Setting Up a Clothing Retail Business - The Basics of Trademark Law

Introduction

To start a clothing retail business in India one has to encounter various complexities due to the vast consumer base and the equally significant regulatory landscape. Whether you're thinking about opening a store, a boutique, a multi-brand outlet, or an online store, understanding the legal and regulatory requirements is crucial. Here, we will discuss the step-by-step process including documentation, certifications, and an overview of design and trademark laws.

STEP 1: Business Planning

For every business whether it is retail clothing, manufacturing, online store, etc planning is an important first step to be considered. Without proper planning and research, it will be difficult to establish the business in the market. A business plan should include market research, identifying your target audience, selecting your business model, financial planning, and marketing strategies.

STEP 2: Choosing Business Structure

Select a legal structure that suits your business needs. The type of business entity you choose will determine the initial documentation:

• Sole Proprietorship: Easiest to set up, but with personal liability for debts. Minimal registration requirements, ideal for small, single-person operations. You will need a PAN (Personal Account Number) and GST (Goods and Services Tax) registration.
• Partnership/LLP (Limited Liability Partnership): These structures offer joint liability for debts and are ideal for bigger setups with higher investments and risks. Requires a partnership agreement and registration with the Ministry of Corporate Affairs (MCA). LLPs provide limited liability protection and require an LLP Agreement.
• Private Limited Company: Offers limited liability and is registered with the RoC. This requires a Memorandum of Association, Articles of Association, PAN, and GST registration. More complex to set up, but offers significant advantages in terms of liability protection, the ability to raise funds, and a professional image.

STEP 3: Finalising the Name

Important points to be considered while selecting the name:

1. Conduct a thorough trademark search to ensure that the brand name you choose is not already registered or being used by another company in a similar industry.
2. Your store/brand name should be distinctive and not similar to existing trademarks in the same class of goods or services. This is crucial to avoid confusion among consumers and for the registration process.
3. Avoid using descriptive terms that simply describe the product or service as it becomes very difficult to get these marks registered.

STEP 4: Trademark Registration

Trademark registration provides legal protection and exclusive rights to use a mark in connection with specific goods or services. It helps consumers identify and differentiate your products from those of competitors. When designing your logo, ensure that it's original, creative, and distinct from existing logos.

Trademark registration process as per Trademark Act 1999:

1. Conduct a comprehensive trademark search to ensure your brand name and logo are not already registered or being used by another entity. This search helps avoid conflicts and potential legal issues.
2. File a trademark application with the Trademarks Registry. Include details such as the brand name, logo, class of goods/services, and applicant details. Pay the required fees for the application. (Section 18).
3. The Trademarks Registry will examine your application to ensure it complies with the law. They will check for similarity with existing trademarks and assess the distinctiveness of your mark. If there are any issues, they may raise objections that you'll need to address. (Section 9 and Section 11).
4. If your application is accepted after examination, your trademark will be published in the Trademarks Journal. This publication notifies the public of your trademark and allows for any third-party opposition within a specified period. (Section 20).
5. If there are no oppositions, or if any oppositions are successfully overcome, your trademark will be registered. This grants you exclusive rights to use the trademark for the specified goods/services. Your trademark registration will be valid for ten years, with the option to renew indefinitely. (Section 23).
6. Once registered, your trademark is protected under the law. You can take legal action against any unauthorised use of your trademark by others. (Section 29).

Advantages of Trademark Registration:

1. Registration provides a legal presumption of ownership and the exclusive right to use the mark nationwide.
2. Registration offers legal remedies against unauthorised use of the mark, including the ability to sue for infringement and seek damages.
3. A registered trademark enhances the brand recognition of your business.
4. International trademark registration systems allow for protection in multiple countries through a single application.

Disadvantages of not Registering a Trademark:

• Unregistered trademarks offer limited legal protection compared to registered trademarks, requiring reliance on common law rights for enforcement against infringers.
• Without registration, proving ownership in legal disputes is challenging, as registration provides a legal presumption of ownership.
• Unregistered trademarks have limited legal remedies and protection is typically limited to the geographical area where the mark is used.
• There is a risk of losing rights if another party registers a similar mark, potentially forcing the owner to rebrand their goods or services.

Unregistered Trademarks:

• An unregistered trademark, or common law trademark, is a mark used in commerce to distinguish goods or services without formal registration.
• Unregistered trademarks offer limited protection compared to registered trademarks but can still be protected under common law rights.
• Under the Trademarks Act, unregistered trademarks can be protected through actions for passing off.
• Passing off occurs when a business uses a mark similar to an unregistered trademark in a way that causes confusion among consumers.
• To establish passing off, the owner of the unregistered mark must prove goodwill or reputation associated with the mark, misrepresentation by the other party, and damages suffered as a result.

Remedies for Registered Trademarks:

• Owners can sue for infringement against identical or deceptively similar marks.
• Injunctions, damages, account of profits, and goods destruction.
• Defences include non-distinctiveness or descriptive nature of the mark.

Remedies for Unregistered Trademarks:

• Owners can sue for passing off against similar marks.
• Injunctions, damages, accounts of profits, and goods destruction.
• To succeed in a passing off action, the owner of an unregistered trademark must establish that they have a reputation or goodwill associated with the mark.

STEP 6: Registering Your Business

• Registration requirements depend on the type of business structure you choose.
• Registrar of Companies (RoC) is necessary for LLPs and private limited companies. This involves filing the Memorandum of Association (MoA) and Articles of Association (AoA).
• MoA outlines the main and ancillary activities of the company.
• AoA details the rules and procedures for the management of the company.
• Local Municipal Authority is needed for registration for sole proprietorships and partnerships.

Step 7: Additional Documents and registration

• All businesses need a Permanent Account Number for tax-related transactions i.e. PAN card.
• GST Registration is mandatory for businesses in India engaged in the supply of goods or services if their aggregate turnover exceeds the prescribed threshold limits. For most states, the threshold limit is ₹40 lakhs (₹20 lakhs for special category states). Even if your turnover is below the threshold, you can opt for voluntary registration to avail of ITC benefits and expand your business.

Conclusion

Starting a clothing retail business in India requires careful planning and adherence to legal requirements. Understanding design law and copyright protection is essential for success in the clothing retail industry. By following these steps and seeking professional advice, entrepreneurs can establish a successful clothing retail business in India.

References

1. The Trademark Act, 1999
2. Partnership vs LLP vs Private Limited Company, India Filings https://www.indiafilings.com/learn/partnership-vs-llp-vs-private-limited-company/.
3. Julia Rittenberg, How To Start A Clothing Business: Everything You Need To Know, https://www.forbes.com/advisor/in/business/start-a-clothing-business/.