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India Business Law JournalYour partner in legal intelligence

Managing risk in uncertain timesThe IP threats facing Indian globetrotters

Getting to grips with the new Companies ActHead to head: Trademark law in India and China

May 2014Volume 7, Issue 10

Picking an IP lawyerTips from practitioners and in-house counsel

Contents

India Business Law Journal 1May 2014

15

15

Practitioners and in-house counsel share their insights on India’s IP professionals and how to choose among them

3 LeaderIs India at a tipping point?

4 Inbox

5 News

Louis Vuitton makes its markMalhotra returns to OP KhaitanMadhuryya cycles for cancer charityJet-Etihad deal steers clear of turbulence

10 The wrapBusiness law digest: page 10Dispute digest: page 13

15 Cover storyPicking an IP lawyer

22 Vantage pointBack to schoolCorporate law firms have raised demands regarding legal education. Now they should play a greater role in shaping it, argues Jonathan Gingerich

23 Spotlight Head to head

A Chinese and an Indian IP firm join forces to provide a side-by-side comparison of their respective trademark regimes

30 Commercial hazardsManaging risk requires an understanding of the changing dynamics of the environment in which a company operates

33 What’s the deal? A new era

39 Intelligence reportGlobetrotting

Picking an IP lawyer

A new era

What Indian companies need to know about

protecting their IP in other countries

Globetrotting

The Companies Act ushers in far-reaching changes to corporate governance and

the protection of investors’ interests

33

39

45 Correspondents Expert advice from India Business Law Journal’s correspondent law firms

45 Banking & finance Economic Laws Practice

46 Canada-India trade & investment Bennett Jones

47 Capital markets Economic Laws Practice

48 Competition & antitrust Trilegal

49 Dispute resolution Bharucha & Partners

50 Energy & infrastructure Trilegal

51 Food law DH Law Associates

52 Intellectual property Saikrishna & Associates

53 Media & entertainment LexOrbis

54 Mergers & acquisitions Amarchand Mangaldas

55 Regulatory developments Phoenix Legal

56 Taxation & transfer pricing Economic Laws Practice

Editorial board

India Business Law Journal2 May 2014

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India Business Law Journal

May 2014

Volume 7, Issue 10

ISSN: 1994-5841

Contact usEditorial

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www.indilaw.com

Editor

Vandana Chatlani

Deputy editor

Rebecca Abraham

Sub-editor

Simmie Magid

Contributors

Jonathan Gingerich

Nandini Lakshman

S Ramaswamy

Production editor

Pun Tak Shu

Head of marketing

Pennie Poon

Associate publisher

Tina Tucker

Publisher

James Burden

Printed in Hong Kong

Vantage Asia Publishing Limited

21/F Gold Shine Tower346-348 Queen’s Road Central

Hong KongTelephone: +852 3622 2673

Fax: +852 3006 5377Email: [email protected]

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DirectorsJames Burden, Kelley Fong

Disclaimer & conditions of sale

Vantage Asia Publishing Limited retains the copyright of all material published in this magazine. No part of this magazine may be reproduced or stored in a retrieval system without the prior written permission of the publisher. The views expressed in this magazine do not necessarily reflect the views of the publisher, its staff or members of the editorial board. The material in this magazine is not offered as advice and no liability is assumed in relation thereto. The publisher, staff and all other contributors to India Business Law Journal disclaim any liability for the consequences of any action taken or not taken as a result of any material published in this magazine.

© Vantage Asia Publishing Ltd, 2014

Vijaya SampathAdviser to the Chairman & Group CEO

Bharti Enterprises

Pravin AnandManaging PartnerAnand and Anand

Ashok SharmaFounder PresidentIndian Corporate

Counsel Association

Rohan WeerasingheGeneral Counsel &

Company SecretaryCitigroup

Amit Anant MoghayGeneral Counsel

HSBC

Amarjit SinghManaging Partner

Amarjit & Associates

Mysore R PrasannaIndependent Consultant

Pallavi ShroffPartner

Amarchand Mangaldas

Premnath RaiFounding PartnerPRA Law Offices

Shardul ThackerPartner

Mulla & Mulla & Craigie Blunt & Caroe

Shruti Dvivedi SodhiChief Compliance

OfficerAircel

Bhavna ThakurDirector & Head of

Equity Capital MarketsCitigroup

Shamnad BasheerProfessor in IP Law

National University of Juridical Sciences

Lalit BhasinManaging Partner

Bhasin & Co

Himavat ChaudhuriChief Legal

& Regulatory Affairs Officer

Tata Sky

Sumes DewanPartner

Desai & Diwanji

Fali S NarimanSenior Counsel

Toby GreenburyConsultant

Khaitan & Co

Manik KaranjawalaPartner

Karanjawala & Co

Martin RogersPartner

Davis Polk & Wardwell

Jagannadham Thunuguntla

Strategist & Head of Research

SMC Global Securities

Jane NivenRegional General

CounselJones Lang LaSalle

Sunil SethSenior PartnerSeth Dua & Associates

Girish GokhaleFormer President - Legal & Group General Counsel

JSW

Correspondent law firms

Amarchand Mangaldas •

Bennett Jones•

Bharucha & Partners•

DH Law Associates•

Economic Laws Practice•

Khaitan & Co•

LexOrbis•

Phoenix Legal•

Saikrishna & Associates•

Trilegal•

Leader

India Business Law Journal 3

Opinion

May 2014

Long years ago we made a tryst with destiny ...

P owerful oratory from India’s first prime minister, Jawaharlal Nehru, in a speech made on the eve of India’s independence, when he famously said

India was awakening to life and freedom “at the stroke of the midnight hour, when the world sleeps”. Nearly seven decades later, India’s destiny appears somewhat removed from the lofty principles Nehru went on to speak about. Instead, the future of the country hinges on the strength of the government that will emerge when elections to the 16th Lok Sabha, the lower house of parliament, are com-pleted later this month.

Given the reality of Indian politics, there is little doubt that the winning party will need to cobble together a coalition. But will such a coalition be sufficiently strong to provide effective governance? And will the new government have the wherewithal to set India on a course for inclusive growth? For this to be achieved, vast sections of its legislative framework will need to be updated and overhauled. Even if the new government has the appetite for reform and the power to pursue it, this will be no mean feat. But neither will it be impossible.

For an example of what can be achieved, look no further than the recent introduc-tion of India’s new Companies Act. The act may have been 10 years in the making, but as we discuss in A new era (page 33), its introduction is transforming the rules by which companies are run and organized.

Several sections of the act came into force on 1 April, and some of these, including the provisions governing related-party transac-tions, mark a seismic shift in the balance of power between majority and minority shareholders. What will this mean for domestic and international companies? Sujjain Talwar, a partner at Economic Laws Practice, warns that the provi-sions on related-party transactions “may be unworkable in closely held companies,” while Surbhi Kejriwal, a principal associate at Khaitan & Co, predicts that foreign companies will find it challenging to comply with the new corporate social responsibility norms.

Challenges related to the new Companies Act will hope-fully be short-lived, as companies hone their compliance strategies and teething troubles are gradually ironed out. But other types of challenge are harder to eradicate.

One such challenge is the identification, management and mitigation of business risks. This challenge is particu-larly acute during times of economic or political uncertainly – times such as now, with India in the throes of a general election. In Commercial hazards (page 30), S Ramaswamy, the group general counsel at Escorts, discusses how man-aging such risks requires an understanding of the changing dynamics of the business environment. He also highlights

the considerable challenge of anticipating new business risks that are not currently known or understood. These “new age” risks may know no national boundaries, and as such, may be difficult, if not impossible, to contain. All one can do is to remain vigilant and diligent in monitoring trends on a regular basis and updating risk management strategies accordingly.

This month, thousands of delegates will gather in Hong Kong for the 136th annual meeting of the International Trademark Association (INTA). India Business Law Journal is proud to a media partner of the meeting and copies of our April and May issues will be widely available to delegates.

In this issue, we conclude the special line-up of intellectual property features that we have presented to coincide with INTA’s meeting. The first such feature is this month’s Cover

story (page 15), in which in-house coun-sel and legal practitioners share their tips and tricks on picking the best IP lawyers. India has thousands of IP-related service providers and choosing among them is no easy task, particularly for foreign com-panies and law firms that may lack local market intelligence.

As Prabhakar Sastry, the head of legal at Cairn Energy, explains: “IP rights issues are too precious to have the sub-optimal attention of my law firm.”

Ish Bali, the legal director of Coca-Cola India, adds that “IP law is an ever-chang-ing law, especially in a country like India, where such laws are still developing”.

As such, making the right choice is crucial. Our coverage emphasizes the importance of getting it right and cau-tions against accepting second best in the belief that nothing better is available.

In this month’s Intelligence report (page 39), we look at IP protection from a different perspective and explore the challenges and solutions the lie in store for Indian companies protecting their IP in other parts of the world.

Our coverage provides an intriguing snapshot of global intellectual property regimes, threats and protection mecha-nisms. It includes insights from practitioners in numerous jurisdictions, including Brazil, Vietnam, Sweden, Australia and the US, which continues to be the biggest export market for Indian companies. As India Inc expands its business glo-bally, getting the right international IP protection is vital.

This month, we’re also proud to introduce a new con-cept called Head to head, created in tandem with our sister publication, China Business Law Journal, as a means of comparing a key area of the law and practice in the world’s two largest emerging economies. In Head to head: A comparison of Indian and Chinese trademark law (page 23), Chinese law firm Wan Hui Da and India’s Anand and Anand discuss everything from registering and protecting your mark to the courts and compensation issues in the two jurisdictions. The comparison makes for fascinating reading. Expect more Head to head features exploring various practice areas in future. g

www.indilaw.com

India Business Law JournalYour partner in legal intelligence

Managing risk in uncertain timesThe IP threats facing Indian globetrotters

Getting to grips with the new Companies ActHead to head: Trademark law in India and China

May 2014Volume 7, Issue 10

Picking an IP lawyerTips from practitioners and in-house counsel

Is India at a tipping point?

Inbox Letters to the editor


Meaningful community service

Dear Editor, Thank you for covering the impor-

tant issue of corporate social respon-sibility (CSR) in your article Giving back, published in the April issue of India Business Law Journal. In my opinion, the

main problem with CSR revolves around communication. Many CSR consultan-cies will emerge and help in doing good work, but consultancies must work closely with the B2B and B2C segments in order to involve them in a meaning-ful way. Many companies are unsure of where to focus their energies and funds. CSR should be about more than just corporate responsibility; it should be about a community service revolution in which all shareholders may benefit.

The new CSR provisions are a wel-come introduction, however non-governmental organizations, charities and other community organizations will no doubt be competing to win investments from the right corporate partners.

Onkar Khullar

Creative Director I Impact India Social Innovation

New Delhi

CSR

Opinions? Observations? Feedback?We want to hear from you

India Business Law Journal welcomes your letters. Please write to the editor at [email protected].

Letters may be edited for style, readability and length, but not for substance.

Due to the quantity of letters we receive, it is not always possible to publish all of them.


News

May 2014

T he Compet i t ion Appe l la te Tribunal (COMPAT) has dis-missed an appeal by Jitender

Bhargava, a former executive director of Air India, who challenged the deci-sion by the Competition Commission of India (CCI) to approve the merger of Jet Airways and Etihad.

Bhargava said that the combination of the two airlines sought to “eliminate the competition in the market for inter-national air passengers, which would not only impact the operations of Air India and other domestic airlines but ultimately the consumers who would be left without any choice”.

The COMPAT stated that Bhargava did not have locus standi (the right to be heard). Justice VS Sirpurkar said that the combination had not been objected to by any shareholder, office bearer or by any competitor com-panies, but instead by Bhargava in his private capacity. “Air India, which would have been the most affected person by this combination, has also not chosen to file any appeal against the order,” the COMPAT order stated.

Representing Bhargava, senior advocate Ramji Srinivasan argued that “there would be a likelihood of increase in fares because of two pow-erful airlines coming together”, which would put “an end to the competition”. However, the COMPAT stated that this contention was premature and dis-missed the appeal.

The order comes as a relief to both companies, which have attracted

regulatory scrutiny since the announce-ment of their combination.

Senior advocate Harish Salve was counsel to the airlines. Jet Airways was also advised by UA Rana, Mrinal Mazumdar and Raghav Shankar and Etihad was advised by advocate Rajshekhar Rao along with a team from Amarchand Mangaldas compris-ing partner Nisha Kaur Uberoi, sen-ior associate Abir Roy and associate Shruti Aji Murali.

Balbir Singh and Monica Benjamin, advocates with Dr Shabistan Aquil & Sriraj, represented the CCI on the matter.

In addition to Srinivasan, Bhargava was advised by a team from LEXport including managing partner Srinivas Kotn i , associate par tner Mukul Chandra, corporate lawyer Ajay Yadav and advocate Pradeep.

For more on this case and other competition law matters, see page 48.

COMPAT reverses CCI order

The Competition Appellate Tribunal (COMPAT) has overturned a finding of abuse of dominance against Schott Glass India, a subsidiary of German specialty glass manufacturer, Schott.

In March 2012, the Competition Commission of India (CCI) had imposed a penalty of ̀ 56.5 million (US$940,000), equal to 4% of Schott India’s average turnover during 2007-10 for abusing its dominant position in the market for

Jet-Etihad deal steers clear of turbulence

Competition law

News


Madhuryya cycles for cancer charity

Arindam Madhuryya, an associate at Trilegal, has completed a 1,500-kil-ometre bike ride from Mumbai to Delhi for CanKids, a cancer charity in India. The charity is dedicated to “change for childhood cancer in India”.

Madhuryya’s contribution was a part of CanKids’ month-long initiative “Ghar Se Door Yeh Shehar” (far away from my home is the city where I come for my cancer treatment). He was inspired to raise funds and awareness about can-cer in honour of two loved ones he had lost to the disease.

“My friend lost her godmother to cancer last year and that is when I planned to do a long ride for the benefit of a cancer charity,” said Madhuryya. Instead of looking for sponsorship, he funded the ride himself. “I spent around a lakh (US$1,600) on this ride and am proud to raise a substantial amount from it,” he added.

He began his journey in Mumbai on 15 March and reached Delhi on 23 March. Madhuryya said he was pleased with the quality of the roads as he rode mostly along highways, how-ever, the ride was challenging due to high temperatures during the day. “In order to combat the heat, I was forced to start very early in the morning, often before dawn, and had to rest between noon and 4pm, and then continue until about 7pm to complete my daily quota of about 250 kilometres,” he told India Business Law Journal.

Madhuryya had a narrow escape after being hit by a large truck even before he had left the municipal limits of Bombay. Due to the high speed at which it happened, he remained on his bike unhurt, with only a big dent on his seat-stay. “Immediately my thoughts

went to the people I was riding in mem-ory of, because it was indeed a miracu-lous escape,” said Madhuryya.

The 29-year-old, who is part of the endurance racing circuit in Mumbai,

has taken part in charity rides in the past, one of which saw him raise over £1,600 (US$2,700) for Action Medical Research by cycling from London to Paris in 2012.

neutral USP-I borosilicate glass tubes. The CCI had also directed Schott India to cease and desist from the practice of offering discounts linked to the volume of tubes bought by downstream con-vertors of tubes into ampoules.

The CCI’s decision provided the first glimpse into its interpretation of dis-criminatory pricing as abusive con-duct and cast doubts on the validity

of volume-linked rebate and discount schemes, according to AZB & Partners’ competition team. “By reversing the CCI’s decision, the COMPAT has clari-fied that a rebate/discount scheme would be considered discriminatory only when it results in unequal treat-ment to similar transactions,” the team wrote. “Additionally, the COMPAT has indicated that while examining target-

linked discounts offered by an upstream manufacturer of intermediary products to downstream manufacturers of final products, it is important to examine the effect of target-linked discounts on prices of the final products.”

AZB & Partners represented Schott India before the COMPAT, with senior partner Percival Billimoria acting as counsel.

Community SeRviCe


News

May 2014

Joint ventuReS

Stump spins into joint ventures

Bangalore-based Stump Schuele & Somappa Springs has sold its heavy coil spring business to its subsidiary Stumpp Schuele & Somappa Auto Suspension Systems. It has also sold a stake in the subsidiary to Mitsubishi Steel Manufacturing (MSM) of Japan, forming a joint venture. The joint ven-ture will manufacture coil springs and stabilizer bars.

Stump is part of the MG Brothers Group, a 60-year-old enterprise with businesses in the transportation, agriculture and real estate sectors, auto dealerships and other interests. The company owns 12 plants which produce more than 4,000 varieties of springs for clients such as Ford Hindustan Motors and Tata Motors.

J Sagar Associates advised Stump on the sale and joint venture. It also advised the company on the formation of a separate joint venture with MSM, to be based in Chennai, which will manufacture construction machinery recoil springs.

The JSA team comprised part-ner Mural i Ananthasivan, senior associate Tamara Devanandan and associates Roy George, Rajashree Balasubramanian and Malini Rao.

MSM was represented by Herbert Smith Freehills in Japan and DSK Legal in New Delhi.

people moveS

HSA promotes eight lawyers

HSA Advocates has promoted eight lawyers across its practices, pushing its partner count (including associate partners) to 13.

Pranav Singh from the infrastructure and energy practice and Harsh Arora from the finance practice have joined the firm’s partnership.

Sumedha Dutta from HSA’s corporate M&A practice and Arun Mani from the disputes and infrastructure practice have been made associate partners.

Avinash Khard (finance practice), Anshuman Pande (disputes and infra-structure practice), Pragya Ohri (dis-putes practice) and Mazag Andrabi (infrastructure and energy practice) have become senior associates.

Two more share ELP’s equity pie

Sanjay Notani and Darshan Upadhyay have become equity partners at Economic Laws Practice. Notani is a member of the firm’s international trade and customs practice and Upadhyay is part of the corporate and commercial team.

Managing partner Rohan Shah said

the two lawyers had “built a strong repu-tation for excellence in their practices and client relationships”.

In addition, Economic Laws Practice promoted eight senior associates to associate partners; five associate man-agers to senior associates and nine associates to associate managers. Of the 22 lawyers promoted, 15 are based in Mumbai, three are based in Pune, two are located in Delhi and one each in Ahmedabad and Chennai.

Malhotra returns to OP Khaitan

Nipun Malhotra has rejoined OP Khaitan & Co as a senior partner. Malhotra left the firm in 2007 for the post of vice pres-ident of legal affairs and group general counsel at EIH and later moved to DLF as the senior vice president of legal.

Malhotra brings wide experience on the civil litigation front and while work-ing in a corporate capacity took on roles of business management and development, public relations, labour management, brand protection and land use planning. His practice area specialties include general commer-cial liability, product liability, labour law defence, real estate, hospitality, and dispute resolution.

OP Khaitan managing partner Gautam Khaitan said that the firm was in “expan-sion mode” and was focused on “more lateral recruitments with lawyers of high potential and recognition”.

Hardinge forks out for India stake

Hardinge, an international provider of advanced metal-cutting solutions, has acquired the Forkardt workholding products division of ITW India through a business transfer. The transaction was part of Hardinge’s global acquisition of the Forkardt business of Illinois Tool Works, a US-based pub-licly traded company, for US$34 million.

Hardinge purchased Forkardt’s US, Swiss, German and Chinese busi-nesses in 2013. The Indian leg was completed last month, since this part of the transaction involved the establishment of the Indian purchaser entity as a limited liability partnership, which required prior approval from the Foreign Investment Promotion Board.

Majmudar & Partners managing partner Akil Hirani and associate partner Christopher Krishnamoorthy represented Hardinge on the deal. Phillips Lytle was the company’s US counsel while Higgs & Co offered UK legal advice.

Vaish Associates advised ITW India on the Indian leg of the transaction.

meRgeRS & aCquiSitionS

News


Three new hires at Khaitan & Co

Khaitan & Co has recruited Kartick Maheshwari in Mumbai and Nishant Beniwal and Dibyanshu in New Delhi.

Maheshwari joins the firm as an associate partner in the securities, capital markets and corporate practice. Before moving to Khaitan, he worked at White & Case in Singapore and AZB

& Partners in Mumbai, specializing in cross-border M&A, private equity and restructuring transactions.

Dibyanshu and Beniwal are both join-ing the firm’s energy, infrastructure and resources practice. Dibyanshu comes on board from J Sagar Associates as an associate partner. He advises clients on corporate and commercial law, M&A, and project development issues in the infrastructure area with an emphasis on the oil and gas sector.

Beniwal joins the firm as a counsel.

His past experience includes working at Trilegal, J Sagar Associates and Luthra & Luthra in New Delhi. Beniwal advises regulatory authorities, devel-opers and investors on all aspects of investing, developing and financing infrastructure projects in India. He also advises clients on regulatory issues with respect to power trading, coal-linkages and mining arrangements, statutory permits and consents, land acquisition, the environment and labour welfare legislation.

