This article has been written by Monjima Tia Ghosh pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution and edited by Shashwat Kaushik. This article gives you an overview of the Principle of Territoriality and its modern day application.

This article has been published by Sneha Mahawar.​​

Introduction

The principle of territoriality is an old and well-established principle that states that trademark owners can’t argue infringement if someone has an identical trademark in a country where they are not registered. This principle, in essence, is to ensure that a company cannot extend its trademark even to places where it has no business and, in turn, no connection with the people of that country. The principle, in its most basic sense, seems absolutely logical.
However, with globalisation and the advent of the internet, the boundaries of territories are increasingly becoming fickle. Even brands that do not have any business in the country are often known by the countrymen of that country, who associate a kind of quality with the products of any brand carrying that trademark. In such a situation, should the brand still not be allowed to argue infringement in that country? The Principle of Territoriality or famous Marks Doctrine, states that if a trademark is well known in a country, even though there is no business connection, if a trademark is well known amongst the people of a country as belonging to a certain company or organisation, then in the event that anyone in that country uses the same trademark, that person can be held liable for trademark infringement. However, even that doctrine carries geographical elements that cannot be effectively applied to the internet.

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The principle of territoriality and how it applies in the Indian context

Trademark law seeks to give the owner of the trademark the right to be the only one selling goods with the mark it uses to identify itself and stop anyone else from using a mark to sell goods that could create a presumption that the former’s company is selling the goods. However, this right is not unlimited. Geographically speaking, this right only exists to the extent of the borders of the country in which the mark has been registered. This is known as the principle of territoriality. The Principle of Territoriality has been recognised by the Madrid System.

As an obvious consequence of the same, domestic trademarks cannot be considered to infringe any trademarks present in a different country. And vice versa. And if an international brand tries to enter a country’s market where there’s already a brand with the same trademark, the former will be seen to be infringing on the existing trademark rights. The landmark case in this regard is the Maja case, in which the German court used the argument that if another seller used a trademark owner’s mark and sold it in a particular area, that would be considered unauthorised usage of the mark. The same applies when an international brand tries to export its goods to a country where the trademark is held by someone else; this is an unauthorised use of the mark.

However, this border becomes wider if countries choose to follow the same legal regime. For example, in the case of all the EU countries deciding to be governed by the same trademark law, the rights of a trademark holder would extend to the borders of all EU countries, but again, beyond that, the principle of territoriality applies.

In the Indian legal system there has been a recognition of both, the principle of universality in several cases such as the case of Milmet Oftho Industries & Ors vs. Allergan Inc (2004) in which the Apex Court stated that it didn’t matter if the owner of the mark was not importing goods in India if the owner of the mark was the 1st in the world market, and simultaneously Indian courts have also recognized the principle of territoriality, such as the court Intellectual property appellate board of India in the case of Jones Investment Co vs. Vishnupriya Hosiery Mills stating that in case of trans-border companies claiming infringement, even though they do not intend to enter the Indian market any time soon, the  domestic trademarks would be given primacy. This has given rise to a certain kind of confusion about which principle really applies in India.

The Supreme Court of India has clarified the same in a recent case. In the recent case of Toyota Jidosha Kabushiki Kaisha vs. M/S Prius Auto Industries Ltd. (2017), the Supreme Court of India, after perusing a range of English and Australian courts, upheld the principle of territoriality, stating that for an international brand to be able to effectively argue that there was an infringement in India, it would have to show that there has been ‘a spillover of the reputation and goodwill of the mark’.

While the Court stated that it’s not necessary for there to be a business connection, there needs to be ‘explosive or ground-breaking’ evidence to prove the contention of infringement by an international brand. Further, the Court stated that mere international presence is not enough; it needs to be shown that there’s goodwill associated with that brand specifically in India. Hence, the current law of the land when it comes to trademarks is that the principle of territoriality takes primacy, and while it is refutable, it carries an extremely heavy burden of proof, and the same lies on the party contending infringement.

When it comes to the principle of territoriality, goodwill is seen as encompassing two elements that can exist independently. The first element is the zone where sales of that brand take place. It’s essentially an indicator of how big your presence is in the market. The bigger the presence, the higher the possibility of effectively arguing for goodwill. The second element is the zone within which the brand’s reputation using that mark is known. In the age of the internet, this zone takes primacy, as while a brand might be selling only in California, using social media, knowledge of the same could have spread across the world. Someone could have shared a story of something extremely kind that a barista did in a café in California, and the same could go viral on the internet, creating a worldwide impression about the café and its trademark. In such a case, would the same count as a sufficient spill? Considering the Toyota case, it might be extremely difficult to prove so, as while there is a clear international presence, it doesn’t seem to show a specific presence in India.

That brings us to the question of whether the principle of territoriality really is the best principle to guide us in the age of trademarks. 

