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19 Sep 2016

Does the maxim Mobilia Sequuntur Personam apply to trademarks?

In its recent judgment on Cub Pty Ltd. Vs. Union of India (Foster’s Beer), the Delhi High Court concluded that for capital gains arising from the sale of intangible assets such as trademarks, brand logos etc., the situs of the owner of the intangible asset should be considered. This judgement relied on the legal maxim Mobilia Sequuntur Personam, which literally means “movables follow the law of the person”. Intellectual properties being “movable properties”, the court applied this maxim and concluded that income from assignment of trademarks is taxable only in that jurisdiction where the owner of the mark is resident.

It is my view that this judgement has not considered the territorial nature of IP assets such as trademarks. Therefore, it must be reviewed. Else, it will deny the government much legitimate tax revenue besides creating a significant precedent that could impact future IP transactions and discourage creation of IP in India.

A registered mark confers on its owner the exclusive right to use the trademark in relation to its goods and services in the country where the mark is registered. For a person to get an exclusive right to use a mark all over the world, the mark is required to be registered in each country. In simple terms, a trademark right is a territorial right. Thus, a mark that is not duly registered in different countries, can end up being owned by different entities in different countries. Use of a mark within a country is generally a pre-requisite for obtaining a trademark registration in that country; non-use within the country is a good reason for cancelling the registration granted. A globally-registered trademark can therefore be assigned to different people in different countries. The same is the case for goodwill, which is recognized and can be exercised only in the country of use. Unless you develop your business and use the trade symbols in the country concerned, you cannot claim goodwill. Goodwill too is therefore considered as having a territorial right.

Of course, as specified under Article 6bis of the Paris Convention and later adopted in the TRIPS Agreement, “well known trademarks” are exceptions to the above principle. These exceptions apart, trademarks and goodwill remain as territorial rights. The value of the trademark is directly connected to the goodwill it possesses. Hence, there is separate legal existence in different countries and as such, has different situs too.

For foreign trademark owners to register their marks in India, it is mandatory that they should have either an address in India or should appoint an agent in India. In the latter case, the agent’s address shall be considered the address of the foreign trademark applicant. Hence, as per Indian trademark law, any registered trademark owner should have a situs in India. Hence, in the current case, even if the maxim of Mobilia Sequuntur Personam is applied, the situs of the owner of an Indian Trademark remains in India, irrespective of where the owner’s registered office is located.

In summary, I believe that using physical presence of the owner as a nexus rule for taxing the income derived from intangibles is inconsistent with well-established and soundly-reasoned tax and trademark jurisprudence. Indeed, doing so would be incongruous with the way businesses are run. A state’s authority to tax intangibles cannot be limited by considerations of the intangible’s non-existent physical location. Literal application of the maxim Mobilia Sequuntur Personam may not be appropriate when it comes to taxation of intangibles.

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