'Sick' companies cannot use rehabilitation schemes as shield for infringing activities

India

In Ferrero SpA v Siddiq (IA 579/2014 in CS(OS) 2627/2013), the High Court of Delhi has refused to stay infringement proceedings pending implementation of a rehabilitation scheme for the defendants by the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act 1985 (SICA).

In 2013 Ferrero sued the defendants for selling mouth fresheners under the mark TIT BITS, alleging infringement of its trademark and trade dress rights in the Tic Tac product. The defendants applied for a stay of proceedings under the provisions of SICA, as they were undergoing a scheme of rehabilitation with BIFR after their net worth became negative.

Ferrero’s Tic Tac product

The defendants’ Tit Bits product

The defendants contended as follows:

  • Ferrero’s request for a temporary injunction qualified as an action amounting to “distress”; if granted, the injunction would adversely impact the implementation of the rehabilitation scheme and would amount to an act of “execution” against the defendants under the provisions of SICA.
  • The procedure under SICA was conditional on obtaining prior permission from BIFR.

Ferrero opposed the application for a stay of proceedings, contending as follows:

  • The application for a stay of proceedings was a gross abuse of the process of law; it had been filed with the sole intent of evading the liability resulting from the illegal infringing activities of the defendants.
  • The rehabilitation scheme did not govern or extend to the trade dress of the defendants' Tic Tac product.

After hearing the parties, the court rejected the defendants' application for a stay of proceedings on the following basis:

  • The embargo mentioned in the relevant provisions of SICA referred only to the dues provided or included in the rehabilitation scheme, and could not be used as a “shield” to carry out illegal/infringing activities.
  • If the defendants' contentions were to be accepted, it would enable "sick industrial companies" to evade liability.
  • An injunction granted against the defendants could not be held to be an “execution” of the defendants' intellectual property.

It remains to be seen whether the injunction against the defendants affects their reputation in the market, which would have an indirect effect on the rehabilitation scheme. Companies which are under liquidation or administration, or under the control of a court commissioner, can face several additional difficulties, especially if their intellectual property is infringed. Their problems may escalate further if potential buyers back out due to these IP violations. Dealing with liquidators, administrators or court commissioners on IP issues is a difficult task.

Adheesh Nargolkar, Shailendra Bhandare and Arunadhri Iyer, Khaitan & Co, Mumbai

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