Goodwill Hunting - Of Trademarks, Assignments, and the Business Concerned

One aspect that can make trademarks and related transactions interesting, is the treatment of goodwill associated with the mark.

Under the Trade Marks Act, 1999, a registered or unregistered mark may be transferred with or without the goodwill of the “business concerned”. A reading of the provision in the statute, can often lead one’s mind to conflicting opinions and interpretations of law.

The use of this phraseology, created a sudden doubt in my mind, thanks to the haste I exercised- Is “Business concerned” to be interpreted as the business concerned with the trademark, or does it refer to the business entity, that used the trademark?

In the course of my research, I stumbled upon a case that discussed, in a somewhat indirect, yet interesting manner, the assignability of a trademark and the goodwill associated thereby, vis-a-vis an action for infringement. The 2007 Delhi High Court decision in Doctor Morepen Ltd. vs. Yash Pharma Laboratories Ltd., dealt in the use, assignment, and consequent infringement of a mark, used inrespect of a lemon based pharmaceutical preparation.

The mark LEMONLATE (along with copyrights, technical knowhow etc.), was assigned by Yash Pharma to Morepen. Later, Yash Pharma adopted the mark LEMOTAB, in respect of a medicine for common cold and flu. 

In deciding whether a case of infringement had been made out, the court noted that Yash Pharma even at the time of the assignment, was cognizant of the fact that the word 'LEMO' was derived from lemon, and that 'LEMOLATE' was a coined word. The assignment had been made for a “hefty” consideration, accompanied by an undertaking, that they would not coin another mark similar to the coined 'LEMOLATE'.

The court stated that after giving this specific undertaking, and after receiving consideration, the defendant was precluded from using the term LEMO in respect of similar formulations. Observing that both the drugs being over the counter drugs, the court opined that the use of similar trade names, elevated the likelihood of confusion amongst consumers.

While the court did not directly attack goodwill or any aspect with respect to the intent to assign, the Court clearly noted as below:

“...the assignment agreement marks the entering of the plaintiff into the shoes of defendant to take full advantage of the trademark and maintenance of secrecy about the change in ownership reflects the intention that the market of the plaintiff may not be affected. By bringing a tablet almost in the similar name 'LEMOTAB', the defendant is not only infringing the trademark but also announcing indirectly that it has sold 'LEMOLATE' and now it has come up with another tablet which would be competing with 'LEMOLATE'.”

This case in my opinion, removes all doubt regarding assignment of a mark and goodwill. As I read it, not only does goodwill associated with the mark, need to be assigned, but the assignor also needs to give up any intent, plan or speculation to bring into the market, any mark likely to interfere with the goodwill appending the assigned mark.

In light of this decision, it seems apparent to my mind, that “with or without the goodwill of the ‘business concerned’” should be interpreted to mean the goodwill associated with the business as a business entity, and not the business appending or necessarily travelling with the mark.

If an interpretation otherwise be adopted, it seems to nullify the purpose of an assignment, which in fact is to ride upon the goodwill (and perhaps reputation) associated with the mark, without inviting any legal impediments.

I am a however informed that there are instances where goodwill need not necessarily be assigned. But in a situation such as this, wouldn’t such an assignment qualify as a naked or void one? (I understand that a similar position is adopted under the US law.)

Further, what strengthens my line of thought, is that it would be more lucrative for a person seeking assignment of a mark stripped away from its goodwill, to use an absolutely new mark and build on its goodwill independently, rather than paying for and using an assigned mark, while also incurring expenses on building its reputation afresh.

Having said this, I am unable to reconcile a line of logic behind the allowance of an assignment devoid of the mark’s goodwill. However, in view of businesses having multiple marks, and possibly multiple lines of business, I can imagine a situation whereby a mark is assigned (perhaps a mark different from the house mark), but not the goodwill of the business as a whole.

Debate and Disapproval on this string of thought is welcome.

"Stay of a Suit" under the Trade Marks Act

For an Intellectual Property lawyer, developing an understanding of the various IP legislations alone, is insufficient. In fact, a hold over procedural law is just as vital; pertinently, where the two cross paths.

One such instance where this aspect has been brought to the fore, is the decision rendered by the Delhi High Court in The Financial Times v. Bennett and Coleman.

The case, discussing “stay of a suit” under Section 124 of the Trademarks Act, 1999, looked at the “tenability” of a stay when a rectification proceeding is pending. The mark in contention was “FT”, a much popular abbreviation, by which Financial Times is referred.

