Navigating Trademark Infringement: Challenges and Losses Faced By Companies In Developing Markets

3rd January, 2025 - 6:45 am Categories: Trademark Trademark Infringement 0 Comments

INTRODUCTION

Logos, names, or a combination of both are used to create a new design commonly known as trademarks in legal language. These marks signify a product’s originality, connect the consumer with the product emotionally, and guarantee a high standard of quality while purchasing. Trademarks are used to identify the product or to give the product an identity. A trademark is the right of a manufacturer to identify their product and make it secure so that no one other than him can use the same logo or name to sell the product without the permission of the original owner.[1] Have you come across certain products that resemble the same name or logo as a brand, but upon clear inspection, it gets clarified that it is a deception of the original done so smartly and carefully that in the normal course of business, we might not care that! Adidas is one of the giants of the shoe market in the world and is highly popular. We see many products similar to the logo or name of Adidas as Abibas, Adidos, Abibas, Adimas, etc. or you have seen similar to this for other brands like Bisleri, puma, and many other popular brands. People use these names to gain maximum profit illegally. This use of similar names and logos is coined as trademark infringement, which leaves the original brand at a loss and it also raises some serious questions regarding the credibility of the product.[2] In developing countries trademark infringement is prevalent and so common that we get to see duplicate or deceptive products in each corner of these countries. The USA in its report published in April 2024 highlighted the issue of trademark infringement in countries like India, China, Russia, and Venezuela, counting up to a total of seven countries in serious violation of Intellectual property rights. These countries are placed under a “priority watch list”. In developing countries, it becomes difficult to implement trademark laws on grounds. When we talk about India, we see a variety of different and duplicate products being sold in the open market in the name of originality, but the government is not able to restrict that sale. The issue here is not, whether India has the protection of trademark law similar to developed nations but the main issue is whether the government is willing to implement those laws on grounds that will cause them a great economic loss. Counterfeit goods and unauthorized use of trademarks are often driven by a lack of awareness of the Intellectual Property Laws and sometimes economic incentives also come into action. Challenges such as jurisdictional, global barriers, different laws for different places, and high litigation costs put companies at a great loss Certain companies have reported a great loss of revenue, damage to brand reputation, and erosion of consumer trust due to trademark infringement.

History of Legal Protection of Trademarks

In earlier times traders used to apply marks on their goods to indicate ownership. These marks were called “Proprietary” or “possessory” Marks. It was used for slightly different purposes within the Guild. Guilds were organizations that had control over the trade in certain areas. They provided trade exchange and securities to the traders.[3] However, with the rise of the Industrial Revolution manufacturing was being done on a mass level so, to provide identification for their goods they now started to use markers. Over time, now consumer started to identify products based on their marks and goods became of some standard – the nature of the source changed to an indicator of quality instead of being a source of liability. Now it is widely being used as an advertising tool that transformed its status from “signals” to “symbols”. Symbols gave a wider interpretation, people started to have a desire to own the product after coming through with the logo. Legal history for trademark protection is documented less in comparison to other areas of IPs. In the sixteenth century, courts started to entertain matters related to marks where they said that trademarks are a source of origin and if another person is allowed to use that mark it will lead to fraud committed on people.[4] In the early Nineteenth Century, the courts of chancery started to protect the traders who had developed a reputation or goodwill. The action was always concerned with the confusion arising out from the duplicate product. In 1875 the system for registration of marks was first introduced with limited areas where one can register their products.[5] It came due to domestic as well as foreign traders’ pressure because domestic traders now started to manufacture similar products which gave the foreign traders a feeling of insecurity relating to their goods. The question raised here was what should be the scope for protection. Frank Schechter’s article became popular and gained the attention of members of the trademark bar. Through his articles, he argued for a larger and wider scope of protection for trademarks. He was one of the greatest advocates for the protection of trademarks who put forward the concerns of the manufacturers. Nations started to legislate the Trademark Protection Act. Finally, in 1999, India passed the Trade Marks Act, 1999 which gave a way forward for the protection of trademarks in India in upcoming days. The title of the act reads “An Act to amend and consolidate the law relating to trade marks, to provide for registration and better protection of trade marks for goods and services and for the prevention of the use of fraudulent marks.”[6]

Trademark Infringement in Developing Countries

One of the important factors for trademark infringement in developing countries like India and China is weak enforcement of legal rights; some discrepancies can also be credited to the legal framework held by these countries. A low conviction rate for crimes related to Intellectual Property breaches is one of the factors that allows people to sell counterfeit products openly in the market. Governments generally don’t care to implement strict laws until or unless someone forces them to take action upon that breach. People tend to breach these laws and infringe on trademark rights because the opportunity cost is very low. The judicial process and limitation of resources often take a long time to resolve an issue which is seen as an opportunity by the counterfeiters. There are no separate agencies or units for specialized investigation of trademark infringement. Moreover, the framework for enforcement of IP laws varies from country to country which creates another big hindrance for the companies for implementation.

