Jurisdiction in cases of Infringement of Designs

(This note was originally posted on Spicy IP)

Justice Shivakumar of the Madras High Court recently passed an order in Urooj Ahmed v. Maya Appliances, A. No. 5533/2008 in CS No. 949/2008; and the order is path-breaking. It is path-breaking not because of an excellent interpretation of the law, but because of the discovery of novel uses of the English language.

The Court was faced with a pure question of law. Can a suit for infringement of design be filed in the Court within whose jurisdiction the plaintiff resides?

Generally (in accordance with the Code of Civil Procedure), a suit is maintainable in the Court within whose jurisdiction the defendant resides. This general scheme is changed by the Copyright Act, 1957 through Section 62. Under Section 62(2), a suit for infringement of copyright is maintainable in the Court within whose jurisdiction the plaintiff resides. There is no such provision in the Designs Act, 2000; and on a plain reading, it ought to be clear that a suit must be filed in accordance with the general principles in the Code of Civil Procedure (i.e. in the Court in whose jurisdiction the defendant resides).

A straightforward interpretation must suggest that a “copyright” is not the same as a “design”; and a suit for infringement of copyright is distinct from a suit for infringement of design. The learned Judge, however, managed to hold otherwise. He noted that Section 62 of the Copyright Act says:

62.Jurisdiction of court over matters arising under this Chapter:- (1) Every suit or other civil proceeding arising under this Chapter in respect of the infringement of copyright in any work or the infringement of any other right conferred by this Act shall be instituted in the district court having jurisdiction.

(2) For the purpose of sub-section (1), a "district court having jurisdiction" shall, notwithstanding anything contained in the Code of Civil Procedure, 1908(5 of 1908), or any other law for the time being in force include a district court within the local limits of whose jurisdiction, at the time of the institution of the suit or other proceedings, the person instituting the suit or other proceeding or, where there are more than one such persons, any of them actually and voluntarily resides or carries on business or personally works for gain.

Now, it might well have been possible to stop the enquiry here itself. As mentioned earlier, there is no corresponding provision in the Designs Act, 2000; and it is clear that the legislative intent was not to extend the same provision to infringement of design. But, the Court relied on Section 11 of the Designs Act. This is what Section 11 says:

11. Copyright in design on registration. (1). When a design is registered, the registered proprietor of the design shall subject to the provisions of this Act, have copyright in the design during ten years from the date of registration.

Again on a plain reading; this provision simply means that the registered owner of a design also has the copyright in a design. The English language is not capable of stretching this to lead to the construction that infringement of design is the same thing as infringement of copyright. Nonetheless, the Judge held that the suit for infringement of design must be held to be the same as a suit for infringement of copyright in the design. Therefore, the provisions of Section 62 of the Copyright Act would apply to a case of infringement of design as well. Accordingly, the Court concluded that a suit for infringement of a design can be filed in the Court in whose jurisdiction the plaintiff resides.

The following is a representation of the reasoning involved:

Premise 1: A suit cannot be filed in the Court in whose jurisdiction the plaintiff resides.

Premise 2: It is an exception to premise 1 that in cases of copyright infringement, a suit can be filed in the Court in whose jurisdiction the plaintiff resides.

Premise 3: The registered proprietor of a design has copyright in the design.

Conclusion: It is an exception to premise 1 that in cases of design infringement, a suit can be filed in the Court in whose jurisdiction the plaintiff resides.

The conclusion does not follow from the premises. What the reasoning also assumes is the existence of another premise – ‘the fact that the registered proprietor of a design has copyright in the design means that the design is a copyright’. This assumption is entirely unwarranted. The fact that copyright can exist in a design does not mean that the design is the copyright or that the copyright is the design. Infringement of one is not and cannot be the same thing as infringement of the other. A reference to the definitional provisions of the Designs Act, 2000 itself would have made this abundantly clear. Section 2(c) of the Act defines a copyright as “…the exclusive right to apply a design to any article in any class in which the design is registered…” Further, a design is defined in Section 2(d) to exclude artistic works as defined under the Copyright Act.

Thus, a copyright is not a design; in the context of the Act, it is a right to apply a design to an article. Section 11 of the Designs Act must mean, therefore, that the registered proprietor of a design also has the exclusive right to apply the design to an article. It might mean that once a design is registered, the owner of the design ipso facto becomes the owner of the copyright in the design. However, it certainly cannot be interpreted as extinguishing the distinction between a design and a copyright. It cannot possibly mean that the provisions in the Copyright Act, 1957 shall be relevant for the purposes of determining the jurisdiction of Courts in cases of infringement of design. Obviously, in 2000, Parliament was well aware of the position of law in relation to jurisdiction in the Civil Procedure Code as well as in the Copyright Act. If Parliament intended to allow filing of suits in the plaintiff’s place of residence, it would have said so in the Designs Act specifically. Justice Shivakumar seems to have overlooked this fact; and in doing so, has opened up the door for grave confusion between distinct forms of intellectual property protection.

