This article is written by Purvi Khandelwal, pursuing a Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho. 

Introduction

Trademark registration is one of the strongest ways to protect one’s trademark. Registration makes it a lot easier to protect the trademark against would-be infringers and could end up saving a lot of time and money, in proving that one is the legitimate owner of the trademark. Registering and maintaining registration of the Trademarks grants many advantages like protection against infringement of trademark, exclusive use of the mark and the right to prevent others from using, applying the said trade mark without proper authority. For using ® over a Trademark, and to be able to exploit the rights vested in such registered trademark, a lot of due diligence on the Attorneys’ part is a mandate. 

Meaning

In the easiest sense, Due Diligence means a reasonable verification and precaution taken to identify or prevent foreseeable risks. In Legality, due diligence is “a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances; not measured by any absolute standard but depends on the relative facts of the special case” thereby it is anticipating the risks and preventing the chances of its occurrences- well ahead of time. 

Embarking IP Due Diligence

It is already established without reasonable doubt that Intellectual Property protection is critical to foster innovation. The Indian Law provides ample rights to the holder of Intellectual Property so as to protect it from infringements or violations. However, as it is said “Prevention is better than Cure”, the need of this hour is to exercise critical care during the creation of the Property. Seeking for remedy after the infringement is done is an additional investment after the expenditure on research and development. Thus, Practicing due diligence beforehand can ensure whether to even work upon creating a certain Intellectual Property.

The present article is inclined towards Due Diligence in Trademark and Trademark being the cheapest form of IP when it comes to its protection; it is more often taken for granted and left upon, only to deal with the major expenses of infringement litigation at the end. In Trademark Law, due diligence is the process of analyzing information concerning a target company’s trademark portfolio and assessing the risks, exposure and benefits associated with the proposed transaction and it begins at the initial step of adoption of certain word/words as trademark. The Due Diligence imposes a duty of care and mandates a certain standard of care.

Where Due Diligence is deemed to be the part of the services provided by the Source, it is not a legal duty in India and therefore left to the will of the Service Provider. He may or may not choose to provide services with proper care. Due Diligence involves a personal set of care provided to the utter satisfaction of the customers. Due diligence could highlight contingent risk which do not always arise from Trade Mark law itself but may be significantly affected by product liability and contract law and other non IP realms. As mentioned earlier, one of the primary steps in a trademark due diligence exercise is to ascertain whether the trademarks are registered and to have a thorough perusal of the prosecution file history of the registration. This is very essential to assess whether any prosecution estoppels exists. 

Trademark Law and Due Diligence

The Trade and Merchandise Marks Act of 1958 talks about Due Diligence in its proviso to sub section 1 of section 88 which says: “Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.” The section 88 of Act of 1958 has been adopted by the present Trade Marks Act of 1999 as Section 114, where a person accused of offence of infringement or passing off is protected by the Lawmakers if he proves that the offence was committed without any mens rea i.e., without any malafide intention in mind and he proves that he exercised thorough due diligence in adoption of such trademark. However, Due Diligence has not been defined anywhere in Indian Statutes and thus has got its meaning from various interpretations by the Courts and thus stands to have an all-inclusive meaning depending upon case to case basis. 

Over the time, Trademark due diligence has earned a meaning of being the process of analyzing information concerning a target company’s trademark portfolio or the target market if it is the Startup, and assessing the risks, exposure and benefits associated before proceeding towards filing a Trademark Application. The Trademark seeker will, based on the results analyze validity and risks of the trademark application and its impact on the strategic short and long-term business goals. The results have a profound impact on the valuation.

Exercising Due Diligence while filing a trademark application

Owning a well-known trademark is a dream of many giants. However, it is not a one day process and the right time for the preparation for the same starts while considering its adoption, i.e. while creating the intellectual property itself. 

Consider the terms Band-aid, Jacuzzi, Super-glue, Pampers, and Chapstick, to name but a few; consumers subconsciously regard these trademarks as the actual products rather than as their respective brands. These elephant companies weren’t born with this monopolistic association between brand and product. Not only did they think up a name, sign, design, or expression which resonated with their product concepts, they did a thorough research into the adoption of that certain name. When Adhesive Bandages were not a thing known to people, Johnson & Johnson trademarked “Band-aid” to introduce its branded adhesive bandages in the market that would be used for pharmaceutical and medicinal aids. Johnson and Johnson reported a revenue total of INR 6,623 Crore ($995 million) in the last year, out of which a $4 Million comes straight from the Band-aid ®. 

Johnson and Johnson spent $12.2 million on research and development last year and this is the reason why it owns numbers of well-known trademarks as of today band-aid, Johnson & Johnson being the most popular throughout the globe. Thus, a thorough and continuous R&D is the first and most important step in trademark due diligence. 

