Author: Harsh Kashyap, School of Law, Forensic Justice and Policy Studies, National Forensic Sciences University, Gandhinagar.
To the Point
Franchise scams and trademark infringements are increasing threats in the face of India’s booming consumer market. Globalisation may benefit international companies; however, it also exposes companies to the threat of deception through conduct that takes advantage of brand equity. Franchise scams often involve criminal enterprises stating that they have a licence or are an authorised agent of reputable companies to entice investors and individual consumers.
Trademark infringements can occur where an entity copies the logos, marks, or trade dress of established brands to confuse consumers and take advantage of goodwill.
One significant case was Starbucks Corporation v. Sardarbuksh Coffee & Co. (2018). In Starbucks’ case against Sardarbuksh, they asserted that Sardarbuksh’s name and trade dress were deceptively similar to those of Starbucks. The case raised important issues regarding abuse of intellectual property rights, misrepresenting consumers, and the balance between globally recognised brands and enterprising locally established businesses. This article will investigate cases of franchise scams and trademark infringements in India using the Starbucks-Sardarbuksh case.
Abstract
While the increased accessibility to franchising on a global scale has offered unprecedented opportunities to multinational companies and aspiring entrepreneurs, it has brought its fair share of scams and improper use of trademarks to combat. India – as an emerging consumer economy – has seen its share of fraudulent franchises that mislead consumers through deceptive listings.
In this article, an analysis of the litigation involved in Starbucks Corporation v. Sardarbuksh Coffee & Co. (2018) is presented, in which Starbucks sued the defendants for infringing Starbucks’ trademark, as the defendants were operating as a cafe under the use of Starbucks’ similar name and logo. In its conclusive ruling, the Delhi High Court centred attention on the need for consumer protection, alongside the subjective nature of trademarks.
The article will examine how the courts have interpreted the Trade Marks Act (1999) in India, and how the courts have balanced this against an identification with local culture. And discuss the implications of trademark cases for international brands and Indian start-ups. After the recast of Starbucks Corporation v. Sardarbuksh Coffee & Co. (2018), the research will highlight preventative measures for India’s dynamic market for businesses to help reduce the likelihood of fraudulent franchises and the diminishment of their rights.
Use of Legal Jargon
Franchise scams and trademark infringement require a basic understanding of intellectual property law. A “trademark” (Sec. 2(1)(zb), Trade Marks Act, 1999) is any mark, name, logo or design that represents the origin of goods or services. Trademark protection is intended to protect goodwill with businesses and to protect consumers from being confused by competing goods or services. A “franchise” is a method where the franchisor grants the franchisee the right to conduct their business using the franchisor’s name and to conduct business using the franchisor’s identified system. Franchise scams are where people who are not authorised to sell a franchise falsely claim to sell either the rights of the franchise, and investors are led to financial loss.
The notion of “passing off” refers to a misrepresentation of selling one’s goods, products or services as another brand; thus, causing loss of goodwill to the genuine brand. The concept of “trade dress” protects the whole look of a product – packaging, colours or design – connected with that brand. Courts will commonly define “injunctions” (interim or permanent) sought by brands and their intellectual property to prevent the damages caused by these offences.
These principles formed the basis of the Starbucks–Sardarbuksh dispute, which was a trademark infringement, passing off, and infringement of trade dress.
The Proof
The case Starbucks v. Sardarbuksh Coffee & Co. showcases the evolution of franchising fraud and trademark infringement jurisprudence in India. In this case, Starbucks sued Sardarbuksh in the Delhi High Court, alleging that the name, logo, and trade dress were confusingly similar to Starbucks’ name, logo, and trade dress. The case raised elements of consumer protection, employee and cultural concerns, and the traditional global elements of trademark law.
