Supreme Court of Nepal Restores ITC's CANDYMAN Trademark and Cancels a Local Registration Made in Bad Faith

Introduction

The Supreme Court of Nepal (the "Court") has held that a foreign trademark with an established transborder reputation is protected in Nepal even if a local party registered the same mark first. Where the local registration was made in bad faith, the foreign owner's mark prevails and the local registration is cancelled. The Court also adopted a structured test for deciding whether a mark is "well-known".

The decision is ITC Limited v. Sujal Foods Pvt. Ltd., Case No. 074-CI-0252 (the "Judgment"), delivered by a Joint Bench of Justice Sapana Pradhan Malla and Justice Sunil Kumar Pokharel on 8 July 2024 (24 Asar 2081 BS).

The Court held that ITC Limited's CANDYMAN COCOLAIR mark was well-known, applying the six factors in the WIPO Joint Recommendation Concerning Provisions on the Protection of Well-Known Marks, 1999 (the "Joint Recommendation"). It read the Patent, Design and Trademark Act, 2022 (1965) (the "Trademark Act") harmoniously with the Paris Convention for the Protection of Industrial Property, 1883 (the "Paris Convention"), and held that the principle of territoriality does not protect a local registration made in bad faith. It reversed the lower decisions, cancelled the local CANDY MAN registration and restored ITC Limited's registration.

We consider the Judgment in more detail below.

Background

ITC Limited ("ITC") is a company registered in India in 1910, with its registered office at Virginia House, 37 J L Nehru Road, Kolkata. It has operated in Nepal since 1985 through its subsidiary, Surya Nepal Private Limited. ITC registered the CANDYMAN COCOLAIR mark in India on 15 November 2001 (30 Kartik 2058 BS) (the "ITC Mark"), began manufacturing and selling CANDYMAN confectionery in 2002, and has registered the mark in more than 30 countries.

From 2002, ITC advertised CANDYMAN on Indian satellite channels, including SAHARA ONE, SONY MAX and STAR PLUS. Most of these channels were broadcast in Nepal until the Clean Feed Policy, 2076, took effect on 24 October 2020 (8 Kartik 2077 BS).

Sujal Foods Pvt. Ltd., Kaski ("Sujal Foods") holds a CANDY MAN label and logo mark in Nice Class 30 (the "Local Mark").

ITC applied to the Department of Industry (the "Department") on 3 May 2012 (21 Baisakh 2069 BS) to register CANDYMAN COCOLAIR (word) in Nice Class 30. The application was published for opposition in the Department's Industrial Property Bulletin of 30 August 2012 (14 Bhadra 2069 BS).

Sujal Foods opposed the application on 9 January 2013 (25 Poush 2069 BS), claiming ten years' use of CANDYMAN. By a decision of its Industrial Property Section dated the same day, the Department registered the ITC Mark in Class 30, and it issued a certificate of registration on 11 January 2013 (27 Poush 2069 BS). The Judgment also records a written response by ITC to the opposition dated 17 January 2013 (4 Magh 2069 BS). It does not reconcile this sequence.

Sujal Foods then filed a complaint with the Department on 24 February 2013 (13 Falgun 2069 BS) seeking cancellation of the ITC Mark (the "Complaint").

Procedural History

The Department of Industry

On 27 June 2013 (13 Asar 2070 BS), the Department's Director General, Dhruba Lal Rajbanshi, upheld the Complaint (the "Department Decision"). The Department found that the Local Mark had been registered in Class 30 on 3 April 2003 (20 Chaitra 2059 BS) and since renewed, and that registering the same name for the same goods in favour of ITC would confuse consumers and harm the reputation of a mark the complainant had used for eight years. Relying on the prohibitive clause in Section 18(1) of the Trademark Act, it cancelled the ITC Mark under Section 18(3).

The High Court

ITC appealed to the Appellate Court, Patan (now the High Court, Patan) (the "High Court") on 22 September 2013 (6 Ashwin 2070 BS). It argued that CANDYMAN was its own original mark, that Sujal Foods had used it in bad faith to trade on ITC's goodwill, and that the Department had ignored Section 21(c) of the Trademark Act, which allows a mark registered abroad to be registered in Nepal on production of the foreign certificate. On 28 January 2014 (14 Magh 2070 BS), the High Court called on Sujal Foods to show cause, noting that the Department Decision might be reversed under Section 21(c).

