Med-Arb: A Viable Substitute for International Arbitration

abaindialawnews 2010 - Fall, ALL

By Norman Solovay and Tanya Paula de Sousa

You have a dispute involving international parties or you are afraid that your deal will devolve into one.  And if you are the aggrieved party, you need to end up with an arbitration award in your favor that you can enforce almost anywhere under the New York Convention.  But you have heard some terrifying stories about protracted international arbitrations that have devoured, rather than helped, the disputing parties.

There is a quick and economic shortcut to that arbitration award called Med-Arb, which is a hybrid dispute resolution process combining mediation and arbitration. In Med-Arb, both parties to the dispute sign up with a mediator who, in the event of an impasse, is authorized by their agreement to put on an arbitrator’s hat and resolve any remaining issues that the mediation failed to dispose of.  In a Med-Arb proceeding, the parties’ “informed consent” is required before an arbitration award rendered in it can be insulated from attack under normal rules applicable to ex parte dealings with arbitrators.

Although the name Med-Arb was coined in the 1970’s in the U.S., the process is hardly a new one: it dates back to the ancient Greeks and in addition to the U.S., is used in many countries such as China, India, and Italy.  Despite being regularly used, it came under attack by many mediators who felt it inhibited frank interchanges and fell out of favor for a number of years.  Now, however, as arbitration has come to be called the “new litigation” because of its increasing length and cost, Med-Arb has had a dramatic rise in popularity.  In fact, many of its U.S. proponents refer to it as encompassing “the best of both worlds” because it combines so many of the benefits of mediation and arbitration. As viewed by its now growing number of users, this amalgamation capitalizes on the advantages of both processes, while simultaneously eliminating many of their individual disadvantages. The combined proceeding aims to resolve disputes faster, more efficiently and more economically.

Med-Arb’s biggest advantage is that you know when you sign up that your dispute is going to be resolved.  Moreover, you can also be sure that if you select a good Med-Arbiter you will at least start off with a sympathetic mediated hearing that saves time, energy, and also conserves relationships. Another certainty is that the proceeding will take a fraction of the time and cost of typical long-running commercial (and particularly international) arbitrations with excellent odds that a real arbitration will never be needed. Even in those very infrequent cases where a party, having disregarded the Med-Arbiter’s suggested resolutions causes an impasse, the arbitration portion need only deal with the remaining issue or issues that the mediator couldn’t resolve.

There used to be doubts about whether a Med-Arb proceeding could be assured of generating an arbitration award enforceable under the New York Convention.  But Med-Arb’s ability to do so has now become far more certain.  See, in this regard, a particularly well-done article on the subject by Edna Sussman entitled “The New York Convention Through a Mediation Prism,” 15 Dispute Resolution Magazine #4, which cites the U.S. cases in which agreements arrived at in a Med-Arb proceeding were enforced, and goes on to describe methods for obtaining similar enforcement  under the New York Convention.

Med-Arb is not for everyone, especially those with strongly held views as to the importance of being able to walk away from an unsatisfactory mediation. But it can be the right choice for many parties needing closure in a dispute and/or wanting to avoid the cost and strain of drawn out expensive arbitration proceedings, both international and domestic.

Norman Solovay is Partner & Chair of the Alternative Dispute Resolution Department of McLaughlin & Stern, LLP.  He can be contacted at nsolovay@mclaughlinstern.com. 

Tanya Paula de Sousa is an Associate of the Alternative Dispute Resolution and Corporate Departments of McLaughlin & Stern, LLP.  She can be contacted at tdesousa@mclaughlinstern.com.

India from Within:  the India Internship Project at the Indiana University Maurer School of Law

abaindialawnews 2010 - Fall, ALL

By Ramla Farzad

This past summer, the Center on the Global Legal Profession at Indiana University Maurer School of Law launched a new internship program in Delhi, India.  Through a highly competitive selection process, six students were placed in law firms, NGOs and the Assistant Solicitor General’s Office for a six-week period and tasked with an array of legal assignments.  The Center’s mission is to create a new paradigm for learning about the legal profession and legal practice in other countries.  As the legal profession becomes more global in nature and attorneys become more integrated in cases and transactions that cross boundaries, the Center seeks to enhance understanding of this evolving system.  The Center’s long term objective is to help attorneys navigate the complexities of international legal issues and become leaders and problem solvers within a rapidly globalizing world.

With this goal in mind, the Center focused on internship opportunities for its students.  The Center chose India as its first country of focus because of the similarities between the foundation of the American and Indian legal systems as well the differences.  India is the world’s largest democracy, with a flourishing economy, free press, and a legal system based on common law.  Under the leadership of Professor William Henderson, the Center’s Director, and Professor Jay Krishnan, a leading scholar on the Indian legal system, the Center was able to develop relationship with several key organizations around Delhi.  Milton Stewart, an Indiana University alumnus and partner at the Portland firm of Davis Wright Tremaine, donated both his time and money to launch the program.  In February 2010, Henderson, Krishnan, and Stewart traveled through Delhi to meet with various law firms, NGO’s, and the Assistant Solicitor General.  They were able to secure internship placements for Maurer students, officially known as the Stewart Global Legal Fellows, with Amarchand & Mangaldas & Suresh A. Shroff & Company, J. Sagar Associates, Bhasin & Company, and the Clarus Law Firm.

The delegation had equal success in finding placements for students interested in working in the non-profit sector.  Kathy Sreedhar, the Director of the Unitarian Universalist Holdeen India Program, provided significant assistance in matching students with the NGOs.  With Sreedhar’s help, the Center was able to place students at the Dalit Foundation, Jagori, and the Self-Employed Women’s Association, NGO’s devoted to empowering marginalized and disadvantaged people in India.  Sreedhar also provided funding for the students, which greatly helped the students undertake this once in a lifetime experience.

The six students, Erica Oppenheimer, Nick Dau-Schmidt, Erin Mihalik, Jillian Rountree, Zachary Holladay and Renee Turner, arrived in mid-May to begin their internship program.  Five of the six students resided at the O.P. Jindal Guest House, affiliated with the new O.P. Jindal Global University, which is in the process of partnering with Indiana University.  The modern and spacious guest house provided a retreat for the students to live comfortably and interact with one another, further solidifying their bond.  Dau-Schmidt, who interned at J. Sagar Associates was graciously invited to stay at Mr. Jyoti Sagar’s guest house, located minutes from the office.

Each intern had a unique and singular experience.  The interns at the law firm were asked to research legal issues that crossed international boundaries and informed the way they approached a novel legal issue.  Rountree interned at Clarus Law Firm, a boutique law firm specializing in environmental law.  She captured this experience in a weekly journal that all the students were required to submit as part of their internship program, writing:

I think what really impressed me was the subject matter.  I was really working on important and cutting edge material. Again, I didn’t believe that everything the firm would work on would be dry or repetitive, but I did not think I would be trusted with research on what to me is such new and central material. I come away from the internship I hope having made those at Clarus a bit more knowledgeable about my research topics, but mostly with immense new knowledge on not only international, environmental, and trade law topics but also an increased familiarity with the process of developing arguments and providing consultation on these matters. I believe I have a far greater grasp on what questions are asked and how they are answered in international trade law.

The interns working for NGOs had a vastly different experience.  These interns were taken out of their comfort zone and asked to see life through the lens of the struggling and impoverished people of India.  In addition to researching laws which affect the disadvantaged population of India, they also engaged in field work, traveling to remote villages and meeting with people who literally have nothing.  Turner, who interned at the Dalit Foundation, made the following comments in her journal:

While out and about one day, I stumbled upon two women working at a construction site.  These women were carrying at least ten bricks on top of their heads, while their babies lay off to the side, crying.  When I asked the man I was with about these women, he responded, with a smile, by saying “A strong woman can carry sixteen bricks on top of her head.”

When I inquired about their living conditions (shanty homes) and children lying in the dirt, he off-handedly said they are migrant workers paid to work at the construction site, so that’s where they live.  The sound of the babies crying was heartbreaking.  I wanted to rush over and pick all three of them up and rock them until they stopped crying.