One of the key questions was the phonetic similarities between Starbucks and Sardarbuksh. Starbucks contended that the phonetic similarity was intentionally implied by Sardarbuksh in order to obtain an unfair competitive advantage. Indian courts typically place great emphasis on phonetic similarities because, in the consumer context, the average consumer rarely decodes the etymology of a name. The Court recognised that this kind of resemblance can create initial interest confusion, which is a well-established form of confusion in intellectual property law, and that, even if a consumer later comes to know that both brands are not connected, the initial misunderstanding is enough to constitute infringement, because it capitalises on diverted attention and goodwill. Starbucks demonstrated that in a competitive urban market like Delhi, which has a coffee culture still in its infancy, this kind of confusion has the potential to dilute the identity of the brand substantially.
For instance, Starbucks’ mermaid icon is arguably one of the most recognisable brands in the world, and was in the chocolate brown-cream focus. Sardarbuksh, which argued it adopted its logo from its cultural roots, employed a circular square of colour depicting green and cream colours with a turbaned Sikh figure. The Court applied the “average consumer” test and found, based on the overall visual similarities, that consumers would likely be misled into believing that the two brands were somehow associated.
Further, Starbucks claimed that Sardarbuksh Coffee & Co. also imitated its trade dress, which included the interior layout of the café, the menu, identification, and colour scheme or colourway. Trade dress is likely measurable by the consumer expectations of the brand. By copying Starbucks’ trade dress, Starbucks claimed that Sardarbuksh created indirect deception by indicating some false semi-franchise reality.
Defence
Sardarbuksh claimed “Sardar” means chief (or leader) and “buksh” means gifted, thus forming a separate Punjabi brand. They said they are not the mermaid of Starbucks – we are the symbol and brand of Punjabi culture. They mentioned urban consumers of coffee and subaltern local producers know the difference between a locally owned cafe and a chain cafe.
The Court highlighted that the interests of consumers and preventing deception is fundamental within the field of intellectual property law. When two competing brands exist in the same industry with similar distribution channels, the mere potential for confusion, no matter how small, is intolerable.
The case was settled by consent: Sardarbuksh rebranded and renamed as “Sardarji-Bakhsh Coffee & Co.” The essence of the judgement was that it was pragmatic, and kept the local identity, and avoided a direct charge.
The case has larger implications for Indian law. It shows that:
Trademark rights are not limited to identical marks. Even if marks are similar phonetically, visually, or in “overall impression,” such marks can be infringing.
Consumer experience is what matters. The law doesn’t expect consumers to analyse their etymological or cultural origins. Rather, what matters is the quick impression formed in a commercial context.
Settlement is often the most useful remedy. Rather than run small businesses out of town, Indian courts will often facilitate negotiated outcomes while respecting global intellectual property and local businesses.
In this respect, this dispute demonstrates clearly how courts view franchise scams and the use of trademarks not simply as commercial disputes, but in terms of consumer trust and fair competition.
Case Laws
The Starbucks-Sardarbuksh dispute is best understood in the context of prior Indian and international case law on trademark infringement and passing off.
1. Cadila Health Care Ltd. v. Cadila Pharmaceuticals Ltd. (2001)
The Supreme Court stated that in a case of deceptive similarity, the common consumer must be taken to be the average consumer, thinking of the goods they have in mind within terms of their imperfect recollection of the goods. If the goods are common enough to be closely associated, even very minor differences could definitely mislead a consumer. As a phonetically similar name was a factor in the Starbucks case, phonetic resemblance informs the Court’s jurisdiction.
2. Amritdhara Pharmacy v. Satya Deo Gupta (1963)
For similarity, the Court decided that resemblance must be determined on the totality of the marks when presenting them to the general public rather than dissecting the two marks for minute comparisons. Because of the doctrine of imperfect recollection, the average consumer is required to recall exactly none of it, only considerable means. Based on that, here with Starbucks and Sardarbuksh, the impression or association would be similar.
3. Daimler Benz v. Hybo Hindustan (1994)
This case dealt with the Delhi High Court protecting the reputation of the international brand “Mercedes-Benz” against its misuse related to unrelated goods. The Court reiterated that trademarks with an international reputation deserved greater protection, and this influenced the Court’s actions in the Starbucks case because it preserved the brand reputation for traits and impacts all concerned parties at the local and international levels.
