Monday, 7 August 2017

India’s Goods and Services Tax and its Impact on Trademark Rights

Recently, the Finance Act, 2017, the Annual Money Bill for the Financial Proposals by the Revenue Department, Ministry of Finance, Government of India was passed by the Parliament and came into force on April 01, 2017. The Finance Act as a part of its stride to reduce the number of Tribunals, merged the Copyright Board (“the Board”) with the Intellectual Property Appellate Board (“IPAB” or “Appellate Board”). Thence, the process of transferring the same to the IPAB has begun with the latest news on July 21, 2017 that the office was currently fast-tracking the approvals for Copyright approvals before the merger takes shape.

This sudden amendment begs discussion on the original idea behind setting up a Copyright Board in the first place and an insight into what the Copyright Board exactly is, or rather soon to be, was.

As per the Statement of Objects and Reasons of the Copyright Act, 1957, Copyright Board was set up with an object to determine reasonableness of rates or royalties, consider applications for general licenses and assessment of compensation. Section 11 of the Copyright Act, until amended by the Finance Act 2017, provided for the constitution of the Copyright Board with a Chairman and prescribed number of members. As per pre-amendment Section 11, the Central Government was to appoint a Secretary and other officers ‘as may be considered necessary for the efficient discharge of the functions of the Copyright Board’. Section 72(1) of the Copyright Act, provided for an appeal against any order/decision of Registrar of Copyrights to be preferred before the Copyright Board.

The Copyright Amendment Act of 2012 brought in amendments to Section 11 of the Copyright Act as well. After the 2012 amendment, the Copyright Board was to consist of a Chairman and 2 members as against a range of 2 to 14 members prescribed prior to the amendment. Although the provision for constitution of a Copyright Board has been since the enactment of the 1957 statute, a permanent constitution of the Board was only announced[1] in February 2014.

In fact, the constitution of the Board and other formalities was seeing commendable progress as the Copyright Board Salaries and Allowances and other terms and conditions of service of the Chairman and other Members Rules, 2014 were notified on March 24, 2014 pursuant to Section 11(2) of the Copyright Act, 1957. As per the said rules, allowance payable to the Board members were fixed along with other employment benefits.

Following this, an advertisement[2] for the posts of Members of the Copyright Board was published in ‘Employment News’ in the 20-26 September, 2014 edition which was later cancelled by another advertisement[3] for the same posts. Yet the constitution of the Board remained far from reality. Further on November 21, 2016, Press Information Bureau of Government of India released[4] a statement by the Hon’ble Commerce Minister that the Copyright Board was likely to be established by the financial year 2017-18.

However, with the recent amendment to the Copyright Act by the Finance Act and the merger of the Board with IPAB underway, it can be said that the Copyright Board has died without its ultimate actual constitution.

Anomalies created by the Amendment

The IPAB is the Appellate Authority for matters arising out of the Trade Marks Act, Patents Act and the Geographical Indications Act (“GI Act”). The other statutes governing different IP namely Copyright (until Finance Act, 2017), Industrial Design, Plant Variety and Semiconductor Integrated Circuit Layout-Design, have their own respective Appellate authorities prescribed in the respective Acts. The IPAB is constituted under the Trade Marks Act, 1999 under Section 83. The GI Act originally conferred the Appellate 

jurisdiction with the IPAB.  The Amendment of 2002 to the Patent Act, 1970 brought the patent matters under the jurisdiction of the IPAB while providing for additional provisions regarding the IPAB as per the objects of Patents Act, although the same was made effective only in 2007.

As per the objects and reasons of the Trade Marks Act, the Appellate Board was constituted for speedy disposal of appeals and rectification applications which prior to the Act lied before the High Courts. Further, when the Appellate Jurisdiction for matters arising out of the Patents Act was transferred from High Courts to the IPAB vide the 2002 Amendment, it was a change made along with provisions to address the peculiar needs the specific legislation could require. In other words, it was not an absolute transfer of jurisdiction without keeping in view the specific requirements of the differing subject matter of Patents from Trade Marks.

Whereas, the transfer of jurisdiction over Patent matters was done through a legislative amendment to the Patents Act keeping it backed with additional provisions regarding the functioning of the Appellate Board independent of the parent Act i.e. the Trade Marks Act, the transfer of jurisdiction of Copyright Board to IPAB has been done by the Finance Act, 2017 which is nothing but a money bill, and hence does not require consideration of the Upper House of Parliament i.e. the Rajya Sabha. The same has come into challenge on the said ground before the Bombay High Court in a Public Interest Litigation filed by Tax Friends Association on July 12, 2017[5] which was listed before the Hon’ble Chief Justice Dr. Manjula Chellur and Hon’ble J. N.M. Jamdar The merger is not only ultra vires the Money Bill, it is weak in the sense that it does not take (at least not yet) into account the peculiar needs of the specialized legislation of Copyright Act, as opposed to the efficient transfer of jurisdiction of Patent matters discussed above.

