Tag Archives: trademark
VAT on McDonald’s trademark licenses
Follow
The last few decades have witnessed an influx of many international consumer brands in India. These multinational corporations license their intellectual property to regional organizations, which can subsequently become franchisees of the International brand. International brands license their trademarks and patents to regional organizations that pay fees in the form of royalties. The Delhi High Court passed judgement in an interesting case concerning the taxation of such royalties of the following companies: McDonald’s (the Appellant), Bikanerwala, GlaxoSmithKline Asia and Sagar Ratna (the Petitioners).
The abovementioned companies owned trademarks and licensed their brands in franchise agreements. GSK Asia had issued trademark licenses of their powdered beverage, ‘Horlicks’, to SmithKline Beecham Consumer Healthcare Ltd. for sale in India, Nepal and Bhutan. All licenses were non-exclusive, and the Petitioners received royalties made up from a percentage of the revenue earned from the sale of the trademark-bearing products, namely burgers, health drinks, biscuits, etc.
The Constitution states laws related to Sales tax and Service tax in the Articles 246, 268A and the Seventh Schedule. The Union List (a list of items given in the Seventh Schedule on which the Parliament has exclusive power to legislate) provides for ‘92C. Taxes on services’, while the ‘54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I.’ is included in the State List. Generally, according to the stated excerpts, an IP transaction would be taxed ‘Service Tax’ by the Union if it is taken as a rendering of a service and would be taxed ‘Sales tax or VAT’ by the State if it is taken as a sale of goods.
There have been several situations wherein organizations tried to bypass either of the taxes by reasoning that the nature of their IP transaction was not taxable by the concerned authority. After several litigations and constitutional amendment, the law related to IP transactions can be summarized as follows:
- Composite contracts that include elements of both sale and service cannot be taxed twice. (State of Madras v. Gannon Dunkerley). Sales tax (or VAT) and Service tax are mutually exclusive taxes.
- Transfers of the right to use goods (TRUGs) are considered sales. IP is considered as goods.
- A mere permission to use IP is not considered to be a sale.
Now, it is to be noted that when an IP transaction is considered to be a sale, the respective State(s) may levy sales tax on the resulting royalties. Hence, it is not a surprise that time and again, several States claimed that IP licenses are considered as TRUGs, due to which the States can levy sales tax on the transaction.
The main question here was to identify the circumstances where the licensing of IP rights amount to a sale of goods, and the circumstances in which they would amount to the rendering of a service. In BSNL v. Union of India (2006), Justice Lakshmanan delivered five criteria that had to be fulfilled for a transaction to qualify as a TRUG:
- There must be goods available for delivery;
- There must be a consensus ad idem as to the identity of the goods;
- The transferee should have a legal right to use the goods – consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee;
- For the period during which the transferee has such legal right, it has to be the exclusion to the transferor -this is the necessary concomitant of the plain language of the statute – viz. a “transfer of the right to use” and not merely a licence to use the goods;
- Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.
In this case before the Delhi High Court, the crux of the matter was whether sales tax had to be levied on the royalty payments received by the licensors in the trademark licensing.
In the assessment year 2005-2006, the Delhi Value Added Tax authorities gave a notice to McDonald’s that royalty payments were to be taxed as they were related to the transfer of rights to use the trade mark "McDonald's". On 17th March 2006, the Value Added Tax Officer issued a letter alleging that McDonald’s had a sale turnover from trade mark and patents in the form of royalty received from its franchisees; and thus, attracted a levy of sales tax under the provisions of the Delhi Sales Tax on Right to Use Goods Act, 2002 (DSTRTUG Act).
Subsequently, McDonald’s filed a reply wherein it resisted the levy of sales tax under the DSTRTUG Act and submitted a copy of the Master License Agreement (MLA) executed between the Appellant and McDonald’s India. However, the Value Added Tax Officer treated the McDonald’s system as goods and sent McDonald’s an order with a demand of Rs. 13,44,684 charged as Sales tax.
