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A Convergence of Trade Names and Trade Marks: A Case Comment
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Finalising a name for a company is often a strenuous task, with personal preferences clashing with market perception analysis, existing brand names, statutory requirements, etc. Selecting a name for your product is generally further simplified when one believes in creating a brand of products under one company, thereby utilising the company’s name in the name of the product.
In most instances, where companies tend to use the same name for both their trade name as well as their trademark, the line tends to be blurred when it comes to an infringement action, as is the case in N Dinesh Kumar v. Shweta Khandelwal.[1]
To understand the question that arose in the suit, it would be wise to understand how the law views these two concepts differently.
The Distinction between Trade Name and Trademark
A trade name is quite simply the name the company trades in or does business in, and in most cases this is the corporate name of the company, whereas the trademark is how the company wishes to establish itself in the market as, and how it would like the consumer to identify its products as such. At times, the trade name can be incorporated within the trademark, but when companies look to diversify into different products, the trademark may exist de hors the trade name.
The more important distinction lies in how the law treats the two concepts, and that brings us to the Trademark Act, 1999 (“the Act”). Infringement actions for a registered trademark lie under Sections 29(1), 29(2) and 29(4), with sub-sections (1) and (2) pertaining to similar goods or services and sub-section (4) pertaining to dissimilar goods or services. The standards for evaluating an infringement action in such cases involves evaluating the similarity between the marks, as well as the similarity between the goods or services[2]. In the latter case, the evaluation utilizes the reputation that the registered trademark has garnered, as an evaluation of the similarity of goods or services would not render a result.
However, Section 29(5) is slightly more nuanced, in the sense that the range of infringement is narrower. A registered trademark is infringed when an unauthorized user uses the registered trademark as his trade name or part of his trade name, or as his business concern or part of his business concern. In such cases, the standard for evaluation of an infringement action involves identifying the part of the trade name containing the registered trademark, as well as that the infringer is dealing in the same goods or services that the mark is registered in[3].
The line of differentiation here is that there is no question about similarity or dissimilarity of goods or services. An action under Section 29(5) requires that the alleged infringer deals only in those goods or services for which the registered trademark is registered in.
The Facts of the Case
The facts of the Karnataka High Court decision merit a summary. The suit was filed by the Respondent, the proprietor of the mark Matru Ayurveda and trading as Matru Herbals, against the Appellant, the proprietor of the mark Matruveda and trading as Matruveda Herbals. The Respondent’s device, Matru Ayurveda (TM Appn. No. 3063975), has been registered in Class 3 for a number of herbal cosmetics, while the Appellant’s device, Matruveda (TM Appn. No. 3806687), has been registered in Class 5 for herbal supplements.
The suit at hand involved a claim that the trademark of the Appellant was so deceptively similar that despite having been established earlier, the sales of the Respondent have been impacted by the actions of the Appellant. The trial court, upon an application by the Respondent, granted an order of temporary injunction against the Appellant restraining the Appellant’s use of the mark from infringing the trademark of the Respondent, as well as quite curiously the trade name of the Respondent.
While the trade name may be included within the registered trademark, what Section 29(5) clearly talks about is infringement of a trademark by a trade name, and not the infringement of a trade name. In the present case, the Respondent’s claims have been focused on the loss of business owing to the products sold by the Appellant, and has never questioned the aspect of the Appellant trading in a name incorporating the trademark of the Respondent. Which is what the High Court took note of in its judgment.
The Holding of the High Court
The High Court took special notice of the portion of the judgement where the trial court states “On perusal of the tradename of the plaintiff and defendant, it appears that both the marks are phonetically and deceptively similar”, and pointed out that in this case, as the trade names are contained within the composite mark, the question falls to infringement of the trademark, which therefore involves the evaluation from the eyes of a ‘quintessential common man’ having the ‘wisdom of Solomon’ and the ‘trained eyes of Sherlock Holmes’.