The next step is the adoption of a trademark- which is again a part of market study where it is decided as to adopt a wordmark or a logo mark to avoid any kind of similarity with an already existing mark. Many a times a subsequent owner of a mark is denied registration solely on the basis of similarity of pre-existing mark even when the subsequent trademark earns a huge reputation in the market. Therefore, registering a trademark is not as simple a step as that of applying a trademark, but it does hold its roots from the correct application.

The step which is often looked upon by the trademark attorneys while filing the application is the entry of the correct date of use for a certain trademark. Often, companies gamble the introduction of the product in the market even prior to its registration so as to study its demand and in those cases a trademark achieves popularity even before its registration. Those trademarks are to be filed with the prior date of use and with the proper affidavit of use. The date of use is the first thing that is looked at while dealing with infringement litigation as the prior user holds the first right over the use of the trademark. A difference in a day of application can also lead to some hefty losses for a Company. The Prior use doctrine of trademark is applicable even then.

In the Refusal report of the trademark application of a certain mark*, the Senior Examiner of Mumbai Registry refused the acceptance on the mark due to improper filing of a trademark whereby the trademark was filed with the pasted signature on the power of attorney and a correct power of attorney was not filed even after asking for the same in examination of the trademark application and thus was refused for the above reasons and for wasting the time of the Registry in these challenging times. Though this kind of refusal is rarely practiced and is thus never talked about.

Consequences of avoiding the practice of Due Diligence

Ideally, careful planning, detailed review, verification and analysis, and a great deal of preliminary work is undertaken in a due diligence process. The trademark attorneys of the acquirer are entrusted with significant responsibility of conducting a thorough market research and distinctive ability of the trademark to stand out amongst the competitors. 

There are high chances of mistakes being committed if due care is not adopted. These mistakes on the part of trademark attorneys can lead to wastage of huge sums of acquirer’s money in opposition proceedings and litigations and can even cause a loss of a good product to the prior user of identical trademark. Over the time, the reputation of the acquirer gets attached to his trademark and thus losing a trademark is not just a monetary loss but a significant loss to acquirer’s goodwill and reputation in the market. 

The outcome of the entire transaction heavily relies on a due diligence process. Any error, omission or oversight committed during a due diligence process can have disastrous effects. Sometimes, the structure of the transaction is altered based on recommendations received from the due diligence report. 

To know more about Trademark objection watch this video – 

Conclusion

A well conducted due-diligence process while adopting a trademark can help the acquirer to decide whether or not to invest in the adoption of such a trademark, the ways of making it stand unique and thereby stand out in the competitive market.

Whereas, inadequate due diligence can result in loss of money, time and reputation in the market which also creates a permanent damage to the goodwill of the acquirer of such mark. A single mistake and all goods deeds go unnoticed is the law of the human world. The loss of Nestle for using the Panjone shade of purple is still young in the minds of everyone and thus Nestle is still lagging behind in gaining the reputation as that of Cadbury. 

Adoption of a trademark is a first step of entering the market and satisfactory due diligence can help in effortless registration of the trademark and thereby gain immeasurable profits from the commercial exploitation of the same, although, the opposite of the same is loss of money as well as reputation in the market. 

References

1. https://www.altacit.com/resources/trademark/trade-mark-due-diligence-acquisition-and-post-acquisition-issues-and-compliances-indian-perspective/#:~:text=Trademark%20due%20diligence%20is%20the,associated%20with%20the%20proposed%20transaction. 
2. https://efinancemanagement.com/mergers-and-acquisitions/ip-due-diligence#:~:text=An%20IP%20due%20diligence%20helps%20both%20the%20buyer%20and%20the,protect%20themselves%20from%20these%20risks. 
3. https://blog.ipleaders.in/conduct-legal-due-diligence/#:~:text=Legally%20speaking%2C%20due%20diligence%20is,the%20special%20case.%E2%80%9D%20In%20the 
4. https://abounaja.com/blogs/7-reasons-why-trademarks-are-important 
5. * The name or application number of the trademark has not been mentioned to protect the reputation of the Attorney/firm filing it.
6. https://blog.ipleaders.in/consequences-inadequate-due-diligence-processes/
7. http://www.trademarksindia.net/trademark-due-diligence-acquisition-post-acquisition-issues-compliances.php#:~:text=Trademark%20Registration%20IndiaWhat%20is%20Trademark%20Due%20Diligence%3F&text=In%20short%2C%20a%20comprehensive%20and,in%20business%20losses%20and%20ignominy 

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