Former Directors of Hogar Controls lose Trademark Battle in Delhi High Court
CASE TITLE – Hogar Controls India Pvt. Ltd. Versus Anadasu Vijay Kumar & Ors.
CASE NUMBER – CS(COMM) 669/2022
DATED ON – 29.05.2024.
QUORUM – Hon’ble Mr. Justice Sanjeev Narula
FACTS OF THE CASE
The Plaintiff, Hogar Controls Pvt. Ltd. (formerly Z-Wave India Pvt. Ltd.), a wholly owned subsidiary of Hogar Controls Inc., is suing to protect their intellectual property associated with the trademarks “HOGAR”, “HOGAR CONTROLS”, and “[Logo of HOGAR] “, which they allege are being unlawfully usurped by Defendants No. 1 to 3, who are the Plaintiff’s former Directors. On July 1, 2014, Defendant No. 1 founded a proprietary corporation focusing on affordable home and workplace electric power automation solutions. This entity specialized in home automation and Internet of Things (IoT) devices. This proprietorship eventually became a partnership with Defendants No. 1, No. 2, and No. 3 as partners. On April 11, 2017, Defendants No. 1 to 3 incorporated Z-Wave India Pvt. Ltd. as a private limited company, with each defendant holding an equal share. Defendant No. 4, Mr. Burri Venkata Surya Narayana, a cousin of Defendants No. 1 to 3, participated in Z-Wave’s commercial operations. In March 2017, Mr. Vijay Raghava Reddy Mukkamalla introduced Defendants No. 1 to 3 to Mr. Vishnu Vardhan Malikireddy and Mr. Veerabhadra Reddy Malikireddy, both Non-Resident Indians (NRIs) based in the USA. Mr. Vishnu Vardhan Malikireddy decided to invest in Z-Wave’s home automation and IoT business. From August 2017 to February 2018, Mr. Vishnu Vardhan Malikireddy’s mother, Smt. Santhamma, provided Rs. 2.25 crores to Z-Wave through credit agreements. On August 22, 2017, as a result of this investment, Mr. Vishnu Vardhan Malikireddy and Defendant No. 2 were appointed as directors of Z-Wave. After discussions, Mr. Vishnu Vardhan Malikireddy became the sole shareholder of Hogar Inc. on September 15, 2017. The parties discovered that “Z-Wave” is a communication technology managed by a consortium based in Houston, Texas, similar to “Bluetooth.” To avoid infringing on the consortium’s rights, on May 07, 2018, the parties agreed to change the company’s name from Z-Wave India Pvt. Ltd. to Hogar Controls India Pvt. Ltd. (the Plaintiff). Defendant No. 1 was appointed Managing Director of the Plaintiff and was responsible for day-to-day operations, while Mr. Vishnu Vardhan Malikireddy focused on his business interests in the USA. On October 25, 2018, a Common Stock Purchase Agreement was signed between Hogar Controls Inc. and Mr. Vishnu Vardhan Malikireddy. Mr. Vishnu acquired a majority (55%) of the shares in Hogar Controls Inc., while Defendants No. 1 through 3 retained a minority (15% combined). A Shareholders and Subscription Agreement was signed on October 26, 2018, between Hogar Controls Inc., the Plaintiff, and Defendants Nos. 1 and 2. Mr. Vishnu Vardhan Malikireddy invested approximately Rs. 1.84 crores in the Plaintiff under this agreement. On May 02, 2019, Mr. Vishnu’s brothers, Mr. Veerabhadra Reddy Malikireddy and Mr. Harsha Vardhan Malikireddy, were appointed as directors of the Plaintiff, with the consent of the existing directors.
ISSUES
Whether Defendant No. 1 is the owner of “HOGAR Controls”.
CONTENTIONS BY THE PLAINTIFF
Hogar Controls Inc. and Hogar Controls Pvt. Ltd. produce and sell high-end smart home devices under the trademarks “HOGAR” and “HOGAR CONTROLS,” operating globally in countries like Dubai, Doha, Oman, Singapore, Thailand, London, France, the Netherlands, and Lagos. Under the Shareholders and Subscription Agreement (SSA), Defendants Nos. 1 and 2 transferred all of Z-Wave’s rights, including intellectual property, to the Plaintiff. Consequently, the Plaintiff owns the trademarks “HOGAR” and “HOGAR CONTROLS” and the domain name “www.hogarcontrols.com.” Financial records indicate that prior to the SSA, Defendant No. 1 made no investments in promoting these trademarks. The Plaintiff significantly promoted the “HOGAR” brand, resulting in increased sales from 2017-2021 and extensive advertising through various media platforms. In August 2020, an audit revealed that Defendant No. 1, with help from Defendants Nos. 2 and 3, misappropriated approximately Rs. 3.05 crores by transferring company funds and signing checks for personal gain. They also transferred money to relatives and acquaintances. Defendants Nos. 1 and 2 resigned as directors to avoid criminal charges, and Defendant No. 2 was later reinstated as Chief Technical Officer as a goodwill gesture. Despite these issues, Defendant No. 1 sold products under the “HOGAR” brand on Amazon at lower prices, sourcing them from the Plaintiff’s supplier, M/s Lumi. These listings were removed following the Plaintiff’s complaints. A software audit on June 12, 2021, revealed plagiarized source codes in the Plaintiff’s mobile application, suggesting deception by Defendants Nos. 1 through 3. Following this, Defendant No. 3 resigned on July 15, 2021, and Defendant No. 2 was terminated. The Plaintiff filed a complaint with the Madhapur Police Station in Hyderabad, accusing Defendants Nos. 1 through 3 of financial fraud.