Section 160 of the Finance Act reads as under:-

160. In the Copy Right Act, 1957,—

(a) for the words "Copyright Board", wherever they occur, the words "Appellate Board" shall be substituted;
(b) in section 2, after clause (a), the following clause shall be inserted, namely:—
'(aa) "Appellate Board" means the Appellate Board referred to in section 11';
(c) for section 11, the following section shall be substituted, namely:—
"11. The Appellate Board established under section 83 of the Trade Marks Act, 1999 shall, on and from the commencement of Part XIV of Chapter VI of the Finance Act, 2017, be the Appellate Board for the purposes of this Act and the said Appellate Board shall exercise the jurisdiction, powers and authority conferred on it by or under this Act.";
(d) in section 12, sub-sections (3) and (4) shall be omitted;
(e) in section 78, in sub-section (2), clause (a) shall be omitted.

Thus, it substitutes the existing Section 11, which, as discussed earlier, provided for the appointment of officers as required by the specialized legislation, the Copyright Act. Hence, it appears that the Finance Act transferred the Appellate Jurisdiction of Copyright matters to IPAB without gauging the competence that may be required in adjudging such matters which was cautiously done in the amendment to the Patents Act as discussed above.

In addition to the above amendment through Section 160, the Finance Act, 2017 vide Section 161 amends Section 83 of the Trade Marks Act, 1999 making the relevant part to read as under:-

the Intellectual Property Appellate Board to exercise the jurisdiction, powers and authority conferred upon it by or under this Act and under the Copyright Act, 1957”.
Another anomaly is presented by the said amendment to the Copyright Act:-

“Section 72: Appeals against order of Registrar of Copyrights and Copyright Board.
(2)Any person aggrieved by the final decision or order of the Copyright Board, not being a decision or order made in an appeal under sub-section (1), may,…appeal to the High Court within whose jurisdiction the appellant actually and voluntarily resides or carries on business or personally works for gain.
The Copyright Act, 1957 under Section 72(2) provided for an appeal against an order by the Copyright Board to lie before the High Court, whereas no such appellate jurisdiction against orders by the IPAB has been granted in the Trade Marks Act. However, as the term “Copyright Board” in Copyright Act has now been substituted with “Appellate Board”, Section 72(2) of Copyright Act now confers Appellate jurisdiction on High Courts against the orders of IPAB, which is otherwise not provided under the Trade Marks Act (which is the statute constituting the IPAB). It is pertinent to note here that High Courts do take up cases against orders by IPAB, but that is under the Writ Jurisdiction of High Courts and not Appellate Jurisdiction.
After a long period of stagnancy, all the steps as discussed above clearly show the much required forward movement with regard to establishment of an Appellate Authority for Copyright matters. The proposal of consolidation of tribunals for increasing efficiency and reducing the financial burden of having different set-ups is a welcome move and it is hoped that the anomalies identified will be corrected, given that these questions have already been raised before the High Court of Bombay[6] and the High Court of Madras[7].


S. No.
Date
Event
1.
February 17, 2014
Announcement for Permanent Copyright Office and permanent Copyright Board
2.
March 24, 2014
Rules regarding terms of service of Board Members notified
3.
September 20, 2014
Advertisement for appointments to the posts of Members of Copyright Board
4.
Early 2015
The September 2014 advertisement cancelled and the posts re-advertised for appointments
5.
August 10, 2016
Term of office for members of Board changed vide Copyright Amendment Rules, 2016
6.
November 05, 2016
Advertisement for Appointment to the posts of members of Board
7.
April 01, 2017
Merger of Copyright Board with the IPAB vide the Finance Act, 2017 (Union Budget 2017-18)
8.
May 26, 2017
Sections 156-189 Finance Act came into force
9.
July 21, 2017
Statement by CGPDTM about the process of merger of Copyright Board with the IPAB under process



[1] Press Release by Press Information Bureau, Government of India, available at,
[2] Advertisement available at the Copyright Office’s website at,
[3] Advertisement available at the Copyright Office’s website at,
[4] Press Release by the Press Information Bureau, Government of India, available at,
[5] Tax Friends Association v. Union of India, PILL/72/2017, High Court of Judicature at Bombay filed on July 12, 2017.
[6] Tax Friends Association v. Union of India, PILL/72/2017, High Court of Judicature at Bombay filed on July 12, 2017.
[7] Madras Bar Association v. Union of India WP 15147 and 15148 of 2017, High Court of Judicature at Madras, filed on June 28, 2017.