Experiences like this can change a student’s life.  Not only did they get the opportunity to learn about Indian law and the Indian legal system, but they also got a taste of what life in India is like.

The Center seeks to create a new model for professional education that better fits the rapidly globalizing legal, political, and economic landscape.  American law students can no longer limit themselves with knowledge about just the American legal system.  The Center seeks to create global alliances and assist Maurer students in gaining an international perspective.

The Center is working towards expanding the program next summer with more internship slots within India.  The Center is also actively looking for internship opportunities in other countries, including China, Brazil, South Africa, and Australia.  The Center hopes to replicate the success of the India internship in these other countries and provide more law students with this unique experience.

Ms. Ramla Farzad serves as the Executive Director of the Center on the Global Legal Profession at Indiana University Maurer School of Law.  Ms. Farzad is responsible for organizing all of the Center’s international internship programming.  To learn more about the Center on the Global Legal Profession and the India internship program, please contact Ms. Ramla Farzad, Executive Director at rfarzad@indiana.edu.

AUTHOR BIO

Ms. Ramla Farzad serves as the Executive Director of the Center on the Global Legal Profession.  Ms. Farzad graduated with highest honors from the University of California, Berkeley with a degree in political science and an emphasis in South Asian studies. She went on to attend law school at the University of Southern California.  After law school, Ms. Farzad worked in general commercial litigation at a large national law firm.

Ms. Farzad joined Indiana University Maurer School of Law as the Executive Director of the Center on the Global Legal Profession in fall of 2009.  As the Executive Director, Ms. Farzad is responsible for the Center’s international internship placements.  She is responsible for organizing, managing and overseeing all aspects of the India Summer Internship Project, including, obtaining University approval of the program, drafting the agreements with the law firms, NGO’s and Solicitor Generals office, interviewing and selecting candidates into the program, organizing all pre-orientation meetings and travel plans, providing support services for students in India and serving as a liaison between the students and their summer employers.

 

 

 

Writing Requirements, Student Assessment and Plagiarism in Indian Law Schools

abaindialawnews 2010 - Fall, ALL

Jonathan Gingerich and Aditya Singh

The Bar Council of India (BCI) noted in a June 8 press release that plagiarism is a widespread problem in Indian law schools and law colleges.  This was the first official acknowledgement of a phenomenon widely recognized by teachers and students.  The BCI asked law schools to take steps to prevent plagiarism and announced that it would support the use of plagiarism detection software.

We are conducting an extensive empirical study on student evaluations and academic integrity in law schools and colleges all over India.  In addition to conducting an online survey of law students across the country, we have visited a cross section of law schools and traditional law colleges in all regions of India, where we have interviewed students and teachers about the extent and causes of plagiarism.  While our initial findings support the BCI’s conclusion that plagiarism is a pervasive problem in Indian legal education, they also indicate that the causes of this problem are deep and law schools cannot adequately address the issue with anti-plagiarism software alone.

The Emergence of Writing Requirements in Legal Education

Traditionally, student evaluation in Indian legal education has revolved around annual final exams.  Some institutions, like the University of Delhi, experimented in the 1950s and 1960s by requiring students to write papers for their courses as part of a tutorial system.  However, by the 1970s, these experiments had been abandoned and, as a rule, law faculties and colleges assessed their students solely through final examinations.

The most recent implementation of writing requirements for law students began with the establishment of National Law School of India University (NLSIU).  Since it was founded, NLSIU has required its students to write “research projects” (or “term papers”) in every course of study.

Now, most five year law programs at national law universities, of which there are currently fourteen, and private law schools, require students to write a significant number of research papers as part of their law school coursework.  Indeed, many institutions require their students to write a paper of around 5,000 words in every course that they take, with students often taking five or six courses a semester.  These schools seek to advance several objectives by requiring their students to write a significant number of research projects: improving students’ writing skills, teaching students how to perform effective legal research, increasing academic rigor, and encouraging students to learn about substantive areas of law that are not taught in class.

The Prevalence of Plagiarism

While the introduction of writing requirements in the past two decades has certainly increased the quantity of written work by students, it has also occasioned the emergence of widespread plagiarism in law schools. Students and teachers at almost every law school with a writing requirement that we visited told us that seventy percent or more of students routinely turn in plagiarized papers (often called “copy-paste”), and most of the students with whom we spoke have readily acknowledged that they plagiarize some or most of their papers.

Students commonly plagiarize by copying and pasting an article from the Internet or an electronic database, by copying chunks of a few different articles and stringing them together, or by taking papers written by students at their own law school or another law school in a previous year and submitting these papers as their own.  Sometimes, and especially when they are worried that plagiarism detection software might be used, students modify some of the material they have copied or paraphrase the papers they have obtained from older students.  The BCI’s concern that plagiarism pervades legal education therefore seems well founded.

Causes of Plagiarism

Students plagiarize research papers for a wide variety of reasons, and the reasons for plagiarism vary from school to school and class to class.  Many students told us that some, or even most, of their teachers do not read the research projects that students submit. Even if teachers do read them, they do not provide any helpful feedback to students.  Students have repeatedly told us that they are likely to plagiarize projects where they doubt that their teachers will take the time to read and think about their writing.  An overwhelming majority of students point out that they are most motivated to do high-quality, original work for teachers they know will thoughtfully read their papers and tell them what they have done well and poorly.

A second cause of copying is that students feel that they do not have sufficient time to write all of the projects assigned to them. When students are asked to write 5,000 words or more for each subject in a semester, often with deadlines clustered closely together, they feel that it is impossible to do original work in every subject.  Furthermore, at many colleges, students have class for as many as thirty-five hours per week.  Together with the time that students spend on extracurricular activities, like moot courts, law journals, and writing papers for conferences, this leaves students little time to write original research projects for all of their courses. The length and quantity of research projects exacerbates the problem of inadequate feedback to students from teachers, as teachers are unable to closely read and comment on twenty or thirty page projects from all of the students in their classes, which can have up to 120 students.  It is unsurprising that many students who have spoken to us have said that they will do lots of work to write original papers in the one or two subjects that interest them most each semester and are fairly evaluated, but that they do not do original work for projects for other subjects.

Penalties for plagiarism tend to be light and are almost never enforced.  Even when teachers detect that a student has submitted a plagiarized project, they will most commonly respond by simply admonishing the student not to plagiarize again, reducing the student’s marks on the project, or asking the student to resubmit her or his project.  Students who are asked to resubmit their projects because of plagiarism are likely to make a few changes to their plagiarized projects to make them look a bit more original, hand in a new project plagiarized from another source, or, if they are frightened by the teacher, write a new, original project. Even if a student receives zero marks, or very low marks on a plagiarized project, she or he will typically still be able to pass the class by achieving a high enough grade on the final examination. While some law schools have set up formal mechanisms to take action when plagiarism is reported to the school administration by a teacher, these mechanisms are very rarely used.  Even when such formal mechanisms consider imposing serious penalties on students for plagiarism, like requiring them to repeat a year of law school, students commonly apologize for their misconduct and the school will decide not to impose severe penalties.

Yet another cause of misconduct is that many law schools neither clearly define plagiarism nor teach their students how to avoid it.  While some schools have definitions of plagiarism, such definitions are often vague, and interpretation of these vague definitions may be left up to disciplinary bodies instructed only to follow “natural justice” in their interpretation of the definition.  While a handful of professors discuss plagiarism with their students, hardly any law schools provide their students with formal training about what plagiarism is and how to avoid it.  Thus, students are often unaware of what plagiarism is and of how and when they must reference the materials that they use in writing projects.

Proposals to Enhance Academic Integrity

The BCI has suggested that making use of software to detect plagiarism in student papers would be an effective means of preventing students from handing in copy-paste projects.  NLSIU has also recently licensed the anti-plagiarism software Turnitin for use by its professors.  Other schools are trying out less technological solutions.  For instance, the West Bengal National University of Juridical Sciences (NUJS) has reduced the quantity of writing that students are required to do in their first two years of law school and has introduced a system of “tutorials,” where fourth and fifth year students instruct first and second year students in small groups and give advice on their written projects.  Individual faculty members at many institutions have taken steps to reduce copying by their students, like providing more comprehensive and transparent feedback to students on their writing.

