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Online Games Involving Money Now Banned in Karnataka

In a major setback to the Online Gaming platforms and all other gaming entities in Karnataka falling under the category of wagering or betting, the Karnataka Government on 5th October 2021 notified the Karnataka Police (Amendment) Act, 2021, (“Act”/”Amendment”) which prohibited all forms of online gaming involving a transfer of money.

The controversial legislation comes in the backdrop of the upcoming T20 World Cup involving a huge stake for online gaming companies, including MPL, Dream11, to name a few. Further, it is said to damage Bangalore/Karnataka’s position as the country’s start-up capital which houses about 92 gaming companies and employs over 4,000 persons. 

Key Amendments Made Through the Karnataka Police (Amendment) Act, 2021

The Amendment widened the scope of certain definitions under Section 2 of the Act. Some of the key amendments are:  

The definition of the term “Gaming” under Section 2(7) has been revised to include online games that involve “all forms of wagering or betting, including in the form of tokens valued in terms of money paid before or after issue of it, or electronic means and virtual currency, electronic transfer of funds in connection with any game of chance“.

Similarly, Section 2(11) that defines “Instruments of gaming” has been substantially expanded and now includes any article used or intended to be used as a subject or means of gaming, including computers, computer system, mobile app or internet or cyberspace, virtual platform, computer network, computer resource, any communication device, electronic applications, software and accessory or means of online gaming, any document, register or record or evidence of any gaming in electronic or digital form, the proceeds of any online gaming as or any winning or prizes in money or otherwise distributed or intended to be distrusted in respect of any gaming“.

The Amendment has also introduced a new Section 12(A) that defines “online gaming” as “games as defined in clause (7) played online by means of instruments of gaming, computer, computer resource, computer network, computer system or by mobile app or internet or any communication device, electronic application, software or on any virtual platform;

Further, Section 78 has been amended to criminalize activities related to opening certain forms of gaming centres and penalize anyone who opens, keeps or uses cyber cafes, computer resources, mobile apps, the internet, or any communication device as defined in the IT Act for online gaming. Offences under Section 78 have been made cognizable and bailable.

The Amendment has also increased the nature of, and scope of punishments for various offences. Offences under Section 78 and Section 87 of the Act that deals with gaming in public streets are punishable with imprisonment of up to six months or a fine of up to ten thousand rupees. 

Punishments under Section 79, which criminalizes keeping common gaming house, and Section 80, which criminalizes gaming in common gaming-house, have been increased to imprisonment of up to three years and a fine of up to one lakh rupees. 

Previously, Sections 79 and Section 80 did not apply to wager in games of pure skill. The Amendment removed this exception, bringing games of skill as well under the purview of the ban.

Judicial Stand on Similar Bans Placed on Online Gaming

Recently in the case of Junglee Games v. State of Tamil Nadu[1], the Madras High Court struck down the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021, which was similar to the Amendment in Karnataka, holding that such a blanket ban was excessive and disproportionate and that it was violative of Article 19(1)(g) of the Constitution.

The Rajasthan High Court in Saahil Nalwaya v. State of Rajasthan and Ors. [2] held that online fantasy sports, which functions under the Charter for Online Fantasy Sports Platforms of the Federation of Indian Fantasy Sports, the self-regulatory body in the online fantasy gaming industry which we have discussed before, are protected under Article 19(1)(g) of the Constitution.

The Supreme Court in Avinash Mehrotra v. The State of Rajasthan[3], dismissed an SLP from a decision of the High Court of Rajasthan, thereby upholding the judgements of the Rajasthan High Court, the Punjab and Haryana High Court, and the Bombay High Court, that games such as Dream11 do not involve any commission of the offence of gambling and betting.

Considering these judicial stands, the constitutional and legal validity of the Amendment is also in question, and the Amendment will likely be challenged in Court.

 

Effects of the Amendment Banning Online Gaming in Karnataka

Immediately after the Amendment Act was notified, Online platforms started geotagging and blocking access to their apps for users in Karnataka. While MPL and PayTM First seem to have blocked access to their users in Karnataka, some other online fantasy sports apps are still trying to interpret and adhere to the new legislation.

Industry experts predict that the ban will impact over 10% of online transactions in the country and will cause around 7-12% loss of revenue to the online gaming industry other than damaging the investor-friendly tag of Karnataka. 

 

The Way Forward

This move is the latest of the numerous attempts by legislatures in different States of the Country to ban online gaming. Such actions are criticized for showcasing the misplaced concern of the legislature for online games, and critics advocate for regulation instead of an outright ban. While clarity is needed and perhaps the rules which are yet to be framed may help clear the air, the Gaming industry may not wait until then from moving to Court challenging the blanket ban.

References

[1] (2021) SCC OnLine Mad 2762.

[2] D.B. Civil Writ Petition No. 2026/2021.

[3] SLP (Civil) Diary No. 18478/2020.

 

Image Credits: Photo by Aidan Howe on Unsplash

The order of the Mumbai Tribunal has, indeed, widened the scope of ‘onus’ placed on the assessee to prove the genuineness of a particular transaction. Such ‘onus’ will not be deemed to be discharged by merely filing the documents before the tax authorities, but the assessee would have to go one step further to justify the rationale of such transactions in order to prove that the transaction has not been entered as a colorable device to defraud the Revenue.

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The Messi Exit: A Legal & Financial Perspective

Behind the passions of the fans, tackled goals, swanky parties and brand endorsements, there is a lot that goes into structuring a football team/club, registration as well as the transfer of a player while maintaining sustainable finances. 

In response to multiple financial irregularities in clubs such as Deportivo La Coruña, Racing Santander, Valencia, Real Zaragoza, Real Mallorca, Albacete, Real Betis etc., the economic control framework was introduced in 2013 to keep clubs financially afloat and maintain competitive sustainability.

At a later stage, FFP (Financial Fair Play) came into effect against errant clubs for breach of regulations. Spain’s economic control- La Liga controls the fire before it can damage (to an extent) by setting a limit to the amount a club can spend, thereby making it easier to stay within limits and preventing the creation of unsustainable debts. 

What were the legal reasons for Messi’ s exit from Barcelona?

 

Recently Argentinean professional footballer Lionel Andrés Messi, popularly known as Leo Messi, decided to part ways with the Spanish football club FC Barcelona and join the French football club Paris Saint-Germain. Messi had been with the Spanish club for the last 21 years and their association came to an end on 30th June 2021, when they decided to move on.

Messi had agreed to a new five-year contract with Barcelona, however on 8th August 2021, the legendary football player announced his exit from the Spanish club, by signing a two-year contract with the French club Paris Saint-Germain, with the option of further extension up to a year. FC Barcelona announced that despite the agreement between the club and Messi, they were not able to honour the new contract due to the Spanish football league’s (LaLiga’s) financial fair-play rules. 