 [TD1]See if you want to keep this.

IP Exchange to Begin in India?

If recent news reports are to be taken as in indication of what India has in store for Intellectual Property Rights, then the Intellectual Property sector of the Company is about to be taken over by a storm. It has been reported that an Intellectual Property Exchange may be established in India, where individuals, inventors, large corporations, small businesses, entrepreneurs in India as well as around the world will be able to sell, purchase, license or cross license intellectual property.

The exchange is reported to be established and developed under the guidance of the Ministry of Science and Technology through the National Research Development Corporation (hereinafter referred to as the NRDC). Though no official announcement has been made regarding the same, it has been reported that an in-principle agreement has been arrived at in the Ministry of Science and Technology regarding the setting up of the Intellectual Property Exchange.

Make no mistake, India is on the developmental speedway when it comes to Intellectual Property. As per the Annual Reports released by the Office of the Controller General of Patents, Designs, Trademarks and Geographical Indications, the Country saw an estimated 30% increase in filing of intellectual property applications, with the number rising from 2,62,638 applications filed in the year of 2014-15, to 3,41,086 applications filed in the year 2015-16. The trend of applications filed for registration of intellectual property in India since 2011-12 to 2015-16, taken directly from the Annual Report as mentioned above is given below:


(Source: Pg. 05, Annual Reports released by the Office of the Controller General of Patents, Designs, Trademarks and Geographical Indications, 2015-16)

The Managing Director of the NRDC, Mr. H. Purushotham was reported to have being said that the NRDC is in the process of collecting data and setting up the exchange in the next 8-9 months. He was also reported to have said that the NRDC has already begun collecting necessary data and information on patents filed worldwide covering multiple technologies, but primarily focusing on Agriculture and allied sectors.
It is reported that the main reason for setting up the Intellectual Property Exchange was to help patents in India reach their full potential with respect to commercialization, especially the patents which do not get a platform to be sold on.
To grasp a better understanding of the implications of an IP Exchange being set-up in India, it is pertinent to understand how an IP Exchange typically functions. An IP Exchange provides a marketplace to facilitate sale, licensing and cross licensing transactions of intellectual property between two parties in a speedy, cost-efficient and streamlined manner.
Theoretically, the IP Exchange would facilitate transactions between inventors and large corporations by providing a market place which is not only legally sound, but also has certain rules that shall govern the sale, purchase and/or hedging of intellectual property rights. If done correctly, an IP Exchange may just as well be the next best thing to happen our country, creating jobs, ensuring optimum market growth and in turn resulting in economic development of not only the parties involved but the entire country as well. An IP Exchange would provide a speedy, efficient and cost effective process for licensing of Intellectual Property, and theoretically, it shall provide an alternative to tedious paperwork, litigation and save both time and money for both the inventor and the corporation/purchaser. Another aspect of establishing an IP Exchange would be the benefits it would present to inventors who do not have a means to showcase their invention, research laboratories as well as universities. These inventors/institutions do not show up on the radar generally unless an invention is groundbreaking, and contribute to one of the largest sources of patent registrations in our country. This fact can be supported by the Annual Report from the Controller General’s office for the year 2015-16, which describes the top 5 patentees in India as follows:

                         

(Source: Pg. 07, Annual Reports released by the Office of the Controller General of Patents, Designs, Trademarks and Geographical Indications, 2015-16)

Ideally, the setting up of such an IP Exchange in our country will not only bolster the market and create job opportunities, but it should also increase the competition in the market. Usually, competition in the marketplace between sellers usually leads to benefit of the public at large, but the same cannot be assuredly said for the IP Exchange.

In fact, all the above advantages that have been detailed above are merely theoretical. In due time, it is possible that reality would enter the frame and render some of the above advantages moot. There are many factors which ruin the idealistic scenario that has been painted above.

An aspect of the IP Exchange which might prove somewhat problematic is who would have the power to decide and regulate the price of an intellectual property right being sold in the IP Exchange? Will it be determined by the Licensee/Creator/Inventor who is selling his intellectual property, and if so, what is to stop the Licensee/Creator/Inventor from fluctuating the price to whatever he/she deems fit while selling the rights to different parties?

