Feature By Adheesh Nargolkar and Shailendra Bhandare

Doing business in India: the dos and don’ts for

India’s accession to the Madrid Protocol is the latest on the entity on whose behalf the due diligence is being conducted. development to focus brands’ attention on the In most cases the due diligence is conducted from one of the commercial opportunities in the market. However, a following perspectives: • vendor’s due diligence; number of critical issues are involved in • acquirer’s due diligence; selling or acquiring brands, investing in companies • franchisee’s due diligence; or and entering into licence arrangements in India • investor’s and lender’s due diligence

In the case of vendor’s due diligence, the purpose of the due diligence is to measure the extent to which representations and The liberalisation of the Indian economy, which began in 1991, warranties can be provided to the proposed acquirer and to make introduced numerous changes to the Indian trademark space. Prior appropriate disclosure to the proposed acquirer. Typically, it may be to 1991, Indian companies entering into foreign collaborations were limited in its scope. discouraged from using foreign brands for domestic sales. Even In the remaining cases, the scope and purpose of the due permissions for registered user agreements with foreign companies diligence are much wider, involving the discovery of information had to go through several levels of examination, especially for and issues which the vendor may not have provided or disclosed, consumer goods. However, trademark attorneys found ways to get and the negotiation of appropriate indemnities. around this system. One way to overcome these hurdles was to adopt The issues which usually arise in all transactions are double-barrel or hybrid marks, such as ‘Maruti Suzuki’ and ‘Lehar summarised below. Pepsi’. However, post 1991, and especially after the Act 1999 came into force in 2003, the Indian trademark space exploded. Identification of trademarks Accession to the Paris Convention, the Agreement on Trade-Related Before looking at trademark applications and registrations, all Aspects of Intellectual Rights and the Madrid Protocol has trademarks should first be identified. This can be done through strengthened Indian trademark law and brought it into line with market research or by checking the website or annual reports of the international trademark statutes. company on which the due diligence is being conducted, depending Indian trademark attorneys – who pre-liberalisation were on the stakes involved. Further, it should be ascertained whether primarily found advising on trademark prosecution and violation each trademark is used as a house mark, product identification matters – are these days more involved in doing trademark due mark, corporate name or trading style. This allows for the listing out diligence and advisory work on mergers and acquisitions, private of trademarks which may or may not be the subject matter of the equity investments, joint ventures, business transfers, encumbrance company’s trademark applications and registrations. This exercise is agreements, franchising, valuation and similar transactions. They important in India, as the company may be unaware of certain source are advising not only on inbound work, but also on outbound work, origins that have trademark value – especially in the case of slogans, where the value of brands usually exceeds that of other intangible non-conventional marks and individual features or components of assets and the primary purpose of the transaction in most cases is trademark labels. In some cases the company may be unaware of its the acquisition of brands or trademarks. trademark portfolio, which can be determined by conducting a search. Be it the acquisition of Dabur Pharma by Fresenius Kabi or the acquisition of Jaguar cars and Corus steel by the Tata Group, brands Conflicting mark search have taken centre stage in India. This article outlines the trademark After identification, a search is useful in checking for conflicting issues that arise in such transactions and explains what companies marks. This helps the acquirer to ascertain the risk of facing should look for when selling or acquiring brands, investing in oppositions to registration of the company’s trademarks beforehand. companies and entering into licence arrangements in India. Trademark applications and registrations Due diligence Trademarks Registry The scope and purpose of due diligence in such transactions depend If applications for registration have not been filed for the identified

68 World Trademark Review October/November 2013 www.WorldTrademarkReview.com marks, appropriate recommendations should be made to file such applications with the Trademarks Registry. The Trademarks Registry’s electronic records on its website should be checked against the details of the applications filed, to avoid erroneous details being recorded.

Recorded names All trademark applications and registrations must be in the name of the company, not those of group companies, promoters or predecessors. If the applications and registrations are not in the name of the company, a transfer should be recommended as a condition precedent, especially in the case of an acquisition. The company should also have filed recordal applications to record its name as the subsequent proprietor in case of acquisitions, or applications for a change of name, as the case may be.

Distinctiveness The distinctiveness of each trademark application should also be checked, from the perspective of absolute grounds for refusal under Section 9 of the Trademarks Act. A general internet search should help in checking whether the trademark is commonly used by the general public or trade. In the case of marks with artistic merit, it should be checked whether the company owns the in the artistic work. Further, in the case of composite marks consisting of several distinctive features, it should be checked whether the company has applied to register features of the composite marks separately. This is because Section 17 of the act provides that registration of a composite mark grants the proprietor rights in the entire composite mark without any rights in the features within the composite mark, unless those features are separately registered.