The High Court also observed that where an element appears to be used by other proprietors dealing in other products in the market, the evaluation of the device marks must then turn to the unique features of the respective device marks, to ascertain whether those unique features then become deceptively similar, as purchasers would turn to those unique features to distinguish the mark from others. This principle is dependent on the existence of such a commonality in the market being proved to the satisfaction of the court. The Court thus set aside the order of temporary injunction and ordered a fresh hearing of the matter by the trial court.
Conclusion
What thus stands is but the foundation of device marks and their essential characteristics. As the courts have stated previously, device marks carry the weight of their registration in their appearance, as an average common man having an imperfect recollection looks to the overall design and scheme of the mark when differentiating between products.
The question of trade names thus does not arise when the action lies with respect to an infringement of the mark as a whole, and in this case, it would seem that the requirements of Section 29(5) are not attracted, owing to the registration of the marks in different classes, and dealing with different products.
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[1] M. F. A. No. 790/2021 (Kar)
10 THINGS TO CONSIDER WHILE SELECTING A TRADEMARK
Choosing a good trademark is very important for any business. We have to consider many points in choosing a good trademark.
1. It should be easy to speak, spell, read and remember.
Eg. Tata, Puma, Adidas
2. Avoid selecting a trademark that is identical to other trademarks in the same line of business. However, you may select a trademark that is similar, but not confusingly similar.
Eg. You cannot select “InventiveTree”, to sell IP services under that trademark, while an earlier trademark, “InvnTree” exists, and covers IP services. However, you can select “InnovationTree”, to sell IP services under that trademark, while an earlier trademark, “InvnTree” exists, and covers IP services.
3. Do not select trademarks that are similar to well-known trademarks.
Eg.Tata, Sony, Honda, Google,etc.
4. Avoid selecting descriptive marks that merely describe the goods or services.
Eg. “Coffee shop” for a coffee bar, “Fragrances” for a store selling perfumes, “Running shoes” to sell shoes
5. Avoid using popular family names.
Eg. ‘Aggarwals’, ‘Shetty’s’, ‘Kapoor’
6. Make the mark fanciful and arbitrary. It is always preferred to make up or invent new words or phrases or use ordinary words that are not directly associated with the product.
Eg. “Amul” for dairy products, “Myntra” for clothing.
7. Avoid selecting adjectives which have a direct reference to the character or the quality of a product.
Eg. “Perfect Apparel” for clothes, “Fast cars” for automobiles
8. Avoid selecting a trademark that is being used by someone else in a foreign country.
Eg. ”Banana Republic”, “Target”, “John Deere”
9. Avoid selection of Geographical names, as nobody can have a monopoly right over it.
Eg. “Darjeeling tea” to sell tea, “Banaras Silk” to sell sarees
10. Avoid adopting marks that contain scandalous or obscene matter or that are likely to hurt religious sentiments.
Eg. Use of holy books as trademarks are prohibited like “Ramayana” for incense sticks.
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WhiteHatJr’s Magical Rabbit: A Perverse Application of Trademark Law
WhiteHatJr’s issues began when Pradeep Poonia began posting tweets and videos on his YouTube channel criticizing both the teaching methods as well as the advertising claims made by WhiteHatJr as being misleading. Aniruddha Malpani posted tweets on similar grounds.
Prior to the institution of the cases and the grant of the ad-interim injunctions, WhiteHatJr targeted Pradeep Poonia’s videos on YouTube under his three accounts: WhiteHatSr, Safed Topi Sr 2 and Pradeep Poonia 3.0. WhiteHat even went after 12-year-old Jihan Haria’s video on YouTube roasting their advertisement, but this copyright “strike” was eventually reversed. Pradeep Poonia’s first two accounts however received multiple strikes, and the third account hangs on its last strike open.
Coming to the crux of the matter, the Delhi High Court however, in both cases, seems to have taken an overall view of the content posted by the defendants, and has evaluated its orders on the basis of the defamatory nature of the content to pass the interim injunctions. Independent IPR enthusiasts and observers therefore have little to peruse and abstract from these decisions as of now, especially since these cases involve the internet’s primary tenet of free speech and fair criticism and the use of Intellectual Property to shut down criticism.