 

What is LaLiga Financial Fair-play Rule? 

 

Under the LaLiga fair play rule, each club is provided with a cost limit for each season, which includes the wages of the players, the coaching staff, physios, reserve teams, etc. Clubs have the flexibility to decide how the wages are distributed, as long as the overall limit is not breached. Factors taken into consideration for setting the financial cap are inclusive of expected revenues, profits and losses from previous years, existing debt repayments, and sources of external financing among others. In this case, the Catalan club could not accommodate Messi’s contract within the financial limit for the upcoming year, even though Messi was allegedly willing to take a 50% pay cut. 

Considering the fact that Messi is Barcelona’s record scorer with 751 goals and 10 La Liga titles, Messi’s exit could mean a heavy blow for the world’s most valuable[1] European football club. 

A football clubs’ main revenue is generated from TV broadcasting rights, matchday sales, and commercial revenue which includes sponsorship contracts, merchandising sales, and digital content that the club creates. It is too early to say whether Messi’s departure will have an impact on how Barcelona performs in the ongoing season. However, there is no question over how Messi has played an important role in bringing laurels to Barcelona over the past few years, which has garnered a significant fan following, not just for the footballer, but also for the club. Thus, his exit may likely cause a dip in the viewership and fan following which will directly affect the Club’s revenue.

Typically for a footballer, his contract with any club would include basic salary, signing-on fees, royalty fees, and objectives based on games. Apart from these, some of the other key element included in a contract is his image rights, merchandising right and licensing deals, which form a major portion of any footballer’s gross income. 

 

What are Image Rights? 

Image rights are the expression of a personality in the public domain. For an athlete, it will include their name, photo, and likeness, signature, personal brand, slogans, or logos, etc. Generally, football clubs try to extract a greater percentage from the image rights of a player, in a club capacity as compared to their personal capacity. Club capacity is usually when the image rights of the player are used in connection with or combined with his name, colours, crest, strip, logos identifying him as a player for his club. Personal capacity is usually when the player is appearing in and conducting activities outside his role as a player at the club. 

Any player leaving the club would have an impact on the commercial revenue generated by the club in the form of sponsorship contracts, merchandising sales as well as digital content. This would be especially notable for a player like Messi, whose personal brand value boasts over 130 trademarks. Messi’s trademark portfolio consists of mostly a single class trademark in his home country of Argentina, with others filed or registered in China, Brazil, EU, Malaysia, UK, Spain, Canada, Chile, and the US. The most common goods and services represented in Messi’s trademark portfolio are class 25 (clothing and footwear), class 28 (games, toys, and sporting apparatus) and class 9 (computer software). Apart from the above classes, class 18 has been filed in multiple applications.

The trademark consists of either the word mark MESSI/LIONEL MESSI or his logo. This means that Barcelona will no longer be able to use the footballer’s name or logo for apparel and merchandise sales, which will directly impact its revenue as most clubs collect a portion of the sales revenue. Also, Messi’s exit means that the club will have no control over his image rights to attract corporate sponsorships. Further, Messi’s huge online presence, with over 276 million Instagram followers, which is more than double of Barcelona’s official account (100 million), will have a direct impact on any advertising or publicity that the club may generate. 

A player of Messi’s stature, brand, and persona is significant to any club. How the present scenario is played with the new club and how much impact Messi’s presence will bring to Paris Saint-Germain is yet to be seen. 

A football clubs’ main revenue is generated from TV broadcasting rights, matchday sales and commercial revenue which includes sponsorship contracts, merchandising sales and digital content that the club creates. It is too early to say whether Messi’s departure will have an impact on how Barcelona performs in the ongoing season.

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Architectural Design Copyright: Analyzing Strategic Trolling in Light of the Design Basics Judgement

Like any other form of creative works of expression, copyright protection was extended to work of architectural design keeping in mind the creative labour that goes into the production of such works and to protect the legitimate interest of such bona fide authors. However, there have been instances where copyright owners have made their revenue model to indulge in the scheme of copyright trolling.

 

Copyright trolling is a scenario where creators of copyrighted work enforce their work with the hopes of profiting from favorable infringement enforcement lawsuits.

This article analyses one such US case which was an appeal in the Seventh Circuit Court of Appeal i.e., Design Basics, LLC v. Signature Construction[1] that addressed the question of copyright protection over architectural designs and its alleged infringement by a subsequently developed floor plan. The article also touches upon the Indian intellectual property laws that deal with copyright protection of architectural designs.

Background of the Design Basics Case

The Appellant had received copyright registration over series of its floor plans and sued Defendant for alleged infringement of ten of its floor plans. In response, the Defendants moved for summary judgment, wherein the lower court, while dismissing the Appellant’s claim of infringement ruled that the Appellant’s copyright protection in its floor plan was ‘thin’ and only a ‘strikingly similar’ plan could give rise to an infringement claim. The Appellant’s appeal against the Summary Judgement met with the same fate as the seventh circuit court, re-affirmed the position taken by the lower court for reasons explained herein in greater detail. While doing so, the court came down heavily on the Appellant i.e., Design Basics, LLC., a home design company, for its floor plan-based copyright trolling scheme that it had utilized to file over a hundred copyright cases, including the present one, in federal courts that had resulted in thousands of victims paying license/settlement fees.

Test of Similarity: Independent Creation or Unlawful Copying   

In the present case, the copyright protection was hailed as a thin one, as the designs mostly consisted of unprotectable and basic elements – a few bedrooms, a large common living room, kitchen, etc. The Court reiterated the fact that “copying” constitutes two separate scenarios – Whether the defendant has, rather than creating it independently, imitated it in toto and whether such copying amounts to wrongful copying or unlawful appropriation. For instance, in the present case, much of the Appellant’s content related to functional considerations and existing design conventions for affordable, suburban, single-family homes. In such a case, to give rise to a potential copyright infringement claim, only a “strikingly similar” subsequent work would suffice.

Determining the Piracy: A Circumstantial Scenario

The Seventh Circuit explained that in absence of evidence of direct copying, the circumstantial evidence should be taken into consideration. To bring a case under this limb, one had to identify whether there was access to the plaintiff’s work by the creators of the subsequent work and if so, then, whether there exists a substantial similarity between the two works. The substantial similarity should not only be limited to the protective elements of the plaintiff’s work but also, any other similarity.

The court in this case used the term “probative similarity” when referring to actual copying and “substantial similarity” when referring to unlawful appropriation. In a case of thin copyright protection, a case of unlawful appropriation requires more than a substantial similarity. Only if a subsequent plan is virtually identical to the original work, it will cause an infringement.