Banking & finanCe

ReNew secures loan for wind farm

ReNew Wind Energy (Wel tur i ) has obtained a rupee-denominated secured term loan facility from Power Finance Corporation to develop its wind power project in Maharashtra’s Beed district.

The loan, valued at approximately `1.14 billion (US$18.8 million) will be used to construct, operate and main-tain the 25.2-megawatt project.

ReNew Wind Power was established in 2011 by Sumant Sinha, a former COO of Suzlon Energy. The company has other wind projects under development including a 25-MW wind farm in Rajkot, Gujarat, and a 60-MW wind farm in Maharashtra. By 2015 the company aims to reach a 1-gigawatt capacity.

A m a r c h a n d M a n g a l d a s advised Power Finance Corporation, drafting and negotiating the term loan

facility agreement, security docu-ments and other finance documents. The team consisted of partner Jatin

Aneja, principal associate Anoop Rawat, and associates Shreyas Rathore and Sagar Dhawan.

Nishant Beniwal DibyanshuKartick Maheshwari


News

May 2014

intelleCtual pRopeRty

Louis Vuitton makes its mark

Delhi High Court has affirmed that the trademarks of French fashion house Louis Vuitton are “well-known”.

Louis Vuitton had filed a lawsuit against Arif Khatri, the owner of a shop in Lajpat Nagar which was dealing in counterfeit goods bearing the com-pany’s registered trademarks. Louis Vuitton accused Khatri and the shop (named as the second defendant) of dealing in goods which infringed, diluted and damaged its marks and of passing off these goods as those of Louis Vuitton.

On 29 January, the court granted an interim injunction restraining the defendants from dealing in counterfeit Louis Vuitton goods and also appointed a local commissioner to visit the shop and seize all such goods and related documents.

The defendants subsequent ly pledged to refrain from selling coun-terfeit Louis Vuitton goods in the future but initially resisted paying damages. After a hearing on 31 March, Khatri

agreed to pay `300,000 (US$5,000) in damages.

The court noted that the Louis Vuitton logo, the Louis Vuitton word mark and the toile monogram pattern were defin-ing hallmarks of the company and as a result were recognized as well-known trademarks.

Pravin Anand, the managing partner of Anand and Anand, and Udita Patro,

a senior associate at the firm, repre-sented Louis Vuitton.

Praveen Chauhan of C&S Law Offices and Vijay Kumar acted for the defendants.

Louis Vuitton has fought a number of IP battles in India over infringements of its trademarks including one case where it prevailed against parties which imitated its epi-style textured mark.

Tide washes over infringers

Bombay High Court has ordered Zeeshan Haider Sayeed to cease using trademarks, artistic works and deceptive variations of the laundry detergent Tide.

Procter & Gamble, which owns the Tide trademark, and its Indian sub-sidiary filed an action for trademark and copyright infringement as well as pass-ing off against Sayeed and his affiliates. It sought to restrain Sayeed’s use of trademarks which are deceptively simi-lar to Procter & Gamble’s trademarks TDC, Tide (bull’s-eye device) and Tide Nature Fresh.

In addition to awarding an injunc-tion to restrain the use of the infringing material, the court seized all infring-ing products and packaging materials found in Sayeed’s premises. Sayeed submitted to a decree of permanent injunction and the suit was subse-quently disposed of.

Remfry & Sagar represented Procter & Gamble on the case.

The wrap


CoRpoRate law

Companies Act 2013: new rules now in place

The Companies Bil l, 2012, was passed by the Lok Sabha (lower house of parliament) on 18 December 2012 and by the Rajya Sabha (upper house) on 8 August 2013. Following presi-dential assent on 29 August 2013, the Companies Act, 2013, finally came into force, paving the way for the replace-ment of the Companies Act, 1956.

The 2013 act has 470 sections divided into 29 chapters and seven schedules, reducing it from 658 sec-tions divided into 13 parts.

The government notified 98 sections of the 2013 act in September 2013; section 235, dealing with corporate social responsibility, on 27 February 2014; and 183 sections on 26 March. A total of 283 sections are now in effect. The government notified rules for a number of chapters after having considered suggestions and com-ments from various stakeholders. It also introduced a new set of forms that need to be filed with the relevant authorities.

The following 19 chapters and their corresponding rules have been noti-fied, with certain exceptions:

Incorporation of company and •matters incidental thereto;

Prospectus and a l lo tment o f •securities;Share capital and debentures;•A c c e p t a n c e o f d e p o s i t s b y •companies;Registration of charges;•Management and administration;•Dec la ra t ion and payment o f •dividend;Accounts of companies;•Audit and auditors;•Appointment and qualification of •directors;Meeting of board and its powers;•Appointment and remuneration of •managerial personnel;

I n s p e c t i o n , i n q u i r y a n d •investigation;Companies authorized to register •under the Companies Act, 2013;Companies incorporated outside •India;Government companies;•Registration office and fees;•Nidhis (companies which encourage •savings among members and receive deposits from and lend to members only);Schedules I to VII.•For more on the Companies Act, see

story on page 33 and correspondent column on page 54.

Foreign portfolio investors set for regime rollover

The foreign portfolio investments regime in India is set for a rollover on 1 June with both the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) coming out with required amendments to the legal framework.

Earlier this year, SEBI had introduced the SEBI (Foreign Portfolio Investors) Regulations, 2014, which replaced the

SEBI (Foreign Institutional Investors) Regulations, 1995, and harmonized foreign institutional investors (FIIs), sub-accounts and qualified foreign investors (QFIs) into a single investor class.

The RBI has now amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (TISPRO regulations), to reclassify and regulate foreign portfolio investors (FPIs) in India, which include FIIs, sub-accounts and QFIs. A new schedule 2A has been inserted after schedule 2 of the TISPRO regulations to provide for the purchase, sale of shares and/

or convertible debentures of an Indian company by a registered FPI under the FPI scheme.

Paragraph 2(iii) of schedule 2A pro-vides that the total holding by each registered FPI must be below 10% of the paid-up equity capital or 10% of the paid-up value of each series of con-vertible debentures issued by an Indian company. The total holding of all regis-tered FPIs must not exceed 24% of the paid-up equity capital or paid-up value of each series of convertible deben-tures issued by an Indian company. The company can increase the aggregate limit of 24% up to the applicable sec-toral cap or statutory ceiling if its board

Business law digest


The wrap

May 2014

passes a resolution and the company then passes a special resolution.

The RBI has amended schedule 5 of the TISPRO regulations (Purchase and sale of securities other than shares or convertible debentures of an Indian company by a person resident outside India) to introduce a new paragraph 1C, which provides that registered FPIs can purchase certain securities on a repatriation basis. These securities include dated government securities, treasury bills, listed non-convertible debentures, bonds issued by an Indian company, commercial paper, units of domestic mutual funds, etc.

The FII and QFI regimes have been grandfathered and are to be rolled over into the FPI regime.

taxation law

Revised DTC Bill released for public comment

A draft Direct Taxes Code (DTC) Bill, along with a discussion paper was released in August 2009. After consider-ing suggestions from various quarters, a revised discussion paper was released in June 2010, and an amended DTC Bill, 2010, was introduced in parliament in August 2010.

The 2010 bill was referred to the Standing Committee on Finance, which submitted its report in March 2012. The bill has been modified substantially

through the Finance Acts of 2011, 2012 and 2013, and a revised DTC Bill, 2013, has now been released for public comment.

Some of the notable changes are as follows:

Dividend income: A resident with divi-dend income on which dividend dis-tribution tax is applicable will be sub-ject to an additional tax of 10% on the aggregate amount of the dividend where the amount exceeds `10 million (US$160,000).

Higher tax rates: The DTC Bill, 2013, has added another slab (bracket) for income tax. Individuals, Hindu undivided families and artificial juridical persons are taxable at a rate of 35% for income that exceeds `100 million.

Wealth tax: Under the DTC Bill, 2010, only specified unproductive assets were subject to wealth tax. The 2013 bill has widened this to include all assets, physi-cal and financial. The proposed thresh-old is `500 million, and the tax proposed to be levied is 0.25%.

Indirect transfer: Under the 2013 bill, an asset or a capital asset which is a share of, or an interest in, a company or entity registered or incorporated outside India will be considered to derive, directly or indirectly, its value substantially from the assets (tangible or intangible) located in India if the value of those assets repre-sents at least 20% of the fair market value of all assets owned by the company or entity. Under the 2010 bill, the threshold for indirect transfer provisions was 50% of the fair market value of the global assets.

Non-profit organizations: The surplus of non-profit organizations will now be taxable at a concessional rate of 15%, and a basic exemption of `100,000 will also be provided. Further, under the 2013 bill, investments can be made freely by non-profit organizations (with the excep-tion of a few prohibited investments) and not just in specified areas. However, the bill proposes to remove the specific deduction for accumulation and provi-sion for carry forward of deficit.

The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bangalore, Singapore, Sili-con Valley and Munich. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.


The wrap

May 2014

Banking law

Stopping advance payment cheque is not a crime

Is the dishonor of a post-dated cheque issued as an advance payment an offence under section 138 of the Negotiable Instruments Act, 1881?

Allowing an appeal in M/s Indus Airways Pvt Ltd & Ors v M/s Magnum Aviation Pvt Ltd & Anr, the Supreme Court recently ruled it was not an offence, as “there should be legally enforceable debt or other liability subsisting on the date of drawal of the cheque” for criminal liability to be made out under section 138.

Holding that there is a “fine distinction between civil liability and criminal liabil-ity” in section 138, the court ruled that a cheque issued as an advance payment for the purchase of goods cannot be said to have been drawn for an existing debt or liability if the purchase order is cancelled.

Indus Airways placed two orders for aircraft parts with Magnum Aviation and issued two post-dated cheques as advance payment for the orders. One

of the conditions of their contract was that the entire payment had to be made in advance. The cheques were dishon-oured on the ground that Indus Airways had stopped payment. Subsequently, Magnum Aviation received a letter from Indus cancelling the orders and request-ing the return of the cheques.

An additional chief metropolitan mag-istrate, Delhi, issued a summons to Indus Airways. A revision petition followed and

the summons was set aside. However, Delhi High Court restored the summons on the ground that the issue of a cheque at the time of signing a contract had to be considered against a liability.

Overruling the high court, the Supreme Court said that if a condition of the con-tract is breached the purchaser may have to make good a loss occasioned to the seller but that does not create crimi-nal liability under section 138.

taxation

Provident fund account cannot be attached for taxes

In Dineshchandra Bhailalbhai Gandhi v Tax Recovery Officer, Surat, Gujarat High Court recently held that depos-its in a public provident fund (PPF) account are immune from attachment for recovery of tax dues.

In the case, a tax recovery officer (TRO) issued a notice in 2005 under section 226(3) of the Income Tax Act, 1961, to the Salabatpur branch of State Bank of India stating that as the sum of `2,516,790 (US$41,700) was due from Gandhi the amount lying in his PPF account was to be remitted to the TRO.

Gandhi challenged the order before the high court, arguing that under sec-tion 9 of the Public Provident Fund Act, 1968, the amount outstanding in his PPF account cannot be attached for the recovery of tax dues. The TRO defended its action by relying on a Central Board of Direct Taxes circular of 1990 in which it was clarified that section 9 of the Public Provident Fund Act applies only to attachment under a decree or order of a court of law and not to attachment by the tax authorities.

Rejecting the TRO’s contention the high court held that a conjoint reading of three provisions, namely, section 9 of the Public Provident Fund Act, rule 10 of schedule II to the Income Tax Act and clause (ka) to the proviso to section 60(1) of the Code of Civil Procedure, 1908, makes any amount lying in the PPF account of a subscriber immune from attachment and sale for the recov-ery of the income tax dues.

Dispute digest

The wrap


CoRpoRate law

Breach of court undertaking is contempt

Does the breach of undertakings given to a court in the course of agree-ing a settlement amount to contempt of court?

Ruling in Prominent Advert ising

Services v Koutons Retail India Limited Delhi High Court found that “wilful and intentional breach” of undertakings would constitute contempt of court as defined under section 2(b) of the Contempt of Court Act, 1971. The court held that as “dishonouring an undertaking given to the court would amount to a fraud on court and … would inevitably affect the administra-tion of justice”, it naturally follows that “furnishing of an undertaking, being fully aware that there was a reasonable probability that it may not be possible

to comply with the same” would also amount to contempt of court.

Prominent Advertising filed a contempt petition, asking Delhi High Court to pun-ish Koutons Retail for violating an order it had passed. Koutons had failed to pay its admitted debt of almost `49 million (US$812,000) to Prominent Advertising.

Koutons said it regretted the breach of the undertakings and tendered an unqualified apology. It stated that the breach was not deliberate but was due to its deteriorating financial affairs and on account of non-availability of funds.

Delhi High Court found Koutons guilty of contempt of court, holding that Koutons had been well aware that it might not be in a position to adhere to the payment schedule. Koutons had therefore committed a fraud on the court by persuading it to dispose of the winding-up petition on the basis of an undertaking which it knew it was unlikely to honour. However, in view of the apology tendered by Koutons, the court deemed it fit to impose a penalty of `20,000 on each of three respondents.

aRBitRation

Section 8 application held not necessary

Ruling in Sharad P Jagtiani v Edelweiss Securities Limited, Delhi High Court held that section 8 of the Arbitration and Conciliation Act, 1996, merely requires a party to an action before a judicial authority to bring to the notice of the authority that the action being brought before it is the subject of an arbitration agreement.

Ruling on whether a plea in the writ-ten statement suffices to refer par-ties to arbitration, the court took the view that legislative intent required it to interpret section 8 widely and not in “a constricted and pedantic fash-ion”. As such, the court said that “it is the substance of the plea and not the

nomenclature which matters”. Jagtiani had filed suit for recov-

ery of `4,671,768 (US$77,600) from Edelweiss Securities. Objecting to the

suit, Edelweiss argued that the court lacked jurisdiction to entertain it as the parties had agreed to refer any claims or disputes that arose between them to arbitration. Edelweiss submitted a list of documents along with its written statement which included a copy of an agreement between the parties that contained an arbitration clause.

Jagtiani unsuccessfully argued that the dispute was non-arbitrable as the dispute related to rights and liabilities that give rise to or arise out of a crimi-nal offence, on the ground that he had filed a complaint with the police with respect to the same transaction.

Jagtiani also argued that the mat-ter could not be referred to an arbitral tribunal because the parties to the arbitration agreement had not filed an application under section 8 of the act to refer the dispute to the arbitrator.

Rejecting both arguments Delhi High Court said “it is the court which owes a duty to refer the parties to arbitration upon the arbitration being invoked”.

The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at [email protected] or [email protected]. Readers should not act on the basis of this infor-mation without seeking professional legal advice.

Cover story


Intellectual property

May 2014

C hoices over which intellectual property (IP) lawyers to engage in different jurisdictions are among the most important decisions facing IP

owners around the world.In India, IP owners face a bewildering array of lawyers

and other professionals to choose from. They range from sole practitioners to partners at well-known law firms; from regional experts to those more accustomed to strutting their stuff on the global stage; and from technical specialists with skills in various scientific and technological disciplines to litigators whose strengths lie in winning battles in the courtroom.

The exact number of IP professionals plying their trade up and down the country is anyone’s guess. “With the number of young people entering this field in India, it is truly difficult to estimate,” concedes Dev Robinson, an

IP-focused partner at Amarchand Mangaldas. “But were one to look at it from the total number of applications being filed in the Patent Office, litigation and foreign prosecution, I would hazard a guess that about 1,500 professionals could be kept busy. In trademarks this number could be double.”

“I believe the number would be not less than 5,000,” says Santosh Vikram Singh, a partner and head of the IP practice at Fox Mandal in Bangalore.

Others think the number is higher still. “There are at least 7,000 to 8,000 IP attorneys,” says Vaibhav Vutts, the managing partner of Delhi-based IP boutique Vutts & Associates. “How many of these actively pursue IP I am not aware.”

Sudhir Ravindran, the CEO of Altacit Global, notes that 355 trademark agents were listed in 2009 by the

Picking an IP lawyerPractitioners and in-house counsel share their insights on India’s IP

professionals and how to choose among themJames Burden reports

Cover story

India Business Law Journal16


May 2014

Registrar of Trademarks and that 1,540 patent agents are listed in the electronic database of the Controller General of Patents, Designs and Trademarks. He estimates that the total size of India’s IP profession is around 2,800.

Is this headcount sufficient to handle India’s IP needs? Perhaps not.

“India could do with more IP lawyers, especially in the area of patent law,” says Sunita Sreedharan, the manag-ing partner of SKS Law Associates in Delhi.

Rajeshwari, the managing partner of Rajeshwari & Associates in Delhi, concurs: “I think the number of IP lawyers is highly inadequate when compared to the number of users of IP in India.”

Singh at Fox Mandal notes that “it is really tough to find a good IP lawyer in the market if we want to recruit”. But others see no shortage of talent in the profession.

Vikram Grover, the managing partner of GroverLaw, says there are enough IP lawyers in India. He also notes that “the numbers are steadily increasing”.

“I think at present the IP field is oversaturated,” says Vutts.

A mixed bag

The first step in choosing an IP professional is to understand the choices that are available.

A key distinction can be made between patent agents and IP lawyers. Singh explains that patent agents have a technical background that enables them to handle the drafting and prosecution of complex patent applications, for which specialist knowledge of a discipline other than law is normally required.

Patent agents do not need to be lawyers but must pass a qualifying examination set by the Patent Office.

They are also required to hold a degree in a scientific or technical subject (although Madras High Court ruled in March last year that those with a law degree are also eligible to become patent agents).

Arjun Bala, a patent agent at Meta Yage IP Strategy Consulting, explains that while patent agents can repre-sent clients before the Patent Office and the Intellectual Property Appellate Board, a qualified lawyer is required for any cases that go to court.

The choice of that lawyer could not be more important. “Patent law, above all, requires particularly keen lawy-ering skills,” says Robinson. “A lawyer literally makes or breaks a case in patents, as so much depends on articulation.”

Among India’s qualified IP lawyers, more sub-divisions can be made. “In India we have many kinds of lawyers,” says Rajeshwari. “Each is different from the other and while it is possible to make clear distinctions between prosecutors and litigators, the lines between the other categories are quite fuzzy.”

Vutts breaks it down into three broad categories: IP prosecuting lawyers, who handle the drafting and filing of trademarks, patents and other categories of intellec-tual property; IP enforcement lawyers, who typically han-dle local enforcement-related issues, including dealing

I think the number of IP lawyers is highly inadequate when compared to the number of users of IP in IndiaRajeshwariManaging PartnerRajeshwari & Associates

Patent law, above all, requires particularly keen lawyering skillsDev RobinsonPartnerAmarchand Mangaldas

Clockwise from top: Anuradha Salhotra, Lall Lahiri & Salhotra; Tarun Khurana, Khurana & Khurana; Pravin Anand, Anand and Anand; Manisha Singh Nair, LexOrbis; Dev Robinson, Amarchand Mangaldas; Vikrant Rana, SS Rana & Co; Gunjan Paharia, ZeusIP; Mohan Dewan, RK Dewan & Co; Vaibhav Vutts, Vutts & Associates; Prathiba Singh, Senior Advocate; Sunil Krishna, Krishna & Saurastri Associates; Bahram Vakil, AZB & Partners; Shwetasree Majumder, Fidus Law Chambers; Ranjan Narula, Ranjan Narula Associates; Ashwin Julka, Remfry & Sagar; Jatin Trivedi, YJ Trivedi & Co.

The photographs appear in no particular order.

Lucky for someThe following Indian IP lawyers

are pictured on the main image

Cover story



May 2014

with local commissions and authorities and organizing raids; and IP litigating lawyers, who go to court and han-dle contentious matters.

“Usually IP lawyers are either into prosecution or litiga-tion,” notes Sreedharan. “There are very few who handle both.”

Choosing among them

So what should clients look for when selecting an IP lawyer in India?

“When choosing an IP lawyer, a key consideration is whether the lawyer has the expertise to deliver a range of services concerning procedural and administrative issues, prosecution, dispute resolution and documentation,” says Rajarshi Chakrabarti, the vice-president, corporate legal, at Bennett Coleman & Co. “In other words, the emphasis is on identifying a competent team with sufficient experi-ence standing before authorities, domain knowledge and subject specialization in all facets of IP law.”

Chakrabarti adds that it’s “imperative that the team has adequate IT and other relevant infrastructure support to augment its efforts. Another important factor in choosing the lawyer and the team is their exposure to emerging issues such as IP monetization, the valuation of IP and international best practices in IP portfolio management.

“Last but not the least, the lawyer should be cost effec-tive for the company and should have an appreciation of the company’s business culture,” he says.