At this stage, it would be prudent to examine the established strongholds of fair comment that IP already provides for, and in this case, what copyright and trademark allow for. Copyright law is fairly certain in its defense of fair comment, for Section 52 (1)(a) of the Copyright Act, 1957 explicitly allows for the reproduction of a work for the purposes of criticism or review. The author therefore fails to see any ground for the copyright strikes against both Pradeep Poonia’s videos as well as Jihan Haria’s videos, and YouTube India would do well to update their copyright infringement systems to sidestep such infructuous claims.
Moving further to trademark law, this is a concept that is fairly new to trademark law in India, witnessed specifically by the lack of a provision speaking to the issue in the Trademark Act, 1999 as well as noticeably few judicial precedents. However, while trademark law does place boundaries on what is considered infringement (under Section 30), it can be argued that it protects fair comment by way of normative fair use under Section 30 (2)(d). Nominative fair use basically allows the use of another’s trademark to refer to the owner’s goods and services. Such use however must comply with three conditions:
- The product or service in question is not readily identifiable without the use of the mark
- Only so much of the mark is used as is reasonably necessary to identify the product or service
- Using the mark does not create an inference of sponsorship or endorsement[1]
Regarding nominative fair use, the Delhi High Court initially dealt with the matter in Hawkins Cookers Ltd. v. Murugan Enterprises. The Single Judge Bench had held that as long as the use was bona fide, was reasonably necessary to show that the goods were adaptable to the proprietor’s products, and did not deceive the public as to the origin of the goods, there was no infringement of the proprietor’s mark. The Division Bench overruled the decision of the Single Judge Bench on merits, holding that the defendant’s use of the plaintiff’s mark was above what was necessary, given the emphasis on the use of the mark “Hawkins” in a red colour font. However, the Court did note that the Single Judge’s appreciation of the law was correct.
The Madras High Court also had the opportunity to deliberate on nominative fair use, in Consim Info Pvt Ltd. v. Google India Pvt. Ltd., and reaffirmed the three factors for nominative fair use stated above. The Court however noted that the respondent’s AdWords policy was discriminative towards the trademarks of the appellant, and therefore as such a policy would cause confusion in the mind of the public as to the appellant’s mark, the Court held such use to be infringing.
The Delhi High Court again, in the case of Prius Auto Industries Ltd. v. Toyota Jidosha Kabushiki Kaisha, dealt with nominative fair use, and while the Single Judge Bench had set aside the injunction restraining the defendants from using the plaintiff’s marks, the Division Bench had, with the parties’ consent, restrained the defendant from using the plaintiff’s marks except for identifying their compatibility with the plaintiff’s cars, that the words “TOYOTA” and “INNOVA” were not written in the same font, and that the words ‘Genuine Accessories’ were used only in relation to the defendant’s name. On a final appeal to the Supreme Court, however, no mention of the nominative fair use doctrine was made, and the issue was determined solely on the basis that the plaintiff (Toyota) had not evidenced sufficient proof of the existence of goodwill over the use of the mark “Prius” in India, and hence, by the territoriality principle, the defendants were not liable for infringement. The decision of the Division Bench regarding the use of the marks “TOYOTA” however were upheld.
Another question that arises is with regards to the manner of infringement. Section 29 of the Trademark Act, 1999 primarily deals with the infringement of the mark by usage in the course of trade, and to determine such usage, circumstances are listed under sub-section (6). The peculiarity here is that none of the circumstances mentioned under (6) provide that the mark is used for criticism. It is therefore hard to see suitable grounds for WhiteHatJr to sustain an action of trademark infringement on the grounds of criticism. The issue of disparagement does not arise, on the basis that neither of the defendants are making such criticism while simultaneously engaging in comparative advertisement. Although Aniruddha may be an investor in other edtech start-ups, she is not criticizing WhiteHatJr while also promoting any of her investments.