The utility aspect: The Brandir analogy

For instance, if a particular type of architectural detailing is a significant feature of an organization, so much so that it creates an imprint on the minds of the target consumers that such a style is attributable to the Appellant, is that design/style copyrightable? To answer this question the case of Brandir International, Inc. v. Cascade Pacific Lumber Co[2], must be taken into consideration, where the court stated that “if design elements reflect a merger of aesthetic and functional considerations, the artistic aspects of a work cannot be said to be conceptually separable from the utilitarian elements. Conversely, where design elements can be identified as reflecting the designer’s artistic judgment exercised independently of functional influences, conceptual separability exists.

The rule of law, as evidenced from the above precedent states that the copyrightability of work ultimately depends upon the extent to which the work reflects artistic expression and is not restricted by functional considerations. Hence, while considering designs, which have a particular utility in the minds of the customers, the artistic part should be considered separately from the utilitarian part, as, the Copyright Act clearly states that the legal test lies in how the final article is perceived and not how it has evolved at the various stages along the way. Any similarity in the end-product when taken as a whole should be considered.

The Ideal Test(s) for Determination of Ingringement: Scènes à Faire and Merger Doctrine

The determination of piracy and subsequently the legitimacy of a copyright claim has seen a sharp change over a period. There has been a change in the stance of the courts from the Sweat of the Brow system to the Originality Test. Where the former absolved a defendant from a copyright infringement claim based on the evaluation of substantial labour in the development of the subsequent work, without taking into consideration the amount of overlap or the quality of such work, the latter absolved the author of a subsequent work from a potential copyright infringement claim if his work (the subsequent work) enshrines an adequate amount of creativity and diligence.

An extension of the Originality doctrine is seen in a Scene A Faire scenario, which states that when certain similarities are non-avoidable, what needs to be determined is if the depiction pertains to certain things which are extremely common to a particular situation, for e.g., the depiction of police life in the South Bronx will definitely include “drinks, prostitutes, vermin and derelict cars.”[3] Hence, such depictions do not come under the realm of copyright protection.[4]

The court adopted the same analogy in the present scenario, stating that the rooms in the Appellant’s floor plans were rudimentary, commonplace, and standard, largely directed by functionality. For example, the placement of the bedroom, hall, and kitchen did not show an extraneous unique expression of an idea. Hence, they constituted of a scene a faire scenario, which could not be protected.

Expressions and not ideas are protectable. The doctrine of merger prevents the protection of underlying ideas. However, if certain ideas can only be expressed in multiple ways, copyrighting each expression would end up in copyrighting the idea itself, which would run counter to the very basis of copyright protection. Similarly, where the Appellant is the owner of 2500+ floor plans, is it possible for any other Appellant to design a suburban single-family home that is not identical to at least one of these plans?

The court answered in negative and held that if the copyright infringement claim of the Appellant was allowed to succeed, then it would own nearly the entire field of suburban, single-family type homes, which would be a result of anti-competitive practice. Hence, the present plea was not allowed.

A Classic Case of Copyright Trolling

The court called this instance a classic case of a copyright troll. This was because Design Basics, as a matter of practice, had registered copyrights in over thousands of floor plans for single-family tract type suburban homes, which they used for attacking several smaller businesses, using their employees to spawn through the internet in search of targets and slapping on them strategic infringement suits in which the merits were always questionable. This fueled their agenda in securing “prompt settlements with defendants who would prefer to pay modest or nuisance settlements rather than be tied up in expensive litigation.”

The Indian Position on Protection of Architectural Design

Even though courts in India have not taken a similar stand on copyright protection over architectural work yet, a similarly high threshold of originality for protection and enforcement of such works stems from the Copyright Act, 1957 (“the Act”) as well as the Designs Act, 2000. Section 2(b) of the Act defines ‘work of architecture’ as: “any building or structure having an artistic character or design, or any model for such building or structure.”, and Section 2(c)(ii) includes work of architecture under the ambit of artistic work.

Additionally, Section 59 of the Act, restricts remedies in case of “works of architecture” which states that where construction of a building or other structure which infringes or which, if completed would infringe the copyright in some other work has been commenced, the owner of the copyright shall not be entitled to obtain an injunction to restrain the construction of such building or structure or order its demolition. The owner of the copyrighted building cannot claim specific relief and the only remedy available to the copyright owner will be damages and criminal prosecution.

The law corresponding to this is Section 2(d) of the Designs Act, 2000 which allows for designs of buildings to be registered. This provision may prove to be more useful as it allows for mass production of the designs registered under the Designs Act. As for Copyright protection, if a design has been registered under the Copyright Act, as well as the Designs Act, then the copyright ceases to exist if the design is commercially reproduced or reproduced more than fifty times.

Thus, the Copyright Act purports to provide protection to very special architectural works which have an artistic element to them and are not mass-produced to protect the artistic integrity of the work. Hence, commercial rights of architectural work are better protected under the Designs Act which allows for the reproduction of the design multiple times.

Analysis and Conclusion

The Appellate court in the present case concluded that apart from the marking up of the Design Basics floor plan by Signature, there was no evidence of actual copying. Even under the test for circumstantial proof of actual copying, there existed many noteworthy differences between the two works, for instance, the room dimensions, ceiling styles, number of rooms, and exterior dimensions were all different enough to preclude an inference of actual copying as a matter of law. Even though the two plans were similar, they differed in many aspects. Hence, the copyright infringement claim could not subsist.

The United States’ Modicum of Creativity approach is a modern proliferation of the originality test, which delves into the thought process and the judgment involved behind the formulation of subsequent work.[5] However, using this approach in isolation is not enough. Whether the subsequent work is the result of a thought process and adequate judgment should be determined after passing it through the ‘Nichols Abstraction’ test. The Seventh Circuit decision was largely based on the Nichols Abstraction test[6] which narrows down to the product that remains after filtering out all the dissimilarities. The residual product, in this case, that remained after filtering out all the dissimilarities between the two was the main idea behind the works and ideas are not protectable and hence a case of infringement could not be made out.

Copyright trolling is more common in countries that provide escalated damages for infringement and there it needs to be addressed in a stricter manner. In 2015 alone, trolls consumed a whopping 58% of the US federal copyright docket. Clearly, the judiciary plays a very important role in sorting out a troll from a genuine copyright claim. Moreover, the litigation process needs to be cost-effective, which may enable defendants to dispute the claims of a copyright troll more easily. Hence, proper care and caution must be taken while meandering through the trolls.

References: 

[1] Case No. 19-2716 (7th Cir. Apr. 23, 2021)

[2] 200 (2d Cir. N.Y. Dec. 2, 1987)

[3] David Nimmer, Nimmer on Copyright Vol III, (1963).