The principle of territoriality and its application today

A restaurant in Delhi called Bukhara gained a lot of fame and became known as one of the best restaurants. Information about the same travelled worldwide through the internet. Now a few people in New York have opened a restaurant by the same name in New York City. People, having heard of Bukhara and how its food is amazing, flocked to the restaurant in New York. However, this restaurant had no connection to the one in Delhi, and unbeknownst to them, they were actually helping a few New Yorkers make money off a brand that they did not have any right over. In this case, if we were just to follow our gut, the same would seem to be a trademark infringement. However, the courts in the USA said otherwise. On a reading of the principle of territoriality, the court stated that a trademark registered in India would only have protection in India and not in the USA. It’s also important to notice that Bukhara did not have any business connections in New York at the time, but now if, in the future, the Delhi based restaurant ever wants to open a restaurant in New York, it will be the one seen to be infringing copyright. 

Several brands and people keep making websites online with different logos that they come to be recognised by; however, these marks or logos are mostly not registered under the law. This means that for these people to argue trademark infringement, they have to come under the famous Marks Doctrine. One of the most common exceptions to the principle of territoriality is the famous marks exception. The principle of famous marks states that if a mark is well known enough among the people of a certain territory, even if it is not registered in that area, it deserves copyright protection. It’s a fairly simple and well known principle. 

However, the principle is based on an understanding of geographical locations and in the age of the internet, it becomes difficult to efficiently ascertain how wide the extent of protection for a sign goes. Section 11(9) of the Trademarks Act, 1999 states that for something to be a well-known principle (which is further explained under Section 2(1)(zg) of the Trademarks Act), all that’s required is for the public to know your mark well enough. Under the Act, it doesn’t matter if you have a business in India; that is not a requirement to allow you to claim protection. 

Additionally, it’s not easy to apply this principle when it comes to internet entities. The first problem when trying to ascertain how big the circle of influence of a brand is is the fact that on the internet, anyone from any part of the world can open a website. Does the fact that a few people from, say, Florida ended up looking at my website mean that I should get trademark protection there? Moreover, there’s the problem of what should be understood by a person looking at a website under the law. Is it merely the fact that they opened certain websites, or should it be that they also spent a substantial amount of time on that website, and if yes how long can be considered substantial enough? 

A model for the age of internet

The first and most important thing: a working internet framework for trademarks and the principle of territoriality would include incorporating the internet as a method of deciphering the territorial limits of a trademark’s protection instead of purely geographical location. Now, to apply the famous Marks doctrine, there need to be certain criteria laid down. The first criteria would be the same for internet trademarks as for other trademarks, that is, if the people of a specific area know of the website and its mark. The second would also be common, if sales were being made in the area. The third, however, would be new. The third criteria would consider the density of the population that knows about the website in a certain area. 

This density should be ascertained at a specific percentage, such as ten to fifteen percent of the population in a certain area should know about the website, and the way to check this would be that from that specific area, 10-15 percent of the population owning internet services should know the brand. Merely one or two people knowing about a website from a certain area would not be enough for the same to qualify as a famous mark in that area. The fourth thing that should also be checked is if that area anyway had a different brand with the same trademark that’s extremely popular amongst the people; in that case, all the sales or views from a certain percentage of people should be further scrutinised to ensure that the people weren’t all ending up on the website owing to confusion. 

And lastly, anytime such marks are identified, they need to instantly register their sign in that area since anyone from around the world could make the same sign otherwise. It’s also important to consider if the impression made was strong enough. This can be measured by the amount of time people spend on the website. If people were only there for a minute or two, the sign of that website could not have created enough of a lasting impression. Still, if the majority of the viewers spent a substantial amount of time on the site, then its sign is likely to have left an impression in their minds. Another important aspect of determining if a site makes a lasting impression is to check how often a viewer has gone back to the site.

Alternatively, there is another probable model. This model would entail creating an international body that would reign sovereign in all cases regarding Internet trademarks, have a specific act governing the same, and have a requirement of immediate registration anytime someone online thinks their mark should be a trademark. However, this would lead to the creation of an absolutely new legal regime, one that would not respect the state’s power of sovereignty; hence, this model is extremely unlikely.

Conclusion

The traditional principle of territoriality cannot effectively control a trademark regime where the internet exists because the world boundaries differentiating the territories within which a trademark can have a considerable reputation have changed. The internet has made sharing information from one corner to the other extremely easy, and online websites have led to people buying products from a brand and recognising brands from across the world. In such a situation, a re-reading of the principle is vital to ensure that there’s a framework that can deal with the plethora of trans-national cases that are bound to come up. The new model that has been proposed with its perimeters, including the density of sales and views from an area, the number of repeaters to a website, as well as how long a person has spent on a website, can help establish if there really is a reputation that the people with the trademark of the website/brand have attached. The re-reading will also ensure that the existing trademark laws will be able to encompass the changing scenario and its rising legal issues instead of requiring a new legal regime to come into play. 

References

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