CONTENTIONS BY THE DEFENDANTS
Defendant No. 1’s attorney, Mr. Hemant Daswani, refuted the Plaintiff’s ownership claim over the “HOGAR” trademark, asserting it was not included in the SSA and remains an exclusive asset of Defendant No. 1. On September 7, 2016, Defendant No. 1 filed trademark applications for “HOGAR Controls” in classes 9 and 11, citing use since July 1, 2014, supported by invoices. Z-Wave was established on April 11, 2017, by Defendants Nos. 1, 2, and 3, and later renamed Hogar Controls India Pvt. Ltd. The understanding was that Plaintiff would act as the dealer and distributor for the “HOGAR Controls” brand owned by Defendant No. 1.During the SSA execution, Defendant No. 1 intended to retain his property rights over the “HOGAR Controls” mark separately from Z-Wave’s operations. The trademark was never assigned or transferred to Plaintiff. Defendant No. 1 filed a counterclaim against the Plaintiff for unauthorized use of “HOGAR” and attempting to pass off their goods as those of the Defendants. The Plaintiff was accused of using the mark without Defendant No. 1’s consent, leading to the issuance of a cease-and-desist letter on March 8, 2022.Defendants Nos. 1 and 2 terminated the SSA on September 27, 2021, due to their involuntary resignation and non-receipt of consideration. Defendant No. 1 continued his business with Defendant No. 5, leveraging the “HOGAR Controls” trademark. The SSA did not explicitly include intellectual property transfer, and no consideration was paid for such a transfer. The valuation report from Ernst & Young dated December 3, 2021, did not mention intellectual property or the “HOGAR” mark. Plaintiff failed to amend the trademark applications to reflect any alleged assignment, rendering the transfer of intellectual property void. This argument relied on the High Court of Calcutta’s ruling in Paul Brothers and Anr. v. Union of India and Ors. Defendant No. 1 provided an NOC for Z-Wave’s name change to Hogar Controls India Pvt. Ltd., indicating the Plaintiff’s awareness of Defendant No. 1’s ownership of the “HOGAR Controls” trademark. Property in a director’s or shareholder’s name cannot be deemed company property. Defendant No. 1’s signing of the SSA as Z-Wave’s authorized signatory did not transfer his personal property. Plaintiff was merely a licensee of the “HOGAR” mark, not the owner, and could not prevent Defendant No. 1, the licensor, from using it. This contention referenced the Bombay High Court ruling in Cott Beverage Inc. v. Silvassa Bottling Company. Defendant No. 1’s lawsuit in Agra for the unauthorized use of the “HOGAR Controls” mark was initially dropped but later reinstated on September 22, 2023. Plaintiff’s registration of the mark “” on December 18, 2021, is considered an attempt to pass off Defendant No. 1’s established “HOGAR Controls” mark, which has been in use since 2014.
COURT ANALYSIS AND JUDGEMENT
The Hon’ble Delhi High Court assessed that the primary question in this case is which party—Defendants Nos. 1 through 3 or Plaintiff (Hogar Controls Inc. and Hogar Controls Pvt. Ltd.)—possesses the intellectual property rights to the “HOGAR” trademark and its variations. The way the Shareholders and Subscription Agreement (SSA) is interpreted will determine this. The court after going through the SSA, determines that the SSA clearly transfers to the Plaintiff the intellectual property rights to “HOGAR” and “HOGAR Controls”. The Defendants’ claims are at odds with the specific provisions of the SSA, which clearly give the Plaintiff these rights. Defendant No. 1 claimed to have first adopted the trademark “HOGAR Controls” for a sole proprietorship called Z-Wave, which later became a partnership firm. He asserted that the trademark was his personal property and used by Z-Wave under a license agreement. The court found no evidence supporting Defendant No. 1’s claim of a sole proprietorship. Documents such as VAT and GST certificates and Income Tax Returns indicated that Z-Wave was a partnership firm since April 17, 2014. Applications for trademark registration by Defendant No. 1 lacked documentary evidence of the claimed use since July 1, 2014. The court noted inconsistencies in Defendant No. 1’s statements and lack of credible evidence for his sole ownership claim. There was no substantiation of “Hogar Controls” being used independently by him. The court found issues with the credibility of the license agreement through which Defendant No. 1 claimed to have authorized Z-Wave to use the trademark. It questioned the authenticity based on discrepancies such as the absence of royalty mentions and travel records indicating Defendant No. 3 was in the USA at the supposed time of signing. While the defendants argued that the plaintiff was aware of the trademark applications, the court noted that this did not affect the plaintiff’s right to seek an injunction. The SSA did not explicitly mention the rights claimed by Defendant No. 1. Defendants argued that the trademark assignment was invalid due to non-compliance with Section 42 of the Trademarks Act, which requires advertisement of the assignment within specified timelines. The court clarified that an unregistered trademark assignment, whether with or without goodwill, does not prevent the assignee from seeking legal protection. The court differentiated between the execution of an assignment deed and its registration, noting that rights transfer upon execution, not registration. The court restrained the defendants from using or reproducing the trademarks “HOGAR,” “HOGAR CONTROLS,” and associated marks, as well as from using the plaintiff’s mobile application interface and advertisements, which infringed on the plaintiff’s copyright. The defendants were directed to remove any infringing content from their digital platforms, including YouTube and their website. The Hon’ble Delhi High Court concluded that the defendants had not substantiated their claim to the “HOGAR Controls” trademark and were found to be infringing on the plaintiff’s intellectual property rights. Consequently, the plaintiff was granted an injunction against the defendants, preventing them from using the disputed trademarks and related intellectual property.
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Judgement Reviewed by – Gnaneswarran Beemarao