4. ITC Ltd. v. Punchgini Inc. (2007)
While a U.S. case, this is important to note as it dealt with the doctrine of trans-border reputation, holding that trans-nationally recognised businesses could receive protection for well-known marks even where they have no corporate presence, as long as the mark is recognised on a significant scale. The principle of trans-border reputation is why Starbucks could have standing in India even if it was new to the market.
5. Satyam Infoway Ltd. v. Sifynet Solutions (2004) 6 SCC 145
The Supreme Court endorsed protection for domain names, as trademarks are subject to change through technology. Again, the Court stressed the importance of user confusion and goodwill associated with distinctiveness.
The Delhi High Court’s use of this precedent was consistent in applying the principles of deceptive similarity, consideration of consumer protection, and the principles of trans-border reputation. Additionally, the Court recognised the issue of troubled brands: The Court would discourage dilution of Starbucks’s marque, and local commerce can use the goodwill of international brands for its operations under the guise of cultural expression.
Conclusion
The Starbucks v. Sardarbuksh case reflects the changing landscape of trademark protection in India’s burgeoning market. On the one hand, it represents the judiciary’s commitment to protecting intellectual property, and the rights and legitimate expectations of consumers and global businesses. On the other hand, it exemplifies a judicial sensitivity to local enterprises and respect for local cultural norms, which offered both parties a compromise rather than an outright injunction.
The case also demonstrates that trademark fraud and use, and franchise scams exist, and that undermining consumer expectation based on the identity of a brand is not grounded in good faith. It’s critical to note that in a world where reputation frequently represents the only asset of true value, protecting the trademark and its associated rights extends beyond corporate interest and the profit motive but encompasses fair competition and deception directed towards consumers.
In concluding the analysis of the Starbucks-Sardarbuksh case, it is evident that Starbucks carries the burden of vigilance, and will likely pursue an aggressive strategy to protect its trademark in India; as well, the case serves as cautionary tale for entrepreneurs from local communities. The lesson is that the value of cultural adaptations and levels of localization cannot justify the deception and similarity to a well-known brand of global standing.
Like many judicial decisions in the area of trademark protection, the underlying value of the Starbucks-Sardarbuksh case is that the precedent in Indian trademark jurisprudence is primarily about finding a balancing point —exercising the emphasis on good faith-based trademark and intellectual property norms that share respect. Beyond this case, the Starbucks-Sardarbuksh case has identified a narrative map for adjudicating similar disputes going forward, and consumer protection will remain the central and guiding principle.
FAQS
Q1. What are franchise scams in India?
Franchise scams happen when unknown individuals or legal entities pose as franchise rights from reputed brands and collect fees from investors, without the actual company’s permission.
Q2. How does the misuse of trademarks harm consumers?
The misuse of trademarks harms consumers by confusing them into purchasing goods or services, thinking that they come from a reputable brand, which then dilutes the trust and goodwill that accompanies that brand.
Q3. What was the main issue in Starbucks v. Sardarbuksh?
The issue was about how Starbucks and Sardarbuksh were deceptively similar with respect to their name, logo and trade dress, which Starbucks argued was trademark infringement and passing off.
Q4. Did the plaintiff lose this case in its entirety?
No. The parties got together and agreed that Sardarbuksh would rebrand its name to “Sardarji-Bakhsh Coffee & Co.” to lessen the confusion and heighten their cultural identity.
Q5. What are the lessons from this case for business?
It serves as a reminder to conduct proper due diligence before using a brand name (which is not yours) and to ensure you are not infringing others trademarks. It also makes the point that consumer confusion, even if unintentional, can result in liability.
Q6. What is the approach undertaken by Indian courts on the concerns arising out of such disputes?
Courts have relied on principles of deceptive similarity, passing off, and trans-border reputation and typically issue injunctions or facilitate seating to protect consumer interest and business interests.
Q7. Why is this case important?
The case is important as it is a landmark case demonstrating how Indian courts handle disputes between global businesses and local businesses, to protect consumers while respecting local cultural expression.