We believe that the use of anti-plagiarism software is only a partial solution to the problem of copying by students. We have spoken to students whose teachers use software to detect plagiarism, who have told us that the threat of the software changes the manner in which they plagiarize: rather than copying and pasting without changing the original material in any way, they will copy by paraphrasing the ideas of the article, book, or website on which they are relying.  Anti-plagiarism software is unable to detect this type of plagiarism.

The one solution that is likely to be highly effective in reducing plagiarism is building up a competent, qualified, and committed legal professoriate, with teachers who have the ability and inclination to read and provide helpful feedback on student research projects.  In the institutions that we have visited, we have seen signs that the building up of an excellent faculty is beginning to happen, but this will take money, institutional and regulatory support, and a great deal of time.

However, we believe that law schools could change how they evaluate student writing in some ways that would have a more immediate impact on improving the quality of legal education.  By reducing the length of the research projects that students are required to write, or by reducing the number of projects that students are required to write every semester, these institutions could give their students more time to do quality original work and give their faculty more time to evaluate student projects and provide helpful feedback.  Secondly, they could monitor faculty to ensure that they grade students’ projects on the quality of their research and writing and that they provide helpful feedback to their students.  Thirdly, law schools could clearly define plagiarism and institute formal training programs to teach students how to properly reference works from which they quote.  Finally, if law schools consistently enforced prescribed penalties for plagiarism, they could more credibly tell their students that plagiarism is not tolerated and could better deter students from plagiarizing.

While these suggestions, and any other proposals to modify the structure and procedures of student evaluation, such as NUJS’s tutorial system and BCI’s software proposal, will make it more difficult for students to plagiarize and increase the incentives for students to write original papers, they are incomplete solutions as long as students believe that their professors are unlikely to read the work that they hand in or doubt the ability of their professors to understand and fairly evaluate the projects that they write.  Thus, structural changes to law school evaluation must be accompanied by a commitment to hire more talented, enthusiastic law professors, or they will leave the problem of copying largely unchanged.

Jonathan Gingerich and Aditya Singh are conducting research on academic integrity and student evaluation in Indian law schools as Student Empirical Research Fellows with the Harvard Law School Program on the Legal Profession.  Additionally, Mr. Gingerich is a Ph.D. student in the Department of Philosophy at the University of California, Los Angeles, and Mr. Singh is a final year B.A.,LL.B. (Hons.) student at NALSAR University of Law, Hyderabad.  They may be contacted at indianlegaleducation@law.harvard.edu.

 

Case Notes – Fall 2010

abaindialawnews 2010 - Fall, ALL

Poorvi Chothani

 

FM Stations Pay Reduced Royalty to Broadcast Music

A long-standing revenue related dispute between FM radio stations and music labels, which had been pending before the Copyright Board, part of the Ministry of Human Resources Development, India, has been adjudicated. The Copyright Board passed an order in the matter of Music Broadcast Private Limited and Others v. Phonographic Performance Ltd., F.No.20-2/2001.CRB (WZ), where the applicant was granted a compulsory license under Section 31 (b) of the Copyright Act, 1957.

Phonographic Performance Ltd. (PPL) is a copyright society that administers the rights on behalf of about 137 recording companies. Several FM radio stations filed applications before the Copyright Board because the radio stations and PPL could not agree on the amount of royalty for use of PPL’s content. These applications were filed under Section 31 (1) (b) of the Copyright Act, 1957, which provides that the Copyright Board has the power to grant compulsory licenses when it finds that the owner(s) of published Indian works or of works that have been performed in public refuses to allow the communication or broadcast of the works to the public. Indian works include artistic works, cinematographic films, or a record made or manufactured in India, the author of which is a citizen of India. The Copyright Board is required to issue a notice to the owner of the work(s) refusing such access and, after conducting an inquiry, can require the Registrar of Copyrights to grant a compulsory license if it finds that the grounds of refusal are not reasonable. Such a license is on payment of fees that the Copyright Board prescribes.

The Copyright Board issued a directive (the Directive) to the Registrar of Copyright to grant to each of the nine applicants a compulsory license to PPL’s collection of music and requires FM stations to pay 2% of their net advertising revenues (total advertising income minus agency commission and government taxes) to music labels by way of royalty. Earlier FM radio stations had to pay Rs. 1,200 to 1,600 (approximately US$ 27 to US$ 36) per hour.

When assessing the compulsory license applications, the Copyright Board considered the profitability and revenue streams of the FM radio stations, the promotion of music by the radio stations, public interest, international standards and the terms of the license or Grant of Permission Agreement (the Agreement) between the Ministry of Information and Broadcasting, the Government of India and the radio stations among other things. The Agreement mandates that the FM radio stations will be “free to air” services and they cannot impose subscription fees on the public. When arriving at the revenue model, the Copyright Board also considered the interests of all the stakeholders in the matter including the public and the advertisers that use the medium of FM radio stations.

Importantly, the Directive could affect the royalty collections of other music owners who were not a party to the proceedings before the Copyright Board and might have a bearing on the rights of the owners of musical and lyrical works.

Are transactions involving the transfer of shares in offshore companies taxable in India if the underlying assets are located in India?

The international business community has been watching India anxiously for the outcome of what has been called the Vodafone case.  The issue was whether Indian tax authorities had jurisdiction over Vodafone’s acquisition by way of a transfer of shares of mobile phone operator Huchison Essar. In Vodafone International Holdings BV v. Union of India and Anr., MANU/MH/1040/2010, Vodafone International Holdings BV, a Netherlands entity, had acquired 100% shares in CGP (Holdings) Ltd, a Cayman Islands company from Hutchison Telecommunications International Ltd. for US $11.2 billion.

The Bombay High Court did recognize that the shares of the foreign company were located outside India but observed that the transfer of the attendant commercial rights situated in India would be subject to Indian tax.  There is some ambiguity about this as the decision suggests that the transfer of the shares per se, including the shareholder rights and controlling interest should be treated separately from the value of the commercial interest in India.

India currently does not have laws that tax the profits arising from the transfer of shares outside the country even if the underlying assets or properties are situated in India.  However, the Vodafone decision of the Bombay High Court changes the situation that might be further formalized as and when the Direct Taxes Code Bill, 2010 is passed, which is now pending before the Parliament, and which contains a provision that will tax the transferor of an offshore company’s shares outside India in proportion to the fair market value of assets located in India.  It is important to note that this rule will apply only when the fair market value of assets in India is more than 50% of the value of all assets owned by the offshore company.

In the meantime, the Vodafone ruling is likely to be challenged in the Supreme Court of India and if the apex court confirms the Bombay High Court judgment, it could have far-reaching ramifications with retrospective effect on certain large deals with similar transfer of shares in offshore companies.

Do parties to an investigation by the Competition Commission of India (CCI) have a right of appeal against every order of the CCI?

In Competition Commission of India v. Steel Authority of India Ltd. and Anr., MANU/SC/0690/2010, the Supreme Court of India on September 9, 2010 passed its first decision in a matter arising out of the Competition Act, 2002 (as amended) (the Competition Act) in an Appeal filed by the Competition Commission of India (CCI) against an order of the Competition Appellate Tribunal (COMPAT).  The Supreme Court of India ruled that parties to an investigation by the CCI do not have a right of appeal against every order of the CCI.

The matter before the CCI concerned an arrangement between Indian Railways and the Steel Authority of India Limited (SAIL) for the supply of rails to Indian Railways. SAIL is the exclusive supplier of rails to the railways.  Jindal Steel and Power Limited (JSPL) challenged this arrangement before the CCI as being anti-competitive.  The CCI initiated the process to establish whether there was any merit in the complaint as per its standard norms. On finding that there was some substance in the complaint the CCI referred the matter to its Director General (Investigations). Before the Director General could begin its investigations, SAIL filed an Appeal with COMPAT, challenging the order passed by the CCI requiring the Director General to investigate the exclusive arrangement, which stayed the investigation and ruled that the CCI need not be a party to the Appeal.