The choice of an IP firm will depend on the nature of one’s business, says Akhil Prasad, the country counsel for India at Boeing. “For instance, media will have differ-ent requirements than a pharmaceutical or a defence and aviation organization. As in-house counsel, what we look for is expertise in the particular area of business that we are supporting.”

Prasad adds that “India has great legal expertise in

Usually IP lawyers are either into prosecution or litigation. There are very few who handle bothSunita SreedharanManaging PartnerSKS Law Associates

Cover story



May 2014

trademarks and copyrights and is fast developing good capabilities in patents”.

According to Tarun Khurana, a partner at Khurana & Khurana, the top priority is to find a lawyer who can “understand the subject matter very quickly, who is

extremely responsive, and most importantly, very accu-rate in their opinion and assessment”.

Insights into whether a lawyer meets these exacting standards can be gleaned from looking at their previous cases.

Hemant Kumar, the group general counsel at Essar Services, says he has two goals when looking for an IP lawyer: firstly, to find someone who will “work hard, provide superior legal services on a timely, effective and efficient basis, and maintain the highest standards of professional integrity with regard to achieving the goal of obtaining IP certificates and also to protecting the same”; and secondly, “to foster an enjoyable working environ-ment … based on open communication and mutual respect, and to encourage initiative, innovation, teamwork and loyalty”.

Rajeshwari advises clients to look for lawyers “who are efficient and skilled, both in drafting legal documents and in advocacy,” while Singh at Fox Mandal places the emphasis as much on the firm as on the individual lawyer. “The credibility of the firm is very important,” he says. “Clients must look for a firm which has some credibility and not just the cheapest rates.”

Singh adds that turnaround time is another import aspect to consider when choosing a lawyer. “Many Indian law firms are still behaving like typical litigation firms where everything can wait,” he says. “If [clients] do not get a response on time, obviously they will not come back.”

As in-house counsel, what we look for is expertise in the particular area of business that we are supportingAkhil PrasadCountry Counsel, IndiaBoeing

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May 2014

Special relationships

Prabhakar Sastry, the head of legal at Cairn Energy, goes further than Singh and focuses on the law firm more than the individual. “The firm should have good domain experi-ence, both on the legal and technical matters involved,” he says, and “at least a couple of partners of the firm should have good expertise on IP and its processes and also related litigation. [These two partners] should have global experience as well. IP rights often have global exposure”.

Sastry also considers the working relationship he can enjoy with the law firm. “I would like to have a special relationship with the firm so that I can have the privilege of having their assured optimal time and effort for my IP work. There is no point in having the best firm but not being able to work with it closely. IP rights issues are too precious to have the sub-optimal attention of my law firm.”

For Grover, the relationship that can be built with the law firm and the nature of the law firm are equally important considerations. He advises clients to look for lawyers who are specialists in intellectual property and cautions against handing IP work to lawyers whose primary focus is a dif-ferent field of law. His comments reflect the growing trend for general practice law firms to accept intellectual property work even if they do not have specialist IP lawyers on staff.

His words are echoed by Dev Bajpai, the executive direc-tor, legal, at Hindustan Unilever: “I would hesitate to go to a law firm which ‘also’ has an IP practice as against a law firm that specializes in IP,” he says. “This is because IP is

a separate and distinct field and any lawyer practising IP should have great degree of interest and passion for it.”

Bajpai also emphasizes the importance of finding a law-yer who is a forward thinker. “I would look for an IP lawyer who thinks progressively and helps clients in giving sug-gestions in shaping the IP law for the future. In short, an IP lawyer who is thinking in the future and in shaping IP laws with the growth of the businesses.”

IP rights issues are too precious to have the sub-optimal attention of my law firmPrabhakar SastryHead of LegalCairn Energy

Cover story



May 2014

Transparency and honesty

Bala at Meta Yage says that clients should look for lawyers who provide transparency in terms of processes, timelines and fees, and who are upfront and honest about the challenges that will be faced.

Vutts, meanwhile, advises IP owners to seek out law-yers who offer “clarity of thought and advice coupled with reliability and responsiveness”. He stresses that a lawyer’s ability to understand a client’s changing needs is very important, as is “their ability to put their head down and work through a matter”.

While referrals and reputation may provide sufficient grounds for assessing someone’s lawyering skills, gaug-ing their level of technical expertise can prove trickier. Ravindran at Altacit Gobal stresses the importance of ensuring that a lawyer has the necessary technical skills, particularly for patent prosecution work, where specialist scientific or technological knowledge is often required.

He also advises clients to check the team sizes of their chosen law firm, particularly teams in branch offices, to ensure that sufficient resources are available.

Flexibility and adaptability are two more traits that are commonly sought in IP lawyers. “IP law is an ever-changing law, especially in a country like India, where such laws are still developing,” says Ish Bali, the legal director of Coca-Cola India. As such, “an IP lawyer has to be an eager learner with a flexible bent of mind.” Bali continues: “Since IP law is not mere licensing and

research, but also involves litigation, experience as a liti-gator always helps. Besides this, prior experience in the required job area is always an added advantage.”

Problem areas

On the whole, India’s IP profession is held in high regard. “I think Indian IP lawyers are extremely competent and

An IP lawyer has to be an eager learner with a flexible bent of mindIsh BaliLegal DirectorCoca-Cola India

Cover story



May 2014

have a very strong hold on their law and the subject matter involved,” says Khurana.

That said, most observers agree that there are gaps. “India has modern regulations for IP, is a signatory to all major treaties and conventions and possesses good legal expertise to protect IP,” says Prasad at Boeing. “However,

the enforcement of IP related to copyrights and trademarks is an area that needs a lot of focus.”

Grover highlights IP valuation and commercialization as other areas in which India’s IP profession may not be up to scratch, while Ketana Babaria, a director at Babaria IP & Co, notes that patent search and analysis capabilities should be boosted in order to enhance IP protection in the country.

Bala highlights three problem areas: inadequate technical expertise among Indian patent agents and patent lawyers; a lack of counselling and advisory services; and poor drafting and arguing skills. “Lawyers’ competencies are restricted to certain transactions or procedures, but they are unable to look at alternative scenarios,” he says.

Rajeshwari also mentions poor drafting. “I think that IP lawyers in India need to improve their patent drafting skills,” she says, adding that this has been a problem for a long time.

But despite the gaps and the areas in which the supply of talent lags behind demand, the expertise is normally there for those who are prepared to look for it. So, while finding the perfect IP lawyer can be a frustrating process, the best advice for would-be clients is to search hard and not be fooled into accepting second best in the belief that nothing better is available.

The situation in the area of patents is summed up suc-cinctly by Robinson at Amarchand Mangaldas: “Good patent lawyers are still rare,” he says. “It’s not that they are missing, but they are rare.”

The same could apply to IP generally. g

I would hesitate to go to a law firm which ‘also’ has an IP practice as against a law firm that specializes in IPDev BajpaiExecutive Director, LegalHindustan Unilever

Vantage point Opinion


C orporate law firms have emerged as a small but eco-nomically important part of the Indian legal sector in the past 20 years. These firms are seeking lawyers

with different skill sets than those typically possessed by elite lawyers prior to the liberalization of India’s economy. Particularly, in order to satisfy the demands of clients, Indian corporate law firms are keen to employ lawyers who can con-duct rigorous legal research, write clear legal prose, and work on teams with other lawyers. Rather than hiring experienced lawyers, firms turn to fresh law school graduates.

Corporate law firms tend to have relatively little involvement with law schools. Several firms express an interest in stronger participation and believe that these institutions provide inad-equate preparation for complex corporate legal work, but many have no direct involvement aside from conducting on-campus recruitment. As a result, the impact of corporate law firms on law schools has, so far, been indirect.

The primary mechanism through which these firms have impacted legal education is in changing the perception of the profession from low-paying and unattractive to lucrative and glamorous. Corporate law firms have raised demands regarding legal education and law schools have responded to this in different ways.

Legacy law schools associated with historically prestig-ious public universities, such as the Delhi Law Faculty, face significant institutional rigidity and largely retain the same curricula that they have used for decades. Students typically receive minimal instruction in legal writing and research and student assessment consists almost entirely of final exams.

With the possible exception of Government Law College Mumbai, the graduates of top legacy schools are much less likely to secure jobs with law firms than are the graduates of national law schools. Successful legacy schools such as Delhi Law Faculty instead provide a gateway to a successful career in litigation and to positions as judges in the lower courts across the country. The impact of the growth of corporate law firms on legacy schools has been, in large part, to concentrate students who aspire to careers in litigation and the judiciary in such schools.

National law schools took hold as part of India’s legal edu-cation landscape with the opening of National Law School of India University (NLSIU) in 1987. Other national law schools followed in the late 1990s followed by many more in the 2000s. NLSIU broke with how legal education had previ-ously been conducted. NLSIU incorporated significant legal research and writing requirements into its curriculum and required its students to undertake internships during their breaks. These curricular innovations were not designed to cater to the needs of law firms, however, combined with the

school’s success in attracting high quality students, they made NLSIU graduates attractive to law firms as the legal market boomed in the late 1990s.

Today, a majority of students graduating from NLSIU, National Academy of Legal Studies and Research, National University of Juridical Sciences, and National Law University Jodhpur are able to snap up many of the available corporate legal jobs with law firms and in-house legal teams. However, as competition has emerged from younger national law schools and private law schools, the oldest and most estab-lished national law schools have responded by increasing their offerings in areas of law important to corporate legal practice and partnering with prestigious law firms to sponsor moot courts or send partners to teach compressed courses.

Many prospective law students aspire to careers with corporate law firms but only a small percentage are able to secure admission to a national law school. In response to this demand, a new breed of private law schools has surfaced in the past decade, aggressively jostling to position their stu-dents for jobs with corporate law firms in a bid to displace the handful of schools that presently dominate recruitment by corporate firms. Schools such as Jindal Global Law School (JGLS), Amity Law School, and Symbiosis Law School market themselves as more flexible and innovative than public law schools and therefore as better able to produce graduates with the skills demanded by the corporate legal sector.

JGLS, for instance, has tied up with foreign universities, signed agreements with international and Indian law firms to provide internships to students, and established a profes-sional career services office, something that exists at few if any legacy law schools and national law schools.

As the number of private and national law schools contin-ues to grow, we should expect to see increasing competition among them to groom and place their graduates with law firms. Many managing partners of law firms say that they want closer connections with law schools. In the coming years, they are likely to have the opportunity to develop such connections, however, they will need to devote more time and resources to relations with these institutions if they hope to more directly influence the shape of legal education in India. g

Corporate law firms have raised demands regarding legal education. Now they should play a greater role in shaping it, argues Jonathan Gingerich of the University of California

Back to school

Jonathan G inger ich is a lawyer and a PhD student at the University of California, Los Angeles. He can be contacted at [email protected]. This article is based on research he conducted with Nick Robinson as part of the Harvard Law School Program on the Legal Profession’s initiative on Globalization, Law-yers and Emerging Economies. Their f indings are avai lable at http://ssrn.com/abstract=2398506.ucla.edu.

Co-published feature Spotlight


Head to head

In a collaborative feature to coincide with the 136th annual meeting of the International Trademark Association, a Chinese and an Indian IP firm have

joined forces to provide a side-by-side comparison of

trademark regimes. India analysis, provided by Anand and Anand, can be found on the left-hand pages, while China coverage, provided by Wan Hui Da, is on the right-hand pages.

A comparison of Indian and Chinese trademark law

Spotlight


Co-published feature

May 2014

T he Indian legal system comes under frequent criticism for various reasons – systemic delays being among the top reasons, followed by corruption in enforcement

bodies and the lower judiciary. Delays particularly haunt those foreign entities that have not until recently had India on their map.

An outstanding aspect of India’s legal system is that it affords the same protective rights to citizens and domestic legal entities as it does to foreign individuals or legal entities under its IP laws.

Evolution of the legal system

Indian courts have incorporated the principle of trans-border reputation in trademark law jurisprudence and granted countless foreign trademark right owners wide protection for their brands, often in the absence of even a trademark regis-tration in India, and frequently without use of the trademark in the Indian market. Indian courts have protected these trade-marks on broad principles of equity and the desirability of upholding good business ethics under the law of torts.

There are adequate opportunities in India’s legal system to remedy an incorrect decision or wrongly laid down law. The writ jurisdiction of the courts under the constitution is a pow-erful tool for any person to seek an effective remedy against acts of arbitrariness, inaction and/or negligence on the part of government authorities, and this has come to the aid of many foreign entities with a grievance against the authorities estab-lished under IP laws.

The primary legislation on trademarks in India is the Trade Marks Act, 1999, along with the Trade Mark Rules, 2002, which contain the rules and procedures for the implementa-tion of the substantive law. There are other statutes that are relevant for trademarks and their application, such as the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, under the Customs Act, 1962, which provides for the enforcement of trademark rights by customs authorities.

India completed its accession to the Madrid Protocol in July 2013, a move that is expected to greatly benefit brand owners and attract higher trademark filings in India through a simplified, consolidated application. India is also a signa-tory to the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and a longstanding member country of several World Intellectual Property Organization-administered treaties.

The mark: Protecting or challenging

Registrable marks

Words, logos, three-dimensional shapes, textures, colours and sounds are all capable of being protected as trademarks in India. For instance, the shapes of Gorbatschow Vodka bottles, Ferrero Rocher chocolates, the red sole signatures of Christian Louboutin footwear, the shape of the Zippo ciga-rette lighter and the Louis Vuitton Epi leather design were all

found to meet the standards of distinctiveness under Indian trademark law, and recognized as trademarks.

Unregistered marks

Unregistered marks are entitled to protection under the tort of passing off. Passing off has also been statutorily recog-nized under section 27(2) of the Trade Marks Act. Passing off is established through evidence of reputation and goodwill; priority in use and adoption form the criteria for ownership. A large number of foreign unregistered marks that have a trans-border reputation in India have been protected by the courts.

Timeline of registration procedures

A registration process without objections from the Trade Marks Registry and opposition from any third parties can take 12-15 months for the stages of filing, examination, hearing, advertisement, and issuance of certificate. The procedure involves the following steps:

Filing of application, where the applicant indicates its a. intention to register a mark for a specific class of goods or services;Examination – the examiner issues a report containing b. objections under grounds of absolute and relative refusal, if any, which can be contested by the applicant within one month of issuance of the report;Publication – after all objections are satisfactorily cleared c. by the applicant, the mark proceeds to publication in the Trade Marks Journal within six months of a written reply or hearing of the applicant;Opposition – within four months of such publication, d. any person may oppose the registration of the mark on grounds laid down in the statute. The Trade Marks Registry takes up the opposition for hearing, depending on its roster and backlog of pending cases;Registration/rejection – if the opposition is dismissed or e. the mark is unopposed, it proceeds towards registration. Alternatively, the application is rejected upon a successful opposition;Rectification/cancellation – after grant, the mark can be f. challenged by an aggrieved party and/or cancelled by the registrar on the grounds of being wrongly granted or wrongly remaining on the register, or of non-use within a prescribed period under the statute.All orders of the Registrar of Trade Marks are appealable to

the Intellectual Property Appellate Board.

Obligations on use of a trademark

Section 47 of the Trade Marks Act provides for the removal of the trademark from the register of trademarks on the ground of continuous non-use of the mark for a period of five years from the date of the issuance of the registration certificate up to three months before the filing of an action for removal or rectification of the mark.

India’s massive market beckons for your marque, but read what Pravin Anand, Binny Kalra and Kirti Balasubramanian have to say before you take the plunge. Familiarity with the system,

the law and how it is enforced is a definite advantage

P26

Spotlight



May 2014

A fter years of fumbling, adapting, learning and accu-mulating experience, especially since its reform and opening up, China is finally managing to set up a

complete legal system for the protection of intellectual prop-erty (IP) rights.

In order to bring its legislation up to an international standard, China has participated in most of the international treaties on trademarks, including the Paris Convention for the Protection of Intellectual Property, the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), the Madrid Agreement Concerning the International Registration of Marks, etc.

Evolution of the legal system

The Trademark Law is the backbone to the system, and needs to be construed with the Implementing Regulation of the Trademark Law, the Regulations for Recognition and Protection of Well Known Trademarks, the Measures for the Implementation of the Madrid Agreement Concerning the International Registration of Marks, etc. Apart from these, the Supreme People’s Court (SPC) has issued several judi-cial interpretations on issues concerning the trial of trade-mark cases. The volume of trademark cases filed in China has increased, year after year.

Recently, China enacted the third revision of its Trademark Law, which entered into effect on 1 May 2014. This article, based on the new Trademark Law, addresses the major points on the registration and protection of a trademark in China.

The mark: Protecting or challenging

Registrable marks

The revised PRC Trademark Law removes the restriction of the word “visual” and gives an example of a non-visual sign: sounds. This word is followed by “etc.”, which implies that the door is theoretically open for other non-visual signs.

Prohibition of registration and use in bad faith

The law introduces “good faith” as a general principle in article 7.1: “The application for registration and the use of a trademark shall be made in good faith.” Article 15.2 pro-vides a practical example of bad faith: “Where … the appli-cant has contractual or business contacts, or other rela-tions other than (being the agent) with the prior trademark user, so that the applicant definitely knows the existence of this person’s trademark, if this person files opposition, the applied trademark shall not be registered.”

Time limits for CTMO and TRAB procedures

In order to shorten the registration process and the various trademark-related procedures before the China Trademark

Office (CTMO) and the Trademark Review and Adjudication Board (TRAB), the law introduces time limits, such as nine months for the examination of a trademark, nine months – plus a possible extension of three months – for the TRAB to review the decision, or 12 months – plus a possible exten-sion of six months – for deciding on an opposition.

Opposition procedure

In order to limit the number of oppositions, the law pro-vides that oppositions may only be raised by “a prior right owner or interested party” if based on relative grounds. However if an opposition is raised on absolute grounds, it may be raised by “any person”.

The main change introduced by the law is that when an opposition is rejected by the CTMO, the trademark is immediately approved for registration and the only recourse is to file an application to declare the trademark invalid with the TRAB. Before the recent revision, the oppo-nent could appeal to the TRAB for revision of the decision. This is now not possible.

This is not without serious concern, in particular in view of the SPC opinions regarding the assessment of the similarity between two marks. According to the SPC, when assessing the similarity of two trademarks the judge should take into account the reputation of both trademarks: the “senior” registered trademark and the “junior” trademark. Therefore, even though the junior trademark is subject to invalidation, it is allowed during the procedure to develop a reputation, which the judge will take into account in the decision.

Reputation gained overseas

Whether the reputation gained overseas can be consid-ered to support an opposition is still not clear, as the law does not specify. In a 2005 case (Ferrero), the SPC admit-ted that reputation gained outside of China could support a case based on the reputation of a product (under the Anti-unfair Competition Law).

Keen to burnish your brand in the China market? Bai Gang, Huang Hui and Paul Ranjard set the scene with all you need to know.

Amendments to the Trademark Law and how it is enforced are key to understanding China’s system

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2.0

1.5

1.0

0.5

0

Trademark applications in China(Million)

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May 2014

Ownership changes and rights transfers

Both registered and unregistered marks can be assigned and transmitted on the condition that they do not create mul-tiple exclusive rights, and all such transactions are governed broadly by the Indian Contract Act and the Specific Relief Act. A registered trademark is assignable in respect of all or a part of the goods or services for which the mark is registered.

Related rights

In India, a single object/good/service can be the subject matter of multiple forms of IP protection, subject to the fol-lowing express exclusions for overlapping subject matter:

The definition of design excludes trademarks and copyright a. in artistic works;If an object is a registered design or is mass produced, the b. copyright in the design is extinguished.

Online issues

India has formulated a specific “.in” domain name dispute resolution policy, which enumerates the terms and conditions applying to disputes pertaining to “.in” and “.co.in” domain names. Indian courts have recognized and innovatively tack-led issues of domain name trafficking, hyperlinking, meta-tagging, framing, phishing, etc., by the creative intersection of domain name policy and the law of trademarks.

Trans-border reputation

The concept of trans-border or spillover reputation of for-eign trademarks was recognized by Indian courts in the early stages of the development of Indian trademark law, as far back as the 1980s. The essence of the concept is captured in section 35 of the Trade Marks Act, and serves to highlight that brand goodwill and reputation are adequately protected.

Well known trademarks

When a mark is recognized as “well known” in India, it enjoys protection against deceptively similar or confusing marks that may be applied for across all classes of goods and services. The criteria for a mark to be recognized as well known by a court of law have been laid down in sec-tion 11(6) of the Trade Marks Act. The Trade Marks Registry provides a register of well known marks on its website.

Enforcement: Where authorities step in

Administrative procedures

There are no procedures where the Ministry of Commerce and Industry may take an action to fight against trademark infringement ex officio at the request of a trademark owner or an interested party. The Office of the Controller General of Patents, Designs and Trademarks comes under the purview of the Department of Industrial Policy and Promotion, within the Ministry of Commerce and Industry. Infringement and passing off actions can only be instituted before law courts.