It must be hoped that reason is re-introduced into the law in this sphere. A suit for infringement of designs must be tested as per the provisions of the Designs Act – Section 11 of the Designs Act cannot be taken to mean that the provisions of the Copyright Act become applicable in their totality in such cases. In particular, the correct position of law seems to be that a suit for infringement of design must be filed in the Court of the defendant’s jurisdiction and not the Court of the plaintiff’s jurisdiction. Accordingly, it appears that Justice Shivakumar’s order ought to be overruled / reversed on appeal.

(1. It is noteworthy that the position is not crystal clear under the Copyright Act either – see this post. 2. This Australian High Court judgment provides an interesting perspective on the overlap between copyrights and designs generally. 3. Another example of Indian Courts grappling with the interaction between design and copyright is discussed in this post.)

Income Tax Digest: February 2009

The Mumbai ITAT Bar Association digest of recent cases, updated till the beginning of February 2009, is available here on the Association website. A detailed digest (from October 2008 to February 2009) can be downloaded via the "Download consol pdf file" option on the page.

Interim Budget: A Brief Overview

(This was initialy posted on the Indian Corporate Law blog)

A few days ago, the Union Government announced the Interim Budget 2009-2010. This post seeks to briefly highlight some of the important issues it raises.

The long title of what is usually the year’s-most-awaited legislation – the Finance Bill – set the tone of the budget. The Finance Bill, 2009, is stated to be a bill “to continue the existing rates of income-tax.” That may well sum up the interim budget itself – hardly anything new was announced; and the budget speech was more or less a listing of the achievements of the UPA government. Due to this, the budget evoked reactions of disappointment from several industry commentators.

One reason for this lack of fresh inputs may be that general elections are around the corner; and propriety would demand that no major decisions are taken so soon before a new government is formed. As this article notes, “With elections around the corner, fairness demands that the government desist from making announcements that will target narrow constituencies. The UPA government has correctly announced nothing of importance in the `Interim Budget 2009-10' speech. While we live in an exceptional macroeconomic environment, fairness in elections is even more important than macroeconomic stabilization. The UPA can and should chip away at economic policy reform - but only in areas that are invisible to voters.” Given this, it is understandable that the budget does not seek to initiate anything.

More important, however, was the Finance Minister’s description of the state of the economy. The budget notes that the fiscal and revenue deficits are down to 2.7 percent and 1.1 percent respectively for the period 2007-2008. The GDP growth rate is around the 7% mark in the current year. FDI inflows in the period April-November 2008 were US$ 23.3 billion. This represents a growth of 45% over the corresponding period in 2007. Exports have also picked up considerably in this period.

While this appears to paint a relatively solid picture, particularly considering the impact of the global slowdown, at least a few areas do appear to be worrisome.

Here is an extract on the subject of subsidies from the Medium-term Fiscal Policy Statement released by the Government:“This year has witnessed unprecedented rise in the subsidy bill of the Government. Provision for major subsidies on food, fertilizer and petroleum products were Rs. 66,537 crore in B.E.2008-09 accounting for 11 per cent of net revenue receipt of the Government… total provision for subsidies on these three items, including Rs. 95,942 crore of Special Securities, has gone up from Rs. 66,537 crore in B.E.2008-09 to Rs. 2,18,294 crore in R.E.2008-09 amounting to about 4 per cent of GDP… Total subsidy is estimated to decline to Rs. 1,00,932 crore amounting to 1.7 per cent of GDP in B.E.2009-10. In medium to long term, there is a need for policy objectives to focus on measures and means to cap this expenditure to create further fiscal space for increased investment in physical and social infrastructure.”

Although the Government estimates total subsidies to decline, the subsidy bill is still a cause for concern. The declined estimate does not signal any change in policy; but as this Hindu Business Line report notes, it reflect the expected savings due to the drop in fertilizer prices. Furthermore, although the impact of the financial crisis has not been felt as strongly in India yet as in the west, it is important to remain alert on this front too. This is what the Government had to say on this issue in its Fiscal Policy Strategy Statement:“The Government had two policy options before it. In view of falling buoyancy in tax receipts, the Government could have taken a decision to cut expenditure and thereby live within the estimated deficit for the year. The second option was to increase public expenditure, even with reduced receipts, to stimulate economy by creating demand and maintain the growth trajectory which the country was witnessing in the recent past. The Government took the second option of adopting fiscal measures to increase public expenditure to boost demand and increase investment in infrastructure sector. Ensuring revival of the higher growth of the economy will restore revenue buoyancy in medium term and afford the required fiscal space to revert to the path of fiscal consolidation.”