Specification of goods or services The specification of goods or services should further be examined for incorrect classification or the scope of specification (narrow or broad), depending on the business of the company. Due to a lack of awareness of the Nice Classification system, there is a risk of incorrect classifications (eg, frozen yogurt might be incorrectly classified in Class 29 instead of Class 30, under “ices”). As the specification ultimately governs the statutory rights, it is important to have correct classifications which cover the actual purpose or use of the mark.

Date of first use Claiming the correct date of first use is crucial. In the case of composite marks which are yet to be launched and which contain marks or features already in use since an earlier date, or whose use is restricted to certain items in the specification of goods or services, the claim for use should be appropriately made. If the company acquired the mark from a predecessor in title, the act requires that the claim for use also mention the period for which the predecessor in title used the mark, in case an application for registration of the mark is made after the acquisition.

Colour claims Registrations for label marks should be made both in black and white (without limitation to colour) and in colour (by claiming distinctiveness in colour). In the absence of the aforesaid, the company should file appropriate applications.

Examination report/office action Examination reports issued by the Trademarks Registry set out objections on the basis of absolute grounds for refusal or prior rights. The examination report may also require the company to agree to conditions, limitations or associations to the registration. In scrutinising the company’s response to the examination report, it www.WorldTrademarkReview.com Feature: Doing business in India

should be considered whether: Opposition • the company has provided adequate evidence to overcome any Under the Trademarks Act, the stages typically involved in objections on absolute grounds for refusal, to prove that the opposition proceedings are filing, response, presentation of mark is inherently distinctive or has acquired distinctiveness; evidence, rejoinder and hearing. It is important to check that the • the company has made submissions which may amount to company has complied with all procedural requirements prescribed estoppel in other proceedings; and by the rules under the Trademarks Act. The company should settle • the company has agreed to any conditions, limitations or oppositions against its marks as quickly as possible; in India, an associations. opposition may take years to resolve, and the company will have no statutory rights in the opposed mark while it remains pending. Hearing stage To ensure good faith, it should be checked whether the company If hearings are scheduled after the response to the examination report conducted a prior search before adopting the opposed mark and has been filed, it is important to check whether the company has whether the opponent’s mark was revealed in the search. The recorded the minutes of the hearing by filing a recordal letter with the examination report issued in respect of the opposed mark and the Trademarks Registry. This step is not prescribed under the act, but is company’s response thereto should also be checked to see whether nonetheless advisable, as the Trademarks Registry in some cases will the opponent’s mark was cited. If such oppositions cannot be settled, not give effect to acceptance of the mark or may impose conditions, the risk of the opponent filing an action to restrain the company’s limitations or associations on the registrations, even where these use should be ascertained. If oppositions are filed by the company have not been agreed. The company should record the minutes of the against other marks, their prosecution should be continued so as to hearing if the mark has not yet proceeded to publication. block the registrations, if possible. The company should also consider filing an action to restrain use (if any) of the opposed marks. Conditions or limitations on registration Pursuant to the Trademarks Act, the examiner can impose Registration conditions or limitations on registration, which can take the Merely examining the registration certificate may be fatal to following forms: a transaction, as the certificate does not reflect the date of use, • Registration of the trademark gives no exclusive right to use a conditions, limitations, associations and rectifications in respect particular device, word or feature appearing in a composite mark. of the registration. The documents in relation to each of the above • Registration of the trademark is restricted to particular colours. stages should thus be examined. In India, pre-registration recordal • Registration of the trademark is subject to a condition that the is faster than post-registration recordal; the company should thus blank space appearing in the label be left vacant or occupied by ensure that the amendments are reflected in the registration details. descriptive matter or associated marks. It is also important to examine the validity of the registration and • Registration of the trademark is restricted to a particular territory. check whether the mark is in use. The company should also provide all details of any rectification or cancellation actions filed by other The company’s statutory rights may thus be limited by such parties at the Trademarks Registry or Appellate conditions, unless it obtains a separate registration for wider rights (eg, Board. It is best to check the online records of each registration from obtaining a black-and-white registration or separate registration for the perspective of any undisclosed documents. Details of rectification a feature which is subject to a condition as part of a composite mark). or cancellation actions filed with the Trademarks Registry are Conditions or limitations may have a bearing on the value of a . published in the online records of the Trademarks Registry. However, where rectifications or cancellations are filed at the Intellectual Associated trademarks Property Appellate Board, the details are not published in the online Under Section 16 of the Trademarks Act, trademarks are associated records of the Trademarks Registry. Inspection of the physical file at with one another where a person applies for two or more trademarks the Trademarks Registry should be considered. that are identical to or closely resemble one another, in relation to similar goods or goods of the same description, such that they Post-registration recordals could give rise to confusion as to the origin of the goods if assigned Post-registration recordal of changes of name or address, and of separately. In such case the Trademarks Registry will generally assignments or transmission, takes a long time. In case of recordal of register the trademarks as associated trademarks. Ascertaining assignment, it is advisable to check that the assignment document whether trademarks are associated becomes important if the includes monetary consideration and goodwill provisions, and that Trademarks Registry has imposed conditions on any of the associated appropriate stamp duty has been paid. trademarks, as these may affect the rights of the other associated marks. This is also important in the context of assignment: in an Litigation acquisition, if all trademarks associated with an assigned trademark It is necessary to check all of the pleadings filed in each case. The are not assigned, the Trademarks Registry may raise an objection litigation procedures and terminologies used in different Indian against recording the assignment of the assigned trademark itself. states, high courts and district courts diverge considerably. Many Further, if an associated trademark is abandoned or removed from courts are yet to complete the digitisation of their records, which the Trademarks Register, the company should dissolve the association could make it difficult to ascertain the stage which a suit has reached. by filing Form TM-14 so that the remaining marks can be assigned. The company should thus be asked to provide all papers, proceedings, pleadings, case numbers and orders for each pending case, along Publication with a status report. If suits have been filed against the company, the If conditions, limitations or associations are erroneously imposed at first issue which needs to be checked is the role of the brand under the publication stage without giving the company an opportunity litigation and whether the company has been restrained from using it to agree to them, the company should immediately demand a by any interlocutory (interim) or pre-interlocutory (ad-interim) order, corrigendum from the Trademarks Registry to that effect. which might affect the company’s business. Usually, it takes a long