Noting the facts of the case, the Court affirmed that Bennett and Coleman had a right to contest the inherent non-distinctiveness of a trade mark, (either by filing an application for its rectification under Section 57, citing relevant grounds, or by approaching the Court). This right to contest was termed as sacrosanct, and beyond the scope of interference of any Court.

However, in this case, the defendant chose to move to Court in an infringement suit, in order to assert the invalidity of the FT mark by claiming non-distinctiveness, and consequently to preserve their rights to use the same. Later in the year 2007, they moved an application for rectification.

Further, in the year 2010, the defendant chose to approach the Delhi High Court for stay of the suit under Section 124 of the Trade Marks Act. The Court noted that this move was made close to nine years, post the initiation of the initial infringement suit. Looking at the complicated history behind the pending proceedings, the Court also noted that the issue had been referred to mediation, where it remained pending for close to three years.

The Court taking note of the long pending and complicated course that the case had taken, looked at the “Prima facie tenability” of the suit, and stated:

“The Court is also conscious that a blanket acceptance of the defendant’s plea of prima facie tenability of the argument that the letter marks are inherently incapable of distinctiveness would lead to certain unforeseen results especially in cases like the present.”

Further, commenting that staying such a suit, would have a “colouring” effect upon the decision of a Tribunal,the Court stated:

“The Court is conscious that this reason cannot be invoked under all circumstances, because Section-124 does empower prima facie examination of tenability. Nevertheless, while exercising that jurisdiction, a fine distinction has to be kept in mind between the nature of “tenability” of such a plea, while considering a temporary injunction motion, and one for stay of suit.”

The beauty of the decision, in my view, is that while the case discusses an aspect, which at first glance seems to have its roots dug deep into the Civil Procedure Code, it has been discussed simply on the basis of facts, with reasoning derived from the impact of a vital provision of the Trade Marks Act, 1999.

In my view, this judgment is a must read for all Trade Mark practitioners!!!

When is a “Well-Known” mark a well-known mark?

In an earlier post, I had written on the distinction between “goodwill” and “reputation” of a trademark. I had also written on how reputation alone is sufficient for a well-known mark to exercise its exclusionary prerogative against third parties in a foreign jurisdiction. 

However, there are a few nuances of well-known marks that I had reserved for this post to explore and explain.

It must be understood that intellectual property rights are, by default, territorial rights. Therefore, any rule which is an exception to this default mode of territoriality must satisfy certain stringent conditions in order to be enforceable. 

A well-known mark is an exception to the rule of territorial application of trademark rights, and therefore, the owner of a well-known mark too must meet certain essential conditions beyond reproach. What might those conditions be?

Before I proceed any further, I must clarify that when I speak of enforcement of a well-known mark in a foreign jurisdiction, I refer to a situation where the owner of the mark does not have a registered trademark in the foreign jurisdiction, nor has he used it in the course of business in that foreign jurisdiction. In other words, his only justification for the enforcement of the mark is its status as a well-known mark i.e. “reputation”.

For the owner of a well-known mark to have the ability to preclude third parties in foreign jurisdictions from using the mark in the same field of business, the mark should have become well-known prior to the date of adoption of the mark by a third party in the foreign jurisdiction.

Let’s take “Infosys” as an example, which was founded in 1981 in India. Let’s assume that in 1985, a Brazilian entity had adopted “Infosys” in connection with the same field of business.

In the absence of a registered trademark in Brazil, and in the absence of use of the mark by Indian Infosys in the course of business in Brazil, would it have been possible for the Indian entity to prevent the Brazilian entity in 1985 from using the mark? The answer to this question is as follows:

1. The only way the Indian entity could have done so, is if it could have proven that before the date of adoption of the mark by the Brazilian entity in 1985, the Indian entity’s mark enjoyed a well-known status. In short, it had a reputation to reckon with before 1985.

2. This requirement needs to be qualified further. It is not enough for the Indian entity to show that it enjoyed a reputation in several jurisdictions. It is imperative to show that the entity enjoyed a reputation in Brazil before 1985. This has to be established on the basis of advertisements, trade talk, anything that can objectively establish knowledge of the Indian entity in Brazil prior to the adoption of the mark by the Brazilian entity.

Seen from this perspective, the requirement of “local reputation”, although without actual use in the course of trade, has the effect of “territorializing” the jurisprudence of well-known marks. 

The corollary to this proposition is that, at a given point in time, it is perfectly legitimate for different entities in different jurisdictions to use the same trademark, without having the right to exclude others in foreign jurisdictions. This is similar to different entities holding patents in different jurisdictions on the same invention.

One judgment that is worth reading on this issue is Roca Sanitario S.A. v. Naresh Kumar Gupta

More on this later...

