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A Case That's Becoming More And More Common
Picture this - A medium sized investor in Mumbai invests in a seemingly lucrative business opportunity. The presentation is all spiffy - design, marketing material, a trademark registration number, a license. All looks legitimate. Six months on, he finds the franchisor didn't own the brand after all. The trademark was either pending, contentious or fictional. He loses his money and the person he trusted to make it is lost in the commercial wilderness.
So the first question in such circumstances is - which law applies? Is this a trademark case? Is it fraud? Is it both? And which court do you approach?
This is no hypothetical situation. It is increasingly becoming the reality of commercial disputes in India, and it highlights a legal conundrum which has been steadily developing for decades: where does trademark infringement leave off as an IP issue between individuals and begin looking more like white collar criminality?
The Civil Framework - and Why it Was Designed for Another Time
India's trademark law has traditionally fallen into a fairly clear civil law framework. 1 The Trade Marks Act, 1999 lays down the rules. Section 28 provides exclusive rights to the registered proprietor to use the mark in respect of the goods or services for which it is registered and to sue for infringement. Section 29 sets out the meaning of infringement the use of an identical or deceptively similar mark in a way that it is likely to deceive consumers.
The protection of unregistered marks and goodwill against misrepresentation through the common law doctrine of passing off (may be preserved under Section 27(2) of the Act. The remedies in Sections 134 and 135 are the standard civil remedies: injunctions, damages, accounts of profits, the delivery of infringing goods and the destruction of counterfeit labels.
This was designed to combat particular issues. A competitor steals your logo. A company makes imitations of your products. An imitator uses your good name to steal customers. There's a harm; the law protects and the response is private. But business has changed - and so has the law, in some instances.
How Trademark Misuse Has Progressed from Infringement
Today's misuse is very different from conventional infringement. Trademark misuse is increasingly being deployed not just to mimic a brand, but to build an entire edifice of commercial fraud, one in which the mark is the focal point of a larger plan, rather than simply a mimicked logo.
Trademark ownership is a typical feature of pitch decks and due diligence packs in the investment and fundraising market. Businesses constantly claim to "own the brand," that the mark is "registered" or that it has been "exclusively licensed" to the firm. In fact, registration might be pending, assignment deeds might be flawed, or even ownership might be contested. The mark is being used not to promote goods or services, but to create credibility to enhance the appeal of an investment opportunity.
The issue is a bit different in the case of franchises. Franchisees pay substantial amounts to invest on the basis of brand goodwill and a licence, which also implies the franchisor has the authority to allow the franchisee to use the brand. When it turns out that the franchisor does not own the trademark, the franchisee has not simply been breached. They have been tricked into a business venture based on a misrepresentation of a critical fact. Not only was the trademark infringed, it was used as a bait.
Then there is mass counterfeiting. Large counterfeit operations are not a vendor on the back footpath selling counterfeit handbags. They have shell distributors, fake invoices, hidden manufacturing and supply chains, hidden logistics, revenue avoidance, and complex business models to conceal their activities from enforcement authorities. The brand is being copied, certainly but also there is organised economic crime.
Finally, there is the customs and import aspect, where trademarked goods are misclassified, under or misdescribed in order to avoid customs duties, or to bypass IP law enforcement at the border. In each of these cases, trademark abuse is no longer a proprietary harm. It is deceptive and misleading with economic impacts reaching beyond investors, franchisees, regulators, consumers, and the state's revenue.
The Relevant Provisions of the Criminal Law
The short answer to the question, when is trademark misuse white collar crime is that it is when the mark is no longer merely counterfeited, but used as a tool for strategic deception that has financial implications.
A few provisions of the Indian criminal law apply at this point.
2The Bharatiya Nyaya Sanhita, 2023 (BNS) that has replaced the Indian Penal Code (IPC) includes offences of dishonest inducement and financial deception. Where the misuse of the trademark is the means by which investors, franchisees or consumers are deceived into a decision they would not otherwise have taken and which results in financial loss the activity may constitute cheating and fraud under the BNS in addition to the civil trademark infringement.
Where the conduct involves manufacture or use of forged licensing agreements, fictitious assignment deeds, bogus invoices, forged authorisation records documents which are manufactured to give the appearance of legitimate trademark ownership offences relating to forgery and use of forged document under the BNS may apply.
3 The Companies Act, 2013 adds an additional dimension where there are falsifications of trademark rights ownership in company reports, financial statements, prospectuses or other investor documents. Ownership of trademark rights, registration, exclusive use are assets. False statements about them in investor documents are not just bad titles. It is corporate fraud with ramifications under the disclosure and liability laws of companies.
Counterfeiting at Scale - IP infringement or economic crime?
Probably the most obvious and well known example of this phenomenon is trademark counterfeiting, yet here, too, the law has not kept up with commerce.
The Trade Marks Act, 1999 has criminal offences. Section 102 makes it a crime to falsify a trademark. Section 103 criminalises the unauthorised use of a trademark. Section 104 relates to the sale, possession or offer for sale of goods bearing a false trademark. Section 105 provides for higher penalties for repeat offenders.
These provisions are not bad in themselves. But they were not visionary at the time of the Act. They were premised on a system in which counterfeiting was typically limited to a retailer copying a trademark, a shopkeeper selling fakes. They don't deal well with the organised financial networks involved in large-scale counterfeiting.