If the fluctuation of prices are to be determined by the market value, the principle of demand and supply, will a private agency be appointed to set the base prices or will the NRDC itself be overlooking this aspect? What safeguards will be put in place to ensure there are no market crashes or artificial price rigging? If the IP Exchange is to function in a manner analogous to the share market, then the base price would anyhow be decided by the inventor/creator if the intellectual property, and in view thereof, will there be guidelines as to how the price is determined?

There might as well arise a situation where one Licensee has paid more than another Licensee for the same rights, and in such a case, where can the Licensee go for redressal of their grievances? Will there be a separate redressal agency set up solely for the purpose of governing the IP Exchange? Or will the parties subject to such a transaction have to approach the Competition Commission claiming anti-competitive practices are being undertaken? Which judicial authority shall have the jurisdiction with regard to disputes arising out of such transactions?

It does not inspire much confidence that despite having signed a contract, there are so many variables present, making the entire transaction vulnerable to a protracted litigation battle, thereby defeating the very purpose of the IP Exchange being set up. It is evident that there is absolutely no legislative foundation to facilitate the start of an IP Exchange. Whether the legislation is introduced at a later point of time to streamline the process of building an IP Exchange is still yet to be seen.

However, one thing is certain, there is a lot of groundwork that needs to be covered with regard to the establishment of an IP Exchange before it can be deemed feasible in any manner. But if the same is done in a diligent and timely manner, it can be assured that the advantages and benefits that would be offered by an IP Exchange may potentially outweigh the disadvantages, ensuring that every inventor/creator receives the recognition, exposure and incentive that they deserve. In fact, if done right, it can safely be assumed that the IP Exchange would be considered as an incentive for such creators/inventors to use this funding to further their research and development and thereby come up with new, better inventions/intellectual property.

India: Delhi High Court on forum shopping in IPR cases

In a recent case titled Indovax Pvt. Ltd. vs. Merck Animal Health & Ors. bearing no. CS (OS) 2047/2013, vide its order dated July 27, 2017, the High Court of Delhi observed that simply because goods have been procured from another state and are being sold in Delhi, the same cannot be construed as Merck Animal Health & Ors. (hereinafter referred to as the ‘Defendants’) selling their goods in Delhi, and as a result thereof, allowed the Defendant’s application and returned the Suit plaint to the Indovax (hereinafter referred to as the ‘Plaintiffs’) for lack of territorial jurisdiction.

BRIEF FACTS:

The Plaintiff filed the above mentioned suit against the Defendants for infringement of its trade mark and passing off action. Subsequently, the Plaintiff amended the Plaint deleting its relief for infringement of its trade mark. The above mentioned suit was now only in respect of passing off action. However, the Defendant claimed the Hon’ble Court did not possess the requisite territorial jurisdiction to entertain the present matter, and subsequently filed an application under Order VII Rule 11 for rejection of the suit plaint.

CONTENTIONS RAISED BY THE DEFENDANTS:
  •  That the Court has no territorial jurisdiction on the ground that for a suit for passing off, the territorial jurisdiction of the Hon’ble Court has to be determined under Section 20 of the Civil Procedure Code, 1908 (hereinafter referred to as the ‘CPC’). Further, since the present suit is only in respect of passing off action, the Plaintiff cannot avail the benefit provided under Section 134 of the Trade Marks Act, 1999.
  • That the Defendants are neither carrying on business nor residing in Delhi as alleged by the Plaintiff, and that the Plaintiff had initially filed a suit on the basis of a single invoice issued in Jind, Haryana in support of its contention that the cause of action had arisen within the jurisdiction of this Court and no other document was filed along with the original plaint to prima facie show that the cause of action had arisen within the jurisdiction of this Hon’ble Court. Subsequently, however, the Plaintiff filed on record three invoices of one “Baxi Medical Stores” in Delhi on November 16, 2013, along with the amended plaint. The Defendants contend there is no sale of its product by them, either by itself or through their authorized representative or any of their agents or dealers within the jurisdiction of this Court and the Plaintiff has not produced any document on record to prima facie show the sale of Defendant’s product within the jurisdiction of this Court by the Defendants or their agents/dealers or authorized representatives. 
  • That the Local Commissioner appointed by this Hon’ble Court vide order dated November 18, 2013 had submitted his report dated November 26, 2013. In the said report, the Local Commissioner had reported that “Baxi Medical Stores” had sourced the stock from Karnal, Haryana and that the proprietor of the said store had also admitted that he is not a distributor of the Defendants and had merely procured the three vials of product INNOVAX from outside Delhi. The Defendants contended that supply of their product by an unauthorized person to any third person cannot be said to be a commercial sale made by the Defendants either by itself or through their agent or distributors.
  • That these three invoices had been filed by the Plaintiff to set up the territorial jurisdiction in Delhi and thus the Plaintiff is engaging in forum shopping. Further, these three invoices which were neither issued by Defendants nor by any of their authorized representative/ dealer are not sufficient to give territorial jurisdiction to the Delhi Courts.