On 29 February 2016 (17 Falgun 2072 BS), the High Court dismissed the appeal (the "High Court Decision"). It held that ITC had not shown that CANDYMAN was well-known in Nepal; that under Section 21(b) of the Trademark Act no rights arise in Nepal in a mark not registered there; that the Paris Convention itself recognises the need for national registration; and that, as there was no conflict between the Trademark Act and the Paris Convention, Section 9(1) of the Nepal Treaty Act, 2047 (1990) (the "Treaty Act") was not engaged. Because the Local Mark had been registered and in use for a decade in the same class, registering the ITC Mark would harm its goodwill.

The Supreme Court

ITC applied to the Court for leave to have the case reviewed under Section 12(1)(a) and (b) of the Administration of Justice Act, 2073 (2016). On 10 September 2017 (25 Bhadra 2074 BS), the Court granted leave, finding an apparent error of interpretation of Sections 18(1) and 18(3) of the Trademark Act and of the principle in Sumi Distillery Pvt. Ltd. v. Guinness United Distillers Vintners Amsterdam BV, N.K.P. 2068, Issue 3, Decision No. 8577 ("Sumi Distillery").

Issues

The Court identified four questions for determination:

• Well-known status: whether the ITC Mark is a well-known mark, as ITC claimed.
• Foreign registrations: in what circumstances a mark registered abroad may be registered in Nepal, and whether it can be protected without registration in Nepal.
• Cancellation and restoration: whether the Local Mark should be cancelled and the ITC Mark restored.
• The High Court Decision: whether the High Court Decision, upholding the Department Decision, was correct.

Submissions of the Parties

Counsel for ITC argued that ITC created the CANDYMAN COCOLAIR mark and that the Local Mark was a copy, first registered by a different company and later transferred to Sujal Foods. A trademark cannot have two owners and must be distinctive and original. The mark had been registered and used in more than 30 countries and was well-known. The logo Sujal Foods filed in Nepal was identical to the logo ITC filed in Singapore. Nepal and India are both parties to the Paris Convention, which prevails over inconsistent domestic law, and Article 6bis allows the cancellation of a mark registered in bad faith. Section 18(3) of the Trademark Act, counsel argued, was enacted to meet Nepal's Paris Convention obligations.

Counsel for Sujal Foods argued that CANDYMAN is a dictionary word that anyone may use, not a creative word. Under Article 6 of the Paris Convention, rights in a mark arise in Nepal only through registration in Nepal, and registration abroad confers no rights. A mark does not become well-known merely by being registered; that depends on the degree of knowledge, geographical area and duration. ITC had come forward only nine years after the Local Mark was registered, and the doctrine of estoppel applied to the case it had pleaded. Sujal Foods had not merely registered the mark but manufactured goods under it and won an international award.

Analysis

A Structured Test for Well-Known Marks in Nepal

The Trademark Act does not define a well-known mark or say how one is identified. Section 2 of the Trademark Directive, 2072 (2015) (the "Directive") defines a well-known mark only as a mark prescribed by the Government of Nepal. The Court observed that its earlier decision in Kansai Nerolac Paints Ltd. v. Rukmani Chemical Industries Pvt. Ltd., N.K.P. 2077, Issue 8, Decision No. 10561 ("Kansai Nerolac"), had not identified the factors either.

The Court therefore adopted Article 2(1)(b) of the Joint Recommendation. A decision-maker should consider:

• the degree of knowledge or recognition of the mark in the relevant sector of the public;
• the duration, extent and geographical area of any use of the mark;
• the duration, extent and geographical area of any promotion of the mark;
• the duration and geographical area of any registrations or applications;
• the record of successful enforcement of rights in the mark; and
• the value associated with the mark.

Following Article 2(1)(c) and the Explanatory Notes, the Court treated these factors as guidance rather than preconditions. No single factor is mandatory, and a mark is not excluded merely because one criterion is not met.