70 World Trademark Review October/November 2013 www.WorldTrademarkReview.com When assigning the marks, it is best to identify the Trademarks Registry branches at which the marks have been applied for or registered (if filed with the Trademarks Registry). Further, the mother agreement may not include certain clauses (eg, relating to the goodwill of the business for which the marks are used, monetary time for a case to be finally decided and it is the interlocutory or pre- consideration, acknowledgement of consideration by the assignor) interlocutory order which ultimately decides the matter. which are required by the Trademarks Registry. It is thus advisable to The other issue which needs to be checked is any claim for have a separate short deed of assignment for the Indian trademarks damages, from a future liability point of view. It is also important which satisfies the Trademarks Registry’s requirements, makes to check whether the company has received any cease and desist specific consideration for Indian marks and does not require the notices and whether these are likely to lead to litigation. In any event, entire mother agreement to fall within the . The it is advisable to resolve all disputes or litigation in India. mother agreement should state that there is a separate deed of assignment and also state the consideration for the Indian marks. Domain names Depending on the stamp duty paid for the mother agreement, the The ownership of each domain name should be carefully checked separate deed of assignment can be stamped accordingly. to avoid domain names remaining in the name of the person registering the domain name, which in many cases is someone in Trademarks Registry branches the company’s IT department. In such cases, the company should When assigning the marks, its best to identify the Trademarks Registry correct the records immediately. It is also advisable to check whether branches at which the marks have been applied for or registered, as the company has been vigilant in taking action against conflicting the Trademarks Registry requires that the application for recordal of domain names. a deed of assignment be filed where the marks have been applied for or registered. However, in case of a recordal application for registered Licensing marks comprising several registered marks, the assignee can file the If group companies are using the marks owned by the company application at any branch (located in five different states/territories or vice versa, such use should be supported by a proper written of India) where one of the assigned marks is registered (provided that licence agreement. If the group companies are not part of the this mark appears first in the list). This may create issues from a stamp transaction, these licences should be terminated before closure of duty perspective, as the stamp duty may differ in different territories. the transaction. In the case of licences granted to the company by Therefore, the parties should ensure that stamp duty for each third parties, clauses affecting a change of control of the company territory is appropriately paid or that the transaction is structured should be checked from the perspective of the acquirer, lender and accordingly. If the stamp duty is not appropriate, the Trademarks investor taking charge of the company or its business after the Registry is likely to raise objections. Therefore, the stamp duty aspect transaction. Licences granted by the company may be terminated should be checked from this perspective. or renegotiated. Registered user agreements may be cancelled or carried on with appropriate intimation to the Trademarks Registry. Territory It is important to understand the territorial extent of the Joint ventures assignment. Merely mentioning the territory as India, even where In the case of joint ventures and co-brands, parallel licence export business is not envisaged as part of the assignment, can be agreements should exist between the joint venture entity and each fatal for the transaction. Section 56 of the Trademarks Act states that joint venture partner for use of each partner’s brands as part of the use of a mark for exports amounts to use in India; therefore, merely co-brand. It is not advisable to obtain registration of the co-brand, mentioning the territory of use as India may also mean assignment especially in the name of the joint venture. Under the Trademarks in respect of export business. In such cases, it is best to specify Act, cancellation of a trademark registration requires an affidavit clearly the territorial extent of the assignment. In case of country- from the rights holder, along with an application to that effect – a specific assignments, the risk of parallel imports should be mitigated requirement which may be difficult to satisfy if the joint venture to the extent possible. In any event, territorial assignments should is terminated and the joint venture entity no longer exists. If a not create multiple exclusive rights in India. trademark registration is to be obtained, it should be jointly owned by the joint venture partners. Goodwill It is important to state whether the trademarks are being assigned Assignment of trademarks with or without the goodwill of the business in relation to which The assignment of trademarks involves a number of issues, including they are used. In case of assignment without goodwill, additional the following. procedures must be followed under the act before recording the assignment. These include seeking directions from the Trademarks Separate deed of assignment Registry to advertise such assignment and advertising the In most acquisitions, a mother agreement in the form of a business assignment in local newspapers. transfer agreement governs the assignment of all assets of the company, In some transactions, the parties may decide to avoid these including its trademarks. Some of the assets may be located outside additional procedures by mentioning that the ‘goodwill of the India (especially where both the acquirer and the target company trademarks’ is being assigned, even though the business in which are foreign entities). If the mother agreement is used to record the the trademarks are used is not in fact being transferred. This may assignment of trademarks in India, the consideration for the acquisition create issues, as the Trademarks Registry may still consider the of assets located abroad – which otherwise would not be subject to assignment to be without goodwill and ask the assignee to follow stamp duty – may also attract stamp duty (where this is a lump-sum the relevant procedures. Further, if the assignee intends to file a consideration which includes consideration for Indian trademarks). passing-off action against third parties, the third parties could In most cases the parties also will not want the entire transaction contend that the assignee has no goodwill and reputation, since the reflected in the mother agreement to fall within the public domain business was not transferred. www.WorldTrademarkReview.com October/November 2013 World Trademark Review 71 Feature: Doing business in India

