In the recent case of Dongguan Huali Industries Co. Ltd. v. Anand Aggarwal and Ors. brought before the Delhi High Court, the Court emphasised that a registration can by no means obliterate prior existing common law rights in a trademark established through actual use and accrued goodwill in the market.
The Issue
The Plaintiff, Dongguan Huali Industries Co. Ltd., contested the validity of the registration for the mark HUALI obtained by the Defendant, Anand Aggarwal, and sought a permanent injunction against the Defendant’s use and registration of the same mark, asserting that it was the prior user of the mark HUALI, and the Defendant’s registration of the same mark does not lessen the Plaintiff’s entitlement to protect its trademark under common law principles of passing off.
Facts of the case
The Plaintiff, incorporated in China in 1995, is among the largest manufacturers of furniture components, accessories and related goods being marketed under the trademark “HUALI”, a combination of two terms “HUA” meaning FLOWER, and “LI” meaning WORLDWIDE REPUTATION. The Plaintiff first adopted the trademark HUALI in 2004 internationally and subsequently in 2007 within India, which also prominently features in its trade name and its registered domain name – ‘dghuali.com’, thus serving as the Plaintiff’s distinctive source identifier for which the Plaintiff has also sought statutory protection apart from asserting robust common law rights in the same. Apart from various international registrations, the Plaintiff applied for registration of the mark HUALI in India under Application No. 2777522 in class 20 dated July 21, 2014, which currently stands Opposed by the Defendant and has another registration for the mark HUAFULI under application no. 2842353 in class 20.
Interestingly, the Defendant, had also applied for registration of the trademark HUALI for identical goods bearing application no. 3925098 dated August 24, 2018, which was previously filed on ‘Proposed to be used’ basis, but the Defendant changed its user claim to August 24, 2008, shortly prior to opposing Plaintiff’s application no. 2777522. The Defendant thereafter withdrew the said application and re-applied the mark HUALI under no. 4146654 on April 13, 2019, with use claim of August 24, 2008, which was granted registration. The said application was filed on the same date on which the Defendant opposed the Plaintiff’s application no. 2777522 but kept it concealed so that its validity couldn’t be questioned by the Plaintiff.
Objections to Defendant’s Registration
The Trade Mark Registry had initially raised objections to the Defendant’s registration citing the Plaintiff’s pending application no. 2777522 and questioning the Defendant’s use claim, to which the Defendant claimed that it had evidence to corroborate its prior use date of August 24, 2008.
Upon coming across the Defendant’s infringing activities in Oct 2022, the Plaintiff had filed police complaints reporting Defendant’s use of the mark HUALI fearing inferior quality goods being sold under false impression and illegal association with Plaintiff, however no appropriate legal action was taken, hence the Plaintiff filed the present suit.
The Plaintiff asserted that registration by Defendant was both dishonest and with malice based on a fictitious user claim, to hinder the Plaintiff’s registration of the mark HUALI which was being used by it since before for identical goods and thus would cause harm to the Plaintiff and its associated goodwill.
The Defendant challenged the Plaintiff’s contention by arguing its delay in filing the suit having been well aware of the Defendant’s and business collaboration with it and also other contradictions in the evidence of use submitted by Plaintiff as well as the fact that HUALI being a laudatory term cannot claim acquired distinctiveness in China.
Court Observations
The Plaintiff and Defendant both acknowledged use of identical mark for identical goods, thus the likelihood of confusion was evident invoking the principle of ‘one mark, one source’. The Court thus analysed the case keeping in mind the criteria for passing off laid down in Reckitt & Coleman Products Ltd. v. Borden Inc., i.e. goodwill, misrepresentation and damage.
The Court in its analysis deciphered that there were temporal anomalies in the evidence presented by the Defendant to corroborate its prior use claim, hence the same was fabricated and forged. The evidence in form of invoices predating the official existence of the Defendant’s both entities rendered them prima facie unreliable. Moreover, it also averred that even though the Defendant was the registered owner of the HUALI mark, the same does not negate the Plaintiff’s ability to pursue a passing off action as a registration does not confer immunity from challenges, particularly when allegations of passing off are substantiated by evidence of prior use.
The Court relied on Section 34 of the Act, which states that the registration does not give rise to the right to interfere with or limit the rights of prior users of the mark and Section 27(2) of the Act, which permits passing off actions regardless of a mark’s registration status underscoring the importance of protecting common law rights based on prior use.
The Court also relied on the Supreme Court’s judgment in S. Syed Mohideen v. P. Sulochana, wherein it was affirmed that registration does not preclude an action for passing off. Thus, registration while providing statutory protection does not confer an absolute right, but rather is contingent upon respecting prior user’s established rights.
The Court evaluated the documents presented in evidence by the Plaintiff along with its global engagement with HUALI mark since 2004, demonstrated through participation in international exhibitions, along with substantial goodwill and sustained efforts to expand recognition and market presence both globally and in India, thus prima facie establishing Plaintiff’s prior use since 2007 within India via its subsidiary companies. On the other hand, considering the anomalies in evidence of Defendant, and errors in invoices suggested systematic attempt to mislead public rather than mere mistakes, creating serious doubts on the integrity of the Defendant’s claims. The Court inferred that there were chronological inconsistencies in documents presented by the Defendant, which were falsified with a potential wilful deceit or fraudulent intent to establish backdated history of the Defendant’s early use of the mark HUALI. The retrospective claim of early use was intentional to challenge Plaintiff’s prior application, which was also met with an objection under Section 11(2) of the Act referencing the Defendant’s registration.
Conclusion
The Court concluded that the Defendant not only failed to provide a reasonable explanation for adopting the mark HUALI but also contradicted themselves in their defence. Furthermore, the Plaintiff has seniority in the usage rights of the trademark HUALI due to its prior adoption, widespread use, recognition, genuine efforts to expand business.
The Court thus imposed injunction against the Defendant’s use, production, selling, exporting, offering for sale, advertising/displaying directly or indirectly and/or marketing of goods under the trademark HUALI, stating that the creation of false association through fabrication of documents was a deliberate and dishonest strategy leading to disruption of the goodwill and reputation of the Plaintiff.
Authors: Manisha Singh and Baani Talwar
First Published by: Lexology here