Outsourcers are protected against IP infringement

Many companies outsource manufacturing processes to third party entities or vendors. Such vendors are bound by the terms of agreements that define key aspects of the services they provide, including the use of the companies’ intellectual property (IP). However, when business is outsourced, the confidentiality of IP is put at risk. Sometimes this leads to IP infringement by third-party entities.

The Bombay High Court dealt with such a situation in the case of Bisleri International Pvt Ltd v Laxmikanta Nayak. The plaintiff was a market leader in bottled drinking water. The company filed a trade dress [appearance of articles] and copyright infringement suit against the defendant company, which previously handled the bottling and packaging of the plaintiff’s product. The court decided in the plaintiff’s favour in the interim application.

The plaintiff was mainly involved in the business of bottling, processing, packaging, marketing and selling packaged drinking water, and held half of the market share of the industry. It had franchisees and drinking water processing units throughout India. The water was sold under the trademark Bisleri, which was registered by the original proprietor in 1969 in class 32. Before acquiring the business, the plaintiff was known as Acqua Minerals Pvt Ltd and acquired rights over the trademark in 1987. The plaintiff company changed its name to Bisleri International Private Limited in 2002.

The company claimed that the mark Bisleri, the water bottle label and the water bottle design had acquired distinct identities and were synonymous with the plaintiff company, after many years of sale in the market. The plaintiff asserted that it was the rightful proprietor of the trademark and the label. The Bisleri label had a distinctive colour combination. The label was registered as original artwork in 2009. The bottle had a green cap, conical top, wavy surface pattern and cylindrical bottom.

The plaintiff signed a trademark user agreement with the defendant in 2014. This expired in 2019 and a new agreement was executed. The agreement permitted the defendant to use the plaintiff’s mark. The new user agreement was valid until 2024, but due to a dispute the plaintiff terminated the new agreement in September 2020.

In October 2020, the plaintiff found that retailers were selling the defendant’s packaged drinking water bearing the mark Natural Aqua. The artwork on the water bottles replicated the plaintiff’s trade dress. After the plaintiff complained, a police investigation found that the defendant possessed the plaintiff’s moulds for making the bottles, empty and filled bottles, and water bottles of the same design as those of the plaintiff but bearing the mark Natural Aqua.

In the absence of the defendant, the court found that the defendant’s water bottle bore a design which was almost identical to the plaintiff’s original artwork. After the termination of the trademark user agreement, the defendant continued to use the trade dress, artwork and bottle design claimed by the plaintiff. The court ordered that the defendant be restrained from bottling, processing, packaging, marketing, selling or using in any manner the design on its Natural Aqua water bottles bearing the colour scheme, get up, layout, style, trade dress and artwork claimed by the plaintiff. Further, the court made a search and seize order to be executed at the defendant’s warehouse, factories, offices and other premises. All infringing materials have been confiscated by the authorities. The matter will be heard again in January 2021.

Where outsourcing takes place, there is always the risk that IP will be infringed. To protect themselves, therefore, brand owners should strictly define the terms of use. Trademark user agreements should be precisely worded and must include, among other provisions, the duration of permitted use, a complete record of the confidential information available to the third party entity, a clear agreement on the ownership of the IP including the circumstances in which rights may be enforced against the third party, clear terms regarding the return of any materials connected to the IP in question, liability clauses and non-disclosure clauses. If third parties violate the terms of the agreements, brand owners may enforce their IP rights by instituting actions against them.

When business is outsourced, the confidentiality of IP is put at risk. Authored by Manisha Singh and Simran Bhullar, this article discusses the nuances of hiring third-party vendors at the cost of infringing IP in the light of Bom HC’s latest judgment. It was first published in IBLJ.