Criminal procedures

Falsifying a mark is an offence under section 103 of the Trade Marks Act, and a criminal action may be instituted

against the infringer or counterfeiter. Criminal actions may be instituted in the following ways:

Police complaint – after the complainant lodges a a. complaint, the police must obtain a clearance from the Registrar of Trade Marks. After clearance, the police may raid the premises of the infringer and seize goods, following procedures under the criminal code to finally convict the infringer;Complaint before a magistrate’s court – upon a complaint b. being entertained by the magistrate’s court, the judge may order search, seizure and/or investigation of the alleged infringer. Thereafter, charges are framed and the matter proceeds to trial for conviction of the infringer.

Border enforcement

The Intellectual Property Rights (Imported Goods) Enforcement Rules were promulgated by the central govern-ment in 2007. Under these rules, a right holder can register its work, invention, trademark, etc., with the customs authorities and request that the authorities seize any goods deemed to be infringing. The authorities must ensure that the infringer is given sufficient notice to defend itself. Upon a determination that the goods detained or seized have infringed IP rights, the customs authority is authorized to destroy the goods.

The courts: How they work

India’s courts are witnessing a significant rise in lawsuits for infringement of IP rights. India has four high courts with original side jurisdiction – namely Delhi, Mumbai, Kolkata and Madras – that can entertain infringement lawsuits in the first instance, in addition to district courts. On average, Delhi High Court handles 600-800 lawsuits a year, which is 70% of the IP-related litigation in India.

Special IP tribunals

Infringement actions are heard by general law courts and there are no special IP courts in India. The Intellectual Property Appellate Board, however, hears and decides appeals from the order or decision of the Registrar of Trade Marks, which until 2003 was under the jurisdiction of the high courts. The appellate board can also entertain rectifi-cation petitions seeking cancellation of trademarks.

E-courts

Key functions of courts – such as case filing, allocation, registration, case workflow, orders and judgments – are now IT-enabled. Cause lists, case status, orders and judg-ments are available on the internet and accessible to liti-gants, advocates and the public. Delhi High Court has also begun digitizing entire case records and documents for easy access by judges and litigants.

Fast track trials

Measures such as “fast track trials” and recording of evidence by way of videoconferencing are hallmarks of IP litigation at Delhi High Court. Fast track trials envisage completion of various stages of a suit within a prescribed period of time, which is fixed by the court. There have been instances where strict timelines have been ordered at the stage of admission of the suit in the very first hearing. P28

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May 2014

Well known trademark

For recognition of the well known status of a trademark, the law adds a condition: it may only be determined “where the recognition decision is a necessary fact of the case”. The reason behind this restriction needs to be clarified. It seems that well known trademarks should be recognized on a case-by-case basis and follow the “principle of pas-sive protection”.

On the other hand, the law introduces a very welcome prohibition concerning well known trademarks: “The manu-facturer or operator is not allowed to use the ‘well known trademark’ expression on the commodities, the commodity packages, the containers, or in advertisements, exhibitions or other commercial activities”. This should discourage lots of applications and might facilitate, a little, the recognition of foreign trademarks that used to account for around 1% of the well known trademarks recognized by the Chinese authorities.

Trademark licence recordal

Where a registered trademark is licensed, the licensor should record the trademark licence with the CTMO, and the trademark office will make publication. It is not compul-sory, but if the licence is not recorded, it cannot be claimed against a third party of good faith. In this respect, the new law has clarified that the licence itself, and not the entire agreement, needs to be recorded.

Enforcement: Where authorities step in

Administrative enforcement

The law aims to raise the level of penalties against infringers, with a special mention, for the first time, con-cerning repeat offenders (see table above right).

Criminal procedures

Criminal procedure only applies in cases of counterfeit-ing, i.e. where the trademark is identical, or almost identi-cal. In addition, a certain threshold needs to be reached – RMB50,000 (US$8,000) for one trademark or RMB30,000 if several trademarks are counterfeited. The procedure usually starts with an investigation and a raid conducted by the Public Security Bureau (police). Customs and the Administration for Industry and Commerce will also transfer cases to the Public Security Bureau for investigation when large quantities are involved.

After the first investigation by the police, the case is transferred to the People’s Procuratorate for public prosecution. All along, the trademark owner needs to be active and assist the police with all the necessary infor-mation gathered through its own prior investigation. It is then advisable to follow up the case before the People’s Procuratorate, and be present during the criminal hearing before the court.

Trademark holders can also directly initiate criminal pro-ceedings before a court without the involvement of the pub-lic security organs (police) or the People’s Procuratorate. However, this direct procedure is extremely rare and, in any event, when the case is considered as presenting serious danger to public order and state interests, it should be initi-ated by the People’s Procuratorate.

Circumstances Administrative penalties

Turnover > RMB50,000 Penalty not more than five times

Turnover 0 to RMB50,000

Penalty not more than RMB250,000

Repeat offender within five years

Heavier punishment

The penalties for trademark crimes include fixed-term imprisonment of less than three years and/or a fine where conditions are “serious” or the sales are “large”, or impris-onment of three to seven years where the conditions are deemed “extremely serious” or the sales are “huge”.

Customs protection

In China, customs controls the flow of goods for the protection of IP rights, during both import and export. There are two ways to obtain protection – supply all rel-evant information in advance and ask customs to detain a suspicious shipment, or record one’s right with the General Administration of Customs in order to benefit from the ex officio actions of customs.

One of the most controversial issues is the situation of original equipment manufacturers, i.e. where the entire production of goods made in China is exported. In recent years, some jurisdictions have decided that with goods bearing a trademark that belongs to a third party in China, the fact that they are exported and therefore not sold on the Chinese market means there is no infringement committed in China.

If such decisions were to be confirmed – the SPC is pre-paring an analysis of this issue and is expected to deliver a decision in the near future, in the Petul case – customs might lose the power to protect IP rights on export.

The courts: How they work

Special IP tribunals

Civil trademark disputes are heard at the first instance level by IP tribunals of the intermediate people’s courts, or in some jurisdictions by basic courts designated by the SPC. Administrative litigation – appeals from decisions made by the TRAB – is handled by the IP tribunal of the intermediate people’s court in Beijing.

The SPC is conducting research and will, in the near future, decide whether and how specialized IP courts could be set up with total jurisdiction over all IP rights matters.

Pre-trial measures

Injunctions and pre-trial property preservation: An IP rights owner who can prove that failure to stop an infringe-ment promptly would cause irreparable damage to his/her legitimate rights and interests may file, before instituting legal proceedings, an application with the people’s court to obtain an order for immediate cessation of the infringing activity. The IP rights owner may also apply for property preservation before filing a lawsuit, subject to paying a bond.

Pre-trial evidence preservation: Where the evidence risks being destroyed, or it would be impossible to obtain it later, the trademark registrant or any interested party may, P29

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May 2014

An innovative feature of fast track trials is the appointment of court commissioners, usually retired judges or other senior officers of the court, who are assigned the responsibility to record evidence within the prescribed period, which may be as short as three to six months. Recording of evidence by court commissioners allows parties to conduct the trial at their convenience, instead of relying on the roster of sitting judges for available dates.

Recording evidence via videoconferencing

Delhi High Court has also allowed recording of evidence – primarily the process of cross-examination – by vide-oconferencing. This is especially relevant and useful for for-eign litigants and/or rights holders who are unable to travel to India to depose their evidence. The court has developed a robust set of guidelines to safeguard the interests of both litigating entities. In effect, a right holder today can reason-ably expect its lawsuit to conclude within three years.

Jurisdictional advantages

Certain IP statutes have given due recognition to the predic-ament of a right holder chasing after pirates. Section 62(2) of the Copyright Act, 1957, and section 134(2) of the Trade Marks Act provide the right holder/plaintiff can institute the suit in the place where the plaintiff actually and voluntarily resides, carries on business, or works for gain. These provisions are crucial given the nature of counterfeiters, who often escape detection or flee upon the institution of an infringement action.

Quia timet jurisdiction

Courts in India may entertain suits based on the “reason-able apprehension of injury or harm” held by a right holder. As recently as November 2013, Delhi High Court held that the degree of apprehension necessary to grant a permanent injunction in a suit based on such apprehension can only be determined after a trial has been conducted in the matter.

In the meantime, in patent suits, where there is no presump-tion of validity and the defendants are yet to commence their infringing activity, a status quo order has been granted on numerous occasions. In trademark matters, Delhi High Court has passed numerous orders granting interim injunctions restraining any possible infringing activity of the defendants during the pendency of the suit.

Game-changing jurisprudence

Indian courts are poised to explore new paradigms of protection. As pirates get more creative, colours, shapes, celebrity rights and internet service provider liability regard-ing sponsored “adwords” have come under the scanner.

Damages and compensation

Damages awarded in India are usually compensatory, but can also be punitive or exemplary. The culture of awarding damages began to be seen in 2005, and now damages to the equivalent of up to US$100,000 have been awarded.

Preliminary injunctions

Indian courts are inclined to grant preliminary injunc-tions against alleged infringers or counterfeiters in lawsuits

for infringement and/or passing off, upon being satisfied that there is a prima facie case, balance of convenience in favour of the plaintiff, and the likelihood of irreparable injury if such a relief was denied.

Anton Piller orders

These orders were first introduced in India in the con-text of piracy of broadcasts by unnamed cable operators, gradually including the rampant piracy of software and counterfeiting of luxury brand products, until the present, where courts issue commissions for search and seizure of infringing goods belonging to named and/or unnamed defendants for a variety of infringement actions.

Over the years, tangible successes have been achieved in the anti-counterfeiting campaigns of brands such as Louis Vuitton, Hermes, Chanel, Cartier, Microsoft, etc., leading to timely seizures of goods of unnamed counterfeiters and send-ing a strong message to the market, categorically indicating low tolerance of counterfeits.

John Doe orders

Popularized as Ashok Kumar orders in India, Indian courts have gradually come to pass interim injunctions against unnamed defendants in recognition of the rampant counterfeiting prevalent in the country. They have allowed right holders the flexibility to tackle even the covert infring-ers who would escape detection in the absence of such blanket protection.

Writs and other constitutional remedies

Orders of various governmental authorities under the Indian Intellectual Property Office can be challenged before a writ court seeking extraordinary remedies such as writs of mandamus and certiorari. The high courts in India, capable of entertaining such petitions, have over the years recognized the urgency and importance of IP to the business of the rights holder. Numerous writs filed by rights holders have yielded results, in that government authorities have been directed to remedy any arbitrary, unreasoned or capricious orders.

Alternative dispute resolution

Alternative dispute resolution (ADR) mechanisms such as mediation, conciliation, etc., have received statutory recog-nition under India’s Code of Civil Procedure, 1908, under section 89 and order 10 rule 1, after the code underwent dramatic amendments in 2002. These provisions cast a duty on the court to encourage settlement between parties by means of ADR methods. In 2006, judges were trained and exposed to progressive models of early neutral evalu-ation, plea bargaining and mediation.

The Delhi High Court Mediation Centre is estimated to have a 70% success rate with a significant number of mat-ters being referred to it daily. The experience of rights hold-ers has been that as the courts’ awareness and expertise increase, defendants are increasingly unwilling to suffer damages or adverse decrees. g

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Pravin Anand is the managing partner of Anand and Anand, where Binny Kalra is a senior partner and Kirti Balasubramanian is an associate. The authors can be contacted at [email protected].

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May 2014

before instituting legal proceedings, request the people’s court to take measures to preserve evidence.

Plaintiff’s burden of proof

The new law prescribes in article 63.2 that the judge may order the defendant to submit elements of evidence, such as account books, that are in his or her possession and “where the infringer refuses to provide such informa-tion or provides false information, the people’s court may determine the amount of compensation at its discretion by taking into account the claims and the evidence submitted by the infringed”.

Expert witness and survey evidence

The revised Civil Procedure Law introduces the concept of “person with expertise” in article 79, which provides that upon request of a party, the people’s court may notify a “person with expertise” – commonly called as an “expert”, an “expert assessor”, or a “judicial expert” – to appear in court and offer an opinion regarding an “identification opinion” issued by an “identifier”, or regarding a technical issue.

In a recent guideline, the Beijing Higher People’s Court provides that in order to bring evidence of likelihood of confusion between two marks, both parties may submit survey reports concerning their position in the market.

Damages and compensation

The new Trademark Law increases the financial compen-sation for trademark infringement by specifying, in article 63, the calculation standards for civil compensation in trade-mark infringement cases. Article 63 is a three-part system:

The calculation methods are in the following order:1. • theactualdamagesthattherightholderhassuffered

from the infringement; • theprofit that the infringerhasearnedthroughthe

infringement;• areasonablemultipleoftheroyaltythattheinfringed

registered trademark might have earned, which is a welcome new provision;

When the circumstances are serious, an amount of 2. compensation not more than three times but not less than the amount calculated by the preceding approaches; andA statutory damage, when no calculation is possible, 3. with a maximum of RMB3 million.

Strengthen the obligation to use

The new law adds to the definition of use a reference to distinguishing the origin of the commodities as per article 48: “affixing trademarks to commodities, commodity pack-ages or containers, as well as commodity exchange docu-ments or using trademarks in advertisements, exhibitions and other commercial activities to distinguish the origin of the commodities”.

Consequences of non-use

Revocation: If a trademark is not used for “three con-secutive years without proper reason, any entity or indi-vidual may file an application with the Trademark Office for the revocation of the registered trademark”.

No Compensation: If the trademark owner cannot prove having used the trademark within the last three years “the accused infringer shall not be held liable for compensation”. g

P27

Bai Gang is the founding partner of Wan Hui Da, where Huang Hui is a senior partner and Paul Ranjard is of counsel. The authors can be contacted at [email protected].

Head to head: a comparison of Indian and Chinese trademark law is a joint initiative by China Business Law Journal and India Business Law Journal, in partnership with Anand and Anand and Wan Hui Da.

Anand and Anand is a leading intellectual property law firm based in New Delhi, India. The firm was a recipient of India Business Law Journal’s Indian Law Firm Award, 2013, in the category of intellectual property.

Wan Hui Da is a leading intellectual property law firm based in Beijing, China. The firm was a recipient of China Business Law Journal’s China Business Law Award, 2013, in the category of intellectual property.

Anand and AnandFirst Channel Building

Plot No. 17 A, Sector 16 AFilm City, Noida – 201 301 (UP)

IndiaT: +91 120 4059300F: +91 120 4243056

E: [email protected]: Pravin Anand, Managing Partner

Wan Hui Da2F, Yiyuan Office Building, Friendship Hotel

No. 1 Zhongguancun Street SouthHaidian District, Beijing – 100 873

ChinaT: +86 10 6892 1000 (Ext. 202)

F: +86 10 6894 8030E: [email protected]

Contact: Bai Gang, Founding Partner

Spotlight


Commercial risks

May 2014

I n June 2013, exceptionally heavy rain in the north-ern Indian state of Uttarakhand washed away roads and bridges. Around 5,000 fatalities occurred, many

thousands were left stranded, and the cost to the local economy was colossal.

As most commentators pointed out, this was a disaster waiting to happen. Yet no steps had been taken to prevent it. Worse still, as the events unfolded it was evident that the state machinery had no quick response plan in place.

Sobering evidence

Uttarakhand has significant investments in both hydro-electric power and tourism. Companies operating in these areas needed to have in place sufficient risk miti-gation measures to deal with all eventualities, but most reports suggest that they didn’t.

One study calculated the loss to Uttarakhand’s tour-ism industry on account of the floods in 2013 at around

Commercial hazards

Managing risk requires an understanding of the changing dynamics of the environment in which a company operates

S Ramaswamy explains

Spotlight


Commercial risks

May 2014

Commercial hazards

`12 billion (US$200 million). It appears that the state economy will take years to recover. While in past years tens of thousands of pilgrims travelled to the main tem-ples each May for ceremonies to mark the beginning of the pilgrim season, there were reports that only around a hundred pilgrims would travel this year to the opening of the temple at Kedarnath, which is one of four major Hindu sites in Uttarakhand.

While the state and central governments shoulder some of the responsibility in cases such as this, companies – particu-larly those that are answerable to shareholders – need to do their best to secure their businesses against risks posed by natural disasters and other untoward incidents.

This article discusses how to identify risks and how to prevent and mitigate the risks identified for the benefit of all concerned, in terms of employees (human capital), material resources, inven-tory, infrastructure, etc.

New-age risks

I n t o d a y ’s e n v i r o n -ment businesses are often exposed to prev ious ly unknown risks that know no national boundaries and may be difficult, if not impos-sible, to protect against. In addition to risks posed by environmental disasters as described above, compa-nies need to focus on so-called new-age risks such as terrorism, fluctuations and downturns in the global economy, fast-spreading infectious diseases, cyber warfare, business espio-nage, etc.

As pointed out by Pinkerton

and the Federation of Indian Chambers of Commerce and Industry (FICCI) in India Risk Survey 2014: ”there is a grow-ing need for acknowledging the risks that find their way into the corporate sector owing to advancement in tech-nology and rise of competition. These risks are apparent through the failures of some of India’s popular brands and the multitude of scams that have caused losses amounting to billions.”

The Pinkerton-FICCI survey shows that perceptions about the relative importance of specific risks are con-stantly changing. Among 12 prominent risks, “corruption, bribery and corpo-rate frauds” emerged as number one in 2014, up from number four in the 2013 survey. The change is attributed to the unravelling of scams and frauds in both the public and private sectors.

At number two, “strikes, closures and unrest”, the number one risk in 2013, continues to com-mand serious concern. “Political and governance instabil-ity” was the number three risk in 2014, down from number two a year earlier, suggesting that the current elections are of ongoing concern to corporate India.

Food for thought

It is necessary to monitor risks and trends on a regular basis and to amend risk management strategies regularly to address significant changes in the business landscape.

Risk entails uncertainty and unless the factors that trig-ger the risk are understood, analysed and given proper

Overall risk ranking

0 2 4 6 8 10 12(%)

10.169.85

9.579.51

9.018.93

8.487.63

7.046.776.66

6.40

Corruption, bribery & corporate frauds

Strikes, closures & unrest

Political & governance instability

Crime

Information & cyber insecurity

Intellectual property theft

Accidents

Workplace violence & sexual harassment

Business espionage

Terrorism & insurgency

Natural hazzards

Fire

Source: Pinkerton-FICCI India Risk Survey 2014

Top-ranking risks rated by major industrial sectors in India

Sector Top risk 1 Top risk 2 Top risk 3Manufacturing Intellectual property

theftStrikes, closures and unrest

Political and governance instability

IT enabled services

Information and cyber insecurity


Strikes, closures and unrest

Security services providers


Corruption, bribery and corporate frauds


Education Corruption, bribery and corporate frauds


Workplace violence and sexual harassment

Financial services

Information and cyber insecurity



Government/Public sector undertakings




Infrastructure Corruption, bribery and corporate frauds


Business espionage

Source: Pinkerton-FICCI India Risk Survey 2014

Spotlight


Commercial risks

May 2014

attention by companies financial loss or physical injury can result. The failure to appreciate risk can also impact the company’s reputation and competitive position.

Managing a company’s risk is about applying policies and procedures in order to: (a) identify, analyse and assess risks, including identifying the source of the risk and antici-pating its impact; (b) determine the degree of exposure to risk that the company can accommodate; (c) formulate a plan to mitigate the risks; (d) identify and implement strate-gies to avoid the risks and any resultant litigation, loss of reputation or injury; and (e) regularly reassess and adjust strategies to deal with changes in risk levels.

Strategies devised need to consider risks that are rel-evant to the particular sector in which the company oper-ates (see table on page 31 for a list of top-ranking risks as rated by major industrial sectors).

An ongoing exercise

Risk management must be ongoing to be effective. Communication with those in the field and at the manage-ment level is vital, as is periodic training on risk manage-ment trends and compliance for all concerned.

The following pointers can assist companies to put together an effective risk management regime:

Build the annual risk assessment exercise into the •company’s compliance programme.Put in place stringent protocols for screening all new •business partners and third party agents.

Update policies, procedures and training material based •on changes in risk perceptions. Establish a regular monitoring system to spot problems •and address them.All of this entails inherent challenges. A Global Emerging

Risks Survey published by the Financial Times states: “It is difficult to identify and analyse emerging risks, in large part because of their inherent characteristics.”

The survey found that while decision makers per-ceive emerging risks as potentially significant, these risks may not be fully understood. In addition, while the consequence of such risks cannot be clearly defined in monetary terms, “conventional approaches to project-ing their relative frequencies, their probability distribu-tions over time, as well as the severity of the resulting losses and other consequences may be ineffective”. The survey also points out that the challenge is to establish causality between the source of the emerging risk and its consequences.

