences vary widely depending on the industry sector, brand strength, the scope of rights granted (exclusive versus non-exclusive), and the relative bargaining positions of the licensor and licensee. Hong Kong law does not prescribe royalty rates — they are entirely a matter of commercial negotiation.

Percentage of net sales is the most common royalty structure for consumer goods and retail trade mark licences. Rates typically range from 2% to 10% of net sales for established consumer brands, with higher rates for luxury or premium brands with strong recognition in the Hong Kong market. The licence agreement must define 'net sales' precisely — specifying permitted deductions for returns, trade discounts, and freight — to avoid disputes at audit.

Fixed periodic fee arrangements — a flat monthly or annual licence fee regardless of sales volume — are common where the licensee's use is limited in scope or where sales volumes are difficult to audit. Minimum guaranteed royalties combined with a percentage of sales provide the licensor with income certainty while sharing in the upside if the licensee performs well.

For franchise arrangements involving trade mark licences — common in Hong Kong's food and beverage, retail, and service sectors — royalties are typically structured as 3% to 8% of gross revenue, with additional fees for marketing fund contributions and technology platform access.

Hong Kong imposes no goods and services tax (GST) or value added tax (VAT) on royalty payments, simplifying cross-border royalty calculations compared to jurisdictions such as Singapore (9% GST) or the United Kingdom (20% VAT). The licence agreement should specify payment currency (Hong Kong Dollars), reporting periods, audit rights, and the consequences of royalty underpayment.

A Hong Kong trade mark licence can be terminated in several ways, depending on the terms of the agreement and the circumstances of the parties under the Trade Marks Ordinance (Cap. 559) and common law.

Expiry: A fixed-term licence expires automatically at the end of the agreed period without any notice required from either party. If the parties continue performing after expiry without executing a renewal, a periodic licence may arise by implication on the same terms — creating uncertainty that should be avoided by executing a formal renewal or extension.

Termination for cause: The licensor may terminate the licence for the licensee's material breach — including persistent failure to pay royalties, use of the trade mark outside the licensed territory or in an unauthorised manner, insolvency or liquidation, or failure to maintain quality standards required by the agreement. The licence should specify a cure period (commonly 14 to 30 days written notice) before termination for breach takes effect, allowing the licensee an opportunity to remedy the default.

Termination for convenience: Either party may terminate on notice (typically 30 to 90 days) if the agreement so provides. Without such a clause, common law implies a right to terminate on reasonable notice for indefinite licences.

Consequences of termination: Upon termination, the licensee must immediately cease all use of the trade mark, destroy or return all materials, packaging, and promotional items bearing the mark, and de-register any social media accounts, domain names, or business registrations incorporating the mark. The licensor should notify the Trade Marks Registry of the Intellectual Property Department (IPD) of the termination if the licence was previously recorded, using the prescribed form. Any sub-licences granted by the licensee also terminate, unless separately agreed otherwise.

Quality control is a fundamental obligation for trade mark licensors in Hong Kong and is central to the commercial value and legal validity of a trade mark licence under the Trade Marks Ordinance (Cap. 559).

A trade mark's core function under Hong Kong law is to identify and distinguish the goods or services of one undertaking from those of others. If a licensor allows a licensee to use the mark without maintaining adequate quality control, the mark may become deceptive — no longer accurately representing a consistent standard of goods or services to consumers — and may become vulnerable to revocation under Section 52 of Cap. 559 on the ground that it has become liable to mislead the public as to the nature, quality, or geographical origin of the goods or services.

Practical quality control provisions in a Hong Kong trade mark licence should include: the licensor's right to inspect the licensee's products, manufacturing facilities, packaging, and marketing materials bearing the mark; the licensee's obligation to comply with the licensor's brand guidelines, product specifications, and approval procedures; a prior approval process for the licensee's use of the mark in new formats, digital channels, or territories not previously authorised; the licensor's right to require immediate correction or withdrawal of non-compliant uses; and the licensor's right to terminate the licence under Section 23 procedures if the licensee repeatedly fails to meet quality standards.

The Trade Marks Registry at the Intellectual Property Department (IPD) does not directly regulate the quality of licensed goods or services. However, inadequate quality control — or a 'bare licence' without any quality control — can be raised as a ground for revocation by a third-party competitor seeking to cancel the registration under Section 52 of Cap. 559. The licensor should retain evidence of quality control activities — inspection reports, correspondence, approval records — to rebut any revocation challenge before the Registrar of Trade Marks or the Court of First Instance.