LEGAL ASPECTS OF BUSINESS

COMPANY LAW - Management of a Company

2021-06-24T07:00:00.000-07:00

MANAGEMENT OF A COMPANY

Directors

Minimum/Maximum Number of Directors in a Company

Minimum Number of Directors

The Maximum Number of Directors is 15, which can be increased by passing a special resolution

Appointment of Directors

As provided in the Companies Act 2013, every Director shall be appointed by the company in a general meeting.
Director Identification Number (DIN) is compulsory for appointment of a Director.
Every person proposed to be appointed as a director shall furnish his Director Identification Number (DIN) and a declaration that he is not disqualified to become a director under the Companies Act 2013.
A person appointed as a director shall on or before the appointment give his consent to hold the office of director in physical form DIR-2 i.e. Consent to act as a director of a company.

Appointment of Directors can be made as follows:

By the Promoters of the Company

By the Subscribers of the Memorandum of Association

By the Shareholders in a General Meeting

By the Board of Directors

By the Central Government

By Proportional Representation

By Third Parties

Role of Directors

Governing the organization by establishing policies and objectives
Selecting, Appointing, Supporting and Reviewing the performance of the Chief Executive
Ensuring the availability of adequate financial resources
Approving annual budgets
Accounting to the stakeholders for the organization’s performance
Setting the salaries and compensation of company management

Duties of directors

Act in accordance with the articles of the company.
Act in good faith in order to promote the objects of the company for the benefit of its members as a whole and in the best interests of the company, its employees, the shareholders, the community, and for the protection of the environment.
Exercise his/her duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
Not involve in a situation in which he/she may have a direct or indirect interest that conflicts or possibly may conflict, with the interest of the company.
Not achieve or attempt to achieve any undue gain or advantage either to self or to relatives, partners, or associates and if such director is found guilty of making any undue gain, he/she shall be liable to pay an amount equal to that gain to the company.
Not assign his/her office to anyone and if any assignment so made shall be void.

Liabilities of directors

Liability to Outsiders

If they enter into a contract which is ultra vires the company
If they fail to sign a negotiable instrument without mentioning the company’s name
If they act in their own name
If they have made any mis-statement in the prospectus
If they are guilty of committing a fraud
If they have made irregular allotment in contradiction of the articles

Liability to Company

If they are negligent in the performance of their duties
If they commit an act that is ultra vires their powers
If they commit any illegal act
If they commit any breach of trust

Liability to Shareholders

The position of directors in respect of the property of the company is that of a trustee. If they commit any breach of trust and if as a result of that, the company suffers a loss, they have to make good that loss.
If the directors are negligent and fail to use reasonable care and skill and because of this, the shareholders suffer a loss, they have a right to claim damages from the directors.

Criminal Liability

Directors may be awarded two years imprisonment and a fine of Rs.5,000 for the filing of a prospectus containing false statements.
Criminal proceeding against directors may be instituted:

For fraudulently obtaining credit for the company
For acting as a director after removal by court
For failure to supply information to auditor of the company
For improper issue of shares
For failure to produce the balance sheet before the annual general meeting

Disqualification of Directors

Unsound mind and stands so declared by a competent court;
An undischarged insolvent;
Has applied to be adjudicated as an insolvent and his application is pending;
Been convicted by a court of any offense, whether involving moral issues or otherwise and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence. If a person has been convicted of any offense and sentenced in respect thereof to imprisonment for a period of seven years or more, he/she shall not be eligible to be appointed as a director in any company;
An order disqualifying him/her for appointment as a director has been passed by a court or Tribunal and the order is in force;
Has not paid any calls in respect of any shares of the company held, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
Has not got the DIN - Director Identification Number.

Removal of directors

A director may be removed before the expiry of his term of appointment by:

Removal by Shareholders
Removal by the Central Government
Removal by the Company Law Board

Removal by Shareholders

Special notice of 14 days is required to be given to the company to move an ordinary resolution to remove the director and to appoint another director as a replacement
On receipt of the notice, the company must inform all the members of the proposed resolution. It must also send a copy of the notice to the director proposed to be removed
If the director wishes to make a representation he may send it to the company and the company, in turn, sends copies of the representation to the members, together with the notice of a meeting
If the representation is not received by the company within a reasonable time, the representation may be read out at the meeting. Director can speak at the meeting against his removal.
At the meeting, two ordinary resolutions will have to be passed. One for removal and another for replacement.

Removal by the Central Government

The Central Government may order the removal of a director if an adverse finding has been made by the Company Law Board against him/her, after making an inquiry into these cases such as fraud, persistent negligence, default in carrying out his obligations in such a way as to cause damage to the business.

Removal by the Company Law Board

Company Law Board on receiving an application for prevention of oppression of mismanagement may enquire into the matter and on inquiry, if it finds that relief ought to be granted, it may by order, remove the director.

Types of Directors

Managing Director - A Managing Director is a Director who has substantial powers of management of the affairs of the company subject to the supervisory, control, and direction of the Board.

Whole Time Director / Executive Director - A Whole-time Director includes a Director who is in the whole-time employment of the company, devotes his whole-time of working hours to the company and has a significant personal interest in the company as his source of income.

Independent Director - An Independent director (also known as an outside director) is a director (member) of a board of directors who does not have a material or regular relationship with the company or related persons, except sitting fees.

CORPORATE GOVERNANCE

Ideal corporate governance is characterized by a firm commitment to ethical practices by the entire organization in all of its dealings with a wide group of stakeholders encompassing employees, customers, vendors, regulators, and all shareholders.

Corporate governance rests on four pillars:

Transparency
Full disclosure
Independent Monitoring
Fairness to all stakeholders

Requirement for Independent Director

As per the Companies Act 2013, all listed public limited companies are mandatorily required to have at least one-third of the total number of directors as independent directors. Unlisted public companies should appoint at least two independent directors in the following situations:

If the paid up share capital is in excess of Rs.10 crores;
If the turnover is in excess of Rs.100 crores;
If the total of all the outstanding loans, debentures, and deposits is in excess of Rs.50 crores.

Independent Director

An independent director is a non-executive director who does not have any kind of relationship with the company that may affect the independence of his/her judgment.
An independent director should not have been a partner or executive director of the auditors/lawyers/consultants of the company in the preceding three years or should not hold 2% or more of shares of the company.

Qualities of Independent Director

An independent director should preferably possess appropriate skills, experience and knowledge in one or more domains of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations, or other disciplines that are related to the company’s business. Generally, one who wishes to qualify as an Independent Director has to possess the following qualities:

Impartiality
Loyalty
Decision-making (judgment)
Professional repute

Role of an independent director

Independent directors primarily provide inputs to all key decisions such as strategies, performance evaluation, and risk evaluation affecting the company

Independent Directors are also part of Committees and are often Chairmen of Committees, thereby empowering their judgments and decisions

Responsibilities of an Independent Director

Thorough preparation for the meeting
A free and frank expression of opinions.
Being the conscience of the Board
Up-to-date information on laws and regulations governing the company
Last but not the least, responsibility to act in the larger interest of true growth and development of the company

Letter of Appointment

The selection of independent directors would be formalized by a letter of appointment.
The terms and conditions of the selection of independent directors should be open for inspection at the registered office of the company by any member during normal business hours.
The terms & conditions of appointment of independent directors should also be posted on the company’s website.

The components of a letter of appointment is as follows:

The term of appointment.
The board-level committee in which the director is expected to serve his/her tasks.
Directors and Officers insurance.
The code of Occupational Ethics that the company expects from its directors and employee to follow.
Enumerated actions that a director should follow while working in a company
The remuneration, mentioning the periodic fee, compensation of expenses for contribution in the Boards and other meetings, and profit-related commission.

Re-appointment, Resignation, or Removal

The independent directors are subject to evaluation of their performance by other directors. Their re-appointment would be considered based on their performance appraisal report.
The independent director could resign or could be removed just like any other director. Upon resignation or removal, the vacancy is to be filled in by the Board within a period of 180 days from the date of either resignation or removal.
The vacancy caused by resignation or removal is different from intermittent vacancy. In case of an intermittent vacancy, it must be occupied by the Board of Directors within a maximum period of 3 months or at the next Board meeting, whichever is earlier.

Duties of an independent director

The key role and functions of an Independent Director as listed under Schedule IV of the Companies Act, 2013 are described as follows:

Aid in bringing an independent judgment to bear on the Board’s deliberations particularly on issues of strategy, performance, risk management, resources, key appointments and standards of conduct;
Enable an objective view in the evaluation of the performance related to board and management;
Examine the performance of management in meeting the decided goals and objectives and examine the reporting of performance;
Satisfy themselves on the reliability of financial information and that financial controls and the systems of risk management are considered robust and defensible;

Protect the interests of all stakeholders, mainly the minority shareholders;
Balance the conflict of interest of the stakeholders;
Decide suitable levels of remuneration of executive directors, key managerial personnel and senior management and have a major role in appointing and where essential recommend removal of executive directors, important managerial personnel and senior management;
Moderate and adjudicate in the interest of the company as a whole, in the situations of conflict between the management as well as shareholder’s interest.

COMMITTEES MANDATORILY TO BE CONSTITUTED UNDER THE COMPANIES ACT, 2013

Audit Committee - Minimum 3 directors with independent directors forming a majority.
Nomination And Remuneration Committee - 3 or more Non-Executive Directors out of which not less than ½ shall be Independent Directors.
Stakeholders Relationship Committee - Chairperson who shall be a Non-Executive Director and such other members as may be decided by the Board.
CSR Committee – depends on the type of the company

Liabilities

The question of whether independent directors are held liable rose with the Bhopal Union Carbide case in which Mr. Keshub Mahindra, ex-chairman, Union Carbide India, guilty and was sentenced to two years of imprisonment in June 2010. (Since appealed)

A Chairman without any knowledge of the company activities, how can (he) preside over the meetings of the shareholders and higher officials?

The judgment seemed to impute that the chairman of a company ‐ in this case, a nonexecutive chairman ‐ ought to be omnipresent, omnipotent, and omniscient.

SMS PHARMACEUTICALS Vs NEETA BALLA(2005): (Dishonor of cheque/bouncing of the cheque.) Any offense has been committed by a company and it is proved that the offense has been committed with the consent of, or is attributable to, any neglect on the part of, any director, manager, secretary or any other officer of the company, such director, manager, secretary or other officers shall also be deemed to be guilty of that offense and shall be liable to be proceeded against and punished accordingly.

SATYAM CASE The promoters inflated the revenue and profit figures of Satyam. the company had a huge hole in its balance sheet, consisting of non-existent assets and cash reserves that have been recorded and liabilities that are unrecorded. Mangalam Srinivasan, Vinod K Dham, Krishna who were the independent directors of Satyam were arrested.

The Circular from the ministry of corporate affairs says that penal action can only be initiated against the non‐executive directors when the ROC, after taking due care, has come to the conclusion that such directors are the officers in default and have not acted diligently in the Board process.

The non‐executive directors cannot be prosecuted if the violation of the law or any omission is on the part of the company or by any other officers of the company and which have occurred without his knowledge and consent.

The directors who can be held liable are:

Independent Directors in listed companies.
Government nominees in PSUs.
Nominee directors of public sector financial institutions.
Government director.

The Circular adopts a principles‐based approach by avoiding the rigidity involved in complete immunity.

MEETINGS

Statutory Meeting

A public company limited by shares or a guarantee is required to hold a statutory meeting. The statutory meeting is held only once in the lifetime of the company. Such a meeting must be held within a period of not less than one month or within a period not more than six months from the date on which it is entitled to commence business i.e. it obtains a certificate of commencement of business.

Purpose:

The purpose of the meeting is to enable members to know all important matters pertaining to the formation of the company and its initial life history.

Notice Period:

A notice of at least 21 days before the meeting must be given to members unless consent is accorded to a shorter notice by members.

Contents:

The Board of Directors must prepare and send to every member a report called the "Statutory Report" at least 21 days before the day on which the meeting is to be held. The report should be certified as correct by at least two directors, one of whom must be the managing director, where there is one, and must also be certified as correct by the auditors of the company. A certified copy of the report must be sent to the Registrar for registration immediately after copies have been sent to the members of the company.

Breach:

If the default is made in complying with the above provisions, every director or other officer of the company who is in default shall be punishable with a fine. The Registrar or a contributory may file a petition for the winding-up of the company if the default is made in delivering the statutory report to the Registrar or in holding the statutory meeting on or after 14 days after the last date on which the statutory meeting ought to have been held.

Annual general meeting

Annual General Meeting must be held by every type of company, public or private, limited by shares or by guarantee, with or without share capital or unlimited company, once a year. Every company must in each year hold an annual general meeting.

Not more than 15 months must elapse between two annual general meetings.

However, a company may hold its first annual general meeting within 18 months from the date of its incorporation.

Notice:

A notice of at least 21 days before the meeting must be given to members. The notice must state that the meeting is an annual general meeting. The time, date, and place of the meeting must be mentioned in the notice.

The notice of the meeting must be accompanied by a copy of the annual accounts of the company, the director’s report on the position of the company for the year, and the auditor’s report on the accounts.

Companies having share capital should also state in the notice that a member is entitled to attend and vote at the meeting and is also entitled to appoint proxies in his absence.

A proxy need not be a member of that company.

A proxy form should be enclosed with the notice.

The AGM must be held on a working day during business hours at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated.

The Central Government may, however, exempt any class of companies from the above provisions.

If any day is declared by the Central government to be a public holiday after the issue of the notice convening such meeting, such a day will be treated as a working day.

Each AGM takes up ordinary business and special business regarding the company.

Ordinary business covers the following issues:

Accounts, Balance Sheet, and Report of the Board of Directors and Auditors.
A decision on declaration of dividend.
Appointment of Directors in the place of retiring directors.
Appointments of Auditors and their remuneration.

In case of default in holding an annual general meeting, the following are the consequences :

Any member of the company may apply to the Company Law Board.
The Company Law Board may call or direct the calling of the meeting.
Fines may be levied and for continuing default, a further fine per day during which the default continues may be levied.

Every general meeting (i.e. meeting of members of the company) other than the statutory meeting and the annual general meeting or any adjournment thereof, is an extraordinary general meeting.

Such a meeting is usually called by the Board of Directors for some urgent business which cannot wait to be decided till the next AGM. Every business transacted at such a meeting is a special business. An explanatory statement of the special business must also accompany the notice calling the meeting.

Extraordinary General Meeting

The Articles of Association of a Company may contain provisions for convening an extraordinary general meeting.

Eg. It may provide that "the board may, whenever it thinks fit, call an extraordinary general meeting" or it may provide that "if at any time there are not within India, directors capable of acting who are sufficient in number to form a quorum, any director or any two members of the company may call an extraordinary general meeting".

A meeting cannot be held unless proper notice has been given to all persons entitled to attend the meeting at the proper time, containing the necessary information. A notice convening a general meeting must be given at least 21 clear days prior to the date of meeting.

Requisites of a Valid Meeting

It must be properly convened. The persons calling the meeting must be authorized to do so. Proper and adequate notice must have been given to all those entitled to attend. The meeting must be legally constituted. There must be a chairperson.

The rules of quorum must be maintained and the provisions of the Companies Act, 2013 and the articles must be complied with.

The business at the meeting must be validly transacted. The meeting must be conducted in accordance with the regulations governing the meetings.

The chairman is the head of the meeting. Generally, the chairman of the Board of Directors is the Chairman of the meeting. Unless the articles otherwise provide, the members present in person at the meeting elect one of themselves to be the chairman thereof on a show of the hands.

If there is no Chairman or he is not present within 15 minutes after the appointed time of the meeting or is unwilling to act as chairman of the meeting, the directors present may elect one among themselves to be the chairman of the meeting.

Without a chairman, a meeting is incomplete. The chairman is the regulator of the meeting. His duties include the following :

He must ensure that the meeting is properly convened and constituted i.e. that proper notice has been given, that the required quorum is present, etc.
He must ensure that the provisions of the act and the articles in regard to the meeting and its procedures are observed.
He must ensure that business is taken in the order set out in agenda and no business which is not mentioned in the agenda is taken up unless agreed to by the members.

Without a chairman, a meeting is incomplete. The chairman is the regulator of the meeting. His duties include the following :

He must impartially regulate the proceedings of the meeting and maintain discipline at the meeting.
He may exercise his powers of adjournment of the meeting, should he in good faith feel that such a step is necessary.
The chairman has the power to adjourn the meeting in case of indiscipline at the meeting.

Without a chairman, a meeting is incomplete. The chairman is the regulator of the meeting. His duties include the following :

Note: A chairman however does not have the power to stop or adjourn the meeting at his own will and pleasure. If he adjourns the meeting prematurely, the members present may decide to continue the meeting and elect another chairman and proceed with the business for which it was convened.

Quorum

Quorum is the presence of a requisite number of members when a meeting can validly commence its business. It is the minimum number of members of a company whose presence is necessary for the transaction of business. In the case of a company, the quorum is usually fixed by the articles.

The Act provides that unless the articles of a company provide for a larger number, five members personally present in the case of the public company and two members personally present in the case of a private company shall be a quorum for a general meeting of a company.

Unless the articles otherwise provide, if within half an hour from the time appointed for holding a meeting of a company, a quorum is not present, the meeting, if called upon the requisition of members, shall stand dissolved.

In any other case, the meeting shall stand adjourned to the same day in the next week, at the same time and place, or to such other day and at such other time and place as the Board may determine.

If at the adjourned meeting also, the quorum is not present within half an hour from the time appointed for holding the meeting, the members present shall constitute a quorum.

Resolution

A decision in a meeting is taken by a resolution of the members.

A proposition for a decision at a meeting is called a motion.

It can be introduced by any member.

A motion is always in writing and its notice is given in advance.

When a motion is passed by the meeting by voting, it is called a resolution.

Special Resolution

Companies are required to pass a special resolution in various matters. Special resolution should be passed either under the Companies Act, 2013 or if duly authorized by the Articles of Association of the company.

A special resolution is required for changing a foundational aspect of the company.

Procedures

Convene a General Meeting – To propose a resolution as a special resolution call a general meeting or otherwise intimate the same to members complying with all requirements of notice for General Meeting.

Send notice – Notice should be sent to all members at least 21days before constituting the General Meeting. Along with the notice, an Explanatory Statement should be sent to members.

Pass the Resolution – In meeting for a resolution to be “special resolution” votes cast in favor of resolution whether by raising hands or on a poll by members, or proxies where allowed, by proxy, are not less than three times the number of votes cast against the resolution.

Matters requiring Special Resolution

Alteration of Memorandum
Change of registered office or Object clause
Change of name of the Company
Alteration of Articles
Issue of further shares without pre –emptive rights
Creation of Reserve Capital

Reduction of share capital
Removal of registered office outside the local limits
Commencement of new business
Keeping Register of members at a place other than registered office.
Payment of interest out of capital.

Investigation of affairs of the company
Authorizing a director to hold any office or place of profit
Making the liability of any director or manager unlimited where so authorized by the articles
Loans to other bodies corporate.
Winding up by the Court

Voluntary winding up
Authorizing Liquidator to accept shares etc.
Approval of arrangement with creditors.
Exercise of certain powers by liquidator in voluntary winding up.
Disposal of books and papers upon winding up.

Ordinary Resolution

Any matter for which a special resolution is not required can be accomplished through an ordinary resolution.
An ordinary resolution requires a simple majority of above 50% of the votes.
Some of the issues that require ordinary resolutions:
Alteration of the authorized capital of the company.
Declaration of dividend.
Appointment of Auditors.
Election of Directors.

AN INTRODUCTION TO COMPANY LAW - Characteristics & Formation of a Company

2021-06-24T04:29:00.002-07:00

AN INTRODUCTION TO COMPANY LAW

Importance of Choice of Business Organisation

The ability of the entity to raise capital
The Manner in which risk is shared between owners and creditors
The Extent of control exercisable by the owners
The Nature of the regularity framework applicable to the entity
The Tax burden for the entity and the owners

CHARACTERISTICS

SEPARATE LEGAL ENTITY: An Entity separate from its members

LIMITED LIABILITY: Either limited by shares or limited by guarantee.

PERPETUAL SUCCESSION: A Company outlasts its members. Since Law has created it, only Law can end it…

COMMON SEAL: It is the official signature of the company. The purpose of the seal is to furnish evidence regarding the authenticity of a document.

TRANSFERABILITY OF SHARES: Transfer of the ownership of shares either in the form of a transfer or by transmission

SEPARATE PROPERTY: Since it is a legal person distinct from its members, it is capable of owning, enjoying & disposing of property in its own name.

CAPACITY TO SUE: A company can sue and can be sued

MANAGEMENT Management of a company is vested in the hands of directors who are elected by shareholders

Salomon v Salomon Ltd (1895-9)

Case of a profitable leather & shoe manufacturing business being converted into a company – Salomon, his wife & five children subscribe to one share each – authorized capital £ 40000 – business valued at £39,000 & sold to a company which pays £9,000 in cash & allots shares worth £ 20,000, Salomon loaned the remaining £ 10,000 through secured debentures – Company took an unsecured loan of £ 10,000 from Mr Broderip – thereafter company falls on hard times – had to be liquidated to meet demands of the creditors – total assets were not sufficient – Should Salomon, a secured creditor be paid first?

Though a company is a legal person, it is not a citizen either under the Constitution of India or the Citizenship Act 1955. But a company has a nationality & a residence.

NUMBER OF MEMBERS

PRIVATE COMPANY:

MINIMUM 2* MAXIMUM 200

PUBLIC COMPANY:

MINIMUM 7 MAXIMUM - Not specified

ONE PERSON COMPANY

What is One Person Company (OPC)?

The concept of One Person Company [OPC] is a new vehicle/form of business, introduced by The Companies Act, 2013 [No.18 of 2013], thereby enabling Entrepreneur(s) carrying on the business in the Sole-Proprietor form of business to enter a Corporate Framework.

One Person Company is a hybrid of Sole-Proprietor and Company form of business and has been provided with concessional/relaxed requirements under the Act.

Features of One Person Company (OPC)

Only One Shareholder:

Only a natural person, who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company. Explanation: The term "Resident in India" means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.

Nominee for the Shareholder:

The Shareholder shall nominate another person who shall become the shareholders in case of death/incapacity of the original shareholder. Such nominee shall give his/her consent and such consent for being appointed as the Nominee for the sole Shareholder. Only a natural person, who is an Indian citizen and resident in India shall be a nominee for the sole member of a One Person Company.

Director:

Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The Company may have a maximum number of 15 directors.

Terms and Restrictions of OPC

A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company.

Minor cannot become a member or nominee of the One Person Company or can hold share with beneficial interest.

An OPC cannot be incorporated or converted into a company under Section 8 of the Act. [Company not for Profit].

An OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporate.

An OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid-up share capital) is increased beyond Rs.50 Lakhs or its average annual turnover during the relevant period exceeds Rs.2 Crores i.e., if the Paid-up capital of the Company crosses Rs.50 Lakhs or the average annual turnover during the relevant period exceeds Rs.2 Crores, then the OPC has to invariably file forms with the ROC for conversion into a Private or Public Company, within a period of Six Months on breaching the above threshold limits.

PIERCING THE CORPORATE VEIL

WHEN THE COMPANY IS A SHAM/CLOAK FOR FRAUD OR FOR IMPROPER CONDUCT, COURTS PIERCE THE CORPORATE VEIL & LOOK AT THE PERSONS WHO ARE THE REAL BENEFICIARIES OF THE CORPORATE FICTION.

CIRCUMSTANCES

(A few examples Under Judicial Interpretations)

PROTECTION OF REVENUE: Company has been formed for tax evasion or to circumvent tax obligation

PREVENTION OF FRAUD OR IMPROPER CONDUCT: Company has been formed to default creditors or circumvent any law.

WHERE THE COMPANY IS USED FOR SOME ILLEGAL OR IMPROPER PURPOSE: Courts have shown themselves willing to lift the veil where the device of incorporation is used for some illegal or improper purpose.

DETERMINATION OF THE CHARACTER OF A COMPANY: When persons in actual control are residents of an enemy country, the court may lift the veil and declare the company to be an enemy.

FORMATION OF SUBSIDIARIES TO ACT AS AN AGENT: When the parent & the subsidiary company are one commercial unit, & the subsidiary is formed to circumvent some obligation.

WHERE COMPANY IS USED TO AVOID WELFARE LEGISLATION: Where it was found that the sole purpose for the formation of the new company was to use it as a device to reduce the amount to be paid by way of bonus to workmen.

TO PUNISH FOR CONTEMPT OF COURT

FOR DETERMINATION OF TECHNICAL COMPETENCE OF THE COMPANY

WHERE THE COMPANY IS A MERE SHAM OR CLOAK

(Under Statutory Provisions)

Reduction of membership
Misrepresentation in Prospectus
Failure to return application money
Misdescription of name
For investigation of the company by investigators appointed by Central Govt.
Fraudulent conduct (at time of winding up)
Liability for Ultra Vires Act

FORMATION OF A COMPANY

PROMOTERS
MEMORANDUM OF ASSOCIATION
ARTICLES OF ASSOCIATION
LIST OF FIRST DIRECTORS
DECLARATION OF COMPLETION OF FORMALITIES
FILING FEES
APPLICATION TO THE REGISTRAR OF COMPANIES.
PROMOTERS

Who is a Promoter? The term promoter is “a term not of law but of business”, usefully summing up, in a single word— promotion, “a number of business operations familiar to the commercial world by which a company is brought into existence”.

However, the persons assisting the promoters by acting in a professional capacity do not thereby become promoters themselves.

PROMOTERS

Legal Position of a Promoter: The promoter stands in a fiduciary position towards the company. The following are some of the fiduciary duties that the Courts will insist that a Company promoter has to observe:

Top of the list is not to make a secret profit at the expense of the company
A duty to account to the company for the benefit for any property he might purchase with the intent of selling the property to the Company for a profit later.
A duty not to defraud the Company by active concealment of any affairs relating to the company
A duty not to disclose confidential information to outsiders.
A duty not to hide his personal interests through a nominee.

Pre-incorporation contracts are Void-ab-initio:

However, pre-incorporation contracts shall be valid if:
The contract is made for the purpose of the company and the contract is warranted by the terms of incorporation.
The company adopts the transactions after incorporation.

MEMORANDUM OF ASSOCIATION (MA)

Fundamental conditions upon which alone the company is allowed to be incorporated.

Regulates external affairs of the Company with outsiders.

Enable those who deal with it to know the permitted range of its enterprise.

CONTENTS OF THE MA:

NAME CLAUSE

REGISTERED OFFICE CLAUSE

OBJECTS CLAUSE: a) Main objects and objects ancillary to main objects b) Other objects

CAPITAL CLAUSE: the amount of share capital the company is permitted to raise.

LIABILITY CLAUSE: limited by shares or by guarantee

ASSOCIATION CLAUSE: declaration by the subscribers that they are desirous of forming a company.

ARTICLES OF ASSOCIATION (AA)

The articles of association are the rules, regulations and bylaws for the internal management of the affairs of the company. They are formed with the object of carrying out the aims and objects as set out in the memorandum of association.

CONTENTS OF AA:

The articles of association usually contain provisions relating to:

Share capital & rights of shareholders,
Lien on shares
Calls on shares
Transfer of shares
Transmission of shares
Forfeiture of shares
Conversion of shares into stock
Share warrants
General meetings and procedures there at
Voting rights of members, voting & poll proxies
Directors, their appointments, remuneration, qualifications, powers and proceedings of the board of directors
Manager & secretary
Dividends and reserves
Accounts, audit and borrowing powers
Capitalisation of profits
Winding up procedures

IMPORTANT NOTE ON AA

The AA should not go beyond the powers of the company itself as contemplated in the MA. Also, they should not violate the provisions of the Companies Act.

DOCTRINE OF ULTRA VIRES

ULTRA VIRES = BEYOND THE POWERS

The company has the power to do all acts & things that are:

Authorised by the Act
Essential to attain the objects specified in the MA
Fairly incidental to the objects

EVERYTHING ELSE IS ULTRA VIRES

The Ashbury Railway Carriage & Iron Company v Riche (1875)

Case of ARC&IC contracts to provide finance to Riche for the construction of a railway in Belgium -objects of a company (a) To make and sell or lend on hire, railway carriages and wagons, and all kinds of railway plant, fittings, machinery and rolling stock (b) to carry on the business of mechanical engineers and general contractors (c) to purchase, lease, work and sell mines, minerals, land and buildings (d) to purchase and sell as merchants, timber, coal, metals, or other materials, and to buy any such materials on commission or as agents – evident that financing was not an object of the company.

PURPOSE OF THE DOCTRINE

The purpose of this doctrine is:

To protect the investors in the company so that they may know the objects in which their money is to be employed.
To protect creditors by ensuring that the company’s funds to which they must look for payment, are not wasted in unauthorised activities.

DOCTRINE OF CONSTRUCTIVE NOTICE

Every outsider dealing with a company is deemed to have notice of the contents of the memorandum & articles of association; which on registration with the registrar of companies assume the character of public documents. This is known as constructive notice of the MA & AA.

EFFECT OF THE DOCTRINE

The doctrine is not a positive one but a negative one. It is like the doctrine of estoppel. I.e. a person dealing with the company is stopped from taking the plea that he had not read the memorandum & articles of association.

DOCTRINE OF INDOOR MANAGEMENT

The doctrine of indoor management is a limitation to the doctrine of constructive notice. The outsiders dealing with the company are entitled to assume that as far as the internal proceedings of the company are concerned, everything has been regularly done. They are not bound to do more than read the MA & AA. They need not inquire into the regularity of the internal proceedings.

Royal British Bank v Turquant (1843-60)

The directors of a coal mining and railway company borrowed money from the Royal British Bank, on a bond of £ 2,000. The bond was given under the seal of the company and was signed by two directors and a secretary. The company, however, claimed that under its clauses of incorporation, the directors had the power to borrow only such sums as had been authorised by a general resolution of the company. Further, in this case, no sufficiently specific resolution had been passed.

EXCEPTIONS - DOCTRINE OF INDOOR MANAGEMENT

Where the outsider had knowledge of irregularity
Where the outsider had no knowledge of Articles
Forgery
The doctrine, in no way, rewards those who behave negligently

CERTIFICATE OF INCORPORATION

Effect of Certificate of Incorporation

On incorporation, the association of persons becomes a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company and having perpetual succession and a common seal but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound-up as is mentioned in the Act.

Conclusiveness of Certificate of Incorporation

Conclusive to the effect that all requirements of law relating to registration and matters precedent and incidental thereto have been duly complied with.

A private limited company can commence business on receipt of a certificate of incorporation.

A public company has, however, to wait to commence business till a certificate of commencement of business is received from the registrar of the joint-stock companies.

CERTIFICATE OF COMMENCEMENT OF BUSINESS

The certificate of commencement of business is granted on fulfilling some requirements:

Where prospectus has been issued inviting the public to subscribe for shares:

Shares payable in cash have been allotted to the amount of minimum subscription.
Every director of the company has paid the full amount of the shares payable in cash.
There is no money liable to be paid to applicants for shares that have been offered for subscription.
A statutory declaration by the chief executive or one of the directors and the secretary that the aforesaid conditions have been complied with.

The registrar on being fully satisfied that:

The verified declaration has been filed,
All other requirements of the ordinance have been complied with,

will issue a certificate called ‘certificate to commence business'. On receipt of this certificate, a company is entitled to commence business.

A company that has not issued a prospectus shall have to file a statement in lieu of a prospectus in order to get a certificate of commencement of business to be issued.

Provisional Contracts

Contracts entered into by a company after incorporation but before getting the certificate to commence business are called ‘provisional contracts’.

Provisional contracts are, therefore, relevant to public companies only.

Such contracts become void if a company fails to obtain a certificate to commence business and automatically become valid, and binding if the company obtains the certificate.

LIMITED LIABILITY PARTNERSHIP (LLP) - An Overview

2021-06-24T01:03:00.000-07:00

Limited Liability Partnership (LLP)

Nature of Limited Liability Partnership

LLP is a body corporate formed & incorporated under LLP Act
LLP is a legal entity separate from its partners
LLP has perpetual succession
Existence, Rights & Liabilities of LLP not affected by a change in partners
Indian Partnership Act, 1932 does not apply to LLPs
Partners

Individuals / Body Corporate can be partners
Minimum two partners
Maximum unlimited partners

If no. of partners fall below 2 for more than 6 months &
The remaining partner has knowledge of such no. of partners falling below two for period more than 6 months
Then remaining partner will be personally liable for liabilities incurred by LLP

Designated Partners (DP)

At least two DPs
Only Individuals can be DPs – Can be nominees of Body corporate partner/s
At least one resident in India
Every DP to obtain a Designated Partner Identification No. (DPIN)

Responsibilities & Liabilities of DPs

Responsible for doing all acts, matters & things required to be done by LLP w.r.t compliance of LLP Act including the filing of any document, return, statement & like report under LLP Act & as specified in LLP Agreement
Liable to all penalties imposed on LLP for any contravention of above

Changes in DPs

LLP to appoint DP within 30 days of vacancy
If no DP is appointed or if, at any time, there is only 1 DP, each partner shall be deemed to be a DP

Disqualifications of DPs

No person can be DP of LLP, if-

He is adjudged as insolvent within the preceding 5 years
He has suspended payment to his creditors & not made any composition with them within the preceding 5 years
He is convicted by Court for any offence including moral turpitude & sentenced to imprisonment not less than 6 months
He is convicted by Court for the offence under Section 30 of LLP Act (Defrauding creditors or any other person)

Incorporation

Incorporation Document

Is among Prime Documents of LLP
Must be submitted to the registrar in ‘Form-2’
Requires particular information to be contained in Incorporation Document-

Name of LLP
Proposed Business of LLP
Address of Registered Office (RO) (RO shall be place of all correspondence for LLP)
Names & Addresses of Partners
Names & Addresses of DPs
Other Information as may be prescribed

Effect of Registration

LLP will be able to, in its own name-

Sue & be sued
Acquire, hold & develop or dispose of any property
Have common seal
Do & suffer such other acts & things as bodies corporate may lawfully do or suffer
Name of LLP must end with words ‘Limited Liability Partnership’ or acronym ‘LLP’

Procedure for formation of LLP

Check availability of name on-site ‘llp.gov.in’
Acquire Digital Signature Certificate (DSC)
Acquire DPIN by applying in prescribed ‘Form-7’
Apply for Reservation of Name in prescribed ‘Form-1’
Apply for Incorporation Document in prescribed ‘Form-2’
Along with the Incorporation Document, submit:

Information regarding LLP Agreement in ‘Form-3’
Appointment of Persons and their consent as such to act as Partners / DPs in ‘Form-4’ & ‘Form-9’, respectively

Receive Form-2 duly signed by Registrar & certificate from registrar regarding incorporation, within 14 days of filing such documents
LLP is ready to function

Partners & their Relations

Eligibility to be partner

Persons who subscribe to Incorporation Document
By LLP Agreement

Relationship of partners

Rights & duties of partners with other partners & with LLP governed by LLP Agreement
In absence of any agreement, principles set out in First Schedule will apply

Cessation of Partnership Interest

In accordance with LLP Agreement
By resignation notice in writing of 30 days
On death, dissolution of LLP, or if he is of unsound mind or insolvent as declared by a court

Liability of Outgoing Partner – he still remains liable to the extent of obligations he incurred while he was a partner

First Schedule

Relates to mutual rights & duties between partners & LLP & its partners' absence of Agreement on such matters
Partners of LLP entitled to share equally in capital & profits/losses
Partners shall be indemnified by LLP in respect of payments made & liabilities incurred by him-

In ordinary & proper conduct of the business of LLP
In anything necessarily done for Preservation of business or property of LLP

LLP shall be indemnified by Partners for any loss caused by his fraud in the conduct of the business of LLP
Partners may participate in the management of LLP
Partners shall not be entitled to any remuneration for acting in business or management of LLP
No partner may be introduced without the consent of all other partners
Any ordinary matter regarding LLP may be decided by resolution passed by the majority of partners
However, change in nature of the business may be decided only by consent of all partners
Every decision taken by LLP be recorded in minutes within 30 days of such decision
Minute Book be maintained & kept at RO of LLP
Partners must render true accounts & full information of all things affecting LLP to any partner or his legal representative
Partners to account for & pay overall profits earned from the business of similar nature & competing with LLP, to LLP if there is no consent from LLP in that respect
Partners to account to LLP for any benefit derived by him without LLP’s consent, from any transaction concerning LLP or from use of name, property or business connection of LLP
No partner may be expelled by a majority unless there is an express power conferred by LLP Agreement to do so
All disputes which cannot be resolved by LLP Agreement can be referred to for arbitration as per Arbitration and Conciliation Act, 1996

Liability of LLP & Partners

Just like a partnership, every partner is an agent; not of other partners but of LLP.

LLP not bound by unauthorized acts of partners in dealing with a person if that person knows that the partner had no authority or did not know him to be a partner of LLP

LLP liable in respect of wrongful acts or omissions of partners in course of its business or with its authority

Obligation of LLP is solely an obligation of LLP & shall be met out of the property of LLP

Partners not personally liable for wrongful act or omissions of another partner

Liability of partner(s) committing wrongful acts or omissions will be unlimited

Partnership by Holding out (LLP liable only if it has taken benefits of the act)

Unlimited Liability in case of fraud

If fraud done with knowledge/authority of LLP, LLP’s & partner’s liability will be unlimited. LLP’s liability = Partner’s liability
Otherwise, LLP will not be liable
Imprisonment for 2 years & fine up to Rs. 5 Lacs

Assignment & Transfer of Partnership Rights

Right of partner to share profits is transferable/assignable (in whole or in part)
Transfer does not imply that transferor/assignor has ceased to be a partner
Likewise, transferee/assignee does not have the right to participate in management
Transferee / assignee has no right to obtain any information of transactions of LLP

Investigation

Central Government (CG) may appoint one or more inspector(s) to investigate into affairs of LLP & report thereon, if-
Not less than 1/5 th of partners apply for investigation on payment of prescribed security to Central Government
LLP applies for investigation
CG is of opinion that-

Business of LLP is with intent to defraud its Creditors, Partners or any other Person
Affairs of LLP are not being conducted in accordance with provisions of this Act
On receipt of Report of Registrar or any other Regulatory Agency, there exist sufficient reasons that affairs of LLP ought to be investigated

Inspector cannot be partnership firm, body corporate or other association
Investigator has the power to investigate in matters of any entity which has been associated, or is associated, to LLP unless it is irrelevant to do so
Investigator must obtain prior approval of CG
It shall be the duty of DPs & Partners to-

Preserve & produce before investigator all documents relating to LLP or, as case may be, any other entity
Give assistance to an investigator in connection to the investigation
Investigator has the power to keep such documents in custody up to 30 days

Investigator has the power to seize documents relating to LLP, if he believes that such documents may be-

Destroyed
Mutilated
Altered
Falsified or
Secreted

Investigator shall make reports (Interim & Final) to CG & such report such act as evidence in any legal proceeding
Application by CG for Winding-up of LLP pursuant to an investigation
Expenses of Investigation (by guilty party)

Conversion of Firm to LLP

All partners of LLP must be partners of the original firm & no one else.