In this context, the government has approved investments of Rs. 70,000 crore in infrastructure projects from August 2008. Additionally, the budget reiterates the Rs. 20,000 crore recapitalization package for banks. The new government will have its work cut out in order to ensure that the Indian economy remains solid. It remains to be seen what measures will be put in place after the elections. Hopefully, the new administration will see the wisdom in Nani Palkhivala’s words, “We keep on tackling fifty-year problems with five-year plans, staffed by two-year officials, working with one-year appropriations – fondly hoping hat somehow the laws of economics will be suspended because we are Indians!”

The budget documents, speech and The Finance Bill, 2009 are available on this site. A Business Standard analysis is available here. Another Hindu report is linked here.

Daimler Chrysler v. DCIT: Part II - DTAA applies without Double Taxation

[In Part I of this note, I had discussed the facts and the issues arising in a recent case before the ITAT (Pune Bench) in Daimler Chrysler India v. DCIT, ITA No. 968/PN/03. Now, I look at the decision of the Tribunal]

As noted in the earlier part of this note, the two main issues before the Tribunal were (a) whether a DTAA applies even if there is no double taxation as such; and (b) what is the scope of a non-discrimination clause in a DTAA.

Applicability of a DTAA in the absence of double taxation:

It is quite well settled that when a DTAA applies in a particular fact situation, it overrides the corresponding provisions of domestic law. As to when a DTAA applies, the relevant Section is Section 90 of the Indian Income Tax Act, 1961. Prior to 1^st April 2004, Section 90 read as follows:

90. (1) The Central Government may enter into an agreement with the Government of any country outside India -

(a) for the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country, or

(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, or

(c) for exchange of information for prevention of evasion or avoidance of income tax chargeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or

(d) for recovery of income tax under this Act and under any corresponding law in force in that country,

and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.

(2) Where the Central Government has entered into an agreement, under sub section (1), with the Government of any country outside India for granting of relief, or as the case may be, for avoidance of double taxation, then, in relation to the assessee on whom such agreement applies, the provisions of this Act shall apply only to the extent they are more beneficial to that assessee.

In 2004, an amendment was introduced into the Section. The Section 90 (1) (a) was changed, and the Section now read:

90. (1) The Central Government may enter into an agreement with the Government of any country outside India -

(a) for the granting of relief in respect of –

(i) income on which have been paid both income-tax under this Act and income –tax in that country; or

(ii) income-tax chargeable under this Act and under the corresponding law in force in that country to promote mutual economic relations, trade and investment.

(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, or

(c) for exchange of information for prevention of evasion or avoidance of income tax chargeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or

(d) for recovery of income tax under this Act and under any corresponding law in force in that country,

and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.

(2) Where the Central Government has entered into an agreement, under sub section (1), with the Government of any country outside India for granting of relief, or as the case may be, for avoidance of double taxation, then, in relation to the assessee on whom such agreement applies, the provisions of this Act shall apply only to the extent they are more beneficial to that assessee.

In the facts of the case, it was the pre-amendment Section which applied. As the Tribunal noted, a literal interpretation of the specific provision would suggest that double taxation was essential for claiming the application of a DTAA. However, it was noted that although the specific clause in Section 90(2) was inserted only with effect from 1972, even under the original unamended Act in 1961 it was possible to claim relief by treaty override. Thus, in Azadi Bachao Andolan, the Supreme Court of India commented, "…it (is) clear that the judicial consensus in the India has been that Section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of the Double Taxation Avoidance Agreements. When that happens (i.e. notification is issued) the provisions of such an Agreement, with respect to the cases to which they apply, would operate even if inconsistent with the provisions of the Income Tax Act..."

Hence, the Tribunal held that once a particular DTAA is made applicable by way of notification as specified, the entire DTAA came into force and overrode the corresponding domestic law provisions. In this connection, it is noteworthy that the wording of Section 90(1) says that the DTAA must be for the purposes specified in the Section. However, the fact that a treaty is entered into to further a particular object does not mean that every provision in that treaty must necessarily promote the same object. Nowhere is it stipulated that the treaty will override only in cases where the specific provisions also conform to the required objectives. The treaty must be for one of the listed purposes – once it is clear that the treaty as a whole does meet those objectives, it is not open to apply principles of severability and cut out those individual provisions which do not appear to be meeting the specific objectives. As the Tribunal noted, there can be no discrimination between the natures of treaty provisions. Once a treaty applies, it applies in its entirety. “To suggest that the purpose of a tax treaty is only to avoid double taxation and prevent fiscal evasion, and, therefore, a rule against discrimination is not necessary to achieve these goals, is too primitive a way of looking at the role of the tax treaties in today’s complex economic realities.” Therefore, there is no requirement that a DTAA applies only in cases of double taxation.

Now, although in principle a DTAA might apply, in the fact situation of the case, the question still remained as to whether the assessee had suffered from any discrimination. That question will be discussed shortly in the concluding Part III of this note; along with some more comments on the decision.