In conclusion, there does not appear to be satisfactory grounds for WhiteHatJr to have instituted an action of trademark infringement and disparagement against Pradeep Poonia and Aniruddha Malpani. These actions, quite literally, appear to be a rabbit pulled out of WhiteHatJr’s magician’s hat. The worrisome quandary we now find ourselves in is the overextended use of YouTube’s copyright infringement ‘three strikes’ policy. As on yesterday, December 13, 2020, YouTuber Samuel Miller posted a video wherein he described an instance where he was contacted via Instagram by a person claiming (very unsuccessfully) to be the CEO of WhiteHatJr and threatened to file a copyright infringement claim against Samuel’s video criticizing WhiteHatJr if he failed to transmit 1 bitcoin to the assailant’s address. WhiteHat’s actions to stifle criticism seem to have spurred a new form of ‘copyright trolls’ (the author has very liberally adapted the term ‘patent troll’ to the present context) who threaten to take down videos and ransom the creator’s content to avoid their channel being permanently blocked by YouTube.
It remains to be seen what the courts will tend to make of such criticism in the future. A rather foreboding indicator of what we may see in the future was witnessed in the Pradeep Poonia case, where the Court, in its injunction, prohibited the defendant from using the term WhiteHatSr and WhiteHatPoonia, on the grounds that such names were infringing and would lead to confusion in the minds of the public. What one may hope would constitute fair parody in the means towards criticism has been severely hampered by this decision, and it would appear that a rather unfair boundary has been placed on free speech and fair comment.
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[1] Fair Use of Trademarks (Intended for a non-legal audience), January 31, 2016 https://www.inta.org/fact-sheets/fair-use-of-trademarks-intended-for-a-non-legal-audience/#:~:text=Nominative%20fair%20use%20permits%20use,services%20associated%20with%20the%20mark.&text=Here%2C%20the%20trademark%20is%20used,not%20imply%20sponsorship%20or%20endorsement.
Toyota Vs. Prius Auto – Analysis On Permeation Of Goodwill And Reputation Of Foreign Marks Into India And Passing Off Such Marks
The judgment of The Supreme Court of India in the matter of Toyota Jidosha Kabushiki Kaisha Vs. Prius Auto Industries Ltd. & Ors is worth bookmarking for IP practitioners in India. The tussle between Toyota and Prius Auto has been going on since the year 2009. The initial matter concerned several trademarks, viz., TOYOTA, TOYOTA INNOVA and TOYOTA (device mark) and PRIUS. While the judgement (largely in favour of Toyota) of the lower court concerning the first three listed marks are not appealed in The Supreme Court, the judgment, which was in favour of Prius Auto and others (“Defendants”), concerning PRIUS, was appealed. The Supreme Court held in favour of Defendants, Prius Auto and others.
By way of background, the Defendants had obtained registration of the mark, PRIUS, in the year 2002, and has been using the mark since 2001. Toyota (“Plaintiff”) on the other hand launched the world’s first commercial hybrid car called Prius in Japan in the year 1997. In India however, the car was released in the year 2009, and the Plaintiff applied (as “proposed to be used”) for registration of the PRIUS mark on December 03, 2009, and followed it up with institution of suit against the defendants on December 21, 2009.
In the appeal, the Supreme Court set out to determine whether the defendants, by using the mark, PRIUS, to market the automobile spare parts manufactured by them, are guilty of passing off their products as those of the plaintiff, thereby injuring the reputation of the plaintiff in the market.
In order to address the issue at hand, Division Bench of the High Court considered two largely differing doctrines that have an impact on scope of trademark protection, viz., Universality Doctrine and Territoriality Doctrine. Universality Doctrine posits that a mark signifies the same source all over the world. In contrast, Territoriality Doctrine posits that a mark has separate existence in each sovereign country. In other words, under the Territoriality Doctrine, prior use of the trade mark in one jurisdiction would not, by that very fact, entitle its owner or user to claim exclusive rights to said mark in another dominion. The Division Bench held that Territoriality Doctrine holds, and the Supreme Court concurred.
In view of territoriality principle, the court had to determine whether there has been a spill over (by the time the Defendants started using the mark) of the reputation and goodwill of the mark used by the claimant who has brought the passing off action. The court considered the evidence, dated prior to first use of the mark by Defendants, supplied by the Plaintiff to assert spilling over of the reputation and goodwill of the mark to India.