COMPAT allowed the Appeal on the basis that “any order, decision or direction of the CCI” was appealable under section 53A of the Competition Act and such right of appeal was not limited to the orders listed in section 53A. The Supreme Court found that COMPAT had erroneously interpreted section 53 A (1) of the Competition Act to find that it had jurisdiction to entertain Appeals against all directions or decisions of the CCI. The Supreme Court was also of the opinion that the CCI was expected to record some reasons as to the existence of a ‘prima facie’ case. The decision clearly defines COMPAT’s appellate powers and enables the CCI to conduct investigations without being embroiled in long drawn Appeal proceedings at each stage. The Apex Court further ruled that the CCI has to be a party to all Appeals before COMPAT as it must necessarily be involved in Appeals arising from its orders.

Can two different entities use the same trademark in India?

The Delhi High Court in Lowenbrau AG and Anr. v Jagpin Breweries Ltd. and Anr., 157 (2009) DLT 791, found that two owners of the same trademark can simultaneously use the trademark when they did so in other countries without being granted any preferential rights. Lowenbrau AG and In Bev India International Pvt. Ltd. (Lowenbrau Bev) filed a suit for permanent injunction, rendition of accounts, mandatory injunction in form of delivery against Jagpin Breweries Ltd. and Lowenbrau Butterheim (Jagpin Lowenbrau). Lowenbrau Bev claimed exclusive right to use the mark/word LOWENBRAU, device of lion or any other trade mark or device mark identical or deceptively similar to it.

The Delhi High Court observed that a mark, which was commonly used at one time, might in course of time become distinctive while on the other hand such a mark might lose its distinctiveness. Additionally, word or words used by a number of entities as part of their identity may be considered to be words in common use. Further, 100 years ago both the parties were in litigation in Germany, which ended when a German Court found that the LOWENBRAU mark couldn’t be monopolized, as there were a number of breweries in Germany that had been using the same mark without any dispute.

The Delhi High Court held that both the parties are Germans and have been marketing their products worldwide using the mark/word LOWENBRAU without any dispute.  As a result, the balance of convenience was not in favor of Lowenbrau Bev., for the reason that when both the parties could sell beer all over the world with the common mark or word LOWENBRAU, they could continue to do so in India too. Both companies’ products had other distinguishing features in their marks and labels to help consumers distinguish between the products.

Are business plans and boardroom discussions protected as Trade Secrets in India?

Boardroom discussions and business plans do not merit protection as trade secrets while proprietary software and manuals are eligible for trade secret protection.

In Bombay Dyeing and Manufacturing Co. Ltd. v. Mehar Karan Singh, MANU/MH/0955/2010, the Bombay High Court found that Mehar Karan Singh (Mr. Singh) had been appointed a whole time Director of the Bombay Dyeing Company (Bombay Dyeing) under an employment agreement dated August 22, 2005 for the period July 24, 2004 to July 23, 2009. Under this employment agreement, he agreed not to divulge or disclose confidential information of any nature. However, he divulged Bombay Dyeing’s information to its competitor. Mr. Singh had also exchanged several e-mails with the competitor containing information relating to Bombay Dyeing. According to Bombay Dyeing, the confidential information divulged by Mr. Singh included customized software for Bombay Dyeing’s real estate business and its manual as well as a Memorandum of Understanding and some business plans and strategies which were discussed in the board meeting of Bombay Dyeing. India does not have any specific law protecting trade secrets and parties are bound only by the contracts they enter into.

The Bombay High Court restrained Mr. Singh from divulging any information about the software and its manual prepared by Bombay Dyeing but refused to restrict Mr. Singh from disclosing Bombay Dyeing’s business plans discussed in the board meetings. The Bombay High Court found that boardroom discussions and strategic business plans are not eligible for protection as Trade Secrets, but proprietary software and software manuals were considered to be Trade Secrets.

Is the distributor of consumer products a necessary party when a complaint is filed before a consumer disputes redressal forum?

The Mumbai Suburban District Consumer Disputes Redressal Forum held that the manufacturer of a television set could not escape from its liability to a consumer even if the consumer who filed a complaint had not made the distributor, who sold the complainant the television, a party to the proceedings. The Court held that the complaint is not bad for “non-joinder” of parties.

The complainant, Mitesh Barot had purchased a Sansui television from Snehanjali Electronics, a distributor. The television malfunctioned within a month of purchasing it. The problem was reported to the dealer and the Sansui service center. Despite several attempts, the service center representatives were unable to solve the problem. Mr. Barot finally filed the complaint against Sansui Main Service Center but failed to file a complaint against Snehanjali Electronics, the distributor.  Mr. Barot was finally granted Rs. 10,000 as compensation for mental agony and hardship.

Does the export of books whose sale and distribution are subject to territorial restrictions amount to copyright infringement?

The Delhi High Court, in John Wiley  v. Prabhat Chander, 170 (2010) DLT 701, found that such exports violate the copyright laws of India in certain circumstances.

The plaintiffs were a group of international publishing houses that publish low price editions (LPEs) or low cost books to be used in schools and colleges in India.  The defendants included a company and its officers who sold books online, offering the plaintiffs’ LPEs to buyers all around the world in contravention of the territorial notice on the books.

The court did not agree with the defendant’s arguments based on an earlier decision in Warner Bros v. Santosh VG, 2009 (2) MIPR 175 (Del) that India follows the principles of the “first sale doctrine” applicable to literary works whereby literary works that are already in circulation cannot be controlled by the copyright owners. The court also disagreed with the defendant’s argument that India follows the principle of international exhaustion whereby the copyright owner exhausts its rights once the LPEs are first sold into India. The defendants presented another argument that the Copyright Act, 1957 only applied to the import of infringing goods but not the export of copyright protected goods.  However, this argument also did not hold.

The Delhi High Court found that the Copyright Act, 1957 grants to the copyright owner the right to exploit copyrights by way of assignment or licensing, which could be exclusive or non-exclusive.  The copyright owner also had the right to limit the assignment or license by time or territory.   As a result the copyright owner could exhaust his or her rights in some territories while retaining rights in others.  Hence, the plaintiffs in this case were prevented from selling and exporting the LPEs to territories where the plaintiffs’ rights of distribution and sale still subsist.

Legal Notes

Can Service Marks be registered in India?

In India, the Trade Marks Act, 1999 for the first time introduced service marks so as to bring the Indian trademark law in line with TRIPS, which contemplates registration of service marks for services in addition to trademarks for goods. India has been following the international classification of goods and services under the Nice Agreement and the same is incorporated in the Fourth Schedule to the erstwhile Trade and Merchandise Marks Rules, 1959 and now Trade Marks Rules, 2002. The Fourth Schedule has recently been amended vide a notification dated May 20, 2010 to include three additional classes of services to the pre-existing ones, thereby raising the total number of classes to 45. The Amendment also modifies the existing class 42 and adds the following additional classes to the list of existing class of services: (a) Scientific and technological services and research and design relating thereto; (b) industrial analysis and research services; design and development of computer hardware and software; (c) Services for providing food and drink; temporary accommodation; Medical services, veterinary services, hygienic and beauty care for human beings or animals; agriculture, horticulture and forestry services and (d) Legal services; security services for the protection of property and individuals; personal and social services rendered by others to meet the needs of individuals.

 

Poorvi Chothani, Esq. is the founder and managing partner of LawQuest, a law firm in Mumbai, India. She is admitted to the New York State Bar with an LL.M from the University of Pennsylvania, USA, and is registered as a Solicitor in England and Wales. Poorvi has been practicing law in India since 1984 and is admitted to the Bar Council of Maharashtra and Goa. She can be reached at  poorvi@lawquestinternational.com.

Establishing India’s First Global Law School: Challenges and Opportunities

abaindialawnews 2010 - Fall, ALL

C. Raj Kumar & Jonathan Burton-MacLeod

O.P. Jindal Global University (JGU) is a non-profit university established by the Haryana Private Universities (Second Amendment) Act, 2009 at Sonipat, Haryana (National Capital Region of Delhi). JGU is recognized by the University Grants Commission (UGC).  Jindal Global Law School (JGLS) has been recognized by the Bar Council of India (BCI).

