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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

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“Trademark Infringement and Injunction Suit: Delhi High Court Grants Permanent Injunction to Heifer International in Trademark Infringement Suit Against Heifer Project India Trust”

Case title: Heifer Project International v. Heifer Project India Trust

Case no.: CS(COMM) 542/2018 & I.As. 8255/2004, 14930/2013

Dated on: 23rd April 2024

Quorum: Justice Sanjeev Narula.

FACTS OF THE CASE

‘Classic Case of Triple Identity’: Heifer Project International (Plaintiff) has filed a lawsuit seeking various legal remedies, including a permanent injunction, against Heifer Project India Trust (Defendant No. 1) and Late Mr. Pran K Bhatt (Defendant No. 2) in his capacity as the Managing Trustee of Defendant No. 1.

The lawsuit aims to protect the intellectual property rights of Heifer Project International, specifically pertaining to the trademark “HEIFER” and associated marks, including the leaping cow device mark and the oval logo. Heifer Project International alleges that the Defendants have infringed upon their intellectual property rights by using trademarks and logos that are deceptively similar or nearly identical to their own marks.

The Plaintiff seeks a permanent injunction to restrain the Defendants from further unauthorized use of the disputed trademarks and logos. Late Mr. Pran K Bhatt, as the Managing Trustee of Heifer Project India Trust, is named as a defendant in the lawsuit, indicating that the legal action extends to both the organization and its responsible representative.

The crux of the legal dispute revolves around the alleged unauthorized use of Heifer Project International’s trademarks and logos by the Defendants, which the Plaintiff contends could lead to consumer confusion and dilution of their brand identity.

Heifer Project International aims to safeguard its brand reputation and prevent any potential damage arising from the Defendants’ unauthorized use of confusingly similar trademarks and logos. This legal action underscores the importance of protecting intellectual property rights in the commercial sphere and the willingness of companies to pursue legal remedies to safeguard their brand assets.

CONTENTIONS OF THE PLAINTIFF

The Plaintiff, Heifer Project International, is an Arkansas non-profit corporation established in 1953, originally under the laws of Indiana, USA. Its mission encompasses alleviating hunger, poverty, and environmental degradation through various sustainable development projects globally, including in India. The Plaintiff has adopted and continuously used distinctive trademarks and logos, such as “Heifer International” and “Heifer Project,” along with associated device marks, since its inception. Despite cancellations of some trademark registrations, the Plaintiff holds copyrights for these creations globally, including in India. Moreover, it has successfully registered several trademarks with the Indian Trademark Office. The extensive promotional activities undertaken by the Plaintiff, both domestically and internationally, have bolstered recognition of its trademarks. In India, the Plaintiff has a significant history of funding, fundraising, and educational services dating back to 1955. While Defendant No. 1, Heifer Project India Trust, was established with Plaintiff’s support in 1992, Plaintiff independently spearheaded initiatives in India prior to that. The “Heifer Project” mark, among others, has become synonymous with Plaintiff’s high-quality ethical programs globally, including in India. Defendant No. 1, a charitable trust, operates under the name ‘Heifer Project – India Trust,’ with Defendant No. 2, Late Mr. Pran Bhatt, serving as Managing Trustee since 1997. Defendant No. 2’s prior professional relationship with Plaintiff ended in 2003 when Plaintiff chose not to renew their contract.