[4] http://blog.ciprnuals.in/2021/06/from-sweat-of-the-brow-to-nichols-abstraction-a-revisitation-of-the-r-g-anand-precedent-with-its-mature-modern-implications/

[5] Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991).

[6] Nichols v. Universal Pictures Corp., 45 F.2d 119 (2d Cir. 1930)

 

 

Image Credits: Photo by Sora Shimazaki from Pexels

Copyright trolling Is more common in countries that provide escalated damages for infringement and there it needs to be addressed in a stricter manner. In 2015 alone, trolls consumed a whopping 58% of the US federal copyright docket. Clearly, the judiciary plays a very important role in sorting out a troll from a genuine copyright claim.

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Intermediary Guidelines and Digital Media Ethics Code: Shifting Paradigm of Social & Digital Media Platforms

It has been just over six months since the IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (the “Rules“) have been notified. However, these six months have been nothing short of a roller coaster ride for the (Internet) Intermediaries and Digital Media platforms, especially Social Media platforms who have tried to muddle through the slew of compliance obligations now imposed through these eccentric Rules. Notwithstanding, some of them had to face the wrath of the Government and even Courts for the delay in adherence.

On this topic, we are trying to stitch together a series of articles covering the entire gamut of the Rules, including their objective, applicability, impact, and the key issues around some of the rules being declared unconstitutional, etc.

In our first article, we analyse the timeline, objectives, and applicability of these Rules through some of the definitions provided under the Rules and the IT Act.

Tracing the Roots of the Digital Media Ethics Code 

The initiation of this endeavour can be tracked down to July 26, 2018, when a Calling Attention Motion was introduced in the Rajya Sabha on the misuse of social media and spread of fake news, whereby the Minister of Electronics and Information Technology conveyed the Government’s intent to strengthen the existing legal framework and make social media platforms accountable under the law. Thereafter, the first draft of the proposed amendments to the Intermediary Guidelines, The Information Technology (Intermediary Guidelines (Amendment) Rules) 2018, was published for public comments on December 24, 2018.

In the same year, the Supreme Court in Prajwala v. Union of India[1] directed the Union Government to form necessary guidelines or Statement of Procedures (SOPs) to curb child pornography online. An ad-hoc committee of the Rajya Sabha studied the issue of pornography on social media and its effects on children and the society and laid its report recommending the facilitation of identification of the first originator of such contents in February 2020.

In another matter, the Supreme Court of India on October 15 2020, issued a notice to the Union Government seeking its response on a PIL to regulate OTT Platforms. The Union Government subsequently on November 9 2020, made a notification bringing digital and online media under the ambit of the Ministry of Information and Broadcasting, thereby giving the Ministry the power to regulate OTT Platforms.

On February 25, 2021, the Union Government notified the much-anticipated Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, bringing various digital entities under its purview and imposing new compliances to regulate them.

 

Objectives of the Digital Media Ethics Code

The rising internet and social media penetration in India raises concerns of transparency, disinformation and misuse of such technologies. The Rules address these concerns and bring accountability to social and digital media platforms by mandating the setting up of a grievance redressal mechanism that adheres to statutory timeframes. The Rules also address the legal lacuna surrounding the regulation of OTT platforms and the content available on them and introduces a three-tier content regulation mechanism.

Key definitions and the applicability of the Digital Media Ethics Code

The Rules add on extensively to the 2011 Intermediary Guidelines and also introduce new terms and definitions. To understand the Rules and the compliances thereunder in a holistic manner, it becomes imperative to learn the key terms and definitions. This also addresses concerns of applicability of the Rules to different entities, as they prescribe different sets of compliances to different categories of entities.

Key definitions:

Digital Media as per Rule 2(1)(i) are digitised content that can be transmitted over the internet or computer networks, including content received, stored, transmitted, edited or processed by

  • an intermediary; or
  • a publisher of news and current affairs content or a publisher of online curated content.

This broadly includes every content available online and every content that can be transmitted over the internet.

Grievance as per Rule 2(1)(j) includes any complaint, whether regarding any content, any duties of an intermediary or publisher under the Act, or other matters pertaining to the computer resource of an intermediary or publisher as the case may be.

Intermediary has not been defined in the Rules, but as per S. 2(1)(w) of the IT Act, intermediary, with respect to any particular electronic record, is any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes.

The first part of the definition lays down that an Intermediary with respect to an electronic record, is any person that receives, stores or transmits that electronic record on behalf of another person.

An entity becomes an intermediary for a particular electronic record if that record is received by, stored in or transmitted through the entity on behalf of a third party. However, as the clause does not use the term “collect” with respect to an electronic record, any data that entities may collect, including IP Addresses, device information, etc., do not fall within the definition’s purview. Hence the entities would not be considered as intermediaries for such data.

Moreover, the second part of the definition lays down that those entities that provide any service with respect to an electronic record would be intermediaries. However, what constitutes “service” has been a key point of discussion in prior cases. In Christian Louboutin Sas v. Nakul Bajaj[2], the Court not only held that the nature of the service offered by an entity would determine whether it falls under the ambit of the definition, but also went on to hold that when the involvement of an entity is more than that of merely an intermediary, i.e., it actively takes part in the use of such record, it might lose safe harbour protection under S. 79 of the Act.

The definition also includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places, and cyber cafes as intermediaries. In Satish N v. State of Karnataka[3], it was held that taxi aggregators like Uber are also intermediaries with respect to the data they store. Therefore, Telecom Service Providers like Airtel, Vi, Jio, etc., Network Service Providers like Reliance Jio, BSNL, MTNL, etc., Internet Service Providers like ACT Fibernet, Hathaway, etc., Search Engines like Google, Bing, etc., Online Payment gateways like Razorpay, Billdesk etc., Online Auction Sites like eBay, eAuction India, etc., Online Market Places like Flipkart, Amazon etc. are all considered intermediaries.

Social Media Intermediaries as per Rule 2(1)(w) is an intermediary which primarily or solely enables online interaction between two or more users and allows them to create, upload, share, disseminate, modify or access information using its services. This includes platforms like Tumblr, Flickr, Diaspora, Ello, etc.

Significant Social Media Intermediaries as per Rule 2(1)(v) is a social media intermediary having number of registered users in India above such threshold as notified by the Central Government. Currently, the threshold is 5 million users. Platforms that fall under this category would be Facebook, Twitter, Instagram, YouTube, Snapchat, LinkedIn, WhatsApp, Telegram etc.

News & current affairs content as per Rule 2(1)(m) includes newly received or noteworthy content, including analysis, especially about recent events primarily of socio-political, economic or cultural nature, made available over the internet or computer networks, and any digital media shall be news and current affairs content where the context, substance, purpose, import and meaning of such information is in the nature of news and current affairs content. Therefore, news pieces reported by newspapers or news agencies, shared online, on social media, or on digital media platforms are news & current affairs content. This includes contents of such nature created by any person and shared through social media platforms like WhatsApp, Facebook, Twitter etc. Digital content discussing news and the latest happenings will also come under the purview of this definition.

