MAINTAINABILITY OF A PASSING-OFF SUIT BY A NON-REGISTERED FIRM- PART II

The author is Prachi Mathur, a third year student at National Law School of India University (NLSIU), Bangalore.

See the previous part here

Passing-off Suit – Nature & Maintainability

The Nature of a Passing-Off Suit

Passing-off is based on the principle that one must not sell or represent other’s goods or services as one’s own. To prove a claim of passing-off, the plaintiff must prove misrepresentation by the defendant, the presence of goodwill of the plaintiff’s goods, and damage to this goodwill caused by the defendant’s misrepresentation.

Further, the nature of a passing-off suit is different from that of a trademark infringement. Passing-off is broader than trademark infringement in that it is based on a general principle of common law and covers unregistered trademarks as well. Moreover, the usage of the trademark by the defendant is required to prove a case of infringement; this is not required for a case of passing-off. Raptakos clarified that whereas trademark infringement is a statutory remedy covered under Section 29(1) of the Trademark Act, 1999 passing-off is a tortious remedy. In Laxmikant V. Patel v. Chetanbhat Shah, the court said that Section 20 of the Code of Civil Procedure, 1908 applies to passing-off suits. However, for trademark infringement, only proof of deceptive similarity is required; but for passing-off, the evidentiary burden is higher because, in addition to deceptive similarity, proof of confusion in the mind of the public, and injury to the trademark owner’s goodwill need to be proved.

The remedies for passing off are based on common law. These include permanent and/or interim injunction to restrict further usage of the trademark, damages for using the trademark, and order for handing over or destruction of infringing marks by the infringer of the trademark.

Therefore, as a right arising from common law as opposed to contract, passing-off suits, including extended and reverse passing-off, are maintainable by an unregistered firm.

The Indian Position & the Established Law

This Part evaluates the nature of a passing-off suit and its maintainability under Section 69(2) through case laws. The Supreme Court in Raptakos authoritatively laid down that a passing-off suit is an action based on a right based on common law, and, thus, was maintainable as it did not fall under the general bar of Section 69(2).

Thereafter, in Haldiram Bhujiawala and Anr vs Anand Kumar Deepak Kumar and Anr, Haldiram was carrying on his trade under the name of Haldiram Bhujiwala since 1941. In 1965, he, along with his first and second sons and the daughter-in-law of the third son, formed a partnership (P1). In 1972, the firm was registered. Later, in 1974, the partnership was dissolved under the dissolution deed (‘the deed’). Under the deed, the first son got the exclusive right over the trademark for the whole of India except West Bengal. The daughter-in-law got the right over the trademark for West Bengal. Thereafter, in 1985, the first son died, and his four sons (‘the grandsons’) had their names recorded as joint proprietors. Three of the grandsons formed another partnership (P2) operating in Delhi. The third son (husband of the proprietor daughter-in-law) and his son, Ashok Kumar, who had no right to use the trademark beyond West Bengal opened a shop in Delhi under the trademark through their partnership firm (P3).

In 1991, the plaintiff's grandsons (P2 and the fourth grandson not part of P2) came to know of this violation and filed a suit against defendant P3 and Ashok Kumar. The plaintiffs based their cause of action on passing-off and contractual rights (as per the deed). The defendants sought rejection of the plaint under Order 7, Rule 11 of CPC pleading Section 69(2) as a bar to the maintainability of this suit. Essentially, the defendants contended that the suit by the plaintiffs was unmaintainable as it was an unregistered partnership. The court relied on the principles laid down in Raptakas, and affirmed the object of the Section as discussed in the Select Committee Report to rule that Section 69(2) does not bar common law or statutory remedies. Firstly, under the Trademarks Act, a trademark is a statutory right; and secondly, a passing-off action is based on a common-law principle grounded in tort law. Thus, neither is classified as a ‘right arising from a contract’. As such, the suit was not barred by Section 69(2), and, thus was maintainable even by an unregistered firm. In Purushottam & Anr vs Shivraj Fine Art Litho Works & Ors, and Shiv Developers, through its partner Sunilbhai Somabhai Ajmeri v. Aksharay Developers & Ors, the principles laid down in Haldiram were affirmed. Besides following principles held in Haldiram, Blueberry Books and Others v. Bharti Goyal and Another (Blueberry involved a suit based on copyright which has held to a statutory right, and, thus, not arising from a contract.) held that the mere existence of certain additional or ancillary issues will not render a non-contractual suit unmaintainable.