Plaintiff’s Allegation: Infringing Activities and Contractual Breach by The Defendants

The Plaintiff alleges that the Defendants, despite prior authorization, have engaged in infringing activities and breached contractual obligations. The Plaintiff had granted the Defendant Trust permission to use the “Heifer” and “Heifer Project” names and associated logos under specific conditions, including adhering to Plaintiff’s mission and facilitating its activities in India. However, Defendant No. 2, in his role as Managing Trustee, began deviating from contractual obligations in 2002, particularly regarding reporting and accountability. Despite discussions and assurances, Defendant No. 2 failed to rectify these issues, leading to the non-renewal of his employment contract beyond June 30, 2003. Despite instructions to cease usage of Plaintiff’s marks and return materials, the Defendants continued to use them, prompting a Cease-and-Desist notice in March 2004, to which the Defendants responded defiantly. This continued use of Plaintiff’s marks demonstrates a clear intention to infringe and benefit from Plaintiff’s reputation. Defendant No. 2’s attempt to register the “Heifer” trademark in his name further illustrates dishonesty. Defendants’ actions, including using Plaintiff’s marks on their letterhead, constitute trademark and copyright infringement, unlawfully usurping Plaintiff’s goodwill since 1953.

CONTENTIONS OF THE DEFENDANTS

The Defendants present several defenses in their written statement, aiming to dismiss the suit. They challenge the validity of the lawsuit, arguing that the signatory lacked proper authorization under the Power of Attorney, as advocates cannot serve as ‘Constituted Attorneys.’ Moreover, they assert that the Defendant Trust is a separate entity from the Plaintiff, formed by like-minded individuals and granted FCRA license independently. Despite initial cooperation, discontent arose due to funds allegedly diverted elsewhere.

The Defendants argue that ‘Heifer’ is a common descriptive word, incapable of trademark use by the Plaintiff. They also contend that the Plaintiff falsely claims to work in India on its website and failed to communicate the severed relationship with Defendants to donors. Additionally, they dispute the Plaintiff’s continuous presence in India and the support extended to establish the Defendant Trust. Overall, the Defendants deny any obligation to work in harmony with the Plaintiff as alleged.

ISSUE

  1. Whether this Hon’ble Court has the territorial jurisdiction to try and entertain the present suit? OPD
  2. Whether the plaint has been signed, verified and instituted by a competent person? OPD
  3. Whether the Defendant No. 1 has infringed the trade mark, trade name and corporate name HEIFER of the Plaintiff? OPP
  4. Whether the Plaintiff is entitled to the relief of permanent injunction or mandatory injunction as prayed for? OPP
  5. Whether the Plaintiff is entitled to the relief of rendition of accounts and damages and if so for what period and for what amount? OPP”

COURT’S ANALYSIS AND JUDGEMENT

Issue No. 1: Territorial Jurisdiction

The Plaintiff asserts that this Court holds territorial jurisdiction due to the Defendants’ engagement in business activities in Delhi, where their registered office is located. They argue that the cause of action arose in Delhi, as the Defendants conducted infringing activities within this territory, thus falling under Section 20(c) of the Civil Procedure Code (CPC). Conversely, the Defendants challenge the Court’s jurisdiction, claiming their office was relocated to Noida in 2002, prior to the suit’s institution. However, evidence contradicts this claim. The original letterhead and replies from Defendants, along with bank account details provided during cross-examination, indicate operations in Delhi. Although the Defendants claim to have shifted their office to Noida in 2002, their continued business activities and correspondence in Delhi suggest otherwise. Thus, the infringing use of the trademark “HEIFER” occurred within Delhi’s jurisdiction, supporting the Plaintiff’s claim for territorial jurisdiction. Consequently, Issue No. 1 is resolved in favor of the Plaintiff and against the Defendant Trust.

Issue No. 2: Competency of the Plaintiff’s Representation

The Plaintiff contends that Mr. Pankaj Srivastava, duly authorized under Powers of Attorney dated 20th September 2004 and 31st August 2005, instituted the suit. However, the Defendants challenge Mr. Srivastava’s authority, arguing that he was authorized solely as an advocate, making the suit invalid. The Defendants also raise concerns about Mr. Mahendra Lohani’s involvement. The burden to prove these objections fell on the Defendants, who failed to provide substantial evidence beyond denials.