Provisional and Complete Specifications- "Fair Disclosure" and Priority Dates

Last evening, a regular reader and well-wisher of the blog, Ms.Anita Kalia, asked me to write a post on internal consistency in Section 11 of the Patents Act. I thank her for giving me something to think and write about.

Before I proceed to discuss Section 11 specifically, I ought to spend some time on provisional and complete specifications. Section 10 of the Act spells out the contents of specifications, both provisional and complete.

Following are contents which are common to provisional and complete specifications under Section 10:

1. Title of the Invention

2. Description of the Invention

3. Drawings, mandatory if the Controller of patents directs

Claims need not and typically do not form part of the provisional specification, but does the Act say that claims cannot form part of the provisional? No.

Under Section 10(4), claims must form part of the complete spec., but they may form part of the provisional. Existence of claims in provisional spec. does not automatically make it a complete spec., if the applicant wishes to file and treat it as provisional.

The question is, do claims filed in a provisional spec. have priority dates? Section 11 of the Act, which deals with priority dates, makes it amply clear that there shall be a priority date for each claim in a complete specification.

Therefore, the concept of priority of claims is to be primarily associated with complete specification, and not provisional. It would be obvious to state that priority date, in a way, is legal fiction which antedates the claim to matter disclosed earlier in the provisional spec. 

Be that as it may, the term “priority date” is not to be used in connection with claims drawn in the provisional spec. The claims drawn in a provisional spec. are given priority dates, only when they again form part of the complete spec.- this is the effect of Section 11(1).

How do we simplify the gist of Section 11? The common sentiment that runs along the sub-sections of Section 11 is the extent of disclosure of claimed subject-matter in the provisional spec. This is evident from sub-section(2) which refers to a “claim (that) is fairly based on matter disclosed” in provisional spec.

Sub-section(3) of Section 11 refers to a situation where a single complete specification is filed pursuant to more than one provisional specifications. Here, there are two situations that the sub-section speaks of:

A. Sub-clause(a) of this sub-section speaks of a situation where the subject-matter of a claim in the complete specification is fairly disclosed in one of the provisional specifications. In this case, the priority date of the claim is the date of filing of the provisional specification in which the claim is fairly disclosed.

B. Sub-clause (b) of this sub-section refers to a situation where the subject-matter of a claim in the complete specification is partly disclosed in both the provisional specifications. This means, the subject-matter is not fairly disclosed in a single provisional specification. Since “fair disclosure” is the litmus test, the provision deems the subject-matter to be “fairly disclosed” only in the later filed provisional specification. This is why the priority date of such claim is the date of filing of the later filed provisional specification.

Now let’s jump to Sub-Section(5) which appears to be (only appears, but is not) at loggerheads with sub-section (3)(b). Sub-section(5) reads as follows:

Where, under the foregoing provisions of this section, any claim of a complete specification would, but for the provisions of this sub-section, have two or more priority dates, the priority date of that claim shall be the earlier or earliest of those dates.

To me, there is no inconsistency or confusion between sub-section (3)(b) and (5). According to sub-section(5), if the complete specification has two priority dates (although strictly speaking it cannot), it means the subject-matter of the claims have been fairly disclosed in two provisional specifications. In such a situation, the priority date is the earliest priority date.

Simply put, sub-section 3(b) presumes that the subject-matter has not been fairly and intelligibly disclosed until the second provisional specification is filed, where the subject-matter attains completion.

On the other hand, sub-section (5) addresses a different situation i.e. the subject-matter is fairly disclosed in both provisional specifications, and therefore it must receive the benefit of priority of the earlier filed specification.

This is why I said that priority dates are integrally connected to the concept of “fair disclosure” of subject-matter.

Opinions and corrections are welcome!

Patent Injunctions: Isn’t it Time to Get Out of the Rut?

It has become customary for defendants in patent infringement suits to cite judgments without ever addressing the facts of the case or applying precedents to the facts of the case. (I have written on similar lines earlier)

Standard arguments are- “The patent is recent”, or “injunctions ought not to be granted in patent matters”, both of which, according to me, are preposterous and baseless inanities.

I think these arguments have become convenient exit routes for Courts to avoid deliberation on technology in patent matters and to reduce the scope of arguments to these simplistic issues, which ironically have no basis in the statute.

In particular on the issue of recentness, I had written in the IAM Magazine a few months ago. I had written that one so-called rule of caution that was observed for several years by Indian Courts in patent suits, is the ‘six-year rule’.

This rule was originally prescribed in Terrells on Patent (Ninth Edition). In this book, according to the author, unless the patentee could show undisturbed possession for 6 years, he is not entitled to an interim injunction. This rule was subsequently applied by the Madras High Court in Manicka Thevar v. Star Plough Works (1965).

