Trademarks: Value and Infringement (Part 2)

In Part 1 of the series (click here), we discussed what trademarks are, what is a strong trademark and how to conduct a trademark search.

It takes years for a company to acquire a market for their goods/services and build the customers’ trust. Time, effort and significant amount of money goes into creating a ‘brand’ that has a recall value with customers. It is for this brand value that customers are willing to pay a premium price because there is an unspoken quality assurance. This customer recognition generates the company’s goodwill all of which is solely attached to the trademark.

Q. What is the primary value of a trademark?

Trademarks have a huge monetary value since they are source identifiers. Let’s imagine, you find unbranded baby soap and Johnson & Johnson’s baby soap in the supermarket placed next to each other. While the unbranded one may promise many benefits, you’ll pick up the branded one that you recognise and trust. The goodwill attached to a trademark impacts the market’s behaviour and acts as a king maker. It is, therefore, important to ensure that the consumer associates the trademark with a singular and source. A deceptively similar mark or a counterfeit product could dent a company’s brand image created painstakingly over the years.

Q.What are the other ways to monetise a trademark?

A trademark can be monetised in many ways. In the modernised world, trademarks are not just source identifiers, they are a valuable asset to the business as well as a constant source of income. Some ways to monetise a trademark are –

Mergers and Acquisitions – Trademarks and other Intellectual Property owned by a company significantly increases its valuation during mergers. Some mergers are initiated exclusively for buying the brands. Our expert Akanksha Mathur identifies goodwill of the mark as the primary monetary value of the mark as it is valued during assets valuation and assignment of that mark. For example, the hair oil brand ‘Indulekha’ was acquired by Hindustan Unilever for Rs. 330 crores in 2016.
Franchising – Franchise model is adopted by those who are looking to create replicas of their business. The franchisor will, on payment of royalty, allow a third party to look and conduct business as the franchisor hence, acting as extensions of itself. To ensure uniformity, the franchisor will lay down standards and practices according to which the franchisee should conduct the business. E.g. Pre-school chain ‘Kidzee’ seeks franchisees who have property with minimum area of 2000-3000 sq feet and Rs. 12,00,000 investment (as available on their website). They have over 800 franchisees across 550 cities in India.
Licensing – Owner of a trademark can give permission to a third party to use his mark for monetary consideration. License is given only for usage of the trademark. In April, 2017, the popular brand name Burberry was licensed to a perfume maker for ₤130 million. Akanksha believes a higher royalty in licensing is a sign an indicator of high goodwill and commercial value of the trademark.

An owner of a trademark can license a third party to use the brand for monetary consideration. The license can be exclusive or given to various parties together, global or limited to an area, forever or for a certain period of time, sub-licensable or not, conditional or otherwise. It is very important for the license agreement to lay down the object and scope of the license. The licensor can be in the same field as the licensee like Nestle which gave Hershey’s the license to manufacture and sell the brand ‘KitKat’ in the US, back in 1970 when they did not have a US presence; or the licensor may be in a completely different field of operation as in case of ‘Harley-Davidson’ bikes which allows certain clothes and accessories makers to use their brand name.

Merchandising – A form of licensing where the trademark can be used on products such as t-shirts, mugs, key chains, etc. E.g. Fido Dido key chains, t-shirts, bottles, etc. for 7Up.

Since there is so much value attached to a trademark, it is not uncommon to see many individuals trying to bank on to the reputation of a mark to make easy money. To restrict the same, the trademark infringement mechanism was developed.

Q. What constitutes a trademark infringement?

If a mark is identical or similar to a registered trademark and is applied to identical or similar goods/services which could lead to confusion among the public, it constitutes a trademark infringement. For example, a registered mark ‘Cadbury’ for chocolates may be infringed if a third party uses a mark ‘Kadburi’ (similar mark) for an ice-cream parlour (similar goods/services). Detailed note on how to register a trademark will be captured in Part 3 of this series.

Q. What to do when you suspect a trademark infringement?

According to Akanksha the following steps are required to be followed when you suspect a trademark infringement –

A background search should be conducted on the basis of the information received from the Applicant/client, such as a search of contact on web directories, discreet calling, checking the website of the infringer, etc. Then, an opinion should be made on the level of infringement and if further investigation is required.
If further investigation is needed, it is only reasonable that an investigation agency is consulted with.
If the infringement is minimal or no use is seen, then either no action is taken or a close eye is kept on the alleged infringer
If substantial use is found, then a legal notice may be issued or an ex parte ad interim injunction for the same may be obtained from the court. In furtherance to the same, a raid can be conducted, more details for which can be found in this succinct article written by trademark litigation expert Mr. Utkarsh Joshi.

Q. What are the consequences of trademark infringement?

Section 134 of the Trade Marks Act, 1999 (“the Act”) states that a suit for trademark infringement and passing off should be filed in a court, no lower than a District Court, having jurisdiction.

After the Plaintiff identifies the court having the jurisdiction to hear the suit, he should submit his arguments, evidence and seek for relief against the Defendant. Some of the common reliefs that are sought are –

Stop using the Plaintiff’s trademark or any mark identical or similar to the Plaintiff’s trademark.
Not to adopt any mark identical or similar to the Plaintiff’s trademark in the future.
Destroy all goods/material bearing the Plaintiff’s mark or cease activity under it.
Profit made from selling the infringing goods be forwarded to the Plaintiff.
Damages, compensatory or punitive.
Public apology to the Plaintiff.
Cost of the suit be borne by the Defendant.
Court appoint a local commissioner to inspect/seal any infringing material/account.
The Plaintiff be imprisoned and/or fined. As per Section 103 of the Act, person infringing a trademark can be imprisoned for 6 months up to 3 years and fined anywhere between Rs. 50,000 to 2,00,000. However, it is very rare that this is sought or granted by the Court.

The few common defences that can be taken by the Defendant are –

Defendant’s mark is dissimilar to the Plaintiff’s mark.
Honest adoption and concurrent use. According to Section 12 of the Act, two people can use an identical/similar mark simultaneously if they can prove that both their adoptions were honest and their businesses under that trademark are being conducted simultaneously without confusion. E.g. A hotel in Delhi and Bangalore could both have the same name, honestly adopted and running simultaneously for 5 years without causing confusion to the public.
Mark causes no confusion to the public.
Defendant’s mark was adopted and has been in use for longer than the Plaintiff’s adoption.
Acquiescence – Plaintiff knew of Defendant’s use of the mark and has not protested such use earlier.
Delay in bringing the suit.
Defendant’s act falls under the exceptions provided in Section 30 of the Act such as indicative of quality, geographical origin. E.g. Anybody can use Bombay of Bombay dyeing.

Conclusion

It is necessary that one understands the multi-dimensional value of a trademark; as a source identifier, an asset for the proprietor and a constant revenue generator. Consequent to that understanding is the fact that one needs to protect the mark through due diligence and smart enforcement policies.

Endnote: Part 3(Click here to read) of the series discusses important factors such as the legal sanctions behind a trademark, the registration process, restrictions on protection and use among other question.

DISCLAIMER: The information provided in this article is for educational purpose only. The same cannot be construed as legal advice.