Newspaper as per Rule 2(1)(n) as a periodical of loosely folded sheets usually printed on newsprint and brought out daily or at least once in a week, containing information on current events, public news or comments on public news. Newspapers like The Hindu, Times of India etc. will fall under this category.

News aggregator as per Rule 2(1)(o) is an entity performing a significant role in determining the news and current affairs content being made available, makes available to users a computer resource that enable such users to access such news and current affairs content which is aggregated, curated and presented by such entity. This includes platforms like Inshorts, Dailyhunt etc.

Online curated content as per Rule 2(1)(1) is any curated catalogue of audio-visual content, other than news and current affairs content, which is owned by, licensed to or contracted to be transmitted by a publisher of online curated content, and made available on demand, including but not limited through subscription, over the internet or computer networks, and includes films, audio visual programmes, documentaries, television programmes, serials, podcasts and other such content. This includes movies and shows available on OTT platforms like Netflix, Prime Video, Disney+Hotstar etc.

Publisher of News and Current Affairs Content as per Rule 2(1)(t) includes online paper, news portal, news aggregator, news agency and such other entities, which publishes news and current affairs. This would include websites/apps such as The Wire, The News Minute, Scroll.in, Dkoding.in, The Print, The Citizen, LiveLaw, Inshorts etc.

While the Rules do not include the regular newspapers or replica e-papers of these newspapers, as they come under the Press Council Act, news websites such as Hindustantimes.com, IndianExpress.com, thehindu.com are covered under the Rules, and the Union Government clarified the same on June 10, 2021. The clarification stated that websites of organisations having traditional newspapers and digital news portals/websites of traditional TV Organisations come under the ambit of the Rules.

This does not include news and current affairs reported or posted by laymen or ordinary citizens online, as the scope is limited only to news publishing agencies.

Publisher of Online Curated Content as per Rule 2(1)(u) is a publisher who performs a significant role in determining the online curated content being made available and enables users’ access to such content via internet or computer networks. Such transmission of online currented content shall be in the course of systematic business or commercial activity. This includes all OTT platforms, including Netflix, Prime Video, Voot, Lionsgate, Disney+Hotstar, etc.

The Digital Media Ethics Code Challenged in Court

Part III of the IT Rules has been challenged by many persons in various High Courts. News platforms including The Wire, The Quint, and AltNews moved to the Delhi High Court, alleging that online news platforms do not fall under the purview of Section 87 of the IT Act, under which these Rules are made as the section is only applicable to intermediaries. Section 69A is also limited to intermediaries and government agencies. It is alleged that since such publishers are not intermediaries, they do not fall under the purview of the IT Rules.

A similar petition was moved by LiveLaw, a legal news reporting website before the Kerala High Court, alleging that the Rules violated Articles 13, 14, 19(1)(a), 19(1)(g), and 21 of the Constitution and the IT Act.[4] The petitioners contended that the Rules had brought Digital News Media under the purview of the Press Council of India Act and the Cable Television Networks (Regulation) Act, 1995, without amending either of the two legislations. They also alleged that the rules were undoing the procedural safeguards formed by the Supreme Court in the Shreya Singhal[5] case. In this regard, the Kerala High Court has ordered that no coercive action is to be taken against the petitioner as interim relief.

Recently, the Bombay High Court in Agij Promotion of Nineteenonea v. Union of India[6] delivered an interim order staying Rules 9(1) and 9(3), which provides for publishers’ compliance with the Code of Ethics, and the three tier self-regulation system respectively. The Court found Rule 9(1) prima facie an intrusion of Art. 19(1)(a).

Legality & Enforceability of the Digital Media Ethics Code

Even though six months have passed since the Rules came into force, the legality and enforceability of the Rules are still in question. While most intermediaries, including social media and significant social media intermediaries, have at least partly complied with the Rules, the same cannot be said for publishers of news and current affairs content and online curated content. This will have to wait until the challenges to its legality and constitutionality are settled by Courts.

References:

[1] 2018 SCC OnLine SC 3419.

[2] 2018 (76) PTC 508 (Del).

[3] ILR 2017 KARNATAKA 735.

[4] https://www.livelaw.in/top-stories/kerala-high-court-new-it-rules-orders-no-coercive-action-issues-notice-on-livelaws-plea-170983

[5] (2013) 12 SCC 73.

[6] Agij Promotion of Nineteenonea v. Union of India, WRIT PETITION (L.) NO.14172 of 2021.

Image Credits: 

Photo by Jeremy Bezanger on Unsplash

 

Even though six months have passed since the Rules came into force, the legality and enforceability of the Rules are still in question. While most intermediaries, including social media and significant social media intermediaries, have at least partly complied with the Rules, the same cannot be said for publishers of news and current affairs content and online curated content. This will have to wait until the challenges to its legality and constitutionality are settled by Courts.

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Small Entity Status- Can Foreign Companies Claim It?

The government of India has been aggressively pushing for the development and promotion of entrepreneurship in the country. In the Intellectual Property Domain, various concessions have been made for small and upcoming entities. Organizations claiming a ”small entity” status or a “start-up” status while applying for registration are entitled to some additional benefits pertaining to fees and filing requirements.  Here, we briefly look upon the small entity status as per the Indian patent and design rules. 

Intellectual Property Related Government Initiatives to Encourage Small Entities & Startups

In 2020, the Scheme for Facilitating Start-ups Intellectual Property Protection, was launched as an experimental initiative to encourage start-ups to develop and protect their intellectual property, which was extended for a period of three years (April 1, 2020 – March 31, 2023).

Further, the Patent (Amendment) Rules, 2020[1] were notified on October 19, 2020 to simplify the procedure of submitting priority applications and their translations and filing of working statements under form 27. These changes were introduced in consequence to the Delhi High Court’s order in the case of Shamnd Bashir v UOI[2], that resulted in a stakeholder’s consultation.

On November 4, 2020 the Ministry of commerce and Industry[3], notified Patents (2nd Amendment) Rules, 2020[4], making additional filing and prosecution concessions for start-ups and small entities.  The status of start-ups was discussed critically, extending their life for up to ten years. These amendments are set to make protection of intellectual property affordable to every category and class of business. Finally, the government also notified Design Amendment Rules 2021,[5] which recognized start-ups as applicants. The current Locarno classification system[6] and simplified fee structure were introduced specifically to benefit small entities.