Fortunately, it was the Madras High Court in Mariappan v. Safiullah (2008) that observed that the 6-year rule has no place under the current framework (if at all it ever had a place).

Ironically, although the 6-year rule was done away with, our Courts again invented the “recent patent” rule. In Hindustan Lever v. Godrej Soaps (1996), the Calcutta High Court took the view that an interim injunction should not be granted if the patent sought to be enforced is a “recent” one.

The Bombay High Court applied this “recent patent” rule in Novartis Ag v. Mehar Pharma (2004) citing the Calcutta High Court’s decision in Hindustan Lever.

Thankfully, the Madras High Court interpreted the Hindustan lever decision in Novartis Ag v. Adarsh Pharma (2004) and rightly observed that the Calcutta High Court had never stated that an interim injunction must never be granted where the patent is of recent origin.

That said, the “recent patent” rule continues to be invoked in patent matters which baffles me no end. Funnily, the continued use of a “recent patent” rule militates against the very objective behind doing away with the 6-year rule. What is the logic behind introducing something so vague called “recent patent” after shunning the 6-year rule?

Not just that, Section 11A(7) specifically says that from the date of publication, an applicant for a patent has “like rights and privileges” as that of a patentee. If the intention of the legislature was to forbid enforcement of a so-called “recent patent”, then how does Section 11A(7) grant an applicant “like rights and privileges”?

In other words, does not the “recent patent” rule go against the express intention of the legislature as reflected by Section 11A(7)? What is surprising is that we seem to adhere fastidiously to dated precedents without checking if they are consistent with the law as it exists today. Its more of a “cut/copy-paste” job...

To me the “recent patent” rule reeks of an anti-innovator mindset which is probably a hangover from our cozy relationship with the erstwhile Soviet Union.

It is my opinion that arbitrary notions such as “recentness” must be done away with and patent jurisprudence must be based on something more concrete and reasonable. Most rules of caution which are applied to enforcement of patents have the objective of preventing enforcement of unworked patents by trolls.

This means, interim relief ought not to be denied in cases where the patentee satisfies working requirements under the Act, regardless of how recent the patent may be.

Also, given the high rate of obsolescence of technology, use of the “recent patent” rule makes no commercial sense. Courts must recognize that intellectual property rights, particularly patent rights, are not academic rights. They function in the realm of business, and so business realities must be acknowledged.

If patent grant itself takes 2-3 years at a minimum, and then the patentee has to wait for another 2-3 years before he overcomes the “recentness” barrier, effectively he has no protection for 6 years in a term of 20 years, by which time the technology may become obsolete.

By insisting on such a rule, haven’t we brought back the 6-year rule through the back door?...                                                                                                                            

Prescribed Period for Request for Examination: Delhi High Court Gives an Unwarranted Twist

In a decision that was brought to my attention by my co-blogger Divya, the Delhi High Court may have erred on the prescribed period for filing request for examination of an application.

In a writ petition filed by a patent applicant, Mr. Carlos Alberto Perez Lafuente, the Delhi High Court was required to deliberate on the combined interpretation of Rules 24B(1)(i) and 24B(1)(iii) of the Patents Rules. Following is the Rule:

24B Examination of application: (1)(i) A request for examination under Section 11B shall be made in Form 18 (within forty eight months) from the date of priority of the application or from the date of filing of the application, whichever is earlier;

(iii) The request for examination under sub-section (4) of section 11B shall be made within forty-eight months from the date of priority or from the date of filing of the application, or within six months from the date of revocation of the secrecy direction, whichever is later;

What do we observe from Sub-rules (i) and (iii)?

A. Sub-rule (i) refers to Section 11B as a whole, whereas Sub-rule (iii) refers to Section 11B(iv)

B. Sub-rule (iii) refers to secrecy directions, which is absent in Sub-rule (i).

C. Sub-rule (i) uses “whichever is earlier”, whereas Sub-rule (iii) uses “whichever is later”

The question before the High Court was, since Sub-rule (i) refers to Section 11B as a whole whereas Sub-rule (iii) refers to Section 11B(iv), is an applicant governed by “whichever is earlier” or “whichever is later”? I could be wrong, but I think the answer is fairly straight-forward since the reference in Sub-rule (iii) is to applications in respect of which secrecy directions have been issued.

Let’s read Section 11B(4) to verify this:

(4)   In case the applicant or any other interested person does not make a request for examination of the application for a patent within the period as specified under sub-section (1) or sub-section (3), the application shall be treated as withdrawn by the applicant:

Provided that -

(i) the applicant may, at any time after filing the application but  before the grant of a patent, withdraw the application by making a request in the prescribed manner; and

(ii) in a case where secrecy direction has been issued under  section 35, the request for examination may be made within the prescribed period from the date of revocation of the secrecy direction.