The Plaintiff’s evidence establishes Ms. Jo Luck’s authority, confirmed during cross-examination, and Mr. Mahendra Lohani’s authorization under Plaintiff’s directive. Despite the Defendants’ objections, there is no legal prohibition against an advocate serving as an attorney for lawsuit initiation. The Power of Attorney clearly authorizes Mr. Srivastava as a constituted attorney, distinct from the Plaintiff’s legal counsel, M/s King Stubb & Kasiva.

Therefore, the Plaintiff adequately demonstrated the suit’s validity, signed, verified, and instituted by a competent person. The court resolves this issue in favor of the Plaintiff and against the Defendant Trust.

Issue No. 3: Infringement of Plaintiff’s Trademark by Defendant Trust

The central concern of this issue is whether Defendant Trust has violated the Plaintiff’s trademark, trade name, and corporate identity, “HEIFER.” The Plaintiff has substantiated its ownership of registered trademarks through certificates of registration and witness testimony, establishing its exclusive rights over the “HEIFER” marks in India. Defendant No. 2’s admission during cross-examination further confirms the Plaintiff’s undisputed ownership and lack of challenge to its trademark rights.

Moreover, the objectives outlined in Defendant Trust’s Trust Deed indicate an understanding of permissive use of the “HEIFER” trademark and logo, implying a relationship between the Plaintiff and Defendant Trust. Despite attempts by Defendant No. 2 to distance himself from the origins of the Defendant Trust’s adoption of the marks, evidence suggests a historical association between the parties.

Defendant Trust’s reliance on an FCRA license does not negate this relationship, especially considering Defendant No. 2’s prior employment with the Plaintiff and the submission of financial reports to Plaintiff. Late Mr. Pran K. Bhatt’s admissions during deposition further weaken Defendant Trust’s position, revealing their lack of ownership over the “HEIFER” marks and their attempt to register the mark in their personal name.

The Defendants’ unauthorized use of Plaintiff’s marks, even after revocation of permission, constitutes infringement and undermines Plaintiff’s intellectual property rights. The Defendants’ actions not only deceive the public but also misrepresent their affiliation with the Plaintiff, causing confusion in the marketplace.

Issue No. 4: Relief of Permanent Injunction

The Plaintiff is entitled to a permanent injunction restraining Defendant Trust and its affiliates from infringing upon the Plaintiff’s trademarks, trade name, and corporate identity, including any similar names or marks.

Issue No. 5: Relief of Rendition of Accounts and Damages

The Plaintiff seeks compensatory and punitive damages along with rendition of accounts. However, under Section 135(1) of the Trademarks Act, one can either claim damages or an account of profits, not both. Since the Plaintiff failed to establish exceptional circumstances warranting rendition of accounts and did not provide empirical evidence of the Defendants’ profits, the court deems this as not a fit case for rendition of accounts. However, considering the deliberate and egregiously illegal conduct of the Defendant Trust, the Plaintiff is entitled to nominal damages and legal costs.

RELIEF:

The suit is decreed in favor of the Plaintiff against the Defendant Trust with the following terms:

  • A permanent injunction is decreed, restraining the Defendant Trust and its affiliates from infringing upon the Plaintiff’s trademarks, including the marks “HEIFER” and associated logos, or any deceptively similar trademarks.
  • A mandatory injunction is decreed, directing the Defendant Trust to:
    1. Hand over all materials bearing the Plaintiff’s trademarks.
    2. Recall and hand over all products, marketing, and promotional materials bearing the infringing marks.
    3. Deliver for destruction all materials bearing the Plaintiff’s marks in their possession or control.
  • The Defendant Trust is directed to pay nominal damages of Rs. 3,00,000/- to the Plaintiff.
  • The Plaintiff is entitled to actual legal costs recoverable from the Defendant Trust, to be filed by May 15, 2024, and subsequently computed by the Taxing Officer.
  • Additionally, a decree sheet is to be drawn up, and the case, along with pending applications, is disposed of.

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Judgement Reviewed by – Chiraag K A

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