CONTENTIONS RAISED BY THE PLAINTFF:
  • That this Court has the territorial jurisdiction since the Defendant’s vaccines under the impugned trademark is available for sale in Delhi and also that the Defendants through their agents are peddling their vaccines in Delhi.
  • That the Court was satisfied that it had territorial jurisdiction and that is why the Court allowed the amendment and issued the notice to the Defendants.
  •  That the question of jurisdiction is a mixed question of law and fact. The report of the Local Commissioner clearly establishes the fact that the Defendant’s medicines are available for sale in Delhi, and therefore, sale through consignee or the distributor is sufficient for this Court to have territorial jurisdiction.
  • That Defendants have filed an application for registration of trademark INNOVAX in Delhi and this would give rise to a threat perception in the mind of public that the goods of Defendants are to be sold in Delhi and that would be sufficient to give the jurisdiction to this Court. 
  • Actual sale of the product within the jurisdiction of a Court is not essential for an act of passing off where there is an intention to sell and since the Plaintiff makes out a prima facie case of such intention, this Court has the territorial jurisdiction. 
  • That the Plaintiff’s goods have adopted a distinctiveness in the market and any goods carrying a trade name which is deceptively similar to that of Plaintiffs, is likely to cause confusion in the mind of public and the public would think that they were buying the goods belonging to the Plaintiff. It is argued that the Defendant’s trademark “INNOVAX” is deceptively similar to that of Plaintiff’s trademark “INDOVAX” and the public buying the vaccine would be buying it under the confusion that it is buying the product of the Plaintiff while, in reality, they were buying the products of Defendants. On account of this submission, the cause of action of passing off has arisen in favor of the Plaintiff.


OBSERVATIONS OF THE COURT:

  •      It is a settled proposition of law that while determining an application under Order 7 Rule 11 CPC, the Court has to be guided by the averments made in the application accepting it as a gospel truth and cannot rely on extraneous facts mentioned in the written statement…”
  •     “…even if the plaintiff relies on a trap transaction it is required to show that the Defendants are indulging into commercial sale of its product…”
  •   “There is no averment in the plaint to even prima facie show that through its website the Defendants are indulging into any commercial activity within jurisdiction of this Court. To give jurisdiction to this Court, it is imperative upon the Plaintiff to prima facie show by way of its averment in the plaint duly supported by the documents that the Defendants are indulging either by itself or through their agents or distributors in the commercial activity within the jurisdiction of this Court which amounts to passing off of the goods of the Plaintiff……There is no averment that the Defendants are selling their products in Delhi through their authorized agent, distributors etc. On the other hand, the events of the case clearly show that the Plaintiff is indulging into forum hunting.”
  •     “…In his statement, Mr. Shashi Baxi (owner of Baxi Medical Store) has categorically stated that the said vaccine is procured from Dev Enterprises as the Company was not supplying the same in Delhi. He has also clearly stated that Baxi Medical Store is not the distributor of the said vaccine. From the statement of Mr. Shashi Baxi, it is apparent that Baxi Medical Stores was neither acting as a distributor or agent of the Defendants nor was supplying these medicines on behalf of the Defendants. The report of the Local Commissioner clearly shows that the Baxi Medical Stores obtained its medicine from Dev Enterprises, Karnal, Haryana, on specific demands. The Plaintiff had, at no stage, challenged the report of the Local Commissioner nor is it their case that Baxi Medical Store is working as a dealer, agent or distributor of Defendant’s company…”
  •        “…the Plaintiff pleads that the vaccine of the Defendant “is available for purchase in New Delhi.” It does not say that the Defendants are selling their products within the jurisdiction of this Court. The Local Commissioner report clearly shows that the Defendant’s vaccine is not “available” for sale in Delhi but it is “procured” from the authorized dealer at Karnal, Haryana i.e. M/s Dev Enterprises for supply. These facts clearly show that the invoices have been procured by the Plaintiff to give jurisdiction to this Court and on the basis of these invoices, it cannot be held that the Defendants are doing commercial activities within Delhi…”
  •        “In cases where the goods of the Defendants are not available for sale within the jurisdiction of this Court, it cannot be said that the ordinary person is likely to buy the goods of the Defendants believing that they are buying the goods of the Plaintiff. In such cases, it cannot be said that the cause of action has arisen within the jurisdiction of this Court…”
 
HELD:

Honorable Justice Deepa Sharma stated that, “I am satisfied that no cause of action has arisen within the jurisdiction of this Court. The plaint along with pending applications is hereby returned to the Plaintiff for filing in the Court of appropriate jurisdiction.”