On such conversion-

All assets & liabilities of firm would get vested in LLP
Firm stands dissolved
Will be removed from records of Registrar of Firms
Every partner will continue to be personally liable jointly & severally with LLP, for liabilities prior to conversion / arising out of a contract entered prior to conversion
Partner to be indemnified by LLP in respect of such liability subject to anything contrary in LLP Agreement

Every official correspondence of LLP for 1 year, must bear a statement that it was, from the date of registration converted from a firm into an LLP along with the name & registration, if applicable, of the firm from which it was converted
Partnership Firm proposing to convert to LLP must apply to ROC in the prescribed form along with Statement of Partners.
ROC must issue certificate of registration.
Upon receipt of application LLP must apply, within 15 days of registration, to Registrar of Firms to strike-out name of Firm in prescribed.

Conversion of Companies to LLP

Company can be converted into LLP provided-

All partners of LLP must be shareholders of that company & no one else
There is no security interest in its assets
Upon conversion, all assets & liabilities get vested in LLP and principally all other provisions are similar as that for firms

Listed Public Company cannot be converted into LLP

Winding-up

The winding-up of a limited liability partnership may be either voluntary or by the Tribunal and limited liability partnership, so wound up may be dissolved.

A limited liability partnership may be wound up by the Tribunal,-

If the limited liability partnership decides that limited liability partnership be wound up by the Tribunal;
If, for a period of more than six months, the number of partners of the limited liability partnership is reduced below two;
If the limited liability partnership is unable to pay its debts;
If the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
If the limited liability partnership has made a default in filing with the Registrar, the Statement of Account and Solvency or annual return for any five consecutive financial years; or
If the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be wound up.

Comparison with Companies

Comparison with Partnership Firms

BANKING - Bank Guarantee (BG) & Letters of Credit (LC)

2021-06-23T22:58:00.000-07:00

BANK GUARANTEE

With the development of trade and commerce, the guarantor, who earlier typically was a friend or an associate, became a professional. Banks in the business of transferring funds & lending were the natural ones to take up the role.

Being a neutral party, they were considered trade worthy and would not default when called upon to pay.

The bank could guarantee a valued customer who has accounts with them on requiring a deposit, at least for a part of the sum for a commission.

A surety provided by the bank came to be called bank guarantee.

As Earnest Money Deposit
As security against performance of the contract
As security against initial (advance) & stage payments
Towards liquidated damages
Towards specified operational parameters of the equipment….
Towards meeting warranty claims in respect of the equipment.
Towards performance of maintenance during a specified period (usually one year) in respect of civil works contracts

Bank guarantees lead to invoking and payment only if there is a default by the supplier/contractor.

Bank guarantees figure, therefore, as a contingent liability in the accounts of the bank.

Notwithstanding clause in BG (Example)

Notwithstanding anything contained herein:

The bank’s liability under the bank guarantee shall not exceed Rs. 10,00,000 (Rupees ten lakh only)
This bank guarantee is valid up to 30th September 2020

The bank is liable to pay the guaranteed amount or any part thereof under this bank guarantee only and only if the beneficiary serves upon the bank a written claim or demand on or before 15th October 2020.

Bank Guarantee - Features

Bank Guarantees should be unconditional guarantees by the bank to the beneficiary, undertaking to pay the sum specified in the guarantees on demand.

When a bank guarantee is given by a bank to the beneficiary, a direct relationship gets established, and a contract comes into being between the bank and the beneficiary, independent of the main contract between the buyer/employer & the supplier/contractor.

The beneficiary's right under a bank guarantee is governed by the bank guarantee itself and not by the terms and conditions of the original contract.

The bank's liability under the guarantee is absolute, and courts would not generally interfere with the contractual obligation of the banker by issuing an injunction against the payment when the guarantee is validly invoked. (The only exception is when there is a clear case of fraud or misrepresentation)

Through a series of judgments of the supreme court, it is well established that the party seeking an injunction against enforcement of a bank guarantee must show a prima facie case of established fraud and irretrievable injury to it.

Enforcement of a guarantee cannot be made the subject matter of any arbitration.

NOTE: When there is a pending arbitration under which the liability of all the parties had to be ascertained, the court upheld the decision of the bank to withhold payment against a bank guarantee.

Safeguards by the Bank

Important

Banks must honour the guarantee issued by them and pay the amount claimed when they are invoked except where fraud by the beneficiary is established, or there is misrepresentation or deliberate suppression of material facts.

It would be for the banks to safeguard themselves by other means and generally not for the courts to come to their rescue with injunctions unless there is established fraud.

Limits

Maximum monetary limits are fixed based on the financial standing, the extent to which the account has been maintained by the customer satisfactorily, the volume of transactions, past track record of the client in respect of guarantees etc.

Limits are reviewed and re-fixed periodically.

Margins

Clients requesting the issue of guarantees are required to place, in an interest-bearing fixed deposit with the bank, a margin (amount) expressed as a percentage of the value of the bank guarantee.

The percentage of margin money could range from 10% to 100% of the value of the guarantee.

In the case of foreign BG, the margin could even be 110% of the value to cover fluctuations in foreign exchange rates.

Counter Guarantee

Banks obtain counter-guarantees on non-judicial stamp paper from the clients for equal value before furnishing bank guarantees on their behalf.

This document is an undertaking by the client on whose behalf the bank guarantee is issued that he will reimburse the amount paid by the bank when the guarantee is invoked by the beneficiary.

Safeguards by the Beneficiary

If the bank guarantee is obtained from a supplier’s/contractor’s bank in another country, the beneficiary runs the risk of not getting paid when it invokes the bank guarantee, as the judiciary may be liberal in granting injunctions against the bank, preventing it from honouring the bank guarantee.

Bank guarantees are valuable documents and must be kept in safe custody.

Bank Guarantee - Extension

A Bank guarantee is an independent contract between the bank & the buyer/employer.

To safeguard his interest, the buyer/employer should address the bank for extending the bank guarantee with a copy to the supplier/contractor.

While asking for an extension, the buyer/employer should also intimate the supplier/contractor that if the bank guarantee is, for any reason, not extended, the letter should be treated as a notice invoking the bank guarantee, and the bank should pay the amount covered by the bank guarantee on the due date.

This will ensure that the supplier gives a direction to the bank to extend the bank guarantee as the only option is to pay the amount if it is not extended.

Bank Guarantee - Discharge

If the particular aspect of the transaction between its client and the beneficiary covered by the guarantee has been completed satisfactorily, Banks insist on the bank guarantee being returned to them duly discharged to confirm the non-existence of liability against such guarantees.

Discharge & Notwithstanding clause in BG

A BG with a notwithstanding clause & validity having expired and no written notice for a claim having been served by the beneficiary, the bank is no longer authorised to entertain any claim against an expired bank guarantee.

Upon serving the issuing bank a written notice to close the expired BG and refund the margin money, the bank is required to send a written notice to the beneficiary asking them to return the expired original guarantee. If the original guarantee is not returned by the beneficiary after a lapse of 30 days, the issuing bank is required to cancel the BG and return the margin money without further delay as per RBI guidelines.

LETTERS OF CREDIT

Meaning

LCs are guarantees issued by a buyer’s bank in favour of the supplier, guaranteeing that payments will be made against documents listed in the LC, inter alia evidencing completion of supplies/services/stages of progress of work before the delivery dates specified in the LC & subject to the conditions specified therein.

The documents are also required to be presented for payment to the advising bank before the last date for negotiation of documents mentioned in the LC.

There are thus two dates – one the last date for shipment/completion of work, and the other is the last date for negotiation of documents.

The gap between the two dates enables the beneficiary to collect and assemble the documents specified before presenting them to the advising bank for payment.

Two banks are involved in an LC. The buyer has/opens an account in a bank (issuing bank) in his country, which guarantees payment.

This bank opens a credit with a bank in the supplier’s country in favour of the supplier. This bank is known as the advising bank (normally the supplier nominates the advising bank)

The advising bank advises the supplier:

the last date for delivery of goods,
the documents which the supplier must deliver to the bank and the time within which he must do so,
and any other conditions stipulated in the LC.

All LCs are irrevocable.

Documents

Bill of lading

Adherence to the delivery date for goods is evidenced by a bill of lading, an airway bill, a railway receipt or a lorry waybill, showing the date the consignment is made over to the carrier.

Supplier’s invoice

Certificate of quality or acceptance

If the buyer, under the contract, conducts an inspection for quality and other parameters and accepts the items.

Certificate of Origin

Issued normally for imports.

Last date for Negotiation…

A reasonable time is allowed (10 -15 days) from the completion of supplies/service to enable the supplier to assemble the stipulated documents.

This is fixed as the last date for negotiation, and the supplier must present documents to the advising bank before this date to receive payments against the letter of credit.

Payment

On presentation of such documents, the payment under the LC is released by the advising bank to the supplier, after scrutinizing the documents for completeness and fulfilment of conditions (particularly w.r.t. the delivery date and the date for negotiation)

This system is also known as documentary credit.

Liability

An LC is a contingent liability both to the bank and the buyer who has established the LC till it is operated and till the expiry of the validity (or extended validity) of the LC.

Once it is operated by the supplier in accordance with the conditions, it ceases to be a contingent liability but gets converted to a definite liability.

Charges

Opening charges (one-time charge)

Maintaining charges (recurring charges, mostly every quarter, as a percentage of the value of the credit, established)

Confirmation charges (one-time charge – in International trade, it is common practice for suppliers to demand a confirmed letter of credit as opposed to an unconfirmed letter of credit)

Margins (Issuing Bank)

Clients requesting an issue of LC are required to place, in an interest-bearing fixed deposit with the bank, a margin (amount) expressed as a percentage of the value of the LC.

The percentage of margin money could range from 10% to 100% of the value of the LC.

In the case of foreign LC, the margin could even be 110% of the value to cover fluctuations in foreign exchange rates.

Counter Guarantee (Issuing Bank)

Issuing Bank obtains counter-guarantees on non-judicial stamp paper from the client undertaking to reimburse the amount paid by the bank against the LC and also authorizing the issuing bank to debit his account when payment is made against the LC.

Sequence

The supplier delivers goods to the carrier obtains a bill of lading, airway bill, railway receipt etc.
Prepares the invoice.
Presents invoice and all documents specified in LC to advising bank for payment.
Advising bank scrutinizes document:

Completeness.
Evidence of delivery with a scheduled delivery date.
Documents presented before the date set as the last date of negotiation.

If documents are in order & conditions of LC are met, the advising bank credits the supplier’s account with the amount due & advises the issuing bank and the buyer of having debited its account with the amount paid.
The advising bank forwards the documents to the issuing bank.
The issuing bank advises the buyer of having debited his account, with the amount paid & bank charges, and forwards the documents to the buyer to enable the latter to clear the consignment when it arrives at the destination.
The issuing bank releases the fixed deposit held as security in favour of the buyer.

BANKING - Bouncing of Cheque and related matters

2021-06-23T07:21:00.005-07:00

BANKING

Negotiable Instruments

Bill of Exchange

Where a creditor directed the debtor to pay the money to a named person or bearer.

[To A. Pay to C a sum of Rs. 1000. B (Signed)]

Promissory Note

Where a person promised to pay another or the bearer a certain sum of money.

[1.10.2014. Rs. 20,000. I promise to pay A or order at Calicut, three months after date the sum of Rs. 20,000. B(Signed)]

Cheque

A bill of exchange directing a bank to pay to a party.

As bank branches have got networked, a cheque drawn on any branch can be encashed from any location within a day. In this context, no person would agree to take a negotiated cheque. Thus, the negotiability of cheques has lost significance.

It is pertinent to note that a negotiable instrument is given as a part of another contract.

With electronic banking, direct electronic transfer by the customer is reducing the significance of cheques.

However, cheques as a payment mechanism will continue to be of some significance.

To give sanctity to the payment mechanism, the dishonour of a cheque, if certain conditions are met, has been made a punishable offence.

As the punishment prescribed is imprisonment, there has been much litigation to avoid imprisonment.

(40 lakh cheque-bounce cases choke the justice delivery system in the country – Data 07.02.2020)

BANKER

One who, in the ordinary course of his business, honours cheques drawn upon him by persons from whom and for whom he receives money on current accounts.

CUSTOMER

Customer is not defined.

A person who opens some sort of an account with a banker is called a customer.

Mere casual acts of service do not create the relationship of banker & customer.

BANKING COMPANY

A company that transacts the business of banking.

BANKING

Accepting for the purpose of lending or investment, of deposits of money from the public repayable on demand or otherwise, and withdrawable by cheque, draft order or otherwise.

BANKER CUSTOMER RELATIONSHIP

The relationship between a banker and a customer is essentially contractual and is that of a debtor (banker) and creditor (the customer). This relationship is sometimes reversed. This happens when the banker lends money to the customer. The relationship also partakes many aspects of the relationship of agent and principal.

OBLIGATIONS OF A BANKER

Honour cheques
Keep proper record of transactions
Abide by the instructions given by the customer
Not to disclose the state of his customers' account or affairs

RIGHTS OF A BANKER

General lien of banker
Incidental charges and interest
Set off (debit balance against credit balance)

WHEN BANKER MUST REFUSE PAYMENT ON HIS CUSTOMER’S CHEQUES

When customer countermands payment. (issuing instructions to a banker not to honour a particular cheque)
When the customer has died, or become insane or insolvent.
When a garnishee order (prohibiting a banker from paying money from a customer’s account) has been received by the banker.
When the customer has given notice of assigning the money in his account…..

WHEN BANKER MUST REFUSE PAYMENT ON HIS CUSTOMER’S CHEQUES

When the banker has knowledge that the title of the holder of the cheque is defective. (eg. A thief)
When the customer informs the banker that the cheque is lost.
When the cheque is irregular. (Material alteration on the cheque or signature of the drawer does not tally with the specimen signature)
When the customer closes his account.

WHEN BANKER MAY REFUSE PAYMENT ON HIS CUSTOMER’S CHEQUES

When the cheque is post dated.
When the cheque is out dated.
When the funds in the customer’s account are insufficient. (& the customer has no overdraft arrangement with the bank)……..

BOUNCING OF A CHEQUE

A cheque is said to bounce or dishonoured by non-payment, when a banker defaults in its payment, even when he is required to pay.

Section 138 of the Negotiable Instruments Act of 1881 (as amended from time to time) applies.

TO CONSTITUTE THE OFFENCE OF BOUNCING OF CHEQUE……

The cheque should have been issued by the drawer to the payee in the discharge of, in whole or in part, any legally enforceable debt or other liability……..(it shall be presumed, unless the contrary is proved, that the holder of the cheque received the cheque, for the discharge, in whole or in part, of any debt, or other liability)

The cheque should have been presented by the payee to the banker within the period of validity…. (The Reserve Bank of India has fixed three months to be the validity period for a cheque)

The cheque should have been returned by the bank unpaid, because the amount of money standing to the credit of the account is insufficient or it exceeds the amount arranged to be paid from that account….

The cheque has been returned unpaid by the bankers of the drawer on account of stop payment instructions having been issued by the drawer…..

The cheque has been returned unpaid by the bankers of the drawer on the ground that the account of the drawer has been closed…..

The payee (or any other holder) of the cheque should have demanded the payment of the amount of the cheque from the drawer, within 30 days of getting the information of dishonour by the banker…..

Once the bank has returned the cheque, i.e. the cheque has bounced, the payee (or any other holder) is required to send a letter (demand notice) within 30 days of such bouncing to the party who wrote the cheque (the drawer) threatening to initiate proceedings under the Negotiable Instruments Act in case the amount is not paid within 15 days.

The drawer of the said cheque should have failed to make payment within 15 days of the receipt of the said notice given by the payee (or any other holder).

Note
Section 138 can get attracted for dishonour due to any reason, including mismatch of signatures & stop payment of a post-dated cheque.

PROCEDURE……..

The complaint has to be filed in the court by the holder of the cheque within 30 days from the date when the cause of action has arisen.

Jurisdiction of Court

If cheque delivered for collection through an account

If the cheque is delivered for collection through an account, the case will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class within whose local jurisdiction the branch of the bank where the payee or holder in due course, as the case may be, maintains the account is situated.

If cheque presented for payment by payee or holder in due course otherwise through an account

In such a situation, the case will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class within whose local jurisdiction the branch of the drawee bank where the drawer of the cheque maintains the account is situated.

PUNISHMENT & PENALTY

The court, after receiving the complaint along with relevant documents, will start the case. If the drawer is found guilty, he/she will have to, as per Section 138 of the Negotiable Instruments Act, 1881, spend time in jail for up to two years and/or pay a penalty of amount twice the cheque amount.

In addition, the banks also have the right to close the guilty person’s account (on repeated bounce cheque offence) or stop their cheque book facility. The bank may also charge a penalty to both the drawer and the payee for the inconvenience, extra paperwork and wasting the bank’s time.

The Negotiable Instruments (Amendment) Act, 2018 which came into effect from September 1, 2018, allows the Court trying an offence related to cheque bouncing, to direct the drawer to pay interim compensation not exceeding 20% of the cheque amount to the complainant within 60 days of the trial court's order to pay such compensation.

This interim compensation may be paid either in a summary trial or a summons case where the drawer pleads not guilty to the accusation made in the complaint or upon framing of charge in any other case.

Furthermore, the Amendment also empowers the Appellate Court, hearing appeals against conviction under s. 138, to direct the appellant to deposit a minimum of 20 % of the fine/compensation awarded, in addition to interim compensation.

COMPETITION LAW - The Competition Act, 2002.

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The Competition Act 2002

The MRTP Act 1969: Predecessor of the Competition Act, 2002

The MRTP Act was the operative Competition Law of India until it was repealed in the year 2009.
The MRTP Act aimed at preventing (a) economic power concentration in a few hands and curbing monopolistic behaviour and (b) prohibition of monopolistic, unfair or restrictive trade practices. The intention behind this was both to protect consumers as well as to avoid the concentration of wealth.
Considering the changing economic situation and initiation of economic reforms in the country post-1991, the need was felt for a change in approach towards fostering competition. Against this background, the Finance Minister of India in his budget speech in February 1999 made the following statement in the context of the then-existing MRTP Act.
“The MRTP Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. We need to shift our focus from curbing monopolies to promoting competition. The Government has decided to appoint a committee to examine this range of issues and propose a modern competition law suitable for our conditions.”

Objectives of the Competition Act, 2002

To provide the framework for the establishment of the Competition Commission
To prevent monopolies and to promote competition in the market
To protect the freedom of trade for the participating individuals and entities in the market
To protect the interest of the consumer

The Competition Commission

The Competition Commission of India is established under the Competition Act, 2002. It is a statutory body that has the power to govern and enforce the Competition Act including penalties.
The Commission is composed of a chairman and a minimum of 2 board members and a maximum of 6 board members. These members are required to have a minimum of 15 years of experience in their respective fields. Its objectives, duties and powers are enumerated in the Competition Act, 2002. Its main duty and object are to ensure that the Indian markets maintain a healthy and fair competitive environment and is granted the power to ensure such an environment and penalise any acts adversely affecting its duties.

ANTI-COMPETITIVE AGREEMENTS

Anti-Competitive agreements are agreements that are made by two or more companies competing in the same market to fix prices or reduce stocks etc, so as to manipulate the market favourably for them.

This has the effect of the companies reducing the competition in the market which adversely affects the end consumer.

Section 3 of the Competition Act states that any agreement which causes or is likely to cause an Appreciable Adverse Effect (AAE) on Competition (AAEC) in India is deemed anti-competitive.

Section 3 (1) of the Competition Act prohibits any agreement with respect to “production, supply, distribution, storage, and acquisition or control of goods or services which causes or is likely to cause an appreciable adverse effect on competition within India”.

Although the Competition Act does not define AAEC and nor is there any thumb rule to determine when an agreement causes or is likely to cause AAEC, Section 19 (3) of the Act specifies that the Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the following factors, namely….....

Creation of barriers to new entrants in the market;
Driving existing competitors out of the market;
Foreclosure of competition by hindering entry into the market;
Accrual of benefits to consumers;
Improvements in production or distribution of goods or provision of services;
Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.

Section 3(3) of the Competition Act provides that agreements or a ‘practice carried’ on by enterprises or persons (including cartels) engaged in the trade of identical or similar products are presumed to have AAEC in India if they:-

Directly or indirectly fix purchase or sale prices;
Limit or control production, supply, markets, technical development, investments or provision of services;
Result in sharing markets or sources of production or provision of services;
Indulge in bid-rigging or collusive bidding.

Fx Enterprise Solutions India Pvt. Ltd. v. Hyundai Motor India Limited (2014).

In the case, the Informant had alleged that according to the agreement with Hyundai, dealers were mandated to procure all automobile parts and accessories from Hyundai or through their vendors only. While collaborating on alleged anti-competitive practices of Hyundai, the Informant stated that Hyundai imposed a “Discount Control Mechanism”, whereby dealers were only permitted to provide a maximum permissible discount and dealers were also not authorized to give discount beyond a recommended range, thereby amounting to “resale price maintenance” in contravention of Section 3(4)(e) of the Act.

The CCI in the case observed that Hyundai through exclusive agreements and arrangements contravened provisions of Section 3(4)(e) read with Section 3(1) of the Act through arrangements that resulted in Resale Price Maintenance. The CCI while imposing a penalty of INR 87 Crore on Hyundai noted that the infringing anti-competitive conduct of Hyundai in the case included putting in place arrangements, which resulted in Resale Price Maintenance by way of monitoring maximum permissible discount level through a Discount Control Mechanism and also a penalty mechanism for non-compliance of the discount scheme.

ABUSE OF DOMINANCE

Section 4 prohibits any enterprise from abusing its dominant position.

The term ‘dominant position’ has been defined in the Act as ‘a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to operate independently of competitive forces prevailing in the relevant market; or affect its competitors or consumers or the relevant market in its favour’.

The Act defines the relevant market as ‘with the reference to the relevant product market or the relevant geographic market or with reference to both the markets’.

The relevant product market is defined as ‘a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use’.

The Competition Act provides that the CCI shall determine the relevant product market having due regard to all or any of the following factors:

Physical characteristics or end-use of goods
Price of goods or service
Consumer preferences
Exclusion of in-house production
Existence of specialized producers
Classification of industrial products

The 'relevant geographic market' is defined as ‘a market comprising the area in which the conditions of competition for the supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas.’

The Act further provides that the CCI shall determine the relevant geographic market having due regard to all or any of the following factors :

Regulatory trade barriers;
Local specification requirements;
National procurement policies;
Adequate distribution facilities;
Transport costs;
Language;
Consumer preferences;
Need for secure or regular supplies or rapid after-sales services.

The abuse of dominance analysis under the Act starts with the determination of market, once the relevant market has been determined; the CCI’s next task is to establish whether the enterprise enjoys a dominant position.

It is important to note here that the Act does not prohibit the mere possession of dominance that could have been achieved through superior economic performance, innovation or pure accident but only its abuse.

The Act sets out the following factors which the CCI will consider to establish the dominant position of an enterprise :

Market share of the enterprise;
Size and resources of the enterprise;
Size and importance of the competitors;
The economic power of the enterprise including commercial advantages over competitors;
Vertical integration of the enterprises or sale or service network of such enterprises;
Dependence of consumers on the enterprise;
Monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise;

The Act sets out the following factors which the CCI will consider to establish the dominant position of an enterprise :

Entry barriers including barriers such as regulatory barriers, financial risk, the high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;
Countervailing* buying power;
Market structure and size of the market;
Social obligations and social costs;
Relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition;
Any other factor which the Commission may consider relevant for the inquiry.

*offset the effect of (something) by countering it with something of equal force

Dominance per se is not bad. It is only when there is an abuse of the dominant position that Section 4 of the Competition Act is invoked. Thus, once the dominance of an enterprise in the relevant market is determined the CCI must establish the abuse of its dominance by an enterprise. Section 4 (2) sets out a list of activities that shall be deemed an abuse of dominant position.

Anti-competitive practices of imposing unfair or discriminatory trading conditions or prices or predatory prices,
Limiting the supply of goods or services, or a market or technical or scientific development, denying market access,
Imposing supplementary obligations having no connection with the subject of the contract, or
Using dominance in one market to enter or protect another relevant market.

Uber India Systems Private Limited v CCI (2019), the Supreme Court held that the losses made by Uber per trip were prima facie indicative of abuse (through predatory pricing) as well as of dominance itself.

Shri Shamsher Kataria v Honda Siel Cars India Ltd & Ors (2014) (Auto Parts case), the CCI considered the passenger vehicle market and the aftermarkets comprising spare parts, diagnostic tools and provision of after-sales repair and maintenance services. It found that 14 car companies had abused their dominant positions in their respective aftermarkets by requiring customers to purchase spare parts and diagnostic tools solely from the respective car manufacturer or its authorised dealers. The CCI held that this amounted to a denial of market access to competitors, applying the essential facilities doctrine. The CCI also found that the car manufacturers had engaged in excessive pricing of their spare parts. This finding has been confirmed by the COMPAT (2016). On appeal by three of the car manufacturers, the Supreme Court has stayed the operation of the COMPAT’s judgment.

Remedies

Remedies against AAEC agreements and abuse of dominant position are provided by the Competition Commission of India. Upon a review and enquiry into the alleged practices the Competition Commission may pass the following orders:

Direct the discontinuance of such practices
Impose a penalty that is less than 10% or the turnover of the preceding three financial years; in the case of a cartel the penalty shall be 10% or three times the turnover of every financial year and shall continue for the period of continuance of such practices
Direct the modification of such an agreement or abuse so as to curtail its adverse effect upon the competition of the market
Pass any order that it may so deem fit.

COMBINATIONS

It is the acquisition of one or more companies by one or more people or merger or amalgamation of enterprises shall be treated as ‘Combination’ of such enterprises and persons in the following cases:

Acquisition by large enterprises;
Acquisition by a group;
Acquisition of enterprise having similar goods/services;
Acquisition of enterprise having similar goods/services by a group;
The merger of enterprises;
Merger in group company.
Any combination that causes or is likely to cause an appreciable adverse effect on competition (AAEC) in markets in India is void.

Business Perspective

The various matters to be kept in mind by the business houses are:

The markets are susceptible to the formation of cartels which pose a risk of the formation of monopolies. The awareness of the fact that such associations are not permitted under the Competition Act 2002 is essential.
When discussions are made with competitors documentation of the same should be done.
Any meetings wherein any matter is being discussed, which shall raise issues under the competition law shall be avoided.
It is advisable to avoid discussions pertaining to price and the actual cost to the company.
Appointment of an Ombudsman for advice on the Competition Law so as to prevent any legal issues may be done.
Communication aspects although seem trivial may leave an impact when it comes to abuse of dominant position issues. Any statements made shall be weighed carefully.

WORKING OF CCI

INSURANCE

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INSURANCE

Contract of Indemnity - Features of Insurance – Fundamental Elements of Insurance – Cover Note – Average Clause in Fire Insurance

Contract of Indemnity

A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity.

A contract of indemnity is a contingent contract.

The liability of the indemnifier arises only when the loss is suffered.

LAW OF INSURANCE

FEATURES

The main principle of Insurance is the pooling of risks. It spreads the loss over a large number of people who insure themselves against the risk….
Insurance does not avert or eliminate loss arising from uncertain events.
It is a cooperative device to spread the loss caused by a risk over a large number of persons who are also exposed to the same risk and insure themselves against that risk.

INSURANCE INVOLVES:

Contract of Insurance is between the Insurer & Insured for a consideration called the premium.
The instrument in which the contract of insurance is generally embodied is called the policy. It is evidence of the contract.
The thing insured is called the subject matter & the interest of the insured in the subject matter is called insurable interest.
The uncertain events or casualties are called perils insured against.

IS INSURANCE A WAGERING AGREEMENT?

A contract of Insurance bears a superficial resemblance to a wagering agreement. The difference is that the object of Insurance is to protect the assured against losses whereas the object of the wagering agreement is to earn a speculative gain.

FUNDAMENTAL ELEMENTS

1. The Principle of Utmost Good Faith. (UBERRIMAE FIDEI): The rule caveat emptor, i.e. let the buyer beware, does not apply. The assured being in the vantage point, since he knows the subject matter, he cannot SUPPRESSIO VERI, i.e. suppress facts or SUGGESTIO FALSI, i.e. make false suggestions or statements.

Glicksman Vs. Lancashire & General Assurance Company, Limited: (1927)

G, along with a partner, was running a tailoring business. He insured the stock-in-trade of the partnership against burglary, with the General Assurance Co. Ltd. A question in the proposal form was: ‘Has any company declined to accept or renew your burglary Insurance?’ G had been declined Insurance cover by another company, but he did not disclose this in the answer to the above question. The response was technically right. He has been declined Insurance, not the partnership. A burglary happened and a large portion of the stock was stolen. The insurance company discovered the non-disclosure by G and refused to pay. The policy document mentioned that a policy obtained through any misrepresentation, suppression, concealment, or untrue averment would be void.

Held:

If the proposal mentions that a wrong answer would make the contract void, then beyond doubt, the answer is material to the insurance. The insured cannot raise the contention that the fact is indeed not material.
It is not enough for the insured to correctly answer the questions in the form. The onus on the insured to disclose facts material to the insurance goes beyond the questions in the proposal form.
The very inclusion of a question in a proposal form indicates, that the insurer considers it to be material.

Woolcott vs. Sun Alliance & London Insurance Limited: (1978)

Woolcott took insurance against fire with Sun Alliance & London Insurance Limited through his housing society. The house got destroyed by a fire. The Insurance company refused payment on the ground that Woolcott had not disclosed that he had been convicted of robbery & other offences 12 years back. He had not volunteered the information because he had not been asked about it by the building society through which he had taken a loan and the insurance. The court noted from evidence brought before it that Insurance companies would not have extended coverage to a person of this nature as such a contract involved ‘moral hazard’. The court brought out that the insured has to disclose all facts that would be material to a prudent insurer, whether the facts are enquired about or not.

Joel v. Law Union & Crown Insurance Co.: (1908)

The insurer in a Life Insurance policy did not disclose that she had suffered from mental illness. She was unaware of it as she believed her condition to be depression following an attack of influenza. The court noted: ‘The duty is a duty to disclose, and you cannot disclose, what you do not know.’ The obligation is to disclose what the insurer knows and no obligation about what he ought to have known.

Note: The requirement of disclosure continues not only till the offer is made, but till the contract is formed.

P. V. Suresh vs. Insurance Ombudsman, Kerala High Court, 16.02.2012 ( an insurer has to prove fraud to reject a claim)

Lady dies of cervical cancer – insured by husband – she failed to mention Ayurveda treatment for rheumatoid arthritis while buying the policy – claim rejected by Insurance Company – Court upheld the claim - Court held that the insurer must prove the policyholder’s statements were fraudulent and involved suppression of material fact.

Impact: Insurance company cannot get away by simply listing ‘suppression of fact’ as a reason for rejecting the claim. It has to prove that the information supposedly hidden by the policyholder was material, that is, had a direct bearing to the case and there was an element of fraud involved.

2. Indemnity: The assured, in case of a loss, shall be paid the actual amount of loss not exceeding the amount of the policy. The object of every contract of insurance is to place the assured in the same financial position, as nearly as possible, after the loss as if the loss had not taken place at all.

NOTE: Life insurance is not a contract of indemnity

Castellain vs. Preston: (1882-83)

A building’s owners entered into a contract to sell land and building. Two weeks later, a part of the building was damaged. The owners received £ 330 from the insurers for the loss. However, they completed the sale and received the full price of the building from the buyer. The insurer demanded the money back, claiming that since the owners had not suffered any loss, they were bound to return the money.

Note: Under an insurance contract, the liability of the insurer can be to reinstate the property in lieu of paying an amount. Thus, under a contract, an insurer may take up repairs of the property or procure a substitute property for the insured.

3. Insurable Interest: The assured must be in a legally recognised relationship to what is insured so that he will suffer a direct financial loss on the happening of the event insured. This point distinguishes it from a wagering agreement.

While one cannot define an insurable interest with complete certainty or precision, in general, it exists when the policyholder ‘is so circumstanced with respect to the subject matter of the policy as to have benefited from its existence or prejudiced from its destruction.’

Note:

An owner of movable property has an insurable interest in the property.
A bailee, hirer, lessee, or mortgagor would also have an insurable interest.
In life insurance contracts, blood relatives and relatives by marriage have an insurable interest.
An Employer also has an insurable interest in the employee and a creditor in the life of the debtor.

The insurable interest doctrine asks the following questions:

What is the policyholder’s stake in the subject of the property?
How attenuated (fine or small) is that interest to the probable cause and effect of loss?
How strong is that interest?
What is the reasonable range of value for the interest? And
Would permitting the policyholder to recover encourage wagering, fraud, moral hazard, or some other evil?

Macaura v. Northern Assurance Co. Ltd. [1925]

M was the owner of a timber estate. He formed a company, Irish Canadian Saw Mills Ltd., and sold the timber to it for £ 42,000. The purchase consideration was paid to M and his family in the form of shares of the company. M was also an unsecured creditor of the company for £ 19,000. The timber was lying on M’s land. M insured the timber, but in his own name, and not in the name of the company. The timber was destroyed in a fire. M made a claim on the insurance policy for the value of timber destroyed. The Insurance company argued that M did not have an insurable interest as the timber belonged to the company, not him. In company law, a company is a separate & distinct legal person, separate from the shareholders.

Held: M’s relation was to the company, not to its goods, and after the fire, he was directly prejudiced by the paucity of the company’s assets, not by the fire. The debt was not exposed to fire nor were the shares.

4. CAUSA PROXIMA NON-REMOTA SPECTATUR: The assured can recover the loss only if it is proximately caused by any of the perils insured against. If the loss is due to remote causes, the assured will not be indemnified.

The question, which is the causa proxima of a loss, arises only when there is a succession of causes.

Proximate cause is the dominant cause - it does not have to be the first.
Proximate does not mean nearest in time but that which is proximate in efficiency.

The following two cases illustrate whether a remote cause can be considered as the proximate cause of a loss:

In Roth v South Easthope Farmers' Mutual Insurance Co. (1918) lightning damaged a building and weakened a wall. Shortly afterwards, the weakened wall was blown down by high winds. Lightning was considered to be the proximate cause.

In Gasgarth v Law Union Insurance Co. (1876) fire damaged a wall and weakened it. Several days later a gale blew down the weakened wall. It was held that fire was NOT the proximate cause.

The point to note here between the two cases is the length of time passed before the remote cause occurs, which makes the difference.

Doctrine based on cause and effect

Proximate Cause means:

Direct cause
Most dominant cause
Most effective cause
Closely connected to loss in efficiency and effectiveness
Common sense

5. Mitigation of loss: The assured must take all necessary steps or measures as may be reasonable for the purpose of averting or minimising a loss.

6. The risk must attach: The insurer receives the premium in a contract of insurance for running a certain risk. If for any reason the risk is not run, the consideration for which the premium was given fails. In such an event the insurer must return the premium.

7. Contribution: The right of contribution arises when the subject matter is insured with two or more insurers against the same peril. Either, one insurer meets the loss and claims it from the others, or they meet the loss proportionately.

8. Subrogation: This applies to fire & marine policy i.e. the insurer, after making good the loss, is entitled to be put into the place of the assured. That is to say, the insurer steps into the shoes of the assured when he has paid the amount of the policy to the assured & is entitled to all the rights & remedies that the assured would have had against third persons regarding the loss.

National Employers Mutual General Insurance Association Limited Vs. Jones (1987)

A car belonging to Ms Hopkins was stolen. The insurance company paid for the car. The car became the property of the company and it could recover its price from the person who had bought the car in good faith.

Holmes Vs. Payne (1930)

For a lost necklace, the insurer agreed that the insured could buy jewellery worth £ 600. After the insured had bought jewellery worth £ 264, the necklace was found. The insurer had become the owner of the necklace and was bound to let the insured buy jewellery for the remaining amount.

9. The period of Insurance: Fire insurance is from year to year, marine insurance is from year to year or voyage to voyage. Life insurance is a continuing contract if the premium is paid.

POINTS TO PONDER

An Insurer can reinsure the risk with other insurers. This is termed as reinsurance.
In Life Insurance, there are three cases in which insurable interest is presumed; own life, life of a spouse, the life of a child. In all other cases, insurable interest has to be proved.
All LIC policies contain a clause that if the assured commits suicide within one year of the policy being taken, the risk does not attach.
A Life Insurance Policy can be surrendered before the completion of the period of insurance. A life insurance policy can be assigned Also, based on the surrender value of the policy, the insurer can avail a loan from LIC or from banks by assigning the policy to them. Nomination facilities are also available on life insurance policies.
The Fire Insurance policy contains an average clause. (The 'average clause' is defined as a clause in an insurance policy requiring that you bear a proportion of any loss if your assets were insured for less than their full replacement value.)

Cover Note

It is a document issued by an insurer or underwriter on receiving a proposal pending the execution of the policy.
It covers the risk between the date of the contract of insurance and the actual issue of the policy of insurance.
It cannot be regarded in law as either an insurance policy or an agreement to issue an insurance policy.
But it has been held that if the cover note is properly stamped, a suit for specific performance of the contract can be founded thereon.
The liability of the insurer under the cover note ceases when he intimates to the assured the rejection of the proposal.

MADRID PROTOCOL - India and the Madrid System for International Registration of Marks.

