The question of whether a refurbisher, after repairing a product, can remove the affixed mark and replace it with his own has generated a lot of discussion on this blog. Last year, in a post, I had showed how the Delhi HC went from initially injuncting further sale of repaired goods u/s. 30(4) to allowing such sale as long as it was accompanied with disclosure on warranty. This, I argued, showed the Court’s softening stance towards refurbishers i.e. sale of repaired goods was not outrightly refused under TM Act.
On 9th March, the DHC, deciding a batch of appeals arising from a SB judgement in Seagate v. Daichi (2024), has vindicated that view. The facts of the case have been discussed, in detail, here. Put simply, the Court was deciding whether the act of removal and replacement of an affixed mark with one’s own mark constitutes infringement u/s. 29 and a ground to oppose the sale u/s. 30(4) of the TM Act.
The Court, on both counts, answered in the negative. It held that act of removing and replacing an affixed mark neither constitutes passing off (or reverse passing off) nor a legitimate reason to oppose further sale u/s. 30(4).
Importing without Infringing?
Considering that the respondents were importing the discarded/ used HDDs, before going into the TM Act, it is important to know whether Indian custom laws allow for the import of such discarded or used electronic goods. Short answer- there is nothing in law that prohibits such imports. The importer, however, may have to re-export in some situations such as when the goods do not comply with the BIS standards or when the importer has to avoid paying custom duties. Trade law enthusiasts can read on below to understand the complicated maze of trade policy regulation on import and re-export of refurbished goods, and others can directly hop to the next sub heading.
The relevant law for this would be the new Foreign Trade Policy, 2023 (FTP). Released in 2023 by the Ministry of Commerce, the FTP is a framework which governs import and export of goods and services. The policy is formulated by the government under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992. The FTP is not a mere policy document; violation of FTP can make a person liable for heavy penalties in addition to confiscation of goods.
The Appellants relied on Para 2.31(III) of the FTP (extracted below) to argue that import of used HDDs in this case was illegal, as the respondent were not fulfilling the requirement of re-export mandated under the policy.
As per Para 2.31 (III) of FTP, import of used goods for repair/refurbishing is ‘free’ i.e. the importer is not required to obtain permission from the DGFT. Nevertheless, even goods under the free import policy can be made subject to ‘policy conditions.’ The FTP, has accordingly put a condition that import of second-hand goods for repair is ‘free’ so long as the good is re-exported out of India. (see last line fourth column)
Relying on this condition, the appellants argued that HDDs imported for repair, similar to the present case, have to be compulsorily re-exported after repairs. If not, the importer has breached the FTP and the import is illegal.
There is a catch here. If one closely reads the policy condition, it mentions a customs notification- “the imported item is re-exported back as per customs notification.” This notification, interestingly, does not exist.
On digging deeper into this, I found the Import Policy (Schedule I) of the Indian Trade Classification (Harmonised System), 2022 which mandates for re-export of electronic goods which do not comply with the BIS standards. This is to comply with the Electronics and Information Technology Goods (Requirement of Compulsory Registration) Order 2021 which was enacted to curb imports of unsafe and substandard electronic goods.
The policy nowhere mentions that used goods, if imported for repair, have to be re-exported. As long as the requirements under the 2021 order are met, the imports are allowed under the Import policy.
On the Central Board of Indirect Taxes and Customs website, I could locate four notifications- No. 134/94 (22-06-1994), No. 158/95 (14-11-1995), No. 94/96 (16-12-1996), No. 52/2003 (31-03-2003), which say that if a used good is imported for repairing, the importer is exempt from paying custom duties if it is re-exported within a prescribed time. If not, the importer has to pay the custom duty leviable on the good. None of the notifications mention that failure to re-export the good within a given period will make the import illegal.
For now, it is impossible to decide which notification did the drafters of FTP had in mind while referring to ‘customs notification’ in Para 2.31(III). Para 124 of the judgement observes that it is impossible to decide if the FTP was breached or not without knowing the contents of the notification mentioned in the FTP.
