Wheels of Trademark Go Round-and-Round: Analyzing the ‘Yezdi’ Order of Karnataka High Court

Our new SpicyIP intern, Pravertna, brings us an interesting post on a recent controversy surrounding the ownership of the ‘Yezdi’ mark, before the Karnataka High Court. Pravertna is a third-year student at Rajiv Gandhi National University of Law, India, pursuing an undergraduate degree in B.A. L.LB. (Hons.). She is also the winner of 3^rd Shamnad Basheer Essay Competition on IP Law. She aims to become a Judicial Officer in her near future. Her interest in the legal arc is keenly driven towards IPR, ADR, and Criminal Law. She has a deep passion for research and academic writing, with her special ingredients being sociological viewpoints and catchy phrases.

Wheels of Trademark Go Round-and-Round: Analyzing the ‘Yezdi’ Order of Karnataka High Court

Pravertna Sulakshya

For any motorcycle enthusiast, Yezdi still stand as an invincible icon of the industry from the 1960s. Thus, to revive people’s enthusiasm and perhaps teach the competitors the value of “goodwill”, Classic Legends Pvt. Ltd. planned to launch an array of new models in 2022.

A Short Backstory

In the late 1960s, Rustom Irani established Ideal Jawa (India) Ltd. (company), which registered the “Yezdi” trademark for its motorbikes in 1969, and manufactured decades of its success in Mysuru, Bangalore. Unfortunately, the company had to file a petition for winding up in 1991, which could not clear off its debts even till 2015.This can be inferred from the fact that the Official Liquidator (OL) filed an application against Boman Irani in 2018, and nothing in the facts specify as to what happened between these 3 years. Later, Ideal Jawa Employees Association also impleaded into the legal battle in 2020, and furnished the present scuffle to its finality.

Issue before the Court

The core issue before the Court was now to decide upon the ownership of the mark and if it lies with the Company in liquidation, then can anyone else appropriate the same?

Arguments before the Court

Understandably furious, OL was quick to plead that even when the Company went defunct, it rightfully owned the “Yezdi” trademark. It was part of the Company’s asset, whose ownership could not be obtained by anyone until the OL clears off all the pending dues. Furthermore, the removal of the trademark without informing the OL was against Section 25(3) of the Trade Marks Act, 1999, which makes it mandatory. On the other hand, Boman Irani contended that his father envisaged the trademark, which he inherited as an heir after his father’s demise, and that it was not the property of the Company. Additionally, he argued that non-renewal of registration and no use of the mark as per Section 45 rendered abandonment of the Company’s right, allowing anyone to claim the mark. The scuffle posed myriad questions on trademark ownership by a company under liquidation.

The Decision and its Reasoning

The single judge bench of Justice S R Krishna Kumar found that on the date of winding up, it was Ideal Jawa that owned the trademark for “Yezdi.” Accordingly, such assets became custodia legis (in the custody of the law/Court) until the debts are cleared. Since the ownership of the mark as an asset continues with the company even after winding up, any disposition of a Company’s property was void as per Section 536(2) of the Companies Act, 1956, and Mr Irani’s registrations are in bad faith and amount to misappropriation, and not acquiring of the assets of the Company.

The Court also held that “it is clearly established that cessation of business does not automatically result in destroying the goodwill or the property in a trademark… very clear from the various fan pages available online. That people have continued to maintain the bikes and ride it even now shows that the goodwill continues even as of date.” The court was firm with the point that it is goodwill that allows OL to monetize for the benefit of the creditors, workmen and shareholders, and by relying on the judgment of the Bombay High Court in the case of R.R. Oomerbhoy Pvt. Ltd. Mumbai v. Court Receiver, High Court, Bombay & Ors., the bench noted that “If the arguments of Mr Irani and Classic Legends are accepted, then the day the Company goes into winding up and stops business and consequently use of the mark, the mark becomes available for all and the Company loses its right over the mark… If that were to happen, then every Company winding up would never be able to monetize its marks. Such an interpretation not only runs contrary to law but also logic.”

With regards to abandonment of the marks, the exploration was bifurcated into two period of consideration: prior to winding up, and after winding up. Concerning the former period, the Court found no abandonment prior to winding up; for the latter, the Court outrightly rejected Statutory abandonment as an argument since removal of the trademark without informing OL was not only against Section 25(3), but also a special circumstance that prevented the Company from renewing the mark. Hence, no default on part of Ideal Jawa for non-renewal was found.

In a nutshell, Ideal Jawa was declared the owner of the mark “Yezdi” (word and device) taken independently or in conjunction with other words, and Boman Irani and Classic Legends Pvt Ltd, or any person claiming through or under were restrained from using the same. All registrations in favour of Boman Irani were not only declared null and void but he was also ordered to pay Rs 10 lakh alongside gains from the use of “Yezdi” as costs to the OL for liquidation expediency.

Concluding Analysis

The present case proves to be a notable development to nib the position of trademark ownership in the dilemma of company liquidation. It was an interesting observation by the Court that cessation of business does not automatically destroy goodwill. To note, the ordered winding up of Ideal Jawa on 17 August 2001, while the “Yezdi” mark was still in the trademark Register. This mark was subsequently removed on 5 October 2007. Meanwhile, Boman Irani was granted the mark in 2013 and 2014, when the “Yezdi” was no longer existent in the Register. It is thus inferred that even if the Company holds no registration for its mark, value of the trademark still lies with the OL. Goodwill can exist in the mark independent of registration, which may also stand as a suggestive factor of ownership.

However, it is notable that there was a 26-year-long liquidation pending, and not for once throughout the period did Ideal Jawa pose any prospect of restarting the business, except to sell the trademark as an asset. While the trademark aims to protect source identification amid cutting-edge competition and innovation, the present abeyance aids reduction and subsequent destruction of goodwill. The bench itself noted that it is use, and not registration that envisages trademark right. Not having any business use for such a long period certainly makes the theory of persistent goodwill quite exaggerated.

Additionally, the Court noted several “special circumstances” that prevented the Company from making an application to renew the mark in time. These included non-service of notice, economic distress, and non-disclosure of registration procured by Boman Irani. The Court also substantiated the statement by relying upon Fedders Lloyd v. Fedders Corporation, that such external factors beyond the control of the trademark holder do not lead to loss of distinctiveness by non-use. It is a curious mention that renewal of the mark by a company is an independent act. Nowhere does the Court elucidate any causal connection on how non-disclosure by Boman Irani or non-service of notice by the registry “prevented” Ideal Jawa from renewing its mark. This way, a Company can sleep on its duties, and later safeguard itself under the veil of infringement by others. Such interpretation must definitely be cautioned, since it is not only rights, but also duties that the Court needs to accurately balance.

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• Source: https://spicyip.com/2023/01/wheels-of-trademark-go-round-and-round-analyzing-the-yezdi-order-of-karnataka-high-court.html