 

Categorization of ‘Entities’

 

1.1 Natural Person

Under the Indian Patent Act, natural person includes an individual human being. In this context, the patent application can be filed in the name of one or a group of individuals. Here, the inventorship and ownership lies solely with the inventor and he is entitled to:

  1. Sell
  2. Transfer
  3. License, or
  4. Commercialize their patent as per their want.

1.2 Small Entity

The Indian Patents Rule, 2003 under Rule 2(fa)[7] define ‘small entity’ as:

  • in case of an enterprise engaged in the manufacture or production of goods, an enterprise where the investment in plant and machinery does not exceed the limit specified for a medium enterprise under clause (a) of sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006); and
  • in case of an enterprise engaged in providing or rendering of services, an enterprise where the investment in equipment is not more than the limit specified for medium enterprises under clause (b) of sub-section (1) of Section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).

In calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other things as may be specified by notification under the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006), shall be excluded.

1.3 Start up:

A start-up is an entity recognized as a ‘startup’ by the competent authority under the Startup India initiative and fulfills all the criteria for the same.

A foreign entity shall fall under the category of start-up if it fulfills the criteria of turnover and specified period of incorporation/registration, and submission of a valid declaration to that effect as per the provisions of Start-up India initiative. (In calculating the turnover, reference rates of foreign currency of Reserve Bank of India shall prevail.)

As per the Notification of Department of Promotion of Industry and Internal Trade[8], an entity is considered a start-up  

  1. Up to a period of ten years from the date of incorporation/ registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India.
  1. Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees.
  2. Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

Provided that an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.

How to apply for Small Entity Status in India:

 

Any business can apply for the status of small entity under the MSME Development Act, 2006 at udyamregistration.gov.in. Subsequent to a successful registration the business shall be issued a Udyam registration certificate, that can be furnished as proof for availing various government subsidies and benefits. 

A foreign company can also register as an MSME on the same government portal. However, as a preceding step such a company shall register itself as per the provisions of the Companies Act, 2013[9].

Any Indian entity wishing to declare themselves as small entity for the purpose of Patent registration has to furnish the following documents:

  1. Form 28 of the Indian Patent Act:
  2. Proof of Registration Under MSME Act 2006 (Micro, small and medium enterprise development Act, 2006).
  3. Form 1 of the Indian Patent Act (if Fresh Patent Application is being filed).

Any Indian entity wishing to declare themselves as small entity for the purpose of Design registration:

  1. For an Indian entity to claim the status of small entity, it must be registered under the MSME Development Act, 2006.
  2. To file an application as a start-up, the entity should be recognized as startup by a competent authority under the Union government’s Start-up India Initiative.

 

Can a Foreign Company claim Small Entity Status in India?

On a plain interpretation of the requirements under the Patent rules and Design rules, it is clear that a foreign enterprise can claim the status of a small entity or a start-up, provided it is registered and incorporated in India and is engaged in the manufacture of goods and services as specified in the first schedule of the 2006 Act.[10]

Under the MSME Development Act, 2006 an enterprise is defined as:

enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services;[11]

With an objective to incentivize the incorporation of OPC (One Person Companies), the Ministry of Corporate Affairs amended the Companies (Incorporation) Rules. The move empowers OPCs to grow without any restrictions on paid up capital and turnover, thereby facilitating their conversion into any other type of company at any time. Additionally, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allowing Non-Resident Indians (NRIs) to incorporate OPCs in India has paved the way for foreign entities to enter Indian markets[12] [13].

 

Application Process for Small Entity Status in India? (Foreign Company):

Patent Rules

A foreign applicant seeking the status of ‘small entity’ for the purpose of filing patent in India, has to submit duly filled Form 28[14], along with the requisite documents of proof.

As per the requirements of Form 28, a foreign applicant has to attach evidentiary documents that verify their status as ‘small entity’ for the want of Rule 2 (fa) of the Patent Rules, 2003. For this purpose, the said documents can include a certified copy of financial statement from a Chartered Accountant, that proves that the investment in plant and machinery and the annual turnover of the entity on the date of filing the application does not exceed the limitations specifications under the MSME Development Act, 2006.

Design Rules

For the purpose of recognitions as a start-up the foreign entity should satisfy the following criteria:

  1. The entity must be a private limited company, limited liability partnership, or partnership firm.
  2. Its turnover at any point during the course of its business (from inception) should not exceed INR 100 crores (approximately USD 13.7 million as on date)
  3. The entity would be considered a start-up only for a period of 10 years from the date of incorporation.
  4. An entity formed by splitting up or reconstruction of an existing business shall not be considered a “Start-up”

For a foreign entity to claim the benefit of being a start-up, an affidavit (which under Indian practices would need to be notarized, although this has not been explicitly mentioned in the Amendment Rules) along with supporting documents must be submitted at the time of filing the application[15], to be submitted with Form 24[16] of the Designs Rules.

References:

[1] https://pib.gov.in/Pressreleaseshare.aspx?PRID=1668081

[2] writ petition No. WPC- 5590

https://www.scconline.com/blog/post/2020/10/28/patents-amendment-rules-2020-patentee-would-get-flexibility-to-file-a-single-form-27-in-respect-of-a-single-or-multiple-related-patents/

[3] https://ipindia.gov.in/writereaddata/Portal/Images/pdf/Patents__2nd_Amendment__Rules__2020.pdf

[4] https://ipindia.gov.in/writereaddata/Portal/Images/pdf/Patents__2nd_Amendment__Rules__2020.pdf

[5] https://www.foxmandal.in/wp-content/uploads/2021/08/Indian-Designs-Amendment-Rules-2021.pdf

[6] https://www.wipo.int/classifications/locarno/locpub/en/fr/

[7] https://ipindia.gov.in/writereaddata/Portal/IPORule/1_70_1_The_Patents_Rules_2003_-_Updated_till_1st_Dec_2017-_with_all_Forms.pdf

[8] https://dpncindia.com/blog/wp-content/uploads/2019/02/DIPP-Notification-dated-19-Feb-2019.pdf

[9] https://www.indiacode.nic.in/show-data?actid=AC_CEN_22_29_00008_201318_1517807327856&sectionId=185&sectionno=2&orderno=2

[10] https://www.startupindia.gov.in/content/sih/en/bloglist/blogs/How-a-foreign-national-from-China-can-start-and-register-company-in-India.html

[11] https://www.indiacode.nic.in/show-data?actid=AC_CEN_46_77_00002_200627_1517807324919&sectionId=9884&sectionno=2&orderno=2

[12] http://164.100.117.97/WriteReadData/userfiles/Notification%201.pdf

[13] http://164.100.117.97/WriteReadData/userfiles/Notification%202.pdf

[14] https://ipindia.gov.in/writereaddata/Portal/IPOFormUpload/1_40_1/form-28.pdf

[15] https://www.foxmandal.in/wp-content/uploads/2021/08/Indian-Designs-Amendment-Rules-2021.pdf

[16] https://www.ipindia.gov.in/writereaddata/Portal/IPOFormUpload/1_109_1/Form_24.pdf

Image Credits: Photo by Startup Stock Photos from Pexels

 

On a plain interpretation of the requirements under the Patent rules and Design rules, it is clear that a foreign enterprise can claim the status of a small entity or a start-up, provided it incorporates itself under the relevant schemes and statutes and is able to furnish documents for proof to the same effect

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Why filing of Provisional Patent Application keeps you ahead in the Patenting race?