John Ruskin, a leading art critic of the Victorian era, said: “What is the cheapest to you now is likely to be the dearest to you in the end.” These wise words should guide every company as it puts in place strategies to meet risks. g

S Ramaswamy is vice president and group general counsel at Escorts, an engineering and construction equipment company based in Faridabad, India.

What’s the deal?


Companies Act

May 2014

M inority shareholders at Maruti Suzuki India, the country’s leading car maker, recently won a victory of sorts. On 15 March the board of

directors of the Indian company decided to seek their approval before going ahead with controversial plans to source cars from what is to be a wholly owned subsidiary of its majority shareholder, Suzuki.

Making the announcement Maruti Suzuki emphasized that there was no law requiring it to seek the approval of its minority shareholders, but that it was being done “as a measure of good corporate governance” and as stipu-lated in section 188 of the Companies Act, 2013.

A new framework

Section 188, which came into force two weeks later, on 1 April, is one of 283 sections of the new Companies Act that have been notified so far. It deals with contracts or

arrangements entered into with a related party – related-party transactions – and represents what may be one of the most significant changes that the new act seeks to bring about.

The section stipulates that related-party transactions other than those entered into in the “ordinary course of business” require “prior approval of the company by a special resolution” in which only shareholders who are not related parties can vote.

“This may be unworkable in closely held compa-nies,” says Sujjain Talwar, a Mumbai-based partner at Economic Laws Practice, citing the example of special purpose vehicles (SPVs) that are routinely set up to execute projects in the infrastructure sector. “The com-panies that are shareholders in the SPV certainly do not expect to face competitive bidding when tenders for the construction of the project are handed out ... that is not why they invested … this is not the commercial reality.”

A new eraIndia’s new Companies Act has far-reaching implications for corporate

governance and the protection of investors’ interests

Rebecca Abraham reports

What’s the deal?


Companies Act

May 2014

T he Companies Act, 2013, has introduced several provisions aimed at battling fraud. One

key change is that the Serious Fraud Investigation Office (SFIO), a body that was established in 2003 by the Ministry of Corporate Affairs following the Satyam debacle, has been granted statutory powers. As such, it can make arrests and order the seizure of docu-ments, books and accounts.

The act has also reformed the man-ner in which the inspection, investiga-tion and inquiry into potential fraud will be carried out.

Defining ‘corporate fraud’

The previous Companies Act, which came into law in 1956, was silent on the definition of “fraud”. Instead it detailed the circumstances under which penalties could be imposed for acts of fraud; for example, misstate-ments in a prospectus (section 63) or fraud committed during the winding up of a company (section 540). The term “fraud” is actually defined under the Indian Penal Code, 1860, and as such, perpetrators of such crimes would ordinarily have been pros-ecuted under this code. However, a successful prosecution under the Indian Penal Code was difficult and required proof of elements of the crime; in other words proof of inten-tion as well as action in furtherance of the intention.

Section 447 of the new Companies Act provides a comprehensive defini-tion of fraud. It is defined as follows: “Any act, omission, concealment of any fact or abuse of position com-mitted by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is

any wrongful gain or wrongful loss”.Anyone can be punished for acts

of fraud and face imprisonment for a period of six months to 10 years as well as fines of up to three times the amount involved in the fraud. Most importantly, the new act has recognized that corpo-rate fraud may stretch beyond specific persons and affect the public at large. For this reason, it states that where the fraud in question involves public inter-est, the term of imprisonment cannot be less than three years.

Role of SFIO

Section 211 of the new act provides that until a formal SFIO is estab-lished, the body established in 2003 will function as the SFIO.

The SFIO is not permitted to act suo moto, and therefore requires cases to be referred to it by the central gov-ernment. The government may refer a case to the SFIO in the following instances: (i) following a report by the Registrar of Companies or an inspec-tor under the 2013 act; (ii) on a spe-cial resolution passed by a company; (iii) if it is deemed to be in the public interest; and (iv) upon request from any department of the central or state governments.

Once a proceeding is initiated with the SFIO, any inquiries being carried out by other investigating agencies are automatically halted. These agen-cies must then transfer to the SFIO any documents and records relating to the inquiry in question.

Various types of fraud have been made cognizable and bail cannot be obtained easily. The director, addi-tional director, and assistant director of the SFIO have all been empowered to arrest persons charged with such offences.

Inspectors appointed to carry out an investigation have been granted extremely wide powers, including

investigating the affairs of subsidi-aries, holding companies and ex-employees. Indeed, since inspectors are officers of the central govern-ment, they enjoy the same powers as those vested in civil courts under the Code of Civil Procedure, 1908. Furthermore, they do not have to obtain an approval from a magistrate to undertake a search and seizure in an investigation (under the 1956 act they were required to do so).

Unlike the SFIO report, an inspec-tor’s report can be made public and obtained by making an application to the central government. If an inspec-tor’s report reveals fraud or undue advantage derived by a director, key managerial personnel, other officer of the company or any other per-son or entity, whether in the form of any asset, property or cash or in any other manner, it may result in the dis-gorgement of any such asset, prop-erty, or cash, as well as detainment of those charged without any limitation of liability.

The new act also introduces the concept of a special court to take cognizance of all offences committed under the act. The new provisions are expected to speed up the judicial process and empower authorities to tackle fraud in a more efficient and meaningful way.

Learning the ropes?The new Companies Act is ushering in a fresh approach to tackling fraud. Yogesh Chande and Manendra Singh of Economic Laws Practice summarize the changes and discuss what they mean for companies in India

Yogesh Chande is an associate partner at Economic Laws Practice in Mumbai, where Manendra Singh is an associate. This article is intended for informational purposes and does not constitute a legal opinion or advice.

Practitioner’s perspective

[email protected] [email protected]

Yogesh Chande Manendra Singh

What’s the deal?


Companies Act

May 2014

As for other companies, Talwar believes that the majority shareholders “will be left to the whims” of the minority shareholders, whose only interest may be in the dividend the company pays.

David v Goliath

Be that as it may, the coming into force of the new regime for approval of related-party transactions marks a shift from an external control regime to one that empowers minority shareholders and favours disclosure. Under the Companies Act, 1956, related-party transac-tions needed the approval of the central government .

At Maruti Suzuki, which is 56% owned by Suzuki, minority shareholders have been questioning the manner in which the contract manufacturing arrangement is to be funded, while also deploring that manufacturing was being taken away from the company. The 16 financial institutions that were the most vocal in their opposition are reported to hold around 4% of the company’s stock.

Minority shareholders have also been concerned about royalty payments made by Maruti Suzuki to Suzuki, which rose from 2.7% of net sales in 2008 to 5.1% of net sales in 2013. While the company attributes most of the increase to the appreciation of the yen in relation to the rupee, minority shareholders say it eats into their earnings. Chances are that with the coming into effect of section 188 minority shareholders will get a say on royalty payments.

“It is possible for payment of roylaty to be considered to be a related party transaction which would require a special resolution” says Deepak THM, a Mumbai-based partner at Luthra & Luthra.

Section 188 lists seven kinds of transactions that would need the approval of minority shareholders, if conducted with a related party. Royalty payment is not one of the seven, but as directors are required to indem-nify companies for any loss on account of a related-party transaction entered into without prior approval, and with directors of listed companies potentially facing up to one year in prison for any violations of the law, directors

are unlikely to act without the go-ahead from minority shareholders.

“We don’t want a situation where the promoters are held to ransom, but it is also necessary to protect the interests of minority shareholders,” remarks Deepak THM.

Levelling the field

Commentators have observed that one of the negatives of the Companies Act, 2013, is that it treats private and public companies on par with each other.

An example of this is section 43 of the act, which specifies the type of shares companies can issue, and which when read with the Companies (Share Capital and Debentures) Rules, 2014, requires that private companies fulfil the same conditions as public companies to issue equity shares with differential voting, dividend and other rights. These conditions include that the company cannot have defaulted in payment of dividends on preference shares or repayment of a term loan or statutory dues.

“All companies will have to spend more management time to ensure regulatory compliance,” says Harvinder Singh, a New Delhi-based partner at HSA Advocates. He is also of the opinion that the conditions attached to issuance of different classes of shares will be a hin-drance for private companies as they structure entry and exit options to attract strategic investors.

But as Surbhi Kejriwal, a Mumbai-based principal associate at Khaitan & Co, points out, the ability of private companies to issue preference shares or con-vertible debentures remains, so “preferential exit rights to first-round investors can continue to be structured contractually”.

Doing your bit

A further change introduced by the Companies Act, 2013, is mandatory spending on social welfare activities by larger companies. Companies that meet specified criteria, such as turnover of at least `10 billion (US$165 million), are required to set aside at least 2% of their average net profits over the three immediately preceding financial years to carry out such activities. Section 135,

We don’t want a situation where the promoters are held to ransom, but it is also necessary to protect the interests of minority shareholdersDeepak THMPartnerLuthra & Luthra

All companies will have to spend more management time to ensure regulatory complianceHarvinder SinghPartnerHSA Advocates

What’s the deal?


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May 2014

which details the corporate social responsibility (CSR) obligations of companies, came into effect on 1 April, and complying with it is causing concern.

“Foreign companies operating in India either through branch offices or companies will find compliance with CSR norms challenging,” says Kejriwal.

One such company is Star India, a wholly owned sub-sidiary of 21st Century Fox.

“We are currently grappling with the issues surround-ing the structuring of our CSR obligations,” says Ujwala Wakhle, deputy general counsel at Star India. Wakhle says that as a foreign owned and controlled company it will be a challenge to set up a special entity to undertake CSR activities. “The entity we set up would need FCRA [Foreign Contribution Regulation Act, 2010] approval … this is pretty difficult to come by”.

The Companies (Corporate Social Responsibility Policy) Rules, 2014, allow companies to undertake their CSR activities through a registered trust, a registered society or a company established by the company or its holding or subsidiary or associate company.

Wakhle says there is also need for greater clarity on what activities can be undertaken to fulfil a company’s CSR obligations. While the rules state that a company’s CSR activities should exclude “activities undertaken in pursuance of its normal course of business”, the only indication of activities that may be acceptable is given in schedule VII of the act.

In addition, Kejriwal at Khaitan & Co says the existing

global CSR programmes of international companies operating in India cannot be used to fulfil a company’s CSR obligations in India.

The taxability of expenditure incurred while complying with the CSR requirement is an added concern. Will it be

Foreign companies operating in India either through branch offices or companies will find compliance with CSR norms challengingSurbhi KejriwalPrincipal Associate Khaitan & Co

What’s the deal?


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May 2014

a business expense and so eligible for tax exemptions under the Income Tax Act, 1961?

Rukshad Davar, a partner at Majmudar & Partners in Mumbai, says income tax authorities have been known to refuse to allow a company’s expenditure on a social welfare initiative to be classified as a business expense under section 37 of the Income Tax Act.

As this will increase a company’s taxable income and overall tax liability, “the Income Tax Act needs to be aligned to allow for such CSR expenses as a business expenditure,” Davar says.

Fit for purpose?

Companies across India are waiting for other realign-ments to occur to ensure compatibility with the changes being brought about by the new Companies Act.

“We have made the necessary changes to comply with whatever is black and white … for all that needs greater clarity from SEBI [the Securities and Exchange Board of India], the courts, etc., we will wait and see,” says Nasser Kabir, senior vice president, legal, at Strides Arcolab, a Bangalore-based pharmaceutical company.

Deepak THM at Luthra & Luthra reports that transac-tions he has been working on have been going forward, as changes to the corporate law regime that took effect on 1 April could be factored in. Draft rules issued at the end of 2013 were “substantially the same” as the final rules that were recently published.

On 17 April, SEBI issued a circular amending two clauses of the equity listing agreement – clause 35B, which stipulates that companies have to provide an e-voting facility to shareholders, and clause 49, which outlines corporate governance norms – in order to align the listing agreement with provisions of the Companies Act, 2013, and to “adopt best practices on corporate governance and to make the corporate governance framework more effective”.

However, there are still some inconsistencies. The one most widely commented on has been that SEBI appears to have raised the bar with regard to related-party transactions by requiring prior approval for all material

related-party transactions. SEBI defines materiality in terms of a company’s turnover and net worth.

In addition, Kejriwal points out that while the new act gave companies one year to reconstitute their boards in accordance with section 149, the revised clause 49 is to be applicable to all listed companies with effect from 1 October.

Core aim

At the heart of the new Companies Act lie provisions that aim to ensure a healthy corporate governance structure. Independent directors, tasked with being the conscience keepers of the company, are expected to conduct themselves according to a rigorous code set out in the act.

In addition, section 149 of the act stipulates stringent conditions that independent directors need to fulfil to ensure their independence.

However, Wakhle at Star India says that appointing independent directors in public companies that are closely held will be a challenge.

The new act also requires that listed companies that meet specified criteria appoint at least one woman direc-tor. In addition, all listed companies and unlisted and pri-vate companies that meet specified criteria must rotate their auditors every five years.

The way forward

These are early days for the new Companies Act, which comprises 470 sections, 29 chapters and seven schedules, and replaces the long outdated Companies Act, 1956. Around 187 sections are yet to be notified, including sections providing for cross-border mergers and acquisitions that will pave the way for an Indian company to merge with a foreign company in certain jurisdictions.

In addition, although rules pertaining to the setting up of the National Company Law Tribunal were notified at the end of 2013 the tribunal is yet to take shape.

However, with India in the midst of a general election, any further notifications will likely have to wait until a new government is in place. g

We have made the necessary changes to comply with whatever is black and whiteNasser KabirSenior Vice President, LegalStrides Arcolab

The Income Tax Act needs to be aligned to allow … CSR expenses as a business expenditureRukshad DavarPartnerMajmudar & Partners

Intellectual property Intelligence report


GlobetrottingWhat Indian companies need to know about protecting

their intellectual property around the world

By Nandini Lakshman

Intelligence report



May 2014

Last year, India adopted the Madrid Protocol agreement for the international registration of marks. India’s accession couldn’t have been better timed. Indian companies have been expanding their business globally and brand

owners are increasingly aware of the benefits of protecting their trademarks both at home and abroad.

Indian drug maker Wockhardt, for instance, has filed 2,000 patent applications globally and been granted 270 patents in the past five years, says Mandar Kodgule, the company’s vice president and head of global IP and strat-egy planning.

United States

The US continues to be the biggest export market for Indian companies, with software and technology high on the list. For foreign IP owners the pressing challenge is to clearly understand the US patent application process, which changed last year from a first-to-invent to a first-to-file system, says William Borchard, a New York-based counsel at Cowan Liebowitz & Latman. The firm handles all the US trademark work for ITC, an Indian tobacco and fast-moving consumer goods conglomerate.

“One of the requirements for a US trademark application filed on the basis of intent to use is that the applicant must have a real, commercial intent to use the trademark in the United States and cannot merely file such an application to reserve rights in the mark,” explains William Utermohlen, a member of Oliff in Virginia.

He posits the example of an Indian company selling basmati rice in India under the mark Golden Grain. The company files an intent-to-use application for Golden Grain in the US but has not yet looked for a US distributor, applied for import or export licences, studied the US mar-ket or investigated the feasibility of exporting the rice.

If the US application is later challenged for lack of a bona fide intent to sell the rice in the US, the Indian com-pany may be able to prove that it was selling substantial

quantities of rice in India, but that does not necessarily prove that it intended to sell the product in the US mar-ket. “If the company had made some initial investigations before filing its application, such as emails to US food companies or even contacts with Indian companies spe-cializing in exporting to the US, such evidence would have helped, provided the emails or other documents were saved until the issue came up in the US, which could be years later,” says Utermohlen.

To renew and maintain filings for a US trademark regis-tration, owners have to submit one specimen of use per class of goods and services showing the mark’s use in the US. “Many owners do not understand this requirement,” says Naresh Kilaru, of counsel at Finnegan Henderson Farabow Garrett & Dunner’s Washington office.

“There is an increase in infringing trademarks from Indian immigrants adopting business names identical or similar to well-known companies in their homeland,” Kilaru says. “In addition to district court actions, we adopt proactive prosecution and opposition strategies to address such third-party uses. Congress is considering bills that shift litigation fees to the losing party and letting the Federal Trade Commission investigate false infringement threats.”

When it comes to patent applications, cost may be a big concern. “The cost of launching a patent in 13 jurisdictions globally is such a big issue, especially when you are not sure of success. A pharmaceutical patent launch in the US costs a minimum of US$1 million a year,” says Kodgule, adding that Wockhardt has submitted 67 applications to sell its generic drugs in the US alone since 2006.

Latin America

Pagbam IP in Argentina has attracted automobile, cloth-ing and electronics companies from India. Since Argentina is not a member of the Patent Cooperation Treaty (PCT), “Indian companies have to protect their patent rights via national filing, separate from the PCT system,” warns

One of the requirements for a US trademark application filed on the basis of intent to use is that the applicant must have a real, commercial intent to use the trademark in the United StatesWilliam UtermohlenMemberOliff

There is an increase in infringing trademarks from Indian immigrants adopting business names identical or similar to well-known companies in their homelandNaresh KilaruOf CounselFinnegan Henderson Farabow Garrett & Dunner

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May 2014

Domaso Pardo, co-chair of Pagbam’s IP team in Buenos Aires. The firm works with Indian IP boutiques Kan & Krishme, and Selvam and Selvam.

Since January, Argentina’s trademark office has been issuing digital certificates. “This is very cutting edge for a Latam trademark office,” says Diego Palacio, an attorney at Palacio & Asociados in Buenos Aires.

In Brazil, the coming football World Cup in June and the 2016 Olympics have raised many issues. “There have been many cases involving both counterfeit official World Cup products and ambush marketing,” says Joaquim Eugênio Goulart, a partner at Dannemann Siemsen Bigler & Ipanema Moreira in Rio de Janeiro. “Most ambush market-ing cases are being settled by means of cease and desist letters, so far.”

The globalization of markets demands the timely regis-tration of IP rights but this is difficult to achieve in many jurisdictions. The Brazilian Patent and Trademark Office (BPTO) is trying to improve its processes. It is grappling with a backlog of 167,000 patent applications pending examination, according to Rana Gosain, a partner at Daniel Avogados, a 65-year-old IP firm in Rio de Janeiro. “The BPTO is striving to modernize and become efficient,” he says. “The plan is to reduce the average eight-year period to process a patent application in five years from 2016.”

Brazil has also adopted the first-to-file system. So, when foreign companies or individuals want to protect their IP rights in the country, they often find that their marks have already been registered by former distributors, licensees or a third party. “Unless they can prove bad faith, foreign IP owners will face a long court action before the Brazilian IP courts,” points out Clarissa Castro Jaegger, a trademark lawyer at Montaury Pimenta Machado & Vieira de Mello in Rio de Janeiro.

A bill to amend Brazil’s IP law is causing concern. “One of the most controversial points of the bill is that the administration is trying to delete the provision establish-ing the 10 years of patent term counted from the date of grant of the patent,” sayss Otto Licks, a partner at IP firm Licks Advogados. “The 10-year provision is of paramount importance to patent owners in light of the backlog at the BPTO.”

Counterfeiting is the key threat to trademark and patent owners in Costa Rica, says Pilar Lopez, an associate and

director of the IP department at Zurcher Lawyers in San Jose. “Authorities can act ex officio and are empowered to grab hold of merchandise suspected of infringing IP rights, without the need for a formal complaint from a private party or right holder,” she says.

In Mexico registering a patent takes two to four years. “This has become a serious problem in our country, con-sidering that by the time a registration is being granted, the invention no longer interests large industries that are constantly developing new inventions,” says Marco Tulio Venegas, a partner at Von Wobeser y Sierra.

Although copyright is automatically protected in Mexico, Adolfo Athié Cervantes, a partner at Mexico’s Bisham Ringe y Correa, says: “Foreign clients may want to reg-ister their works at the Copyright Office since this allows much easier enforcement in the event of a possible infringement.”

In Venezuela, backlog is the main deterrent for IP own-ers. “Although a trademark application may be granted within a year, the examiners may take years to issue a decision on any pending opposition or reconsideration petition,” warns Patricia Hoet Limbourg, a Caracas-based partner who specializes in trademarks, copyright and IP at Hoet Pelaez Castillo & Duque.

Europe

In Europe, a unitary patent and a Unified Patent Court are in the pipeline.

In the UK, the Patents County Court has been relaunched as the Intellectual Property Enterprise Court (IPEC). “This change is particularly attractive for Indian corporates with low level disputes,” says Emma Pitcher, a partner and co-chair of the India practice group at Boult Wade Tennant in London. “It will enable rapid and effective justice in cases where previously costs were often a deterrent to legal action by UK and foreign SMEs.”