It is evident from this judgment that unless it is proven beyond any doubt that the infringing parties are selling the goods either themselves, or through authorized representatives/dealers/distributors within the jurisdiction of the Court, it cannot be said that the parties are selling their goods within such jurisdiction. Furthermore, if a Plaintiff is to acquire receipts of sale made by unauthorized third parties who have in turn procured such infringing goods from another state, the same cannot confer jurisdiction on any Court and can be recognized as forum shopping/hunting.

India: Delhi High Court holds that no Copyright lies with any work registrable under the Designs Act

In the recent case of Holland Company LP & Anr. vs. S.P. Industries[1], the Delhi High Court vide its order dated July 27, 2017, disposed off the application filed by the Holland Company LP seeking injunction to restraining S.P. Industries from manufacturing or selling Automatic Twist Lock (hereinafter referred to as “ATL”) and spare parts, as well as to restrain them from reproducing the ATL spare parts in 3-D form, from the 2-D artistic work of Holland Company LP in the form of the industrial drawings.

Brief facts-

The present suit was filed by Holland Company LP (hereinafter referred to as the Plaintiff No. 1) which deals in the railways supply industry for car/wagon components, and manufactured and supplied the Indian Railways with ATL, which is a system for securing cargo containers to a support. The Plaintiff No. 1 claimed to have a copyright over the industrial drawings of the ATL and spare parts thereto. M/s. Sanrok Enterprises (hereinafter referred to as Plaintiff No. 2) is the exclusive licensee of the Plaintiff no. 1 in India for manufacturing, selling, marketing and servicing Plaintiff no. 1’s ATL and spare parts. The Plaintiffs had previously supplied the drawings of the ATL device and its spare parts to Indian Railways, who thereafter used it on its container flat wagon.

            Subsequently, the Eastern Railway, Sealdah Division had floated a tender for carrying out repairs, replacement of spare parts and servicing of the defective parts of the ATL devices. S.P. Industries (hereinafter referred to as the ‘Defendant’) had successfully outbid Plaintiff No. 2, and was awarded the aforesaid contract. The Plaintiffs claimed that the Defendant does not have the requisite know-how to replace and repair the spare parts of the ATL device which was supplied to the Indian Railways by the Plaintiffs, and that since they have artistically created the ATL, they have the right to maintain and sell the spare parts of the same and no other party has any right over the same. Accordingly, the Plaintiffs instituted the suit for permanent injunction before the Delhi High Court.

Vide its order dated May 20, 2014, the Hon’ble High Court of Delhi had dismissed the application filed by the Plaintiffs under Order 39 Rules 1 & 2 of the Code of Civil Procedure, 1908 (hereinafter referred to as the CPC) seeking permanent injunction against the Defendant. Aggrieved by the said order, the Plaintiff filed an appeal bearing no. CS (COMM) 1419/2016 wherein vide order dated September 12, 2014, the Hon’ble Court was directed to decide the application afresh.


Contentions of the Plaintiffs:

  • The Plaintiffs claim that the spare parts which are the subject matter of the above mentioned tender are components of ATL devices manufactured and supplied by the Plaintiffs, who also claim to have a patent over the said device (an application for registration of the patent has been moved and published) and copyright over the industrial drawings of the ATL and its spare parts.
  • That since the Plaintiffs are the real owners of the ATL devices and spare parts thereof, and since the Plaintiffs possess copyright and patent over the same, no third party has the right to sell, manufacture, offer to sell or advertise ATL devices or spare parts thereto. 
  • The Plaintiffs held that the Defendant has intentionally, deliberately, knowingly and willfully offered its substandard products and services to be used in Indian Railways. 
  • That a combined reading of Section 2 (c), Section 13 (1) (a) and Section 14 (c) (i) (B) of the Copyright Act, 1957, shows that a copyright exists in engineering drawings/technical drawings under the category of Artistic Works, which includes the exclusive right to depict the drawings in three dimensions. That such engineering drawings/technical drawings need not possess any artistic qualities to claim protection under Section 2 (c) of the Copyright Act, 1957.
  • That the Designs Act, 2000, features “appeal to the eye alone” and it does not apply to “functional” features. It is submitted that the Designs Act, 2000, therefore, is not applicable on the industrial/engineering drawings and technical drawings.
  • That in a case where the owner neither relinquished nor entered in public domain its copyright, it cannot be said that the work has entered in public domain.