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Madrid system- in a nutshell

Aims to protect a mark in several countries by filing a single application.
International Protection in up to 90 countries via a single application.
Effect of international registration- as if the mark is registered in each of such designated countries.
Maintained & renewed through a single procedure.
Administered by the International Bureau (IB) of WIPO-maintains the International Register & publishes the WIPO Gazette of International Marks.

Advantages

ONE application for a number of countries
ONE set of fees - one currency
ONE language (English or French)
ONE set of Procedural Rules - no need to worry about different national procedural rules
Uniform period of protection - 10 years
Easy post-registration management

Advantages: Practice point of view-

Speedy disposal, electronic correspondence
Quick turnaround time
Simplifies Portfolio Management - only one registration to worry about.

Madrid System is governed by...

The Madrid Agreement- concluded in 1891

The Madrid Protocol - concluded in 1989

Contracting Parties may adhere to either of them or to both.
Prerequisite for accession- must be a member of the Paris Convention.
India is Contracting Party to The Madrid Protocol only.

What's happening in India?

India acceded to the Madrid Protocol on April 8, 2013.
Indian applicant – may protect a mark in 87 countries + European Union.

The Trademarks (Amendment) Act, 2010

Chapter IVA inserted for compliance with Madrid Protocol.
Other amendments –Sec. 11, 21, 23, 45, 151, 156.

Trade Marks (Amendment) Rules, 2013

All communications/notices, electronic responses.
Chapter IIIA inserted for compliance with Madrid Protocol.
Online Filing via “Trademarks International Application system”.

Amendment Act & Rules to be enforced from July 8, 2013.

Relevant provisions: Act Sec.36A to 36G ; Rules 67A to 67M

Advantages of Madrid protocol over Madrid Agreement

An international application can be based on national application (basic application*) or national registration (basic registration*).
The protocol can be joined by countries as well as Inter-Governmental Organizations (eg. European Union).
Other advantages- Individual fee of designated offices, longer refusal period.

Relevant provisions: S.36B(b)&(c);S.36D(1) of the Trademarks Ammd.Act 2010

Kinds of International Applications

International application governed exclusively by the Agreement.
International application governed exclusively by the Protocol.
International application governed by both the Agreement and the Protocol; this means that some of the designations are made under the Agreement and some under the Protocol.

International registrations relating to India

Possible Scenarios -

International Applications Originating from India.
International Applications where India is a designated country.

1. Applications where Office of Origin is India

The Applicant must-

be of Indian domicile/national/have a commercial establishment in India.
base the international application on an Indian “basic application” or “basic registration”.
must designate the countries in which the mark is to be protected;
filing an application online via Trademarks International Application System;
Application to be filed on Form - MM2.

Relevant provisions- P.Article 2(2), Rule 1;

Fees Payable-

Directly at WIPO + handling fee INR 2000 to TMR.
Currency- Swiss Francs.
Fees Calculation-
Basic fee- 653 CHF plus.
Supplementary fee (per class) plus.
Complementary fee 100 CHF per country;
Or Individual fee of the designated country as prescribed for example 301 CHF for USA.
India to charge an Individual fee of 61 CHF

TMR after receipt of the International Application-

Certifies that the application corresponds with the basic application/registration in all respects.
Forwards the application to IB within 2 months of receipt.
IB after receipt of the International Application-
checks compliance with the Protocol and Common Regulations;
checks indication of goods/services, classification, fees paid;
informs TMR and applicant of irregularities;
records the mark in the International Register & publishes in the WIPO gazette;
notifies the designated countries.

Relevant provisions: Act.Sec.36D(4) ; Rule.67E ; P.Article. 3 (4)

Refusal of protection:

designated country examines application as if it was filed directly at the office;
may declare 'provisional refusal' of the mark based on i) ex officio objection ii) oppositions
provisional refusal communicated to IP within 18 months;
mark is deemed REGISTERED - if no 'provisional refusal' declared within 18 months from receipt of application;
accorded protection in the designated country.

Relevant Provisions- P Article 5 (2) (c)

2. International Applications where India is a designated country

TMR after receipt of international application-

may after examination, declare 'provisional refusal' on basis of ex officio objections.
in case of no objections/after removal of objections by the Applicant - mark is advertised;
subsequently, the mark is open for opposition (for 4 months);
any refusal (ex-officio/opposition) to be informed to IB within 18 months, else mark deemed as PROTECTED in India.

Provisions of Sec. 9 to 21; Sec. 63 & 74 of TM Act, 1999 apply to the International Application.

Relevant Provisions: Act.Sec.36E (2)&(3)&(4)

ALERT! Basic registration in the home country has expired!

Dependence on Basic Mark

International Registration is dependent on basic application/registration up to 5 years from the date of registration.
If before the period of 5 years-

The basic application is abandoned, withdrawn, refused, rejected by the Office of Origin; OR
Basic Registration is invalidated, cancelled, not renewed or expired ………

International Registration ceases to have any effect.

DOMAIN NAMES - Cybersquatting in India

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What Is a Domain Name?

A domain name is the user-friendly form of an Internet Protocol (IP) address that points an Internet user’s computer to the website the user wants to view

Each IP address is a string of numbers

The domain name is made of characters that are easier to remember

Example: www.irfca.org is easier to remember than its corresponding IP address, 87.76.30.221

Domain Name System (DNS)

Basically, DNS is a global addressing system
DNS allows users to go to a specific website by entering its corresponding domain name
DNS locates and translates domain names into IP addresses

Components of Domain Names

Second-level domain: irfca

Top-level domain: org

Top-Level Domains

Highest level in the DNS hierarchy

Generic Top-Level Domains (gTLDs)
Examples: .com, .net, .org
Also, gTLDs for business or interest groups (e.g., .gov for the government, etc.)
NEW gTLDs (e.g., .brand, .community, .geographical area)

Country-Code Top-Level Domains (ccTLDs)

Examples: .au for Australia, .mx for Mexico, .in for India

Internationalized Domain Names (IDNs)

Contain local language characters such as accents and may include non-Latin scripts
Examples: 香港 (Hong Kong), рф (Russian Federation)

Second-level domain names:

Follows “www.” and precedes the top-level domain name
Chosen by registrant
Must be:

unique term not previously used as a second-level domain name, and
registered

What is Cybersquatting?

Cybersquatting is the practice of registering an Internet domain name that is likely to be wanted by another person, business, or organization in the hope that it can be sold to them for a profit.
It involves the registration of trademarks and trade names as domain names by third parties, who do not possess rights in such names.
Simply put, cybersquatters (or bad faith imitators) register trade-marks, trade names, business names and so on, belonging to third parties with the common motive of trading on the reputation and goodwill of such third parties by either confusing customers or potential customers, and at times, to even sell the domain name to the rightful owner at a profit.

Laws in India

Unlike many developed countries, in India, we have no Domain Name Protection Law and cybersquatting cases are decided under Trade Mark Act, 1999.

Dispute Resolution

Dispute involving bad faith registrations are typically resolved using the Uniform Domain Name Dispute Resolution Policy (UDRP) process developed by the ICANN. Under UDRP, WIPO is the leading ICANN accredited domain name dispute resolution service provider and was established as a vehicle for promoting the protection, dissemination, and use of intellectual property throughout the world. India is one of the 171 states of the world which are members of WIPO.

A person may complain before the administrative dispute resolution service providers listed by ICANN under Rule 4 (a) that:

A domain name is "identical or confusingly similar to a trademark or service mark" in which the complainant has rights; and
The domain name owner/registrant has no right or legitimate interest in respect of the domain name; and
A domain name has been registered and is being used in bad faith.

Rule 4 (b) has listed, by way of illustration, the following four circumstances as evidence of the registration and the use of a domain name in bad faith:

Circumstances indicating that the domain name owner/registrant has registered or acquired the domain name primarily for the purpose of selling, renting or otherwise transferring the domain name registration to the complainant who is the owner of the trademark or service mark; or to a competitor of that complainant for valuable consideration in excess of its documented out of pocket costs, directly related to the domain name; or
The domain name owner/registrant has registered the domain name in order to prevent the owner of the trademark or service mark from reflecting the mark in a corresponding domain name, provided that it has engaged in a pattern of such conduct; or
The domain name owner/registrant has registered the domain name primarily for the purpose of disrupting the business of a competitor; or
By using the domain name, the domain name owner/registrant has intentionally attempted to attract, for commercial gain Internet users to its website or other online location by creating a likely hood of confusion with the complainants mark as to the source, sponsorship, affiliation, or endorsement of the domain name owner/ registrant web site or location or of a product or service on its web site or location.

India has also established its own registry by the name INRegistry under the authority of the National Internet Exchange of India (NIXI), wherein the dispute related to the domain name is resolved under the .IN Dispute Resolution Policy (INDRP). The Policy has been formulated in line with internationally accepted guidelines and with the relevant provisions of the Indian Information Technology Act 2000.

Under InRegistry, disputes are resolved under .IN Domain Name Dispute Resolution Policy (INDRP) and INDRP Rules of Procedure. These rules describe how to file a complaint, fees, communications and the procedure involved.

Role of Judiciary in India

Though domain names are not defined under any Indian law or are covered under any special enactment, the Courts in India has applied Trade Marks Act, 1999 to such cases.

Like in other cases under Trademarks Act, 1999 two kinds of reliefs are available:

Remedy of infringement
Remedy of passing off

Yahoo! Inc. v. Akash Arora and Another [1999 II AD (Delhi)]

In which an attempt was made to use the domain name <yahooindia.com> for Internet-related services as against domain name i.e. <yahoo.com>, The Court observed that usually the degree of the similarity of the marks is vitally important and significant in an action for passing off for in such a case there is every possibility and likelihood of confusion and deception being caused.

When both the domain names are considered, it is crystal clear that the two names being almost identical or similar in nature, there is every possibility of an Internet user being confused and deceived in believing that both the domain names belong to one common source and connection, although the two belongs to two different concerns.

Tata Sons Limited and Anr Vs Fashion ID Limited (2005) 140 PLR 12 (tatainfotecheducation.com case)

The Hon'ble High Court of Delhi Court held that

"The use of the same or similar domain name may lead to a diversion of users which could result from such users mistakenly accessing one domain name instead of another. This may occur in e-commerce with its rapid progress and instant (and the erotically limitless) accessibility to users and potential customers and particularly so in areas of specific overlap.

Ordinary consumers/users seeking to locate the functions available under one domain name may be confused if they accidentally arrived at a different but similar web site which offers no such services. Such users could well conclude that the first domain name owner had mis-represented its goods or services through its promotional activities and the first domain owner would thereby lose their customer. It is apparent therefore that a domain name may have all the characteristics of a trademark and could found an action for passing off"

Aqua Minerals Limited Vs Mr Pramod Borse & Anr; AIR2001Delhi 467 (Use of the ‘Bisleri’ name)

The Hon'ble High Court of Delhi Court has held that Unless and until a person has a credible explanation as to why did he choose a particular name for registration as a domain name or for that purpose as a trade name which was already in long and prior existence and had established its goodwill and reputation there is no other inference to be drawn than that the said person wanted to trade in the name of the trade name he had picked up for registration or as a domain name because of its being an established name with widespread reputation and goodwill achieved at huge cost and expenses involved in the advertisement.

Summary—UDRP vs. Indian Courts

TRADEMARKS - Infringement

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Infringement

Section 29 of the Trademark Act-1999 talks about various aspects related to infringement:

Infringement of trademark is a violation of the exclusive rights granted to the registered proprietor of the trademark to use the same.

A trademark is said to be infringed by a person who, not being a permitted user, uses an identical/ similar/ deceptively similar mark to the registered trademark without the authorization of the registered proprietor of the trademark.

Passing Off

Passing off is a common law tort used to enforce unregistered trademark rights.

Passing off essentially occurs where the reputation in the trademark of party A is misappropriated by party B, such that party B misrepresents as being the owner of the trademark or having some affiliation/nexus with party A, thereby damaging the goodwill of party A.

For an action of passing off, registration of a trademark is irrelevant.

Registration of a trademark is not a pre-requisite to sustain a civil or criminal action against the violation of trademarks in India. In India, a combined civil action for infringement of trademark and passing off can be initiated.

The similarity between the marks in appearance and suggestion.
The similarity of the products for which the name is used.
The area and manner of concurrent use.
The degree of care likely to be exercised by the consumers.
The strength of the plaintiff's mark or how distinctive it is.
Whether there is evidence that people were actually confused, which is a pretty strong sign that there's a likelihood of confusion.
Whether the defendant intended to palm off his product as that of the plaintiff's.

These factors will be weighed differently in different cases. Still, the court has often noted that the similarity of the marks, the defendant's intent, and evidence of actual confusion are of particular importance.

Relief granted by Courts in Suits for Infringement and Passing off

The relief which a court may usually grant in a suit for infringement or passing off includes a permanent and interim injunction, damages or account of profits, delivery of the infringing goods for destruction and cost of the legal proceedings.

The order of interim injunction may be passed ex parte or after notice. The Interim reliefs in the suit may also include an order for:

Appointment of a local commissioner akin to an *’ Anton Piller Order’, search, seizure and preservation of infringing goods, account books and preparation of inventory, etc.
Restraining the infringer from disposing of or dealing with the assets in a manner that may adversely affect the plaintiff’s ability to recover damages, costs or other pecuniary remedies which may be finally awarded to the plaintiff.

*Anton Piller Order

Anton Piller K.G. v. Manufacturing Processes Ltd., [1976]

Anton Piller was a German manufacturer of motors and electric generators used in the computing industry. The respondent was the appellant's agent in the United Kingdom. As agents, the respondents had received confidential information surrounding the appellant's business. The appellants found out that the respondents had been in secret communication with other German companies called Ferrostaal and Lechmotoren to give those companies detailed plans and drawings of the appellant's products so that they could be copied. The appellants were about to launch a new product. They feared that details of it might get into the hands of competitors if the respondents were forewarned that the appellants were aware of the respondents' breaches of confidence. Anton Piller commenced ex parte proceedings seeking an injunction to restrain copyright infringement as well as a court order to permit entry to the respondent's premises to search and remove all confidential information owned by the appellants. The injunction was granted, but the order for inspection and removal was refused. The appellants appealed the denial of the latter order. In the Court of Appeal, the order was granted. From this initial order has grown the jurisprudence on Anton Piller orders, commonly known as civil search warrants.

An Anton Piller order is extraordinary relief. As such, the test for granting an Anton Piller order requires the moving party to show:

a strong prima facie case;
very serious damage, actual or potential for the moving party;
convincing evidence that the respondent has in its possession incriminating documents or things; and
a real possibility that it may destroy such material before the discovery process can do its work.

Offences and Penalties

In case of a criminal action for infringement or passing off, the offence is punishable with imprisonment for a term that shall not be less than six months but may extend to three years and a fine that shall not be less than INR 50,000 may extend to INR 200,000.

Cases of Infringement

Glaxo Smith Kline Pharmaceuticals Ltd. v. Unitech Pharmaceuticals Pvt. Ltd (2005) - No one can use a trademark that is deceptively similar to another company's trademark.

The plaintiff claimed that defendants are selling products under the trademark FEXIM that is deceptively similar to the plaintiff’s mark PHEXIN, which is used for pharmaceutical preparations. The defendants are selling anti-biotic tablets with the trademark `FEXIM' with the packing material deceptively similar to that of the plaintiff, intending to infringe the trademark and pass off the goods as that of the plaintiff as the two marks are also phonetically similar.

The Court restrained the defendant from using the trademark `FEXIM' or any trademark deceptively similar to the trademark of the plaintiff `PHEXIN', any label/packaging material deceptively similar and containing the same pattern as that of the plaintiff.

M/s Bikanervala v. M/s Aggarwal Bikanerwala (2005) - If a party using the deceptively similar name only for a single shop and not spreading its business by use of that particular name then also that party could be stopped from using the tradename of another company.

The respondent was running a sweet shop with the name of AGGARWAL BIKANERWALA and the plaintiff was using the name BIKANERVALA from 1981 and also got registered it in the year 1992. Hence they applied for a permanent injunction over the use of the name AGGARWAL BIKANERWALA for the sweet shop by the defendant. Court held in favour of the plaintiff and stopped the defendant from manufacturing, selling, offering for sale, advertising, directly or indirectly dealing in food articles for human consumption under the impugned trademark/trade name/infringing artistic label 'AGGARWAL BIKANER WALA' or from using any trademark/trade name/infringing artistic work containing the name/mark 'BIKANER WALA/BIKANERVALA' or any other name/mark/artistic work which is identical or deceptively similar to the plaintiff's trademark 'BIKANERVALA'.

Dhariwal Industries Ltd. and Anr. v. M.S.S. Food Products (2005) - If the trademark is not registered by any party, but one party started using it before the other, then the first one would have the legal authority on that particular mark.

The appellants were using the brand name MALIKCHAND for their product, and the respondents were using the name MANIKCHAND, which is similar to the previous one, and both parties have not registered their trademarks. Court held in this matter that even though the plaintiff has not registered their trademark, they are using it for a long time, and hence court granted a perpetual injunction against the respondents.

N.R. Dongare v. Whirlpool Corp. Ltd. (1996) - Even if a company is not doing business in-country, but it is a well-known company or well-known goods, then also it would be entitled to get authority over its trademark.

The defendants have failed to renew their trademark ‘WHIRLPOOL’, and in the meantime, the plaintiffs have got registration of the same. In this case, the court said that though there was no sale in India, the reputation of the plaintiff company was travelling trans-border to India as well through commercial publicity made in magazines that are available in or brought in India.

The “WHIRLPOOL” has acquired reputation and goodwill in this country, and the same has become associated in the minds of the public. Even advertisement of a trademark without the existence of goods in the mark is also to be considered as use of the trademark. The magazines which contain the advertisement do have a circulation in the higher and upper-middle-income strata of Indian society. Therefore, the plaintiff acquired a transborder reputation in respect of the trademark “WHIRLPOOL” and has a right to protect the invasion thereof.

Honda Motors Co. Ltd. v. Mr Charanjit Singh and Ors (2002) - Even if the goods are not the same or similar to each other, then also no one can use the registered trademark of a company for any kind of goods which may result in harm to the business and reputation of the company which is the owner of the trademark.

The defendant Company was using the trade name HONDA for ‘Pressure Cookers’, which they are manufacturing in India, and even when their application for registration of this trademark had been rejected by the registrar, they continued using it and again applied for registration and hence plaintiff has brought this plaint.

Smithkline Beecham v. V.R. Bumtaria (2005) -The plaintiff applied for a permanent injunction to restrain the defendant from infringing the trademark, passing off, damages, delivery etc., of its registered trademark ARIFLO, used in respect of the pharmaceutical preparations. Defendants were using the similar name ACIFLO for their product of the same drug in India. Plaintiffs were not doing business in India for the particular product. They argued that since their advertisements are being published in medical journals, they have a trans-border reputation. The defendants should be stopped using a similar trademark that creates deception in customers.
The court said that mere publication of an advertisement in a journal cannot establish a trans-border reputation. Such reputation, if any, is confined to a particular class of people, i.e., the person subscribing to the said specialized journals and the same can’t be said to be extended to the general consumers. Thus any adverse effect on the firm in such a case can’t have amounted to the offence of “passing off”.

The dispute resulted in a compromise where the defendant agreed and accepted the plaintiffs’ exclusive right to use the mark, i.e. ARIFLO in India and abroad and further agreed not to manufacture pharmaceutical preparations under the mark ACIFLO or any other mark identical or similar to ARIFLO.

Trade Dress

The literal meaning of Trade Dress is - the overall image of a product used in its marketing or sales that is composed of the non-functional elements of its design, packaging, or labelling (as colours, package shape, or symbols).

That means there is a specific way of writing any product name, its unique background and other remarkable signs. The concept of trade dress has much importance in a country like India, where one-third of the population is still illiterate.

Trade dress helps the illiterate people who cannot read the trademark on the product as well as the manufacturers to reach the people easily.

Colgate Palmolive Company and Anr. v. Anchor Health and Beauty Care Pvt. Ltd (2003)
The plaintiffs have filed the case for the ‘passing off’ of trademark, and the dispute was on the colour scheme and combination of colours in a significant manner. Colgate Company was the plaintiff and questioned the use of a mark on the dental product, which is the combination of ‘red’ and ‘white’ in the proportion of 1/3:2/3 respectively and the way of writing the product's name was also in dispute. Plaintiffs were using the mark of particular fashion from 1951, and the respondents started using it in 1996. Plaintiffs have filed the application to stop the respondents from using the particular mark.

The plaintiffs showed to the court that the look of trade dress of the two articles, one manufactured by the plaintiff and another by the defendant from the point of view of not only unwary, illiterate customer/servants of the household but semi-literate also as the trademarks "Colgate" and "Anchor" are written in the English language cannot be distinguished by ordinary customer. There is every likelihood of confusion as to the source on account of the similarity of a substantial portion of the container having a particular colour combination and the container's shape. Such an action on the part of the infringing party also has an element of unfair competition.

In the present dispute, if an illiterate servant or village folk goes to the shop with the instruction to bring Colgate Tooth Power having a container of the particular shop with trade dress of colour combination of Red and White in 1/3 and 2/3 proportion he will not be in a position to distinguish if he is handed over "Anchor" Tooth Powder contained in a container having the identical trade dress and colour combination of "Red and White” in that order and proportion. Confusion is much large as to source and origin as the difference in name will not make any difference to such a customer, and the goods of the defendant can easily be passed off as goods of the plaintiff.

The court said that the significance of trade dress and colour combination is so immense that in some cases, even single colour has been taken to be a trademark to be protected from passing off action except where the colour cannot be protected as the blue colour is for the Ink and red colour is for the lipstick or similar cases. The court said that it is being established that the defendants are using the trade dress of plaintiffs for their containers. Hence, Court had allowed plaintiffs' application and restrained defendants from using the colour combination of red and white in the disputed order on the container/packaging of its goods.

Points to Ponder

A registered trademark is the property of the holding company, and it is directly associated with the name, reputation, goodwill and quality of products of a company.
A company can not use the trademark of another company.
No one can use even a similar trademark which is creating deception or confusion for the customers.
No one can use a company's trademark, which is well known and has a trans-border reputation, even if it is not registered in India.
Mere advertisement in a particular journal does not create a trans-border reputation.
Trade dress is also a part of trademark, and no one can use the specific writing style, definite colour combination and identifiable background for packaging and labelling a product.
A mere single colour can also be treated as a trade dress for a specific product.

Some Famous and Well known trademark case

Pizza Hut International LLC & Others Vs.Pizza Hut India Pvt. Ltd.2003

The court held:

“I do not have any hesitation in coming to the conclusion that in the present case also the Defendants sole intention was to trade on the Plaintiffs well established and worldwide reputation and famous marks/logo.

The balance of convenience is also in favour of the Plaintiffs. The Plaintiffs, apart from their operations abroad, also started conducting business in India in 1996. On the other hand, The defendant, apart from having itself registered under the Companies Act, 1956, has done nothing. The defendant has no reputation or goodwill in India. It has never even attempted to build any reputation or goodwill in India. In the circumstances, a grant of an injunction cannot and will not prejudice the defendant in any manner. On the other hand, if the Plaintiffs are refused interlocutory reliefs, they will suffer irreparable harm and prejudice.”

Mars, Incorporated Vs. Chanda Softy Ice Cream and Ors. 2001

The respondents were using the trademarks, MILKY WAY & GALAXY, with dishonest intention and the name board, hoarding, signboard used by the respondents (for their business in Chennai) bear the wording "MILKY WAY GALAXY OF ICE CREAMS “.

The court held: “Why one should choose or pick up the name or mark which has already become famous and well known and whose reputation and goodwill is all-pervading and is obviously hard-earned. The only intention or object is the thrive upon the goodwill and reputation and confuse the purchasers of his goods into believing that the defendants' goods or business in one way or other are connected with the plaintiff.”

Daimler Benz Aktiegesellschaft and Another Vs. Hybo Hindustan 1994

The court held:

"That name which is well known in India and worldwide, concerning cars, as is its symbol a three-pointed star."

“In the instant case, "Benz" is a name given to a very high priced and extremely well-engineered product. In my view, the defendant cannot dilute that by the user of the name "Benz" concerning a product like under-wears.”

William Grant & Sons Ltd. v. McDowell & Co. Ltd. 1994

Grant filed an action to restrain McDowell from copying the trade dress of GLENFIDDICH Scotch whisky. Grant had been exporting various whiskies to India since 1946 and GLENFIDDICH Single Malt Whisky since 1978. The GLENFIDDICH Single Malt Whisky was sold in a green bottle, and black cylindrical cartons bearing a label with a distinctive trade dress and unique features, which included a stag device that Grant contended had become exclusively associated with them and a thistle device which Grant alleged was a Scottish symbol indicating the origin of the product. Grant claimed trademark infringement and passing off alleging that McDowell used a label with a similar trade dress as the GLENFIDDICH label, including also a green bottle, a black cylindrical carton and stag and thistles devices.

McDowell denied that they were guilty of infringement and passing off, contending that their container and label were different and that the devices of a stag and thistles were common to the trade. The defendants also argued that the type of consumer who buys the product is well-informed and would never be confused or deceived and that their product was clearly marked McDowell's Single Malt Whisky.

The judge also ruled that McDowell appeared to be aware of the reputation of Grant's product, that the copying was deliberate and not accidental, and that the balance of convenience lay in favour of Grant whose time, money and effort had been expended in designing its label.

Can Bits of Linguistic Material be owned?

Should individuals and companies have the right to own parts of language?

And if so, where do we draw the line to ensure that trademarks don’t impinge on things like freedom of expression?

To explore this subject more, here are some famous trademark cases.

Victoria’s Secret v Victor’s Little Secret

In 2002, the American lingerie retailer Victoria’s Secret brought a case against Victor Moseley, proprietor of Victor’s Secret, a small sex shop in Kentucky; proceeding with the case even after he’d changed the name to ‘Victor’s Little Secret’. The basis for their action was one of trademark dilution. Victoria’s Secret claimed that the negative association with a sex shop tarnished their brand and reduced its recognisable uniqueness.

Initially, the court ruled against Victoria’s Secret on the grounds that in trademark dilution suits, actual harm to the brand needed to be demonstrated. However, as a result of this case, the law was changed in 2006 so that only the likelihood of harm needed to be shown, and the original decision of the court was overturned.

Use of ‘VOGUE My Style'

The New York and Paris publishing houses behind Vogue magazine took a Swiss watchmaker to court in 2009 for their use of the slogan ‘VOGUE My Style’. Lawyers for Vogue argued infringement on the grounds that the iconicity of the capitalised word ‘VOGUE’ made it a distinctive sign associated with the magazine. The publishers backed this claim up by conducting a poll among Swiss residents, finding that one in four of them associated the trademark with ‘a magazine of high quality'.

In 2012, the court ruled in Vogue’s favour, which sparked some criticism from those arguing that no meaningful association between two completely different products was likely to occur in the mind of the consumer.

Superhero

One of the most controversial trademarked words is ‘superhero’ and variations upon it. The trademark was jointly registered by Marvel and DC Comics in the 1960s. There has been much debate in legal circles over its legitimacy, with many claiming the word is descriptive rather than distinctive. To this day, Marvel and DC Comics actively maintain the trademark by initiating legal proceedings against other comics that try to use the word ‘superhero’ in their title or on related products.

Whether or not Marvel and DC Comics can claim ownership of a word like ‘superhero’ has never been fully tested in court, and some critics argue that they use the trademark to discourage competitors.

Apple Corps v Apple Inc.

About nine years after The Beatles formed their multimedia company Apple Corps, Steve Jobs et al. launched Apple Computer, now Apple Inc. and associated with numerous products worldwide(iPad, iPod, iPhone, etc.) That was in 1976, and on several high profile occasions since Apple Corps has filed suits against Apple Computer for trademark infringement. The first suit was settled in 1981, with Apple Computer making a monetary settlement and agreeing to stay out of the music business.

However, the two again crossed paths, first in 1989 when Apple Computer incorporated MIDI music playing ability in their products, and then in 2003 with the launch of iTunes. On both occasions, Apple Corps launched the action, losing for the first time on the second. The two companies have since put an end to this ongoing lawsuit, with an undisclosed settlement resulting in Apple Inc. now owning the trademark and licensing it out for specific uses to Apple Corps.

Linguistically, perhaps what’s most interesting about this case is how much importance two powerful companies place on a simple word like ‘apple’

Harjo v. Pro-Football Inc.

Pro-Football Inc is the corporate body that owns the Washington Redskins Football team, and in 1992 Susan Harjo, an activist for Native American rights, along with seven others, petitioned the Trademark Trial and Appeal Board to cancel several trademark registrations involving the use of the word ‘redskin’. Their argument was that the term was disparaging to Native Americans. Pro-Football Inc took legal action, and this resulted in the trademarks being reinstated.

The reason for their victory was due to a legal technicality known as laches, which prevents a claim from being made after an unreasonable delay. This case seems to demonstrate how discordance exists between property law and human rights in the American judicial system.

Alan Clark v The Evening Standard

Intellectual property law often treads a very fine line between creative protection and censorship, and there are perhaps few better illustrations of this than with parody and satire. For the most part, parody and satire are permitted under the legal concept of fair use, but then it has to be clear that that is what is indeed taking place.

In 1998, the Conservative MP Alan Clark made a claim against The Evening Standard for a parody of his famous diaries that they regularly published as ‘Alan Clark’s Secret Political Diary’. The publication included a photograph of Alan Clark, which, coupled with the fact that the name of the journalist was not prominently displayed, led to the claim that this misrepresented the author of the parody as being Clark himself. It was a claim backed up by the fact that angry constituents wrote to the MP attacking him for the extremist views represented by the parody.

Eventually, Clark won the case on the grounds that ‘passing off’ has occurred. However, many argue that this verdict was a slap in the face of free speech and that the satirical nature of the articles was obvious to anyone who had actually read them.

Gillette v LA Laboratories

In 2005 Gillette lost a case against LA Laboratories, a Finnish company that marketed razor blades under the trademark Parason Flexer. On the packaging for their razor blades, Parason Flexer included the words: ‘All Parason FLEXER® and Gillette SENSOR® handles are compatible with this razor blade’.

Although the distinct lettering of Gillette represented their trademark, the court ruled that this was for the purposes of making the function of the product easily recognisable to consumers. They concluded that the Parason Flexer was not trading off the Gillette brand, and in the interests of commerce and open competition in the EU, the use of the Gillette trademark was permitted.

Keep Calm and Carry On

A trademark dispute that is still currently pending concerns the slogan ‘Keep Calm and Carry On’, which has become very popular over the past few years. The slogan can be found plastered over all kinds of merchandise, from mugs to pencil cases, and it is easy to see why anyone making commercial gain from the brand would want to own the trademark.

The slogan and crown logo originate from a Government-sponsored public information campaign from 1939, intended in the event of a German invasion. In the end, most of the posters bearing the slogan were recalled, although not all. In 2000, after having discovered a copy among some new stock, the proprietors of a second-hand bookshop decided to start selling copies of the poster. As the crown copyright on creative works produced by the Government expires after 50 years, there was no issue of any trademark infringement. However, someone else has since registered a trademark in the EU (having failed to do so in the UK) and has trademarks pending in North America.

In linguistic terms, perhaps the real interest, in this case, lies in the public reaction against the trademarking of the slogan, with many arguing that the wording encapsulates the British spirit and should therefore be kept in the public domain.

Wrigley’s Doublemint

In 2003, the European Court of Justice rejected an attempt by the chewing gum company Wrigley’s to trademark the word Doublemint. The judgement boiled down to whether the word was purely descriptive or whether it activated consumers’ imagination to conjure up an impression of something uniquely identifiable with the product. In the end, the court ruled that the word is a compound that objectively references mint as a flavour and the fact that this flavour is doubled.

‘Genericide'

This point actually refers to not just one trademark case but all those trademarks that can be said to have fallen victim to genericide. The list is long and obviously includes many recognisable terms: hoover, elevator, aspirin, zipper, yo-yo.

Genericide or generification refers to when a trademark has come into general use and is no longer identifiable with a particular product. For this reason, many companies spend millions actively protecting their trademark, such as by encouraging the use of alternative generic terms. Nintendo has been known to promote the term ‘games console’. Companies also employ lawyers to regularly send letters to warn about infringement when people or companies use their trademark.

The owners of Google are particularly concerned about the effect that the verb ‘to google’ may have on their trademark. Still, in the age of the internet, it is impossible to control how people use language in the public domain, no matter how many letters are sent.

TRADEMARKS - Meaning, History, Registration , Assignment & Licensing

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TRADEMARKS

Meaning

A trademark or trademark is a distinctive sign or indicator of some kind that is used by an individual, business organization or other legal entity to uniquely IDENTIFY the source of its products and/or services to consumers and to distinguish its products or services from those of other entities

A trademark is a device that can take almost any form, as long as it is capable of identifying and distinguishing specific goods or services.

A trademark is a word, symbol, slogan, design, sound, colour etc. or combination thereof that serves to identify the source of goods or services and distinguish them from others.

A trademark may be designated by the following symbols

™ (for an UNREGISTERED TRADEMARK, that is, a mark used to promote or brand goods)

SM (for an unregistered SERVICE MARK, that is, a mark used to promote or brand services)

® (for a REGISTERED TRADEMARK)

Trademark Law

Indian trademark law provides protection to trademarks statutorily under the Trademark Act, 1999 and also under the common law remedy of Passing-Off;

Passing off is a common law tort that can be used to enforce unregistered trademark rights. The tort of passing off protects the goodwill of a trader from a misrepresentation that causes damage to goodwill;

Statutory protection of trademark is administered by the Controller General Of Patents, Designs and Trade Marks, a government agency which reports to the Department of Industrial Policy and Promotion(DIPP), under the Ministry of Commerce and Industry.

The law of trademark deals with the mechanism of registration, protection of trademark and prevention of fraudulent trademark;

The law also provides for the rights acquired by registration of a trademark, modes of transfer and assignment of the rights, nature of infringements, penalties for such infringement and remedies available to the owner in case of such infringement.

History

The law of trademark in India before 1940 was based on the common law principles of passing off and equity as followed in England before the enactment of the first Registration Act, 1875;

The first statutory law related to trademarks in India was the Trade Marks Act, 1940 which had similar provision to the UK Trade Marks Act, 1938;

In 1958, the Trade and Merchandise Marks Act, 1958 was enacted which consolidated the provisions related to trademarks contained in other statutes like, the Indian Penal Code, Criminal Procedure Code and the Sea Customs Act.

The Trade and Merchandise Marks Act, 1958 was repealed by the Trade Marks Act, 1999 and is the current governing law related to registered trademarks. The 1999 Act was enacted to comply with the provisions of the TRIPS(Agreement on Trade-Related Aspects of Intellectual Property Rights);

Though some aspects of the unregistered trademarks have been enacted into the 1999 Act, they are primarily governed by the common law rules based on the principles evolved out of the judgments of the Courts;

Where the law is ambiguous, the principles evolved and interpretation made by the Courts in England have been applied in India taking into consideration the context of our legal procedure, laws and realities of India.

Trademark

Trademark According to Section 2 (zb) of the Trade Marks Act,1999, “trademark means a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include the shape of goods, their packaging and combination of colours”

A mark can include a device, brand, heading, label, ticket, name, signature, word, letter, numeral, shape of goods, packaging or combination of colours or any such combinations.

Trademark Classification in India

Trademark in India is classified into about 45 different classes, which includes chemical substances used in industry, paints, lubricants machine and machine tools, medical and surgical instruments, stationery, lather, household, furniture, textiles, games, beverages preparatory material, building material, sanitary material, and hand tools, other scientific and educational products. These classes again are further sub-divided. The main objective of trademark classification is to group together the similar nature of goods and services. Here are the classes for product and for services.

Class 1 (Chemicals)

Class 2 (Paints)

Class 3 (Cosmetics and Cleaning Preparations)

Class 4 (Lubricants and Fuels)

Class 5 (Pharmaceuticals)

Class 6 (Metal Goods)

Class 7 (Machinery)

Class 8 (Hand Tools)

Class 9 (Electrical and Scientific Apparatus)

Class 10 (Medical Apparatus)

Class 11 (Environmental Control Apparatus)

Class 12 (Vehicles)

Class 13 (Firearms)

Class 14 (Jewellery)

Class 15 (Musical Instruments)

Class 16 (Paper Goods and Printed Matter)

Class 17 (Rubber Goods)

Class 18 (Leather Goods)

Class 19 (Non-metallic Building Materials)

Class 20 (Furniture and Articles Not Otherwise Classified)

Class 21 (Housewares and Glass)

Class 22 (Cordage and Fibres)

Class 23 (Yarns and Threads)

Class 24 (Fabrics)

Class 25 (Clothing)

Class 26 (Fancy Goods)

Class 27 (Floor Coverings)

Class 28 (Toys and Sporting Goods)

Class 29 (Meats and Processed Foods)

Class 30 (Staple Foods)

Class 31 (Natural Agricultural Products)

Class 32 (Light Beverages)

Class 33 (Wines and Spirits)

Class 34 (Smokers Articles)

SERVICES

Class 35 (Advertising and Business)

Class 36 (Insurance and Financial)

Class 37 (Building, Construction and Repair)

Class 38 (Telecommunication)

Class 39 (Transportation and Storage)

Class 40 (Treatment of Materials)

Class 41 (Education and Entertainment)

Class 42 (Computer, Scientific and Legal)

Class 43 (Hotels and Restaurants)

Class 44 (Medical, Beauty, and Agricultural)

Class 45 (Personal and Social Services)

Trademark Registration

What are the types of Trademarks that can be registered?

Under the Indian trademark law, the following are the types of trademarks that can be registered:

Product trademarks: are those that are affixed to identify goods

Service trademarks: are used to identify the services of an entity, such as the trademark for a broadcasting service, retails outlet, etc. They are used in advertising for services

Certification trademarks: are those that are capable of distinguishing the goods or services in connection with which it is used in the course of trade and which are certified by the proprietor with regard to their origin, material, the method of manufacture, the quality or other specific features

Collective trademarks: are registered in the name of groups, associations or other organizations for the use of members of the group in their commercial activities to indicate their membership of the group.

Advantages of Registration of Trademarks

Protects your hard-earned goodwill in the business
Protects your Name / Brand Name from being used in the same or similar fashion, by any other business firm, thus discourages others from cashing on your well-built goodwill.
Gives your products the status of Branded Goods.
Gives an impression to your customers that the company is selling some standard Products or Services.
The exclusive right to the use of the trademark in relation to the goods or services in respect of which the trademark is registered.
To obtain relief in respect of infringement (misuse by others) of the trademark.
Power to assign (transfer) the trademark to others for consideration.

