Trademark enforcement challenges for technology companies

A key sign of the maturity of an economy is its response to IP issues. Although the Indian government has been quick to establish an IP policy that underscores its commitment to the protection and enforcement of IP rights, it also recognises that a consistent, transparent and efficient IP infrastructure is key to the success of this initiative. This chapter conducts a high-level audit of the civil, criminal and customs enforcement practice and procedures available to rights holders in India, with specific reference to the experience of technology companies.

Civil enforcement

Jurisdiction issues

Several global technology majors have, from time to time, initiated civil litigation in India, primarily in the Delhi High Court, to enforce their trademarks and copyrights. Of these, the most prolific is Microsoft Corporation. While ex parte injunctions are usually granted in straightforward copyright and trademark infringement cases, particularly by the rights holder-friendly Delhi High Court, on occasion judges have raised questions about plaintiffs’ rather tenuous attempts to establish jurisdiction in Delhi.

The issue of forum shopping by rights holders reached the Supreme Court, which in a detailed July 1 2015 decision in Indian Performing Rights Society Ltd v Dalia decided the issue somewhat restrictively. The result was that a large number of suits which would previously have been heard by the Delhi High Court were found to be no longer maintainable based on jurisdiction. The Supreme Court clarified the legislative intent behind Section 62(2) of the Copyright Act 1957 and Section 134 of the Trademarks Act 1999, both of which permit a plaintiff to file suit at the place of its own business, in addition to the ordinary rule whereby a suit is instituted at the place of the defendant’s business or where the cause of action arose. Previously, the trend was for a plaintiff to file suit in Delhi either on the strength of the availability of its products in Delhi or the presence of a branch office in Delhi, even though its registered office or another branch office could be located in the place where the defendant carried on business.

The Supreme Court clarified that this was unacceptable and that the cause of action must be examined in tandem with the location of the plaintiff’s place of business, such that if the plaintiff carries on business at a place where the cause of action has also arisen or where the defendant also carries on business, only that particular place will be the appropriate seat for institution of the suit.

This ruling has had a major impact on the ability of rights holders to institute suits seeking urgent ex parte relief in rights holder-friendly jurisdictions such as Delhi, as courts in other cities are often reluctant to grant ex parte Anton Piller search and seizure orders. For technology companies seeking to enforce their copyright in software products, the decision has had an additional impact in that tech-savvy infringers will take advantage of the reluctance of most courts to grant Anton Piller orders and, on receiving notice of filing of the suit, will remove all traces of the pirated products from their computer systems, thus making it difficult to prove infringement at a later date.

The issue of jurisdiction over defendants that do not sell tangible products but are based entirely in the online space had previously been dealt with by the 2010 decision of the Delhi High Court Division Bench in Banyan Tree Holding (P) Ltd v Reddy, which held that the jurisdiction of the forum court was not based merely on interaction with a website accessible in the forum state, and that the plaintiff must demonstrate prima facie that the forum state was targeted specifically by the interactive website (ie, there was purposeful availment).

Second-hand and refurbished goods

While the import and sale of second-hand or refurbished products is permitted in India, these actions are subject to the following conditions:

• Conditions precedent for import – under Paragraph 2.31 of the Foreign Trade Policy 2015-2020 the government requires the import of refurbished personal computers, laptops and spares of such products to obtain the appropriate authorisation, while refurbished spares of capital goods are subject to the production of a chartered engineer’s certificate stating that the product still has 80% residual life.
• Conditions precedent for sale – under the Trademarks Act 1999, a second-hand product that is refurbished (ie, materially altered from the original product) cannot be sold under the trademark of the original manufacturer or trademark owner. While Section 30(3) of the act permits the sale of lawfully acquired goods under the trademark of the original owner which put the goods on the market, sales are subject to Section 30(4), which gives the mark owner legitimate grounds to oppose further dealings with goods that may be lawfully acquired by a third party.