A longstanding client of the firm is the Indian govern-ment’s Scooters India, which owns the heritage trademark Lambretta. Boult Wade is representing the company in a trademark dispute. A party called the Lambretta

There have been many cases involving both counterfeit official World Cup products and ambush marketingJoaquim Eugênio GoulartPartner Dannemann Siemsen Bigler & Ipanema Moreira

[Digital certificates are] very cutting edge for a Latam trademark office Diego PalacioAttorneyPalacio & Asociados

Intelligence report



May 2014

Consortium and associated entities have attempted to secure rights to the mark, attacking the rights of Scooters India. Oppositions and revocation actions have been filed by both parties, and two further appeals are presently before the EU General Court.

Another client is the Maharishi Foundation (MFL), the IP holding company set up by Indian guru Maharishi Mahesh Yogi of “transcendental meditation” fame. The company, patronized by celebrities such as Oprah Winfrey, Katy Perry and Hugh Jackman, licenses the trademark rights to organi-zations and certified teachers that promote MFL-developed programmes and techniques. Pitcher says that Boult Wade filed 80 new applications for MFL in 2013, covering 68 countries.

To get a patent quickly, the first step is filing a national patent application at the UK’s Intellectual Property Office, advises Richard Jackson, the managing partner at Carpmaels & Ransford’s London office. “The UKIPO offers procedures by which a patent can go through to grant in less than a year,” he says.

That’s faster said than elsewhere in Europe, where assorted languages can pose translation hurdles for companies. “If European patent examiners come up against wording that has not been accurately translated in patent applications for Asian applicants, then this can lead to substantive objec-tions during prosecution and may also affect the scope of any granted claims,” warns Barbara Fleck, a European pat-ent attorney and partner at British firm Marks & Clerk.

Thanks to India, Belgium has ushered in new customs regulations and a trademark legislative package with the concept of “goods in transit”. India launched a complaint with the EU as its generic drugs were stopped in transit in Rotterdam before being shipped to Brazil. “This was considered as an extra barrier to international trade,” says Alexandra Coppieters at Hoyng Monegier, an IP boutique specializing in patent litigation and prosecution.

“What foreign applicants often fail to understand is that in Denmark, trademark rights may also be obtained through

merely taking a mark into use,” says Susie Arnesen, a part-ner at Coopenhagen’s Sandel Løje & Partnere.

Patentgruppen managing director and partner Jorgen Kristian Moller adds: “A key IP issue in Europe with respect to foreign IP owners is that many IP-inexperienced compa-nies simply don’t file in Europe. The barrier is too high, the system is complex, the costs are relatively high and the gain is uncertain.”

The Paris-based IP law firm Cabinet Beau de Loménie, is one of the largest filers in Europe. “France remains in a way unique with its copyright system which applies very broadly, and which can cumulate with design law and trademark law. Unfair competition is also very broad in our country,” says partner Aurélia Marie.

“A new French IP law enacted in March harmonizes the rules governing the various IP rights – copyright, trademark, patent, design – to facilitate the fight against infringement, increase the possibilities for the court to grant damages, and facilitate the work of the customs to stop and destroy infring-ing goods introduced in France,” says Richard Milchior, an associate attorney at Granrut Avocats in Paris.

Richard Gilbey, a partner at Paris-based Gilbey Legal, finds that Indian companies have insufficient experience of the French and European systems and the broad opportuni-ties for negotiated solutions. “What we regret frequently is that Indian clients tend to use the community trademark system indiscriminately, without prior precautions or strat-egy comparison with other filing systems,” he says. As a result, clients typically withdraw or back down when they smell a problem.

Foreigners may also be unaware that the French trade-mark office does not cite prior identical or similar trademarks as bars to registration. The onus is on prior right holders to take on the infringers.

Karina Dimidjian-Lecomte, a partner at Casalonga Avocats à la Cour, recommends that foreign IP owners conduct trademark searches before filing, “in order to detect maxi-mum potential risks and adopt a corresponding strategy for securing the acquisition of rights and avoid opposition or cancellation proceedings, which are often lengthy and expensive.”

In Germany, patent validity cases go to the German

A key IP issue in Europe with respect to foreign IP owners is that many IP-inexperienced companies simply don’t fileJorgen Kristian MollerManaging Director and PartnerPatentgruppen

Authorities [in Costa Rica] can act ex officio and are empowered to grab hold of merchandise suspected of infringing IP rights, without the need for a formal complaint from a private party or right holderPilar LopezAssociate and Director of IP DepartmentZurcher Lawyers

Intelligence report



May 2014

Federal Patent Court, while infringement cases are heard by a regular court. “Usually the regular courts have to accept the patent more or less as it is valid, while the attack against the patent can only be initiated separately,” points out Michael Turi, a European patent attorney at Samson & Partner. “This is often a topic misunderstood by the Indians,” he adds.

From 4 July, the English translation of patent claims will be the official version in Sweden. When it comes to trademarks, “As there are 24 official languages of the European Union, a new trademark must be translated or amended to some-thing that can be used in all countries,” says Maria Zamkova, a partner at Stockholm’s Fenix Legal.

“It is common to encounter problems with prior rights in Europe and therefore we strongly recommend conducting a thorough search before filing a trademark application and investing in a watching service after registration,” says Molly Baxi, an Indian trademark attorney who heads the India desk at Groth & Co. With the rise of the internet and social media, brand jacking and cyber squatting are increasing problems in Sweden.”

The main problem that foreign IP owners encounter in Turkey is unauthorized registrations of their IP. However, in a landmark decision in March 2013, the Turkish court of appeal approved the decision of an IP court of first instance ordering compensation for damage suffered due to the reg-istration and use of an industrial design in bad faith. “This decision will hopefully [prevent] bad faith applicants from obtaining registrations for industrial rights and causing sub-stantial financial loss to genuine right owners,” says Ugur Aktekin, a partner with Mehmet Gun & Partners in Istanbul.

Asia-Pacific

In April 2013, a raft of changes to Australian IP laws came into full effect. The amendments toughened the requirements for obtaining a patent by raising the inventive step threshold for patentability, increasing the disclosure requirements, and limiting the scope of amendments that may be made to patent specifications. The changes seek to better align the Australian patent system with its overseas counterparts.

“For patentees, Australia has typically been a favour-able jurisdiction for seeking interlocutory injunctions against

potential infringers,” says Lynne Peach, a partner at Minter Ellison in Sydney. “In the pharmaceutical sector in particular, the great majority of such applications in recent years have been successful.”

The firm acted for India’s largest pharmaceutical company, Ranbaxy Laboratories, in patent litigation involving three of AstraZeneca’s Australian patents covering one of Australia’s most prescribed drugs, the proton-pump inhibitor Nexium. Ranbaxy initiated revocation proceedings and AstraZeneca cross-claimed for infringement with the matter culminat-ing in a six-week trial in the Federal Court of Australia in early 2013 and a successful commercial resolution being reached. It was the largest Australian patent litigation involv-ing an Indian company in recent years.

“Australia runs a fairly user-friendly system compared to other systems,” says David Stewart, a partner in the trade-mark practice at Wrays. “There is no need for powers of attorney, nor legalization or notarization in dealings with the various registries.”

One of Wrays’ clients is the Board of Control for Cricket in India. “There is a lot of enthusiasm for the Indian Premier League here in Australia and so the brands associated with that competition are well looked after,” adds Stewart.

Trademark opposition procedures have changed in the past year. More information is now required from the opponent upfront. “Evidentiary deadlines are stricter,” says Geordie Oldfield, a patent and trademark attorney at Watermark Patent & Trademark Attorneys in Melbourne.

“There is less opportunity to obtain extensions of time to file evidence in support of an opposition,” adds Clare Mirabello, special counsel at Tresscox in Sydney.

Tresscox was one of the firms in Sporte Leisure v Paul’s Retailer, a parallel imports case in which an Indian manufac-turer had been given the right to manufacture shirts bearing the Greg Norman brand only for sale in India. The court

Global dreams: Without the right IP protection, foreign forays can easily be the stuff of nightmares.

With the rise of the internet and social media, brand jacking and cyber squatting are increasing problems in SwedenMolly BaxiHead, India DeskGroth & Co

Intelligence report



May 2014

found that the licence was not sufficient to qualify as valid “consent” to using the brand on goods for sale in Australia. “The effect of this was that the goods could not be legally imported into Australia,” says Mirabello.

Changes are also afoot in New Zealand. A new Patents Act, with more stringent patentability requirements, will come into force on 13 September. “Applicants should consider filing New Zealand patent applications – or enter-ing the national phase of PCT application in New Zealand – before this date, to avoid application of the new act,” advises Oldfield.

Japan approved changes to its IP laws in March. “We expect the revision will be effective next year,” says Reiko Toyosaki, a trademark attorney at Toyosaki & Associates in Tokyo. “Non-traditional marks such as sounds or colours will be accepted as trademarks.”

Southeast Asia

Malaysia is seeing moves to encourage and facilitate IP valuation and financing. “An IP valuation model that is acceptable to financial institutions is on the cards,” says Jyeshta Mahendran, a partner at Shearn Delamore’s Kuala Lumpur office. The firm represented India’s Agricultural and Processed Food Products Export Development Authority in the first geographical indications case in Malaysia. This case concerned the cancellation of the Ponni mark, which is recognizable among the trade and the public as a variety of rice originating from Tamil Nadu.

IP rights holders in the Philippines continue to be frus-trated by long delays in the judicial system and insufficient transparency.

The biggest challenge for IP owners in the Philippines is the effective enforcement of their IP rights. “Judges of com-mercial courts, which have jurisdiction over IP cases, sel-dom have sufficient legal and technical training in intellectual property law,” says John Paul M Gaba, a partner at Angara Abello Concepcion Regalia & Cruz in Manila.

Under amendments to IP legislation, “Building and mall owners and online service providers can now be held liable [for copyright infringement] based on the principle of vicari-ous liability,” says Esguerra & Blanco Law Offices’ managing director Ramon S Esguerra.

In February, Singapore’s novel self-assessing patent examination system was replaced by the positive grant system. “Singapore is an important commercial jurisdiction where many IP owners actively register and protect and enforce their IP rights,” says Max Ng, the managing director of Gateway Law Corp in Singapore, a key player in the area of contentious work.

Issues faced by Indian companies include finding their IP already registered in Singapore by other entities, and realizing that their patent registration elsewhere confers no protection in Singapore and their patent is being infringed in Singapore. Lau Kok Keng, a partner at Rajah & Tann, says some companies do not realize that designs are protected separately in Singapore under the Registered Designs Act and that designs which have not been registered lose both design and copyright protection.

The misuse of trademarks, particularly by distributors, is rampant in Thailand. This sometimes occurs when IP own-ers leave their appointed distributors in charge of selling goods or services in Thailand without any follow-up. Many distributors confirm trademark registration without disclos-ing that the trademark was registered in the distributor’s

name. “Issues surface when the distributorship terminates and new distributors are harassed on the grounds of trade-mark infringement,” says Nettaya Warncke, the managing director of Domnern Somgiat Boonma.

Courts rarely hear IP cases in Vietnam. “Most IPR infringe-ment in Vietnam has been handled under administrative measure due to the weakness and limited experience of court judges in handling IPR-related disputes and infringements,” says Do Quang Hung, a partner at Vision & Associates in Hanoi.

A weak legal system drives IP owners to pass their cases to administrative enforcement bodies such as police units that investigate economic crime, IP inspectorates and cus-toms, while are overloaded with their own cases. “The whole picture of IP enforcement is even darker when the level of knowledge and experience varies from one administrative enforcement body to the other, thus creating greater back-logs,” says Nguyen Duc Hieu, the founding partner of P&P Law Firm.

South Africa

South Africa has never had a national IP policy, but last September, the Department of Trade and Industry released a draft National Intellectual Property Policy for public com-ment, says Simon Brown, a partner and trademark attorney at IP firm Adams & Adams in Pretoria.

The policy seeks to radically revamp the country’s IP laws. “A big focus is to make laws friendlier towards generic pharmaceuticals,” says Rowan Joseph, a partner, patent attorney and litigator at Von Siedels in Cape Town, adding that “It is doubtful whether this will result in any short-term changes in the law.” The firm’s Indian client roster includes pharmaceutical companies Ranbaxy, Dr Reddy’s, Lupin, Glenmark, Sun and Cipla.

Deon Bouwer, a trademark attorney and lawyer at Bouwers Inc in Johannesburg, adds: “The act is aimed at providing effective protection mechanisms for indigenous knowledge as a form of intellectual property in South Africa.” g

The whole picture of IP enforcement is even darker when the level of knowledge and experience varies from one administrative enforcement body to the otherNguyen Duc HieuFounding PartnerP&P Law Firm

Correspondents


Banking & finance

May 2014

Banks and others challengelegality of added burden

The Maharashtra Tax Laws (Levy and Amendment) Act, 2013, amended the Maharashtra Stamp Act, 1958,

with effect from 1 May 2013. The amend-ment has introduced significant obliga-tions on banks and other financial institu-tions (FIs), in terms of liability to pay duty and historic forensic investigation and compliance. The legality of the amend-ment has been challenged by individu-als and several prominent banks before Bombay High Court.

Rationale for change

Section 30A of the state’s Stamp Act, as introduced by the amendment, has three parts. First, FIs have been made liable to pay “proper” stamp duty on any document executed after 1 May 2013, either by or in favour of FIs. This require-ment would not affect their “contrac-tual” right to recover the duty from the other parties. Second, for all documents executed prior to 1 May 2013, where proper stamp duty has not been paid, the FIs must impound and forward them to the Collector. Third, if such impound-ing is not done, FIs will be penalized for an amount equivalent to the stamp duty on the instruments.

The stamp authority suggests that the amendment is beneficial for FIs as it is in their interest to ensure that proper stamp duty is paid on instruments cre-ated in their favour, since instruments not duly stamped are inadmissible as evidence in courts. The challenge to the amendment’s legality suggests that FIs disagree with this wisdom.

Issues

Banks (including public sector under-takings) and others have challenged the amendment primarily on constitutional grounds, stating that it unequally impacts parties, and results in great commercial

hardship. The scheme of the law sug-gests that stamp duty is payable on an instrument, although liability for payment may be on parties to it. In this regard, Madras High Court in Subramaniam Chettiar v Revenue Divisional Officer & Anr and Madhya Pradesh (MP) High Court in Balkrishna Bihari Lal v Board of Revenue, MP and Ors have held that parties that execute instruments are jointly and sev-erally liable to pay stamp duty.

By requiring FIs to ensure payment of duty, section 30A singles them out as a separate group of persons on whom statutory obligations have been imposed. In State of West Bengal v Anwar Ali Sarkar, the Supreme Court held that article 14 of India’s constitution allows the state to classify persons for legisla-tive purposes only if the classification is rational, founded on an “intelligible differentia” which distinguishes “those that are grouped together from others”. Therefore the test of “intelligible differ-entia” must be applied before arriving at any conclusion.

In addition, the Supreme Court in Patel Gordhandas Hargovindas v Municipal Commissioner held that if a tax is so excessive as to be “confiscatory” or “impossible to sustain”, it falls. As per Gujarat High Court’s views in Crane Owners Association and Ors v Union of India and Ors, the standard to be applied would be if business “has been rendered impossible or extremely unprofitable”.

The above cases dealt with the value of tax imposed. Whether the framework of obligations under a tax statute can be invalidated on similar grounds would be a point for consideration.

Finally, under the amendment, FIs are obligated to impound and failure to do so invites penalty. The Supreme Court held in District Registrar & Collector, Hyderabad and Anr v Canara Bank Etc that possession of an insufficiently stamped document is not an offence, and that not

being able to use the instrument as evi-dence in court is itself a penalty. Further, the amendment levies a penalty for non-compliance, and the penalty provisions are additional to the existing penal provi-sions under sections 31, 32A and 34.

Conclusion

The petitioners have not argued against the state’s right and interest in revenue collection; they have only chal-lenged the methods adopted. While compliance with the amendment on future transactions may have found some resonance with FIs, coupling this with retrospective compliance require-ments and significant penalties has led to the entire section being challenged. Given that commerce is primarily built on the foundations of debt and equity, with the volume of debt eclipsing equity, FIs have already taken significant posi-tions of risk to support the economy, and being singled out for such further strictures, they feel “hard done by”.

Bombay High Court has temporarily stayed the requirement to impound by 30 September 2013 in section 30A(2) and the applicability of penalty under section 30A(3). However, given the weight of the issues under considera-tion, whatever the outcome, there is a significant possibility that the Supreme Court will be approached to achieve final resolution.

Perhaps the state would have been better served by seeking a consensus through inclusive means to achieve the ends of revenue without alienating the commercial participants.

By Jeet Sen Gupta, Deep Roy andDivya Srikanth,Economic Laws Practice

Jeet Sen Gupta is a partner, Deep Roy is an asso-ciate partner and Divya Srikanth is an associate at Economic Laws Practice. This article is intended for informational purposes and does not consti-tute a legal opinion or advice.

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Correspondents


Canada-India trade & investment

May 2014

Under the Investment Canada Act (ICA), the government of Canada reviews acquisitions of control of

Canadian businesses. Announcements by the prime minister of Canada on 7 December 2012, regarding changes to the ICA and related policies that would primarily affect acquisitions by foreign state-owned enterprises (SOEs), were discussed in this column in the March 2013 issue of this journal. The ICA was subsequently amended (in June 2013) to include specific provisions relat-ing to SOE investments that were not anticipated.

‘Brightline’ tests

The ICA mandates a scheme for the review of acquisitions of control of large Canadian businesses by non-Canadian investors. In broad terms, control of a Canadian business may be acquired through: (i) the acquisition of all or sub-stantially all of the assets used in carrying on the business; (ii) the acquisition of a majority of the voting securities or inter-ests of the joint venture or partnership that owns the business; or (iii) the acquisition of a majority of the voting securities of a corporation that owns the business.

The acquisition of one-third or more but less than a majority of the corpora-tion’s voting securities will also consti-tute an acquisition of control, unless it can be established that the investor will not control the Canadian busi-ness through the ownership of those securities. An acquisition by an existing minority non-Canadian owner may be reviewable if by the incremental acqui-sition that owner acquires control.

These tests or thresholds are some-times referred to as “brightline” tests.

Special ICA guidelines apply when foreign SOEs want to make reviewa-ble acquisitions of control of Canadian businesses.

Among the changes announced by the prime minister: (a) the SOE definition will now include an investor that is influenced by a foreign government; (b) the financial threshold for review for investments by foreign SOEs will continue to be based on book value – the threshold for which is GDP-indexed and is C$354 million (US$324 million) for 2014 – rather than a higher enterprise value, which will apply to acquisitions by other non-Canadian investors when the necessary regulation becomes effective; (c) the examination of foreign SOE investments will now con-sider the degree of control or influence that the SOE and the foreign state would likely exert on the target Canadian busi-ness and the relevant industry; and (d) a foreign SOE investment to acquire control of an oil sands business will be approved only in “exceptional circumstances”.

Virtually no guidance has been given with regard to the matters of influence and exceptional circumstances referred to above.

Amendments

The June 2013 amendments provide that if the buyer is a foreign SOE, a “con-trol in fact” test will be applied even if the acquisition does not meet one of the brightline tests, to determine whether the SOE is acquiring control of the Canadian business.

Typically, in applying the “control in fact” test, a Canadian court would look at the ongoing power or ability, whether exercised or not, to make the strategic decisions of an enterprise and the ability to manage the day-to-day operations of that enterprise. Instead of one standard definition, individual factors are consid-ered which, when taken together, might result in a minority shareholder exerting control. Determining where control lies may require weighing competing factors such as: the composition of the board

of directors; authority over the appoint-ment of officers; shareholder rights, for example, on liquidity; veto rights; com-mercial arrangements; and financing arrangements.

Potential results

It is therefore possible that the Investment Review Division (IRD), which administers the ICA, could take the posi-tion that an SOE would be acquiring control of the Canadian business even though the acquisition does not pass any of the brightline tests.

It is also possible that the IRD could conclude that the ownership of a major-ity interest does not constitute control (for example, where an SOE owns 66% of a joint venture and significant deci-sions require unanimity). If the SOE was considering buying the remaining 34% in this circumstance, it could be found to be acquiring control.

If a foreign SOE made an acquisi-tion without obtaining ICA approval, the minister of industry could conclude after closing that a reviewable acquisition of control had occurred. If the minister believed that the SOE failed to obtain the required approval, the SOE could be required to remedy the default or show cause why there was no contravention. The minister could also apply for a court order and, if successful, the court could direct the SOE to divest itself of control of the business and/or impose fines on the SOE.

These new provisions thus in some circumstances add further uncertainty to the ICA analysis for foreign SOEs.

Donald E Greenfield, QC, is a partner and the head of oil and gas at Bennett Jones LLP, a law firm with offices in Calgary, Toronto, Edmonton, Ottawa, Dubai and Doha, and representative of-fices in Washington DC and Beijing.