I agree. For instance, the FTP does not specify the time period within which the good has to re-exported back. Without clarity on the prescribed timeline, it is impossible, both for the importers and courts, to decide if a condition in FTP has been breached.
The FTP, as it is, needs to be revised. It needs to change the language and remove the doubts on legality of import of used goods. Or maybe the DGFT should come out with a clarification on whether such a notification exists or not.
Clearing the muddled waters of 30(4)
For a brief background on the interplay between sections 30(3) and 30(4), please refer here and here.
In a previous post, discussing the SB judgement, I had argued that expanding the scope of 30(4) correspondingly restricts exhaustion rights u/s. 30(3). Before the present judgement, only Kapil Wadhwa was the authoritative judgement on the scope of 30(4).
Kapil Wadhwa had given an expansive interpretation to the words ‘legitimate reasons’, thereby broadening the grounds to oppose a sale u/s. 30(4). This provided a needless array of options to TM owners to oppose a sale, irrespective of loss of goodwill or confusion. The overly broad interpretation given to 30(4) in Kapil Wadhwa was a strong weapon to oppose a sale, defeating the principles behind the first-sale doctrine.
It was used as a weapon in this case too, arguing that mere act of removing a mark constitutes legitimate reasons to oppose a sale. However, the DB, with commendable interpretive precision, disarmed the appellants and saved first-sale doctrine from frivolous challenges.
Applying the principle of noscitur a sociis (an ambiguous word is to be understood by considering the words with which it is associated) .the DB laid out what ‘changes’ constitutes legitimate reasons to oppose a sale-
“To our mind, the circumstance must be such as would reduce the quality or value of the goods, or impair the goodwill of the registered proprietor of the trade mark.”
The word ‘change’, as the Court notes, must result in something negative resulting. Earlier, owing to Kapil Wadhwa, a TM owner could oppose a sale for most changes made to a product, irrespective of any deterioration in quality or goodwill. The DB judgement, welcomingly, adds another prong to this assessment.
A mere change made to the good is insufficient to oppose. The change, to constitute legitimate reasons to oppose further sale, must result in any of the following-
- deteriorate the quality of the good; or
- lessen the value of the good; or
- damage the goodwill of the registered mark
The act of removing and replacing someone else’s mark with one’s own mark does neither of the above. The HDDs, in this case, were made functional despite being end-of-life. The value of the good, resultantly, appreciated. Finally, since the registered mark was already removed, no chance of damage to goodwill arises.
A small comment- the order does not clarify what it meant by ‘lessen the value of the good.’ Could this be used as a ground to oppose further sale of a used good after repairs?
In my opinion, the answer is no. Repairs do not lessen the value of the good. Rather, it infuses a used good with functionality and longevity, just like the HDDs in the present case. However, clarity is required on what is meant by ‘value.’ Does it mean reduction in the sale value of the good or something else? Lack of clarity on this aspect can provide TM owners with a future ground to oppose sale of used goods after repairs.
Reverse passing off
Does removal of a registered mark only to be later replaced with another mark amount to an actionable claim of passing off? (read here)
The Court said it does not. For passing off, the most essential element of confusion was absent. Further, the removal of the registered mark ensured that there was no misrepresentation by the respondents or damage to goodwill.
The claim of reverse passing off, interestingly, also fell through. The Court, after carefully analysing the TM Act, held that the ground of reverse passing off was not available to a TM owner. Sec. 27(2), it said, only provides a relief against an act of passing off.
The SB had not made any comments on the merits of a claim of reverse passing off. It simply noted that the requirement of a disclosure would reduce the chances, if any, of a consumer linking the good back to the owner of the registered mark.
The DB, although it kept the requirement of disclosure, held that such a ground was unavailable to the TM owner in the first place.
The question of whether reverse passing off exists as an actionable claim under the TM Act or what are the merits of having such a relief are questions for another post. The readers, as always, are welcome to inundate the comments with their views.
The judgement has provided the repair industry with much needed relief, for now. It remains to been seen how the trial unfolds.