Thus, second-hand or refurbished goods that are declared to be so cannot be sold under their original trademarks in India, as they are no longer the original goods that the plaintiff put on the market. Hardware manufacturers grapple with the common problem of ‘pulled drives’ – that is, hard disk drives sold to original equipment manufacturers that find their way onto the market. Indian law allows such goods to be declared infringing, within appropriate limits.

Despite the potent weapon offered by the law, technology companies often find it immensely challenging to establish that genuine products imported and sold by third parties are in fact refurbished or second-hand, and thus should not be sold under the rights holder’s trademark. In a spate of recent unreported orders by the Delhi High Court, which are bound to have far-reaching consequences, not only was Western Digital Corporation permitted to seize consignments of hard disk drives that had originally been sold to systems manufacturers on the basis that they were pulled drives, but such seizure was ordered at the point of import (ie, at ports), thus preventing the entire consignment from entering the commercial stream. The goods were subsequently tested and found to be second-hand products, thus amounting to violations of both the Trademarks Act and the Foreign Trade Policy, as well as misrepresenting to customers that they were original, new, genuine products when they were in fact second-hand refurbished products. Despite the defendant offering its own warranty in one of the cases, the court agreed with the plaintiff that a second-hand refurbished product cannot on the strength of a seller’s warranty alone claim an entitlement to use the plaintiff’s registered trademark when the plaintiff has played no part in refurbishment of the product.

Damages

There is a growing body of damages jurisprudence in India, which is essential not only to act as a deterrent against infringement, but also to compensate rights holders. Although recently a large number of technology companies have obtained judgments for compensatory, punitive and exemplary damages of between $10,000 and $20,000 (Microsoft was recently awarded damages of $46,500 in a software piracy case), the reality is that in most cases the award remains a paper decree that the plaintiff can neither enforce nor recover.

Anton Piller orders and preservation of evidence

Another area that has recently witnessed a backlash from both defendants and some courts is the procedural issue of what should be seized in a software copyright infringement case. While previously the courts often granted orders for the seizure of entire computer systems, central processing units and hardware, of late several such applications have been denied and the court commissioner has been directed to make exact copies of the plaintiff’s hardware. This poses a serious evidentiary challenge as an exact copy is not original evidence, and if the matter went to a full trial the defendant could easily challenge the veracity of the copy and claim that it did not match the original hard disk. This defeats the very purpose that the law on the appointment of local commissioners seeks to serve – that is, the preservation of evidence.

Intermediary liability

Technology companies that function as online intermediaries have cause to rejoice in India following the 2015 Supreme Court decision in Singhal v Union of India. In addition to striking down the draconian Section 66A of the Information Technology Act 2000, which was antithetical to free speech and was being abused by the government and private individuals alike to stifle criticism, the Supreme Court also struck down the provision that mandated the takedown of infringing content. It held that an intermediary is no longer required to judge whether a takedown notice received by it contains a legitimate request. The court read down Rule 3(4) of the Intermediary Rules 2011 under the act, which pertains to intermediaries disabling access to material that is “known by them” to violate a trademark or copyright, by stating that this knowledge can come only from a court order: an intermediary cannot and should not exercise discretion as to which content must remain and which must go.

Commercial Courts Act 2015

The recently passed Commercial Courts Act promises to be a gamechanger for Indian commercial litigation, including IP litigation. The system has long been criticised for contributing to the poor rate of disposal of civil cases on account of cumbersome and highly technical processes for leading evidence in matters where the issue is often one of legal interpretation, and for systemic delays caused by an insistence on detailed written pleadings, applications and responses, as well as corresponding oral hearings. Thus, the act is a breath of fresh air. While its effectiveness will have to be reviewed at a later date (given that it is less than eight months old), it:

• puts in place strict timelines for written submissions and leading evidence;
• lays down a document review system; and
• safeguards against delays caused by parties filing their evidence in a piecemeal manner by insisting that all documents sought to be relied on by both parties be filed at first instance.

Criminal enforcement

The recent IP policy underscores the government’s commitment to capacity building for the police IP rights cells, as well as enhancing their technical and legal capabilities. The reality is that the criminal enforcement of IP rights has become exceedingly difficult in India and is fraught with hurdles that go beyond the usual concerns of red tape and lack of prioritisation by law enforcement agencies.

