Trademark within a holding structure

Parent or Operating Company: Who Should Own the Brand

In a family or business holding, the brand usually appears in several companies at once. The operating company uses it on invoices and offers, the subsidiary on products, the parent company in agreements with investors. The question of who the owner is is usually resolved by chance: the application was filed by whoever needed it at the time, and no one ever went back to it.

For larger groups, it is usually beneficial to hold the brand where it is protected from operational risks. An operating company is liable for debts, enters into disputes, and can go bankrupt. A brand registered under it faces the same risk: it can become part of the bankruptcy estate or the subject of enforcement of a decision. Therefore, groups often move the brand to the parent company or to a separate company that does nothing else, and license it to the operating companies.

Under Czech legislation, a trademark can be the subject of a pledge, another right in rem, or enforcement of a decision, and can be included in the bankruptcy estate (Section 17 of the Trademark Act). This is precisely why the choice of owner has practical significance: a brand in an operating company carries its risks, while a brand in a company that only owns the rights is more isolated.

However, centralization is a strategy, not a rule for every group. For a small group with one main company, artificially separating the brand can be unnecessarily complex and expensive. The deciding factor is whether the group has multiple independent companies using the brand, whether it plans to sell any of them, how it will be financed, and what tax implications the transfer of the brand would have. The more the group branches out, the more the separation pays off.

The basic questions of registration, i.e., how to choose and register a brand, are summarized in the text on how to register a trademark. This article follows up with the question of what to do with the brand once it is registered and the group uses it across companies.

Intra-Group Licensing: A Written Agreement Instead of a Verbal Deal

The right to use a trademark may be granted by a license agreement for all or some of the goods or services for which the trademark is registered, as an exclusive or non-exclusive license (Section 18 of the Trademark Act). The agreement can therefore define the license according to products, services, and the nature of the right, allowing the owner to retain what they do not wish to transfer.

Between affiliated companies, a license is often agreed upon only verbally, and this is precisely the most common weak point. The law requires a written form only for an exclusive license and for a license to be registered in the trademark register (Section 2358 of the Civil Code), so a verbal non-exclusive license can be validly created. However, when selling a subsidiary, it often turns out that no one knows under what conditions they are allowed to use the brand, whether this continues after the sale, and who can prohibit them from using it. Without a written agreement, proving the scope, duration, and quality control is significantly more difficult, creating uncertainty during due diligence.

A good intra-group license agreement contains several basic components: the definition of the brand and the products or services for which the license is granted, the territory, duration, exclusivity or non-exclusivity, terms of use, quality control rules, remuneration, and the consequences of termination. Each section is brief but must be specific, as this is what determines who is allowed to do what.

The owner may invoke trademark rights even against a licensee who has breached the provisions of the license agreement regarding duration, the form of the brand used, the scope of goods or services, territory, or quality (Section 18). The license thus gives the owner a tool to enforce the terms of use, but only if those terms are actually written in the agreement.

Exclusive or Non-Exclusive License: What to Choose in a Group

Under an exclusive license, the owner may not grant the same license to any other person for its duration and, unless expressly agreed otherwise, shall also refrain from exercising the licensed right themselves (Section 2360 of the Civil Code). Under a non-exclusive license, they can continue to use the brand and license it to other persons (Section 2361). For a group, this choice is crucial because it determines who is allowed to use the brand and who can grant further licenses.

In a group, a non-exclusive license for each operating company is usually the most suitable option. Each company is authorized to use the brand for its business, but the owner retains the right to license it to other group members and use it themselves. Such a setup is simple and flexible: if another company is added, a new agreement is concluded without the need to modify the existing ones.

An exclusive license is suitable where one company operates an entire sector, such as a whole regional or product field, and the group does not want the brand to appear in another company within that field. It always requires a written agreement, and the owner must expressly reserve the right if they wish to continue using the brand themselves in that scope. It is a stronger bond, but also a greater restriction on the owner. Furthermore, when selling this company, the buyer receives a right that is difficult to separate from its operations.

An agreement can combine both depending on the products or territory. One company may have an exclusive license for certain products and a non-exclusive one for others. It is important that the division is clear and does not overlap. Unclearly defined exclusivity leads to disputes between companies of the same group, which can only be resolved at the expense of time and relationships.