To the uninitiated, the inclusion of JGU and JGLS’ credentials at the beginning of all promotional materials and university publications seems a marketing faux pas. Should not JGLS trumpet its elite faculty profiles, with professors holding both Indian and foreign law degrees from some of the world’s leading educational institutions?

Readers of the India Law News (ILN) are a self-selecting group, and it is likely that they understand both the necessity of, and the effort required, to attain the highest possible regulatory credentials. JGU, and with it, JGLS, is an ambitious new entrant into the Indian – and indeed global – academic scene. Nevertheless, as this essay will elicit, JGU and JGLS were established with a very deliberate eye towards both Indian and global contexts. After all, unlike leading institutions worldwide – Harvard, Yale, Stanford – private universities traditionally have been looked down upon in India, and have been held responsible for the lowering of academic standards in a push for profit margins. Yet, as will be argued below, private universities – run not for profit but for excellence – are essential to the creation of new conditions for global and interdisciplinary study, as well as an emphasis on research that creates knowledge and contributes to the resolving of pressing societal problems.

Each word of the introduction to JGU and JGLS, then, carries import not readily perceived outside the Indian context.  JGU’s non-profit status, statutory establishment, and the recognition conferred by the UGC and the BCI, all showcase JGU as being held to the highest of standards, acting as an empirical response to those dubious of JGU’s vision and credentials. Equally impressive, however, is the mammoth effort necessary for this portfolio of legislative and regulatory credentials. Anyone who is familiar with India will tell you that, for all its potential, India can be a bureaucratic nightmare. From foreign persons registration to acquiring a driver’s license, Indian systems of governance can confound and confuse.

It never fails to amaze visitors that, as hard as it is to navigate India, a global university with a USD $100 million dollar infrastructure and complete statutory backing could be established in the space of two years.  Yet the impossibilities posed by India’s bureaucratic structure exist dialectically and inexplicably with an ability to –  with incredible effort, passion, and persistence – achieve what in other contexts would be considered impossible.  The perplexities of India exist in parallel with its irresistible trajectory; a trajectory not simply due to the eight-plus percent GDP growth, but to India’s emerging position as a key player and potential bridge builder on international issues ranging from trade and development to carbon caps to human rights.

In an article on globalization and legal education for Halsbury’s Law, a LexisNexis publication, C. Raj Kumar, JGU’s Vice Chancellor, argued that the establishment of global universities of excellence has the potential to create new opportunities for growth and development in the knowledge sector, a key component for India’s ascendency, economically or otherwise.

It remains a double-edged reality that India has long been an exporter of its greatest asset – thinkers that have changed the way we view the world,  many of whom find seats in leading universities abroad. JGLS seeks ultimately to ameliorate this trend through the establishment of a research-driven, globally ambitious, institution in India. The future of higher education in India is hugely dependent on the role of the private sector and to what extent the regulatory policies in higher education favor the role of this sector.

If this is true, it is necessary to recognize that governments in developing countries like India are not in a position to wholly support the significant levels of financial commitments needed to establish and sustain reputed institutions of higher learning. In this context, the role of the private sector is indispensible.

Yet, as was previously alluded to, privatized higher education in India has been traditionally viewed with immense distrust.  While in other sectors, such as telecom, the privatization of services resulted in increased quality and decreased pricing, in the educational sector, the opposite has been the case.  Largely unregulated degree programs have taken advantage of the huge demand for undergraduate and postgraduate study.

While globalization has created new opportunities for promoting growth and development in education, the focus of this growth ought to be based on the principles of public service that is essential for achieving reforms in education, rather than profit-seeking. It is notable that most of the reputed universities in the United States are the products of private players with a common motto that has been adopted by JGU: “a private university in the public service.”

There is no doubt that the emergence of a private, global entity like JGU rides on the coattails of visionary developments in the context of public higher education. The establishment of national law schools, starting with the National Law School of India University (NLSIU) in Bangalore, successfully challenged institutionalised mediocrity and succeeded in attracting serious students to the study of law. But where these schools face significant challenges is in attracting faculty members who are top researchers in the field of law and can combine sound teaching methods with established track records of research. The lack of researchers in law and absence of due emphasis on research and publications in the existing law schools have led to the absence of an intellectually vibrant academic environment

In August 2006, Newsweek magazine ranked the top 100 global universities taking into account openness and diversity, as well as distinction in research. The list included: Harvard, Stanford, and Yale in that order and Cambridge, Oxford, MIT and Columbia were among the top 10 global universities. While rankings have their flaws, it is notable that there was not a single university from South Asia among the top 100.  What is insightful is that the ranking criteria – beyond faculty-student ratio and library holdings – related to a string of research-based criteria, such as the citations per faculty member, the number of articles listed on leading academic databases, re-emphasizing research as a core area of deficiency for many South Asian institutions.  The other notable factor was diversity levels amongst faculty and students, or the number of international faculty and the percentage of international students.

Hiring good faculty has been a challenge in law schools in India and abroad. Generally, the financial incentives offered by the private sector both in India and abroad are far more attractive than those available in the public sector, including law schools, for good lawyers to make a commitment to academia. Even at elite law schools in India, the pay rates and heavy teaching loads can prove a disincentive to long-term research.

JGLS has attempted to incentivize research – financially and within its internal promotion scheme – in benchmark with leading institutions worldwide. JGLS Faculty receives generous paid conference leave, summer research leave, allocated funds for conference expenditure, and financial bonuses for the publication of ranked articles. Most importantly, however, JGLS seeks to foster a research culture.

To that end, eleven research centers have been established.  Research centers are part of the landscape for any leading research university. They are, however, seldom so integrated into the fabric of a university. At JGLS and JGU, this approach has been adopted for several overlapping reasons. Research centers provide the institutional framework to develop collaborative research projects with select Indian and foreign partners. True to its global name and vision, research centers at JGLS aim to generate global networks of minds addressing pressing legal and policy questions for India, and the world.

Secondly, no other university in India, and few globally, have centers that are intended to cover such a large range of pressing research topics. The establishment of JGLS’ eleven research centers is seen as a stand against the scarcity of academic contribution to many of India’s contemporary challenges. Simultaneously, the establishment of these centers represent a stand in favor of new, more globally considered, perspectives on these issues.

JGU is made possible by the private philanthropic initiative of Mr. Naveen Jindal, industrialist, Parliamentarian and now the Founding Chancellor of JGU. Mr. Jindal’s contribution is unprecedented within India’s educational sphere.  It is this philanthropic donation that has allowed JGLS to hire (to date) twenty-three faculty with world class teaching backgrounds and research credentials.  Almost all faculty members hold foreign law degrees in addition to training in India’s elite schools.  Almost fifty percent are foreign trained academics who have been swept up in the vision of JGLS and of India. JGU retains a faculty-student ratio of 1:15.

Just as importantly, JGLS is embedded within the larger JGU context. This is unique for leading law schools in India, and is intended to encourage interdisciplinary and holistic inquiry into a range of pressing policy problems facing contemporary India. JGU established a research-intensive and multidisciplinary global business school, Jindal Global Business School (JGBS) in August of 2010. The full blue print for JGU is to have four schools that reflect the most pressing needs for an emerging India, with schools of Public Policy and International Affairs joining JGLS and JGBS.

As a prototype global law school, JGLS aspires to develop a think tank model where research relationships are established with leading institutions worldwide on pressing transnational, development, and Global South issues.  In the first two years of the institution, there has been evidence of incredible eagerness to collaborate with JGLS. Perhaps belatedly, institutions in the U.S. and other jurisdictions are recognizing that, while they may have robust China Studies Centers, they do not have the same access or understanding to the Indian context.

