Trademark, Ultra Vires, and the Difficulty of Starting a Company in India
TATA Motors was named for the family who owns the company. Image attributed to flickr user code_martial, Tahir Hashmi.
As India’s economy grows and modernizes the state has worked to bring their business, trade, and intellectual property law into line with international standards, but a large fragmented system plagued by corruption and attachment to tradition can sometimes cause problems. One area where this is clearly the case is in trademark where a traditional reading of ultra vires and naming requirements is at odds with trademark principles.
The ultra vires doctrine, which prevents a company from undertaking any object which they are not specifically granted, is still a force in Indian business law. While England and the United States have moved away from the doctrine by allowing corporations to state their objectives broadly when incorporating, India still requires a specific purpose to be outlined when registering a company. Additionally, when registering a company in India an entrepreneur must select a name which relates in some way to the business. Name approval is time consuming, it can take weeks to get approval, it also takes away an entrepreneur’s ability to control his or her marks. An individual who wants to do business in India must submit their choice of name and two alternates for the government to choose from. If they are not seen as having enough to do with the company they will be rejected. (The Indian government recently prevented an online gaming company from calling itself “Kratos” after the Greek god of strength, because the business had nothing to do with Greek mythology.)
The name registration procedure incentivizes marks that are the opposite of what a traditional trademark scheme prefers. In order for a trademark to be valid it must be distinctive. Trademark law has traditionally given the greatest protection to “arbitrary” or “fanciful” marks, marks which have a meaning unrelated to the goods or services they are attached to (“bubbly publishers”) or that did not exist prior to the company’s use (“Kodak”). A generic mark can be canceled because it doesn’t distinguish itself as a brand from other similar goods and the protection granted to descriptive rights is severely curtailed.
What Indian business law has left for its companies is suggestive marks, which indicate the nature, quality, or a characteristic of the products or services. This doesn’t close off trademark protection but it does prevent owners from receiving the broad protection arbitrary marks are granted, potentially injuring Indian firms in global trade.
Seeing this problem, India’s Ministry of Corporate Affairs has drafted a proposed rule to remove the naming requirement when applying to form a company. However, the draft rule was published in March of this year and no progress has been made on implementing it. Additionally, some in the business community wonder about the efficacy of such a policy change considering the nature of India’s federalism, where ministries sometimes lack direct control over local offices and local officers are often tied to tradition.
Sources:
http://www.companyformationindia.com/guidelines-name-approval.html
http://www.mca.gov.in/Ministry/pdf/Companies_rules_15Mar2011.pdf
http://rubylearning.com/blog/2007/01/26/company-name-approval/
Interesting post. There was a piece in the New York Times today about Western companies coming up with brand names for the Chinese market, and it is much less restrictive than India. http://www.nytimes.com/2011/11/12/world/asia/pick…
It's interesting that these two emerging economies have such drastically different rules and cultures regarding business names. I wonder if there are restrictions for Western companies that want to operate existing brands in India, or if China will start to crack down on business names for Chinese companies.