As criminal actions necessitate limited involvement of the rights holder (first as the complainant and thereafter as a witness) and the case itself is a matter that the state prosecutes, the police often take extra care to ensure that cases succeed. However, in so doing they insist on documentary evidence that is cumbersome and often impossible to produce. For instance, ignoring the copyright system and the Berne Convention, which emphasise that the registration of copyright is not a prerequisite, the Indian authorities often insist on a copyright registration certificate, thus rendering it impossible to conduct a criminal action without one. Even when such a certificate is produced, their insistence on identical features between the original and the infringing packaging (in a manner that is contrary to the ‘substantial similarities’ test in copyright infringement) often means that only cases of explicit piracy are caught, with infringing lookalikes slipping through the net. By insisting on evidence in the form of reports that disclose the technical differences between original and infringing products, which are usually confidential (eg, differences in font and Pantone shades), the police render the rights holder vulnerable by providing the infringer with a blueprint showing it the changes that should be made to the pirated products.

The criminal enforcement of trademarks has been near impossible in India since 2000 due to Section 115(4) of the Trademarks Act, which states that before conducting a search and seizure operation for counterfeit goods, a police officer must first obtain an opinion from the registrar of trademarks on the facts involved in the offence and must abide by the registrar’s opinion. The Trademark Office has not prioritised these opinions, established a transparent, quick and confidential process for obtaining them or even identified the personnel at the office responsible for providing them. Consequently, either the opinions do not arrive at all or, when they do, the intervening delay and lack of confidentiality ensure that the infringing goods can no longer be found.

Customs enforcement

Indian Customs is an enthusiastic partner to rights holders and has repeatedly organised drives to encourage higher recordals following the introduction of the IP (Customs) Rules 2007. However, good intentions notwithstanding, the absence of a legal or procedural requirement that trademarks be declared on bills of entry means that a savvy importer bringing in infringing goods can simply use descriptive terminology to evade detection. With smaller technological products such as pen drives and memory cards, smuggling often takes place through personal belongings, thus avoiding the commercial import route and risk of detection. For second-hand products that fail to declare themselves as such, mere physical inspection of a consignment will often not disclose this fact, making it impossible for Customs to ascertain the legitimacy of the products. As seizures are premised on a visual inspection establishing whether goods are genuine or counterfeit, it is often impossible to tell whether a technological product is infringing without testing it, which the rules do not permit. Another issue arises from the nature of customs alerts as these are issued without crucial information, such as serial numbers of sample products in the consignment that would enable the rights holder to ascertain whether the products are genuine or counterfeit.

However, to underscore its commitment to protecting the interests of rights holders, the Central Board of Excise and Customs is engaging with stakeholders in order to draft a Voluntary Code of Practice for E-commerce Portals as a way for e-commerce portals to demonstrate their commitment to anti-counterfeiting measures.

Comment

While the civil enforcement remedies available to rights holders in general and technology companies in particular have been creatively crafted by the courts so as to support IP rights consistently despite varying challenges, criminal enforcement measures in India have been fraught with controversy and largely ineffective. In contrast, customs enforcement holds promise and offers significant scope for future direct partnership with rights holders, particularly through the use of technology and collaborative efforts.

Fidus Law Chambers

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Shwetasree Majumder
Principal
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Shwetasree Majumder is the principal of IP boutique Fidus Law Chambers. With a keen reputation for strategic advice, creative problem solving and deliverables of international standards crafted with individual attention, the firm features in several international IP rankings. World Trademark Review remarked: “Pragmatic and intelligent litigator Shwetasree Majumder exemplifies the firm’s thorough and customer-focused approach and also excels in prosecution.” India Business Law Journal quoted a client: “Majumder ‘understands business and the needs of her in-house clients and provides relevant, timely and incredibly responsive advice’.” Managing IP noted similar tributes: “We are impressed with Fidus Law Chambers’ enthusiasm and creativity.”