With an additional focus to build an Innovation based entrepreneurial eco system, innovation is happening at the drop of a hat. However, the floodgate of invention around the race does not seem to be limited to an ingenious mind but also requires a go-getter attitude. As we know, Patent protection works on a “first to file” basis and not on “first to invent” which means it is granted to the one who files the Patent application first, subject to fulfilling other patentability criteria.

A Patent application has to be filed along with certain Specifications (details/working of the invention). These specifications are of two types i.e. Provisional and Complete. Therefore, the application can be filed along with the Provisional or Complete Specification. If filed with Provisional, the Complete specification needs to be filed within 12 months.

 

Provisional Specification is very basic in nature and does not require details about the invention, unlike Complete Specification. Perhaps the difference between the two specifications is clear from the preambles of the specifications itself i.e.:

Preamble of the Provisional Application: “The following specification describes the invention”.

Preamble of the Complete Specification: “The following specification describes the invention and the manner in which it is to be performed.”

 

Even though, the Provisional Specification does not require claims, detailed descriptions, drawings etc., however, due care needs to be taken to ensure that the specification is broad enough so the objectives of the invention is covered as Complete Specification cannot be broader than what was disclosed in the Provisional.

 

Many times, during the office action as well as during the infringement or revocation attack, it is the provisional specification, which is first scrutinized to check if the invention was covered clearly. Therefore, even though it is provisional, taking professional guidance while drafting would be advisable to avoid possible mishaps in the future.

 

In order to stay ahead in the competition of technological advancement, R&D companies and other IP sophisticated companies around the globe, work on new inventions and file applications with the bare minimum information to get a priority date for their inventions. This is done before deep diving into specifics such as looking at the prior art or doing the feasibility test for the product/process etc.

 

Ideally, if an inventor comes up with an invention, she should not wait for the invention to be fully developed or for the feasibility test to be done. Needless to mention, millions of researchers around the globe are working on similar subjects and one never knows who might be coming up with similar invention in some part of the world and perhaps may be moving faster to file the patent application to claim priority.

 

Post filing of a Patent Application along with the Provisional Specification, an inventor has 12 months’ time to complete the research and file the Complete Specification. Since this option has been provided under the Patent law, availing it to claim the priority date would be a wise thing to do rather than wait for the research to complete where one would be running the risk of losing everything if someone else files before them. 

 

Ideally these 12 months period are given so one can carry out the patentability/ prior art search, which help the inventors tremendously in working around similar inventions.  Further, the Companies/inventors could also use the (provisional) Patent Application number to discuss the invention with potential investors, partners, licensee, etc. with due caution. 

 

In a situation where the inventor is unable to file the Complete Specification within the due date due to unavoidable circumstances, there is an option to file a request to post-date the application for a maximum period of six months subject to non-disclosure of the invention in the public domain.  

 

Considering these obvious advantages, filing a Patent Application along with a Provisional Specification could and would prevent a genuine effort from being a day late and a dollar short.

 

 

 

Image Credits: Photo by Med Badr Chemmaoui on Unsplash

Post filing of a Patent Application along with the Provisional Specification, an inventor has 12 months’ time to complete the research and file the Complete Specification. Since this option has been provided under the Patent law, availing it to claim the priority date would be a wise thing to do rather than wait for the research to complete where one would be running the risk of losing everything if someone else files before them. 

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Arbitration in Intellectual Property Disputes in India – A fable or reality?

Reconciliation of the rights pertaining to the creation of mind through a creature of contract remains an unsolved conundrum in India.  

In the wake of commercialization, when the Indian legal system is tenaciously shifting its focus from adjudication to alternate dispute resolution, arbitration has become a trend-setter in effectively resolving various kinds of commercial disputes. Arbitration is preferred in commercial disputes because it ensures neutrality, confidentiality, timeliness, and expertise while granting an award. The rise in arbitration proceedings, therefore, necessitates the conclusive determination of a range of issues that continue to be incessant in this field. One of the pressing issues while executing an arbitration clause in a contract is – whether an IPR dispute arising from a commercial agreement arbitrable? Delving deeper into the Indian scenario, it is evident that this issue remains an unsolved conundrum. Different benches in different High Courts have adopted a diversity of observations, contradictory to each other, forming a motion of debate as follows: 

 

Arbitrability of IPR Disputes arising from a commercial contract:

 

Pro-Arbitration 

“I do not think the world of domestic and international commerce is prepared for the apocalyptic legal thermonuclear devastation that will follow an acceptance of the plaintiff’s submission that no action under the Trade Marks Act or the Copyright Act can ever be referred to arbitration.” 

The above was stated recently in ‘Eros International Media vs. Telemax Links’ (2016), where the Bombay High Court while dealing with the issue of arbitrability of a dispute under Section 8 of the Arbitration and Conciliation Act 1996 (henceforth referred to as “the Act”) in a suit for copyright infringement, held that the disputes in contractual nature would always be an exercise of a right in personam owing to the fact that the defied parties would seek particular reliefs against each other and hence, be referred to settlement by arbitration.  

The facts of the Eros Case surrounded the grant of a license by the Petitioner for copyright distribution of its films. The Respondent had violated an express prohibition clause of the license which barred the exercise of distribution rights upon termination of the agreement. Similarly, in ‘Deepak Thorat vs. Vidli Restaurant Limited’ (2017), the Bombay High Court reiterated the holdings of the Eros Case.  

Earlier, the Delhi High Court in ‘Ministry of Sound International vs. M/s Indus Renaissance Partners’ (2009) had observed that IP-related disputes born out of a contract could be referred to arbitration, provided that there was no blanket ban on conducting arbitration of such issues.  

 

Pro-Litigation 

On the other hand, the Bombay High Court in the case of ‘Steel Authority of India Limited (SAIL) vs. SKS Ispat and Power Limited’ (2016) has held a different view while dealing with an application of notice of motion filed by Defendants under Section 8 of the Act against the damages and permanent injunction claimed by the Plaintiff for infringement of their registered trademarks. The application under Section 8 was made relying upon the clauses of the arbitration agreement governing the matter. However, the Bombay High Court dismissed the notice of motion on the ground that the infringement as well as passing off of a trademark as meted out in the suit, were a violation of rights in rem and therefore, not maintainable to be referred for arbitration.  