Seizing this opportunity, over the course of the 2010-2011 Academic Year, JGLS has scheduled joint conferences with Yale, Cornell, Michigan, Osgoode Hall, and the Australian National University on topics as diverse as comparative law and governance in India and the U.S. to a critical perspective on global feminism. And, in August 2009, the JGLS hosted a landmark conference with the Indiana University Maurer School of Law, where the inaugural issue of the Jindal Global Law Review was launched.  (The JGLS and Indiana have maintained close ties since and will be building upon this deep relationship in the near future.)

India, and with it JGLS, exists at a set of incredible cross-roads – the Global North and Global South, Emerged and Emerging economies, wealth and extreme poverty, and a shifting balance of geopolitical power. JGLS aspires to build and to host a network that connects civil society participants, leading law firms, and foreign institutions of excellence, with Indian Government Departments, to assist in the formulation of policy that enhances an emerging India. JGLS, together with the University of Cambridge, has already been awarded a contract from the Government of India for the training of senior Indian Police Services officers.  On a different front, JGLS has entered into Memorandums of Understanding with India’s top five ranked law firms. JGLS is a unique institution for a unique time.  The beauty of it, perhaps, is that JGLS represents an initiative that is not limited by its own resources. By building a global network, JGLS seeks to lead in India’s knowledge economy, providing a link between an emerging India and the world.  There is another sentence that makes it into all JGLS materials. Ambitious as it might be, it represents the vision of both JGLS and JGU as a whole: “The vision of JGU is to promote global programmes, global curriculum, global research, global collaborations, and global interaction through a global faculty.”  As such, JGLS pursues a global research agenda for India.

C. Raj Kumar received his LL.B. in Delhi, a B.C.L. from Oxford, and his LL.M. from Harvard.  He is Vice Chancellor, O.P. Jindal Global University; Dean, Jindal Global Law School; Member, National Legal Knowledge Council.  He can be contacted at crk@jgu.edu.in.

Jonathan Burton-MacLeod received his A.B. from Harvard, a J.D. from Queen’s, and his LL.M. from Harvard.  He is Assistant Professor & Assistant Dean (Research and International Collaborations), Jindal Global Law School, O.P. Jindal Global University, and can be contacted at jmacleod@jgu.edu.in.

No Conclusion To Doha In 2010

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            World Trade Organization members committed last year to concluding the Doha Development Round in 2010. Although senior trade officials have engaged in discussions several times during the first half of the year, the only consensus that appears to have emerged is that a conclusion this year is not feasible.

The primary impasse continues to be between the United States on one hand, and India, Brazil, and China on the other, with each side blaming the other for not being fully committed to the negotiations. India has stated that it is ready to complete a deal based on the draft texts currently on the table. However, the United States argues that current proposals require it to make cuts in agricultural subsidies and manufacturing tariffs without receiving any substantial market access concessions from India and other major emerging markets, especially in industrial goods, agriculture, and services. The United States particularly insists that Brazil, India, and China accept sectoral agreements on chemical products, electronic goods, and industrial machinery. U.S. Trade Representative Ronald Kirk also has rejected the notion that it must “prepay” additional concessions in order to engage in negotiations on industrial tariffs, services or antidumping and subsidy rules.

In March of this year, WTO members participated in a week long “stocktaking” meeting to assess the progress on Doha. Expectations for the meeting were high, as the meeting was mandated during the G-20 meeting in Pittsburgh in September 2009. However, officials left the meeting largely frustrated by the lack of progress, abandoning hopes for a 2010 conclusion. WTO Director-General Pascal Lamy stated in his March 26, 2010 remarks to the Trade Negotiations Committee that the “stocktaking” week resulted in a “clear catalogue of gaps” but what was less clear was the size of the gaps. He noted that the gaps were clear in the reports on agriculture and trade facilitation, but less clear in areas such as non-agricultural market access (“NAMA”) and fishery subsidies. He further noted that where the gaps were clear, political decisions needed to be made and where the gaps were less defined, more technical work needed to be done before a political consensus could be achieved. Lamy stated that delegations agreed upon the following principles:

  • The multilateral nature of the negotiations should not be diminished. However, other avenues for making progress should not be discouraged.
  • There is general agreement among the membership to build on what is already on the table.
  • The development dimension remains central to the outcome of the Round.

Lamy further noted that the process of the negotiations would be a “cocktail” of the following approaches:

  • Chair-led discussions within the negotiating groups.
  • Meetings led by Lamy to ensure that the negotiations are transparent and inclusive.
  • Small groups and bilateral meetings.

Senior officials from the United States, Brazil, China, and India met in Paris on April 27-28 for an initial round of meetings. No consensus was achieved, however, and several countries complained at being excluded from the discussions. On May 27, 2010, trade ministers and senior officials from 20 countries and the European Union met on the sidelines of the Organization for Economic Cooperation and Development’s ministerial meeting in Paris, and trade ministers from the Asian-Pacific Economic Cooperation (“APEC”) forum engaged in informal discussions again on June 6, 2010 in Sapporo, Japan. Lamy noted in his remarks to the Trade Negotiations Committee on June 11, 2010 that work was underway in all of the negotiating groups, under the “cocktail” method agreed by members in March. Despite the differences between India and the United States, the two countries issued a Joint Statement on June 4, 2010 following the U.S.-India Strategic Dialogue, calling for a balanced and ambitious conclusion to the Doha Development Round. A similar commitment was expressed in the Framework for Cooperation on Trade and Investment signed on March 17, 2010.

U.S. and India sign the Framework for Cooperation on Trade and Investment

USTR Kirk and India’s Minister of Commerce and Industry Anand Sharma signed a “Framework for Cooperation on Trade and Investment” on March 17, 2010. The Framework affirmed the U.S. – India Trade Policy Forum as the primary bilateral mechanism to pursue shared trade and investment objectives of India and the United States. The Trade Policy Forum is co-chaired by the U.S. Trade Representative and India’s Minister of Commerce, while the Deputy U.S. Trade Representative and India’s Secretary of Commerce serve as deputy chairs overseeing the work of the Trade Policy Forum’s Focus Groups on Agriculture, Innovation and Creativity, Investment, Services, and Tariff and Non-Tariff Barriers.

           Specifically, India and the United States agreed to use the Trade Policy Forum to achieve the following goals:

  • Increase opportunities for small and medium-sized enterprises in India and the United States to expand ties, enhance participation in global value-chains, and export to and invest in each other’s economies.
  • Promote inclusive economic growth that includes the empowerment of women and disadvantaged groups, and the observance of labor rights.
  • Create opportunities for private sector cooperation in the development and deployment of clean energy and environmental technologies and services.
  • Improve understanding on each country’s approaches to government procurement.
  • Engage with the respective private sectors of each country on a regular basis and to accomplish the objectives set forth by the U.S.-India Private Sector Advisory Group and CEO Forum.
  • Accomplish a balanced and ambitious outcome in the Doha Development Round.

Ron Kirk and Anand Sharma also announced on March 17 the launch of an initiative to integrate U.S. and Indian small and medium-sized businesses into the global supply chain, directly in support of President Obama’s National Export Initiative and Prime Minister Singh’s budget objectives.

Kavita Mohan is an attorney based in Washington D.C. She is a co-editor of India Law News and can be contacted at kavita.mohan@gmail.com.

 

 

by Kavita Mohan

 

Additional Case Notes

abaindialawnews 2010 - Summer, ALL

By Ranjan Jha, Bhasin & Co., Advocates

Arbitration Agreement Not Enforceable By Party Where It Was Not Incorporated At Time Agreement Executed.   

In Andhra Pradesh Tourism Development Corporation vs Pampa Hotels Ltd., the Supreme Court held that an arbitration agreement executed before a company is formally registered under the Companies Act, 1956 may not be enforced by the company.  Andhra Pradesh Tourism Development Corpn. (APTDC) and Pampa Hotels Ltd (Pampa) entered into two agreements, a Lease Agreement and a Development & Management Agreement on 30 March, 2002.  Both agreements contained arbitration clauses. Pampa was incorporated under the Companies Act, 1956 on 9 April, 2003.  In April 2004, disputes arose between the parties and APTDC terminated the agreement and took possession of the property that formed the subject of the transaction. Pampa filed an application before the Andhra Pradesh High Court under the Arbitration and Conciliation Act, 1996 (“Act”) for appointment of arbitrators.  APTDC objected asserting, inter alia, on the ground that there was no contract, and therefore no arbitration agreement, between the parties because Pampa had not come into existence as of the date of the two agreements.  The Chief Justice of the Andhra Pradesh High Court appointed an arbitrator to the case, referring all disputes between the parties, including the existence of the agreement, under Section 11 of the Act.