Contentions of the Defendant

  • That industrial drawings are not an artistic work and, therefore, no copyright exists. The Plaintiffs are not the author of the work and hence, by necessary inference, are not entitled to protection under the law. Even if it was presumed that the Plaintiffs are the authors of the industrial drawings of the ATL, the same are capable of being registered under the Designs Act, 2000, are exempted from the purview of the Copyright Act, 1957.
  • That by virtue of Section 15 of Copyright Act, 1957, no copyright exists in any drawing or design once the production has been done more than 50 times by an industrial process using such drawing or design, and that the Plaintiffs have themselves admitted that they have supplied ATL devices to the Railways and thus by using drawing they have reproduced more than 50 articles.
  • That having lost the tender, the Plaintiffs cannot claim to have exclusive rights to repair and replace the ATL devices which belong to Indian Railways. Further, it was contended that the Plaintiffs also cannot be said to have exclusive intellectual property right over the said drawings since these drawings have been published and are readily available in the market.


Observations of the Court:

  •          A conjoint reading of Section 2(d) of Designs Act, 2000, Section 14(c) and 15(2) of the Copyright Act, 1957, makes it amply clear that where a design of an article is prepared for the industrial production of an article, it is a design and registrable under Designs Act and under Section 14(c), the author of such design can claim copyright, however, since such a design is registrable under the Designs Act, and if such design has been used for production of articles by an industrial process for more than 50 times by the owner of the copyright, or, by any other person with his permission, then such person ceases to have copyright in such design.
  •  ·         ……Plaintiffs had prepared the engineering drawings for the purpose of production of ATL devices. The industrial drawings are, therefore, or a design of the ATL device which the Plaintiffs had supplied to the Railways under a contract given to them by the Railways. The drawings of the ATL devices of the Plaintiffs, therefore, are registrable under the Designs Act. The said drawings have not been registered under the Designs Act. The Plaintiffs have also not disputed the fact that while using these engineering drawings, it had used for more than 50 ATL devices by an industrial process and, therefore, it is clear that it has used these engineering drawings for more than 50 times in an industrial process. By virtue of Section 15(2) of Copyright Act, therefore, even if assuming the Plaintiffs had a copyright in these engineering drawings, it ceases to have the same.
  •  ·         “…The Plaintiffs have not made the Railways a party to the suit although in the facts and circumstances of the case it is a necessary party because prima facie it is the Railways who have used the engineering drawing of the ATL devices for inviting tenders…


HELD:

For being entitled to interim injunction under Order 39 Rule 1 and 2, the Plaintiff is required to show a strong prima facie case which means the Plaintiff is required to show that it has a right which needs protection. The Plaintiffs have failed to show any prima facie case in their favour. In the light of the same, the application of the Plaintiffs under Order 39 Rules 1 and 2 CPC stands dismissed.




[1] CS (COMM) 1419/2016

Monday, 24 July 2017

India’s Goods and Services Tax and its Impact on Trademark Rights

One Nation-One Tax: What is GST?

At midnight on June 30, 2017, India was ushered into a new regime of indirect taxation: the GST, or Goods and Services Tax. It is touted as the biggest fiscal reform the country has ever witnessed since Independence, and it has been claimed that it will lead to decreased inflation, rise in GDP, and more transparent accountability of parties. The immediate and noticeable effect is, of course, change in prices. By introducing GST, the government has subsumed Central and State taxes, such as VAT, service tax and Excise Duties, into a unified tax regime applicable across the board in all states and territories. Under the GST, there are now four slabs of applicable tax: a low rate of 5%, standard rate of 12 or 18%, and a high rate of 28%. There are about 1200 goods and 600 services on which GST is applicable, and while there are many items on which the tax is now reduced, thanks to GST, thereby decreasing their final market price, some items have become costlier. The government has claimed that all essential commodities have been exempted from tax under GST, or been left out of the ambit of applicability for GST altogether. The aim is to ultimate reduce the burden laid upon the consumers by the earlier tax infrastructure which resulted in a “cascading tax” effect. The “cascading tax” effect is in essence the principle of the end-consumer having to bear the load of all the taxes paid by dealers, wholesalers, retailers, stockists etc. as middle-men between the source of the goods to their final point of sale.[1]
 
As it turns out, the implementation of GST may have a profound impact on the Indian intellectual property regime, primarily, trademark rights.