Another critical factor is the lack of awareness about the IPR Laws among consumers and businesses. People are unaware of the consequences of using counterfeit products. There is not enough information being spread to the masses about the implications of infringement and they are also unknown to the fact, actual loss faced by the companies in several areas. In several regions of the country where awareness of IP laws is negligible, people tend to buy counterfeit products.[7] Sometimes despite knowing the fact that the product they are buying is counterfeit, they buy it because of the cost-effectiveness and accessibility of that product, which allows the trademark infringer to do illegal business freely.

Last but not least economic incentives for counterfeiting are yet another factor contributing to trademark infringement in developing nations. These big brands have high MRPs, local manufacturers make duplicate products which gives the cost-effectiveness to the buyer in comparison with the price of the original products. It serves buyers as an alternative to going for similar cheaper products, which will give them the status they desire from buying the original, they can flex that product in front of others as they might not know whether it is original or fake. This weak enforcement of IP laws provides a lucrative business model, further allowing counterfeiters to violate more rules.[8]

Losses Suffered by Companies Due to Jurisdictional Differences

Companies suffer a significant loss due to trademark infringement. These losses do not always refer to monetary losses but go to a great extent of damaging reputation, and loss of licensing revenues. The courts have recognized four types of damages in connection with the misrepresentation: loss of existing trade and profit; loss of potential trade and profit; damage to reputation and Dilution.[9] This type of damage is self-evident from the loss caused to companies when the counterfeits use similar products and deals in the same field of trade. Loss of future trade and revenue happens when someone uses the same logo or name for different products which will likely cause the damage to original product. An important case law in this regard is Lego v. Lemelstrich[10] where a company selling fertilizer uses the logo of Lego for its trade of fertilizers as the company with the logo of LEGO did business of toy. This was going to harm the future trade of toy manufacturing companies as the goodwill made by selling toys would be destroyed by the fertilizers associated with it. The company takes action and saves its exclusive right for the use of that trademark.

Companies transfer their trademark to other businessmen The transfer of a trademark is known as a Franchise where people are authorized to use the logo or name for a similar trade they do, in return the owner of the trademark will get a hefty sum of money. If another person uses their trademark without authorization from the original owner, it will create a loss to the original owner as well as people who have taken permission for its use. In the case of Mirage Studios v. Counter-Feat Clothing Browne Wilkinson V-C held that the creators of the teenage mutant Ninja Turtles (fictitious cartoon characters), suffered damage when the defendant allowed the others to use the cartoon characters on clothes materials.[11] This amounted to outrage from the plaintiff for the loss of royalties they would suffer. Many people in developing countries use characters from cartoons and movies to attract consumers without the permission of the original owner of that character.

The loss of reputation suffered by the companies in places where the companies deal in high-quality goods. When the company, ‘s market share is based on high-quality goods then if someone uses that name to sell the average or low-quality goods it will damage their reputation. Understanding with the example here if Mr. A deals in the business of high-quality shoes and has quite a good reputation and market share. One day Mr Y starts selling goods of low quality or say toilet cleaners. By selling these materials Mr. Y puts Mr. A at a disadvantage for the reasoning that any reasonable person will not buy high-quality shoes of the same brand which also sells toilet cleaner. They will think about their status and comparing it with toilet cleaner may cause them dissatisfaction. This can be seen, for example in the judgment of Annabel’s Berkeley Squarer v. Schock[12] Where a well-known London club called “Annabel’s” was granted relief to prevent the defendant from trading as Annabel’s escort Agency. The court observed the fact that the use of the name Annabel would tarnish the reputation created by the claimant.