CANDYMAN COCOLAIR Is Well-Known in Nepal

The Court found all six factors satisfied:

• Knowledge: no consumer survey was produced, but given the open border, shared culture and ready availability of Indian goods, Nepali consumers could be taken to know the mark. ITC's advertising had been broadcast in Nepal by satellite since 2002. The Court cited N.R. Dongre v. Whirlpool Corporation (1996) 5 SCC 714, which held that advertising alone, without goods in the market, may establish use and goodwill.
• Use: the mark was registered in India on 15 November 2001 and was registered or pending in other countries, showing long use over a wide area. The Court cited Milmet Oftho Industries v. Allergan Inc. (2004) 12 SCC 624 on priority of adoption and the "first in the world market" principle.
• Promotion: relying on Article 16(2) of the TRIPS Agreement, which counts knowledge obtained through promotion, the Court found more than twelve years of continuous advertising reaching Nepal before the dispute, creating a transborder or "spillover" reputation.
• Registrations: registration in many countries showed the mark's international standing.
• Enforcement: registration and protection by regulators in many countries were treated as a record of successful enforcement.
• Value: sustained advertising and international recognition had given the mark significant value. Sujal Foods' own choice of the same name confirmed its market appeal.

Foreign Marks and Bad Faith: Section 21(c) and Article 6quinquies

Section 21(c) of the Trademark Act allows the Department to register a mark registered abroad, without examination, on production of the foreign certificate, and to grant priority under the Paris Convention. The Court read this together with Article 6quinquies of the Paris Convention, which requires a mark duly registered in its country of origin to be accepted for filing and protected "as is" (telle quelle) in other member states.

This does not create a vested right to registration. Section 18(1) and Article 6quinquies(B) allow refusal where a mark harms another's reputation or goodwill, has already been registered by another, infringes third-party rights, lacks distinctiveness, or is contrary to morality or public order. But Article 6quinquies(B) is expressly subject to Article 10bis, which requires member states to protect against unfair competition. The Court held that where a person has registered another's foreign mark in bad faith, those grounds for refusal do not apply against the true owner.

The Court held that a foreign mark has priority in Nepal, even where the same mark is already registered locally, where:

• it is well-known, with a transborder reputation proved by objective evidence;
• the earlier local registrant knew of the brand's international presence and acted with intent to mislead consumers or extract money from the true owner;
• the local registrant had no genuine business purpose and held the mark only to block the owner's entry into the market (trademark squatting); or
• the foreign owner had built brand equity among Nepali consumers, directly or indirectly, through foreign media or imports.

First to File Is Not Absolute

The Court accepted that "first to file" is a basic principle of trademark law, but held it is neither absolute nor indisputable. A registration made in bad faith, to appropriate another's goodwill or to block the owner's expansion, is a fraud on the statute and void ab initio. Applying Kansai Nerolac, the Court held that no question of limitation arises against such a registration, and that a foreign mark may be registered after cancelling a bad-faith local registration, as an exception to the first-to-file and first-to-register rules.

The Court also relied on Sun Fitting Pvt. Ltd. v. Sandeep Industries, N.K.P. 2076, Issue 7, Decision No. 10304, which held that a foreign mark cannot be refused merely because another person filed or registered first in Nepal. Prior use, authorship, market presence, geographical reach and the earlier registrant's intent all qualify the first-to-file rule.

Territoriality Reconsidered

Section 21(b) of the Trademark Act provides that no rights arise in Nepal in a mark registered abroad unless it is registered in Nepal. The Court acknowledged that this reflects the territoriality principle. It described that doctrine, which rests on the physical presence of goods, as an anachronism in an age of cross-border advertising and digital markets.

The Court considered the stricter modern approach in Starbucks (HK) Ltd v. British Sky Broadcasting Group Plc [2015] UKSC 31 and Toyota Jidosha Kabushiki Kaisha v. Prius Auto Industries Ltd. (2017), which require customers or substantial goodwill in the jurisdiction. It distinguished those cases on the facts. For a low-priced impulse purchase such as chocolate, brand awareness created by advertising is itself the main source of goodwill. Applying the spillover principle in Apple Computer Inc. v. Apple Leasing & Industries [1992 (1) Arb LR 93 (Del)], the Court held that ITC's reputation had reached Nepal well before its goods did, and that ITC was not an unknown or barely-known foreign claimant.

