Mumbai, Feb. 12: The Mukesh and Anil Ambani camps will have to scramble to pitch flags and stake out exclusive territories in the areas that have been designated as free businesses under the terms of the trademark management agreement between them.
The agreement spells out a clear process for doing so ' and the group that moves first will get exclusive advantage over the new terrain at least for 10 years.
Under the terms of the agreement, the group that wishes to enter a particular area will first have to draw up a proposal and inform the other camp of its intention. That’s when the stakeout begins.
The non-compete pact lists the areas of free competition as infrastructure (except airports), retailing (except petroleum retailing), life sciences, fertilisers, software services and software products, business process outsourcing and a couple of areas in media and entertainment.
The areas under media and entertainment are content creation (movies, music, documentaries, television, short films, sports and games), production or ownership rights, physical distribution of content, print media, radio and television, theme parks, restaurants and amusement parks, and theatres, exhibitions and multiplexes.
“All trademarks and pending applications 'with respect for free businesses will .. vest with the group that shall enter the free business first,” says Section 4 on covenants in the trademarks agreement.
The trademarks agreement also spells out an elaborate procedure for intimation to the other group of the intention to enter a free business. “The notice shall specify broad parameters of the proposed business and state its bona fide intention to undertake such business,” says the agreement.
But just the intimation of intention won’t do; the group that moves first into a free business area has to demonstrate that it has taken “material steps for commencement of the business within a period of six months from the date of the notice”.
Neither side will be allowed to steal an idea as soon as it receives intimation of intention from the other group. “Parties ... agree and acknowledge that information provided to the other group' shall not be used in bad faith by the group to which information is provided,” says the agreement.
The agreement also spells out what it calls a “materiality test” to establish that the first mover has actually taken some concrete steps towards establishing the business and hasn’t tried to just stymie the other side.
If there is a dispute over whether the first mover has taken material steps to commence the new business in the six-month period, the matter will be referred to arbitrators who will appoint an expert to carry out a seven-point materiality test.
The seven factors the expert will consider are: (a) financial commitment and degree of financial closure; (b) application for or agreements entered into for financial closure; (c) number of new employees permanently engaged; (d) land which has been acquired for the purpose of the business; (e) the capital investment that has been made; (f) shareholders approvals, statutory and regulatory approvals and licences which have been obtained, and (g) public announcements which have been made and media campaigns in relation to the business.
The expert’s litmus test will consider any or all of these factors. The “any or all” phrase could become a source of some heartburn, but the agreement says the determination of the expert will be binding on all parties.
If the expert rules that the first group has failed to take material steps to further its proposed foray into a new business area, then the other side will get the opportunity to muscle into this segment and it won’t have to inform the other side of its intention.
Given the fractious relationship between the two sides, it doesn’t seem likely that either will be deterred by mere words and phrases in the agreements between them.
The two sides have already started bickering over the provisions of the three agreements covering non-competition, trademarks and gas supplies that define the nature of their future relationship and clearly demarcate the existing turf. But it won’t be long before even bigger fights break out over the stakeouts in new areas of business.