Shortly thereafter, the Supreme Court, in SBP & Co. v. Patel Engineering, held that issues regarding the validity of an arbitration agreement raised in an application for appointment of arbitrator under Section 11 are to be decided by the Chief Justice, or his designee, under Section 11 of the Act.  Accordingly, APTDC filed a Special Leave Petition challenging the decision of the appointment of the arbitrator.  The main questions before the Supreme Court were whether:  (a) an arbitration agreement is enforceable where the party seeking arbitration was a not a company in existence at the time the contract containing the arbitration agreement was executed, and (b) the question of the enforceability of the arbitration agreement must be decided by the Chief Justice or his designee, or by the Arbitrator.

The Supreme Court concluded that if one of the two parties to the arbitration agreement was not in existence when the contract was made, then there was no valid contract.  If the agreements had been entered into by the promoters of the company, stating that the agreements were entered into by the promoters on behalf of a company to be incorporated, and that the terms of the incorporation authorized such action, the agreements would have been valid, and the arbitration clause would have been enforceable.  On the second issue, the Court held that whether there is an arbitration agreement and whether the party who has applied under section 11 of the Act is a party to such an agreement, is an issue that must be decided by the Chief Justice or his Designate under Section 11 of the Act before appointing an arbitrator.  However, because the arbitral tribunal already had been appointed in this case, the Court did not interfere with the appointment of the arbitral tribunal, and left the issue for the arbitrator to decide.

This judgment has a wide range of implications for companies that enter into pre-incorporation contracts – in particular, contracts providing for arbitration.  In light of this judgment, a pre-incorporation contract must be entered into by the promoters of a company on behalf of the company proposed to be incorporated and such contract should be specifically provided for in the terms of the company’s incorporation to fall within the ambit of Section 15(h) of Specific Relief Act, 1963.  The contract entered into by the promoter must also be duly ratified by the company upon its incorporation to avoid ambiguity and legal scrutiny in the future.

Delhi High Court Comes to the Rescue of Low Priced Books

The Delhi High Court analyzed issues of infringement of copyright and the applicability of the first sale doctrine in John Wiley & Sons Inc. & Ors v. Prabhat Chander & Ors.  The court had to decide whether exporting books whose sale and distribution was subject to territorial restrictions could amount to copyright infringement.  The Delhi High Court answered in the affirmative, and rejected an application by the defendants to set aside an earlier ex-parte injunction operating in favour of the copyright owner.  The court held that India follows the principle of national exhaustion and not international exhaustion.

The plaintiffs, international publishing houses, published special low price editions of text books for school and college students in India.  These low price editions (LPEs) were published with the rider that they were meant for sale/re-sale only in the Indian sub-continent and not in any other parts of the world.  The plaintiffs contended that they published LPEs so that the same international level books that otherwise are quite costly might be made available to Indian and other Asian students at prices befitting the Asian markets.  The defendants, a company and its directors, were engaged in the business of selling books online.  The defendants were offering LPEs for sale worldwide in breach of the territorial notice.  The plaintiffs filed suit before the Delhi High Court to restrain the defendants from infringing the copyright of the plaintiffs by exporting the books of the plaintiffs to the countries outside of prescribed territories.  The plaintiffs also filed an application seeking temporary injunction against the defendants, which came up for hearing with the main suit when the court entered an ex parte order against defendants.

Arguing that the earlier ex-parte injunction was erroneous, the defendants contended that the nature of its activities, i.e., export of the books outside the Indian sub-continent, was not tantamount to infringement of copyright.  The defendants invoked the first sale doctrine as a defense, arguing that once the plaintiffs sold a particular copy of the LPE, they could not control its further re-sale.  The defendants also submitted that their act of exporting LPE’s was not prohibited by the Indian Copyright Act, 1957 (the Act).  They submitted that the Act only prohibited the import of infringing articles into India, the Act was silent about exports, and the court should not add words to the legislation.

The Delhi High Court, examining various provisions of the Act, stated that the Act gives a copyright owner the right to exploit his copyright by assignment and licensing.  Such an assignment or license could be limited by way of time period or territory, and could be exclusive or non-exclusive.  Therefore, a copyright owner could exhaust its rights in some territories while protecting its right in others.  Accordingly, the plaintiffs could prevent the defendants from re-selling and exporting their LPEs to territories where their right of distribution and sale had not been exhausted.  The court held that the defendants’ acts were prima facie infringing in nature and the defenses put forth by the defendants to defend their usage were not tenable.  Thus, a temporary injunction was warranted until the case was resolved.

The importance of this decision arises from the fact that the Indian courts have now begun to recognize and protect the right of copyright owners to control the distribution channels of their copyrighted articles in order to obtain maximum royalties.  The courts are respecting the divisions of rights along territorial lines by publishers – a form of division which is supported by Sections 19(2), 19(6) and 30A of the Act – and have held that as far as literary works are concerned, the exhaustion of rights occurs on the first legal sale of a copy of a work only within the territory in which the copyright owner intended the work to be sold.  Thus, the copyright owner would continue to enjoy the right of resale in all other territories.

ICICI Bank Ordered to Pay Rs. 13 Lakh to NRI in Phishing Scam

Believed to be India’s first legal adjudication of a dispute raised by a victim of a cyber crime in phishing case, the adjudicating officer at Chennai, Govt. of Tamil Nadu (“TN”), in Umashankar Sivasubramanian vs. Branch Manager, ICICI Bank and others, recently directed ICICI Bank to pay Rs 12.85 lakh to an Abu Dhabi-based non-resident Indian (“NRI”) within 60 days for the loss suffered by him due to a phishing fraud.  Phishing is a form of internet fraud through which sensitive information such as usernames, passwords, and credit card details are obtained by masquerading as a trustworthy entity.

The ruling was passed under the Cyber Regulations Appellate Tribunal Rules, 2000, with TN IT secretary PWC Davidar acting as the adjudicator under the Information Technology Act, 2000.  The application was filed before Adjudication Officer for the State for adjudication under Section 43 read alongwith section 46 of the Information Technology Act, 2000.  Sivasubramanian, an NRI employed in Abu Dhabi, maintained a bank account with ICICI Bank, and had Internet banking access for his savings bank account.  The Bank sent him periodic statements.  In September 2007, Sivasubramanian received an email from “customercare@icicibank.com” asking him to reply with his internet banking username and password or else his account would become non-existent. Assuming it to be a routine mail, he complied with the request.  Later, he found that Rs 6.46 lakh were transferred from his account to Uday Enterprises, an account holder in the same bank in Mumbai, which withdrew Rs 4.6 lakh by self cheque from an ICICI branch in Mumbai and retained the balance in its account.  When ICICI Bank tried to contact the firm, it found that Uday Enterprises had moved on from the address it had provided two years earlier.

Sivasubramanian contended that the bank had violated the “know your customer” (KYC) norms.  When he didn’t get his money back, Sivasubramanian filed a criminal complaint and also appealed to the State Government’s IT Secretary, Mr. P.W.C. Davidar,  the Adjudicating Officer under the IT Act.  The bank claimed that Sivasubramanian had negligently disclosed his confidential information, such as his password, and as a result became a victim of phishing fraud.

Mr. Davidar stated in his order that a list of instructions the bank had put up on its Web site and which it sends to customers were of a “routine nature” and did not help a customer distinguish between an e-mail from the bank and an e-mail sent by a fraudster.   He observed that the bank had not provided additional layers of safeguard such as due diligence, KYC norms, and automatic SMS alerts.  He rejected the bank’s effort to take shelter behind routine instructions on phishing and stated that the bank failed to take steps to prevent unauthorized access to its customers’ accounts.  Mr. Davidar also observed that the bank’s actions indicated it had “washed its hands” of the customer and that the bank’s branch had been indifferent to the customer’s plight.

