Trademark issues raised in employment contribution fund case

The case of Shubham Knit Wear Pvt Ltd v The Regional Provident Fund Commissioner, Maharashtra and Goa (Appeal 1026 of 1997, March 1 2007) from the High Court of Mumbai highlights a growing trend for trademark issues to crop up for consideration before the Indian courts not only in infringement and passing off actions, but also in relation to other matters, such as fiscal and, as here, labour law.

The Employees' Provident Funds and Miscellaneous Provisions Act 1952 grants certain exemptions to employers that have an 'establishment' from making contributions to the employees' provident funds. Shubham Knit Wear Pvt Ltd claimed to be entitled to such exemptions. However, these could be denied if its 'establishment' could be regarded as a 'branch' or 'department' of its licensor - Rolex Hosiery Pvt Ltd.

Rolex Hosiery had granted a royalty-based trademark licence to Shubham to use its mark VICTOR on certain undergarments meant for sale in the states of Madhya Pradesh and Maharashtra, while in other states Rolex Hosiery continued to manufacture and market its own undergarments under the mark VICTOR. Further, under the licence agreement, Shubham was required (i) to install plant and machinery as per the specifications of Rolex Hosiery, (ii) to manufacture VICTOR undergarments as per the technical know-how provided by Rolex Hosiery so that the latter's quality standards were maintained. To ensure the quality of its VICTOR products, Rolex Hosiery had been granted rights in respect of quality control and supervision of Shubham's manufacturing operations. By virtue of this trademark licence agreement, the provident fund authorities contended that Shubham's establishment should be incorporated into that of Rolex Hosiery as a branch or department thereof by virtue of the provisions of the trademark licence agreement, including those pertaining to quality control and supervision. The authorities argued that this would disentitle Shubham from the exemptions in respect of provident fund contributions.

Shubham contended that the quality control and supervisory provisions in the trademark licence agreement were intended only to ensure that the distinctiveness of Rolex Hosiery's VICTOR mark was not diluted and merely by virtue of such provisions the two establishments could not be linked as there was no union at management, control or employment level.

The trial court rejected Shubham's contentions and held that its establishment was linked with that of Rolex Hosiery as a branch or department thereof by virtue of the provisions of the trademark licence agreement.

The appeal court reversed the decision of the trial court and held that:

"a trademark has associated with it the goodwill generated by the business of the owner. A proprietor of a mark who permits the use of the mark by another is entitled to impose conditions that ensure that the goodwill associated with the mark is not diluted and that the distinctiveness of the mark is not obliterated."

By virtue of such conditions, the appellate court stated that Shubham's establishment could not be deemed to be a branch or department of Rolex Hosiery, and the separate identity of the two establishments had not been lost.

Mustafa Safiyuddin, DSK Legal, Mumbai