The final form of damage recognized by the court is dilution. Here the misrepresentation of the defendant makes the claimant`s goodwill commonplace or familiar therefore it undermines the ability of the trademark to bring consumers and make an impact. Notable case law in this segment is Taittinger v. Allbev where the plaintiff had been making champagne with a unique method of double fermentation. His champagne was widely recognized across the country. He has been doing business for a long time. The claimant in this case brought a suit against the producer of a non-alcoholic sparkling beverage called ELDERFLOWER CHAMPAGNE that was produced in England. At first, the court entertained the appeal and gave a decision in favor of the claimant, that it would harm the reputation of the company but in the court of appeal, the Court held that the defendant’s use of ‘Champagne’ had caused the requisite damage to sustain a passing off action. Importantly, the Court found that the relevant injury to the Champagne house’s goodwill occurred under a head of damage not considered at first instance: the damage arose from the fact that there would have been a blurring or erosion of the uniqueness associated with the name ‘Champagne’, which would have debased the claimant’s reputation. The use of the name ‘Champagne’ for the elderflower drink brought about a gradual debasement, dilution, or erosion of what is distinctive.[13]

The lack of a proper mechanism for the protection of IP rights gives a mighty blow to the companies operating in national and international territories. The resulting losses in revenue, brand reputation, and increased legal costs can have a significant impact on a company’s bottom line and long-term success.

Mitigating Trademark Risks: Strategies for Protecting Your Brand in Challenging Jurisdictions

One of the major challenges for the companies is safeguarding their products in the jurisdiction where weaker enforcement of the law is done. Companies can adopt some of the solutions provided ahead which include, Strengthen Trademark Registration in Key Markets; collaborating with Local Authorities and Industry Groups; Investing in Consumer Education and Anti-Counterfeiting Measures; Monitoring the Market, and Enforce Your Rights.[14]

Strengthening trademark registration in markets where enforcement is weak will give the companies ways to pursue their rights legally. They can compel the government to take action against the infringers. They can anticipate where they are going to invest and register their trademark in that country. They should consider applying for trademarks in multiple classes that will give them a broad range of goods and services and protect their rights for goods they will manufacture in the future.

Now Collaborating with the local manufacturer will give them reach to local consumers. It will help them in branding their trademark and local people will also get the opportunity to know about the brand more and take caution while buying any product of that company. By establishing relations with the local law enforcement agencies, customs officials, and industry associations in each jurisdiction they will get a fair share of their rights within the modern-day guild. We see many foreign companies operating in developing nations with the help of local manufacturers, for example in India, brands like KFC, PUMA, and, Adidas operate their business by collaborating their business with local manufacturers. They have showrooms in almost every main city of India. It has become such a popular trademark that everyone now recognizes that logo and the quality associated with it. They inspect the product before buying, in a way helping the brands from infringements of trademarks.

Companies should launch different courses to educate the masses about the infringement of trademarks. They can release creative advertisements that will make an impact on the minds of the masses. They should engage in public awareness programs and work with e-commerce platforms to promote the purchase of authentic goods.[15] Investing in research and development will give them an edge if they can create certain technologies or holograms, unique product identifiers, and track and trace systems to help consumers distinguish between fake and original products and that will also give uniqueness to their product and is easily visible but very difficult to duplicate.

Monitoring the market competition for potential trademark infringement will reduce the loss. They can search with local authorities for counterfeit products either online or offline. Developing countries can develop different setups to deal with the right infringement. They can develop a mechanism that will especially deal with these types of cases as of consumer forums.

CONCLUSION

In this global world where one can easily reach one pole to another, the protection of trademarks has become one of the most challenging and important tasks for companies. These challenges are generally posed by different jurisdictions, weak enforcement, incentives to counterfeiters, and, low opportunity costs for the offenders.

Trademarks are a messaging tool for companies that inform consumers about the qualities and status of their products. Companies register their trademarks in each jurisdiction to safeguard their products. The World Trade Organization has recognised the right to trademark protection and has developed a mechanism called the World Intellectual Property Organization (WIPO) that serves the world’s innovators and creators, ensuring that their ideas travel safely to the market and improve lives everywhere. By registering to WIPO one can register for several countries with one application. IPR laws in developed countries are strict.[16]

Companies should take measures to make parallel setups or at least try to create one where they can be protected. To combat these challenges companies, need to make strategies to normalize the risk associated with trademark infringement. The company’s investment in awareness campaigns and research and development remains one of the key aspects of trademark protection. They need to come up with the solutions to safeguard their rights. It will take decades for developing countries to reach a level of developed nations in terms of law enforcement, especially in those areas which are new concepts for that country.

A company’s commitment towards thorough cooperation and connection with local authorities ensures protection from counterfeiting, but this should not be the last measure instead companies need to train their employees better and in a creative way so that they can become the ambassadors of that company and show their commitment towards protection.