The judgment, though likely to be appealed, is significant as it is apparently the first verdict in a case filed under the IT Act awarding damages in a phishing case.

New Minimum Public Shareholding Requirements For Indian Companies

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On 4 June 2010, the Indian government revised the minimum public shareholding requirements applicable to listed Indian companies through an amendment to the Securities Contracts (Regulations) Rules, 1957 (”Amendment”). Henceforth, all listed companies are required to have a minimum public shareholding of 25%. The amendment also makes it mandatory for all companies intending to get listed on Indian stock exchanges to offer at least 25% of their paid up capital in an initial public offering (“IPO”), except for companies with a post issue paid up capital of over Rs. 4,000 crores (approximately USD 900 million), which may offer at least 10% of their paid up capital in an IPO and increase public shareholding to 25% over a three year period. Prior to the Amendment, while most Indian companies offered 25% of their share capital in an IPO, some companies benefitted from an exemption in the Securities Contracts (Regulations) Rules, 1957 (“the Rules”), which allowed them to issue (and maintain on a continuous basis post listing) 10% of their share capital subject to compliance with certain conditions. This exemption is no longer available.

The proposal to increase the minimum public shareholding requirement to 25% was first circulated by the Ministry of Finance in February 2008. The Amendment is expected to bring greater liquidity in the Indian stock markets, particularly benefiting small investors. The Amendment also is expected to check price manipulation by entities a holding majority stake in a company with low public shareholding. The greater the number of shares and shareholders, the less the opportunity for price manipulation. Lastly, reducing the concentration of ownership in listed Indian companies is expected to result in ancillary benefits, such as enhanced corporate governance the increased presence of minority shareholders.

“Public” is defined in the Amendment to mean persons other than promoters, promoter group, subsidiaries, or associates of the company. The terms ‘promoter’ and ‘promoter group’ are in turn defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 ( “ICDR Regulations”). “Promoter Group” is defined in the ICDR Regulations to include promoters of the company, immediate relatives of the promoters, any subsidiary or holding company of the promoter, and any company in which the promoter holds more than 10% of the equity share capital or any company that holds 10% of the equity share capital of the promoter, provided that any financial institution or foreign institutional investor would not be deemed to be a promoter merely because such investor holds ten percent or more of the company.

“Public Shareholding” is defined in the Amendment to mean equity shares of the company held by the “public” and excludes shares held by a domestic custodian against depositary receipts issued overseas. Thus, shares issued by listed Indian companies to depositories in connection with the issue of global depositary receipts (“GDRs”) or American depositary receipts (“ADRs”) will not be taken into account while computing the total public shareholding in a company. The rationale for this appears to be management control over voting rights on shares issued to depositories. A recent working paper issued by the Securities and Exchange Board of India (“SEBI”) shows that several Indian companies that issued GDRs/ ADRs to foreign investors have retained voting rights on shares issued to depositories.

The Impact on Indian companies

The Amendment impacts Indian companies, listed and unlisted, as follows:

Companies intending to list on Indian stock exchanges

The Amendment requires companies planning to list on Indian stock exchanges to offer at least 25% of each class or kind of equity shares or debentures convertible into equity shares in an IPO to the public. However, where the post issue share capital of the company (calculated at the IPO price) is more than Rs. 4,000 crores (approximately USD 900 million), the company may offer at least 10% of its share capital to the public in an IPO provided that the company increases its public shareholding to 25% within three years from the date of listing the shares on a stock exchange by offering at least 5% share capital to the public per annum. Further, such annual increase in public shareholding may be for less than 5% if it brings its public shareholding to 25% in the relevant year.

Companies that have filed a draft offer document with SEBI

In an Indian IPO, a company is required to file a draft red herring prospectus (“DRHP”) with SEBI, for comment. Typically SEBI takes between one to three months to provide its observations on the DRHP. Once all SEBI observations have been incorporated into the DRHP, the company can file the red herring prospectus with SEBI and the Registrar of Companies and open the IPO. The Amendment allows unlisted companies, which have filed the DRHP with SEBI on or before the date of the Amendment, to offer at least 10% of their share capital in an IPO provided (i) a minimum of two million securities are offered to the public (excluding reservations and promoter contribution); (ii) the minimum issue size is Rs. 100 crores (approximately USD 22 million); and (iii) the issue is made through the book building method with 60% of the issue size allocated to qualified institutional buyers (i.e., mutual funds, scheduled commercial banks, foreign institutional investors). Again, such companies are required to increase the minimum public shareholding to 25% within three years from the date of listing of such shares on a stock exchange by offering at least 5% share capital to the public per annum, provided that such annual increase in public shareholding may be for less than 5% if it brings its public shareholding to 25% in the relevant year.

Listed companies

Post Amendment, all listed companies are required to maintain a minimum public shareholding of 25% of their share capital. Listed companies with less than 25% public shareholding are required to increase the public shareholding to 25% by offering at least 5% share capital to the public per annum, provided that such annual increase in public shareholding may be for less than 5% if it brings its public shareholding to 25% in the relevant year. Press reports indicate that there are about 180 listed Indian companies with less than 25% public shareholding.

Increasing Public Shareholding

Listed companies may increase minimum public shareholding to 25% in several different ways, including any of the following:

  • Further public offer (“FPO”) – a further public offer is defined in ICDR Regulations to mean an offer of shares or securities convertible into equity shares by a listed company to the public. FPOs include a rights issue made under the ICDR Regulations. In order to comply with the revised minimum public shareholding norms, listed companies may opt to issue fresh shares to the public through a further public offer under the ICDR Regulations.
  • Qualified institutional placement (“QIP”) – listed companies may allot shares or securities convertible into equity shares to qualified institutional buyers on a private placement basis pursuant to ICDR Regulations. Allotments through the QIP route can be made to less than 50 qualified institutional buyers only. Listed companies may make a fresh issue of equity shares to public shareholders to increase the minimum public shareholding to 25%.
  • Direct sale by promoters to public – promoters may sell their shares in a listed company to public shareholders either (i) on a stock exchange through a block deal (minimum sale of 500,000 shares or shares worth approximately USD 1.1 million through a single transaction) or a bulk deal (sale of more than 0.5% of the number of equity shares of a company in one or more transactions executed during the day), or (ii) through negotiated off-market sale. A sale by promoters may trigger disclosure requirements for the purchaser/ acquirer under the SEBI (Prohibition of Insider Trading) Regulations, 1992, and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“Takeover Code”), if the acquirer’s shareholding crosses specified thresholds. Purchase of shares from promoters may also trigger open offer requirements under the Takeover Code if an acquirer exercises more than 15% voting rights in the company. Promoters also may opt to make an offer for sale of their shareholding to the public in accordance with the ICDR Regulations.

Conclusion

While the proposal for revising minimum public shareholding norms was first suggested in 2008, the Amendment came as a surprise to many listed companies. It is expected that as a result of the Amendment several further public offers may be launched in the coming years by listed companies in order to increase the minimum public shareholding to 25% of their share capital, even though markets may not have the appetite to absorb additional offers. A glut of public offers also may adversely impact valuations because companies may be required to issue more shares at lower prices. Lastly, shares issued to a custodian of depositary receipts are excluded from the definition of “public shareholding.” Thus, listed companies that do not comply with the 25% public shareholding norms have little incentive to issue ADRs/ GDRs. Any such issuance will only increase non-public shareholding in the company.

Ajit Sharma is a Senior Associate in the International Capital Markets practice at Trilegal’s Mumbai office. Prior to joining Trilegal, Ajit was an associate in the International Capital Markets practice at Dorsey & Whitney’s London office. Vardaan Ahluwalia is an Associate in the Banking and Finance practice at Trilegal’s Mumbai office. Vardaan is a graduate of National University of Juridical Sciences, Kolkata. Ajay and Vardaan can be contacted at ajit.sharma@trilegal.com and vardaan.ahluwalia@trilegal.com, respectively.

 

 

by Ajit Sharma and Vardaan Ahluwalia