The court noted that the car itself was introduced in the Indian market in the year 2009-2010. Further, the advertisements in automobile magazines, international business magazines; availability of data in information-disseminating portals like Wikipedia and online Britannica dictionary and the information on the internet, even if accepted, would not be a safe basis to hold the existence of the necessary goodwill and reputation of the product in the Indian market at the relevant point of time, particularly having regard to the limited online exposure at that point of time, i.e., in the year 2001. In view of these observations, among others, the Supreme Court agreed with the conclusion of the Division Bench that the brand name of the car Prius had not acquired the degree of goodwill, reputation and the market or popularity in the Indian market so as to vest in the Plaintiff the necessary attributes of the right of a prior user so as to successfully maintain an action of passing off even against the registered owner. The Supreme court further held that if goodwill or reputation in the particular jurisdiction (India) is not established by the Plaintiff, no other issue really would need any further examination to determine the extent of the Plaintiff’s right in the action of passing off that it had brought against the Defendants.
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Risks of adopting Gods’ names as Trademark
Goodwill in a trademark is built over the years by making sustained investments into the brand. After having made these investments over the years, a trademark that cannot be enforced to the fullest desirable extent is certainly a setback. One such class of trademarks that has inherent limitations as to its enforceability are names of gods. Names of gods are commonly used as trademarks in a variety of businesses in India. While some of these trademarks may have been registered, others continue to be used as unregistered trademarks. Whether registered or unregistered, enforceability of such trademarks remains a challenge. We have analyzed a case concerning one such trademark, in which judgement was passed recently, to explore the angle of registrability and enforceability.
The Bombay High Court recently passed a judgement in a case between Freudenberg Gala Household Product Pvt. Ltd (hereinafter “Gala”) and GEBI Products (hereinafter “Gebi”). Gala started using a trademark “LAXMI” in respect of its product, brooms, in the years 1995. Gala subsequently applied for and obtained registration of the trademark “LAXMI” as a “label”. Notably, “LAXMI” is the name of a popular Hindu goddess. Gebi, on the other hand adopted the trademark “MAHA LAXMI” also in respect of brooms. “MAHA LAXMI” is another name of the same Hindu goddess “LAXMI”. The primary question before the Court was whether the registered label mark “LAXMI” was infringed by Gebi by the usage of the trademark “MAHA LAXMI” in respect of identical goods, brooms. The Court ruled in favor Gebi.
In this case, succinctly put, in-principle Gale contested that the scope of protection of its registered label trademark extends to the words within the label, and not just the label as a whole. Over and above that, since the word within the label is the name of a god, Gale sought monopoly over usage of name of a god as a trademark, expressed in whichever form, with respect to a certain class of goods.
It is well established that, where a label is registered as a whole, such registration cannot possibly give the proprietor of the trade mark exclusive statutory right over any particular word or name contained therein apart from the mark as a whole. Registrar of Trade Marks vs. Ashok Chandra Rakhit Ltd. The Court applied well established principles while dealing with label/device marks, to compare the registered label mark of Gale as a whole and the mark adopted by Gebi as a whole, to find that Gebi’s mark was not infringing on the label mark of Gale.
With respect to usage of name of gods, the Court prima facie found substance in assertion that names of gods are not exclusive and such words cannot be monopolized by one party. The Court further opined in the same context that claiming and protecting the label mark is different than to claim monopoly over a common word.
In conclusion, adopting names of gods as a trademark may be a risky proposition. Even if one has adopted such a mark, one may be able to register the mark as a label or device, and registration of the mark as a word mark as such may not be feasible. Further since exclusive statutory rights may not be claimed over such words, enforcement remains a challenge.
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Trademark protection of architectural design
A discussion on trademark protection of architectural design will typically begin with the Empire state building. It is because the building owned by a private firm secured its trademark early in 1931 and has enjoyed various economic benefits through the trademark protection for almost 80 years. Followed by the building, few other famous constructions like Eiffel Tower (at night when the lights are aglow) in Paris and Opera house in Sydney have also secured the trademark protection for their architectural design. However, India with numerous architectural marvels that are owned by an individuals or companies have not gained any trademark protection for architectural design until recently.
