Office Location

Delhi:

E-5, 2nd Floor, Defence Colony
New Delhi - 110024
Tel : 011-24336744

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Mumbai:

Office No. 1410, 14th Floor, Maker Chamber V, Nariman Point, Mumbai
Tel : +91 22-22873499

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Gurgaon:

Level 18, One Horizon Center, Golf Course Road, DLF Phase 5, Sector 43, Gurgaon 122002, India
Tel : +91 124 668 8146 / +91 124 668 8147

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Mumbai (Entertainment and Media Practice)

Office No. 213, 2nd Floor, A-wing, Crystal Plaza, Andheri Link Road, Andheri (W), Mumbai.
Tel : 022-62360762

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Mumbai (Corporate and Transactional Practice)

909/A, Capital Building, Bandra Kurla Complex, East Mumbai- 400098

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Bangalore:

21/2, 1st Main Road,
Opp Indian overseas Bank,
Gandhinagar,
Bengaluru - 560009

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Kanpur:

77A, Cantt., Kanpur - 208004

IMPORTANCE OF NEGATIVE COVENENTS IN AN IPR AGREEMENT

Ms. Divya Sharma, Senior Associate

Intellectual Property Rights is all about safeguarding one’s reputation in the market. In case of any sort of damage to one’s IPR, one immediately runs to the court seeking protection of the IPR’s. All efforts are directed to protect and safeguard the long-standing reputation from any unwarranted blemish. Procedures in courts are sure to bring correct results, but the duration by which the order will be delivered may be belated enough to benefit the plaintiff. Through the addition of a negative covenant in an agreement, the parties at least reserve their rights, before they move to the court. In case of any breach of the terms of the agreement, the work of courts is reduced to a large extent when an agreement has been drafted in a detailed and complete manner, with due emphasis on these negative covenants.

A negative covenant in an agreement has the effect of restricting the acts of either party to the agreement, which is, in essence, ‘essential’ to safeguarding the terms of agreement at hand. This article shall discuss the importance of a negative covenant in an Intellectual Property Rights Agreement – be it for assignment or for license or just a limited user right.

As has been held by the Hon’ble Supreme Court in Gujarat Bottling Co. V. Coca Cola & Others 1995 (5) SCC 545:

“In the matter of grant of injunction, the practice in England is that where a contract is negative in nature, or contains an express negative stipulation, breach of it may be restrained by injunction and injunction is normally granted as a matter of course, even though the remedy is equitable and thus in principle a discretionary one and a defendant cannot resist an injunction simply on the ground that observance of the contract is burdensome to him and its breach would cause little or no prejudice to the plaintiff and that breach of an express negative stipulation can be restrained even though the plaintiff cannot show that the breach will cause him any loss. In India Section 42 of the Specific Relief Act, 1963 prescribes that notwithstanding anything contained in clause (e) of Section 41, where a contract comprises an affirmative agreement to do a certain act, coupled with a negative agreement, express or implied, not to do a certain act, the circumstance that the court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement. This is subject to the proviso that the plaintiff has not failed to perform the contract so far as it is binding on him.”

In the case of Chancellor Masters V. Orient Longman Pvt. Ltd. 103 (2003) DLT 139, the Delhi High Court examined the nature of the negative covenant in the contract of assignment of copyright and held that it is not a restraint of trade. The plaintiff in this case entered into a contract with the third defendant to write a book to be published by the plaintiff. The book was first published in 1994 and revised in 2001 and 2002. He learnt that the third defendant had agreed to write a similar book for the first defendant and it was about to be released. The present suit was filed to restrain the defendants from doing so, based on the negative covenant in the contract for assignment. Clause 13 of the assignment read: “During the continuance of this Agreement, the Author shall not without the consent in writing of the publisher prepare or edit for any other publisher any work that is an expansion, abridgement or revision of the work or of any part of it or publish or cause to be published any work on the same subject at or about the price the sale of which may reasonably be regarded as conflicting are likely to conflict with the sale of the work.”

A reference was also laid to the following observations of Lord Pearce in Esso Petroleum: (All ER p.727) "When a contract ties the parties only during the continuance of the contract, and the negative ties are only those which are incidental and normal to the positive commercial arrangements at which the contract aims, even though those ties exclude all dealings with others, there is no restraint of trade within the meaning of the doctrine and no question of reasonableness arises. If, however, the contract ties the trading activities of either party after its determination, it is a restraint of trade, and the question of reasonableness arises.”

The Delhi High Court held that in the light of the above, the Agreement entered into between the parties and the stipulation in Clause 13 restraining the Author not to publish or prepare any other work on the same work, was held to be enforceable and not a restraint of trade.

It is therefore advisable that all IPR contracts have a negative covenant restraining the originator of the work from reproducing work of the same nature for any other third party during the tenure of the contract. The originator shall retain access to unfettered right of royalty and the other party stays assured that the contract shall not be breached by the said originator. It is a win-win situation for both the parties.

In a similar manner, there could be a negative covenant (for the benefit of the originator and/or his creations) restraining the other party from reproducing the work in any manner other than as permitted under the contract by the said originator.

Hence, it could be concluded that negative covenants are the way forward in an IPR contract.