Aggrieved, McDonald’s appealed to the Joint Commissioner of Trade and Taxes, who upheld the order given by the Value Added Tax Officer. In response, McDonald’s appealed to the Appellate Tribunal in September 2008. The Tribunal, however, dismissed the appeal. As a final resort, McDonald’s filed an appeal at the Delhi High Court.
In a similar manner, the petitioner Sagar Ratna Restaurants Private Ltd paid Service tax to the Central Government at a rate of 12.36% for the related fiscal year, but received an order passed by the Value Added Tax Officer stating that its received franchisor fee is subject to DVAT levy. Additionally, Bikanerwala Foods Pvt. Ltd and GlaxoSmithKline Asia Pvt. Ltd. have entered into franchise agreements similar to that of McDonald’s and Sagar Ratna Hotels, earn royalty for rendering such services and accordingly pay service tax on the same. They were also served notices regarding the payment of VAT.
McDonald’s argued that the franchise agreement only confers the right to use the McDonald’s systems in a restaurant, and royalty is paid as a percentage of gross sales. Further, according to one of the clauses in the licensing agreement, the licensee is not allowed to use any name, mark or other related intellectual property except in connection with the operation of the restaurant.
McDonald’s applied the five-point criteria of BSNL stated above, and stated that there were no goods which were deliverable at any stage and there was no transfer of right to use any trade mark. Thus, they argued that the levy of sales tax/VAT was without jurisdiction and contrary to the relevant statutory provisions
The franchise agreements signed between the Petitioners and their respective franchisee parties were drafted in a similar manner, wherein the licensees were not given the exclusive right to use the respective trademarks and were only permitted to use the trademarks for the limited purposes provided in the franchise agreements. Thus, the Petitioners gave an argument similar to that of McDonald’s.
When the Delhi High Court examined the McDonald’s Master License Agreement, it found that the agreement was a composite franchise agreement which included trade secrets, know-how, recipes, training, etc. along with the trademark to the franchisee. The High Court determined that a limited right to use the composite system of a business is not a transfer of the right to use goods. Subsequently, the Court held that any such composite contract that non-exclusively provided a bunch of services could not be levied Sales tax.
The Delhi High Court’s judgement in this case cleared the confusion caused by several contradictory judgements passed in prior cases. However, it seems to be too little, too late, considering the introduction of the Goods and Services Tax (GST) from 1st July 2017, which is bound to change the game altogether.
We hope this article was a useful read.
Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together.
Best regards – Team InvnTree
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License
Place of business: How important is it for instituting a suit of infringement?
In an order dated 22nd July, 2016, a single Judge of the Delhi High Court delivered his Judgement over a suit of infringement of trademark. The single Judge believed that the Court had territorial jurisdiction to entertain the suit. However, the alleged act of infringement took place in Kolkata (where the Defendant’s Office is located), while the Plaintiffs do not even have an Indian presence. A permitted user of the Plaintiff’s trademark has a presence in Delhi. In light on this, can the permitted user institute the suit? Does the Delhi Court have the authority to provide judgement on this matter? Let’s see.
History and Facts
This dispute arose when US based Exxon Mobil Corporation (“EMC”) alleged infringement of its registered trademark “Exxon” by Kolkata based “Exon Engineering Corporation” (“EEC”), and filed an action before the Delhi High Court. Exxon Mobil Corporation (Plaintiff 1), does not have an office in India. However, a wholly owned subsidiary (Plaintiff 2) of Exxon Mobil Corporation has an office in Delhi and is a permitted user of the trademark “Exxon”. Kolkata-based Exon Engineering Corporation (Defendant) is the registered proprietor of the trademark “Exon Engineering Corporation” and has an office in Kolkata. Section 134(2) of the Act empowers a plaintiff to institute a suit for trademark infringement at any place where its office is located. The plaintiffs here contended that the Delhi High Court was vested with the jurisdiction to adjudicate upon the matter as Plaintiff 2, being the permitted user of the trademark, has its presence in Delhi. On the other hand, the Defendant argued that it was carrying on business in Kolkata, so a court in Delhi would not have jurisdiction to adjudicate upon the matter. Further, the Defendant argued that in light of Section 53 of the Act, Plaintiff 2, by being a permitted user, could not institute the suit. Further, the Defendant was of the opinion that Section 134(2) could not come to the aid of Plaintiff 2, since Plaintiff 1 does not have an office in India.