Who may apply to register?

Any person claiming to be the proprietor of the trademark used or proposed to be used by him can apply.
The application may be made in the name of an individual, partners of a firm, a Corporation, any Government Department, a Trust or joint applicants.

What is the procedure for registration?

Sections 18-24 of Trademarks Act, 1999

The trademark Registry having its head office in Mumbai and branch offices at Delhi, Kolkata, Ahmedabad and Chennai keep a register of trademarks.

Procedures/Steps for Registration of Trademarks

Filing of an application for registration by a person claiming to be the proprietor of a trademark, in the office of the Trademark Registry, within the territorial limits of the place of business in India.
Examination of the application by the Registrar to ascertain whether it is distinctive and does not conflict with existing registered or pending trademarks and examination report is issued.
Publication of the application after or before acceptance of the application in the Trademark Journal.
After publication, if any person gives notice of his opposition to the registration within three months which may be extended to the maximum of one month.
If the opposition has been decided in favour of the applicant of the registration of a trademark, the Registrar shall register the Trademark.
On the registration of the Trademark the Registrar shall issue to the applicant a Trademark Registration
Today, as per the Trademark Rules, 2002, the application fees (similar to a tax) are Rs. 3500 per trademark.

REFUSAL OF TRADEMARK REGISTRATION

ABSOLUTE GROUNDS

Which is devoid of any distinctive character.
Which have become customary in the current language.
Which indicates the quality or other descriptive characters of the goods or services

RELATIVE GROUNDS

A mark, which by its very nature will deceive the public or cause confusion.
A mark, which is likely to hurt the religious susceptibilities.
A mark, which contains scandalous or obscene matter.
A mark, the use of which is prohibited under the Emblems and Names (Prevention of Improper Use) Act 1950

Term/Duration of a Trademark in India

The term of registration of a trademark is 10 (Ten) years but may be renewed subject to the payment of the prescribed fee, in accordance with the provisions of the Trademarks Act,1999.
Subsequent renewal is for seven years.

Non-use of a registered trademark for a continuous period of five years is a ground for cancellation of registration of such trademark

Use of the TM and ® symbols

Generally, one who has filed an application (pending registration) can use the TM (trademark) designation with the mark to alert the public of his exclusive claim. The claim may or may not be valid.

The registration symbol, ®may only be used when the mark is registered.

Assignment of Trademarks

Complete Assignment to another entity:

Here, the owner transfers all its rights with respect to a brand/mark to another entity including the transfer of the rights such as the right to further transfer, earn royalties, etc.

(E.g. X, the proprietor of a brand, sells his mark completely through an agreement to Y. After this X does not retain any rights with respect to the brand)

Assignment to another entity but with respect to only some of the goods/ services: Here, the transfer of ownership is restricted to specific product or service only.

(E.g. P, the proprietor of a brand used for jams and jellies and dairy products. P assigns the rights in the brand with respect to only dairy products and retains the rights in the brand with respect to jams and jellies. This is partial assignment)

Assignment with goodwill:
Such assignment is, where the rights and value of a trademark as associated with the product is also transferred to another entity.

(E.g. P, the proprietor of a brand “Nandini” relating to dairy products, sells his brand to Q such that Q will be able to use the brand “Nandini” with respect to dairy products as well as any other products it manufactures.)

Assigned without goodwill:
Such assignment also referred to as a gross assignment, is where the owner of the brand restricts the right of the buyer and does not allow him to use such brand for the products being used by the original owner.

(E.g. P, the proprietor of a brand “Nandini” relating to dairy products, sells his brand to Q such that Q will not be able to use the mark “Nandini” with respect to dairy products but can use this brand for any other products being manufactured by it. In such case the goodwill which is associated with brand “Nandini” for dairy products is not transferred to Q and Q will be required to create distinct goodwill of brand “Nandini” for any other product or service like Restaurant wherein Q proposes to use this brand.)

In many jurisdictions like the United States, assignment of the mark without goodwill is not allowed at all. India on the other hand allows assignment without goodwill.

Restrictions on Assignments

In the case of registered Trademarks, the Trade Mark Act 1999 puts certain restrictions on the assignment of a registered trademark wherein there exist possibilities of creating confusion in the mind of the public/ users. Such restrictions are:

Restriction on an assignment that results in the creation of exclusive rights in more than one persons with respect to the same goods or services, or for the same description of goods or services or such goods or services as associated with each other.
Restriction on an assignment that results in different people using the trademark in different parts of the country simultaneously.

Licensing of Trademarks

The Trademarks Act does not mention the term ‘License’, the concept under the Act is mentioned as that of a ‘Registered User’.
Trademark licensing is advantageous to both parties. While the licensor enjoys its rights to the mark by getting the royalties for its use, the licensee is able to expand its market operations by using the brand and developing its reputation.
In the case of Licensing, the licensor is open to licensing the rights over the trademark in the manner it may like.
The Licensor can restrict the rights of the licensee in a trademark or brand with respect to the products or services wherein the licensee can use such brand with respect to time for which it can use such brand, with respect to area within which it can use such brand etc.

COPYRIGHT - A Few Important Cases

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FEW IMPORTANT CASES

THE HANGOVER PART II (2011)

THE LAWSUIT: S. VICTOR WHITMILL VS. WARNER BROS.

In April 2011, tattoo artist S. Victor Whitmill sued Warner Bros. for copyright infringement in the film The Hangover Part II. In the film, Stu (Ed Helms) wakes up after a night of debauchery in a Bangkok hotel with a replica of Mike Tyson’s tribal face tattoo. The plaintiff designed the tattoo specifically for Mike Tyson and therefore claimed it was a copyrighted work. Whitmill claimed that Warner Bros. had no right to put his work in the film or in any promotional materials attached to The Hangover Part II.

The lawsuit almost affected the release of the film, and there was the possibility that if the two parties couldn’t come to an agreement, the face tattoo would have to be digitally lifted from Helms’ face for the home video release. Ultimately, Warner Bros. settled Whitmill’s claim for an undisclosed amount, and The Hangover Part II went on to gross $581.4 million worldwide.

AVATAR (2009)

THE LAWSUIT: WILLIAM ROGER DEAN VS. JAMES CAMERON, TWENTIETH CENTURY FOX, ET AL.

In June 2013, album cover artist William Roger Dean filed a lawsuit against James Cameron and Twentieth Century Fox under copyright infringement for the alien planet design in Avatar. Dean claims that Pandora’s look is extremely similar to the fantasy landscapes depicted in his artwork on the books Magnetic Storm, Views, and Dragon’s Dream. The lawsuit cites a number of examples from Cameron’s 3D film, including the alien world’s foliage, floating islands, stone arches, and creature design.

William Roger Dean worked on the album covers for best-selling rock bands including Yes and Asia. Dean is seeking upwards of $50 million in damages, an injunction against distribution, full accounting, and a court order that makes it clear that James Cameron ripped off his work. He also wants those rights enforced and posted on current and any future Avatar projects.

AVATAR (2009)

THE LAWSUIT: WILLIAM ROGER DEAN VS. JAMES CAMERON, TWENTIETH CENTURY FOX, ET AL.

On Sept 17th 2014, the Judge called several of Dean's claims "misguided," noting that as evidence, the artist included images from "books about or derived from Avatar" rather than the film. The judge also noted that images from the film were cropped, rotated and otherwise taken "out of context" in an attempt to make them look similar to Dean's paintings, which were in turn also manipulated by the artist.

Cameron previously won multiple Avatar idea theft cases, including one brought by a man who claimed the film ripped off one of his short stories and an artist who also alleged his work inspired the film.

PIXAR ANIMATION

THE LAWSUIT: LUXO VS. WALT DISNEY COMPANY

In 2009, Norwegian lamp manufacturers Luxo sued the animation studio Pixar and its parent company Walt Disney for copyright infringement. Although Luxo had turned a blind eye to Pixar’s use of their design since John Lasseter’s short film Luxo Jr. in 1986, the company filed a complaint when Pixar started to sell replicas of the Luxo Jr. lamp with a special Blu-ray release of the film UP without their permission. The lawsuit also cited the use of the Luxo brand name on a six-foot-tall animatronic lamp at Hollywood Studios inside Florida's Walt Disney World.

A few months later, Disney and Luxo reached a settlement and the lawsuit was withdrawn. For the time being, Luxo has no problems with any “artistic renditions” of their iconic lamp. Luxo Jr. has been Pixar’s mascot since 1986.

GEORGE HARRISON VS BRIGHT TUNES MUSIC CORP.

George Harrison’s ‘My Sweet Lord’ was released on January 15, 1971, and hit the charts on January 23, 1971, as George Harrison’s first solo single. It was released under the Apple label and enjoyed the number one spot originally for five weeks, then in 2002, again for one week. It remained on the charts for a total of twenty-seven weeks. All of this is the good news.

The not so good news involves a song called “He’s So Fine” recorded by the Chiffons in 1962 and then moved under the Bright Tunes Music Corp label in 1971. The Chiffon’s song did well in the United States and received a lukewarm reception in the UK.

February 10th, 1971, Bright Tunes filed a suit against George Harrison inclusive of his English and American companies. The suit also included Apple Records, BMI and Hansen Publications. Though an out of court settlement was approached, including an offer of 148,000.00, but it never reached fruition before the court case proceeded, as the attorneys for Bright Tunes Music Corp. wanted seventy-five per cent of the royalties and the surrendering of the copyright for My Sweet Lord.

The case waited to be heard for five years, during which time George Harrison’s attorneys continued to try to settle out of court. The case was heard in court for the first time, in February of 1976, George Harrison’s attorneys tried to prove out the difference between the two songs, but with little success. The judge found that though he didn’t believe George Harrison purposefully plagiarized the song, the two songs were essentially the same, only displaying minor differences in note and chord. George Harrison was found guilty of ‘subconscious plagiarism’ and a judgment was filed against him in the amount of $587,000.00 of which the full amount was paid and the judgment dismissed in 1981.

MICHAEL BOLTON VS THE ISLEY BROTHERS

The Isley Brothers aren’t as well known a name as Michael Bolton, but unfortunately for Mr Bolton, they share a song with the same name and some of the same lyrics. The Isley Brothers song was released in 1966 under the name “Love is a Wonderful Thing, Michael Bolton’s song was released in 1991.

A suit was brought against Michael Bolton by the Isley Brothers for allegedly lifting parts from their original song of the same name and in 1991 Despite Michael Bolton and the co-author of the song’s argument that there was insufficient evidence supporting the jury’s findings, the district court found in favour of the Isley Brothers and left the largest award in history for plagiarism in the music industry intact. The Isley Brothers were awarded 5.4 million dollars, the calculation based on sixty-six per cent of past and future royalties. (Also taken into account was twenty-eight per cent of the past and future royalties of the album Time, Love and Tenderness as Love is a Wonderful thing is contained within that album).

VANILLA ICE VS QUEEN & BOWIE

Vanilla Ice became a household word for a while, not because of his talent, but because of the copyright infringement that occurred in 1990 when it came to light that he had sampled Queen and David Bowie’s “Under Pressure” without consent or license. Ice Ice Baby hit number one on the charts in the United States and Vanilla Ice became the one ‘under pressure’. Vanilla Ice altered the rhythm of the baseline thinking he would thereby avoid any question of credit, royalties, license or even permission. This case never went to court as it was clear that Vanilla Ice had stolen the sample without permission. He settled out of court with Queen and David Bowie for an undisclosed but very likely very high amount. Ice Ice Baby has been released in many different versions, since then, with all of the legal procedures followed.

A&M RECORDS VS. NAPSTER

For those who don't remember, Napster was a popular peer-to-peer file-sharing network that launched in 1999. It had an amazingly large fan base of music lovers who shared .mp3s.

However, two years later the company was involved in a joint lawsuit filed by various record companies.

They didn't like the large-scale distribution of their music for free, and so sued the company for infringement on their intellectual property. This is what makes this case one of the most famous copyright infringement cases in history.

The court ruled against Napster and the company was forced to shut down the site after making a public apology and paying $26m in damages. It was their lack of effort to reduce infringement, mixed with the fact that the company financially benefitted from it that set the decision in stone.

APPLE VS MICROSOFT

The battle between these tech giants started with a simple question: who invented the graphical user interface (GUI)? The company that controls the interface of the next major operating system will have the ability to set the standards for application software, so it's unsurprising that Apple tried to stop Windows from becoming a major operating system.

It seemed that although Microsoft helped develop Macintosh, Jean-Louis Gassée, who had taken over from Steve Jobs at the time, refused to allow Microsoft to use their software. Bill Gates pressed on nonetheless, deciding to add in features of its own to early prototypes of the Macintosh.

When Gassée noted the software, he was enraged. However, he didn't want a lawsuit and ended up agreeing to license the Mac's visual displays. But Windows 2.0 turned out to be almost identical, and Gassée believed it to be a breach of contract, only having allowed their software to be used for 1.0 and not future versions.

So, without warning, Apple filed a lawsuit against Microsoft in 1988. Apple’s case included 189 contested visual displays that violated its copyright. This led to a six-year-long battle.

In 1989, the court ruled that 179 of the 189 disputed displays were covered by the existing license. Furthermore, the other ten were not violations of Apple’s copyright due to the merger doctrine, where the idea-expression divide limits the scope of copyright protection by differentiating an idea from the manifestation of that idea.

The lawsuit was decided in Microsoft’s favour on August 24, 1993.

APPLE VS GOOGLE

Apple is no stranger to the court, especially when it comes to Google. After all, there are several companies that are making phones using Google's Android software. Steve Jobs repeatedly called the Android a "stolen product. I'm willing to go thermonuclear war on this.”

Apparently, things got so heated between Apple and Google that former Google CEO (and current chairman) Eric Schmidt stepped down from his position on Apple's Board of Directors.

In 2010, Apple sued Samsung. Google had to step in and help Samsung partly due to a 'Mobile Application Distribution Agreement'. A Google lawyer revealed that the company agreed to “provide partial or full indemnity with regard to four patents.”

APPLE VS GOOGLE

And in one of the highest-profile lawsuits in technology, Motorola sued Apple at the same time Samsung was taken to court. Motorola accused Apple of infringing several patents, which included how cellphones operated on a 3G network. On the other hand, Apple claimed that Motorola violated its patent to certain smartphone features.

The case was dismissed in 2012, the year that Google acquired Motorola, on grounds that neither company had sufficient evidence. In fact, frustrated judges have thrown Apple vs Motorola out of court three times, telling them to solve their problems between themselves.

Although Apple hasn't attacked Google, probably due to the fact that Google provides a variety of iOS software. Instead, the company chooses to go for the company selling Android devices, but it seems that the search giant is intent on defending Android.

It was only on 16 May 2014 that Apple and Google released a joint statement saying that they have agreed to settle all patent litigation between them and that they will also “work together in some areas of patent reform”.

COPYRIGHT - Infringement

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COPYRIGHT INFRINGEMENT

Copyright infringement (or copyright violation) is the unauthorized or prohibited use of works covered by copyright law in a way that violates one of the copyright owner's exclusive rights, such as the right to reproduce or perform the copyrighted work or to make derivative works.

For electronic and audio-visual media, unauthorized reproduction and distribution are also commonly referred to as piracy.

Copyright infringement occurs when a copyrighted work is reproduced, distributed, performed, publicly displayed, or made into a derivative work without the permission of the copyright owner.

Meaning and types of infringement

When a person intentionally or unintentionally copies or uses the work of another creator, without his prior consent or permission, or any contract or license or assignment with the author as covered by the copyright law, it amounts to infringement.

Infringement can be broadly classified into two:-

Primary infringement;
Secondary infringement.

Primary infringement deals with the real act of copying, while secondary infringement deals with other kinds of dealing like selling the pirated books, importing etc.

REMEDIES

The remedies for copyright infringement are:

Civil
Criminal, and
Administrative

CIVIL REMEDIES

INTERLOCUTORY INJUNCTIONS:

Requirements for the grant of interim injunction, namely,

Prima facie case
Balance of Convenience; and
Irreparable injury

PECUNIARY REMEDIES: The plaintiff, under sections 55 and 58, can seek recovery of all three remedies, namely

account of profits
compensatory damages and
conversion damages which are assessed on the basis of the value of the article converted.

ANTON PILLER ORDERS: Anton Piller Order has the following elements:

An injunction restraining the defendant from dealing in the infringing goods or destroying them;
An order that the plaintiff's solicitors be permitted to enter the premises of the defendants, search the same and take goods in their safe custody; and
An order that the defendant be directed to disclose the names and addresses of suppliers and customers and also to file an affidavit within a specified time giving this information.

ASSET FREEZING (MAREVA INJUNCTION): is an order which temporarily freezes the assets of a defendant, thus preventing the defendant from frustrating the judgement by disposal of such assets. (after the case Mareva Compania Naviera SA v International Bulkcarriers SA, [1975])

NORWICH PHARMACAL ORDERS: These are orders by which information can be discovered from third parties. It is granted against a third party that has been innocently mixed up in wrongdoing, forcing the disclosure of documents or information. By identifying individuals, the documents and information sought are disclosed in order to assist the applicant for such an order in bringing legal proceedings against individuals who are believed to have wronged the applicant. (A Norwich Pharmacal order was first granted in 1974 by the House of Lords in Norwich Pharmacal Co. v Customs and Excise Commissioners)

CRIMINAL REMEDIES

Any person who knowingly infringes or abets the infringement of the copyright in any work commits a criminal offence under Section 63 of the Copyright Act.

The minimum punishment for infringement of copyright is imprisonment for six months with a minimum fine of Rs. 50,000/-.

In the case of a second and subsequent conviction, the minimum punishment is imprisonment for one year and a fine of Rs. one lakh.

Any police officer, not below the rank of a sub-inspector, may, if he is satisfied that an offence in respect of the infringement of copyright in any work has been, is being, or is likely to be committed, seize without warrant, all copies of the work and all plates used for the purpose of making infringing copies of the work, wherever found, and all copies and plates so seized shall, as soon as practicable be produced before a magistrate.

JURISDICTION

No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence under the Copyright Act.

ADMINISTRATIVE REMEDIES

Administrative remedies consist of moving the Registrar of copyrights to ban the import of infringing copies into India when the infringement is by way of such importation and the delivery of the confiscated infringing copies to the owner of the copyright and seeking the delivery.

DEFENSES TO INFRINGEMENT

A defendant in an infringement action may rebut the presumption of copying by a showing of independent creation.

It is possible for an author to create a work independently while bearing similarities to another.
If access is not established, there is no copying, even if there is a striking similarity between the two works.
For this reason, corporations will destroy or return unsolicited mailings from authors as a policy.
Some acts that would otherwise be a copyright infringement are excused through the concept of "fair use."

The statute states that use for purposes of criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research is fair use.

As to works not in these categories, the statute states that the factors to be considered include the purpose and character of the use, including whether it is of a commercial nature or for non-profit educational purposes; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and the effect of the use upon a potential market for or value of the copyrighted work.

This involves balancing the interests of the copyright owner and the one copying the material.

FAIR USE

The doctrine of fair use or fair dealing is an integral part of copyright law.

It permits reproduction of the copyrighted work or use in a manner, which but for the exception, carved out would have amounted to infringement of copyright. It has, thus, kept out the mischief of the copyright law.

The defence of fair dealing originated as an equitable doctrine allowing certain uses of literary works that copyright would otherwise have prohibited if prohibiting such uses would stifle the very creativity which that law is designated to foster.

Fair dealing also serves as an answer to those “fair” copyright proponents who actively argue that copyright, not being a patent, is not an absolute right and should therefore be balanced against user rights.

Indeed the fair dealing doctrine is “a key part of the social bargain at the heart of the copyright law, in which as a society we concede certain limited individual property rights to ensure the benefits of creativity to a living culture”

EXEMPTIONS

Subject to certain conditions, the law allows any use of a work without the permission of the owner of the copyright. Some of the exemptions are the uses of the work:

for the purpose of research or private study,
for criticism or review,
for reporting current events,
in connection with a judicial proceeding,
performance by an amateur club or society if the performance is given to a non-paying audience, and
the making of sound recordings of literary, dramatic or musical works under certain conditions.

COPYRIGHT - Assignment, Adaptation, Registration & Rights

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ASSIGNMENT

A copyright assignment is when the copyright holder transfers ownership of the copyright to another person or organization.

The copyright holder is normally the person who created the work. Still, they may decide to sign the agreement over to a publisher (in the book industry or music industry) or record label (in the music industry). This occurs because publishers and record labels have more resources than an author to print copies of the work, distribute to a broader audience, and maintain other aspects of their career. Often, the publisher or record label may even supply the author with a monetary advance so the author can focus on just creating the work.

The downside of assigning your copyright over to a publisher is that you receive only a cut of what you would have received if you retain the copyright, and you may also lose some creative control. For instance, deciding whether to turn your book into a movie may now rest with the publisher and not you.

An alternative of transferring the entire copyright over to a publisher is licensing the work to them in a limited capacity. In this instance, you retain the copyright, but you also get the business advantages from the publisher.

Debates have popped into court over who actually owns the copyright. So like any other contract, an assignment must be in writing to avoid any future confusion.

Assignment of Copyrights can be made in whole or in part either generally or subject to limitations and either for the whole term of the copyright or any part thereof.

In other words, you may assign away 50%, 1%, or 99% of your interest in that Copyright. Assignments may be integrated into a contract or maybe drafted separately.

Mode of assigning copyright

It shall be in writing signed by the assignor or by his duly authorised agent. It shall identify the specific works and specify the rights assigned and the duration and territorial extent of such assignment. It shall also specify the amount of royalty payable, if any, to the author or his legal heirs during the currency of the assignment and the assignment shall be subject to revision, extension or termination on terms mutually agreed upon by the parties.

Period of assignment

If the assignment period is not stated, it shall be deemed to be five years from the date of assignment.

Assignment and License

A license is an authorization of an act which, without such authorization, becomes infringement.

In essence, a license is a grant of authority to do a particular thing that otherwise could not have been done.

It amounts to consent or permission granted by the owner of a copyright that the licensee could carry out a restricted act which but for such permission could have been an infringement.

Owner of copyright in an existing work or future work ‘may grant any interest in the right by license in writing signed by him or his duly authorized agent’ (S. 30)

K.A. Venugopala Setty v. Dr. Suryakantha U. Kamath AIR 1992 Kar 1.

It is the case of the plaintiff that he is the author of the book "A Concise History of Karnataka" and the manuscript of the same was given to the defendant for printing; that he had not assigned his copyright to the defendant and therefore, the defendant was and is not entitled to publish the book without assignment of the copyright in writing to him by the plaintiff; that when the book was printed and ready for publishing, the defendant came forward with the plea that the plaintiff had assigned the copy-right though no such assignment had been made by the plaintiff either orally or in writing; that as the defendant tried to publish the book claiming that the plaintiff had assigned the copyright of the book in question, the plaintiff had no other go but to seek relief as claimed in the suit.

Section 19 of the Act provides that:

An assignment of copyright should be in writing signed by the owner of the copyright.
Mere acceptance of remuneration or delivery of manuscript does not constitute an assignment of copyright.
An oral assignment is invalid, and it is impermissible in law. (Section 19 requires that the assignment should be in writing signed by the assignor or by his duly authorized agent—if the assignment appears from any document and it is signed by the assignor or by his authorized agent, the statutory requirement is fulfilled.)

Assignment – Points to Ponder

Transfer of ownership of the rights

Assignment leaves nothing in the grantor *qua; the right assigned bestowing in the grantee the whole of the legal interest in the right. (*in the capacity of; as being)

Capacity to sue for infringement

A licensee cannot sue for infringement of copyright unless he joins the copyright owner as a co-plaintiff in the action.

Sec. 61. Owners of copyright to be a party to the proceeding.—

(1) In every civil suit or other proceedings regarding infringement of copyright instituted by an exclusive licensee, the owner of the copyright shall, unless the court otherwise directs, be made a defendant. Where such owner is made a defendant, he shall have the right to dispute the claim of the exclusive licensee.

(2) Where any civil suit or other proceedings regarding infringement of copyright instituted by an exclusive licensee is successful, no fresh suit or other proceedings in respect of the same cause of action shall lie at the instance of the owner of the copyright.

Rights in a musical sound recording

A sound recording generally comprises various rights, For example, the lyricist who wrote the lyrics, the composer who set the music, the singer who sang the song, the musician (s) who performed the background music. It is necessary to obtain the licences from each and every right owner in the sound recording. This would, inter alia, include the producer of the sound recording, the lyricist who wrote the lyrics, and the musician who composed the music.

Owner of copyright in works by journalists during the course of their employment.

In the case of a literary, dramatic or artistic work made by the author in the course of his employment by the proprietor of a newspaper, magazine or similar periodical under a contract of service or apprenticeship, for the purpose of publication in a newspaper, magazine or similar periodical, the said proprietor shall, in the absence of any agreement to the contrary, be the first owner of the copyright in the work in so far as the copyright relates to the publication of the work in any newspaper, magazine or similar periodical, or to the reproduction of the work for the purpose of its being so published. Still, in all other respects, the author shall be the first copyright owner in the work.

Owner of the copyright in the case of a work produced for valuable consideration at the instance of another person

In the case of a photograph taken, or a painting or portrait drawn, or an engraving or a cinematograph film made, for valuable consideration at the instance of any person, such person shall, in the absence of any agreement to the contrary, be the first owner of the copyright therein.

ADAPTATION

In the law of copyrights, the exclusive right of the author of a literary project to reproduce, publish, and sell his or her work, which is granted by statute, adaptation refers to the creation of a derivative work, which is protected by copyright laws.

A derivative work involves a recasting or translation process that incorporates pre-existing material capable of protection by copyright.

An adaptation is copyrighted if it meets the requirement of originality, in the sense that the author has created it by his or her own proficiency, labour, and judgment without directly copying or subtly imitating the pre-existing material.

Mere minor alterations will not suffice.

The Copyright Act defines the following acts as adaptations:

Conversion of a dramatic work into a non-dramatic work

Conversion of a literary or artistic work into a dramatic work

Re-arrangement of a literary or dramatic work

Depiction in a comic form or through pictures of a literary or dramatic work

Transcription of a musical work or any act involving re-arrangement or alteration of an existing work.

The making of a cinematograph film of a literary or dramatic or musical work is also an adaptation.

Copyright over news

There is no copyright over the news.

However, there is copyright over the way in which a news item is reported.

COPYRIGHT OFFICE

Section 9 of the Copyright Act requires for the establishment of an office to be called the Copyright Office for the purpose of the Act. The Copyright Office is to be under the immediate control of a Registrar of Copyrights to be appointed by the Central Government, who would act under the superintendence and directions of the Central Government.

The Copyright Office is currently located at the following address:

4th Floor, Jeevan Deep Building

Parliament Street

New Delhi - 110001

Telephone No. : +91-11-23362436

Copyright Board

Section 11 of the Act provides for the establishment of the Copyright Board and empowers the Central Government to constitute the same consisting of a Chairman and not less than two, but not more than fourteen members.

The Chairman of the Board should be a sitting or retired judge of the High Court or a person qualified to be appointed as judge of the High Court.

The Registrar of Copyright to act as Secretary of the Copyright Board. (The Copyright Board has no powers to limit the use of copyright to any particular territorial area. The appeal against orders passed by the Copyright Board to the High Court within whose jurisdiction the appellant resides or carries on business.)

Functions of the Copyright Board

The main functions of the Copyright Board are as under:

Settlement of disputes as to whether copies of any literary, dramatic or artistic work or records are issued to the public in sufficient numbers.
Settlement of disputes as to whether the term of copyright for any work is shorter in any other country than that provided for that work under the Act.
Settlement of disputes with respect to assignment of copyright as dealt with in Section 19A.
Granting of compulsory licences in respect of Indian works withheld from the public.
Granting of compulsory licence to publish unpublished Indian works.
Granting of compulsory licence to produce and publish the translation of literary and dramatic works.
Granting of compulsory licence to reproduce and publish literary, scientific or artistic works for certain purposes.
Determination of royalties payable to the owner of the copyright.
Determination of objection lodged by any person as to the fees charged by Performing Rights Societies.
Rectification of Register on the application of the Registrar of Copyright or of any person aggrieved.

REGISTRATION OF A COPYRIGHT

Chapter VI of the Copyright Rules, 1956, as amended, sets out the procedure for the registration of a work.

The procedure for registration is as follows:

Application for registration is to be made on Form IV ( Including Statement of Particulars and Statement of Further Particulars) as prescribed in the first schedule to the Rules ;
Separate applications should be made for registration of each work;
Each application should be accompanied by the requisite fee prescribed in the second schedule to the Rules; and
The applications should be signed by the applicant or the advocate in whose favour a Vakalatnama or Power of Attorney (neither notarization nor consular legalization required) has been executed.
A power of attorney signed by the party and accepted by the advocate should also be enclosed.
Both published and unpublished works can be registered.
Three copies of published work may be sent along with the application.
If the work to be registered is unpublished, a copy of the manuscript has to be sent along with the application for affixing the stamp of the Copyright Office in proof of the work having been registered.
In case two copies of the manuscript are sent, one copy of the same duly stamped will be returned, while the other will be retained, as far as possible, in the Copyright Office for record and will be kept confidential.
It would also be open to the applicant to send only extracts from the unpublished work instead of the whole manuscript and ask for the return of the extracts after being stamped with the seal of the Copyright Office.
If the work is a Computer programme, in addition to the above 3 Copies of the work in CD or Floppy Diskette must be provided.

Steps involved in getting a copyright registration certificate:

The application with complete details is filed.
Thereafter, the application is examined, and objections, if any, are raised.
The certificate is issued by the copyright office after the objections, if any, are removed to the satisfaction of the department.
When a work has been registered as unpublished, and subsequently it is published, the applicant may apply for changes in particulars entered in the Register of Copyright in Form V with a prescribed fee.

PERFORMER'S RIGHTS

As per the Indian Copyright Act, a "Performer" includes an actor, singer, musician, dancer, acrobat, juggler, conjurer, snake charmer, a person delivering a lecture or any other person who makes a performance.

"Performance" in relation to performer’s right means any visual or acoustic presentation made live by one or more performers.

Rights of a performer:

A performer has the following rights in his/her performance:

Right to make a sound recording or visual recording of the performance;
Right to reproduce the sound recording or visual recording of the performance;
Right to broadcast the performance;
Right to communicate the performance to the public otherwise than by broadcast.
Performer’s rights subsist for 25 years.

Protection of Foreign Works

The Indian Copyright Act today is compliant with most international conventions and treaties in the field of copyrights. India is a member of the Berne Convention of 1886 (as modified at Paris in 1971), the Universal Copyright Convention of 1951 and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement of 1995.

Though India is not a member of the Rome Convention of 1961, the Copyright Act, 1957 is fully compliant with the Rome Convention provisions.

Copyright of nationals of countries who are members of the Berne Convention for the Protection of Literary and Artistic Works, Universal Copyright Convention and the TRIPS Agreement are protected in India through the International Copyright Order.

The Berne Convention and the TRIPS Agreement stipulate the subsistence of copyright in original literary, dramatic, musical and artistic works; cinematographic film and sound recordings.

These classes include a variety of works like books, pamphlets and other writings; lectures, addresses, sermons; dramatic or dramatic-musical works, choreographic works; musical composition, chirographic works; drawing, painting, architecture, sculpture, engraving; and lithography, photography, maps, plans, sketches, three-dimensional works, translations, encyclopaedias and anthologies, software codes, multimedia productions, etc.

Statutory Licence for Cover Versions

Section 31C (1) provides that any person desirous of making a cover version, being a sound recording in respect of any literary, dramatic or musical work, where sound recordings of that work have been made by or with the licence or consent of the owner of the right in the work, may do so subject to the provisions of this section.

However, such sound recordings shall be in the same medium as the last recording, unless the medium of the last recording is no longer in current commercial use.

The person making the sound recordings required to give prior notice of his intention to make the sound recordings in the manner as may be prescribed, and provide in advance copies of all covers or labels with which the sound recordings are to be sold, and pay in advance, to the owner of rights in each work royalties in respect of all copies to be made by him, at the rate fixed by the Copyright Board.

It may be noted that such sound recordings shall not be sold or issued in any form of packaging or with any cover or label which is likely to mislead or confuse the public as to their identity, and in particular shall not contain the name or depict in any way any performer of an earlier sound recording of the same work or any cinematograph film in which such sound recording was incorporated and, further, shall state on the cover that it is a cover version made under this section.

The person making such sound recordings shall not make any alteration in the literary or musical work which has not been made previously by or with the consent of the owner of rights or which is not technically necessary for the purpose of making the sound recordings.

However, such sound recordings shall not be made until the expiration of five calendar years after the end of the year in which the first sound recordings of the work was made.

It may be noted that the cover version means a sound recording made in accordance with this Section 31C of the Act.

Statutory Licence for Broadcasting of Literary and Musical Works and Sound Recording

Section 31D provides that any broadcasting organisation desirous of communicating to the public by way of a broadcast or by way of performance of a literary or musical work and sound recording which has already been published may do so subject to the fulfilment of prescribed conditions.

The broadcasting organisation required to give prior notice in the prescribed manner of its intention to broadcast the work stating the duration and territorial coverage of the broadcast, and pay to the owner of rights in each work royalties in the manner and at the rate fixed by the Copyright Board.

The rates of royalty for radio broadcasting shall be different from television broadcasting, and the copyright Board shall fix separate rates for radio broadcasting and television broadcasting and the broadcasting organisation to pay an advance to the owners of rights.

The broadcasting organisation required to maintain such records and books of account, and render to the owners of rights such reports and accounts; and allow the owner of rights or his duly authorised agent or representative to inspect all records and books of account relating to such broadcast in prescribed manner.

Licence to Produce and Publish Translations

Section 32 entitles any person to apply to the Copyright Board for a licence to produce and publish a translation of a literary or dramatic work in any language after a period of seven years from the first publication of the work.

However, in respect of teaching, scholarship or research, Section 32(1A) allows any person to apply to the Copyright Board for a licence to produce and publish a translation, in printed or analogous forms of reproduction, of a literary or dramatic work, other than an Indian work, in any language in general use in India after a period of three years from the first publication of such work.

Further, where such translation is in a language not in general use in any developed country, such application may be made after a period of one year from such publication.

Termination of Licence

Section 32B of the Act deals with termination of licences and provides that if at any time after the granting of a licence, the owner of the copyright in the work or any person authorised by him publishes a translation of such work in the same language and which is substantially the same in content at a price reasonably related to the price normally charged in India for the translation of works of the same standard on the same or similar subject, the licence so granted shall be terminated.

However, such termination shall take effect only after the expiry of a period of three months from the date of service of a notice in the prescribed manner on the person holding such licence by the owner of the right of translation intimating the publication of the translation.

Copyright Societies

Under clause (3) of Section 33 Central Government has been authorised to register association of persons as copyright society after taking into account the following factors:

the interests of the authors and other owners of rights under the Copyright Act;
the interest and convenience of the public and in particular of the groups of persons who are most likely to seek licences in respect of the relevant rights; and
the ability and professional competence of the applicants.

However, an owner of copyright in his individual capacity continues to have the right to grant licences in respect of his own works consistent with his obligations as a member of the registered copyright society.

The Central Government cannot register more than one copyright society to do business in respect of the same class of works.

The Central Government has been empowered to cancel the registration of a Copyright Society if its management is detrimental to the interests of the owners of rights concerned.

The registration can also be suspended by the Government for a period of one year if it is necessary in the interest of the owners of the rights concerned, and the government has to appoint an administrator to discharge the functions of the Copyright Society.

Copyright Society is a legal body that protects or safeguards the interest of owners of the work in which copyright subsist. The Copyright Societies gives assurance to the creative authors of the commercial management of their works.

The authors of creative works licence a publisher to publish the work on a royalty basis. This may lead to infringement of the work anywhere in India or abroad as it is extremely difficult for the owner of the work to prevent such infringement. To overcome such difficulty, owners of Copyright works have formed Societies to licence their works for performance or communication to the public or issue copies of the work to the public.

The Copyright societies are also authorized to watch out for infringement of the copyright and take appropriate legal action against the infringers.

Section 34(3) empowers the Copyright Society to:

issue licences under Section 30 in respect of any rights under the Act;
collect fees in pursuance of such licences;
distribute such fees among owners of rights after making deductions for its own expenses; and
perform any other function consistent with the provisions of Section 35.

FUNCTIONS OF A COPYRIGHT SOCIETY:

It grants the license of the Copyright in the work for reproduction, performance or communication to the public.
It locates the infringement of the Copyright and initiates legal proceedings.

COPYRIGHT - INTRODUCTION

2021-06-20T22:36:00.005-07:00

COPYRIGHT

Copyright in India

What is a Copyright?

Copyright is a right given by the law to creators of literary, dramatic, musical and artistic works and producers of cinematograph films and sound recordings.

In fact, it is a bundle of rights including, among other things, rights of reproduction, communication to the public, adaptation and translation of the work.

It means the sole right to produce or reproduce the work or any substantial part thereof in any material form whatsoever.

Copyright assumes supreme importance for authors, artists, architects, composers, music production companies and producers, film production companies, computer programmers and designers.

USE OF THE "©" SYMBOL

Anyone who claims copyrights in a work can use copyright notice to alert the public of the claim.

It is unnecessary to have a registration to use the designations. However, it is highly advisable to incorporate a copyright notice like the symbol, letter "c" in a circle or the word "Copyright" followed by the name of the copyright owner and year of first publication.

HISTORY

Before the signing and the subsequent introduction of the 1957 Act, the copyright laws of India were governed by the Copyright Act of 1914. This act was linked to the British Copyright of 1911 to India.

Most of the laws contained in the Copyright Act of 1957 are based on the copyright law of the United Kingdom--specifically the Copyright Act of 1956.

India's copyright laws comply with most international conventions and treaties dealing with copyright protection. The country is a member of the Berne Convention of 1886, the Universal Copyright Convention of 1951 and the Agreement on Trade-Related Aspects of Intellectual Property Rights Agreement of 1995--or TRIPS. The country is not a signatory to the Rome Convention of 1961, but the laws regarding the copyrights in the country still comply with the convention.