Foreign investment reviewpolicy sees further changes

By Donald E Greenfield, QC,Bennett Jones LLP

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Tel: Raj Sahni, Chair – India Business Group +1 416 777 4804Website: www.bennettjones.com

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Capital markets

May 2014

I n a recent order passed by an adju-dicating officer (AO) of the Securities and Exchange Board of India (SEBI),

an aggregate penalty of `2.5 million (US$41,500) was imposed on five offic-ers of a listed company – the chairman, the vice-chairman and managing direc-tor (MD), two executive directors, and the company secretary and compliance officer.

The penalty was imposed under sec-tion 15HB of the SEBI Act, 1992, for: (1) delay in disseminating price sensitive information to the stock exchanges regarding bagging of certain orders; and (2) the company’s code of con-duct not being in line with the one pre-scribed under the SEBI (Prohibition of Insider Trading) Regulations, 1992.

The company’s code of conduct did not take into account an amendment to the regulations on 19 November 2008, pursuant to which the dependants of directors, officers and designated employees were required to seek pre-clearance of trades from the company secretary and compliance officer.

Facts of the case

The inquiry and investigations revealed as follows: (1) the company announced to stock exchanges on 29 April 2009 that it had bagged two orders worth `13.4 billion; (2) the con-tracts for the orders were entered on 1 March and 22 April 2009; (3) there were thus delays of 59 days and seven days between entering the contracts and the announcement to stock exchanges; (4) on 29 April 2009 the stock price closed 4.74% higher than the opening price; and (5) the MD’s daughter traded in the scrip without seeking pre-clearance for certain trades.

Due to insufficient evidence, no pen-alty was levied as regards trades done by the MD’s daughter. The penalty of

`2.5 million was levied on the five offic-ers (jointly and severally) for delay in disseminating the price sensitive infor-mation in terms of the insider trading regulations.

Analysis

The AO’s order deals with what con-stitutes “price sensitive information” which needs to be disclosed by a listed company to stock exchanges on a continuous and immediate basis. The regulations define the term to mean “any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company”.

The AO, while explaining the term, observed that “the information has to be construed as price sensitive information irrespective of actual price witnessed post disclosure of the information”. This suggests that while the definition states that, if published, the informa-tion is likely to have “material effect” on the price of securities, the actual impact on the price is immaterial.

The AO observed that the orders constituted a substantial percentage of the company’s turnover, i.e. the orders were worth `13.4 billion as against the net sales turnover of `18.83 billion for the year ended March 2009 and `15.06 billion for the year ended March 2010. In view of the relative enormity of the orders, they were considered as consti-tuting “price sensitive information”.

While what constitutes “price sen-sitive information” which should be disclosed to stock exchanges is sub-jective in nature, one of the guiding factors available to listed companies in determining their disclosure obliga-tion could be if they receive orders in the ordinary course of business that constitute a substantial percentage of the company’s sales turnover. In this

case, the orders represented around 71% based on sales to March 2009 and around 89% based on sales to March 2010.

Suggested action

It can be argued that: (1) it is the business of the company to bag such orders; (2) the orders it obtained were in the nature of stock in trade in the business; and (3) it was not an unusual occurrence. However from a practical standpoint, it is advisable for listed companies to have an internal policy for example stating that as and when the company reaches a level of orders of a particular amount, or as and when the company reaches a single order aggregating a particular amount, the amount will be immediately disclosed to stock exchanges.

Such an approach will assist the company in ensuring compliance with the insider trading regulations and clause 36(7) of the equity listing agreement (dealing with disclosure of any other information having bear-ing on the operation or performance of the company), and perhaps also act as a mitigating factor in case of an inquiry or investigation by SEBI or stock exchanges.

Like the bagging of orders, the writ-ing off of slow moving orders, forming a material part of parameters such as the existing order book and sales turnover of the company, and which, if pub-lished, is likely to have an impact on the price of the securities of the company, will also require disclosure in terms of the regulations.

Suhail Nathani is a partner and Yogesh Chande is an associate partner at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.

By Suhail Nathani and Yogesh Chande,Economic Laws Practice

Bagging huge orders seen as ‘price sensitive information’





Correspondents


Competition & antitrust

May 2014

The Competition Commission of India (CCI) on 28 March amended the regulations gov-

erning mergers and acquisitions, pur-suant to its subordinate legislative powers. The key modifications are evaluated below.

Substance test: A new sub-regula-tion has been introduced, the essence of which is that the CCI will scrutinize the substance of a transaction, irre-spective of the structure adopted, to determine if there is an appreciable adverse effect on competition. The move is seen as a tightening of the CCI’s grip. As to whether deal-making has become more difficult, the objec-tive of the Competition Act has always been clear. As stated in the preamble, the act was introduced to establish a commission to prevent practices which have adverse effect on compe-tition, promote and sustain competi-tion in markets, protect the interests of consumers, and ensure freedom of trade.

Any perception that a “fancy struc-ture” could bypass this prerogative of the CCI was just wishful thinking. The test has always been substance over form. This new sub-regulation is essentially just a reminder to the business community to be mindful of the impact on competition in its deal making.

Who can appeal against an order of the CCI: Section 53-B of the Competition Act states that any person aggrieved (not necessarily a party to the proceeding) can be an appellant. Regulation 29, which lim-ited the basket of possible appellants of a CCI order to the government, local authorities, enterprises, or “parties to a proceeding” who are aggrieved by the order passed, has been deleted. As only section 53-B now deals with the right to appeal, the confusion as to

who can appeal seems to have been cleared and the basket is fairly wide.

One day prior to notification of the amendments, the Competition Appellate Tribunal (COMPAT) dis-missed an appeal against the CCI order approving the Jet-Etihad tie-up, on grounds that the appellant had no locus standi (right to be heard). The effect of this decision is to reinforce that appellants will have to success-fully demonstrate their right to be heard. This ought to deter frivolous appeals and give more sanctity to deals once approved by the CCI.

Deletion of entry 10 in sched-ule I: This entry, read with regula-tion 4, provided that a combination which took place entirely outside India, with insignificant local nexus and effect in India, is ordinarily not likely to have an appreciable adverse effect on competition in India, and therefore notification to the CCI need not normally be filed. On the face of it, the deletion of this entry appears significant as this relaxation has been removed. However, it is difficult to say how many parties actually relied on this and what kind of deals would have come within this umbrella. In any event, the exemption for deals involving an India entity with assets of less than `2.5 billion (US$41 million) or revenue of less than `7.5 billion continues to be available, and parties to a deal entirely offshore can rely on this, less esoteric, test.

Changes to form I: The less detailed notification of a proposed deal previ-ously required information on post-deal overlaps. Now, information on existing vertical and horizontal over-laps must be provided as well. That’s how it ought to have been in the first place, since the levels at which the parties are already competing is an important factor.

The amended form also requires information on whether the combina-tion is subject to antitrust notification in other jurisdictions, along with cop-ies of orders passed in such jurisdic-tions. This could reflect cognizance of globalization and that impact on competition in offshore markets could have consequences on competition in the relevant market in India. However, one might argue that such information could influence decisions of the CCI.

Procedure before the CCI

In another significant development, not pursuant to the amendments intro-duced, the COMPAT recently over-turned the CCI’s decision in Schott Glass India v the CCI, and held that Schott had not abused its dominance. Expressing its displeasure at the CCI’s refusal to permit cross-examination, during the investigation conducted by the Director General (DG), of the expert witnesses (whose testimony was relied on by CCI), the COMPAT held that “it was improper on the part of CCI to straight way accept the statements on oath by the other Converters who appeared to be enemically disposed towards Schott India”.

The COMPAT suggested that the CCI ought to afford an opportunity to opposite parties to cross-examine witnesses who have been relied on by the DG, during proceedings before the CCI. If this practice becomes stand-ard, it may lead to delays in disposal of cases before the CCI. However, it may serve to avoid the orders being questioned on procedural grounds.

Amit Tambe is a partner at Trilegal and Kunal Chandra is a counsel. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.

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Evaluating the significance of key recent developments

By Amit Tambe and Kunal Chandra,Trilegal

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Dispute resolution

May 2014

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Case clarifies limitation inarbitration counter-claims

By Vivek Vashi and Zeus Dhanbhoora,Bharucha & Partners

ASupreme Court judgment on 14 February, in the case of Voltas Ltd v Rolta India Ltd, has clari-

fied the position of law with respect to the issue of limitation in filing a coun-ter-claim under the Arbitration and Conciliation Act, 1996.

Facts of the case

On 3 December 2004, Rolta termi-nated its civil construction contract with Voltas. Correspondence ensued even-tually leading to Voltas invoking arbitra-tion via a letter dated 29 March 2006. Rolta failed to appoint an arbitrator but nonetheless responded to Voltas by a letter dated 17 April 2006, specifying claims totalling `680 million (US$11.25 million) under various heads against Voltas and also requesting that arbitra-tion be invoked.

Voltas filed an application under sec-tion 11 of the Arbitration and Conciliation Act before Bombay High Court for an arbitrator to be appointed. The high court via an order dated 19 November 2010 appointed a sole arbitrator.

Voltas filed its statement of claim on 13 April 2011, claiming a sum of approxi-mately ̀ 230 million. Rolta filed a counter-claim on 24 August 2011, containing claims to the tune of approximately ̀ 3.33 billion. Voltas contended that the coun-ter-claim was not maintainable on the ground that it was barred by limitation.

The arbitrator passed an interim award in favour of Voltas, ruling that the counter-claim was barred by limitation as it was beyond the limitation period prescribed by the Limitation Act, 1963, i.e. three years, which in the arbitrator’s opinion began to run from 29 March 2006.

High court findings

Rolta challenged the award before the high court but the single judge ruled

in favour of Voltas, stating that even if Rolta’s notice dated 17 April 2006 was regarded as the date of commence-ment of the dispute, the counter-claim would still be barred by limitation.

Rolta preferred an appeal before a division bench of the high court, which took into consideration: (1) the concept of limitation as laid down in State of Goa v Praveen Enterprises; and (2) the exclusion of the period during which the application under section 11 of the Arbitration and Conciliation Act was pending before the high court (May 2006 to November 2010). On that foundation the high court held that the counter-claim was within limitation. Aggrieved by the decision, Voltas appealed before the Supreme Court.

Supreme Court hearing

Counsel for Voltas submitted that limitation for a counter-claim has to be in accordance with section 43(1) of the Arbitration and Conciliation Act and section 3(2)(b) of the Limitation Act and no deviation from this could be authorized except by way of an action under section 21 of the Arbitration and Conciliation Act in which the respondent raises par-ticular disputes and also separately invokes arbitration.

Counsel for Rolta subsequently submitted that the counter-claim was within time as Rolta’s notice dated 17 April 2006 had both raised particular claims and sought arbitration. Counsel for Rolta further relied on the Praveen Enterprises case, in which it was held that the statement of claim need not be restricted to the claims in the notice. Counsel argued that it could therefore safely be concluded that the same proposition holds good for counter-claims as well.

Court’s judgment

The Supreme Court, in order to ascertain whether Rolta had in fact invoked arbitration, relied on the cor-respondence exchanged between the parties, in particular: Rolta’s letter of 17 April 2006 in which Rolta had crystal-lized its claims; and Voltas’ response dated 21 April 2006 informing Rolta that Voltas would be appointing an arbitrator.

Based on the court’s interpreta-tion of: (a) these two letters; (b) sec-tions 21 and 43 of the Arbitration and Conciliation Act; (c) section 3 of the Limitation Act; and (d) the order in Praveen Enterprises, the Supreme Court observed that an exception had to be carved out to save the limita-tion for filing a counter-claim if the respondent had satisfied the twin tests of making a particular claim against the claimant and seeking arbitration by notice. The court further stated that since this exception squarely applied to the case in hand, the limi-tation of the counter-claim should be computed as on the date of service of notice of such claim on the claimant, which in the present case would be 17 April 2006, and not on the date of filing the counter-claim.

Importance

This judgment, having already laid down a landmark with respect to the limitation in filing a counter-claim, further highlights the need and impor-tance of articulate drafting and strat-egy when responding to a notice of arbitration.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Zeus Dhanbhoora is an associate.

Correspondents


Energy & infrastructure

May 2014

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Email: [email protected]@trilegal.com

As energy consumption burgeons with economic development in India, the widening gap between

demand and supply of oil and gas, cou-pled with stagnating domestic produc-tion, has increased India’s dependence on imports. Despite the clear need to increase domestic production, it has lan-guished in recent years. Part of the solu-tion lies in evolving a policy framework that will intensify domestic exploration and an open acreage licensing policy (OALP) may just provide that framework.

Numbers under NELP

The New Exploration Licensing Policy (NELP), launched in 1999, introduced international competitive bidding for oil and gas exploration blocks. Under the nine rounds of bidding under NELP, 254 oil and gas blocks have been awarded, and 128 hydrocarbon discoveries have been made in 42 of the blocks. Although NELP has given a big boost to explora-tion, the dwindling number of production sharing contracts signed in the last two NELP rounds, and the general lethargy in foreign investments and technology transfer, indicate waning investor inter-est in the NELP process, making it nec-essary to formulate alternative policies to accelerate exploration in India.

Year-round mechanism

Less than 50% of India’s sedimentary area (onland and offshore) of 3.14 million square kilometres has been awarded. Vast sedimentary basins remain unex-plored or poorly explored, and OALP, which has been doing the rounds for a long time, may be what is needed to allow investors a continuous window of exploration opportunities.

Unlike the current NELP regime, in which specific blocks are auctioned for a fixed period within each licensing round,

under OALP, all open acreages (i.e. areas that are yet to be licensed or leased) would remain open for offer throughout the year, to enable bidders to bid for oil and gas blocks at any time. The blocks are likely to be user-defined by the first party envisaging interest in the area, after which the government would assess the bid made for a particular block, call in any competing bids, and then decide whether to grant the block.

This would allow companies to extend their block boundaries to adjoining open areas, and provide greater flexibility in block location, size and project financ-ing. For implementing OALP, geo-scien-tific data would be made available via a National Data Repository (NDR), to provide accessibility to stakeholders and prospective investors, and to enable bid-ders to choose acreages on the basis of grid patterns.

While specifics of a policy on open acreage are yet to be announced, any proposed OALP should address issues in relation to ownership of data, sharing of information in the public domain and periodicity of opening OALP bids, while also providing the bidder with exploration and production rights over all hydrocar-bons under the awarded block.

Potential solutions

Although successive governments and bureaucrats have made announcements in different forums on formulation of an OALP and establishment of an NDR for almost 10 years, no concrete steps have been taken. Recommendations for introducing OALP were also made by the Ashok Chawla Committee on Allocation of Natural Resources (2011) and the Kelkar Committee on Roadmap for Reduction in Import Dependency (2013).

A recent announcement by the petro-leum secretary on inviting bids for

setting up an NDR is a positive step towards the implementation of an open acreage regime. In the meanwhile, the government could look at introducing OALP in parallel with NELP, while NELP is phased out. A similar process is fol-lowed in the UK, where out-of-round applications are considered in parallel with the licensing rounds in cases where waiting for the next round would cause unnecessary delay or where competi-tion is not feasible even in a licensing round.

Further, as suggested by the Kelkar committee, the government could launch OALP with data available from national oil companies until the NDR becomes fully operational, to test inves-tor response to the new policy. The gov-ernment could also look at developing the NDR in phases for a particular basin or region, or from the data of blocks already relinquished.

The true potential of India’s oil and gas reserves can only be achieved through a framework which allows companies to bid for the blocks they like, any time they like, rather than the government cherry-picking blocks for auction. This would take market efficiencies to the next level by significantly increasing the pace of much needed oil and gas explo-ration activity in the country and draw the best names in the business. While it is still early days, given the recent controversies surrounding the oil and gas blocks awarded under NELP, one can only hope that the new government will want to send out a positive signal to private investors and re-energize invest-ment in the upstream oil and gas sector by introducing OALP.

It’s high time for an open acreage licensing policy

Saurabh Bhasin is a partner at Trilegal and Rashi Ahooja is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.

By Saurabh Bhasinand Rashi Ahooja,Trilegal

Correspondents


Food law

May 2014

A new contentious domain:product approval advisories

The Food Safety and Standards Act, 2006 (FSSA), not only repealed some existing enactments and

consolidated the laws relating to food but also established the Food Safety and Standards Authority of India (FSSAI) for laying down science-based standards for articles of food and to regulate their manufacture, storage, distribution, sale and import, to ensure the availability of safe and wholesome food for human consumption.

Cause for concern

The FSSAI’s issuance of various advi-sories has aroused industry concern. A few industry players have even taken this issue to courts across the country, seeking the quashing of such advisories as being without any statutory force and ultra vires.

Food is seen as the fastest growing sector in India and food business is esti-mated at US$121 billion, so the regula-tory concerns cannot be ignored.

Current battle

One heavily contested battle between the food industry and the FSSAI is tak-ing place in Bombay High Court and relates to the food product approval advisory dated 11 May 2013. Vital Nutraceuticals (the petitioner) and the Indian Drug Manufacturers’ Association, whose members include all the top drugs and health product makers in India, chal-lenged the advisory on the ground of being without any force and ultra vires.

The advisory, which supersedes all ear-lier advisories concerning food product approval, contemplates obtaining prod-uct approval prior to obtaining the licence required under the Food Safety and Standards (Licensing and Registration of Food Businesses) Regulations, 2011.

On behalf of the petitioner, it was

argued that subjecting companies such as the petitioner, whose products have been in existence for 10-15 years, to prior product approval is clearly bad in law. Further, it was contended that the FSSAI did not have the authority or power under the provisions of the FSSA, read with the rules and regulations framed under the FSSA, to issue the impugned advisory.

Scope of powers

It was specifically contended that regulations such as the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011, and the Food Safety and Standards (Licensing and Registration of Food Business) Regulations, 2011, categori-cally empowered the FSSAI to issue nec-essary regulations only. In the absence of specific power or authority conferred on the FSSAI, any rules, regulations or advisories issued by the FSSAI would be arbitrary, illegal and contrary to the provisions of the act and its correspond-ing rules and regulations.

On behalf of the FSSAI, it was argued that the advisories issued from time to time (including the impugned advisory) were well within the framework and powers vested in the FSSAI under the FSSA, and serve as guidance as to how and in what manner the particular issue is to be dealt with, depending on the different products for which a particular advisory has been issued. Further, the provisions of the FSSA which specifi-cally empower and authorize the FSSAI were highlighted to substantiate that the FSSAI had acted properly in issuing the impugned advisory/guidelines.

Split decision

Bombay High Court delivered a split decision on the issue of whether the FSSAI had the power and authority to

issue the advisory in question. Justice VM Kanade entirely agreed with the petitioner’s arguments and held that the advisory was issued without the force of law and that an existing licence holder under the previous enactment was not required to seek a fresh product approval under the FSSAI’s advisory.

In contrast, Justice Girish Kulkarni upheld the validity of the impugned advisory. Justice Kulkarni strongly relied on an earlier Supreme Court judgment on food safety and reiterated that the right to safe and uncontaminated food is a fundamental right enshrined under the constitution. Justice Kulkarni also held that there was nothing illegal in the FSSAI bringing about a regime with a concept of product approval for existing licence holders or in relation to any food business operated in India.

Everything on hold

The case is currently before the third bench of Bombay High Court where the order is awaited. With the advisory having been stayed, the order will have substantial ramifications on the food industry as no person can currently come out with any fresh products.

Further, importers of food are also facing problems in getting their consign-ments cleared by the custom authorities. The custom authorities can only release food products which have received the approval of the FSSAI. At present, the FSSAI is neither taking samples of imported food for testing nor grant-ing approvals, prompting importers to approach the court for the release of consignments. This situation needs to be resolved immediately to avoid further disruption in the food industry.

Sidhartha Srivastava and Gurmeet Kainth are partners at DH Law Associates.

Mumbai111, Free Press HouseFree Press Journal Road215, Nariman Point,Mumbai - 400 021T: +91-22-6625 2222F: +91-22-2285 5821

By Sidhartha Srivastava and Gurmeet Kainth,DH Law Associates

Delhi510, 5/F DLF Tower – AJasolaNew Delhi – 110 025

T: +91 11 6464 9865F: +91 11 2652 1415

Email: [email protected]

Correspondents



May 2014

A-2E, CMA Tower, 2nd FloorSector -24, NOIDA - 201301National Capital Region, India

Tel: +91 120 4633900 (100 Lines)Fax: +91 120 4633999

When can surveys be used in Indian trademark cases?

I n proving “likelihood of confusion” where plaintiffs assert deceptive similarity in trademark infringement

cases, two types of evidence have been traditionally put before Indian courts. The first involves a visual comparison of the marks. The second relies on the use of trade experts (experienced industry pro-fessionals) to strengthen the visual com-parison claim. While the Trade Marks Act, 1999, mandates a statutory pre-sumption (albeit rebuttable) of confusion in the case of a contest between identical trademarks straddling identical classes of goods or services, the burden of prov-ing confusion lies with the trademark owner in all other cases.