Documentary requirements Encumbrance agreements During the assignment of marks, the assignee should demand the Under the Trademarks Act, it is not possible to record encumbrances following documents from the assignor, which may be required for in the form of charges, hypothecation, security interests or its future use of the marks: mortgages. Therefore, from the lender’s perspective, it is advisable • an affidavit confirming that no proceedings in relation to the to inform the Trademarks Registry of any encumbrances, so that assigned marks are pending. This is a requirement when filing a the rights holder is not in a position to alienate the marks to third recordal application with the Trademarks Registry; parties. The lender should also ensure that the Trademarks Registry • all documents proving use and registration of the assigned uploads its intimation letter in its online database, so that the public marks, in the form of registration certificates, copies of is aware of the encumbrance. applications, sales figures, statements of promotional expenses incurred, copies of advertisements and promotional materials, Future-proofing your transactions details of any awards received in respect of products under which In view of the above, and depending on which side of the table a party is the marks are used and so on. This information may be useful in negotiating on, each transaction should list out adequate the event of future litigation, oppositions, rectifications or any representations, warranties, disclosures, litigation matters, conditions other proceedings. If these documents are not transferred to the precedent and conditions subsequent in the transaction documents. WTR assignee, the assignee may have difficulty in proving use before assignment; and • ideally, a power of attorney from the assignor to act on its behalf, which can be helpful if the Trademarks Registry has any specific requirement from the assignor after the recordal application has been filed (eg, in some countries, the assignor Adheesh Nargolkar is an associate partner and Shailendra Bhandare may subsequently be called upon to comply with the objections a senior associate at Khaitan & Co, Mumbai of trademark office, by which time the assignor may no longer [email protected] be interested in doing so, thereby stalling the recordal process). [email protected] In such cases, the power of attorney may prove helpful for The contents of this article do not constitute legal advice by Khaitan the assignee. & Co or the authors

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