Trademark Holding Companies in India: IP Structuring, Legal Control, and Brand Use under Trademark Law
- Alisha Rastogi
- 5 hours ago
- 7 min read
Introduction: Intellectual Property as a Strategic Asset
In the current economic landscape, intellectual property (IP) has emerged as a significant strategic asset. Trademarks serve as a powerful commercial tool, especially for companies that have built their value on consumer trust, goodwill and brand equity. As the Indian enterprise ecosystem continues to expand through diversification and multiplication of structures, separation of the legal ownership of IP from its core operational use has become a common practice, taking the form of Trademark Holding Companies (IPHCs). These entities are dedicated, established umbrella units encompassing the ownership, management and licensing of trademarks to operating subsidiaries. Such IP oriented structures offer compelling benefits such as internal licensing flexibility, centralized brand management, simplified monetization and potential tax benefits.
However, flip the coin, and it appears that while such IP structures may be commercially attractive, they may also lead the way to intricate legal questions pertaining to the true ownership and legally tenable use of the trademark. The judiciary has been clear about trademark protection not just being dependent on registration but also genuine use and preservation of reputation. Thus, the challenge for the entities interested in investing in IPHCs lies in ensuring the alignment of legal ownership and actual commercial use, backed by robust control mechanisms for maintaining the trademark’s integrity and enforceability.
Legal Ownership vs. Commercial Use in Indian Trademark Law
A. Defining the Proprietor
The statutory definition of a “proprietor” as per Section 2(1)(v) of the Trade Marks Act, 1999 is “a person claiming ownership of a trademark used or proposed to be used by them.”[1] Since this definition allows non-users to hold ownership, it is therefore permissible for a holding company to own marks being licensed to group entities. The underlying condition being the fundamental rule that any use by another party must accrue to the benefit of the owner. Thus, any uncontrolled or unrelated use of the trademark ceases to represent the true proprietor’s goodwill.
One of the earliest interpretations of this principle can be traced back to the judgement rendered in Hardie Trading Ltd. v. Addisons Paints & Chemicals Ltd.[2], wherein the Apex Court emphasized that the essence of trademark ownership lies in control over the quality and characteristics of the goods sold under the trademark. It was held that if a proprietor allows the unsupervised use of the trademark by another entity, the distinctiveness of the trademark will be lost. Thus holding companies, although not commercialising the goods under the trademark themselves, must retain effective control over use of the marks by subsidiaries.
B. Goodwill and Trademark Use
Trademarks derive their value from the reputation accrued i.e., the association formed between the mark and the source of the products/services in the mind of the consumer. However, reputation is not a one time achievement and must be continually sustained through commercial market presence. When the ownership and use of a mark are divided between the holding company and its subsidiary, the law presumes that goodwill generated by use of the mark will flow back to the proprietor by way of proper legal structuring and control.
It is a well established principle that trademark protection does not merely arise from registration but from public association and goodwill, which has been further underscored in the judgement rendered in Skyline Education Institute v. Skyline Business School[3]. If a holding company allows use of the trademark by the subsidiary without ensuring that the public perception of the source of such use emanates from the proprietor itself, the very basis of trademark protection i.e., distinctive goodwill, can erode. Similarly, in American Home Products v. Mac Laboratories[4], it was held that a trademark’s validity depends on the continuous and genuine use linked to its owner and the mark cannot be treated as a passive asset, one that is detached from its commercial reality.
In view of the foregoing, it becomes evident that a trademark holding company must ensure that it does not remain merely an ‘on paper proprietor’ but ascertain that the ownership and goodwill of the trademark are continually reinforced through its commercial use.
Trademark Licensing in Group Structures
Sections 48 and 49 of the Act define ‘permitted user’ as the proprietor of a trade mark, provided there is an authorized license subject to the proprietor’s control.[5] Thus, trademark licensing bridges the gap between IPHCs and their operating subsidiaries. Typically, IPHCs grant subsidiaries the right to use the trademark in relation to specific goods or services through a written license, which should provide an outline of the scope of rights, quality control obligations, reporting mechanisms as well as the authority of the proprietor to monitor compliance.
Further, while Section 49 of the Act allows registration of permitted users, such registration is optional.[6] Nonetheless, the registration of licenses strengthens the proprietor’s position to enforce or defend its rights in the mark against non-use challenges. In practice, an unregistered license often leads to evidentiary challenges in proving effective control and attribution of use.