The judge held that the explanation to Section 134(2) of the Act allowed this, and ruled that a “permitted user” would be empowered to institute a suit. The judge based this judgement on a case which involved an interpretation of Section 62(2) of the Copyright Act. The judge also accepted Plaintiff 2’s contention that Plaintiff 1 would be deemed to use the mark in Delhi owing to its use by its wholly owned subsidiary. The Defendant appealed before the Division Bench against this judgment, resulting in the judgment under consideration.
Division Bench Ruling
The Division Bench first looked into whether or not Plaintiff 2 could institute a suit in this case. The Division Bench held that Section 53 of the Trademarks Act clearly prohibits a permitted user from instituting a suit for infringement. The Bench pointed out the difference between a permitted user and a registered user and how, under the provisions of the Trademarks Act, a registered user and not a permitted user of a trademark can institute a suit. Hence, the Bench ruled that Plaintiff 2 was not legally empowered to institute the suit.
Next, the Court went on to decide whether the Delhi High Court had jurisdiction to adjudicate upon the suit. For this, the Bench relied on the case of Ultra Home Construction vs. Purushottam Kumar Chaubey. The Bench assumed Plaintiff 2’s office in Delhi to be a subordinate (branch) office. Further, referring to Sections 134(2) and 62(2) of the Trademarks Act, 1999, the Bench contemplated that when the cause of action neither arises at the place of the principal office nor at the place of the subordinate office but at some other place, the Plaintiffs could institute a suit at the place of its principal office but not at the place of its subordinate office. The Bench then ruled that the Plaintiff 1's principal office is in USA and its assumed subordinate office is in New Delhi, but the cause of action has arisen in Kolkata. Unfortunately, the place where the plaintiff No.1 could sue under Section 134(2) would then be in USA which is not available to it because Section 134(2) is in respect of the suits filed in India alone. Consequently, the Delhi Court would not have territorial jurisdiction to entertain the present suit. Therefore, the Bench reversed the single judge’s decision and rejected the plaint for lack of jurisdiction.
The court order can be found here.
We hope this article was a useful read.
Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together.
Best regards – Team InvnTree
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License
Huge relief for Prius Auto Industries – Judgement on trademark infringement given against Toyota motor corp.
We had earlier written on how Toyota Motor Corp. won case against Prius Auto Industries for the infringement of trademark “Prius”. Prius Auto Industries, a Delhi based automotive accessories company, were found guilty of using Toyota Motor Corp.’s “well-known” trademarks. The single-judge Bench of Justice Manmohan, on July 8, 2016, had given an order preventing Prius Auto Industries from manufacturing, selling or using the Toyota Motor Corp.’s trademarks such as “Prius”, “Toyota” and “Innova”. In addition to this, the court had also directed Prius Auto Industries to pay INR 10 lakhs, to Toyota Motor Corp. as compensation for trademark infringement.
Aggrieved, Prius Auto Industries appealed against the judgement. The appeal was heard by justice Pradeep Nandrajog of the division bench of the Delhi High Court, on 23rd December 2016. Upon hearing both the parties, judgement was given favouring Prius Auto Industries saying that the use of “Prius” by Prius Auto Industries does not infringe on Japanese car maker Toyota Motor Corp.’s trademarks.
