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Roses are red, violets are blue🌹

In India, a debate is heating up: is the use of trademarked names in Google ads illegal or not?

This is edition 237 of Beyond The First Order, a premium daily newsletter that demystifies the hidden models, incentives and consequences of the most significant events across India and Southeast Asia

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Good morning,

In India, a debate is heating up: is the use of trademarked names in Google ads illegal or not?

Still on legal matters, Thailand’s lese majeste law has pushed the government and Facebook into a court battle.

Moving on to vaccine matters, as India’s government opens up private vaccinations, organised chaos could be the need of the hour.

Meanwhile, could Indian investors be migrating from mutual funds to portfolio management services, and then back to mutual funds?

What’s in a name?

“Rose is a rose is a rose is a rose”, alliterated Gertrude Stein in her 1913 poem Sacred Emily, implying that things are, by and large, as they are. Stein was in good company when she made that argument: Even Shakespeare’s Juliet had declared that “A rose by any other name would smell as sweet,” reaffirming her love for Romeo even though his family name rivalled her own.

Of course, centuries-old artists and their romantic views of life cannot be blamed for being untenable in the age of Google, biddable keyword advertising, and extreme competition.

In a recent ruling, the Delhi High Court suspended an account on Google AdWords after multiple petitions from travel platform MakeMyTrip (MMT) starting May 2018. HappyEasyGo (HEG), a rival travel platform, had been bidding on MMT-related keywords to appear higher in Google’s search results, thereby making MMT spend as much 3-4X more on its own trademark. MMT has similar litigation going on against EaseMyTrip, in another case of trademark infringement through keyword advertising.

The first such case in India dates back to 2009, when the matrimonial platform Bharat Matrimony sued Google and multiple competitors, including and Jeevan Saathi, for using its trademarked name as a keyword for online searches.

Google AdWords had begun nine years before, as a program for advertisers to bid on keywords and display relevant ads when someone searched for them. Each sponsored link would consist of (a) an ad title, (b) the ad text, and (c) the URL to the advertiser’s website. Subsequent to the Bharat Matrimony case, Google’s policy prevented the use of trademarked names in ad titles and text, but not as biddable keywords for advertising.

For one, the Madras High Court judge who first ruled on the case believed that competitors could bid on ‘bharat matrimony’ in its descriptive sense rather than a trademarked brand name. After all, an Indian consumer in search of marriageable partners might well begin her search with ‘india matrimony’ or the likes—however wide and unhelpful a net that may cast. 

I’m not one to comment.

The Competition Commission of India then rejected Bharat Matrimony’s appeal that by offering competitors trademarked terms for keyword advertising, Google was abusing its dominance in search. Naturally, Google had argued the opposite, and that prohibiting competitors from the use of trademarked keywords actually constrained consumer choice and enabled monopolism.   

If the Delhi High Court’s ruling seems to go against Madras’ precedent, it isn’t the only one

Numerous national courts in the European Union have had to decide whether an advertiser is liable for infringement by using a trademarked keyword, and whether search engine operators should also be held accountable. While courts in France, Belgium and Germany have ruled the AdWords system as unfair to trademark owners and confusing to consumers, courts in the United Kingdom and some others in Germany have ruled the opposite. 

Courts in the United States are similarly split, imposing liability if the use of a trademarked name “is likely to cause confusion, or to cause mistake, or to deceive.”

With lawmakers around the world struggling with today’s problems, unforeseeable and unique to the digital age, only a bit of artistry can perhaps rescue them.

The times are a-changing in India’s mutual fund industry

In the timeline of industries and how long each has been around, the mutual fund industry is still a baby in diapers. The first modern mutual fund in the world, which people could easily buy into and even sell out of at will, was only set up in 1924 as the Massachusetts Investors’ Trust in Boston. 

The business of mutual funds was simple and the messaging straightforward. 

There would be a professional who  picked the ‘best’ stocks to create a portfolio. People could now pay a fee and buy this portfolio. Forget how high the fees or expenses were. Because the theory was that the fees were for the privilege of getting an expert. And the expected result was that the professional would deliver returns far superior to what you could as an individual.  

Fast-forward to the 1970s, and there came a man who didn’t quite buy into this idea. John Bogle, who founded the Vanguard Group.

His idea was simpler. Give people a low-cost way to buy stocks and move away from the exorbitant fees. Basically eliminate the ‘professional’, and buy a stock market index. The idea took time to catch on, but it soon disrupted the industry. Investors began flocking to these index funds when they realised that the ‘professionals’ were actually finding it hard to deliver a superior return. 

The mind-shift, and the money-shift, has started in India too. According to data from Association of Mutual Funds of India, net assets under management of index funds stood at Rs 15,359 crore (US$2.09 billion) at the end of January, almost double the Rs 7,944 crore (US$1.08 billion) AUM at the end of January 2020.  

It’s getting increasingly difficult for mutual fund managers to beat the stock market index. And regulations imposed by the capital markets regulator, the Securities and Exchange Board of India (Sebi), have also gotten more stringent. For example, for a mutual fund that invests in the stocks of large companies, 80% of the portfolio has to be in stocks from the top 100 stocks by market capitalisation.

So as these new rules emerged and the straightjacket got even tighter, mutual fund managers began to break free. They started setting up their own portfolio management services (PMS). The target was high-networth individuals since the minimum investment required in a PMS is Rs 50 lakh (US$68,300). 

It gave them more flexibility to pick stocks and create portfolios, away from the shackles of specific internal and external mandates that most mutual funds have. It also allowed them to charge a performance fee structure. Usually called a ‘2 and 20 model’. There’s a fixed fee, and any returns beyond a predetermined level will attract another fee for the ‘performance’. So the incentive for a PMS fund manager was that a higher return translated to more money in their pockets. 