Shortly afterwards, the Bombay High Court, in Bade Miya v. Mubin Ahmed Zahurislam, looked at the issue of maintainability of a suit for damages and permanent injunction by a non-registered partnership firm. Herein, relying on Haldiram, the court held that such a suit for injunction and damages has to be seen as an extension of rights based on the rights of trademark and action of passing-off. Since an injunction suit for a right not arising out of a contract is maintainable (and is a non-contractual right), an injunction suit to enforce a claim of passing-off, and seeking damages is also maintainable.

To encapsulate, Raptakos laid the principle that passing-off suits are actions in common law, and, are, thus, maintainable, which was followed and expounded in Haldiram. Subsequent cases have recognised the ratio of these two cases as the established law, and the High Courts have adhered to it. The position was most recently upheld in Shiv Developers, through its partner Sunilbhai Somabhai Ajmeri v. Aksharay Developers & Ors. Thus, as per the current position of law, passing-off suits are not barred by Section 69(2); and, such suits are maintainable by unregistered firms.

Composite suits – Joinder of Passing-Off With Other Causes of Action

In cases wherein the cause of action is multi-pronged, the courts have favoured maintainability of the entirety of the suit if at least one of the prongs is a cause of action not based on a right arising out of a contract.

In Raptakos, an unregistered filed a composite suit based on a composite cause of action wherein one part of the suit dealt with the breach of the contract; whereas, the second part dealt with the breach of statutory obligations (in particular, the right to evict a tenant) under the Transfer of Property Act. As such, the maintainability of the suit under Section 69(2) was in dispute. The Court held that the suit was barred under Section 69(2) of IPA only to the extent of the first part as it was to ‘enforce a right arising from a contract’. The second part of the suit was not barred and the eviction proceedings could be continued. Following Raptakos, in Haldiram, the composite suit of trademark infringement and passing-off was held valid for both the causes of action; as such, the suit was maintainable in its entirety. Thereafter, subsequent cases have followed this line of precedents to hold composite suits with passing-off as a cause of action valid.

Concluding Observations

A passing-off suit by an unregistered firm would be covered by Section 69(2) of the IPA, which says that 'rights arising from a contract' cannot be maintained by an unregistered firm. However, since passing-off is a tortious claim in common law and does not classify as a 'right arising from a contract', a passing-off suit is not barred by this Section, and, thus, can be maintained. As a result, the current position of law is firmly settled in the favour of unregistered firms.

Additionally, a question of further research is whether an action for passing off can be construed as a contractual right in certain cases. In Luxembourg Brands S.A. R.L. & Anr. v. G.M. Pens International Pvt. Ltd., it was contended that a right of suing for passing-off can arise from a trademark licensing agreement between the partnership and third party if the contracting parties agree via the license agreement that the owner has goodwill. The court did not respond to this argument, and subsequent cases have not dealt with this issue. However, since goodwill includes the reputation of the trademark amongst the general public and the actual availability of the good or service in the country, the author suggests that it cannot be created solely via a contract. Hence, a passing-off suit would be maintainable in this case. This perspective needs to be evaluated if this issue comes up before courts in future.

Lastly, the author suggests that the current position of law regarding the maintainability of a passing-off suit is justified and reasonable. The author agrees with the reasoning of the Select Committee that mandatory registration would be too cumbersome for small and budding partnerships, and, subsequently, differs from the reasoning of the Law Commission that India should move towards mandatory registration. Even in 2022, a substantial portion of the business domain comprises small and up-and-coming partnership firms. Many businesses opt to form a partnership due to its simplicity and ease of formation. In this way, the leeway given in IPA for registration lessens the procedural burden on unregistered firms. Although a trademark holds a lot of significance for a nascent unregistered firm, it may not always have the resources to register its trademark. As a result, a passing-off suit is an essential remedy for an unregistered firm.

Also, to allay concerns, suits for the enforcement of rights arising from a contract would still be unmaintainable. This bar should be restricted to contractual rights only as, in the course of business dealings, third parties directly interact with partnerships mainly in the contractual domain, and the status of registration has a bearing on their contractual relationship. Thus, this bar ensures that the interests of third parties are protected. However, since the rights of third parties are not compromised in the non-contractual domain due to the status of registration, the author concludes that the current position of law is judicious.