Further, in ‘Munidipharma AG vs. Wockhardt Ltd.’ (1990), the matter before the Delhi High Court was related to civil remedies for copyright infringement under Chapter XII of the Copyright Act, 1957. The Court had held that every such suit or other proceedings under Chapter XII related to a ground of copyright infringement or other rights in connection with it would only be maintainable and amenable before the district court of competent jurisdiction. 

 

No Definitive Verdict by the Apex Court 

A quick glimpse at Supreme Court verdicts on this subject well establishes the fact that we are still waiting for an authoritative determination by the Apex Court on the arbitrability of IP disputes arising from a contract. The only relevant judgment is the case of ‘Booz Allen Hamilton vs. SBI Home Finance Ltd.’ (2011) where on the one hand the Apex Court ruled out the arbitrable nature of rights in rem; on the other hand, the disputes involving rights in personam borne out of rights in rem were observed as arbitrable. The case addressed the right in rem versus the right in personam debate but did not determine the contractual aspect of the rights. Similarly, in ‘A Ayyasamy v. A Paramasivam’ (2016) while determining the arbitrability of fraud, the Court blatantly listed the IP disputes as arbitrable as a whole, without analyzing its contractual and non-contractual aspects. It should be noted that these cases basically dealt with statutory claims that had statutory remedies granted exclusively by civil courts. Therefore, they cannot be cited as authorities for IPR related contractual disputes.  

 

Way Forward  

A keen observation upon the nature of IPR disputes and their adjudication portrays the divergence of allied rights as rights in rem which are to be adjudicated by the prescribed statutory body and rights in personam which are exercised and executed between private parties in a commercial contract. Hence, once an IP infringement is identified to be sourced from a commercial contract, for an arbitrator to exercise its jurisdiction over such claim of infringement, the existence of a breach of contractual covenants by the parties involved should be proved. This is because commercial contracts are consciously entered into by the private parties to decide their rights and obligations and amicably settle the disputes before a private forum.  

It is pertinent to emphasize that sometimes in a contract involving IP ownership; we may anticipate a wide range of disputes directly or indirectly akin to IP ownership or license. Under such circumstances, it would always be open to the arbitral tribunal to determine the issue of arbitrability based on whether a particular IP dispute is directly arising from the breach of contract. For example, when a contract pertains to the enforcement of IPR, the disputes aiming to the validity of registration of IPR shall not be arbitrable. Therefore, the formula of ‘one field one law’ to ascertain the arbitrability of IPR allied disputes cannot be applicable to each case with varied facts and issues. Unlike India, in the periphery of International Commercial Arbitration, jurisdictions like the USA, Switzerland, Hong Kong, France, and institutions like WIPO have taken a progressive step towards the growth of IPR arbitrations by framing customized rules to administer the arbitration of IPR disputes. Therefore, in order to bury this conundrum in perpetuity and fall in line with the International framework, India needs to formulate a special rule or issue a conclusive verdict on the matter.  

Image Credits: Photo by Edge2Edge Media on Unsplash

A keen observation upon the nature of IPR disputes and their adjudication portrays the divergence of allied rights as rights in rem which are to be adjudicated by the prescribed statutory body and rights in personam which are exercised and executed between private parties in a commercial contract. Hence, once an IP infringement is identified to be sourced from a commercial contract, for an arbitrator to exercise its jurisdiction over such claim of infringement, the existence of breach of contractual covenants by the parties involved should be proved.

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Arraying of the unknown party as the main Defendant disallowed

The Delhi High Court has come down heavily on the tactics of concealment of real defendants in Intellectual Property (IP) Infringement cases utilized by plaintiffs with the aim of obtaining ex-parte injunction.  In a recent trademark infringement and passing off dispute between Bata India Limited vs Chawla Boot House & Anr, the Delhi High Court ruled that Plaintiff’s approach of impleading an unknown party as Defendant No. 1 was impermissible in law and directed stringent actions from the High Court Registry to control such misuse in all IP disputes 

The Court expressed its dismay over the non-compliance of the settled legal position and observed that this tactic has been adapted multiple times in IP infringement cases to obtain ex-parte injunctions in the initial hearing by making it very difficult for the main defendants to spot themselves in the cause list and appear in litigation concerning them 

Regarding the merits of the case, the court observed that Red Chief’s mark ‘POWER FLEX’ was infringing upon Bata’s trademark ‘POWER.’ 

BACKGROUND 

Bata instituted a trademark infringement suit against Red Chief, a footwear brand owned by Leayan Global, for using ‘POWER FLEX’ and the tagline ‘THE POWER OF REAL LEATHER’. According to Bata, it had exclusive right over the mark “POWER” by virtue of long and continuous use as well as multiple trademark registrationsBefore addressing the substantial part of the dispute i.e. trademark infringement, passing off, and unfair competition, the Court decided to address the way the Defendants were arrayed by the Plaintiff Company.  

ARRAYING OF UNKNOWN PARTY AS THE MAIN DEFENDANT 

Bata named Delhi-based retail outlet – Chawla Boot House, as the main defendant, whereas, the allegations were directed against the manufacturer company, Leayan GlobalThis hints at malafide intentions of the plaintiff to obtain ex-parte order against the main defendants by preventing them from detecting their names in the cause list by listing it as ‘Chawla Boot House & others’.  

This practice was declared impermissible in law in the case of Micolube India Ltd. v. Maggon Auto Centre & Anr in which the plaintiff had arrayed Maggon Auto Centre as the main defendant whereas the principal party i.e. Motor Industries was arrayed at Defendant no. 2. It was further noted that such practices disentitle a plaintiff of any equitable relief since the plaintiff did not approach the court with clean hands. It was held in that: 

The very fact that the plaintiff has also indulged in this practice is an indicator that it did not want the counsel for the defendant No. 2 to appear on the first date on which the matter was taken up for consideration of the grant or non-grant of ad interim injunction.” 

 

CONCLUSION  

Despite the established legal position, plaintiffs continue to array parties unrelated to the dispute as to the main defendant. The Registry was therefore ordered by the High Court to ensure strict compliance with the ratio laid down in the Micolube India judgment. In addition, a circular has been issued directing plaintiffs in all IP cases where there are multiple defendants to furnish an affidavit to the Registry confirming the arraignment of the main contesting party in the suit as Defendant No. 1.

Image Credits: Photo by Tingey Injury Law Firm on Unsplash

Despite the established legal position, plaintiffs  continue to array parties unrelated to the dispute as to the main defendant. 

The Registry was therefore ordered by the High Court to ensure strict compliance with the ratio laid down in the Micolube India judgment.

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