Registration of the License in the Register and Use of the Brand

A license becomes effective against third parties only upon its registration in the register (Section 18(4)). Between the parties, the agreement is binding even without registration, but it has no effect against third parties; what this means in a specific case must be assessed according to the given relationship, typically during the transfer of a trademark or its pledging. For a group that anticipates selling a part of the business or securing financing, registering the license is a standard part of the arrangement.

At the same time, registering the license shows a buyer that the license exists and its basic scope. The register lists the licensor, licensee, products or services, and whether the license is exclusive; the buyer will verify the full terms, such as remuneration, quality control, or termination, only from the license agreement itself. An unregistered license, on the other hand, raises questions and demands for guarantees. Registration therefore also serves as proof of good order, not just a formal step.

The connection with use is also important. An owner who does not start genuinely using the trademark within five years of registration, or does not use it continuously for five years, faces consequences unless there are proper reasons for non-use (Section 13 of the Trademark Act). Use with the owner's consent is deemed to be use by the owner (Section 13(3)).

For a group, this brings a practical advantage: use by a subsidiary or sister company with the owner's consent protects the trademark from the consequences of non-use, even if the owner does not use it themselves. The law does not require a license agreement for this; the owner's consent is sufficient. However, this consent must be provable, making a written license the most reliable evidence. It is advisable to archive proof of use with the brand owner.

The law lists quality among the conditions, the breach of which allows the owner to invoke their rights against the licensee (Section 18(2)). Quality control is not a mandatory requirement of a license, but for an intra-group license, it is advisable to agree on quality standards and the method of their control, even if it is a company within the same group. This means describing how and by whom it is verified that the products or services under the brand meet expectations.

Within a group, quality control is often not considered necessary because everyone belongs to the same family. However, if a problem arises with one company, such as complaints or a scandal, the impact will affect the brand of the entire group. The brand owner therefore needs a tool to intervene: quality requirements, the right of inspection, and the right to terminate the license in the event of a material breach.

Good quality control is brief and measurable. The agreement will state the standards, such as technical parameters, communication methods, or the appearance of the brand, and determine who checks them and how often. A too general provision like "the company will safeguard the good reputation of the brand" solves nothing, because in a dispute, it is impossible to determine what was breached. Specific standards give the owner a real tool.

A quality agreement is also useful for a sale: the buyer of a company that has obtained a license from the group wants to know what quality conditions they must meet and what happens if a breach is detected. Clear rules increase the trust of both parties and shorten negotiations on the terms of sale.

License Price and Transfer Pricing: Where Law Ends and Tax Begins

An intra-group license is usually paid because the operating company generates revenue from using the brand. However, the amount of remuneration has a tax dimension. For related parties, the tax authority monitors whether prices correspond to what independent parties would agree upon, and can challenge the amount of the fee. Therefore, the license fee is determined according to a justifiable method and documented.

The tax aspect of the license must be addressed with a tax specialist. The specific amount of license fees, the method of their determination, the tax implications for both parties, and the documentation must be verified with them, as this text does not address them. The legal part of the agreement, i.e., the definition of the license, exclusivity, quality control, and registration, can be prepared independently of the fee amount, with tax issues added later.

For group management, this leads to a simple rule: draft the license agreement together with a tax advisor, not after them. If the remuneration is set without regard to taxes, it may turn out to be questionable, and the agreement will then have to be modified retroactively. Joint preparation costs slightly more but saves on corrections, which tend to be more expensive.

The broader context of a family holding, including how the ownership of brands and other assets is integrated into it, is discussed in the text on family holding as a tool for intergenerational stability. Brands are among the most common assets concentrated within a holding.

The Fate of the License When Selling a Group Company

A trademark can be transferred independently of the transfer of a business utility, and the transfer must be made by a written agreement, taking effect upon registration in the register (Section 15 of the Trademark Act). Therefore, when selling a part of a group, two questions are addressed: whether the brand is being transferred or just the license, and what happens to existing licenses.

The most common arrangement is that the brand remains within the group and the sold company receives a license for a transitional period. The buyer can thus use the brand for an agreed period and then stop using it, or enter into a new agreement under different conditions. Such a solution protects the group from having its brand end up in the hands of a competitor, while giving the buyer time to transition.