The Copyright Act, 1957 protects original literary, dramatic, musical and artistic works and cinematograph films and sound recordings from unauthorized uses.

India's Copyright Act, 1957, has been significantly amended.

In May 2012, both houses of the Indian Parliament unanimously placed their seal on the Copyright Amendment Bill, 2012, bringing Indian copyright law into compliance with the World Intellectual Property Organization "Internet Treaties".

(The Copyright Act, 1957 had been amended five times before 2012, once each in 1983, 1984, 1992, 1994 and 1999, to meet with the national and international requirements.)

The 2012 amendments make Indian Copyright Law compliant with the Internet Treaties – the WIPO Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty (WPPT).

Exclusive right….

In the case of literary, dramatic or musical work (except computer programme):

reproducing the work in any material form, which includes storing of it in any medium by electronic means;
issuing copies of the work to the public which are not already in circulation;
performing the work in public or communicating it to the public;
making any cinematograph film or sound recording in respect of the work;
making any translation or adaptation of the work.

Further, any of the above-mentioned acts concerning work can be done in translation or adaptation of the work.

In the case of a computer programme:

to do any of the acts specified in respect of a literary, dramatic or musical work; and
to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme. However, such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental.

In the case of artistic work:

reproducing the work in any material form, including depiction in three dimensions of a two-dimensional work or in two dimensions of a three-dimensional work;
communicating the work to the public;
issuing copies of work to the public which are not already in existence;
including work in any cinematograph film;
making an adaptation of the work, and to do any of the above acts concerning an adaptation of the work.

In the case of cinematograph film and sound recording:

making a copy of the film including a photograph of any image or making any other sound recording embodying it;
selling or giving on hire or offer for sale or hire any copy of the film/sound recording even if such copy has been sold or given on hire on earlier occasions; and
communicating the film/sound recording to the public.

In the case of a sound recording:

To make any other sound recording embodying it
To sell or give on hire, or offer for sale or hire, any copy of the sound recording.
To communicate the sound recording to the public.

Definitions

Work

Classes of works for which copyrights protection is available in India
Original literary, dramatic, musical and artistic works;
Cinematograph films; and
Sound recordings.

Artistic work

a painting, a sculpture, a drawing (including a diagram, map, chart or plan), an engraving or a photograph, whether or not any such work possesses artistic quality;
a work of architecture; and
any other work of artistic craftsmanship.

Musical work

"Musical work" means a work consisting of music and includes any graphical notation of such work but does not include any words or any action intended to be sung, spoken or performed with the music.

Sound recording

"Sound recording" means a recording of sounds from which sounds may be produced regardless of the medium on which such recording is made or the method by which the sounds are produced.

A phonogram and a CD-ROM are sound recordings.

Cinematograph film

"Cinematograph film" means any work of visual recording on any medium produced through a process from which a moving image may be produced by any means and includes a sound recording accompanying such visual recording and "cinematograph" shall be construed as including any work produced by any process analogous to cinematography including video films.

Coverage for Government Work

The copyright of 1957 also calls for the protection of government work. Government work, according to the act, refers to all works that are made, published and made under the direction or control of the government, the legislature, the courts, tribunal and other judicial authority.

Author

Ordinarily, the author is the first owner of copyright in a work.

In the case of a literary or dramatic work, the author, i.e., the person who creates the work.
In the case of a musical work, the composer.
In the case of a cinematograph film, the producer.
In the case of a sound recording, the producer.
In the case of a photograph, the photographer.
In the case of a computer-generated work, the person who causes the work to be created.

Significance

Copyright refers to a bundle of exclusive rights vested in the owner of copyright by virtue of Section 14 of the Act. These rights can be exercised only by the owner of the copyright or by any other person who is duly licensed in this regard by the owner of the copyright. These rights include the right of adaptation, right of reproduction, right of publication, right to make translations, communication to the public etc.

Copyright protection is conferred on all Original literary, artistic, musical or dramatic, cinematograph and sound recording works. Original means that the work has not been copied from any other source. Copyright protection commences the moment a work is created, and its registration is optional.

However, it is always advisable to obtain a registration for better protection. Copyright registration does not confer any rights and is merely a prima facie proof of an entry in respect of the work in the Copyright Register maintained by the Registrar of Copyrights.

As per Section 17 of the Act, the author or creator of the work is the first owner of the copyright. An exception to this rule is that the employer becomes the owner of copyright in circumstances where the employee creates a work in the course of and scope of employment. (Academy Of General Edu., Manipal & vs B.Malini Mallya on 23 January 2009)

Copyright registration is invaluable to a copyright holder who wishes to take civil or criminal action against the infringer. Registration formalities are simple, and the paperwork is the least. In case the work has been created by a person other than the employee, it would be necessary to file with the application a copy of the assignment deed.

One of the supreme advantages of copyright protection is that protection is available in several countries across the world, although the work is first published in India by reason of India being a member of the Berne Convention. Protection is given to works first published in India, in respect of all countries that are member states to treaties and conventions to which India is a member.

Thus, without formally applying for protection, copyright protection is available to works first published in India across several countries. Also, the government of India has, by virtue of the International Copyright Order, 1999, extended copyright protection to works first published outside India.

The Term of Copyright

Sec.22 to 29 of the Copyright Act, 1957 deal with these aspects:-

The term varies as per the-

Nature of the work; or
Whether the author is a natural/legal person, or
Whether work is anonymous or pseudonymous.

In case of - Literary, Dramatic, Musical or Artistic Works;

The term is for Lifetime and thereafter for 60 years;
Joint Owners – 60 years starts after death of last owner;
Anonymous/Pseudonymous works- 60 Years from the year of publication If identity disclosed, term extended to 60 years after the death of the author.

Photographs- 60 years from the year of publication
Cinematograph Film- 60 years from the year of publication
Government undertaking- 60 years from the year of publication
International Organisation- 60 years from the year of publication
Performer's Rights- 25 years from the year of performance
Broadcasting Reproduction Rights- 25 years from the year of Broadcast

Objective

The main objective of the Copyright Act is to give protection to the owner of the copyright from the dishonest manufacturers, who try to confuse the public and make them believe that the infringed products are the products of the owner. Further, it wants to discourage the dishonest manufacturers from enchasing the goodwill of the copyright owner, who has established itself in the market with its own efforts.

HAWKINS COOKER LTD. v. MAGICOOK APPLIANCES, 100 (2002) DLT 2008

Court-ordered for perpetual injunction restraining the defendants, their servants, agents etc., from using a get up of label concerning pressure cookers which are deceptively similar to the label of the plaintiff having distinctive features and registered under the provisions of the Copyright Act, 1957. The defendants were also restrained from dealing with the cookbooks of the plaintiff company and were directed to deliver up to the plaintiff company for destruction all such pressure cookers and books complained against and all accessories and articles employed by the defendants in the manufacture of the offending goods which are in the custody, power, possession and control of the defendants. The plaintiff company is also entitled to damages arising upon the rendition of accounts by the defendants.

Copyright protects the expressions and not the ideas.

There is no copyright in an idea.

RG ANAND v. DELUX FILMS, (AIR 1978 SC 1613)

The plaintiff wrote the play Ham Hindustani, and it soon became very popular. In 1954, the defendant Mohan Sehgal sent a letter to the plaintiff that he wishes to make a movie based on the play. The plaintiff met the defendant and discussed the entire play. The defendant did not commit anything, but the plaintiff later came to know that the defendant released a movie titled New Delhi. After watching the movie, the plaintiff was of the opinion that it is based on the story of his play. So he filed a suit against the defendant for permanent injunction and damages. Both the District Court and the High Court ruled against the plaintiff on a finding of the facts. The case finally reached the Supreme Court of India.

Important issues discussed by the Court

Is the film New Delhi an infringement of the plaintiff's copyright in the play Hum Hindustani?
Have defendants or any of them infringed the plaintiff's copyright by producing, or distributing or exhibiting the film New Delhi?

The Court clarified the following important aspects in this case -

There can be no copyright in an idea, subject matter, themes, plots or historical or legendary facts, and violation of the copyright in such cases is confined to the form, manner and arrangement and expression of the idea by the author of the copyrighted work.
It has to be seen whether similarities are fundamental or substantial aspects of the mode of expression adopted in the copyrighted work. Copying should be substantial or material.
Test: Whether the viewer, after having read or seen both the works, is clearly of the opinion and gets an unmistakable impression that the subsequent work appears to be a copy of the original.
Where the theme is the same but presented differently, there can be no question of infringement.
If there are material and broad dissimilarities along with similarities, it negatives the intention to copy the original work. If the coincidences appearing in the work are clearly incidental, then there can't be infringement.
If the viewer, after the incident, gets the idea that the film is by and large a copy of the original play, violation of the copyright may be said to be proved.
The burden of proof is on the plaintiff in cases where a stage play has been infringed by a movie director.

After applying the principles enunciated above, the court ruled that it cannot be said that the film is a "substantial or material copy of the play written by the plaintiff." The judges were of the opinion that no prudent person, after seeing both the works, will get the impression that there is a copy. At most, the central theme of provincialism is the same, but that is an idea not protected by copyright.

Justice Pathak, in his concurring opinion, said, "the story portrayed by the film travels beyond the plot delineated in the play." He also observed that "In the attempt to show that he is not guilty of infringement of copyright, it is always possible for a person intending to take advantage of the intellectual effort and labours of another to so developing his own product that it covers a wider field than the area included within the scope of the earlier product, and in the common area covered by the two productions to introduce changes in order to disguise the attempt at plagiarism." However, he said, in the present case, the dissimilarities are so material that it is not possible to say that there is an infringement. For future cases, he opined that "In another, and perhaps a clearer case, it may be necessary for this Court to interfere and remove the impression which may have gained ground that the copyright belonging to an author can be readily infringed by making immaterial changes, introducing insubstantial differences and enlarging the scope of the original theme so that a veil of apparent dissimilarity is thrown around the work now produced. The court will look strictly at not only blatant examples of copying but also at reprehensible attempts at colourable limitation."

Significance of the decision

This judgement is considered a landmark decision in the area of Indian copyright law.

Most importantly, it clarified that copyright protection does not extend to mere ideas.

This case has been cited and followed in many of the subsequent judgments from different courts in India.

One of the most recent ones is Mansoob Haider v. Yashraj Films, from the Bombay High Court where the Court had to decide whether the Bollywood movie Dhoom 3 was an infringement of the plaintiff's copyright in the script ONCE.

Meaning of Originality.

The word "original" does not mean that the work must be the expression of original or inventive thought.

The Copyright Act is not concerned with the originality of ideas, but with the expression of thought, and in the case of literary work, with the expression of thought in print or writing.

The originality which is required relates to the expression of the thought.

But the Act does not require that the expression must be in an original or novel form, but that the work must not be copied from another work—that it should originate from the author; and as regards compilation, originality is a matter of degree depending on the amount of skill, judgment or labour that has been involved in making the compilation.

The words "literary work" cover work which is expressed in print or writing irrespective of the question whether the quality or style is high.

The commonplace matter put together or arranged without the exercise of more than negligible work, labour and skill in making the selection will not be entitled to copyright.

The word "original" does not demand original or inventive thought, but only that the work should not be copied but should originate from the author.

Indian perspective on copyright protection

The Copyright Act, 1957 provides copyright protection in India. It confers copyright protection in the following two forms:

Economic rights of the author, and
Moral Rights of the author.

Economic Rights

The copyright subsists in original literary, dramatic, musical and artistic works; cinematographs films and sound recordings.

The authors of copyright in the aforesaid works enjoy economic rights u/s 14 of the Act.

The rights are mainly, in respect of literary, dramatic and musical, other than a computer program, to reproduce the work in any material form including the storing of it in any medium by electronic means, to issue copies of the work to the public, to perform the work in public or communicating it to the public, to make any cinematograph film or sound recording in respect of the work, and to make any translation or adaptation of the work.

In the case of a computer program, the author enjoys, in addition to the aforesaid rights, the right to sell or give on hire, or offer for sale or hire any copy of the computer program regardless of whether such copy has been sold or given on hire on earlier occasions.

In the case of an artistic work, the rights available to an author include the right to reproduce the work in any material form, including depiction in three dimensions of a two-dimensional work or in two dimensions of a three-dimensional work, to communicate or issues copies of the work to the public, to include the work in any cinematograph work, and to make any adaptation of the work.

In the case of a cinematograph film, the author enjoys the right to make a copy of the film, including a photograph of any image forming part thereof, to sell or give on hire or offer for sale or hire, any copy of the film, and to communicate the film to the public.

These rights are similarly available to the author of sound recording.

In addition to the aforesaid rights, the author of a painting, sculpture, drawing, or of a manuscript of a literary, dramatic or musical work, if he was the first owner of the copyright, shall be entitled to have a right to share in the resale price of such original copy provided that the resale price exceeds rupees ten thousand.

Economic Rights - Summary

Economic Rights of Copyright Literary, Dramatic and Musical Work:-

Following are the Economic Rights:- a) To reproduce or store the work. b) To issue copies to the public. c) To perform the work in public. d) To make cinematograph film or sound recording. e) To make a translation of the work. f) To make an adaptation of the work,

Artistic Work:-

Following are the Economic Rights:- a) To reproduce the work. b) To communicate the work to the public. c) To include the work in a cinematograph film. d) To make an adaptation of the work.

Cinematograph Film:-

Following are the Economic Rights:- a) To make copies of the film. b) To sell or give on hire a copy of the film. c) To communicate the film to the public.

Sound Recording:-

Following are the Economic Rights:- a) To make any other sound recording embodying it. b) To sell or give on hire a copy of the sound recording. c) To communicate the sound recording to the public.

Moral Rights

Section 57 of the Act defines the two basic "moral rights" of an author. These are:

(i) Right of paternity, and

(ii) Right of integrity.

The right of paternity: An author has a right to claim authorship of his work and can prevent all others from claiming authorship of his work. He can also demand to include his name to appear in all the copies of his work at an appropriate place.

Right of integrity: An author has a right to prevent distortion, mutilation or other alteration of his work, etc., which would be prejudicial to his honour and reputation. It is essential where a licence or assignment has been granted to adapt or alter the work in some way, e.g. A novel into a play, play into a film.

The proviso to section 57(1) provides that the author shall not have any right to restrain or claim damages in respect of any adaptation of a computer program to which section 52 (1)(aa) applies (i.e. reverse engineering of the same).

It must be noted that failure to display a work or display it to the author's satisfaction shall not be deemed an infringement of the rights conferred by this section.

The legal representatives of the author may exercise the rights conferred upon an author of a work by section 57(1), other than the right to claim authorship of the work.

Indian Judiciary Response

The response of the Indian judiciary regarding copyright protection can be grouped under the following headings:

Ownership of a copyright,
Jurisdictional aspect,
Cognizance taken by the court,
Infringement of copyright,
Availability of alternative remedy, and
Rectification of copyright.
Ownership of copyright

The ownership in copyright may vest in different persons under different circumstances.

Eastern Book Company v Navin J.Desai

The question involved was whether there is any copyright in the reporting of the judgment of a court.

Reproduction of a judgment of the court is an exception to the infringement of the Copyright. The orders and judgments of the court are in the public domain, and anyone can publish them. Not only that being Government work, but no copyright also exists in these orders and judgments. No one can claim copyright in these judgments and orders of the court merely on the ground that he had first published them in his book. Changes consisting of elimination, changes of spelling, elimination or addition of quotations and corrections of typographical mistakes are trivial, and hence no copyright exists therein.

Ownership of copyright

Godrej Soaps (P) Ltd v Dora Cosmetics Co

Delhi High Court held that where the carton was designed for valuable consideration by a person in the course of his employment for and on behalf of the plaintiff and the defendant had led no evidence in his favour, the plaintiff is the assignee and the legal owner of copyright in the carton including the logo.

Jurisdictional aspect

The question of territorial jurisdiction of the court to deal with copyright infringement was considered by the courts on several occasions.

Sec 62: (1) Every suit or other civil proceeding arising under this Chapter in respect of the infringement of copyright in any work or the infringement of any other right conferred by this Act shall be instituted in the district court having jurisdiction.

(2) For the purpose of sub-section (1), and "district court having jurisdiction" shall, notwithstanding anything contained in the Code of Civil Procedure, 1908, or any other law for the time being in force, include a district court within the local limits of whose jurisdiction, at the time of the institution of the suit or other proceeding, the person instituting the suit or other proceeding or, where there are more than one such persons, any of them actually and voluntarily resides or carries on business or personally works for gain.

The court held that section 62 of the Copyright Act makes an obvious and significant departure from the norm that the choice of jurisdiction should primarily be governed by the convenience of the defendant.

The legislature, in its wisdom, introduced this provision laying down absolutely opposite norm than the one set out in section 20 CPC.

The purpose is to expose the transgressor with inconvenience rather than compelling the sufferer to chase after the former.

Caterpillar Inc v Kailash Nichani:

The plaintiff, a foreign company, was carrying on business in several places in India, including Delhi, through its Indian distributors and collaborators. The plaintiff claimed the relief of ad-interim injunction for preventing infringement of its copyright by the defendant, though the defendant was dealing in different goods.

The Delhi High Court held that it was not necessary to show that the business is carried on by the plaintiff in Delhi should necessarily be in respect of footwear and articles of clothing as well.

It is sufficient if the business was being carried on by the plaintiff in Delhi and further that there was an infringement of the plaintiff's copyright in respect of certain goods, which were being sold by the defendant in Delhi.

Lachhman Das Behari Lal v Padam Trading Co:

The Delhi High Court observed that the plaintiff being a firm functioning at Delhi, the suit filed by it in the Delhi courts is maintainable and is not liable to be rejected under Order 7 Rule 11 of the CPC as prayed.

The Court further observed that the plea regarding want of territorial jurisdiction is not covered by Order7 rule 11 of CPC.

The court observed that even if it is held that this court has no territorial jurisdiction, the plaint cannot be rejected. At the most, it can be returned for presentation to the proper court.

Cognizance was taken by the court.

To prevent copyright infringement, timely cognizance taking by the appropriate court is absolutely essential. The taking of cognizance by the court depends upon the limitation period as mentioned in the Limitation Act, 1963 and Cr. P.C, 1973.

David Pon Pandian v State:

The Madras High Court observed: The Court can take cognizance of the offence if the charge sheet is filed within the period of limitation prescribed under Section 468 of the Cr. P.C and in computing the period of limitation, the date of commission of the offence is to be reckoned as the starting point.

If the charge sheet is not filled so, the Court has no power to entertain the complaint.

State of Punjab v Sarwan Singh:

The Supreme Court Observed: "The object of Cr. P.C in putting a bar of limitation on the prosecution was clearly to prevent the parties from filing cases after a long time, as a result of which material evidence may disappear and also prevent abuse of the process of Court by filing vexatious and belated prosecutions long after the date of the offence. Moreover, the object, which the statute seeks to sub-serve, is clearly in consonance with the concept of fairness of trial as enshrined in Article 21 of the Constitution. It is, therefore, of utmost importance that any prosecution, whether by State or a private complainant, must abide by the letter of the law or take the risk of the prosecution failing on the ground of limitation."

Infringement of copyright

A copyright owner cannot enjoy his rights unless the infringement of the same is stringently dealt with by the Courts.

The approach of the Indian Judiciary in this regard is very satisfactory.

Availability of alternative remedy

The copyright Act provides adequate safeguards and procedure.

It cannot be said that a mere apprehension that a certain offence may take place, a writ can be filed seeking a direction that no such offence be allowed to take place.

First, authorities have to be asked to prevent it. The function of the police is to prevent piracy and unauthorized exhibition.

DESIGNS: THE DESIGN ACT, 2000

2021-06-19T03:00:00.004-07:00

DESIGNS:

THE DESIGN ACT 2000

Mini Cooper

The original Mini influenced a generation of car designers.

The Mini is a design classic that came about because of restrictions in fuel supply during the 1950s caused by the Suez crisis. Designer Alec Issigonis was tasked with designing a more frugal car than the large cars of the day, aiming to compete with increasingly popular German bubble cars like the original VW Beetle - itself a design classic. The original design became a true British icon, influencing a generation of car designers, and was revolutionary at the time. Its distinctively diminutive contours remain hugely popular today.

Coke’s Bottle

Coke's bottle needed to be distinctive and instantly recognisable - even in the dark.

Instantly recognisable, the Coca-Cola contour bottle is a masterpiece in industrial design that dates back to 1915 when the Coca-Cola Company asked its bottle suppliers to design a new bottle that would be distinctive and instantly recognisable - even in the dark. Designer Earl R. Dean took up the challenge, and following instructions issued by his boss, aimed to develop a design based on the ingredients of the drink. Unable to find any reference images for either the coca leaf or the Kola nut, Dean instead used an image of a cocoa pod from his encyclopedia as inspiration, leading to the iconic ribbed bottle shape we know and love today.

Vespa Scooter

The Vespa is a globally recognised icon of the Italian design aesthetic

The classic Vespa scooter design is associated heavily with the Italian design aesthetic, but it was actually heavily influenced by pre-World-War-II Cushman scooters made in the US and shipped to Italy by the Allies to act as field transport for paratroopers and marines during the war. It wasn't until Paggio involved aeronautical engineer Corradino D'Ascanio that the now-familiar scooter shape, missing the central supporting spar and allowing the rider to step through the bike to get on and off.

Hasselblad Camera

Hasselblad's 500C Camera was its anchor product for four decades.

During World War II, the Swedish government, tasked Victor Hasselblad with designing a camera that mirrored a German aerial surveillance camera recovered from a downed plane. This camera was refined over the following years, eventually spawning the iconic 500C in the late 1950s.

Such was the popularity of the camera; it became the anchor product for the Hasselblad company for the next four decades and was used by NASA during Apollo missions to the moon.

Eames’ Lounge Chair

The classic chair design has continued to be popular since its 1950s launch

An unrivalled 1950s classic, Charles and Ray Eames' lounge chair and the ottoman combo was the couple's first attempt at high-end furniture. Fashioned from moulded plywood and leather, it was distinctive among luxury counterparts for being very comfortable as well as stylish. Constantly in production since its launch, the classic industrial design forms part of the permanent collection at MoMA in New York.

iPod/iPhone/iPad

iOS devices: beautiful and truly game-changing

Three indisputably game-changing product lines by arguably the world's most iconic and celebrated industrial designer, Sir Jonathan Ive - all of which could easily have made a list on their own. It all started back in 2001 with the original iPod; the first iPhone was released in 2007; the iPad followed three years later, and finally the iPad Mini in 2012.

Mac

Apple's designs have consistently made other desktops look bland and boring

Despite squeezing all of its iOS devices into one entry, Cupertino's finest still made the list twice. Spearheading the reinvention of Apple in the late '90s, the all-in-one, brightly-coloured translucent computer made its rivals' beige boxes look crushingly ordinary. Since then, its evolution has seen it grow sleeker, slim, and minimalist, but no less iconic.

Maglites

Many Maglites have become collectables.

Introduced in 1979 with krypton or xenon bulbs and variable-width beams, many Maglites have become collectable items thanks to their limited-run special editions and custom paint schemes. They now use LED bulbs, and thanks to their power and durability are the flashlight of choice for many police forces. Until recently, this included the LAPD - until their double-use as a baton became controversial

Bergmönch Bike

This mountain bike can be transformed into a backpack for uphill climbs

Hurtling down steep, rocky terrain on a mountain bike is a powerful adrenaline rush, but reaching the summit in the first place can be a slow, painful slog. However, the ascent is the best bit for a mountaineer, while the downward leg is a killer on the knees. This lets you do both by transforming a bike into a backpack to let you carry it easily.

Points to ponder….

A design appeals solely to the eye.
The eye must be the eye of a customer.
Designs that are functional cannot be registered under The Design Act.
Law protects the creator of a new design so that he is not deprived of his reward if others apply his designs to their goods without his permission.

Designs Act , 2000

The Law promotes design activity so that consumers get a better–made product that looks attractive and is pleasing to the eyes.

In the absence of an effective law, infringement may be rampant and designers will have almost no incentive to initiate and develop new designs.

Criteria for registration:

1. The design should be new or original, not previously published or used in any country before the date of application for registration. (Novelty & Originality)

2. The design should relate to features of shape, configuration, pattern or ornamentation applied or applicable to an article. Thus, designs of industrial plans, layouts and installations are not registerable under the Act.

3. The design should be applied or applicable to any article by any industrial process. Normally, designs of artistic nature like painting, sculptures and the like which are not produced in bulk by any industrial process are excluded from registration under the Act. (Of course, they have copyright protection!)

4. The features of the design in the finished article should appeal to and are judged solely by the eye. This implies that the design must appear and should be visible on the finished article, for which it is meant. Thus, any design in the inside arrangement of a box, money purse or almirah may not be considered for showing such articles in the open state, as those articles are generally put in the market in the closed state.

5. Any mode or principle of construction or operation or anything, which is in substance a mere mechanical device, would not be a registrable design. For instance, a key having its novelty only in the shape of its corrugation or bend at the portion intended to engage with levers inside the lock associated with, cannot be registered as a design under the Act.

However, when any design suggests any mode or principle of construction or mechanical or other action of a mechanism, a suitable disclaimer in respect thereof is required to be inserted on its representation, provided there are other registrable features in the design.

6. The design should not include any trademark or property mark or artistic works.

Designs that cannot be registered under the Act

1. A design that is not new or original; or

2. Design that has been disclosed to the public anywhere in India or in any other country by publication in tangible form or by use in any other way prior to the filing date, or where applicable, the priority date of the application for registration; or

3. Design is not significantly distinguishable from known designs or a combination of known designs; or

4. A Design that comprises or contains scandalous or obscene matter, shall not be registered.

Non Registrable Designs

An illustrative list of non-registrable designs is as under:

book jackets, calendars, certificates, forms and other documents.
dressmaking patterns, greeting cards, leaflets, maps and plan cards.
post cards, stamps and medals.
labels, tokens, cards and cartoons.
any principle or mode of construction of an article.
mere workshop alterations of components of an assembly.
mere change in size of article.
flags, emblems or signs of any country.
layout designs of integrated circuits.

Artistic work which is not the subject matter of registration

An artistic work, as defined under Section 2(c) of the Copyright Act, 1957 is not a subject matter for registration. The section2(c) reads as follows: "Artistic works" means:

A painting, a drawing (including a diagram, map, chart or plan) on engraving or a photograph, whether or not such work possesses artistic quality.

An work of architecture and

Any other work of artistic craftsmanship.

Provisions of Copyright Act as Applied to a Design

A creator of a design shall keep in mind the following provisions of the Copyright Act, 1957:

Copyright shall not subsist under the Copyright Act in any design which is registered under the Designs Act.
Copyright in any design, which is capable of being registered but which has not been so registered shall cease as soon as any article to which the design has been applied has been reproduced more than fifty times by an industrial process, by the owner of the copyright, or with his license, by any other person.

Duration of the registration of a design

Initially ten years from the date of registration, but in cases where the claim to priority has been allowed the duration is ten years from the priority date.

This initial period of registration may be extended by a further period of 5 years on an application made in Form-3, by a fee of Rs. 2,000/- to the Controller before the expiry of the said initial period of Registration.

Classification of goods mentioned in the Third Schedule of Design Rules, 2001

In the third Schedule of Design Rules, 2001 the classification of goods has been mentioned.

The classification is based on Locarno Agreement. Only one class number is to be mentioned in one particular application. It is mandatory under the Rules.

This classification has been made on the basis of the Articles on which the design is applied.

STEPS TO FILE AN APPLICATION FOR INDUSTRIAL DESIGN

Step 1 Finding out whether any registration already exists Registration number is known, Form No.-6 filed along with the prescribed fees of Rs. 500. If the representation of the article or the specimen of the article is filed Form No.-7 along with the prescribed fees of Rs. 1,000 is required.

Step 2 Preparing a representation of the design It should be prepared on white A4 size paper of durable quality.

Step 3 Identifying the class of design 32 classes and most of the classes are further divided into sub-classes.

Step 4 Providing a statement of novelty: A statement of novelty should be included in the representation of a design as per the Act in order to specify the claim.

Step 5 Including a disclaimer If the ornamental pattern on an article is likely to be confused with a trademark, suggests any mechanical action or contains words, letters, numerals, etc., a disclaimer should be included in the representation.

Step 6 Claiming a priority date This is the date of filing of the application in any of such countries provided the application is made in India within six months.

Step 7 Determining the fee to be paid Application for the registration of a design is Rs 1,000 and for renewal, it is Rs. 2, 000.

Step 8 Ensuring all enclosures are attached File an application only after ensuring that all enclosures and fee in the required numbers are attached. Applications can be filed in either the Design Office in Kolkata or the branch offices of the Patent office in Delhi, Mumbai or Chennai.

Step 9 Complying with objections* (if any) If the Design Office seeks additional information or clarifications after preliminary examination, please ensure that these are provided promptly.

Step 10 Providing full details While filing an application make sure that all contact details and addresses are clearly and legibly filled in.

Revocation….

Any person interested may present a petition for the cancellation of the registration of a design at any time after the registration of the design, to the Controller on any of the following grounds, namely:-

(a) that the design has been previously registered in India; or

(b) that it has been published in India or in any other country prior to the date of registration; or

(d) that the design is not registrable under this Act; or

(e) it is not a design as defined under clause (d) of section 2.

Piracy of Registered Design

The following activities are considered to be infringement:

1. to apply for the purpose of sale the design or any fraudulent imitation of it to any article in any class of articles in which the design is registered;

2. to import for sale any article to which the design or fraudulent or obvious imitation of it, has been applied;

3. to publish or to expose for sale knowing that the design or any fraudulent or obvious imitation of it has been applied to it.

Penalties

A registered proprietor can institute a suit for injunction as well as recovery of damages against any person engaged in piracy of the registered design.

Such legal proceedings can be instituted from the date of registration and till the expiry of copyright.

However, in the case of a reciprocity application, the registered proprietor can claim damages only from the actual date on which the design is registered in India.

If any person commits piracy of a registered design, he shall be liable to pay a sum not exceeding 25,000/- recoverable as a contract debt. However, the total sum recoverable in respect of any one design shall not exceed 50,000/-.

The suit for injunction/damages shall not be instituted in any Court below the Court of District Judge.

CASES

Ampro Food Products v. Ashok Biscuit Works, AIR 1973 AP 17

The appellant manufactured biscuits with AP embossed on them. The respondent also manufactured biscuits with identical design except that letters AB were embossed on them, in place of AP. The suit claimed an injunction bringing a charge of piracy of the design. Issuing a temporary injunction, the Court held that in such cases the defence cannot argue that the appellant’s registered design was not new or original if no steps had been taken earlier seeking cancellation of the registration of the design.

Hindustan Lever Ltd. V. Nirma Pvt. Ltd., AIR 1992 Bom 195

The plaintiff alleged infringement of its registered trademark, passing off, and infringement of the copyrights in original artistic work and sought a permanent injunction to restrain the defendant from using the impinged carton in relation to soaps or detergent powder.

The defence took the plea that the said label was, in fact, a design that could be registered under the Designs Act, and the fact that it was not so registered makes copyrights if any, under the copyright Act non-existent when the article to which the design has been applied was reproduced fifty times by industrial process. The Court ruled that a label to be put on a carton for the goods is not a design.

Assignment of Designs

For an assignment to be valid, it must be in writing and the agreement between the parties concerned has to be reduced to the form of an instrument embodying all the terms and conditions governing their rights and obligation, and the application for registration of title under such instrument is filed in the prescribed manner with the Controller within the stipulated time- that being within six months from the execution of the instrument.

TRADE SECRETS & CONFIDENTIAL INFORMATION

2018-03-08T20:29:00.003-08:00

Introduction:

In a free market economy, where competition is fierce, every businessman looks forward to outwit his rival. This he may do by capturing more market or eliminating his rivals from the market, if necessary.

Therefore, businessmen are very careful and impart their business or trade related confidential information to only some responsible employees for the purpose of business. In other words, the access to such information is restricted.

The concept of confidence arises from trust in a relationship* between two or more persons. The person who receives the confidential information is under an obligation to protect the information and not to use it for purposes other than those for which such information was first imparted. A confidence is thus regarded as a legal obligation enforceable by law.

*Relationships of trust wherein an obligation of confidence to others arise are: Employees to their employers, consultants to their clients, and doctors to their patients, advocates to their clients.

Jurisdictional Bases of the Law of Confidence

The jurisdictional bases of the action of breach of confidence can be classified into the following categories: [ Prince Albert v. Strange (1849]

Contract

The obligation to protect confidential information may be incorporated in a contract either in express or implied terms. The express contractual obligation with respect to the confidential information makes the recipient of the information liable, if he breaches his obligations. The implied term may be considered to exist if a plain reading of the contract & its circumstances lead one to conclude that but for the contract, such information would never have been revealed. (However, courts may disregard unreasonable conditions imposed by the confider on the recipient of the information)

Property

In law, confidential information is not treated as property. If at all the word property has been used in some judicial decisions it is merely aimed to reflect the confider’s rights in contract & equity.

Tort

Since confidential information is an intangible property, jurisdiction under tort may be invoked. Relying upon tort, the confider can take action against third-party who wrongfully acquires his information in prejudice to his benefits. The jurisdiction under the law of tort may also be invoked when it appears that the third party has induced the receiver of the information to breach his contractual obligations with respect to the confidence.

Equity

(In law, the term "equity" refers to a particular set of remedies and associated procedures involved with civil law. These equitable doctrines and procedures are distinguished from "legal" ones. A court will typically award equitable remedies when a legal remedy is insufficient or inadequate.)

The jurisdiction on the basis of contractual obligation cannot be invoked against a third party because according to the principle of Privity of Contract, the confider cannot take action against a stranger to the contract who obtains the confidential information from a contracting party. To deal with such situations, equity comes in to provide justice to the parties who deserve it.

Equity may be used independently of any legal right. A party may avail those remedies to which he is not entitled under other jurisdictional sources at least in three situations:

1. When no contractual relationship exists, the user of confidential information may be held liable by equity for the misuse or unauthorised disclosure of the information.

2. Equity plays a distinct and concurrent basis for remedies despite the fact that there exists a contractual obligation.

3. When the recipient of information conveys the information to a third party who is not cognizant of the breach of confidence at the time of the reception but later becomes aware that what he has received is confidential information.

The law of confidence is based on the broad principle of equity that he who receives information in confidence should not take unfair advantage of it by using it to the prejudice of the person who imparts it. [Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd. (1948)]

TRADE SECRET

Some famous Trade Secrets

Thomas’ English Muffins

They’re enticingly showcased in extreme close-up in TV ads: a landscape of craters on a bread surface dubbed “nooks and crannies,” suited for catching tiny pools of melted butter and bits of jam. That’s useful—so how does one replicate such nooks and crannies? It’s a secret and one that’s well protected, with around $500 million in yearly sales at stake.

In 2010, a former employee of parent company Bimbo Bakeries USA, one of seven people worldwide who knew the secret of the nooks and crannies, came under suspicion before a planned move to competing baked goods company Hostess, according to The New York Times. Bimbo filed a trade secret lawsuit to prevent the employee from making the job switch.

The Times noted that Bimbo’s recipe manuals are called “code books” and, as with other trade secrets, the information on recipes and manufacturing methods is compartmentalized to help keep it secure. After taking the case to an appeals court, the employee was barred from starting the job at Hostess.

Coca-Cola

The formula for Coca-Cola is one of the go-to examples of a trade secret. According to a company representative, the original formula is written on a piece of paper stored in a bank vault. Only “a small handful” of people know the formula at any time.

In 2011, the radio program “This American Life” devoted an episode to unravelling the secret, focusing on (among other leads) a pharmacist’s formula for a cola beverage, although Coca-Cola denied that the secret was revealed.

The original formula isn’t the only secret that may be of value on the black beverage market. In 2007, employees were caught trying to sell samples of a new Coca-Cola beverage to its biggest competitor, Pepsi.

WD - 40

The world’s best-known household lubricant got its secret agentesque name in 1953 from its inventor Norm Larsen, and it stands for “Water Displacer—40th attempt.”

An article in The Wall Street Journal reported that the formula is in a bank vault and has only been taken out twice—when changing banks and on the product’s 50th birthday when CEO Garry Ridge rode on a horse into Times Square while wearing a suit of armour and carrying the formula. He said the company mixes a concentrate in three locations, then distributes it to aerosol manufacturing partners worldwide.

The company reveals what’s not in the secret formula on its FAQ page: WD-40 Multi-Use Product does not contain silicone, kerosene, water, graphite, or chlorofluorocarbons (CFCs). As for what might be in that secret formula, in 2009, Wired.com sent a can to a lab and published this report: http://archive.wired.com/science/discoveries/magazine/17-05/st_whatsinside

KFC

KFC’s “Secret Recipe of 11 Herbs and Spices” for its original fried chicken recipe is nearly as famous as the former Kentucky Fried Chicken ad slogan “finger-lickin' good.” A section of the company’s website is now devoted to spreading the lore about the spice blend. It states that Colonel Harland Sanders kept his recipe in his mind and used to carry the mixture in his car, but today it’s kept under lock and key in a Louisville, Ky., safe. One company blends part of the spice recipe, and another company mixes the rest so that neither party has the entire recipe.

The Colonel commented how low-security operation he and his wife, Claudia, operated when he was starting out. "After I hit the road selling franchises for my chicken, that left Claudia behind to fill the orders for the seasoned flour mix. She'd fill the day's orders in little paper sacks with cellophane linings and package them for shipment. Then she had to put them on a midnight train."

Many reverse-engineered recipes for KFC-style fried chicken include speculation that the flavour-enhancing additive MSG is part of the secret mix. Others claim the distinctive KFC chicken experience owes a lot to the pressure-frying technique, which is patented.

Google Algorithm

The search engine Google dominates Internet searches and, by extension, the Internet. Google is the pacing horse, and the key is that search algorithm. Google’s algorithm is its version of a secret recipe: how it mixes the information of a website’s relevance, the number of visits, inbound links, anchor tags, user’s location, and other factors to provide the search results best tailored for each user.

The New York Times's Best-Seller List

It's every writer's dream to get his or her novel on The New York Times Best-Seller list, the most influential such list in America, which dates back to 1942. So how do you do it? No one really knows. The New York Times won't reveal what constitutes a best-seller, saying its methodology is a trade secret. We know the newspaper asks chain bookstores, independent bookstores and wholesalers about their sales figures, but that's about it. The reason for the secrecy is supposedly that if the system was known, publishers could play around with sales data to their advantage.