Prius Auto Industries had appealed saying that trademarks should be determined in context to a similar class of goods and in a relevant geographical market. Accepting Prius Auto Industries arguments, Delhi high court gave judgement in favour of Prius Auto Industries that,
“Toyota is a big company. It has had a presence in India for over two decades when the suit was filed. It was well entrenched in the Indian market in the year 2001. Obviously no consumer of Toyota car or buyer of an auto part sold by Toyota was ever confused by the appellants selling their products under the trade mark Prius, for if this was so, in ten years somebody would have complained to Toyota or at least would have made known said fact to Toyota.”
The judgement also quashed Toyota Motor Corp.’s argument that Prius Auto Industries had been benefited from the trans-border reputation. Toyota Motor Corp. relied on reports in the Indian newspapers, that published news about Toyota’s new hybrid car “Pirus” in Japan in 1997. The Court, however, held that,
“Though published in a newspaper, the publication is in the nature of an article written and thus the weight of its evidentiary worth in the context of an explosive news on a fact of history being made known to the public would be minimal.”
Regarding trans-border reputation, the judgment states,
“The weight of the evidence led by Toyota would be that it has simply established that when it launched the hybrid car Prius in the market in Japan in 1997, the event was reported as a news item in different countries including India but not with such prominence that the public at large became aware of the same. The law on trans-border reputation requires two facts to be established. The first is reputation in foreign jurisdictions of the trade mark. The second is knowledge of the trade mark due to its reputation abroad in a domestic jurisdiction.”
“There being no advertisements published by Toyota for its car Prius in India and coupled with the fact that not all cars marketed under different trade marks by Toyota acquire a global reputation and much less in India, internet penetration as of the year 2001, being low in India, the weight of the evidence leans in favour of the view that by April 2001 Toyota had not established a global reputation in its trade mark Prius which had entered India.”
Read the full division bench judgement here.
Read the single judge judgment here.
We hope this article was a useful read.
Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together.
Best regards – Team InvnTree
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License
Amazon India served notice By Flintobox for diverting website traffic
A Chennai-based start-up company Flintobox, a provider of kids’ activity boxes, sent a legal notice to Amazon for alleged unlawful diversion of traffic to Amazon’s website by using their brand name.
Flintobox has already sent a “cease-and-desist” notice to Amazon claiming damages of 10 lakhs INR. According to Flintobox, anyone typing the word ‘Flintobox’ in Google search engine found “Flintobox at Amazon” as the first result in the form of a sponsored advertisement, which on further clicking would give no information of Flintobox products. Rather, it would display products by other companies similar to Flintobox.
The word, “Flintobox” has been a trademark of the company for over 2 years. The company first raised a complaint with Amazon in July 2016 and then again in October 2016. However, it received only automated responses from Amazon, according to official statements. Amazon did not take any action despite complaints, according to Flintobox, and that it had to provide documents to Google to stop the advertisement. Google, however, later changed to the word “Flinto box” in the advertisement thus not agreeing to completely remove the advertisement since the word with a space was not trademarked. Flintobox claimed that they have decided to take legal action against Amazon after failing to get any response from Amazon over the issue.
The CEO of Flintobox stated in a recent blog, titled Google And Amazon – The Sharks That Are Stealing Nemo’s Food #WakeUpAmazon, stated that “Amazon, the biggest online retailer on planet Earth, used Google to steal a prospective buyer of Flintobox, and instead introduced them to some of their (rather irrelevant) products.”
Some search engine optimization technicians and IP experts have also pointed out the possibility of unintentional infringement owing to the automated system used by Amazon that might have picked up phrases for Google Ad words without realizing it being a brand name. Hence the complexity of the case is quite visible, especially because of a generation of a keyword being a brand name, by a software.
We hope this article was a useful read.
Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together.
Best regards – Team InvnTree
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License
Importance of registering a Trademark: “Sualkuchi’s” Will Tell The Tale
Having a long tradition of silk weaving, Sualkuchi, in Assam, houses the state’s largest and the oldest silk industry. This silk industry is the provider of employment to local weavers. In the recent years, exploitation of this industry had greatly affected the people as the originality of the silk was compromised with. The local weavers of the silk village have recently breathed a sigh a relief, after a saga of protests demanding a ban of textile products produced outside has ended with the decision of the Controller General of Patents and Trade Marks to issue a trademark to the handloom products.