On June 19th, the Indian Hotels Company Ltd (IHCL) that owns The Taj Mahal Palace was granted a trademark for the hotel’s unique architectural design such as the red-tiled Florentine Gothic dome and the grand exterior. The Taj Mahal Palace is the first building of its kind in India to secure a trademark for its architectural design. India’s iconic luxury hotel, The Taj Mahal Palace that was built in 1903, has hosted numerous famous personalities and dignitaries from different parts of the world and is highly recognizable throughout India. Acquiring trademark registration was not cumbersome as the hotel already met the various prerequisites. In the backdrop of this registration, we discuss various aspects of Trademark protection of an architectural design.
How can a building secure Trademark protection?
- The first and foremost rule to apply for a trademark protection for an architectural design is that the building should be either owned by an individual or a company.
- The building should be distinctive which means that the building should be easily recognizable by many people.
- The building should represent a brand that associates a product or service to a source.
Once trademark protection is secured, the building or architecture can enjoy many economic benefits and prevent others from exploiting the architectural design and take advantage of it.
What can be called a trademark violation of an architectural design?
There are few aspects to judge a trademark violation:
- The use of the trademarked building should be non-editorial. A building’s image published on a newspaper wouldn’t violate trademark. Whereas, an image of a building used to advertise another product could violate the trademark.
- The use of the trademarked building to endorse identical or deceptively similar goods or services by third party may be considered infringement. Mc Donald’s in its advertisement for promoting burgers, cannot use an image of a KFC restaurant in the advertisement as it may lead to confusion among consumers.
Economic benefits of trademark protection: Empire state building vs NYC beer – A case study
A building with a unique and a widely recognizable architectural design can apply for a trademark to prevent others from exploiting the economic benefit of the architectural design. For example, in the year 2016, ESRT Empire State Building LLC who owns the trademark of Empire state building since 1931, filed an opposition for the grant of trademark that was filed by NYC Beer for its alcoholic beverages.
The opposition application filed by ESRT Empire State Building LLC was based on the grounds of trademark dilution, likelihood of confusion and false suggestion of a connection with Empire state building. According to US law, the trademark dilution is proved and accepted if the trademark is recognized and famous. As a result, ESRT Empire State Building LLC was successful in winning the opposition as the building attracts millions of tourists and visitors every year and is easily recognizable by public. Also, the building management stated that, a gift shop in the building also sells few alcoholic and non-alcoholic beverages as a souvenir for the visitors. So, the NYC beer may be confused by people with the ones that is sold by the gift shop. The trademark protection, helped the Empire state building to hold its recognition and prevent any misuse of it by any other companies.
Scope of trademark protection of architectural design of a building
Sydney’s Opera House, the Empire State Building and The Taj Mahal Palace hotel could easily secure a trademark protection, as they fulfil all the prerequisites and are owned by private entities.
For some, it might be surprising that how Eiffel tower being a public property, managed to secure a trademark. Surprisingly, the Eiffel tower does not hold a trademark for its architectural design but for the lighting design. The Société d’Exploitation de la Tour Eiffel, the organization managing the structure defends the trademark protection saying that the lighting is an artistic work which is separate from the structure itself. Thus, an architectural design need not necessarily be a structural, instead it can be any other possible architectural design.
For example, Apple, the world’s famous and recognized electronic gadget manufacturer secured a trademark for its “architectural design of Apple stores” from USPTO on January 24, 2013. It is to be noted that every Apple store cannot be structurally same as they are in various places under various space constraints. However, the trademark protection is not for the structure but for the store’s layouts, with their open spaces and symmetrically arranged displays. The trademark protection of “architectural design of Apple stores” helps Apple to legally act against duplication of the “look and feel” of its stores by any of its competitors.
The Trademark protection of an architectural design helps many private firms protect the various aspects of their buildings and structures. It is good to see that Indian firms are also understanding the benefits of trademark protection and trying to get benefit out of their architectural designs.