It should be a relatively easy formula: A book that sells 'x' number of copies in a week or month or year is a best-seller. But one book that sells 32,000 copies can be named a best-seller, while another that sells even more is not. Times employees skirt around the issue, saying there are "official" best-sellers and "unofficial" best-sellers

This trade secret has gotten the company into legal battles at times. In 1983, William Peter Blatty, author of "Exorcist, "unsuccessfully sued the newspaper for $9 million, saying that amount equalled his lost revenue when the paper didn't add his novel "Legion" to its best-seller list.

According to World Intellectual Property Organization (WIPO):

A trade secret is information of any type that is actually or potentially valuable to its owner and not generally known or readily ascertainable by the public, and which the owner has made a reasonable effort to keep secret. A trade secret generally has come cost associated with its development, and it is not common knowledge in the industry. Even negative information, such as research options that have been explored and found worthless can be a trade secret. Practically any type of technical and business information can be protected as a trade secret provided that it meets these requirements.

· Trade secret is confidential information of a business or enterprise.

· A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable to afford an actual or potential economic advantage over others.

· Trade secret must not be something which is public property or public knowledge.

It is perfectly possible to have confidential document, be it a formula, a plan, a sketch or something of that kind, which is the result of work done by the maker upon materials which may be available for the use of anybody…. What makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process.

· The owner of trade secret should take every precaution to keep it secret.

· The information which is in public domain, voluntarily revealed, insufficiently guarded, or reverse engineered may not be protectable.

Kinds of Trade Secrets

1. Technical Secrets: which are related to manufacture or improvements of quality of goods or conduct of services and which include secret process for manufacturing specific products, the secret formulae or the design of the product, know-how etc.;

2. Business Secrets: which are administrative and strategic in nature and developed internally, such as cost and pricing data, sales statistics, lists of customers and suppliers, market predictions, expansion plans etc.

Examples:

Designs, drawings, architectural plans, blueprints and maps; data compilations such as list of customers; algorithms and processes that are implemented in computer programs and the programs themselves; instructional methods; manufacturing or repair processes, techniques and know-how; document tracking processes; formulae for producing products; business strategies, business plans, methods of doing business, marketing plans; financial information; personnel records; schedules; manuals; information about research and development activities; etc.

Know How:

Know-how is required or developed by a person in the course of research and development activities or through the application of industrial and business techniques in the operations of the enterprise. It is, therefore, data or knowledge resulting from experience and skills and can be identified in terms of relevant documentation. E.g. Diagrams of the layout of the plant, drawings or blueprints of machines, manuals or instructions prepared by the operation of machines or the assembly of components, specifications of raw material, labour and machine time calculations, packaging and storing instructions etc.

Factors to consider the nature of trade secret

The following six factors may be considered to determine whether information owned by an enterprise is a trade secret. These are:

1. The extent to which the information is known outside the enterprise;

2. The extent to which the information is known by employees and others involved in the enterprise;

3. The extent of measures taken by the enterprise to guard the secrecy of the information;

4. The value of the information to the enterprise and to competitors;

5. The expenditures incurred by the enterprise in terms of time, money and efforts in developing the information; and

6. Ease or difficulty with which the information could be properly acquired or duplicated by others.

Conditions for an Action for Breach of Confidence:

In an action for breach of confidence following conditions must be established; [Coco v. A. N. Clark (Engineers) Ltd. (1969)]

1. Information in dispute must be confidential and not a public knowledge.

· The test to protect the confidentiality is inaccessibility. If it is found that information is not a deliberately kept within limited circle, it may lose confidentiality.

· Publication of information may result in loss of confidentiality if information has been distributed widely. On the other hand, if by publication of information it is made available to limited recipients, it may still be considered confidential.

· Confidential information may be imparted in different ways. It may be imparted in tangible form e.g. drawings, graphs, diagrams, photographs, equipments, printed lists of agents or suppliers or customers etc. or communicated orally*. *[Seager v. Copydex (No. 1) (1967)]

The information, therefore, can be held confidential regardless of its form.

2. Recipient of information under obligation to respect confidentiality.

There must be an express or implied obligation on the recipient of information to respect the confidentiality of information. In other words, information should have been imparted to its receiver in circumstances imposing an obligation of confidence on him. In this context, obligation of employee is worth discussing:

· Obligation of Employee

· Employer-employee relationship plays an important role to protect confidential information from disclosure. An employee is under an obligation to respect confidentiality of information. He must observe his ‘duty of fidelity’ while he remains in employment. This duty of fidelity embraces the protection of confidential information which is given to him and which he generates in the course of his work. Therefore, an employee is under an obligation not to engage in competitive work, either with another person or on his own.

· The problem arises when an employee accepts a new job leaving the former one. He carries confidential information of his former employer. The former employer, therefore, seeks to restrain his ex-employee from disclosing or using his confidential information for the benefits of others. [Burlington Home Shopping(P) Ltd. v. Rajnish Chibber (1995), Diljeet Titus Advocate & Others v. Alfred A. Adebare & Others (2006), American Express Bank Ltd., v. Priya Puri (2006) & Tractors & Farm Equipment Ltd. v. Green Field Farm Equipments Pvt. Ltd. & Others (2006)]

3. Unauthorised use of confidential information:

To bring an action for breach of confidence it is essential to establish that the recipient of the information is made or is about to make an unauthorised use or disclosure of that information. In other words the recipient of information breaches the obligation to using it in a manner other than for which it was imported.

Confidential information and copyright:

Copyright subsists in expression of idea and not in ideas per se. Howsoever valuable the idea may be, if it is not expressed in a material form, it is not protectable under the copyright law. However, the law of confidence extends the protection of those subject matters which are not predictable and copyright law provided the information was given in confidence and the recipient was put under an obligation to protect it. These subject matters include ideas, schemes, plots, etc. [Zee Telefilms Ltd. v. Sundial Communications Pvt. Ltd. (2003) & Urmi Juvekar Chiang v. Global Broadcast News Ltd. (2008)]

Confidential Information and Patent:

· Patent means a statutory grant of the exclusive right to a person to exploit is invention for 20 years from the date of application. The patentee, however, is put under an obligation to describe his invention in the specification with such clarity and completeness of all the technical details that any one having ordinary skill in the art should be able to carry out the invention.

· In an unpatented invention, the whole process of invention is kept secret. An inventor may, therefore, prefer not to get his invention patented in order to avoid disclosure of his invention. But at the same time, he is running the risk of his invention relating secrets being leaked. Therefore, inventors often secure patents for their central inventions, while much that is learned in the process of bringing it into commercial production, popularly known as ‘know-how’ is kept secret, which is predictable under the law of confidence.

Remedies:

1. Injunction

Being an equitable remedy injunction is discretionary and the decision to grant an injunction is influenced by several factors.

The list of factors militating against an injunction may include:

· The fact that the defendant was copying only subconsciously for some reason innocently:

· The gratuitous manner of the plaintiff’s communication;

· The fact that he was not himself utilizing the idea but was rather pursuing an alternative in collaboration with another producer;

· The extent of the defendant's own contribution to the design of a successful product;

· Whether the information was economic or personal;

· The relatively mundane or subsidiary character of what was taken;

· The fact that the information had become public;

· Possibly even the patentable nature of the idea - thus requiring the plaintiff who wants a full right of property to apply for a patent.

2. Damages

Where the information has been disclosed or used in some way in breach of confidence and such breach of confidence is also breach of contract or a general tort, court will award damages in accordance with normal principles applying to these common law wrongs. The courts while laying down the formulae for determination of damages stated that the value of confidential information depends on its nature. The formulae are:

a. The damages would be equivalent to the fee of consultant if there was nothing really special about the information and it could have been obtained by employing a competent consultant; and

b. That the damages would be equivalent to the price, which a willing buyer would pay for the information if the information was something special and involves an inventive step.

c. In some cases the courts decided that payment of damages in the form of royalties would be an adequate remedy.

3. Account of profits

The remedy of a account of profits is available to the plaintiffs where the information has been exploited commercially by the defendant in breach of confidence. The remedy of account of profits is not available in addition to damages. It is an alternate remedy and is discretionary. [Peter Pan Manufacturing Cop. v. Corsets Silhouette Ltd. (1963)]

4. Delivery up or destruction

The court may order the defendant to deliver the articles or destroy them in which the defendant had used the confidential information of the plaintiff in breach of confidence. This is also an equitable remedy and therefore discretionary.

Cases:

1. Prince Albert v Strange was a court decision made by the High Court of Chancery in 1849, and began the development of confidence law in England. The court awarded Prince Albert an injunction, restraining Strange from publishing a catalogue describing Prince Albert’s etchings. Lord Cottenham LC (Charles Pepys, 1st Earl of Cottenham) noted that "this case by no means depends solely upon the question of property, for a breach of trust, confidence, or contract, would [sic] of itself entitle the plaintiff to an injunction".

Summary:

Both Queen Victoria and Prince Albert sketched as a hobby. Sometimes they showed them to friends or gave them away. Strange obtained some of these sketches from a person named Brown and scheduled a public viewing of these. He also published a catalog listing these sketches. Prince Albert filed a suit for the return of the sketches and a surrender of the catalog for destruction. His plea was granted.

2. Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd (1948)

Lord Greene observed that the defendants "dispensed in certain material respects with the necessity of going through the process which had been gone through in compiling [drawings of a product] … thereby saving themselves a great deal of labour and calculation and careful draftsman ship".

That is, the defendants in that case relied upon the work carried out by the plaintiff (including the time, effort and expense involved in carrying out that work) to more quickly develop and manufacture their own product. Such reliance, in effect, allowed the defendants to "springboard" to a better position than they would have been if they independently developed that product themselves without reference to the plaintiff's drawings.

Summary:

The plaintiffs gave designs to the defendants in order that they could make leather-working tools for the plaintiffs. The defendants used the drawings to make tools, which they sold on their own behalf. This was a breach of confidence, as they knew that the drawings had been given to them solely for the purpose of making the tools for the plaintiff.

3. Coco v. A. N. Clark (Engineers) Ltd. (1969)

Justice Megarry held, “In my judgment, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed. First, the information must itself … have the necessary quality of confidence about it. Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it.”

Summary:

Coco was developing a motor-assisted cycle or moped. He entered into negotiations with AN Clark to develop the moped and provided information to A.N. Clark about his moped. After some time, A.N. Clark elected to not further develop the Coco moped and instead began to develop its own moped. Coco became suspicious that A.N. Clark was using some of his designs for the new moped. He therefore applied for an injunction to stop A.N. Clark making or sell any moped using his confidential information. A.N. Clark had just released its moped on the market while Coco had stopped developing his moped.

Had Coco established a strong prima facie case that the information was confidential or that there had been a breach of confidence? Should an injunction be awarded to prevent the making and selling of the moped?

It was ruled that Coco had failed to establish that the similarities between the two mopeds were achieved by the use of information provided by him to A.N. Clark. Also an injunction was not appropriate as the evidence for the case had not been properly tested and Coco had not developed his own moped and therefore it did not need protection from the sale of the rival moped.

4. Seager v. Copydex (No. 1) (1967)

“Confidential information does not have to be in a particular form and may be communicated orally and a breach may still be actionable.”

Summary:

Mr. Seager had invented a patented carpet grip which he manufactured and marketed under the trademark Klent. There were protracted negotiations between Mr. Seager and Copydex over a proposal for Copydex to market the Klent. One of the issues in the negotiations was the price at which Mr. Seager was to supply the product. During a meeting with two representatives of Copydex Mr. Seager disclosed to them an alternative design of grip which could be produced more cheaply. Although there was a dispute as to precisely what had been disclosed at the meeting, there was no dispute that the disclosure was in confidence The defendants had manufactured a carpet grip, honestly and unconsciously making use of that confidential information. The alternative design was not covered by Mr. Seager’s patent.

5. Burlington Home Shopping (P) Ltd. v. Rajnish Chibber (1995)

This is a landmark case, which laid to rest the confusion whether a database consisting of a compilation of addresses developed by any one by devoting time, money, labour and skill, though the sources may be commonly situated, amounts to a `literary work' wherein the author has a copyright.

Summary:

Burlington Home Shopping (plaintiff) was a mail order service company engaged in the business of publishing various mail order catalogues of several consumer items. These were posted to the select list of plaintiff's clients. The plaintiff maintained a compilation of a list of his customers in a self-created database. It was developed over a period of 3 years whereby the plaintiff invested substantial amount of money and time for its creation.

Mr. Rajnish Chibber (defendant) was an employee previously working for the plaintiff. However, his duties had nothing to do with the compilation of the database. It so happened that after leaving the plaintiff's establishment, he became the latter's competitor by entering into a mail order shopping business. While at the time of his association with the plaintiff previously he managed to get a copy of the latter's database. Now after the commencement of his own business he started making use of the said database for establishing relationship with the plaintiff's customers.

The plaintiff contended that the database was an original literary work wherein he enjoyed the copyright over the same and that the defendant had infringed his copyright by his act. Accordingly a suit was filed by the plaintiff in the Delhi High Court seeking an injunction thereby restraining the defendant from make use of the said database for carrying out his business. The defendant contended that the said database was not developed by the plaintiff and as a result of which the latter enjoyed no copyrights over the same. Further he stated that he had developed his own database and the act of using it for his business would never amount to any kind of infringement of the plaintiff's copyright.

In order to gather the relevant evidence the court appointed a Commissioner. He made a comparison of both the databases and found that a substantial number of entries on the defendant's database were comparable word by word, line by line and even space by space to that of the plaintiff’s. In some of the entries the locations of commas and full stop were also comparable. In a good number of entries spelling mistakes occurring in the plaintiff's data were found in the data compilation of the defendant as well. Hence, the court was satisfied that the defendant had infringed the plaintiff’s copyright.

6. Diljeet Titus Advocate & Others v. Alfred A. Adebare & Others (2006)

“As an advocate or a law firm develops its work and relationship with other law firms or clients, the details about the particular persons in such law firms handling certain nature of work or as to which officer in a client company is material for getting the work becomes of great importance. Such a list is of great importance to an advocate or a law firm. The mere fact that defendants would have done work for such clients while being associated with the plaintiff would not give them the right to reproduce the list and take it away,” wrote Justice Kaul in his judgment.

Summary:

Titus and Co. was set up in Delhi in 1997 when its founder Diljeet Titus left Singhania and Co. along with two other Singhania lawyers, Seema Ahluwalia Jhingan and Alfred A. Adebare.

Seven years later, when Jhingan, Adebare and two other Titus lawyers, Alishan Naqvee and Dimpy Mohanty, left Titus to set up LexCounsel, Titus filed a criminal complaint against them under the Information Technology Act, 2000, for alleged data theft.

Titus alleged that the four were criminally liable for stealing “various proprietary drafts of precedents, agreements, forms, presentation, petitions, confidential documents, legal opinions, legal action plans, computerized database containing client information, proprietary client list, proprietary potential client list and other related information” from a computer in his law firm’s office.

According to the judgment in the case: “Just a couple of days before leaving [Titus], [Adebare] is stated to have visited the office of [Titus] after office hours and requested the security guard to allow him to enter the office on the pretext of downloading some information from the computer for a project handled by him. The guard had no reason not to permit [Adebare] to enter [Titus’] office, who brought a CD-Writer with him and connected the same to the computer in [Titus’] office, which was inter connected with [Titus’] Local Area Network (LAN) with Windows Server having 7.2 GB of data. Thus, all the confidential information was copied using the CD-Writer.”

The four LexCounsel founders in turn filed a counter claim against Titus in the Delhi high court, challenging his copyright to the allegedly stolen data, based on the ground that, as partners and not employees of Titus and Co., they had as much propriety over the data as Titus. They also filed an anticipatory bail petition and were granted bail by the Delhi high court on a personal bond of Rs.1,00,000 and a surety of Rs.1,00,000 each.

Delhi high court judge Sanjay Kishan Kaul, on 8 May 2006, restrained Jhingan, Adebare, Naqvee and Mohanty from using Titus’ data for their own benefit or disseminating or exploiting it in any other way.

Kaul ruled that they were not partners in Titus and Co. but were employees of the firm, getting their salaries as a fixed percentage of clients’ fees, having had no written partnership arrangement with Titus, maintaining time sheets in the name of the firm and not in their own name, and going through no legal separation of assets at the time of exiting from the firm.

7. American Express Bank Ltd., v. Priya Puri (2006)

The court held that “trade secrets are acquired over a period of time and are the formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others….” In the above case, the defendant had acquired all the information and data during her course of employment. Trade secrets do not cover the knowledge which is attained through daily operations of the business. The court further stated that the defendant couldn’t be prohibited from changing her job as it helps in overall development.

Summary:

The defendant was given the responsibility of supervising the Wealth Management Division of the plaintiff (the employers) and was required to act in accordance with the code of conduct for all employees. The defendant was not allowed to engage in activities, which conflicted with the plaintiff’s interest. Additionally, during the defendant’s course of employment, all confidential information, like customer records and information, was to be protected from the society and the competitors. The defendant gave her resignation letter to the Director of the Wealth Management Department. It was soon discovered that the defendant was in the process of joining a competitor firm. It was also found that the defendant had taken advantage of her position and had acquired a comprehensive list of all customer information and investment related data. The plaintiff, being a reputed bank, filed a suit for injunction against the defendant restricting her not to release any confidential information and trade secrets related to the transactions as they have a duty of confidentiality to their customers. It was contended by the plaintiff’s that even though the confidential information is not in any document, it existed in the mind of the defendant. Hence, this existent, intangible threat was sufficient enough to prevent her from disclosing it.

On the other hand, the defendant asserted that customer details like their phone numbers and addresses cannot come under the ambit of confidential information or trade secrets. The reason being that the same were common knowledge and could be easily accessed as they were in the public domain.

8. Tractors & Farm Equipment Ltd. v. Green Field Farm Equipments Pvt. Ltd. & Others (2006)

The picture that emerges from the above case law is that the court shall entertain injunction only if the same is protected either through Copyright or Designs along with a non-disclosure agreement.

Summary

The applicant/plaintiff, M/s Tractors and Farm Equipment Ltd (TAFE) manufactured tractors. The second respondent/defendant had been an employee of the plaintiff TAFE when it had developed the idea of a tractor called ‘Hunter’, who as per the plaintiff had direct access and information regarding the said program. The second respondent/defendant had tendered his resignation from, plaintiff TAFE and joined Green Field Farm Equipments Private Limited, promoted by his wife. Till he resigned from the plaintiff company, there had not been much activity in the defendant’s company. Thereafter the defendant started manufacturing tractors by name Maharaja 3300. The applicant/plaintiff company claimed that they conceived a project called ‘Hunter Project’ for producing tractors and entered into a tie up with some UK companies to design the tractor. These companies developed the design and assigned the rights therein to the plaintiff, TAFE. The second respondent/defendant while in service of the plaintiff company was deputed to UK in his capacity as senior member of the R&D team of Hunter Project for the purpose of developing the design for the tractor. All communication emanating from the UK design partners had been accessible to the defendant. The plaintiff, TAFE alleged that the first respondent/defendant company registered a design, which according to the plaintiff company was the design of tractor developed under the Hunter project. On comparing the designs, the court found that the registered design was a copy and plain imitation of the design developed by the British companies for TAFE. Since the second respondent/defendant had access to the Hunter tractor designs as a result of his association with this program during his employment in TAFE and since such tractors were not manufactured by TAFE, the court held that the defendant ex-employee alone could have copied and registered the design in the name of the first respondent, Green Field Farm Equipments. Additionally, no material was produced before the court by the defendants to show that they developed the design on their own and that the applicant/ plaintiff did not have any claim over it. While employing the second respondent/defendant, the plaintiff TAFE, had entered into a confidential agreement which stipulated that if he had acquired any knowledge of confidential or restricted nature either developed by itself or through technical collaboration or licenses, he should not make available or accessible such knowledge to third parties either directly or indirectly for a period of three years.

Based on its finding that the Hunter tractor design and the design of the tractor registered by the defendants under the Designs Act were one and the same, the court concluded that the second respondent who was in the service of the plaintiff, unlawfully copied the original designs assigned to applicant/plaintiff by the British companies. It was held that the second respondent/defendant had committed a breach of trust and confidentiality agreements for which he should be restrained by an order of injunction. The court also found a subsisting copyright in favour of the plaintiffs in the Hunter tractor design and restrained the defendants from infringing the copyright.

But the court made it clear that the injunction will not be applicable if the defendants are manufacturing tractors on their own not connected with the digital images and photographs of Hunter tractor design since there cannot be any blanket injunction against anybody preventing the production of a tractor of his own design and configuration, not offending the rights of others.

9. Zee Telefilms Ltd. v. Sundial Communications Pvt. Ltd. (2003)

‘There can be no copyright of ideas or information and it is not infringement of copyright to adopt or appropriate ideas of another or to publish information received from another, provided there is no substantial copying of the form in which those ideas have, or that information has, been previously embodied. But if a person under such circumstances has acquired the ideas or information that it would be a breach of good faith to publish them and he has no just case or excuses for doing so, the court may grant injunction against him. …. Copyright is good against the world generally while confidence operates against those who receive information or ideas in confidence. Copyright has a fixed statutory time limit which does not apply to confidential information, though in practice application of confidence usually ceases when the information or ideas becomes public knowledge..”

Summary:

The employees of the plaintiffs – a company engaged in the business of producing television serials - had developed the concept for a program, which they had registered with the Film Writers Association. Subsequently, they made a confidential pitch of the concept to the representatives of the defendants, a well-known TV channel. Although initially the defendants appeared reluctant to take the concept forward, they proceeded later on, without the authorization of the plaintiffs, to produce a TV serial that closely mirrored the ideas contained in the show conceived by the plaintiff. In an action seeking to restrain the defendants from proceeding with their production, the High Court agreed with the plaintiff’s claims both on the count of copyright infringement and confidentiality. Curiously, the determination of both issues turned on the similarities between the plaintiff and defendant’s concepts – which is traditionally a determination relevant only to copyright cases.

10. Urmi Juvekar- Chiang v. Global Broadcast News Ltd. (2008)

An idea per se has no copyright. But if the idea is developed into a concept fledged with adequate details, then the same is capable of registration under the Copyright Act

Summary:

In November 2005, Urmi Juvekar, a documentary filmmaker, came up with a concept which she called ‘Work in Progress”. The concept note, which was registered with the Film Writers Association, Mumbai, disclosed the idea of a reality show on TV, which would follow citizens from around the country as they took the initiative to solve a civic problem of their choice in their locality. The show would follow the citizens and telecast the hurdles that the citizens face in solving the problem – the bureaucracy, the general attitude of the people and the final outcome.

The concept note was sent to CNN-IBN, which initially took great interest in it and a number of meetings with directors, line managers and producers followed. Discussions continued until February 2007 and then stopped abruptly. On April 19, 2007, Ms. Juvekar-Chiang saw promotions of the program titled “Summer Showdown” on CNN-IBN which, in the words of Rajdeep Sardesai, CNN-IBN’s editor in chief, “promise[d] to be a captivating account of citizens from across the country on the civic conditions of their cities.” Mr. Sardesai further stated, “With inclusive journalism as our mantra, CNN-IBN hopes to not only give voice to the plight of citizens but also elicit among others a sense of civic responsibility.” The program was to be aired daily in the form of short three-minute stories on CNN-IBN’s news. Ms. Juvekar filed a petition claiming injunction and damages on the grounds of breach of confidentiality and copyright infringement on May 21, 2007 before the Mumbai High Court.

11. Peter Pan Manufacturing Cop. v. Corsets Silhouette Ltd. (1963)

A trader who receives confidential information and makes no use thereof, is not thereby debarred from making use of that knowledge when it is no longer secret.

Summary:

A licence agreement contained a clause prohibiting the licensee from using, after termination of the agreement, the technical information supplied under it. After termination, the licensee manufactured a range of goods incorporating the patentee's designs. The patentee sued for breach of confidence, and breach of contract, and contended that the licensee was indefinitely precluded from using the patentee's methods of construction, even though these might cease to be confidential. The patentee further contended that the licensee should be restrained from using a material of which particulars had been supplied to it in confidence, notwithstanding that no use had been made of that information until it had ceased to be confidential.

It was held that the patentee was entitled to an injunction restraining further manufacture of the range of goods immediately concerned, but not to the wider relief asked for.

The successful plaintiffs having elected to take an account of profits:

It was held that they were entitled to an order in the form of an account of the profits made by the defendants from the sale of the offending goods, and not merely an account of the additional profit made by the defendants as a consequence of their use of confidential information.

GEOGRAPHICAL INDICATIONS

2018-03-08T20:08:00.003-08:00

A geographical indication (GI) is a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin. In order to function as a GI, a sign must identify a product as originating in a given place. In addition, the qualities, characteristics or reputation of the product should be essentially due to the place of origin. Since the qualities depend on the geographical place of production, there is a clear link between the product and its original place of production. The connection between the goods and the place becomes so famous that any reference to the place reminds the goods being produced there and vice versa. E.g. The reference to the District of Champagne, France brings to mind the wine ‘Champagne’ which is being produced there.

In France, the concept of geographical indications emerged with the law of 1919 that established geographical indications as collective intellectual property and granted legal recognition to unions for the protection of appellations of origin.

At the international level the Lisbon agreement for the protection of Appellations of Origin and their International Registration, 1958, was adopted to provide for the protection of “appellations of origin”, which is defined to mean the “geographical name of the country, region, or locality, it serves to designate the product originating therein, the quality and characteristics of which are due exclusively or essentially to the geographic environment, including natural and human factors”.

Definition

The Geographical Indications of Goods (Registration and Protection) Act, 1999 defines “geographical indication” in relation to goods as ‘an indication which identifies such goods as agricultural goods, natural goods or manufactured goods as originating, or manufactured in the territory of the country, or a region or locality in that territory, where a given quality, reputation or other characteristics of such goods is essentially attributable to its geographical origin and in the case where such goods are manufactured goods, one of the activities of either the production or of processing or preparation of the goods concerned takes place in such territory, region or locality, as the case may be’.

The term ‘goods’ has been defined to mean ‘any agricultural, natural or manufactured goods or any goods of handicraft or of industry and includes food stuff’. ‘Indication’ has been defined to include ‘any name, geographical or figurative representation or any combination of them conveying or suggesting the geographical origin of goods to which it applies’.

Rationale

Geographical indications have features that respond to the needs of indigenous and local communities and farmers. Geographical indications:

1. Are based on collective traditions and a collective decision-making process;

2. Reward traditions while allowing for continued evolution;

3. Emphasize the relationship between human efforts, culture, land resources and environment; and

4.Are not freely transferable from one owner to another.

Geographical indications, therefore, reflect inter alia, the traditions, culture, human efforts, resources and environment of particular regions.

Functions

Geographical indications are valuable property to producers from particular geographical regions. They basically perform three functions.

a. They identify goods as originating in a particular territory or a region or locality in that territory;

b. They suggest to the consumers that the goods come from an area where a given quality, reputation or other characteristics of the goods is essentially attributable to their geographical origin; and

c. They promote the goods of producers of a particular area.

Difference between Trade Mark & Geographical Indication

Although the geographical indications are as valuable as trademarks, yet the functions of geographical indications are different from that of the trademarks. Trademarks are owned by enterprises and used to identify products and services in the market, in particular, to distinguish them from competing products and services whereas a geographical indication never belongs to a particular enterprise. A geographical indication can be used by several enterprises have the same time, provided that the products for which it is used originate in the geographical area to which the indications refer.

Development

Prior to 1999, there was no specific law in India on geographical indications which could adequately protect the interests of the producers. Despite India being a party to the TRIPS agreement, she did not enact a law on geographical indications until 1999. The judiciary, however, has been active in preventing persons to take unlawful advantage of geographical indications. [Mohan Meakin v Scotch Whisky (1980) & Scotch Whisky Association v Pravara Sahakar Karkhana (1992)]

Register

The Geographical Indications Registry has been established in Chennai to administer the Geographical Indications Act, 1999 under the Controller General of Patents, Designs and Trademarks.

Registration

The geographical indication may be registered in respect of any or all of the goods, comprised in a prescribed class of goods and in respect of a definite territory of a country or region or locality, as the case may be. The classification shall, as far as possible, conform to the International Classification of goods. Where any question arises regarding the classification of goods or the determination of the definite area, the registrar whose decision in the matter shall be final shall determine it.

Section 9 of the act prohibits the registration of certain geographical indications:

A geographical indication-

a. The use of which would be likely to deceive or cause confusion; or

(Confusion regarding GI may be visual or phonetic in nature i.e. contextual confusion or as to trade origin. The purchaser may actually be deceived. They may be induced to believe the goods sold under the GI emanates from the same trade source. The deception or confusion need not be actual. It may also be probable.)

b. The use of which would be contrary to any law for the time being in force; or

(For example, if the GI applied for registration is prohibited under the Emblems & Names (Prevention of improper use) Act, 1950, it shall be refused registration)

c. Which comprises or contains scandalous or obscene matter; or

(It has to be decided on the facts and circumstances of each case. In case of objection to the registration, the onus is on the applicant to show that the GI applied for is not scandalous or obscene)

d. Which comprises or contains any matter likely to hurt the religious susceptibilities of any class or section of the citizens of India; or

e. Which would otherwise be disentitled to protection in a court; or

f. Which are determined to be generic names or indications of goods and are, therefore, not or ceased to be protected in their country of origin, or which have fallen into disuse in that country; or

(Generic names or indications in relation to goods means the name of goods which although relates to the place of the region where the goods were originally produced and manufactured, has lost its original meaning and has become the common name of such goods and serves as a designation for or authentication of the kind, nature, type or other property or characteristics of the goods.)

g. Which, although literally true as to the territory, region or locality in which the goods originate, butfalsely represent to the persons that the goods originate in another territory, region or locality, as the case may be, shall not be registered as a geographical indication.

Explanation 1. - For the purposes of this section, "generic names or indications'', in relation to goods, means the name of a goods which, although relates to the place or the region where the goods was originally produced or manufactured, has lost its original meaning and has become the common name of such goods and serves as a designation for or indication of the kind, nature, type or other property or characteristic of the goods.

Explanation 2. - In determining whether the name has become generic, account shall be taken of all factors including the existing situation in the region or place in which the name originates and the area of consumption of the goods.

Note:

Registration of Homonymous (ambiguous or having the same designation) geographical indications.

Where the geographical indication is homonymous indication to an already registered geographical indication, the material factors differentiating the application from the registered geographical indications shall be provided. The registrar in that case would have to consider the practical question to differentiate the two homonymous indications, ensure equitable treatment of the producers of the goods concerned and avoid confusion in the market. It is of paramount importance that the consumers of such goods are not confused or misled in consequence of such a registration.

Application

An application for registration of a geographical indication may be made to The Registrar of GI by any association of persons for producers or any organisation or authority representing the interests of the producers of the concerned goods. The applicant has to be a legal entity and should be representing the interest of the producers of the good applied for. Any such organisation or association being not that of the producers may have to prove that they represent the interest of the producers. Any applicant authority also has to prove that they represent the interest of the producers.

Note:

It is noteworthy that many communities which are holders of traditional knowledge and goods produced and sold using geographical indications have not formed associations. In many cases, it is the distributors of these groups who have formed associations, and they may be in a position to obtain registration for the geographical indications. Thus, as per the law these associations will have to prove that they represent the interest of the producers.

The application for registration must contain the following:

a. A statement as to how the geographical indication serves to designate the goods as originating from the concerned territory of the country or region or locality in the country, as the case may be, in respect of specific quality, reputation or other characteristics of which are due exclusively or essentially to the geographical environment, with its inherent natural and human factors, and the production, processing or preparation of which takes place in such territory, region or locality, as the case may be;

b. The class of goods to which the geographical indication shall apply;

c. The geographical map of the territory of the country or region or locality in the country in which the goods originate or are being manufactured;

d. The particulars regarding the appearance of the geographical indication as to whether it is comprised of the words or figurative elements or both;

e. A statement containing such particulars of the producers of the concerned goods, if any, proposed to be initially registered with the registration of the geographical indication as may be prescribed; and

f. Such other particulars as may be prescribed.

A document entitled ‘statement of case’ is to be annexed with application form which shall contain:

a)    Specification – A brief statement on specifications and quality parameters of the goods in about 50 to 100 words.
b)   Description – Detailed description of the Goods & geographical linkage.
c)    Proof of Origin – Historic proof in the form of documentary evidence to prove the existence of the Geographical Indications.
d)   Method of Production – Process involved, raw materials & tools, packaging specialty if any.
e)    Uniqueness – Special Characteristics if any.
f)     Inspection Body – Details of the Inspection Body set up by the applicant to monitor the production in respect of quality, integrity & consistency of the product.
g)    Other – The present scenario of the GI Product i.e. the market, details of exports, if any, total turnover of the product & the activities undertaken by the applicant association in development & promotion of the GI.

The Procedure

STEP 1: Filing of application

Please check whether the indication comes within the ambit of the definition of a Gl under section 2(1)(e).

The association of persons or producers or any organization or authority should represent the interest of producers of the concerned goods and should file an affidavit how the applicant claims to represent their interest.

Application must be made in triplicate.
The application shall be signed by the applicant or his agent and must be accompanied by a statement of case.
Details of the special characteristics and how those standards are maintained.
Three certified copies of the map of the region to which the GI relates.
Details of the inspection structure if any to regulate the use of the GI in the territory to which it relates.
Give details of all the applicants together with address. If there is a large number of producers a collective reference to all the producers of the goods may be made in the application and the G.I., if registered will be indicated accordingly in the register.

Send your application to the following address in India:

Geographical Indications Registry
Intellectual Property Office Building
Industrial Estate, G.S.T Road
Guindy, Chennai – 600 032
Phone: 044 – 22502091-93 & 98
Fax: 044 – 22502090
E-mail:gir-ipo@nic.in
Website: ipindia.gov.in

The applicant must have an address for service in India. Generally, application can be filed by (1) a legal practitioner (2) a registered agent.

STEP 2 and 3: Preliminary scrutiny and examination

The Examiner will scrutinize the application for any deficiencies.
The applicant should within one month of the communication in this regard, remedy the same.
The content of statement of case is assessed by a consultative group of experts will versed on the subject.
The will ascertain the correctness of particulars furnished.
Thereafter an Examination Report would be issued.

STEP 4: Show cause notice

If the Registrar has any objection to the application, he will communicate such objection.
The applicant must respond within two months or apply for a hearing.
The decision will be duly communicated. If the applicant wishes to appeal, he may within one month make a request.
The Registrar is also empowered to withdraw an application, if it is accepted in error, after giving on opportunity of being heard.

STEP 5: Publication in the geographical indications Journal

Every application, within three moths of acceptance shall be published in the Geographical Indications Journal.

STEP 6: Opposition to Registration

Any person can file a notice of opposition within three months (extendable by another month on request which has to be filed before three months) opposing the GI application published in the Journal.
The registrar shall serve a copy of the notice on the applicant.
Within two months the applicant shall sent a copy of the counter statement.
If he does not do this be shall be deemed to have abandoned his application. Where the counter-statement has been filed, the registrar shall serve a copy on the person giving the notice of opposition.
Thereafter, both sides will lead their respective evidences by way of affidavit and supporting documents.
A date for hearing of the case will be fixed thereafter.

STEP 7: Registration

Where an application for a GI has been accepted, the registrar shall register the geographical indication. If registered the date of filing of the application shall be deemed to be the date of registration.
The registrar shall issue to the applicant a certificate with the seal of the Geographical indications registry.

STEP 8: Renewal

A registered GI shall be valid for 10 years and can be renewed on payment of renewal fee.

STEP 9: Additional protection to notified goods*

Additional protection for notified goods is provided in the Act.

(*Additional protection to certain goods: An application may be made to the registrar in respect of goods notified by the central Government for additional protection for a registered geographical indication in Form GI-9 accompanied in triplicate along with a statement of case and shall be accompanied with the copy of the notification issued.The application shall be made jointly by the registered proprietor of the Geographical indications in India and by all the producers of the Geographical indication.)

STEP 10: Appeal

Any person aggrieved by an order or decision may prefer an appeal to the intellectual property appellate board (IPAB) within three months. The address of the IPAB is as follows:

Intellectual Property Appellate Board
Annexe 1, 2 nd Floor, Guna Complex,
443, Anna Salai, Chennai – 600 018

Authorised User

Since a registered the graphical indication is a community intellectual property and the registered proprietor is an organisation or authority, the system of registration of authorised users offers protection to the individual producers manufacturers and traders. This system ensures the bona fide of a GI product dealt with or produced by a genuine person and further ensures the protection to the consumers.

Authorised users get the exclusive right to use the registered geographical indication and can independently sue an infringer; and also renew or restore such indications, if the registered proprietor fails to renew the same.

Prohibition of Registration of Geographical Indication as Trade Mark

The act prohibits the registration of a geographical indication as a trademark as it could lead to expropriation of a public property by an individual leading to confusion in the market.

Note:

· The act provides for protection of a trademark which contains or consists of a geographical indication which has been applied for or registered in good faith under the trademark law or where such trademarks have been used in good faith before the commencement of the geographical indications act or before the date of filing of an application for registration of a geographical indication, even if the trademark is identical with or similar to such a geographical indication.

· The act does not apply to a geographical indication with respect to goods or classes of goods which have become the common name of such goods in India on or before January 1, 1995.

· The act does not affect the right of any person to use, in the course of trade, that person's name or the name of that person's predecessor in business, except where such name is used in such a manner as to confuse and mislead the people.

· No action in connection with the use or registration of a trademark shall be taken after five years from the date from which such use or registration which infringes any registered geographical indication registered has become known to the registered proprietor or to the authorised user.

Term of Geographical Indication

The registration of a geographical indication and authorised user shall be for a period of 10 years. Both the registrations may be renewed from time to time on the payment of a prescribed fee for a term of 10 years from the date of last renewal of registration for an indefinite period. However, if the renewal is not effected within the prescribed or extended time, the geographical indication or the authorised user, as the case may be is liable to be removed from the records. Provision is also made for restoration of registration.

Where a geographical indication has been removed from the register for failure to pay the renewal fee, it shall nevertheless be deemed to be geographical indication on the register unless the tribunal is satisfied either:

a) That there been no bona fide trade use of that geographical indication within two years immediately preceding its removal or;

b) That no deception or confusion would be likely to arise from the use of the geographical indication.