That’s not the case in a mutual fund which can only charge a fixed fee. 

But now here’s an interesting reverse migration that’s happening. From PMS, to mutual funds. 

Some of these names might be familiar to you. Zerodha is India’s largest broker. Bajaj Finserv is one the top non-banking financial companies. They don’t operate a PMS.

But the other names are part of this reverse migration.

Wizemarkets Analytics is the parent company of Capitalmind that runs a wealth management and PMS business. Unifi Capital and Alchemy Capital are two of India’s more popular PMS companies. Alchemy Capital is also backed by Rakesh Jhunjhunwala, one of India’s most famous investment personalities. Helios Capital is run by a popular fund manager based out of Singapore. 

All of them now want to dip their toes into the Indian mutual fund market. And replicate their PMS success for the masses.

But they’re voluntarily subjecting themselves to a life of hard knocks in this industry—higher compliance and regulatory costs, and more scrutiny. 

The prize for this is an under-penetrated market, in which mutual funds can accept investment from the masses as low as Rs 100 (US$1.37). It’s an opportunity to build a large asset base. It’s an opportunity to target the much talked about Bharat (India’s hinterlands). 

But these PMS companies will face a battle similar to what fintechs foraying into mutual funds will face. We wrote in BFO#188:

The Indian market already has over 40 asset management companies. And a significant majority of assets are concentrated with the top five players.

While a fintech setting up a mutual fund business could capture assets through its own distribution network, a pedigree team, differentiated products, and performance will be needed for it to really establish itself. And a part of that will take time.

The names of these PMS companies won’t easily strike a chord with the masses either. In fact, the fintechs will have it easier. And replicating the performance of a PMS in the straightjacket of a mutual fund is a tall order. 

There’s also something else. 

Since the fees in a mutual fund aren’t linked to performance, but based on how much assets are managed, it soon becomes an asset gathering game rather than an asset management game. 

The moment that shift happens, investment performance could falter too. 

How this plays out for the PMS to MF migrants will be interesting to watch. Retail investors could very well shun them for the big boys of the mutual fund industry or just stick to low-cost index mutual funds.

Government opens up private vaccinations. And that’s not good news?

In the last episode of The Ken’s fortnightly podcast Unofficial Sources, we discussed why the government was holding back on allowing the private sector to vaccinate Indians. Our estimate, on the show, was that this would unlock by May. And that the only reason the government wasn’t using the “free market” route, well, freely, was a potential lack of supply.

Guess what happened?

Private hospitals got the green light on 1 March, to vaccinate senior citizens and those above 45 with comorbidities. Much sooner than we predicted on the podcast. 

Guess what happened next?

An informal and nontransparent vaccination process at some private hospitals has allowed them to accommodate more walk-ins, denying slots to those who want to pre-register or leading to those who are already registered being turned away as supply is exhausted.

There are three ways to register for a Covid vaccine in India. The most popular option, by a mile, is directly walking into a vaccination center for the jab. Informally, news has been trickling in about people jumping the age queue. There are even rumours that for a higher price, you could potentially get vaccinated at home.

These schemes may never see the light of day. The government, after initial slip-ups, may even clamp down on private sector doses if hospitals don’t comply with vaccination rules. 

The absence of chaos though, doesn’t always lead to the desired outcomes. In Texas, those who aren’t registered with a hospital have no way of accessing the vaccine. The hospitals in the US are prioritising their staff or patients already registered with them. This has hit poor Americans—most of whom have frontline jobs—hard. The trick to the vaccine is ironically Indian. You have to “know someone who knows someone”.

That’s why a mobile vaccine unit, instead of centralised dissemination points might be the best idea for a country with the economic and demographic variety of India. Otherwise, only those who are able to walk-in in the middle of a work day, able to pay a private fee, or indeed only those who are physically capable of walking to a hospital, would take the first few million doses off the shelf. 

The city of Boston is already experimenting with a mobile vaccine unit to vaccinate the elderly and differently-abled people in housing projects first. 

Sometimes a little organised chaos is what we need.

Facebook’s Thai standoff intensifies

Facebook last week made a subtle but important move in Southeast Asia after it took action against the state.

The social network removed 185 accounts and groups linked to Thailand’s army, which maintains close ties to the government—which is led by former general officer Prayut Chan-o-cha—as Reuters reported. The army was found to have used “coordinated inauthentic behaviour” to influence opinion around the ongoing conflict in the south of Thailand.

This represents the first time Thai government-linked accounts have been removed from Facebook, and it caps an eventful past six months which has seen various threats and censorship back and forth.

Facebook threatened to sue the Thai government in August after it blocked access to a page on its social network, where more than one million people were discussing Thailand’s monarchy, often with criticism. Since those discussions violated Thailand’s lese majeste law, which forbids criticism of the royal family, Facebook was compelled to censor it.

But, one month later, it was the Thai government that filed a suit against Facebook because it had ignored requests to remove content.

Facebook isn’t the first to take action against the Thai army. Back in October, Twitter removed more than 900 accounts that it found to be “amplifying” content from the government and army. But this is a more damaging block since Facebook wields significantly more influence than Twitter with an estimated 50 million registered users in Thailand, versus 5 million for Twitter.

The Thai army and government haven’t yet responded to Facebook’s move, but the allegations and inaugural ban are sure to up the ante in this ongoing cold war.

That’s a wrap for today.

Don’t forget to write in with your thoughts and observations on how this pandemic is reshaping businesses, societies, and economies. We will be back tomorrow.

Stay safe,
[email protected]

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