Sub-clause (i) of the proviso to Sub-section (4) of Section 11B refers to the consequence of delayed filing of a request for examination, along with an option for the applicant to withdraw his application any time before grant.

In contrast, Sub-clause (ii) of the Proviso refers to the prescribed period for an application in respect of which secrecy directions have been issued. When this Sub-clause is read with Rule 24B(1)(iii), there is no doubt that the Rule applies to an application in which secrecy directions have been issued. In other words, the “whichever is later” rule applies only to applications in which secrecy directions have been issued.

Surprisingly, the Delhi High Court held to the contrary and observed that there is a confusion as to the application of Rules 24B(1)(i) and (iii). It further went on to support the applicant’s contention that WIPO guidelines prevail in the case of a conflict between the Act and WIPO guidelines, since the Guidelines qualify as administrative instructions within the meaning of Rule 23 of the Act.

I don’t think there was any need to refer to Rule 23 at all the in the first place in the case, because there is no ambiguity or conflict in Rule 24B(1)(i) and (iii).

Opinions and corrections are welcome! 

"Goodwill" and "Reputation" of a Trademark: Is there a Difference?

It is common for people to use “goodwill” and “reputation” interchangeably when referring to the popularity of a trademark, but are these terms strictly synonyms? Law and logic, both appear to say they are distinct.

Goodwill is generated by actual availability of the good/service in connection with which the mark is used. Goodwill, which is the basis for a passing off action, requires actual business to be transacted using the mark, either by making the products available or by provision of services.

Reputation, on the other hand, is knowledge and awareness of the premium a particular a brand/mark commands although the good/service in connection with which the mark is used, may not be available in a particular territory/market.

For instance, a shoe designer like Jimmy Choo may be so popular outside the country that his reputation spills over into India through word of mouth or trade talk or interviews, although his shoes may not be available in India.

Typically, reputation is sufficient for a passing off action to be instituted for a well-known mark. In other words, actual business using the mark need not be transacted in India for the owner of a well-known mark to prevent others from using the mark. Existence of reputation, which can be established from literature, is sufficient.

This logic finds statutory sanction since the definition of a well-known mark under the Trademarks Act, 1999 does not insist on use of the mark within India. Incidentally, under Section 29(6), use of the mark in advertisements too constitutes use. 

Surrender of Patents: Consequences

Surrender of patents and its implications are not usually discussed, probably because it is not an option employed by patentees as often as revocation is by defendants, or at least not reported when employed.

Section 63 of the Patents Act deals with surrender of patents. It says that a patent may be surrendered by a patentee at any time by giving notice to the Controller. The corresponding rule is Rule 87, however the rule does not prescribe a particular form, so I am guessing any form which comes closest for this purpose may be used after modifying it suitably (Rule 8(2)).

What happens when a patent is surrendered? Does it go off the register as a matter of course? Section 63(4) says the Controller may hear any opposition to the surrender of a patent, and by order revoke the patent.

The “may” is used in connection with hearing an opponent who objects to the surrender of the patent. This means a hearing in an opposition to the surrender of a patent is not mandatory. This is in stark contrast to a pre-grant opposition, where hearing the opponent is mandatory.

Does the Controller have to mandatorily revoke a patent which a patentee wishes to surrender? Rule 87(4) is categorical in saying that after receiving the patentee’s offer of surrender, the Controller “shall” by order revoke it, and publish the revocation.

For quite some time, I was under the impression that revocation does not mandatorily follow surrender because I was of the view that post surrender the patent would revert to the State vesting the State with the same rights as the patentee. Turns out that although the logic is appealing, the Act says otherwise.

The other question is who can oppose the surrender of the patent? Section 63 says “any person interested” may oppose the surrender of a patent. Rules 57-63 would govern the opposition proceedings.

Why would anyone want to oppose the surrender of the patent? It could be a licensee who wishes to continue exploiting the patent. It could be a defendant in a suit for infringement of the patent who wishes to see the patent revoked in a counter-claim for revocation which is pending before the Court, than by surrender by the patentee.

In the latter situation, is there a bar against the patent being surrendered by a patentee mid-way during the revocation proceedings in a counter-claim to a suit or in a simple revocation proceeding? Section 63 does not appear to forbid surrender in either of these circumstances. Therefore, it appears possible for a patentee to surrender a patent, and make a dignified exit from a suit or a revocation proceeding.