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Far reaching repercussions of connecting zero GST provision with Trademark Registration
The Goods and Service Tax (GST), which is hailed as one of India’s biggest tax reforms came into effect on July 01, 2017. The implementation of GST has impacted almost every sector that is part of the Indian economy, including intellectual properties. The tax rates on some items are linked to their trademark status.
Items for which GST rate is linked to trademark status
The GST rate schedule provides a list of items on which tax under GST will not be applicable. However, the schedule comes with a caveat, wherein some of the items (mostly food items) in this list will attract 5% GST if such items are put in unit container and bears a registered brand name. The items that will attract 5% GST in view of said caveat are listed below.
Under chapter 4 (Dairy produce; bird’s eggs; natural honey; edible products of animal origin, not elsewhere specified):
- Natural honey, chena or paneer
Under chapter 10 (Cereals):
- All goods, wheat and meslin, rye, barley, oats, Maize (corn), rice, grain sorghum, buckwheat, millet and canary seed; other cereals such as Jawar, Bajra and Ragi
Under chapter 11 (Products of milling industry; malt; starches; inulin; wheat gluten):
- Cereal groats, meal and pellets; aata, maida, besan, flour of wheat or meslin flour, cereal flours other than of wheat or meslin i.e. maize (corn) flour, rye flour etc.
Under chapter 22 (Beverages, spirit and vinegar):
- Tender coconut water
Under chapter 31 (Fertilisers):
- Tender coconut water
There were confusions generally as to what would be considered as “registered brand name”. On 5th of July, the Ministry of Finance issued a statement (presented below) addressing the confusion.
“In this context, the notification… clearly defines ‘registered brand name’ as brand name or trade name, which is registered under the Trade Marks Act, 1999. In this regard, Section 2 (w) read with section 2 (t) of the Trade Marks Act, 1999 provide that a registered trade mark means a trade mark which is actually on the Register of Trade Marks and remaining in force.” “Thus, unless the brand name or trade name is actually on the Register of Trade Marks and is in force under the Trade Marks Act, 1999, CGST rate of 5% will not be applicable on the supply of such goods”
As can be interpreted from the above statement, any listed product that is sold under a trademark, which is registered and remains in force under the Trade Marks Act, will be levied CGST at 5%. For example, there will be no CGST on natural honey sold under a trademark that is not registered. However, natural honey sold under a registered trademark will attract 5% CGST.
Consequence
The items to which this provision applies are basic food items, towards which consumers are highly price sensitive. Hence, the choice for companies, large, medium and small, is to either maintain a registered trademark and have the consumers incur 5% addition cost, or sell under unregistered trademarks. In our view, considering the price sensitive nature of the goods, and consumers in general, the choice for the companies would be obvious. Companies are likely to refrain from applying for trademark registration covering such items, and if they have already registered, then they may apply for cancellation of registration. It has come to our notice that some of the largest players in this sector have applied for cancellation of registration.
Going forward, we anticipate that trademark applications covering such item will be few and far in between. Also, there will be requests for amendments or cancellation of registered trademarks covering such items.
In the medium to long term, we anticipate increased instances of smaller players introducing such items into the market, bearing trademarks (of course unregistered) that are identical or deceptively similar to large reputed companies. Such activities will dilute the goodwill, and may also negatively impact the reputation of established companies. Such established companies will find it difficult and expensive to stop such players from riding on their goodwill, since enforcing an unregistered trademark is far more complicated compared to enforcing a registered trademark. Although companies may appreciate the risk involved, they would be willing to take this risk considering the pricing pressure discussed earlier. Therefore, in the medium term, we see an increase in trademark litigation in this space.
While we have elaborated on the tentative risks faced by companies, in our view, ordinary consumers are the most exposed. As discussed earlier, there will be relatively more players (as compared to the conditions currently) in the market, trying to ride on the goodwill of reputed companies, and one cannot really expect products of superior quality from such players. Now considering that items of this nature are bought by anyone and everyone, literate and illiterate, there is a high possibility of consumers being deceived into buying such items thinking that it originates from a reputed source. Such confusion is highly undesirable especially in connection with food items, which are brought on a regular basis, and consumed largely on a daily basis.