Provisions affecting trademark rights

The GST rate lists for goods and services provide different rates of tax for the branded and unbranded versions of a number of products, essentially common foodstuffs, such as cereals, pulses, paneer and natural honey. These goods, if sold loose, i.e., unbranded and without being packaged in unit containers, will be exempt from GST. However, the moment they are packaged and bear a registered brand name, they will attract GST of 5%.

Notifications 1/2017 and 2/2017 issued by the Central Board for Excise and Customs[2] define a brand name as follows:

The phrase “registered brand name” means brand name or trade name, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person, and which is registered under the Trade Marks Act, 1999.      
  
The Press Information Bureau further issued a clarificatory notification on July 5[3] after confusion arose regarding the meaning of “registered brand name” in the GST rate list for goods stating that:
“…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.”

While the tax rate of 5% may seem nominal, it is relevant to consider that earlier, food grains, whether packaged or not were exempt from taxes altogether in most States, even though they were allowed to be charged at a rate of 4%. Understandably, this new and compulsory tax imposition has resulted in an outcry among traders in food grains and pulses, staples in any person’s diet.

Impact of GST on Trademark Law

As reported in Livemint[4] on July 7, KRBL Ltd. which owns India’s largest rice brand, ‘India Gate’, is crowing all the way to the bank as its rice now comes exempt from GST, for the simple reason that it has not been able to get its trademark registered with the Indian Trademarks Registry under the relevant class, i.e., Class 30 due to oppositions filed against its marks by third parties. 

In fact, in about the 10 days since GST came into effect, there are already reports of small, local traders resorting to various innovative means to avoid higher rates of taxation on their products.[5] Rice traders have appealed to the Finance Minister to find a solution to their problem, of increased prices, as well as those who are unfair beneficiaries in a competitive marketplace of what appears to be a significant loophole.[6]

The Government has also begun to take note of the problems arising in implementation of the new tax regime and its long-term implications, especially in the area of essential commodities such as foodstuffs and pharmaceuticals.[7] Trademark owners are approaching the Trademark Registry to withdraw their trademarks, or considering inventive ways to keep their marks from attaining registration.[8] If trademark owners would rather surrender trademark protection than pay taxes for them, it could strike a crucial blow to the intellectual property regime in the country.

GST, Trademarks and the Economy: An Impact Analysis

Intellectual Property plays an important part in the growth of any economy and India is well aware of its importance as one of the premier emerging economies in the world. Any fiscal plan that hits intellectual property rights, especially in a deterrent fashion, is likely to impact economic growth and development negatively in the long run. 

A trademark, by its very definition, is an indication of source and a guarantee of quality of goods or services. A fiscal regime that deters traders from using or registering trademarks, simply to avoid tax liability, sets a dangerous precedent. With GST consolidating the national market, the role of trademarks as such becomes even more important. If trademark rights are not enforced properly, it will result in widespread counterfeiting and infringement, indicating an influx of goods of compromised quality. If this is allowed to happen, the reputation and goodwill of established brands will inevitably be diluted and the resultant consumer confusion will diminish the reputation of the market as a whole. This is likely to discourage investment and new start-up enterprises which will negatively impact market indices and thereby, national economic growth. 

GST is likely to impact other forms of intellectual property as well. Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information Technology software (eg. Media streaming services) is being taxed at 12%, while software services, falling under the residual category of services, is liable for 18% tax.[9] Thus, computer software and associated services, at least, are likely to see an increase in prices. 
The new GST tax regime is expected to unify the country’s market, introduce greater transparency, encourage export and investment and reduce inflation. While it is no doubt a revolutionary step to take, unless its implementational drawbacks are dealt with quickly and effectively, its intended boost to the Indian economy might end up backfiring.

Additional References:
The Constitution 101st Amendment Act, 2017.
Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce Production, Supply and Distribution) Act, 2003
Cigarettes and Other Tobacco Products Rules, 2008
Cigarettes and Other Tobacco Products (Packaging and Labelling) Amendment Rules, 2014

[1] See https://www.quora.com/What-is-your-review-of-Goods-and-Services-Tax-GST, accessed on July 12, 2017. See also Rate of GST on Goods, Rate of GST on Services, Notifications 1/2017 and 2/2017, dated June 28, 2017, all available at www.cbec.gov.in.
[2] See Notifications 1/2017 and 2/2017, dated June 28, 2017, both available at www.cbec.gov.in.
[8] Supra, 5.
[9] See Rate of GST on  Services, supra 1.