The Court concluded that, on these facts, transborder reputation prevails over territoriality. Reading Section 21(b) literally would legitimise trademark piracy and bad-faith registration.

Treaties and Harmonious Construction

Section 9(1) of the Treaty Act provides that, where a treaty to which Nepal is party conflicts with Nepali law, the treaty prevails to the extent of the conflict. The Court applied its decisions in Chandra Kanta Gyawali v. HMG (N.K.P. 2058, Issue 11, Decision No. 7044), Rajaram Dhakal v. Prime Minister (N.K.P. 2060, Issue 12, Decision No. 7274), Prakashmani Sharma v. Government of Nepal (N.K.P. 2065, Issue 8, Decision No. 7994) and Homnath Adhikari v. Government of Nepal (N.K.P. 2072, Decision No. 9455), together with Articles 26 and 27 of the Vienna Convention on the Law of Treaties, 1969.

The Court described a two-stage approach. First, national law is read so far as possible to conform to the treaty. Only if an irreconcilable conflict remains does Section 9(1) displace the national law. Applying the maxims generalia specialibus non derogant and ut res magis valeat quam pereat, it held that the general registration rule in Section 21(b) cannot defeat the specific protection in Section 18(1), Section 21(c) and Article 6bis of the Paris Convention. It noted that the application form in Schedule 1 to the Directive requires an applicant to declare that the mark is its own original choice and that it may be cancelled if found to copy a mark protected under the Paris Convention. It also relied on Sumi Distillery, which treats protection of trademarks as a public duty of the State, in the interests of consumers as well as owners.

Deceptive Similarity

The Court found the two marks not merely similar but identical in their dominant word. Phonetically there is no difference between CANDYMAN and CANDY MAN, and the Local Mark imitated the style, lettering and colours of ITC's logo.

The Court applied the test of deceptive similarity in Kansai Nerolac and its decision in Perfetti Van Melle S.P.A. v. Perfect Foods Pvt. Ltd. (Case No. 077-CI-0301), on the CENTER FRUIT and PERFECT CENTER FILLZ marks, which held that adding words to the dominant element of an established mark does not remove the likelihood of confusion. It held that Sujal Foods' adoption of CANDYMAN was not bona fide and amounted to trademark squatting, intended to block ITC's anticipated expansion and to profit from its goodwill.

Orders

The Court:

• reversed the High Court Decision;
• cancelled the registration of the Local Mark in the name of Sujal Foods; and
• restored the registration of the ITC Mark granted on 9 January 2013 (25 Poush 2069 BS), and directed that the Department be informed accordingly.

What This Means for Brand Owners, Local Businesses and Investors in Nepal

The Judgment will be of interest to foreign brand owners, local manufacturers, franchisors, investors and IP practitioners. It confirms that a local registration is no longer a safe harbour where the mark copies a foreign brand known in Nepal, and it gives Nepali authorities a structured test for well-known status for the first time.

For foreign brand owners, the clearest change is the route the Judgment opens. A brand that has not yet entered Nepal, or entered after a local business registered its mark, can now seek to recover it. That route depends on evidence. Where a local registrant has copied the mark, evidence of its knowledge and intent will be decisive. Foreign owners should still register in Nepal early. The Judgment protects against bad faith, but it does not remove the risk and cost of litigation. Advice from a law firm in Nepal is essential before deciding whether to oppose, cancel or negotiate.

For investors and licensors, the Judgment strengthens the position of brand-led businesses entering Nepal through distribution, franchising or joint ventures. Contracts should allocate responsibility for registering, maintaining and enforcing marks in Nepal.

For related analysis, see our earlier articles, Is Your Trademark Safe? Nepal's Supreme Court Tightens Rules on Deceptive Similarity and Passing Off, and our note on geographical indication protection for Scotch Whisky in Nepal. For trademark oppositions, cancellations and brand disputes, see our Litigation and Arbitration practice.

This article is a general summary of the Judgment and is not legal advice. Specific advice should be sought on particular circumstances.