Conversely, if the brand is sold along with the company, the group needs a license back if it wishes to continue using it. The agreement must anticipate both situations and determine what happens to the use, for how long, for what remuneration, and under what conditions. An unforeseen sale without these provisions leads to rushed negotiations and disadvantageous concessions.

The issue of the brand during a company sale is analyzed in a separate text Trademark in a Company Sale. It also contains recommendations on how to prepare for the buyer's due diligence, what it usually includes, and what documents regarding ownership and licenses are good to have on hand, which is important for groups planning a sale.

Six Steps from a Brand Audit to an Organized Group

The first step is an audit: the group lists all the brands it uses and verifies in the register who is registered as the owner, for which classes, and for which territory. The difference between what companies use and what is registered is often surprisingly large. Every discrepancy needs to be corrected by an application, transfer, or registration.

The second step is to decide who will be the owner. The group considers whether to hold the brand in the parent company, in a separate intellectual property company, or in an operating company, and prepares the transfers accordingly. The decision should be justified by risk, not habit. A transfer from the current owner to a new one requires a written agreement and registration, and is therefore planned in advance.

The third step is to conclude license agreements with each company using the brand. The agreements have the same structure, making them easy to manage, but are customized according to what the company does. The fourth step is to register the licenses in the register. The fifth step is to set up quality control and documentation of use. The sixth step is to agree on the remuneration with a tax advisor.

This is also related to protection against competition: a brand within a group is threatened just like any other, which is why it is good to have a procedure ready in case someone uses a similar sign. Legal tools and unfair competition are discussed in the text on trademark protection and unfair competition.

An organized group has its brands registered in one company, each license in an agreement and registered, an overview of use, and regular quality control. When a change occurs in the group, such as an investor entering or a part being sold, the status of the brands stands out as an asset that no one has to explain in a complicated way.

A warning sign is a group where no one knows who owns the brand. Other signals include an application filed in the name of the founder and never transferred, purely verbal licenses, a subsidiary modifying the brand without consent, and a license fee set without documentation. Each of these signals will come to light during a buyer's or bank's due diligence, leading to demands for guarantees.

When financing a group, banks often take the brand as collateral. A pledge over a trademark is created upon registration in the register (Section 17), which is why the brand owner must be clearly identified and the brand must not be burdened with unclear licenses. Well-organized brands thus simplify financing, not just sales.

It also helps to designate one person responsible for the brands within the group, whether it is a lawyer or a marketing manager. Such a person monitors renewals, licenses, registrations, and use, and knows the answers to questions that will arise during due diligence. Groups that do not have such a person often discover problems only when the solution is expensive.

Pitfalls of Brand Organization Within a Group

The first pitfall is the assumption that "the brand is within the group, so it belongs to everyone." The starting point is who is registered as the owner in the register, and others use the brand only with their consent. In the case of legal succession, such as after a merger or inheritance, it is also necessary to verify the legal title of the transfer. When a group splits up, for example during a division among heirs, a dispute arises over a brand that was never formally allocated.

The second pitfall is an unregistered license. An agreement exists, but no one has registered it, and in the event of a brand transfer or pledge, a third party does not know about it. A license is effective against third parties only upon registration, so without it, the licensee risks being unable to successfully assert their license against a trademark transferee or a pledgee.

The third pitfall is setting the license fee without a tax advisor. The group chooses an amount as needed, and years later, the tax authority challenges it. The fourth pitfall is forgetting about use: one company uses the brand without consent, so the owner cannot prove that the brand is used with consent. The Czech legal team at ARROWS law firm therefore starts with a brand audit and only then propose ownership and licenses.

Risks of Intra-Group Licensing Without an Agreement

Summary

It is reasonable to entrust the brand within a group to the entity that can protect it best, and other companies should use it based on a written license. The article showed that it is advisable to register the license in the register, that use with the owner's consent protects the brand from the consequences of non-use, and that the remuneration must be determined with a tax specialist.

For group management, this implies a clear procedure: first a brand audit, then a decision on the owner, followed by license agreements and registrations, and finally the remuneration with a tax advisor. The reverse order leads to the group fixing the arrangement under pressure from a buyer or a bank.

The Czech legal team at ARROWS law firm prepares brand audits in groups, designs ownership and license agreements, secures registrations in the register, and incorporates the status of brands into transactions. Write to us at consultation@arws.cz or explore our service for contracts and negotiations.