The Delhi High Court’s decision in Mohan Meakin Ltd. v. Mohan Goldwater Breweries Ltd[7]. illustrates the risks of inadequate control. In this case, the Delhi High Court held that mere association or shared ownership does not create an implied license to use a mark, rather lawful use requires a written licensing or permitted user agreement with the proprietor maintaining quality control. In contrast, in Cycle Corporation of India v. T.I. Raleigh Industries[8], the Calcutta High Court upheld intra-group use of a trademark where the owner had documented authorization and oversight, ensuring that use by the subsidiary accrued to the owner’s benefit. These cases reinforce that controlled and documented licensing is not a procedural nicety, rather it is the foundation of trademark validity in group structures.
Trademark Enforcement and Brand Integrity Risks
A recurring question is whether a holding company that does not itself use a trademark can sue for infringement. The answer depends on whether the company can prove ownership, control, and a continuing link between the mark’s goodwill and its own legal identity. Courts will scrutinize the relationship between the proprietor and licensees: if the proprietor appears to be a mere conduit without oversight, its right to sue may be weakened.
Equally significant is the issue of quality control. Trademark law relies on the consumer's expectation of consistent quality of goods provided/services rendered under a trade mark. If a holding company permits subsidiaries to use the mark with varying standards or inconsistent branding, the mark may lose distinctiveness or become misleading to consumers. To prevent this, holding companies must implement robust brand-use guidelines, carry out periodic audits of licensees, and ensure that all advertising and packaging adhere to centralized brand standards.
Failure to maintain control can have dual consequences: legally, the trademark may be challenged for abandonment or misrepresentation; commercially, brand dilution and loss of consumer trust can occur even within the same corporate group.
Tax and FEMA Considerations: Legal Substance over Form
Although the primary framework governing trademarks is the Trade Marks Act, 1999, tax and regulatory compliance play an indirect but important role in assessing the genuineness of an IPHC structure. Royalty payments made by subsidiaries to the IPHC must reflect real commercial value. If the holding company lacks control over the brand or performs no substantive IP management functions, tax authorities may disregard the structure as an artificial means of shifting income, a risk heightened under India’s General Anti-Avoidance Rules (GAAR) and transfer pricing provisions.[9]
In Maruti Suzuki India Ltd. v. Commissioner of Income Tax[10], tax authorities argued that the Indian licensee’s heavy advertising expenditure created local goodwill independent of the foreign owner’s mark, questioning the ownership and benefit of brand use. Conversely, in re Nestlé SA[11], royalty payments were upheld because the trademark owner demonstrated genuine brand oversight and documentary evidence of control. These contrasting outcomes illustrate a consistent theme: ownership and control must coexist in substance as well as in form.
Where trademarks are licensed across borders, compliance with the Foreign Exchange Management Act (FEMA) and Reserve Bank of India guidelines becomes critical. Cross-border transfers or licenses must be properly valued, supported by written agreements, and reported to ensure both legal and regulatory validity.
Comparative Insights and Best Practices
Globally, trademark holding companies are viewed with similar caution. Courts in the United States and the European Union stress that ownership must be accompanied by real control over the quality and use of the mark. International initiatives under the OECD’s Base Erosion and Profit Shifting (BEPS) framework have also prompted regulators to challenge “empty” IP holding entities that exist solely for tax efficiency.[12]
For Indian businesses, the lesson is that substance prevails over structure. The IPHC must perform genuine IP management functions, approving brand use, maintaining records of use, and enforcing brand standards. Every licensing arrangement should be formal, clearly drafted, and periodically reviewed. Documentation of trademark use, through invoices, advertisements, and correspondence, should be preserved to defend against non-use challenges under Section 47 of the Trade Marks Act.[13]
Conclusion
Trademark holding companies have become integral to modern corporate IP strategy, offering advantages in brand protection, monetization, and cross-border structuring. However, under Indian trademark law, ownership without active control is an incomplete right. The Trade Marks Act, 1999 demands not only registration but also genuine use and supervision. Courts have repeatedly affirmed that goodwill must be maintained through controlled use, and that a proprietor cannot remain passive while others build the brand’s reputation.
Therefore, to be effective, IPHCs must move beyond being nominal owners. They must act as vigilant custodians of the marks they hold, monitoring quality, documenting use, and ensuring that every instance of brand deployment strengthens, rather than fragments, the goodwill associated with the trademark. Tax and regulatory compliance may shape the structure, but it is legal control and active stewardship that ultimately sustain the trademark’s integrity and enforceability in the Indian market.
Alisha Rastogi
Senior Associate
[2] (1991)218MLJ1
[3] 2010 (1) AWC 684 (SC)
[4] 1986 (6) PTC 71(SC)
[7] 2002 SCC OnLine Del 748
[8] AIR 1996 Cal 273
[10] (2011) 335 ITR 121 (SC)
[11] AAR 2021
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