Monday, January 4, 2010

HUL has signed Trademark license agreement with Unilever

The fast moving consumer goods (FMCG) major Hindustan Unilever(HUL)has signed a fresh trademark license agreement with its UK-based parent company, Unilever, under which the Indian subsidiary will pay royalty of 1% on net sales of specific brands whose trademark is owned by the Anglo-Dutch parent company .
HUL first signed a technical collaboration agreement with Unilever sometime in the mid- to late-nineties (this effect for a period of 24 years in 1999), and has been paying royalty of 1 per cent under this arrangement since then. No trademark royalty was being paid by the company.
Brands owned by Unilever and licensed to HUL include Lux , Lifebuoy, Ponds, Vaseline, Dove, Surf, Close-Up, Sunsilk, Brew, Axe and Clinic. Royalty paid by HUL to Unilever during the 15-month period ended March 31, 2009, was Rs 116 crore. In the previous calendar year, annual royalty paid was Rs 76 crore. This was solely on the use of technology by certain products.

By some estimates, HUL is likely to pay a royalty of about Rs 90 crore, based on a turnover estimate of Rs 18,000 crore for this financial year. So, if 50 per cent is the contribution to sales by these brands, then 1 per cent of that is Rs 90 crore, say analysts.

This modified its technical collaboration agreement (TCA) with Unilever involves additional technology fees on third-party manufacturing, and a trademark royalty on Unilever-owned brands such as Knorr and Ponds. The changes would be applicable from January 1, 2010. Trademarks of around 40 products in HUL's kitty are owned by Unilever and HUL is the licensed user in India

Most brands, such as Lifebuoy, Fair & Lovely, Sunlight, Ayush, Wheel, Hamam, among others, which have been registered in India under HUL, and will not be covered by this arrangement. The trademark license agreement comes after 7-8 years since the government allowed subsidiaries of MNCs to pay royalty to their parent companies.
The practice of paying royalty to the parent for using its trademark is not unusual in the FMCG sector. Companies such as Nestle, GSK and Colgate-Palmolive pay royalty between 3 and 5 per cent for using the trademark owned by their parents.

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