Rights Conferred by Registration

The rights conferred by registration are as follows:

a) To the registered proprietor and authorised user or users the right to obtain relief in respect of infringement of such a geographical indication;

b) To the authorised user the exclusive right to the use of the geographical indication in relation to the goods in respect of which the geographical indication is registered.

However, the right of authorised user to use the graphical indication is subject to the conditions and limitations to which the registration is subject. Two or more authorised users of a registered geographical indication shall have co-equal rights.

Infringement

A person who is not an authorised user of a registered geographical indication infringes it when he:

a) Uses such geographical indication by any means in the designations or presentation of goods that indicates or suggests that such goods originate in a geographical area other than the true place of origin of such goods in a manner goods which misleads the persons as to the geographical origin of such goods; or

b) Uses any geographical indication in such manner which constitutes an act of unfair competition including passing off in respect of registered geographical indication.

Explanation 1. -"Act of unfair competition'' means any act of competition contrary to honest practices in industrial or commercial matters.

Explanation 2. - For the removal of doubts, it is hereby clarified that the following acts shall be deemed to be acts of unfair competition, namely:

a. All acts of such a nature as to create confusion by any means whatsoever with the establishment, the goods or the industrial or commercial activities, of a competitor; [The Tea Board vs ITC Limited (2016)]

b. False allegations in the course of trade of such a nature as to discredit the establishment, the goods or the industrial or commercial activities, of a competitor;

c. Geographical indications, the use of which in the course of trade is liable to mislead the persons as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods;

c) Uses another geographical indication to the goods which, although literally true as to the territory, region or locality in which the goods originate, falsely represents to the persons that the goods originate in the territory, region or locality in respect of which such registered geographical indication relates.

Note

· Where the goods in respect of which a geographical indication has been registered are lawfully acquired by a person other than the authorised user of such geographical indication, further dealing in those goods by such person including processing or packaging does not constitute an infringement of such a geographical indication, except where the condition of goods is impaired after they have been put in the market.

· A geographical indication once registered shall prima facie be evidence of the validity of the registration and the certificate of registration shall be admissible in all courts and before the Appellate Boards in all legal proceedings relating to geographical indication without further proof for production of the original. However, the right of action in respect of an unregistered geographical indication shall not be affected by the aforesaid provision.

· A geographical indication is public property. Any right to a registered geographical indication is not a subject matter of assignment, transmission, licensing, pledge, mortgage or any such other agreement. However, on the death of an authorised user his right in the registered geographical indication shall devolve on his successors in title.

Rectification & Correction of Register

Power to cancel or vary registration and to rectify the register. Section 27 of the Act reads as follows:

1) On application made in the prescribed manner to the Appellate Board or to the Registrar by any person aggrieved, the tribunal may make such order as it may think fit for cancelling or varying the registration of a geographical indication or authorised user on the ground of any contravention, or failure to observe the condition entered on the register in relation thereto.

2) Any person aggrieved by the absence or omission from the register of any entry, or by any entry made in the register without sufficient cause, or by any entry wrongly remaining on the register, or by any error or defect in any entry in the register, may apply in the prescribed manner to the Appellate Board or to the Registrar, and the tribunal may make such order for making, expunging or varying the entry as it may think fit.

3) The tribunal may in any proceeding under this section decide any question that may be necessary or expedient to decide in connection with the rectification of the register.

4) The tribunal, of its own motion, may, after giving notice in the prescribed manner to the parties concerned and after giving them an opportunity of being heard, make any order referred to in sub-section (1) or sub-section (2).

5) Any order of the Appellate Board rectifying the register shall direct that notice of the rectification shall be served upon the Registrar in the prescribed manner who shall upon receipt of such notice rectify the register accordingly.

Correction of register

Under Section 28; the Registrar may, on an application made in the prescribed manner by the registered proprietor or the authorised user, —

i) Correct any error in the name, address or description of the registered proprietor or the authorised user, as the case may be, of a geographical indication, or any other entry relating to the geographical indication on the register;

ii) Enter any change in the name, address or description of the association of persons or of producers or any organisation or authority, as the case may be, who is registered as proprietor of a geographical indication on the register;

iii) Cancel the entry of a geographical indication on the register;

iv) Strikeout any goods or class or classes of goods from those in respect of which a geographical indication is registered from the register and may make any consequential amendment or alteration in the certificate of registration, and for that purpose, may require the certificate of registration to be produced to him.

Alteration of registered geographical indications

Under Section 29 of the Act;

1. The registered proprietor of a geographical indication may apply in the prescribed manner to the Registrar for leave to add to or alter the geographical indication in any manner not substantially affecting the identity thereof, and the Registrar may refuse leave or may grant it on such terms and subject to such limitations as he may think fit.

2. The Registrar may cause an application under this section to be advertised in the prescribed manner in any case where it appears to him that it is expedient so to do, and where he does so, if, within the prescribed time from the date of the advertisement any person gives notice to the Registrar in the prescribed manner of the opposition to the application, the Registrar shall, after hearing the parties if so required, decide the matter.

3. Where leave is granted under this section, the geographical indication as altered shall be advertised in the prescribed manner, unless the application has already been advertised under sub-section (2).

(E.g. If ‘Darjeeling Tea’ is registered as a GI in English, a subsequent request may be made to depict the registered GI in Hindi (Devanagiri Script)

Application of Geographical Indication to Goods

Under Section 37 of the Act, a person shall be deemed to apply a geographical indication to goods who —

a) Applies it to the goods themselves; or

b) Applies it to any package in or with which the goods are sold, or exposed for sale, or had in possession for sale or for any purpose of trade or manufacture; or

c) Places, encloses or annexes any goods which are sold or exposed for sale, or had in possession for sale or for any purpose of trade or manufacture, in or with any package or other thing to which a geographical indication has been applied; or

d) Uses a geographical indication in any manner reasonably likely to lead to the belief that the goods in connection with which it is used are designated or described by that geographical indication; or

e) In relation to the goods uses a geographical indication in any sign, advertisement, invoice, catalogue, business letter, business paper, price list or other commercial documents and goods are delivered to a person in pursuance of a request or order made by reference to the geographical indication as so used.

A geographical indication shall be deemed to be applied to goods whether it is woven in, impressed on, or otherwise worked into, or annexed or affixed to, the goods or to any package or other thing.

Infringement & Passing Off

· Institution of a Suit before the District Court

A suit:
a)    For the infringement of a registered GI; or
b)   Relating to any right in a registered GI; or
c)    For passing off arising out of the use by the Defendant of any GI which is identical with or deceptively similar to the geographical indication relating to the plaintiff, whether registered or unregistered,

Shall be instituted before the district court having jurisdiction to try the suit.

The district court having jurisdiction includes a district court within the local limits of whose jurisdiction, the person or one of the persons instituting the suit or proceeding actually and voluntarily resides or carries on business or personally works for gain. The term “person” includes the registered proprietor and the authorised user.

· Civil Remedies

The act provides for the following simple remedies for the infringement of a registered geographical indication:

a) Injunction.

b) Damages or account of profits.

c) Delivery-up of the infringing labels and indications.

These remedies are inclusive, not exhaustive and the court may provide some other remedies in addition to the aforesaid such as Anton Piller order.

Injunction

Injunction includes temporary and permanent injunction. Further, the court may also order an ex parte judgement for:

a) Discovery of documents.

b) Preserving of infringing goods, documents or other evidence which are related to the subject matter of the suit; and

c) Restraining the defendant from disposing of or dealing with his assets in a manner that may adversely affect the plaintiff’s ability to recover damages, costs or other pecuniary remedies which may be finally awarded to the plaintiff.

The aforesaid remedy of injunction is more effective and can prevent a greater harm to the plaintiff.

Damages or account of Profits

The remedy of damages or account of profits is not cumulative but alternative. The plaintiff has to elect one of the two remedies at an earlier stage of the suit. The remedy of damages (other than nominal damages) or account of profits may be denied with the defendant satisfies the court that he was unaware and had no reasonable grounds for believing that the geographical indication of the plaintiff was registered when he commenced to use it: and that when he became aware of the existence and nature of the plaintiff’s right in the graphical indication, he forthwith ceased to use it.

Delivery-up of the infringing labels and indications

It is in the discretion of the court to order the defendant to deliver-up the infringing labels and indications for destruction and erasure. The court by taking the relevant circumstances into account may or may not order for such remedy.

Passing Off

All the aforesaid remedies that are available for the infringement of a registered Geographical Indication are also available in a passing off action in case of unregistered geographical indication.

Note

Usually, the invalidity of registration is pleaded by the accused against the charge of falsely applying a geographical indicator; or selling goods to which false geographical indication is applied.

Cases

1. Mohan Meakin v Scotch Whisky (1980)

The Delhi High Court affirmed the order of the Registrar of Trade Marks by which he refused to register the applicant’s mark proposed to be used on whisky produced in India consisted of the words ‘Highland Chief; and the device of the head and shoulders of a gentleman dressed in Scottish highland costume wearing, inter alia, feather bonnet and plaid and edge with tartan, a well-known symbol of Scottish origin.

2. Scotch Whisky Association v Pravara Sahakar Karkhana (1992)

Indian courts have maintained the action of passing off to protect geographical indications.

In this case, the plaintiff, the Scotch Whisky Association, a company incorporated under the Companies Act of the United Kingdom instituted the passing-off action against the defendants; a manufacturer of various brands of Indian whisky known as ‘Blended Scotch whiskey’ or ‘Blended with Scotch’, under various brands, namely ‘Drum Beater’ and ‘God Tycoon.’ On these facts the Bombay High Court held:
a.     The plaintiffs have sufficient interest and locus standi to prevent passing-off of Indian whisky manufactured by the defendant as ‘Scotch whisky’ and to prevent damage to the reputation and goodwill of Scotch whisky.
b.     The plaintiffs have made out a strong prima facie case that the defendants are passing off their goods as Blended Scotch whisky or goods closely and substantially associated with Blended Scotch whisky when in fact they are not. The plaintiffs have, therefore, made out a case for grant of an interim injunction on the merits of the case.
c.      The defendants are deliberately and intentionally passing off their product as if ‘Blended Scotch’ although as a matter of law, even unintentional misrepresentation is also actionable. It is unfortunate that the defendants have resorted to an unfair device by using the words ‘Blended with Scotch’ and indulged in colourable imitation and unfair trading in an attempt to reap the harvest by an appropriation of the plaintiff’s goodwill in Scotch whisky trade. The attempt of the defendants to justify the use of the words ‘Blended with Scotch’ has totally failed. The balance of convenience is in favour of the plaintiffs and not in favour of the defendants.
d.     The defendant is restrained from advertising or offering for sale or distributing in any country whisky which is not Scotch whisky with the description ‘Blended with Scotch whisky’ or ‘Blended Scotch whisky’ or ‘Blended with six-year-old Scotch’ or ‘Blended with six-year-old Vatted Malt Scotch’ or the word ‘Scotch’ or the impugned labels or the impugned carton which bear the mark ‘Gold Tycoon’ containing the word ‘Scotch’ or the description ‘Blended Scotch whisky’ or ‘Blended with six year’.

3. The Tea Board vs. ITC Limited (2016)

The court opined that the usage of the term DARJEELING for a lounge does not create a situation where any person with average intelligence would find it difficult to differentiate between the already existing Darjeeling tea and the lounge DARJEELING. Plus any form of confusion wherein any beverage or food article provided in the lounge might belong to the Tea Board of India is not bound to happen.

Summary

a. The Tea Board of India holds the famous GI “Darjeeling” and the logo of a woman holding tea leaves, as well as the certification trademark “Darjeeling” under the Trade Marks Act, in connection with “tea”.

b. ITC, Limited used “Darjeeling Lounge” as the name for its executive lounge at its Kolkata hotel, the ITC Sonar.

c. The Tea Board had previously filed a suit against ITC for using the word Darjeeling for their lounge. The suit mainly revolved on issues of infringement of the GI and the certification TMs, as well as for passing off and dilution.

d. The matter was rejected by the one judge bench, due to which an appeal was made before the Division bench of the Kolkata high court.

PLANT VARIETIES AND FARMERS’ RIGHTS

2018-03-08T20:04:00.000-08:00

PLANT GENETIC RESOURCES (PGRs) are the foundation for the development of a food and nutritionally secure society. In addition, plants have many uses, including feed, fibre, medicine and industrial applications. PGRs were treated as the ‘heritage of mankind’ and were shared freely among nations, till the concerns for conservation of biological diversity were raised by the Convention on Biological Diversity (CBD), which came into force in 1993.

The conservation and sustainable utilization and access to biological diversity were considered as national sovereignty by CBD. Consequently, many issues regarding the rights of the conservers, users, breeders, farmers and intellectual property have emerged.

During 2001, significant developments have taken place with respect to the realization of the rights of breeders, farmers and local communities. The Indian Government passed the Protection of Plant Varieties and Farmers’ Rights Act, 2001 (PPVFR). It was an outcome of India’s obligations which arose from the TRIPs (Trade Related Intellectual Property Rights) agreement which obligates members to protect plant varieties either by patents or by effective sui generis (unique) system or by any combination thereof.

Objectives

The objectives of the Act are as follows:

1. To provide for the establishment of an effective system for protection of plant varieties.

2. To provide for the rights of farmers and plant breeders.

3. To stimulate investment for research and development and to facilitate growth of the seed industry.

4. To ensure availability of high quality seeds and planting materials of improved varieties to farmers.

Definitions

· Variety

According to section 2(za) of the Act, ‘variety’ means a plant grouping except microorganisms within a single botanical taxon of the lowest known rank, which can be:

i) Defined by the expression of the characteristics resulting from a given genotype of a plant of that plant grouping;

ii) Distinguished from any other plant grouping by expression of at least one of the said characteristics; and

iii) Considered as a unit with regard to its suitability for being propagated, which remains unchanged after such propagation and includes propagating material of such variety, extant variety, transgenic variety, farmers’ variety and essentially derived variety.

· Extant variety

According to section 2(r) of the Act, ‘extant variety’ means a variety available in India which is:

i) Notified under section 5 of Seeds Act, 1966, or

ii) Farmers’ variety, or

iii) A variety about which there is common knowledge, or

iv) Any other variety which is in public domain.

(Section 5 of Seeds Act, 1966 - If the Central Government, after consultation with the Committee, is of opinion that it is necessary or expedient to regulate the quality of seed of any kind or variety to be sold for purposes of agriculture, it may, by notification in the Official Gazette, declare such kind or variety to be a notified kind or variety for the purposes of this Act and different kinds or varieties may be notified for different States or for different areas thereof.)

· Essentially derived variety

According to section 2(i) of the Act, ‘essentially derived variety’ in respect of a variety (the initial variety) shall be said to be essentially derived when it:

i) Is predominantly derived from such initial variety, or from a variety that itself is predominantly derived from such initial variety, while retaining the expression of the essential characteristics that result from the genotype or combination of genotypes of such initial variety;

ii) Is clearly distinguishable from such initial variety, and

iii) Conforms (excepting for the differences which result from the act of derivation) to such initial variety in the expression of the essential characteristics that result from the genotype or combination of genotypes of such initial variety

· Farmer

According to section 2(k) of the Act, ‘farmer’ means any person who:

i) Cultivates crops by cultivating the land himself, or

ii) Cultivates crops by directly supervising the cultivation of land through any other person, or

iii) Conserves and preserves, severally or jointly, with any person any wild species or traditional varieties, or adds value to such wild species or traditional varieties through selection and identification of their useful properties.

· Farmers’ variety

According to section 2(l) of the Act, ‘farmers’ variety’ means a variety which:

i) Has been traditionally cultivated and evolved by the farmers in their fields, or

ii) Is a wild relative or land race of a variety about which the farmers possess common knowledge.

· Authority

The Central Government shall establish an Authority to be known as the Protection of Plant Varieties and Farmers’ Rights Authority. It shall consist of a chairperson and fifteen members as representatives of different concerned ministries and departments, seed industry, farmers organizations, tribal communities and State-level women’s organization, etc.

Criteria for Registration of a Variety:

Novel: if at the date of filing an application for registration for protection, the propagating or harvested material of such variety has not been sold or otherwise disposed of in India earlier than one year or outside India, in the case of trees or vines earlier than six years, or in any other case earlier than four years, before the date of filing such application.

Distinct: A variety is said to be distinct if it is clearly distinguishable by at least one essential characteristic from any other variety whose existence is a matter of common knowledge in any country at the time of filing an application.

Uniform: A variety is said to be uniform, if subject to the variation that may be expected from the particular features of its propagation it is sufficiently uniform in its essential characteristics.

Stable: A variety is said to be stable if its essential characteristics remain unchanged after repeated propagation or, in the case of a particular cycle of propagation, at the end of each such cycle.

Persons who can apply for the Registration of Plant Variety

Application for registration of a variety can be made by:

Any person claiming to be the breeder of the variety;
Any successor of the breeder of the variety;
Any person being the assignee or the breeder of the variety in respect of the right to make such application;
Any farmer or group of farmers or community of farmers claiming to be breeder of the variety;
Any person authorized to make application on behalf of farmers and
Any University or publicly funded agricultural institution claiming to be breeder of the variety.

Filing Requirements For The Registration Of A Plant Variety

Name, address and Nationality of Applicants as well as the address of service of their agent.
Denomination assigned to such variety.
Accompanied by an affidavit that variety does not contain any gene or gene sequences involving terminator technology.
Complete passport data of parental lines with its geographical location in India And all such information relating to the contribution if any, of any farmer (s), village, community, institution or organization etc in breeding, evolving or developing the variety.
Characteristics of variety with description for Novelty, Distinctiveness, Uniformity and Stability.
A declaration that the genetic material used for breeding of such variety has been lawfully acquired.

Certificate of Registration

The maximum time taken for issuing certificate of registration is three years from the date of filing of the application for registration of a plant variety.

Duration of Registration

· For trees and vines (Perennials)- 18 years from the date of registration of the variety.

· For other crops (Annuals) – 15 years from the date of registration of the variety.

· For extant varieties – 15 years from the date of notification of that variety by the Central Government under section 5 of the Seeds Act, 1966.

Payment of annual fee

The Authority may, with the prior approval of the Central Government, by notification in the Official Gazette, impose a fee to be paid annually, by every breeder of a variety, agent and licensee thereof registered under this Act determined on the basis of benefit or royalty gained by such breeder, agent or licensee, as the case may be, in respect of the variety, for the retention of their registration under this Act

Breeders’ rights

Section 28 confers exclusive right on the breeder of a registered variety or his successor, his agent or licensee to produce, sell, market, distribute, import or export the variety. The rights are subject to other provisions of the Act.

A breeder may authorise any person to produce, sell, market or otherwise deal with the registered variety subject to such limitations and conditions as may be specified in the regulations. Such authorisation is to be in such form as may be specified by the regulations made by the authority.

The agent or licensee shall apply to the registrar to register his title.

In the case of extant variety, unless a breeder or his successor establishes his right, the Central Government, and in cases where such extant variety is notified for a state under section 5 of the Seeds Act, 1966, the State Government is deemed to be the owner of such right.

Researchers’ right

Section 30 of the Act, allows the following uses:

a) The use of any variety registered under this Act by any person using such variety for conducting experiments or research; and

b) The use of a variety by any person as an initial source of a variety for the purpose of creating other varieties.

However, the authorization of the breeder of a registered variety is required where the repeated use of such variety as a parental line is necessary for commercial production of such other newly developed variety’.

Farmers’ rights

Section 39 provides that -
i)     A farmer who has bred or developed a new variety shall be entitled for registration and other protection in like manner as a breeder of a variety;
ii)    The farmers’ variety shall be entitled for registration if the application contains declarations as specified in clause (h) of sub-section (1) of section 18;
iii)  A farmer who is engaged in the conservation of genetic resources of land races and wild relatives of economic plants and their improvement through selection and preservation shall be entitled in the prescribed manner for recognition and reward from the Gene Fund subject to the condition that material so selected and preserved has been used as donors of genes in varieties registrable under this Act;
iv)  A farmer shall be deemed to be entitled to save, use, sow resow, exchange, share or sell his farm produce including seed of a variety protected However, the farmer shall not be entitled to sell branded seed of a variety protected under this Act.

(For the purpose of clause (iv), “branded seed” means any seed put in a package or any other container and labeled in a manner indicating that such seed is of a variety protected under this Act.)

Where any propagating material of a variety registered under this Act has been sold to a farmer or a group of farmers or any organisation of farmers, the breeder of such variety shall disclose to the farmer or the group of farmers or the organisation of farmers, as the case may be, the expected performance under given conditions. If such propagating material fails to provide such performance under such given conditions, the farmer or the group of farmers or the organisation of farmers, the case may be, may claim compensation in the prescribed manner before the Authority. The Authority, after giving notice to the breeder of the variety and after providing him an opportunity to file opposition in the prescribed manner and after hearing the parties, may direct the breeder of the variety to pay such compensation as it deems fit, to the farmer or the group of farmers or the organisation of farmers, as the case may be.

Exemptions provided by the Act

· Farmers' Exemption:

Farmer shall be entitled to produce, save, use, sow, resow, exchange, share or sell his farm produce including seed of a variety protected under this Act.

· Researcher's Exemption:

i) The use of registered variety for conducting experiment.

ii) The use of variety as an initial source of variety for the purpose of creating other varieties.

National Gene Fund

The Central Government is to constitute ‘The National Gene Fund’ under section 45 of the Act.  Following amounts are to be credited to the Fund:
i)     The benefit sharing from the breeder.
ii)    The annual fee payable to the authority by way of royalties.
iii)  By the compensation provided to the communities as defined under Section 41(1).
iv)  Contribution from any national and international organization and other sources.

The fund will be applied for disbursing shares to benefit claimers, either individuals or organization, and for compensation to village communities. The fund will also be used for supporting conservation and sustainable use of genetic resources, including in situ (in the original place or in the appropriate position) and ex situ (outside an ecological niche) collection and for strengthening the capabilities of the panchayat in carrying out such conservation and sustainable use.

Compulsory License

Under Section 47 of the Act, the authority can grant compulsory license, in case of any complaints about the availability of the seeds of any registered variety to public at a reasonable price. The license can be granted to any person interested to take up such activities after the expiry of a period of three years from the date of issue of certificate of registration to undertake production, distribution and sale of the seed or other propagating material of the variety. The Authority is to determine the duration of the compulsory license.

As on March 8^th 2018, 147 Crop species are open for registration under New/Extant/Farmers Variety.

SEMICONDUCTOR INTEGRATED CIRCUITS LAYOUT-DESIGN

2018-03-08T19:59:00.000-08:00

"Semiconductor Integrated circuits Layout- Design Act 2000" is a supplement act to designs.

With the growing technological development in the field of information technology, a new branch in the field of intellectual property flourished, called as the Layout-Design and the semiconductor integrated circuits.

The semiconductor integrated circuit is an integral part of every computer chip. The fifth generation computers were using Very Large Scale Integration (VLSI) where numerous transistors are accommodated on a single chip, cutting down the size of the chip and at the same time increasing it’s processing power significantly. This ultimately translates into smaller and more powerful computers. Hence, the development of the layout-design on a semiconductor integrated circuit as an intellectual property is quite significant.

Therefore, a step was taken by various organizations to pass regulations regarding this issue. One such was the World Trade Organization, and the result was the TRIPS agreement addressing the intellectual property related issues. India being a signatory of the WTO also passed an Act in conformity with the TRIPS agreement called the Semiconductor Integrated Circuits Layout-Design Act (SICLDA) passed in the year 2000.

Definitions

· "Semiconductor integrated circuit"

According to section 2 (r) of the Act, ‘Semiconductor integrated circuit’ means a product having transistors or other circuitry elements, which are inseparably formed on a semiconductor material or an insulating material or inside the semiconductor material and designed to perform an electronic circuitry function.

· "Layout-design"

According to section 2 (h) of the Act, ‘Layout-design’ means a layout of transistors, and other circuitry elements and includes lead wires connecting such elements and expressed in any manner in a semiconductor integrated circuit. Section 2 (n) of the Act defines ‘registered layout-design’ to mean a layout-design which is actually on the register.

· "Commercial exploitation"

According to section 2 (e) of the Act, ‘commercial exploitation’ in relation to the SICLD means to sell, lease, offer or exhibit for sale or otherwise distribute such semiconductor integrated circuit for any commercial purpose.

· “Registered Proprietor”

According to section 2(o) of the Act, ‘registered proprietor’ in relation to a layout-design, means the person for the time being entered in the register as proprietor of the layout-design.

· “Registered User”

According to section 2(p) of the Act, ‘registered user’ in relation to a layout-design means a person who is for the time being registered as such under section 25.

(According to section 25, a person may be registered as a registered user of the layout design when the registered proprietor and the proposed registered user apply jointly in writing to the Registrar. The application shall accompany the agreement in writing or its authenticated copy, entered between the registered proprietor and registered user. The registered proprietor also has to submit an affidavit to the satisfaction of the Registrar.)

Need for Protection of IC designs:

Product life cycles in many industries are shortening. The length of time and amount of investment required, to obtain intellectual property rights, especially patents, can be disproportionate to the life of such product. Requirements such as the need to mark products with "patent pending" also become impracticable when products have short life cycles and use many different technologies subject to different patents, especially when these products are miniaturized.

Protection under Patent or other IP Laws:

· Integrated circuits comprises of numerous building blocks, each block being patentable. Since an integrated circuit contains hundreds or thousands of semiconductor devices, a claim to an integrated circuit would have to cover hundreds or thousands of individual elements. Consequently, a patent claim that attempts to describe an entire integrated circuit may be hundreds of pages long. Clearly, such a narrow claim would provide almost no protection.

· Even if one sought such narrow protection, writing a patent application supporting a claim with thousands of elements would be extremely complex, cumbersome, and expensive. Obviously, integrated circuits are not easily describable in a patent specification or the claims.

· Also, it may take several years to obtain an integrated circuit patent from most patent offices worldwide. This is unacceptable given that an integrated circuit’s useful commercial life may be less than one year. The cumbersome, time-consuming nature of filing combined with extremely narrow protection often makes patent law an insufficient form of protection for integrated circuits.

· Other forms of existing intellectual property protection are also inapplicable to integrated circuit layouts. Design patents protect the ornamental, but not the functional, aspects of an article of manufacture described in its drawings. Since integrated circuit layout is more functional than ornamental, design patent protection is generally inapplicable to integrated circuits.

· Finally, trade secret law cannot be used to protect most integrated circuits because an integrated circuit layout may be reverse-engineered.

· The layout of transistors on the semiconductor integrated circuit or topography of transistors on the integrated circuit determines the size of the integrated circuit as well as its processing power. That is why the layout design of transistors constitutes such an important and unique form of intellectual property fundamentally different from other forms of intellectual property like copyrights, trademarks, patents and industrial designs.

· Given that patent, copyright, and trade secret law cannot adequately protect integrated circuit design, hence an exclusive protection for semiconductor integrated circuits layout-design has became necessary to the semiconductor industry.

History and Genesis of protection:

Ever since the early 1970s, chip pirates have quickly produced copies of semiconductor chips at vastly reduced prices by copying chip designs and avoiding the expensive research and development phase. This problem was particularly prevalent in the US where, until 1984, there was virtually no intellectual property protection for the IC layout, which cost millions of dollars to design and develop. As a result, the manufacturers of ICs sought some sui generis (Unique) form of intellectual property protection for this backbone of modern technology.

Need For Sui Generis Protection:

The need for a sui generis form of protection developed primarily as a result of chip piracy, which threatened to undercut the vitality of the semiconductor industry. Chip pirates could sell identical chips for lower prices than could the companies that originally designed them. This caused legitimate companies that engaged in chip research and development to cut prices to compete with pirated chips, which deprived legitimate companies of the funds needed to carry out further research and development to build the next generation of chips. Legitimate companies could not get adequate chip protection under patent, copyright, or trade secret law, so a sui generis form of protection was provided.

What is protected?

A layout design expressed in any manner, which is original, which has not been commercially exploited for more than 2 years from the date of application for the registration, which is inherently distinctive and capable of being distinguishable from any other registered layout design, is protected or registered under the Act.

Who can apply?

· The application for the protection of layout design can be made by the person who claims to be the creator of the layout design, his legal representative, a person registered in the prescribed manner as a layout design agent or a person in the sole and regular employment of the principal, in writing to the registrar in the prescribed manner.

· The application can be filed either alone or jointly. The application has to be filed within the territorial limits that is a principal place of business in India of the applicant.

Procedure for registration

· Filing of application in writing to the registrar in the office of SICLD registry in a prescribed form along with 3 sets of drawings produced to the plotter which describes the layout design and 3 sets of photograph of masks used for the fabrication of the semiconductor integrated circuits by using of the layout design or drawings which describes the pattern of such masks.

· Acceptance of the application with acknowledgement by way of returning one copy of the application. The registrar can also withdraw the acceptance if the application is found to be prohibited for registration.*

· The application is advertised in a prescribed manner within 14 days of acceptance of layout design application. If any opposition is found to the registration, then a notice is sent to the registrar in the prescribed manner within 3 months from the date of advertisement. The registrar can call for evidences to be produced by both the parties and finally give his decision.

· If the application is not opposed or the opposition has been decided in favor of the applicant, the registrar shall register the said layout design in the register of layout design and also issue a certificate sealed with the seal of the SICLD Registry.

*Grounds for Prohibition of Registration

Section 7 of the Act lays down grounds for prohibition of layout-design. It provides that a layout-design shall not be registered -

a. Which is not original; or

b. Which has been commercially exploited anywhere in India or in a convention country; or

c. Which is not inherently distinctive; or

d. Which is not inherently capable of being distinguishable from any other registered layout-design,

Provided that a layout-design which has been commercially exploited for not more than two years from the date on which an application for its registration has been filed either in India or in a convention country shall be treated as not having been commercially exploited for the purposes of this sub-section.

Original Layout-Design

According to Section 7(2), a layout-design shall be considered to be original if it is the result of its creator's own intellectual efforts and is not commonly known to the creators of layout-designs and manufacturers of semiconductor integrated circuits at the time of its creation. Hoever, a layout-design consisting of such combination of elements and interconnections that are commonly known among creators of layout-designs and manufacturers of semiconductor integrated circuits shall be considered as original if such combination taken as a whole is the result of its creator's own intellectual efforts.

According to section 7 (3), where an original layout-design has been created in execution of a commission or a contract of employment, the right of registration to such layout-design under this Act shall belong, in the absence of any contractual provision to the contrary, to the person who commissioned the work or to the employer.

Duration of Registration

The registration of the layout design shall be only for the period of 10 years counted from the date of filing an application for registration or from the date of first commercial exploitation anywhere in any country, whichever is earlier.

Exclusive Right to the Registered Proprietor

The registration of the layout design gives to the registered proprietor of the layout design the exclusive right to the use of the layout design and to obtain relief in respect of infringement. This right shall be available to the registered proprietor of that layout design irrespective of the fact as to whether the layout design is incorporated in an article or not.

Assignment and Transmission

A person who becomes entitled by assignment (in writing) or transmission (operation of law) to a registered layout design shall apply to the Registrar in the prescribed manner to register his title. The Registrar, on the proof of the title being to his satisfaction, will register him as the proprietor of the layout design.

Protection against Infringement

The act of reproducing, selling, importing and distributing of integrated circuit layout design for commercial purposes constitutes infringement. Where such act is performed for the purposes of scientific evaluation, analysis, research or teaching it shall not constitute the act of infringement.

Any person who commits infringement shall be punishable with imprisonment for a term, which may extend to 3 years, or with fine which shall not be less than fifty thousand rupees but which may extend to ten lakh rupees, or with both.

Adjudicating Authority

· The Government of India appoints a person to be known as a registrar of the SICLD. He has both administrative and legal powers.

· Any person aggrieved by an order or decision of the Registrar may file an appeal to the Layout Design Appellate Board. The procedure and powers of the Appellate Board are that of a civil court as given under the Civil Procedure Code, 1908.

· If any person is not satisfied by any decision or order of the Appellate Board may file an appeal to the High Court within prescribed period and in a prescribed manner.

Compulsory Licences

Section 51, of the Act, empowers the Appellate Board to permit the use of registered layout-design by the Government or by any person authorised by the Government on an application made in the prescribed manner, and after providing an opportunity of being heard to the parties concerned.

The permission shall, however, be given subject to any or all of the following conditions as the Board deems fit under the circumstances of such use. These conditions are:

a. That the use of the layout-design shall be for non-commercial public purposes or for the purposes relating to national emergency or of extreme public urgency;

b. That the duration of the use of the layout-design shall be limited for a period specified by the Board.

c. That the use of the layout-design shall be non-assignable and non-transmissible;

d. That the use of the layout-design shall be to the extent which the Board deems necessary to remedy the anti-competitive practice;

e. That the use of the layout-design shall be predominantly for the supply of semiconductor integrated circuits or articles incorporating semiconductor integrated circuits in domestic market of India.

It is obligatory for the person so authorised to first make efforts to enter into agreement with the registered proprietor of such layout-design on reasonable commercial terms and conditions for permitted use of such layout-design. It is only when such efforts have not been successful within prescribed period that the Board shall permit the use of such layout-design.

However, there shall be no such obligation for such person where he produces to the Board a certificate issued by the Government to the effect that such use is required due to national emergency or any other circumstances which the Government considers to be of extreme urgency or of public non-commercial use.

The Appellate Board shall determine the amount of royalty to be paid by the Government or the person authorised by the Government, as the case may be, to the registered proprietor of such layout-design for such permitted use.

The Appellate Board may, on the application of the registered proprietor of a layout-design referred to above, may review the permission granted and, after giving notice and opportunity of hearing to the parties concerned in the prescribed manner, cancel or amend such permission if the Board is satisfied that any of the conditions subject to which the permission was granted has not been observed or the circumstances which led to the granting of such permission has ceased to exist or substantially altered.

Convention Countries

Any country which accords to the citizens of India similar privileges and rights as granted to its own citizens, the Central Government may specify such country to be a convention country and provide the citizens of such convention countries the similar privileges as granted to citizens of India under the SICLD Act. Where any country does not accord to the citizen of India the same rights in respect of registration and protection of layout design as it accords to its own citizens, the citizens of such countries shall not be entitled to be registered as a proprietor of layout design, assignee of the proprietor of a registered layout design or to be registered as a registered user of a layout design.

Summary

· There is protection of semiconductor integrated circuits layout and designs by a registration process.

· There is a mechanism for distinguishing which layout designs can be protected.

· There are rules to prohibit registration of layout designs which are not original or which have been commercially exploited.

· Protection of 10 years period is provided to layout designs.

· Provisions regarding infringement and evidence of validity are mentioned.

· There are provisions for determining payment of royalty for registered layout designs in case of innocent or unintentional infringement.

· Penalties in the form of imprisonment and fine are imposed for willful infringement and other offences in the Act.

· The Registrar is appointed for the purpose of administration and the Appellate Board is established for facilitating the legal objective.

Conclusion

The SICLD Act fulfills India’s obligation under the TRIPS agreement as approved by the members of WTO. The intellectual property protection for Integrated Circuit layout design is a key factor throughout the world, and more so in India because it does not have a strong intellectual property protection policy in software. As integrated circuit layout designs is in its early years in India, it’s important that the country boosts of a strong protection policy right in the beginning itself and the SICLD Act provides such a strong protection policy.

The number of Indian companies focusing on integrated circuit design is beginning to grow and this would force major semiconductor companies to set up their offices and address the needs of the domestic market. This will encourage a lot more companies to base their operations in India.

The Indian legislation therefore provides a comprehensive protection to the layout designs of the semiconductor integrated circuits as recognized intellectual property and bundle of rights to the proprietor of the registered layout design.

PATENTS - Patent Litigation in India

2015-08-05T08:53:00.003-07:00

5 COMMON QUESTIONS ABOUT GENERIC DRUGS

What are Generic Drugs?

• A generic drug is a copy of a brand name drug. To be sold, a generic drug must be ‘bioidentical’ to the brand name drug.

• This means that the generic drug must be proven to be the same as the original brand name drug in the following ways:

• dosage form (tablet, capsule, liquid, etc.)

• strength (same amount of drug in both)

• Safety

• how it is taken (by mouth, injection, etc.)

• quality

• how the medicine gets into the bloodstream and works in the body

• The manufacturer must prove that their generic drug meets these requirements before the Food and Drug Administration (FDA) will approve it and allow it to be sold to the public.

Why are Generic Drugs Cheaper Than Brand Name Drugs?

• A brand name drug has to go through 10-15 years of research and testing in animals and people before it can be sold to the public. During this testing, the company making the drug must prove that it is safe and effective for people to use. All of this testing can cost over $1 billion. Once the new drug is approved, the company that made and tested it receives a patent. This means that no other company can make the drug until the end of the patent, which is usually 10-15 years after the drug is released.

• When a patent for a brand name drug expires, any other company can copy the drug and sell a generic version. These other companies must only prove that their product is the same as the brand name drug. This means that generic drug companies do not have to spend as much time and money because they do not have to invent or test the drug for safety and get FDA-approval. This is why generic drugs cost less.

• When a patent for a brand name drug expires, there are usually a number of companies that begin to make a generic version of the drug. Since there is more than one company making the drug, the price is lowered even farther due to competition between all of the different generic drug makers.

Are Generic Drugs as Safe and Effective as Brand Name Drugs?

• The short answer to this question is “usually yes”. A company must prove that its generic version of a drug is both safe and effective before it can be sold to the public. The company that made the original brand name drug proved during years of testing that the drug is both safe and effective.

• A company that makes a generic drug must show that its version of the drug is 80%-125% ‘bioequivalent’ to the original brand name drug. For example: a brand name drug is taken and it is found that 100mg of medicine reaches the person’s bloodstream. For a generic version of the drug to be considered safe and effective, the active drug in the tablet or capsule must release between 80mg and 125mg to reach the bloodstream (80-125%). This means that some companies might make generic versions that have 80mg reach the bloodstream and other companies might make generic versions that have 125mg reach the bloodstream. This difference isn’t a problem in most drugs.

If This Generic Drug is the Same as the Brand Name Drug, Why Do They Look Different?

• Just because two versions of the drug do not look the same does not mean they act differently in the body.