Large-scale counterfeit networks are not only IP theft. They are networks of economic fraud with shell companies, hidden incomes, faked supply chain, tax avoidance, regulatory avoidance. When the gains of that counterfeiting operations are then funneled through legitimate business or financial channels, 4 The Prevention of Money Laundering Act, 2002 (PMLA) kicks in. Although trademark infringement in and of itself is not necessarily regarded as a scheduled offence under the PMLA, many of the related acts - such as forgery, cheating, fraud, counterfeiting of documents - can amount to predicate offences whose proceeds fall within the ambit of the PMLA. At that stage, you have a non-IP case. You are talking about economic organised crime.
The Dimension of Public Revenue that is Overlooked
The public revenue angle is one of those aspects which is commonly overlooked in trademark infringement cases and which should be given more attention.
5 Where goods are imported with incorrect brand declarations, or undervalued and misdescribed to avoid customs duty and IP enforcement at the border, 6 The Customs Act, 1962 applies. Customs can already seize infringing imports under 7 the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007. However, if the importation also involves undervaluing, or making false statements, then it becomes a case of customs fraud and the subject matter moves from IP infringement to customs evasion in an entirely different regulatory regime with different enforcement instruments and much more serious penalties.
Likewise, counterfeiting often involves falsified bills of lading, missing turnover and hidden supply chains all of which are signs of GST evasion. What appears as an instance of trademark misuse, may also be an instance of fiscal evasion. This is one of the ways in which organised trademark misuse differs from the civil infringement scenario. The injury is not just to the mark owner. It's not just to the mark owner, but also to the state's revenue, its regulatory framework and to the integrity of the market itself.
The Doctrinal Gap - What India's Law Lacks
The most that can be said of the current situation in India is that we have yet to develop a doctrinal approach that takes into account the circumstances in which trademark abuses are a matter for civil IP law enforcement, and which are subject to the more wide-ranging consequences of economic crime.
There is no judicial test, statutory definition or regulatory guidelines. The courts have considered some aspects of the criminal law in trademark law from time to time, particularly in cases of counterfeiting but there is no clear intersection between trademark enforcement and white-collar crime in the Indian doctrine.
This is a problem in practice. Victims of commercial fraudulent trademark activity investors deceived by fraudulent claimants of ownership, franchisees deceived by fraudulent licensing, authorities engaged in fighting counterfeiting networks with imports - are sometimes unclear about what law to invoke, what court to litigate in and what cause of action to take. The upshot of this is that some highly sophisticated commercial frauds can, on occasion, hide behind the more limited terms of IP infringement, despite being functionally akin to crime. This is not a good outcome.
Not All Infringement Should Be Criminalised - But Some Should
This is not to say that all infringements should be criminalised. That would be an abuse of the criminal law that might use criminal enforcement to sue over commercial disputes, a worry that is particularly acute in a world in which criminal prosecution itself can have significant reputational and practical consequences for the defendant.
Rather the point is more specific. Where trademark use is illegal, where it is structured, financially engineered, commercially exploitative and deceptive rather than competitive where, for instance, it is not being used to sell goods in competition with the holder but to provide a commercial vehicle to facilitate deception then the civil liability provisions of the Trade Marks Act are not enough on their own.
When a trademark is used the question ought not be "was a trademark infringed?" but "what was a trademark used for?" If it is that it was used to deceive, defraud, evade or facilitate illicit gain then it should not just be infringement.
Where This Leaves Us
India has the tools The Bharatiya Nyaya Sanhita, the Prevention of Money Laundering Act (PMLA), the Companies Act and the Customs Act all contain provisions that could be applied to address commercially fraudulent trademark infringement. What it doesn't have is doctrine that connects these laws to the reality of organised commercial fraud in the area of trademarks - a doctrine that assists judges, regulators, policemen and lawyers to identify when a dispute over an intellectual property is actually a bigger issue.
That's one of the more important and neglected areas of Indian commercial and IP law. And so, the longer it takes to solve this problem, the bigger the chance for organised commercial fraud to hide its head in the intellectual property dispute.
Footnotes
1. Trade Marks Act, 1999 Section 27(2) — Saving of vested rights and common law remedy of passing off Section 28 — Rights conferred by registration Section 29 — Infringement of registered trademarks Section 102 — Falsifying trademarks Section 103 — Falsely applying trademarks to goods or services Section 104 — Sale of goods or provision of services to which false trademark is applied Section 105 — Enhanced penalty on second or subsequent conviction Sections 134 and 135 — Civil remedies including injunction, damages, and account of profits
2. Bharatiya Nyaya Sanhita, 2023 Provisions relating to cheating, fraud, dishonest inducement, forgery, and use of forged documents
3. Companies Act, 2013 Provisions relating to misrepresentation in prospectuses and financial disclosures; false statements in documents
4. Prevention of Money Laundering Act, 2002 Provisions relating to proceeds of crime, predicate offences, and anti-money laundering obligations
5.
6. Customs Act, 1962 Provisions relating to false declarations, misdescription, and undervaluation of imported goods
7. Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 Rules governing the detention and seizure of IP-infringing goods at Indian customs borders
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