Trademark Infringement remains a multifaceted issue that requires involvement from all the stakeholders of the market be it from big corporations, authorities, consumers, and government.[17]

The loss suffered by the companies is beyond the financial loss and goes to the extent of damage to reputation. There is also much obligation on the government to do the required work. The fight against the infringement of trademarks is not solely about the profit but for all the great causes like protecting the consumer from buying counterfeit products and also securing the essence of the brand identity.

Author: : Ankit Kumar, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

[1] Alexander Krasnikov and Satish Jayachandran, ‘Building Brand Assets: The Role of Trademark Rights’ (2022) 59 Journal of Marketing Research 1059.

[2] George Miaoulis and Nancy D’Amato, ‘Consumer Confusion & Trademark Infringement: Presents a New, Broadened Concept of Consumer Confusion, Illustrated by Research Results in the Tic Tac® Case.’ (1978) 42 Journal of Marketing 48.

[3] Edward S Rogers, ‘The Lanham Act and the Social Function of Trade-Marks’ (1949) 14 Law and Contemporary Problems 173.

[4] Michael D Birnhack, ‘Colonial Trademark: Law and Nationality in Mandate Palestine, 1922–48’ (2021) 46 Law & Social Inquiry 192.

[5] David M Higgins, ‘The Making of Modern Trade Mark Law: The UK, 1860–1914. A Business History Perspective’ in Lionel Bently, Jennifer Davis and Jane C Ginsburg (eds) (1st edn, Cambridge University Press 2008) <https://www.cambridge.org/core/product/identifier/CBO9780511495212A014/type/book_part> accessed 3 September 2024.

[6] Howard Johnson, ‘Trade Marks: The New Law’ (1995) 37 Managerial Law 1.

[7] Michael A Klein, ‘Complementarity in Public and Private Intellectual Property Enforcement; Implications for International Standards’ [2018] SSRN Electronic Journal <https://www.ssrn.com/abstract=3304023> accessed 3 September 2024.

[8] ‘Complementarity in Public and Private Intellectual Property Enforcement; Implications for International Standards | Semantic Scholar’ <https://www.semanticscholar.org/paper/Complementarity-in-Public-and-Private-Intellectual-Klein/96b558b82e55d055ee20cb97447b1d2268cf5e7e> accessed 3 September 2024.

[9] Elizabeth K Levin, ‘A Safe Harbor for Trademark: Reevaluating Secondary Trademark Liability after Tiffany v. eBay’ <https://lawcat.berkeley.edu/record/1122281> accessed 3 September 2024.

[10] ‘The Cycles of Corporate Branding: The Case of the LEGO Company | Semantic Scholar’ <https://www.semanticscholar.org/paper/The-Cycles-of-Corporate-Branding%3A-The-Case-of-the-Schultz-Hatch/efe25922788cca0e1df185194acdf8c9313958a5> accessed 3 September 2024.

[11] ‘On the Features of Civil Liability for the Illegal Use of Images of Fictional Characters as Objects of Copyright | Semantic Scholar’ <https://www.semanticscholar.org/paper/On-the-features-of-civil-liability-for-the-illegal-Kopylov/99bed815835f3a546a831c3e6ddc127a4cb2f8bb> accessed 3 September 2024.

[12] George Miaoulis and Nancy D’Amato, ‘Consumer Confusion & Trademark Infringement: Presents a New, Broadened Concept of Consumer Confusion, Illustrated by Research Results in the Tic Tac® Case.’ (1978) 42 Journal of Marketing 48.

[13] Alfred Phillip Knoll, ‘Champagne’ (1970) 19 International and Comparative Law Quarterly 309.

[14] ‘Legal Culture and Legal Consciousness of Consumers: The Influence on Regulation and Enforcement of Consumer Protection Laws | Semantic Scholar’ <https://www.semanticscholar.org/paper/Legal-Culture-and-Legal-Consciousness-of-Consumers%3A-Fibrianti-Santoso/773889da3ecacba2fd6dfb42f70bb9fa6cff2f72> accessed 3 September 2024.

[15] SL Ting and WH Ip, ‘Combating the Counterfeits with Web Portal Technology’ (2015) 9 Enterprise Information Systems 661.

[16] ‘A Review of Counterfeit Product Identification Models | Semantic Scholar’ <https://www.semanticscholar.org/paper/A-Review-of-Counterfeit-Product-Identification-Rahlagane-Mathonsi/d57dce5158c4fc8984422b99c9e477e470337af6> accessed 3 September 2024.

[17] Laura R Bradford, ‘Trademark Law and Agency Costs’ [2015] SSRN Electronic Journal <http://www.ssrn.com/abstract=2566176> accessed 3 September 2024.