• There are laws in the United States that say that a generic version of a drug cannot look the same as a brand name version. The company that makes the generic version of the drug can make it whatever colour, shape, or flavour they want as long as the amount of active drug remains the same as the brand name drug.

How Do I Know if There is a Generic Version of the Drug that I Take?

• There are a few different ways to find out if there is a generic version of the drugs you take.

• The easiest way is to ask your pharmacist. They will be able to tell you if there is a generic version of a drug available or when a generic version will most likely become available.

CIPLA Vs ROCHE (Generic Industry Rejoices)

BACKGROUND

• Delhi High Court has been the battleground for a pharmaceutical war between Roche and Cipla, over Roche’s patent for anticancer drug ‘Erlotinib’, sold by Roche as TARCEVA.

• On 24 April 2009, the Division bench of the Delhi High Court dismissed Roche's appeal against the refusal of a single judge to grant an injunction restraining Cipla from manufacturing, offering for sale, selling and exporting its generic version of ‘erlotinib’. Both Roche and Cipla drugs are based on a compound that goes by the name of ’Erlotinib Hydrochloride.’

• This case is regarded as a very important case in a series of high profile patent battles between multinational pharmaceutical companies and Indian generic drug companies.

FACTS OF THE CASE

• In February 2007,Roche along with Pfizer (as a joint applicant), claimed that it had been granted a patent for ‘erlotinib’

• The patented product, which Roche introduced onto the Indian market was marketed under the brand name TARCEVA.

• In December 2007 and January 2008, Indian newspapers reported Cipla’s plan to launch a generic version of ‘erlotinib’

• Soon after that, Roche commenced patent infringement proceedings.

CIPLA’S DEFENCE AND COUNTERCLAIM

It had been selling its drug under the brand name ERLOCIP since December 2007.
Roche’s patent was invalid because ‘erlotinib’ was a derivative of Quinazolin, which had been used in cancer treatment. Pursuant to s.3(d) of the Indian Patents Act, a derivative of a known compound is not patentable.
Roche’s invention, as disclosed in the complete specification and claims was obvious or did not involve any inventive step, having regard to what was publicly known or publicly used in India, or what had been published in India or elsewhere before the priority date.
The complete specification did not sufficiently and fairly describe the invention or the method by which it was to be performed.
The huge difference in price between Roche’s drug (Rs.4,800 tablet (approx. US$ 100) and Cipla’s drug (Rs.1,600 (approx US$ 33) should be taken into account when deciding whether or not to grant an interim injunction.

ü Cipla strongly argued that because the drug in question was a life saving drug, the public interest issue was an important factor to be taken into account .

ROCHE’S SUBMISSION

Section 3 (d) of the Patents Act is not applicable as it prohibits only derivatives of ‘a known substance’. ‘Erlotinib’ is not ‘salts, esters, polymorphs, particle size, mixture of isomers, etc.’ of a ‘known substance’. It is a novel compound.
The prior art argument was adequately dealt by the Patent Office during opposition proceedings. In any case, ‘erlotinib’ is a different compound; its properties differ from those of Astra Zeneca’s Gefatinib, which was cited as prior art.
When determining where the balance of convenience lies, it is appropriate to consider the issue of ‘accessibility’ to, and use of, the invention in the territory. It is not, however, necessary that the drug should be manufactured in India.

SINGLE JUDGE RULING

While hearing the case, the judge noted the following points:

• Public interest: The generic drug version of ‘erlotinib’ manufactured and marketed by Cipla is available at one-third the price of Roche’s drug, Tarceva.

• Further, the Court noted that Tarceva is not manufactured in India, it is imported. The Court noted that the right to access to life-saving drugs, and the need for secure long term supplies, is a serious issue in India.

• In such case, the injury that would be caused to the general public if the generic version of the drug were not available is a strong point in favour of a refusal to grant an injunction.

THIS POINT COMPLETELY FAVOURED CIPLA’s DEFENCE

• Validity of the patent: The doubts about the validity of the patent raised by Cipla on the ground of obviousness, and ‘erlotinib’ being a derivative of a known compound which did not meet the ‘increased efficacy’ requirement provided for in s.(d) of the Patents Act, were dismissed by the judge as having been adequately dealt by the Patent Office at the opposition stage.

• The Court reviewed the observations that had been made by the Controller while granting the patent, and concluded that Cipla had not substantiated this objection.

THIS POINT STIFLED CIPLA’s DEFENCE

Overall, the judge was of the view that while Roche had established a strong case in support of its patent infringement claim, the 'public interest' and lower pricing of Cipla's drug tilted the balance in favour of Cipla.

DIVISION BENCH RULING

• Roche filed an appeal against the Order of the single judge, arguing that a failure to protect the rights of the patentee, is contrary to the public interest of encouraging further research in the pharmaceutical field.

• The division bench in its ruling observed:

• Non infringement: The bench was of the view that the patent in question related to a mixture of Polymorphs A and B, whereas Roche’s Tarceva drug consisted of only Polymorph B, for which a patent had not yet been granted. The division bench considered that this fact ought to have been disclosed by Roche both at the time of examination, and during the proceedings before the single judge. The bench gave weight to the fact that Polymorph B of ‘erlotinib hydrochloride’ was the subject of a later patent application, and that this had not been considered by the single judge.

The bench criticised Roche for:

1. Its failure to provide a sufficient and fair description of the invention; and

2. For not having filed X-ray diffraction data for Tarceva and Erlocip that would have shown whether or not the crystalline structure of Cipla’s Erlocip tablets corresponded to Roche’s patented invention.

The Court dismissed Roche’s appeal, and upheld the order of the single judge. It did not fully elaborate the public interest point relating to the pricing of the drugs, basing its judgment instead on the ground that Cipla had raised a credible challenge to the validity of the patent.

WHY WAS NOVARTIS DENIED A PATENT FOR GLIVEC IN INDIA?

'Novartis AG v. Union of India (UOI) and Ors.; Natco Pharma Ltd. v. UoI & Ors.; M/S Cancer Patients Aid Association v. UoI & Ors. Decided on 1.4.2013

• From 1972 to 2003, India only allowed process patents, which meant that even a patented product could be produced by someone other than the patent-holder if they could find a different method to manufacturing it. However, in 2005 the law was amended retrospectively to allow for product patents so that India could be compliant with the World Trade Organisation's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

• But even before the law was amended, India agreed to invite applications for product patents under the TRIPS agreement. These "mailbox" applications were opened in 2005 when the law was finally enacted. Novartis filed an application for patent for Glivec, the blood cancer drug, under the mailbox provision.

• The key issue revolved around whether Glivec was a "new product" under the terms of the law. In January 2006, the Indian patent office ruled that the drug was not substantially different from one for which patents had already been given in the US and Europe. Thus, it did not pass the novelty test. While moving to the new patent regime, Indian lawmakers had inserted a provision — section 3(d) in the Patents Act — to check against 'evergreening'.

• (This is the term used to describe a practice under which firms slightly tweak an existing process or product to seek a fresh patent once the original protection expires. This helps them retain monopoly rights for a longer period. The patent office's ruling was upheld by the Intellectual Property Appellate Board (IPAB) and now by the Supreme Court.)

• If Novartis had won the case, it would have been granted a monopoly on Glivec, and denied Indian companies the right to make the drug. This would obviously have allowed Novartis to sell the medicine at a much higher price. Already, there is a huge differential with generic versions by Indian companies costing Rs 5,000-9,000 for a month's treatment, compared to Glivec's cost of around Rs 1.2 lakh a month.

• The order is also likely to encourage existing Indian manufacturers to step up production and perhaps new players to enter the market. This should lead to a further fall in prices.

• What will be the impact on the drug industry?

• The multinational drug companies are worried that this could be a trendsetter and are even threatening to block supplies of new patented medicines to India. But this is unlikely to deter Indian industry from developing "copycat" versions that would sell at a lower price.

• In short, while this is bad news for Big Pharma, it is as much good news for domestic manufacturers as it is for consumers. Big Pharma could also be worried that the Indian example may be emulated by others.

MERCK VS. GLENMARK OVER “SITAGLIPTIN”

• Anti-diabetes drugs are the top-selling therapy area in India, where about 65 million people live with the disease and that number is expected to reach 100 million by 2030.

• Merck sued Glenmark in 2013 for infringing a patent it has on sitagliptin, the chemical compound in Januvia and Janumet, both of which the company has been selling in India since 2008.

• A month's dose of Merck's drugs costs about 1,300 Indian rupees ($20) and 1,900 Indian rupees ($30), respectively. Merck has licensed the drugs to Sun Pharmaceutical Industries Ltd (SUN.NS) for sale in India.

• Glenmark sells the medicines under the brand names Zita and Zita-met at a nearly 30 percent discount to Merck's price.

• The Supreme Court of India on Special Leave Petition filed by Glenmark stayed the Delhi High Court order which passed injunction against Glenmark for the generic drug* Sitagliptin till 28th April 2015.

• Merck Sharp & Dohme filed an application for an ad interim injunction restraining the respondent/defendant Glenmark Pharmaceuticals from using its patented product Sitagliptin (Indian Patent No. 209816) at Delhi High Court.

• The Delhi High Court conclusively held that all the three ingredients (Prima facie, Irreparable injury and balance of convenience) for passing the order of injunction were established by MSD and hence injuncted Glenmark from manufacturing and selling of Zita and Zitamet.

• On 15^th May 2015 India's Supreme Court has blocked Glenmark Pharmaceuticals Ltd from selling copies of U.S. drugmaker Merck & Co Inc's diabetes drugs Januvia and Janumet, sources with knowledge of the matter said after a court hearing.

• The court has, however, allowed Glenmark to continue to sell existing inventory, the sources said.

ERICSSON VS. XIAOMI

What is the fuss about?

• According to Ericsson, Xiaomi needed a licence from Ericsson for selling and marketing the phones imported to India and using Ericsson’s patents.

• Ericsson alleged standard essential patents (SEPs) used in AMR, 2G, 3G and Edge technologies for mobile phones were being infringed upon by Xiaomi.

• An SEP is the patent for the core technology essential to create something of a particular technical standard. In this case, mobile phones cannot be made without the GSM, GPRS, EDGE and WCDMA technology, which are patented by Ericsson.

• Xiaomi apparently uses 3G- and EDGE-compliant technologies on its smartphones in India. Ericsson said it had several patents on these connectivity standards, and that the Chinese manufacturer was required to acquire licences for those or pay royalties.

• The Delhi High Court was satisfied that Ericsson had made out a prima facie case for grant of ad interim injunction in its favour, and directed Xiaomi to stop sale of all its handsets/devices in India.

• Xiaomi in its appeal against the injunction alleged that Ericsson, while obtaining the ex parte injunction order, did not inform the court that Xiaomi also made, imported and sold handsets having Qualcomm chipsets. It contended that it did not infringe Ericsson’s patents, as Qualcomm had obtained a licence from the Swedish company for this patented technology.

• This implied that Xiaomi would be unable to sell 3G-variant of the Redmi Note (which features a MediaTek chipset) in India, while the Redmi Note 4G and all other sets running on Qualcomm-based chips would still be sold.

• Eventually, the court on December 16^th 2014 permitted Xiaomi to sell its Qualcomm chipset-based devices as a ‘pro tem’ (temporary) measure till the issue of patent infringement was heard and decided by a single-judge Bench of the high court.

• Xiaomi can now sell other devices in India apart from the ones that feature Media Tek chipsets. Thus, from now, Xiaomi phones working on Qualcomm chipsets will be available for customers in India.

• Redmi 1S, Mi 3, Mi 4 and Mi 4i, fitted with Qualcomm chips, are very popular Xiaomi handsets.

• After landing in 2014 over patent infringement, Chinese handset maker Xiaomi, which was asked to stop the sale of some of its handsets by the Delhi High Court, has been allowed to send back its Redmi Note 3G handsets to Hong Kong.

• A vacation Bench of high court judge Mukta Gupta permitted Xiaomi to return over 100,000 handsets to their point of origin, Hong Kong, after Swedish telecom firm Telefonaktiebolaget LM Ericsson agreed to the arrangement.

• In December 2014, the court had barred Xiaomi from selling or importing phones into India, after a complaint from Ericsson alleging patent infringement. The move was seen as having dealt a severe blow to Xiaomi’s prospects in what was considered its most important international growth market.

• Xiaomi, though, got a reprieve in a second ruling, which stated the company was forbidden only from importing and selling phones containing components linked to the Ericsson dispute. This referred specifically to parts made by MediaTek, a Taiwanese chipmaker.

• The court had directed Xiaomi to maintain an inventory of handsets, currently lying unused with e-commerce site Flipkart, through which the Chinese company sells its phones under an exclusive arrangement.

NOVARTIS VS. CIPLA

• Delhi High court barred Indian generic drugmaker Cipla from making or selling generic copy of Novartis’s “Onbrez” (for chronic obstructive pulmonary disease) by giving temporary injunction to Novartis. Citing famous Roche vs Cipla case, the court observed that Novartis has a strong prima facia case and as the validity of the patent is not seriously questioned, there is a clear way out to grant injunction. Further, the court observed that Cipla did not provide any figures about the “inadequacy or shortfall in the supply of the drug.”

• Earlier Cipla launched its generic version of Indacarterol in October 2014 claiming “urgent unmet need” for the drug in india.

• Without going conventional way, Cipla, also approached the Department of Industrial Policy and Promotion (DIPP) to exercise its statutory powers under Section 66 and Section 92 (3) to revoke Indian Patents IN222346, IN230049, IN210047, IN230312 and IN214320 granted to Novartis AG for the drug Indacaterol. Cipla argued on the basis of 3 main points i.e. “epidemic” or a “public health crisis” of COPD, unable to manufacture the same in India by Patentee and high cost of patented drug.

PATENTS - Infringements

2015-08-05T08:28:00.001-07:00

WHAT CONSTITUTES A PATENT INFRINGEMENT?

• An encroachment upon the invention patented by the owner is called "infringement".

• Patent infringement is the unauthorized making, using, offering for sale, selling any patented invention within India, or importing into India of any patented invention during the term of a patent.

• Patent infringement occurs when a product infringes one or more patents.

DIRECT INFRINGEMENT

• ‘Direct patent infringement’, is the most obvious and the most common form of patent infringement.

• In the most basic definition, direct patent infringement occurs when a product that is substantially close to a patented product or invention is marketed, sold, or used commercially without permission from the owner of the patented product or invention.

INDIRECT INFRINGEMENT AND CONTRIBUTORY INFRINGEMENT

• ‘Indirect patent infringement’, suggests that there was some amount of deceit or accidental patent infringement in the incident.

• For e.g. a person A holds a patent for a device and a person B manufactures a device which is substantially similar to the person A’s device. The person B is supplied with a product from a Person C to facilitate manufacturing of the person B’s device. If the device so manufactured by the person B infringes on the Person A’s patent, then the person C indirectly infringes the Person A’s patent. Further, if such a product is knowingly sold or supplied, it may lead to contributory infringement. For example, in the above example if the Person C knowingly supplies the product to the Person B then the infringement is construed as contributory infringement

DETECTING PATENT INFRINGEMENT

1. A direct way to determine patent infringement is to keep a market-watch for all products released in the market by a company in a technology domain. (especially for competitors)

All these products can then be closely examined to determine what features of these products tread onto the inventions patented by the company.
To facilitate this, the company can avail some patent analytic services to create a patent portfolio for the company, especially, if the company has a huge number of patents across various technological domains.

2. Secondly, the company should keep an eye on all the published patent applications of its potential competitors. This can be done by doing a patent-watch in the technology area and for the competitors to analyze patenting activity in the last 3-4 year.

· The portfolios generated using patent-watch help in anticipating the product that a competitor may be launching.

· A comparison with the company’s patent portfolio may establish that some of these anticipated products may infringe on one or more of its patents.

· This gives an early idea about competitor’s moves and helps the company prepare in advance to take further appropriate action.

· For example, to save litigation costs, the company may try to invalidate/oppose the patent/patent publication before hand, so that the competitor never launches the product in question.

STEPS TO ESTABLISH INFRINGEMENT

• Having detected that one of the patents of the company might be infringed by a Competitor’s product or process, a detailed analysis should be performed to establish patent infringement (special patent analytic service can be used for the same).

• The product or the process need not infringe all claims of a granted patent, in fact it is merely enough even if the product or process in question is found to infringe even a single claim of the granted patent.

• To perform this analysis, a complete description of all products or processes of a competitor, which will include all product brochures or promotional materials, web site pages, instructions or directions for use, advertisements, and product packaging should be compared with patents that are being infringed.

• The infringement analysis may be depicted in the form of a claim chart, which highlights the features, of a competitor’s product or process that read onto one or more claims of the patents granted to the company.

• The usual strategy of a defendant will be to try to invalidate the patent in question and if the defendant succeeds in invalidating the patent, then the litigation suit will have to be withdrawn.

• Therefore, before filing a patent infringement suit, it is very essential to get an invalidation search conducted for the patents to evaluate the strength of the patents.

• It is advisable to establish validity of the patents before filing a patent infringement suit against a competitor, because, if a competitor succeeds in invalidating the patents in question, the company may incur significant legal costs and also market prestige, position, and market share will be at stake.

PATENT LEGAL SYSTEM OF INDIA

• The courts in India receive:

Patent Administrative Cases

• In patent administrative cases, the Indian Patent Office is the defendant. These types of cases includes dispute on grant of a patent, patent invalidation and upholding, and compulsory licensing.

Patent Infringement Cases

• In patent infringement cases, patentee or patent assignees pursue damages against wilful infringement conduct by the alleged infringer.

• These cases includes infringement of patent, disputes relating to ownership of patent, disputes regarding patent rights or right for application, patent contractual disputes, contractual disputes of assignment of patent right, patent licensing, and dispute relating to the revocation of patents.

HIERARCHY OF COURTS IN PATENT ADMINISTRATIVE CASES

HIERARCHY OF COURTS IN PATENT INFRINGEMENT CASES

PATENT CLAIM INFRINGEMENT

• In India, no infringement action may be started until a patent has been granted.

• This right to obtain provisional damages requires a patent holder to show the following:

1. The infringing activities occurred after the patent application was published;

2. The patented claims are substantially identical to features of the process or the product infringing the patent; and

3. The infringer had actual notice of the published patent application.

SUPREME COURT OF INDIA HAS LAID DOWN THE FOLLOWING GUIDELINES…..

• Biswanath Prasad Radhey Shyam v. Hindustan Metal Industries 1978 (Patent in question: ‘Means for holding utensils for turning purposes’)

• Read the description and then the claims;

• Find out what is the prior art;

• What is the improvement over the prior art;

• List the broad features of the improvement;

• Compare the said broad features with the defendant’s process or apparatus; and

• If the defendant’s process or apparatus is either identical or comes within the scope of the plaintiff’s process or apparatus, there is an infringement.

INJUNCTION

• Injunction is as an equitable remedy in the form of a court order, whereby a party is required to do, or to refrain from doing, certain acts.

• An injunction may be preliminary or permanent.

• A preliminary injunction is a provisional remedy granted to restrain activity of a defendant on a temporary basis until the Court can make a final decision after trial and a permanent injunction is one which is granted after the trial.

• For the court to order an injunction, the plaintiff has to fulfill the following criteria:

Establish his case only at a prima facie level, i.e., the plaintiff has to show that he has some possibility of success and that his claim is not vexatious; (Prima Facie -based on the first impression; accepted as correct until proved otherwise.)
Demonstrate irreparable injury if a temporary injunction is not granted; and
Demonstrate that the balance of convenience is in favour of the plaintiff (i.e. the plaintiff will be more disadvantaged because of the non-grant of the injunction that the defendant will be disadvantaged because of the grant of one).

• Permanent injunction is granted only after the trial when the Court concludes that the defendant’s product infringes the plaintiff’s patent

CASES OF PATENT INFRINGEMENT

BAJAJ AUTO LTD. Vs. T.V.S. MOTOR COMPANY LTD

• Bajaj’s patent:

• According to the Bajaj Auto Limited (hereinafter the appellant), it was granted Indian Patent No. 195904 in respect of a patent application titled “An Improved Internal combustion engine working on four stroke principle” with a priority date of 16th July2002. The patent was granted on 7^th July, 2005.

• Features of the invention (DTS-i Technology) are:

• Small displacement engine as reflected by a cylinder bore diameter between 45 mm and 70 mm.

• Combustion of lean air fuel mixtures;

• Using a pair of spark plugs to ignite the air fuel mixture at a predetermined instant

• In the first eight months of the that financial year, Bajaj manufactured and marketed 814,393 two wheelers with “DTS-i Technology” out of a total of 1,501,241 two wheelers sold. Therefore, the said “DTS-i Technology” stated to have been invented by Bajaj has accounted to 54.25% share of Bajaj two wheelers.

• TVS launches FLAME- the Bone of Contention

• The Respondents, M/s. TVS Motor Company Limited announced to launch motor bikes of 125-CC on 14^th December 2007 under the trade mark 'FLAME'. The motorcycle was powered with a lean burn internal combustion engine of bore size54.5 mm with a twin spark plug configuration, which according to the Bajaj Auto Ltd., infringes its patent.

• Therefore, before the launch of motor bikes, the applicants have brought the suit before the court to protect their intellectual property.

• Pleadings by TVS Motor Company Ltd.

• The concept of two spark plugs being prior art: The respondent places reliance on various published papers to substantiate its claim They also plead that the use of twin spark plugs in lean burn engines is known as US Patent No. 5320075 titled “Internal Combustion Engine with Dual Ignition for a lean burn”.

• Use of two spark plugs in engines with narrow bore size of 45mm-70mm being prior art: The respondent has also referred to Takegawa Cylinder heads and Honda Bros, NC 25E. Kawasaki KZ 1000 SI and Kawasaki KZ 1000 SI have the configuration of two valves per cylinder with twin plugs, cylinder bore size is 69.4mm. Honda NT 400, as per the specification stated in the advertisement, contains 2 cylinders with each cylinder has a bore size of 64mm with 2 spark plugs per cylinder.

• The third valve arrangement of the respondent is protected by patent licensed to it by AVL List GMBH: According to the respondent, the spark plugs in the engine in its vehicle “FLAME” are arranged in a different way in comparison to what is claimed by the applicant's patent.

• Synopsis of the facts of the case

• In Dec 2007 Bajaj claimed TVS had infringed the Patent and filed an infringement suit at Chennai HC against TVS. Single Judge of the Madras HC issued a temporary injunction on 16th February, 2008 of the Manufacture and sale of TVS Bikes with alleged infringed twin spark plug.

• TVS appealed against this decision at the Division Bench of the Chennai HC against the injunction and the Division Bench Madras HC on 18 May, 2009 had decided prima facie that there was no infringement by TVS and allowed TVS to manufacture and sell the bikes.

• Bajaj then appealed at the Supreme Court against the Madras Division bench decision and the Supreme Court issued an interim order (dt 08th June, 2009) allowing TVS to manufacture but restrained it from selling till the final order is passed.

• On 16^th September 2009 the Supreme Court pronounced the judgment on the Bajaj v. TVS’s appeal. The bench consisting of Justice Markandey Katju and Justice AK Ganguly judged that:

• The matter is to be disposed on merits at the Chennai HC, with directions to complete the full trial and pronounce orders latest by 30th November 2009.

• TVS has been allowed to sell its bikes with Twin Spark Plugs, with a Court Receiver being appointed to maintain accounts of Profit.

• Issues directive for lower courts for IP litigation.

• November 25, 2009- Issues were framed by the Single Judge of Mad HC

• March 10, 2010- Single Judge of Madras HC ordered Bajaj to prove its case first.

• October 4, 2010- Bajaj again appealed to the DB against the order dated March 10, 2010. In the appeal, the DB of Madras HC ordered TVS to prove its case first since it was the first party to file C.S.No.979 of 2007. In other words, since it was the plaintiff in the suit for groundless threats of infringement (which was filed first), the onus was on TVS to prove non-infringement of Bajaj’s patent. Therefore, TVS had to first lead evidence of non-infringement.

• September 21, 2011- TVS’s application under Order 18, Rule 3 of the Code of Civil Procedure and application for joint trial were allowed by the Single Judge of the Madras HC.

PATENTS - Revocation

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· Revocation of patents can be made under Section 64 of the Indian Patents Act 1970.

· Revocation means:

o Cancellation of the rights granted to a person by the grant of a patent.

· The patent can be revoked:

o On a petition of any person interested or

o By the Central Government or

o on a counter claim in a suit for infringement of the patent by the High Court or

o on the basis of the grounds mentioned in section 64

GROUNDS FOR REVOCATION

1. The Claims are invalid;

2. The Patentee is not entitled for the patent;

3. Wrongful obtainment of patent;

4. The subject of any claim is not an invention;

5. The subject of the invention is not new;

6. The subject claimed is obvious;

7. The subject claimed is not useful;

8. The description of the invention as disclosed in the specification is not elaborate;

9. The scope of invention disclosed in claims is insufficient;

10. The patent was obtained on a false suggestion or representation;

11. The subject in claim not patentable matter;

12. The invention was secretly used in India before the priority date;

13. The details, required under the Patent Law, has not been disclosed or wrongfully disclosed;

14. Secrecy direction has been issued against the invention;

15. The amendment of patent application stands outside the scope of the Patent Law

16. The origin of biological material was wrongfully disclosed or not disclosed;

17. The invention claimed is anticipated by prior knowledge in any local community.

INITIATION OF REVOCATION PROCEEDINGS

Central Government :

Central Government directs the Controller to revoke the patent,

• if the invention relates to defence purposes,

• if the patent is for an invention relating to atomic energy, and

• if the Central Government feels that the patent or the manner in which it is exercised is prejudicial to public

Revocation of patents in the High Court as counter claim in an infringement suit

Controller:

If a compulsory license has been granted for a patent, and if a person applies to the Controller on the ground that the patented invention is not worked at the optimum to meet the requirements of the public.
If an independent patent has been granted for any modification or improvement on the main invention, the Controller on the patentee’s request may revoke the independent patent on modification of that invention and grant him patent of addition.
If the patentee surrenders the patent the Controller may revoke the patent.

PATENTS - Compulsory Licensing

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• Compulsory licenses are licenses that are granted by a government to an individual or company seeking to use patents, copyrighted works or other types of intellectual property, to do so without seeking the owner's consent.

• Compulsory licenses-involuntary contracts between a willing buyer and an unwilling seller imposed or enforced by the state.

• The individual or company granted compulsory license have to pay the owner a set fee for the license.

• Objective of granting compulsory license is to prevent the abuse of monopoly granted.

• Nations currently have the right to issue compulsory licenses on patents and copyrights.

COMPULSORY LICENSES UNDER INTERNATIONAL LAW

Paris Convention for the Protection of Industrial Property :

• The purpose of the Paris Convention was to establish a system for inventors to protect their inventions internationally.

• Article 5

• The Paris Convention for the Protection of Industrial Property states "each contracting state shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work."

Berne Convention for the Protection of Literary and Artistic Works-Article 11bis(2) and Article 13(1) provide the legal basis for compulsory licensing at international level.

TRIPS - Trade related aspects of intellectual property

• The World Trade Organization provisions on intellectual property.

• Contains rules on patents, copyrights and trademarks.

• Compulsory licenses and a number of restrictions on the use of compulsory licenses-Article 31 of TRIPS.

India is a party to above international agreements for the protection of intellectual property that have provisions regulating compulsory licensing.

COMPULSORY LICENSES AND PATENTS

• The grant of a patent gives its owner (patentee) a limited period of exclusivity where the patentee can prevent others from practicing the patented invention.

• This limited period of exclusivity affords the patentee control over the invention’s price and, in turn, gives the patentee a mechanism by which he/she can regain research and development costs.

• This right to exclusivity is enforced in most countries by the judicial system, with the unauthorized manufacture, use, sale, offer to sale, or import of a patented technology deemed to be infringement.

• The government has the power to revoke or limit a previously granted exclusive patent right.

• Compulsory licensees take away the patentee’s exclusive control over the patented technology.

• Specific terms vary from country to country,

• Three basic situations:

1. where a dependent patent is being blocked: Where a patented invention (‘dependent patent’) cannot be worked without exploiting an earlier patented invention (‘original patent’), the owner of the dependent patent generally must obtain a license over the original patented invention.

2. the patent is not being worked, or

3. the invention relates to food or medicine.

INDIA:

• Any interested person after expiry of three years from grant of patent, may make an application to the Controller for grant of compulsory license on the grounds that:

1. The reasonable requirements of the public with respect to the patented invention have not been satisfied,

2. Or the patented invention is not available to the public at a reasonable price, or

3. The patented invention is not worked in territory of India.

• The controller may grant compulsory license if the above conditions are satisfied upon such terms as he may deem fit.

• While granting the compulsory license the Controller shall take into account

1. the nature of invention,

2. time elapsed,

3. ability of applicant to work the invention,

4. Applicant’s efforts for obtaining a license on reasonable terms.

• Above not applicable in certain cases-

1. national emergency, or

2. extreme urgency, or

3. public non-commercial use, or

4. on establishment of a ground of anti competitive practices adopted by the patentee.

• Terms and conditions of Compulsory License

1. Royalty and other remuneration, if any, reserved to the patentee, or other person beneficially entitled to the patent.

2. Patented invention should be worked to the fullest extent by the person to whom the license is granted.

3. Patented article should be made available to the public at reasonably affordable prices.

4. License granted is a non-exclusive license.

5. The right of licensee is non-assignable.

6. License is for the balance term of the patent unless a shorter term is consistent with public interest.

CASE: NATCO Vs. BAYER

• The Controller General of India passed an order of compulsory license against Bayer’s patent on drug Nexavar on March 09, 2012, which is India’s first compulsory license post TRIPS era.

• NEXAVAR- anti-cancer drug, chemically known as Sorafenib tosylate (Patent-holder Bayer Corporation)

• Hyderabad-based Natco had filed an application for issue of compulsory license to manufacture the low-cost version of Nexavar.

• The compulsory license was granted in accordance with the grounds described under section 84 of the Indian Patent Act.

• The license is valid till expiry of the patent in 2021.

• The compulsory license enables Natco to sell the drug at a price not exceeding Rs 8,880 for a pack of 120 tablets (one month's therapy) as against Rs 2,84,428 being the cost of Nexavar sold by Bayer.

• The order also makes it obligatory for Natco to supply the drug free of cost to at least 600 needy patients per year.

• Natco will have to pay 6% royalty on sales to Bayer for the drug on a quarterly basis.

PATENTS - Stages from Filing to Grant of a Patent

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HOW TO FILE A PATENT APPLICATION

• Documents can be filed in the patent office

• through online( e-filing) www.ipindiaonline.gov.in/online or

• through post or

• can be submitted by hand

GENERAL PROCEDURE FOR OBTAINING A PATENT

• Filing of patent application

• Publication after 18 months

• Pre Grant Opposition /Representation by any person.

• Request for examination

• Examination: Grant or Refusal

• Publication of Grant of patent

• Post Grant Opposition to grant of patent

• Decision By Controller

DOCUMENTS REQUIRED FOR FILING OF A PATENT APPLICATION

1.    Covering letter- indicating the list of documents;
2.    Application for Grant of Patent in Form 1 [section 7, 54 & 135 and Rule 20(1)] in duplicate;
3.    Complete/Provisional specification in Form 2 in duplicate [Section 10; Rule 13]
4.    Statement and Undertaking in Form 3 [Section 8; Rule 12];
5.    Power of Attorney in Form 26 (in original) (Rule 3.3 (a) (ii)); (if filed through attorney)
6.    Declaration of Inventor-ship in Form 5 (only in case of an Indian Application; (Rule 4.17);
7.    Certified true copy of the Priority document (in case priority is claimed);
8.    Requisite Statutory fees (cheque / DD).

SPECIFICATIONS

• Provisional specification:

• a provisional specification is usually filed to establish priority of the invention in case the disclosed invention is only at a conceptual stage and a delay is expected in submitting full and specific description of the invention.

• No patent is granted on the basis of a provisional specification.

• Complete specification:

• the complete specification is the document in which all the details of the invention for which patent protection is desired are disclosed

CONTENTS OF SPECIFICATION

• Title of the invention

• Field of the invention

• Background of the invention (PRIOR ART)

• Object of the invention

• Summary of the invention

• Brief description of drawings, if any

• Detailed description of the invention

• Examples

• Claims- not required in provisional

• Abstract- not required in provisional

PROVISIONAL SPECIFICATION…..

• It should describe the nature of invention & contain the description of essential features of the invention.

• Claims and abstract are not a part of provisional specification

• Fees is same as for complete specification

• Complete specification must be filed within 12 months from date of filing of provisional application.

COMPLETE SPECIFICATION

• Compared with the provisional, the complete specification shall:

a. contain the full description of the invention and its operation,

b. the best method of making the invention.

c. end with a claim or claims, which are the most important component in the complete patent specification. It is the legal operative part which define and determine the legal protection sought for.

d. be accompanied by an abstract to provide technical information on the invention.

• If applicant mentions a biological material in the specification, which cannot be described in such a way to satisfy clauses a) and b), and

• If material is not available to the public, the application shall be completed by depositing the material to the international depository authority,

• Deposit of the material shall be made not later than date of filing of patent application.

• In India biological material can be submitted at Institute of Microbial Technology (IMTECH), Chandigarh.

STATUTORY FEES

COGNATE FILING

• In addition to this, u/s 9(2)- there is a provision that where two or more applications in the name of same applicant are accompanied by provisional specifications in respect of inventions which are cognate or of which one is a modification of another and controller is of the opinion that the whole of such inventions are such as to constitute a single invention and may properly be included in one patent, he may allow one complete specification may be filed in respect of all such provisional applications.

COMPLETE TO PROVISIONAL

• u/s 9(3)-complete application can be converted to provisional application on request by the applicant to the controller of the patents at any time within twelve months from the date of filing of the application.

POST DATING

• u/s 9(4)-where a complete specification has been filed in pursuance of an application accompanied by provisional specification, the controller, may, if the applicant so requests, at any time before grant of patent, cancel the provisional specification and post-date the application to the date of filing of the complete specification.

PUBLICATION

• [Rule 24] A patent application will be published automatically in the official journal after expiry of 18 months from date of filing or date of priority of the application containing title, abstract, application no. and name of applicant[s] and inventor[s].

• This way, the world is informed about the fact that a patent can be expected on that particular invention.

• Someone else using the invention could then switch to a different technology, or make reservations to pay for a license once the patent is granted.

• Request for early publication: [Rule 22A] To expedite the process of grant of patent a request for publication under Section 11(A)(2) can be made in Form 9 any time after filing of the application. Upon such request, the application will be published in one month from the date of such request.

• Fees for Request for Early Publication for Natural person is Rs. 2,500

• Fees for Request for Early Publication for Other than natural person is Rs. 10,000

IMPORTANCE OF PUBLICATION

• On and from the date of publication of the application for patent and until the date of grant of a patent in respect of such application, the applicant shall have the like privileges and rights as if a patent for the invention has been granted on the date of publication of the application.

• The applicant shall not be entitled to institute any proceedings for infringement until the patent has been granted

• Right of the patentee in the case of applications filed u/s 5(2) shall accrue from the date of grant of the patent

PRE-GRANT OPPOSITION

• Section 25(1)] Upon publication, but before the grant of patent any person, based on different grounds may file a pre grant opposition, in writing, represent by way of opposition to the Controller against the grant of patent.

• However the opposition will be taken by the patent office only after the filing of Request for Examination.

• Time limit: May be filed within 3 months from the date of publication of the application [sec 25(1); rule 55(1)] OR Before the grant of patent, whichever is later.

• Fee:

• NO FEE

REQUEST FOR EXAMINATION

• No Request, No Grant

• In Form 18 [sec. 11B; rules 20(4)(ii) and 24B(1)(i)] in duplicate within period of 48 months from date of filing or priority.

• Statutory Fees for Request for Examination for Natural person is Rs. 2,500

• Statutory Fees for Request for Examination for other than natural person is Rs.10,000

FIRST EXAMINATION REPORT

• After proper examination of patent application, on the criteria of novelty, inventiveness and industrial application, which involves checking all the literature available to it to find documents that describe the invention in part or in whole. In this search, only documents that were published before the date of filing of the application are to be considered.

• The Patent Examiner will issue a First Examination Report (FER) and will send along with the application and specification to the applicant or authorized agent.

AMENDMENT OF OBJECTIONS BY THE APPLICANT

• The issued FER give an opportunity to the applicant to file a response and overcome the objections raised by the Examiner.

• Time limit: [Rule 24B(4)(iii)] Within 12 months from the date on which the First Examination Report has been issued to the applicant, the application should be placed in order of acceptance.

• In case of the unjustified response, the Controller has power to refuse the grant of patent or ask for amended claim[s] or make order for the Division of Application [Section 15, 16].

GRANT OF PATENT

• The Controller will grant the application upon overcome the all objections raised in the FER.

• On the grant of a patent the application will be accorded a number, called serial number in the series of numbers accorded to patents under the Indian Patents and Designs Act, 1911(2 of 1911).

POST GRANT OPPOSITION

• [Section 25(2)] Upon grant of patent, any interested person, based on different grounds may file a post grant opposition in Form 7 to the Controller against the grant of patent.

• Time limit: Within one year after the grant of a patent.

• Statutory Fees for Notice of Opposition for Particular Natural person is Rs.1,500

• Statutory Fees for Notice of Opposition for other than natural person is Rs.6,000

FEES

• The period for payment of renewal fees may be extended to a period but not more than six months if the request for extension in Form 4 with fees.

• Statutory Fees for extension in Form 4 for Particular Natural person is Rs.300 per month

• Statutory Fees for extension in Form 4 for Other than natural person is Rs.1,200 per month

FILING OF INTERNATIONAL APPLICATION

• It is possible to file an international application in India in all patent offices. All these offices act as Receiving Office (RO) for international application.

• International application can be filed directly to International Bureau (IB), Geneva, on-line.

DOCUMENTS REQUIRED FOR FILING

• Covering letter indicating list of documents:

• Request

• Complete specification in triplicate

• Abstract- in triplicate

• Fees- transmittal fees

FEES PAYABLE UNDER PCT

• Transmittal Fee: Rs. 8000/-

• Fee for priority document: Rs. 4000/- each

• International Fee: $ 1,184 for 30 pages

• Fee for each page in addition to 30 pages: $ 13

• Search fee: According to search authority

SEARCH AUTHORITIES ALONG WITH FEE