History
Around March-April, 2013, violence agitated the silk village of Assam. The root cause leading to the violence at Sualkuchi was the procurement and sale of Banarasi silk clothes under the brand of Sualkuchi silk or Assam silk and misleading the people at large. Hundreds of silk weavers of Sualkuchi came out to the streets and burnt down silk products procured from Varanasi, which some local traders were marketing as genuine Assam silk. Heaps of such silk products that were stored in showrooms and godowns of these traders were burnt down to ashes. Local weavers alleged that the traders have indulged in the practice of taking away samples of the indigenous Assamese designs and motifs to traditional silk weaving pockets in places of Varanasi, engage silk weavers of these places to produce adulterated Assamese silk products, and finally taking back the finished products to Assam to sell as genuine Assamese products. The adulterated products were relatively lowly priced. These aggrieved the local weavers and compelled them to protest such practices.
These events urged people to take steps to rather popularize their craft. It was then, that the initiation of the process of registering a trademark for the original Assamese products started. The “Sualkuchi Tat Silpa Unnayan Samity” applied for the trademark on September 6, 2013. The application was registered against the number 2592761 under class 24. The word “SUALKUCHI’S” will now be found on these silk products woven by the local weavers and artisans of Sualkuchi, as per the provision of the trademark.
Conclusion
Although the hostility that took place is condemned, the CGPDTM’s decision has played an important role in providing the local weavers a ray of hope that their efforts will be recognized nationwide by their registered trademark.
We hope this article was a useful read.
Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together.
Best regards – Team InvnTree
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License
Generating Indian Trademark Registration Certificates is Only Few Clicks Away
Over the past few years, various initiatives have been taken up to automate IP filing, prosecution, registration and maintenance in India. As part of these initiatives, the Indian Trademark Registry has announced successful automation of generation and issuance of trademark registration certificates.
It shall be noted that the option to access trademark registration certificates online will be initially available for trademark applications which have been published in the trademarks journals dated November 11, 2015 and thereafter.
The trademark registration certificates will be accessible to the trademark agent on record. The registration certificates will also be emailed to the trademark agent.
The initiative, as is evident, will substantially cut down paper work. This will also help the Trademark Registry streamline tasks, and concentrate on tasks that will help the registry clear the backlogs.
We hope this article was a useful read.
Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together.
Best regards – Team InvnTree
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License
Indian Trademark Registry Clearing its Backlogs by Abandoning Applications!
Several initiatives are being taken up to clear backlogs of trademark applications at the Trademark Registry. In one such initiative, several trademark examiners have been recruited. The increase in the number of examiners will certainly help in clearing some of the backlog, and expediting the examination process of newly filed trademark applications. However, improvement in efficiency in the operations of the Trademark Registry as a result of this initiative will certainly take considerable time.
Given the uproar by the international community about the slow processing of trademark applications in India, the Registry is hard pressed to show results in the short term. One of the ways to showcase improvement efficiency is by decreasing the number of backlog applications. In an effort to decrease this number, the Registry ordered abandonment of over hundred and fifty thousand applications in March 2016, alleging that applicants of these applications had not responded to examination reports. The Registry had to retract from its order considering that the facts stated by the Registry were not entirely correct.
Subsequently, the Registry dispatched examination reports for over 13000 applications, out of which the Registry alleges, it has not received reply for 9578 applications. The Registry, by way of notification dated July 11, 2016 has informed that these applications will be abandoned if reply is not received by July 31, 2016. The 9578 applications, which are likely to be abandoned, have been listed in the Registry’s journal.
The relevant portion of the journal can be accessed here
We hope this article was a useful read.
Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together.
Best regards – Team InvnTree
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License