Conclusion
The Government appears to have introduced the provision of nil GST on some items that are sold under unregistered trademarks to incentivise small traders. However, established companies are positioned to nullify the incentive, and most likely will, by either refraining from applying for trademark registration or cancelling registration. Additionally, the Government’s move may negatively impact the culture of intellectual property protection, which the Government is rigorously trying to foster.
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VAT on McDonald’s trademark licenses
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.
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Trademark controversy which “The Nation wants to know”
An interesting debate has risen over the phrase nation wants to know. The phrase was used frequently by one of India’s most popular news anchors Arnab Goswami, while questioning his guests on a daily primetime live debate called Newshour, aired on Times Now channel owned by Bennett, Coleman & Company Limited (“BCCL”). Arnab later resigned to start a news channel called Republic TV, which is slated to launch in the coming days. According to news reports, Arnab has received a notice from his former employer asking him not to use the phrase on his news channel Republic TV alleging that the phrase is their trademark.
Interestingly, Arnab’s new company ARG Outlier Media Private Limited (“ARG”) has applied for trademark registration of the phrase the nation wants to know (application number – 3467425) and nation wants to know (application number – 3467428). On the other hand, BCCL has applied for trademark registration of the phrase nation wants to know and corresponding logo (application numbers – 3434199 and 3434201).
Any IP practitioner would agree that getting trademark registration over the phrase nation wants to know for news services is an uphill battel. The phrase would likely be rejected on absolute grounds under Section 9(1)(c). As per said section, trademark registration should be refused if the trademark consists exclusively of marks which have become customary in the current language or in the bona fide and established practices of the trade. There is absolutely no doubt that the phrase under consideration is customary in the current language or in the bona fide and established practices of the news industry.
Section 9(1)(c), however, provides an exception, which allows for registration of such phrases. For such phrases/marks to be registered, the phrase should have acquired a distinctive character as a result of its usage before the date of application for registration or the phrase should be a well-known trade mark. Therefore, one would hope that considering the might of BCCL and Arg, both would have framed a sound legal strategy at least to prove that the phrase has acquired a distinctive character as a result of its usage before the date of application for registration. However, the actions taken by both parties thus far only appear to indicate lack for strategy to further their cause.
BCCL had an excellent opportunity to prove that the phrase has acquired distinctive character as a result of its usage, since the phrase was constantly being used by Arnab, as its employee. However, BCCL, in their trademark applications has submitted that they “propose to use” the mark/phrase. In other words, BCCL is not asserting that they have already been using the phrase, but only propose to use the phrase. In view of this submission, it is unlikely that BCCL will be able to benefit from the exception of Section 9(1)(c), and will most likely be rejected trademark registration at least for news related services.
Arg’s strategy appears to be equally lackluster. ARG being a new entity, with its news channel yet to be launched, would in any case find it difficult to benefit from the exception of Section 9(1)(c), since they have not used the phrase to the extent required by Section 9(1)(c). Therefore, attempting trademark registration would be an effort without any favorable outcome. Nevertheless, there is no harm in filing for trademark registration. A more concrete and supplementary strategy would be for Arnab to assert that he has personality rights over the phrase, since “nation wants to know” is widely considered as Arnab’s style of questioning his guests on TV debates. However, Arnab in his open audio response on YouTube purportedly to BCCL says “Every Indian has a right to use that phrase. And this phrase comes from the heart. Every Indian, through his or her questioning spirit, can use the phrase Nation Wants to Know”.
With this response, Arnab, one of the directors of ARG is in effect appears to be submitting that the phrase has no distinctive character, and hence cannot be a trademark, and more importantly, he submits that he does not have any personality rights over the phrase, which is a way may have a more devastating effect in establishing rights over the phrase.
In conclusion, while the tussle over the phrase “nation wants to know” is interesting, this article tries to draw a broader picture of trademark strategy, and the finer details that can change the course of outcome.
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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.
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