Courts and tribunals in India have accorded a degree of approval to survey evidence aimed at demonstrating con-sumer confusion, but the use of survey evidence has not become a routine prac-tice. Courts and tribunals sometimes hold that survey evidence is inadmissible because of lack of relevant questions, poor methodology, lack of objectivity, hearsay issues, etc. However, surveys may be useful when public opinion is considered for the purpose of determin-ing likelihood of confusion, distinctive-ness, strength of the mark, etc.

Over the past two decades a body of case law has been established on submitting survey evidence in Indian trademark cases.

In Ayushakti Ayurved Pvt Ltd and Anr v Hindustan Lever Ltd (2003), Bombay High Court accepted the survey evi-dence filed, holding that there is no reason why survey evidence should not be admissible. However, some Indian courts have cautioned that that market survey evidence should be relied on only after it is presented and tested by cross-examination of witnesses at trial and not at the interlocutory stage.

In Time Warner Entertainment Co v AK Das (1997), Delhi High Court, however,

while deciding whether Home Box Office (HBO) had a spillover reputation in India, allowed reliance on market survey evi-dence filed by way of affidavits at the interlocutory stage. This decision was approved in Fedders North American v Show Line & Ors (2006), where the court again required survey reports to be sup-ported by affidavits to ensure its compli-ance with the Indian Evidence Act, 1872.

In Samsonite Corporation v Vijay Sales (1998), Delhi High Court held that the survey has to be tested at trial where witnesses (who conducted the survey) would be subject to cross-examina-tion. This reasoning was approved by Kerala High Court in PP Hamsa v Syed Agencies (1990).

In Stokely Van Camp Inc and Anr v Heinz India Pvt Ltd (2010), Delhi High Court rejected the survey since the concerned parties were not put to cross-examination and the survey was conducted after filing the suit. Patna High Court in Orchid Health Care v Aglowmed Ltd (2010) held the survey report to be inaccurate, but provided no guidance on admissibility.

The Intellectual Property Appellate Board (IPAB), which hears appeals against decisions of the Registrar of Trade Marks, takes note when parties do not conduct surveys, where such surveys might have been useful. In Prestige Housewares India Ltd and Anr v Gupta Light House and Anr (2007), the IPAB pointed out that the defendant had not done a market survey to ascer-tain the availability of a mark. In Brooke Bond Lipton India Ltd v Girnar Exports and Anr (2006), the IPAB laid down the prerequisite that for a survey report to be relied as evidence the report should be available on the date of filing the application for trademark registration.

The Indian Intellectual Property Office’s Draft Manual on Trademark Practice and Procedure also proposes

to prescribe some guidelines for con-ducting surveys that may be useful and allow for the admissibility of a survey in a legal forum. The draft guidelines cover the selection of interviewees, the number of people invited to take part in the survey, the number of people who actually participated in the survey, the disclosure of exact answers to the sur-vey questions, etc.

The manual further cautions that questions forming part of the survey questionnaire should not be leading and recommends that the survey use open questions such as “What comes to your mind when you see this pic-ture?” instead of suggestive questions such as “Does this picture remind you of Brand A?”

In addition to the guidelines and the case law, one additional aspect that must be explored is the cost of con-ducting the survey. Conducting a sur-vey is generally a costly and time con-suming affair, which needs to be built into litigation strategy and resorted to prior to the filing of any litigation.

Survey evidence can be particularly helpful in cases involving (deceptively) similar trademarks, as opposed to identi-cal trademarks. Subject to admissibility issues, survey evidence is likely to be compelling for judges grappling with the issue of likelihood of confusion under section 29 of the Trade Marks Act. Case law going back to the 1990s and guide-lines such as those mentioned above have established that it is indeed permis-sible to submit survey evidence before Indian courts and tribunals. While this process is still at a nascent stage, it is expected to develop further in the future.

By Ameet Datta andSuvarna Mandal,Saikrishna & Associates

Ameet Datta ([email protected]) is a partner at Saikrishna & Associates, where Suvarna Mandal ([email protected]) is an associate.

Correspondents


Media & entertainment

May 2014

I ndia’s media and entertainment indus-try has seen an explosive surge in the past decade. While new media agen-

cies are constantly vying with old hands to gain a foothold in the industry, the existing agencies have smoothly taken to newer media platforms with gusto. Add to that, international publications and media houses are making a beeline to India’s shores. Suddenly new regulatory concerns have cropped up and several bills have been introduced that address them. Three of these bills are outlined below.

News media

The Press and Registration of Books and Publications Bill, 2013, seeks to consolidate and amend the existing laws on the press and registration of books. The bill would allow Indian entities and citizens (except for those convicted for terrorist acts, unlawful activities and acts against the security of the state) to start newspapers and journals.

Prior approval of the central gov-ernment would be required to print or publish a newspaper or journal if: (a) the publication is owned or invested in by a foreigner or an entity registered outside India; (b) its title is identical or similar to a foreign journal’s title; (c) its foreign news content exceeds the limits prescribed; (d) it is identical to a known foreign publication.

The bill defines an “editor” as a per-son, by whatever name called, who is a citizen of India and ordinarily resides in India, who controls the selection of the matter that is brought out in a publica-tion. This would limit the selection of editors to citizens of India.

The bill defines “paid news” as pub-lishing any news or analysis in the pub-lication for a price in cash or kind, and proposes that publications may lose registration if they carry paid news.

The bill defines “newspaper” to mean a publication of loose folded sheets usually printed on newsprint, brought out at least once in a week, containing public news or comments on public news, and includes its reproduction in electronic form, i.e. e-papers.

Depiction of women

The Indecent Representation of Women (Prohibition) Amendment Bill, 2012, was introduced in the Rajya Sabha in December 2013. The bill would amend the Indecent Representation of Women (Prohibition) Act, 1986, which prohibits the indecent representation of women in the print media.

The bill would expand the definition of indecent representation of women to mean the depiction of the figure or form of a woman in such a way that it has the effect of being indecent or derogatory or is likely to deprave or affect public morality.

The bill would add a new definition of “electronic form”, meaning any informa-tion generated, sent or stored in media, magnetic and optical form (as defined under the Information Technology Act, 2000).

The bill would broaden the scope of media. The definitions of “advertise-ment” and “distribution” would now include all types of media. A definition of “publish” would be added, which includes printing, distributing or broad-casting through audiovisual media.

The bill enhances penalties and fines for various offences. Films and television serials are not included within the bill’s ambit, which has caused some concern.

Films

The draft Cinematograph Bill, 2013, proposes changes to the Cinematograph Act, 1952. The central government set

up a panel to provide a new legal frame-work in the wake of the controversy over the ban on the film Vishwaroopam by the state of Tamil Nadu, after the Supreme Court had held in 2011 that once a film was certified for viewing by the Central Board of Film Certification (CBFC), no state government could raise objections to its content.

Under the draft bill, once a film has been certified by the CBFC, its screen-ing can only be suspended by the cen-tral government. A suspension can be invoked only after a written show-cause notice had been given to the filmmaker, setting out the grounds for proposing the suspension and providing a reason-able opportunity for the filmmaker to respond.

The draft bill adopts the internationally prevalent practice of age-related classifi-cation of films. The current UA category (unrestricted exhibition but parental dis-cretion required for children below 12 years) would be replaced by restricted to persons age 12+ and restricted to per-sons age 15+. The “U” (unrestricted), “A” (restricted to adults) and “S” (restricted to members of any profession or any class of persons) categories have been retained.

Under the draft bill, the definition of “film” would no longer be confined to the “moving picture content of the film” but would include advertising material and the lyrics of songs.

The policy makers need to be con-stantly on their toes and evolve and adapt regulations to keep up with the ever changing industry. So far the government has been proactive in its approach to put in place appropriate rules and guidelines to govern the media and entertainment industry.

Pooja Dodd is the head of the trademarks team at LexOrbis.

709/710 Tolstoy House, 15-17 Tolstoy MargNew Delhi - 110 001

IndiaTel: +91 11 2371 6565Fax: +91 11 2371 6556

Email: [email protected]

Bills to update regulation of news and entertainment

By Pooja Dodd,LexOrbis

Correspondents


Mergers & acquisitions

May 2014

Amarchand Towers 216 Okhla Industrial Estate - Phase III

New Delhi - 110 020 Tel: +91 11 2692 0500 Fax: +91 11 2692 4900

Managing Partner: Shardul ShroffEmail: [email protected]

By Akila Agrawal and Anjali Puri,Amarchand Mangaldas

Aprivate company under the Companies Act, 2013 (2013 act), is a company that has a minimum

paid-up capital of `100,000 (US$1,640), restricts the rights to transfer its shares, limits its number of members to 200, and prohibits any invitation to the public to subscribe for any securities of the com-pany. Under the Companies Act, 1956 (1956 act), a private company was a pre-ferred vehicle for closely held entities that did not need to tap public funds.

This article examines whether the private company will continue to be a preferred vehicle for promoters given the sweeping changes that have been made to the benefits and exemptions enjoyed by private companies. The key benefit enjoyed by a private company under the 1956 act was the ease with which it could conduct its business given the relaxed corporate law regime, limited interference from the regulator, lower compliance costs and minimal disclo-sure requirements to the general public.

Benefits withdrawn

The 2013 act has substantially modi-fied the regulatory regime as far as pri-vate companies are concerned. Some of the key changes that disallow benefits enjoyed by private companies are as follows: (a) exercise of certain powers by the board of directors (including the sale, lease or disposal of the whole or substantially the whole of the undertak-ing of the company) requires shareholder approval; (b) the concept of interested directors and prohibition against their participation in board meetings is appli-cable to private companies; (c) private companies are prohibited from giving loans to directors; (d) inter-corporate loans and investments among private companies are restricted; (e) further issu-ance of share capital through a preferen-tial issue will require a special resolution

along with a valuation for the price of the shares; (f) the exemption available to pri-vate companies to issue shares with dif-ferential rights, as regards dividend, vot-ing or otherwise, has been withdrawn; (g) the prohibitions relating to insider trading and forward dealing are applicable to private companies; (h) various condi-tions for private placement of shares and debentures have become applicable to private companies; (i) any member of the general public can inspect or obtain the copies of the profit and loss accounts of the private company; and (j) compliance requirements for the appointment of directors and conduct of general meet-ings have increased.

Continuing advantages

Private companies however con-tinue to enjoy lower thresholds as far as minimum paid-up capital and minimum numbers of directors on the board are concerned. Additionally, a private com-pany is not required to have independ-ent directors (even for the constitution of the corporate social responsibility committee) or appoint key managerial personnel. A private company is also not prohibited from giving a loan or financial assistance to a person for buying shares of the company or its holding company.

As far as directors of private compa-nies are concerned, they are not liable to retire by rotation and are free to hold similar positions in 19 other private com-panies, and there is no restriction on managerial remuneration. A private com-pany can also provide for additional dis-qualifications for directors in its articles of association.

Weighing cons against pros

Given the above, it appears that the key factors that weigh in favour of setting up a private company are: (a)

its ability to restrict transfer of shares, which is enforceable not only against the shareholders but also the com-pany; (b) flexibility in managerial remu-neration; (c) not having to appoint inde-pendent directors; (d) increase in the number of members permitted in a private company from 50 to 200, which is beneficial for the private raising of funds; and (e) dispensation from the requirement to appoint key manage-rial personnel. The prohibition against participation of interested directors in board meetings will pose a challenge for promoter-run or closely held private companies that engage in related-party transactions in a routine manner. Such companies will be required to broaden the base of their board of directors to ensure that a quorum is available at meetings where such transactions are considered.

Conclusion

The provisions of the 2013 act relat-ing to private companies are highly restrictive and cumbersome. They defy reason because in closely held private companies considerations relating to minority investor representation or pro-tection are non-existent. Hence, private companies should not be subjected to compliance requirements that hinder flexibility and diminish the benefits attached to the status of the entity. One can only hope that the govern-ment uses its discretionary powers of exemption to exempt private compa-nies from some of the onerous provi-sions mentioned above.

Akila Agrawal is a partner and Anjali Puri is an associate at Amarchand & Mangaldas & Suresh A Shroff & Co. The views expressed in this article are those of the authors and do not reflect the position of the firm.

Private limited companies:End of an era?

Correspondents


Regulatory developments

May 2014

New DelhiSecond Floor, 254, Okhla Industrial Estate Phase III New Delhi – 110 020, IndiaTel +91 11 4983 0000Fax: +91 11 4983 0099Email: [email protected]

Two new banking licencesawarded by central bank

On 1 July 2013, the Reserve Bank of India (RBI) disclosed that it had received 26 applications

from private sector entities for licences to establish new banks. The applicants included prominent financial and indus-trial concerns such as Edelweiss, L&T Finance, Reliance Capital, Videocon Group and Tata Sons, although Tata Sons and the Videocon Group later withdrew their applications. After an ini-tial screening of applications by the RBI, the applications were further scrutinized by the High Level Advisory Committee (HLAC) established by the RBI.

The winners

Based on the recommendations of the HLAC, the RBI on 2 April 2014 granted “in-principle” approval to two applicants, namely, IDFC Limited and Bandhan Financial Services Private Limited, to establish new banks. The application of the Department of Posts was reserved for further consultation with the central government.

The “in-principle” approval is valid for 18 months, and the successful appli-cants are to be granted a licence to com-mence banking business in India based on their compliance with the conditions mentioned in the “in-principle” approval.

Legislative progression

In his budget speech for the financial year 2010-11, on 26 February 2010, India’s then finance minister, Pranab Mukherjee, announced that to “extend the geographic coverage of banks and improve access to banking services” the RBI would consider granting licences to private sector entities to establish new banks. On 11 August 2010, the RBI placed a discussion paper on guidelines for the entry of new banks in the private sector on its website for comments.

Taking into account the comments received on the discussion paper, the RBI placed draft guidelines on its web-site for comments on 29 August 2011. The guidelines for licensing of new banks in the private sector were finalized and issued on 22 February 2013, after taking into account the amendments to the Banking Regulation Act, 1949, brought about by the enactment of the Banking Laws Amendment Act, 2012, and the comments received on the draft guidelines.

The amendments to the Banking Regulation Act were crucial to the issu-ance of new licences as, among the measures they introduced, they allowed an increase in the restriction in voting rights from 10% to 26% (subject to the RBI’s guidelines), allowed banks to issue preference shares (subject to the RBI’s guidelines), and empowered the RBI to “supersede” the board of directors of a bank for a period of six to 12 months if the RBI is of the view that the board of the bank is not working in the interests of the depositors and the shareholders.

Notably, the passage of the Banking Laws Amendment Act was one of the RBI’s specific requirements to com-mence the process of accepting applica-tions for the issuance of licences for new banks.

Factors considered

In its press release on “in-principle” approvals, the RBI stated that the appli-cations had been assessed on the basis of factors such as the financial state-ments of group entities, proposed busi-ness plan, and demonstrated capability for running a bank. The RBI also left the door open for unsuccessful applicants to apply again in the future for licences to establish banks.

There has been a sense that the RBI would be reluctant to grant licences to

industrial concerns so as to avoid the possibility of banks set up by them using money from the public for the benefit of the group. Certain requirements pre-scribed by the guidelines for the estab-lishment of new banks may also have discouraged industrial concerns from applying for licences. These include: the establishment of a wholly owned non-operative financial holding company (NOFHC) to own the bank; the bank and the NOFHC having no credit and invest-ment exposure to the promoter group; the NOFHC not having any equity, debt or credit exposure to any entity outside the promoter group; the bank not hav-ing any equity exposure to any other NOFHC; and the board of the bank hav-ing a majority of independent directors.

What’s next?

In a progressive move, the RBI also announced that it intends to modify the new bank licensing guidelines so that the issuance of licences is on an “on tap” basis, i.e. applications for establishing banks can be submitted at any time. The RBI also intends to move towards granting “differentiated licences”, which will broaden the pool of applicants for banking licences. This ties in with one of the recommendations of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, which was chaired by Nachiket Mor (incidentally also a mem-ber of the HLAC): to have separate banks for separate functions such as payment processing, wholesale investment bank-ing (which would lend only to niche sec-tors like infrastructure), wholesale con-sumer banking, and full-service banking.

Sawant Singh is a partner and Aditya Bhargava is a principal associate at the Mumbai office of Phoenix Legal.

MumbaiVaswani Mansion, 3rd Floor120 Dinshaw Vachha RoadChurchgate Mumbai – 400 020, IndiaTel: +91 22 4340 8500Fax: +91 22 4340 8501Email: [email protected]

By Sawant Singh andAditya Bhargava, Phoenix Legal

Correspondents


Taxation & transfer pricing

May 2014

I ndia has a high incidence of dis-putes pending before various tax forums. As the Income-tax Act,

1961, allows tax officers to recover tax demands while appeals are pending, the powers of administrative and judi-cial authorities to stay recovery pro-ceedings are crucial from the asses-see’s perspective. Yet, the powers of the Income Tax Appellate Tribunal (ITAT) to stay demands have been the subject of controversy. This article deals with one such controversy.

Initial ly, the ITAT had no statu-tory power to stay demands. The Supreme Court in Income Tax Officer v MK Mohammed Kunhi (1968) held that the ITAT possessed this power inher-ently on the basis that: (1) the power to decide appeals must carry with it the ability and duty to make the exer-cise of that power fully effective; and (2) the winning party must be able to reap the fruit of its success.

Statutory developments

The power of the ITAT to grant a stay was statutorily provided in sec-tion 253(7) and by way of the insertion of a proviso to section 254(2A) of the act. In 2007, it was stipulated that the ITAT could not extend the stay period beyond 365 days. Contrary to this legislative intent, but given the overload and functioning of the ITAT, stay orders routinely had effect beyond 365 days. An amendment in 2008 further stipulated that the outer limit of 365 days cannot be breached, even where the delay in the disposal of the appeal is not attributable to the assessee.

In this context, courts have taken varying views on the effect that the 2008 amendment had on the ITAT’s powers to stay demands. Bombay High Court in CIT v Ronuk Industries

Ltd has taken the view that the ITAT continues to have the power to extend stays beyond 365 days, while the high courts of Karnataka, Delhi and Uttarakhand have held that the ITAT, as a creature of the statute, is bound to stay within four corners of the stat-ute, and cannot grant stays beyond the statutorily permitted period of 365 days, even if the delay in deciding the appeal is not attributable to the assessee.

Read strictly, the statutory provision leaves an assessee, who has been granted a stay but whose appeal cannot be decided in the prescribed time, in a vulnerable position. Such an assessee is liable to be proceeded against for recovery of dues and be considered as an “assessee in default”.

To protect against this possibility, where the assessee is not at fault for the delay in disposing of the appeal, Delhi High Court’s recent decision in CIT v Maruti Suzuki spells out that an assessee can file a writ petition in the high court seeking a stay in such cir-cumstances and the court has power to stay demands and issue directions to the ITAT for this purpose.

What’s next?

While the statute governs the ITAT, given the spate of differing views by high courts, how different benches of the ITAT apply and follow these decisions and interpret the provisions will be closely watched. The Special Bench and the Ahmedabad Bench have held that the ITAT retains the power to grant a stay beyond 365 days. Should another bench of the ITAT now endeavour to adopt a con-trary view (apart of those within the jurisdiction of the Karnataka, Delhi and Uttarakhand high courts), it will

be proper for such a bench to make a reference to the president of the ITAT as provided in section 255(3) of the act to constitute a special bench to resolve the controversy.

That apart, given that previously courts had read down this provision, it needs to be seen whether it can with-stand a constitutional challenge.

As the ITAT was constituted to dispense specialist and speedy jus-tice, this restriction on the powers of the ITAT, without ensuring that it is equipped with the proper infrastruc-ture to deal with its workload, may be viewed as unfair. Where a stay expires after 365 days entailing a payment and the assessee can expect relief only at the stage of final disposal of the appeal, justice is effectively denied and the winning litigant is ultimately handed a “barren success”.

In terms of section 151 of the Code of Civil Procedure, the ITAT may be seen to possess the powers to pass all orders necessary to do justice. Therefore, where a stay of demand has run its course of 365 days, the ITAT must be trusted to grant a stay beyond 365 days in deserving cases, and in terms of established guidelines.

Besides, it is an established legal principle that no party should be prej-udiced due to action or inaction on the part of the court. As the absence of a stay resulting from the court’s inaction (owing to the overload) with no fault of the assessee can have serious and detrimental cash flow implications, the present situation deserves a legislative relook.

Ranjeet Mahtani is an associate partner and Stella Joseph is an associate manager at Eco-nomic Laws Practice. This article is intended for informational purposes and does not con-stitute a legal opinion or advice.





Appeal tribunal’s power to stay demands needs relook

By Ranjeet Mahtani and Stella Joseph,Economic Laws Practice

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