Division Bench of the Delhi High Court on Section 8 of the Patents Act and Judgment on Admission of its Violation

On November 7, 2014, the Division Bench of the Delhi High Court pronounced its 23-page verdict in Sukesh Behl & Anr vs. Koninklijke Phillips Electronics. The issue before the Division bench in this case may be broken down as follows:

a. In assessing compliance or alleged violation of Section 8 of the Patents Act, 1970 by a patentee in the context of a revocation proceeding under Section 64(1)(m), does the Court have the power to exercise its discretion to delve into the materiality of the violation and the bona fides of  the patentee?

b.   Does the presence of “may” in Section 64(1) vest the Court with the power to not revoke a patent despite arriving at the conclusion that the patentee has not complied with the requirements of Section 8? In other words, is the “may” a “may” or a “shall”?

c.    Can an admission of violation of Section 8 lead to a judgment on admission under Order 12 Rule 6 of the CPC?

This context is important since the Court was not seized of the effect of prima facie non-compliance of Section 8 by a patentee on his entitlement to an interim injunction under Order 39 Rules 1 and 2 of the CPC. Simply stated, the standards applied and the considerations that go into are significantly different when analyzing the issue of Section 8 compliance in the context of judgment on admission and an application for interim injunction, and this is a view that I agree with.  

To this extent, there is no inconsistency between the earlier decision of the Delhi High Court on Section 8 in Chemtura Corporation vs. Union of India (2009), wherein Justice Muralidhar had held that a prima facie violation of Section 8 poses a credible challenge to the validity of the patent and hence disentitles a patentee to the grant of an interim injunction. This view has been endorsed by the Division Bench in paragraph 39 of the Phillips decision, which is reproduced below

“39. In Chemtura Corporation Case (supra), this Court was dealing with grant of injunction under Order XXXIX Rule 1 and 2 of CPC. Having recorded a prima facie satisfaction that there had been a failure by the plaintiff to comply with the mandatory requirement of Section 8(1), this Court held that the interim injunction in favour of the plaintiff cannot be continued. The question whether the power conferred under Section 64(1) of the Patents Act for revocation of the patent is discretionary or mandatory neither fell for consideration nor adjudicated by the Court in the said decision. Therefore, the learned Single Judge had rightly distinguished Chemutra Corporation Case (supra) relied upon by the learned counsel for the appellants/defendants.”

Now let’s proceed to the Division Bench’s discussion on the issues enumerated above.

In the facts of this case, the Defendant/ Appellant, Maj. (Retd) Sukesh Behl, alleged in his written statement that Plaintiff’s patent IN218255 was liable to be revoked under Section 64(1)(m) for failure to disclose to the Controller of Patents, information relating to its corresponding foreign patent applications required under Section 8.

In response to this allegation, the Patent agent of the Plaintiff in his letter dated 14.09.2012 (subsequent to the institution of the suit on 24.07.2012) informed the Controller of Patents that certain details regarding the corresponding foreign patents applications had not been disclosed during the prosecution of the Indian patent and requested that the said information be taken on record. Along with the said letter, an affidavit was filed stating that the agent had received documents relating to the status of the said foreign applications way back in 2004. However, he had inadvertently failed to take note of information which was printed at the back of the first page of the documents received by him. In other words, according to the Plaintiff, the omission was not deliberate and certainly not at the behest of the Plaintiff. 

As a consequence of the admission of omission made by the Plaintiff’s patent agent, the Defendant/Appellant moved for a judgment on admission under Order 12 Rule 6, seeking a decree of revocation in the Counter-claim filed by him under Section 64. The submission of the Defendant was that in light of the unequivocal admission by the Plaintiff, contravention of Section 8 was manifest which must lead to revocation of the patent in the Counter-claim without the need for further examination at trial. Further, since there is no room for exercise of discretion under Section 64(1)(m) where the situation relates to failure to disclose information (as opposed to a situation where false information has been furnished), there is no discretion available to the Court to not revoke a patent if failure to disclose information is established. Since the Plaintiff itself had admitted to this failure in an affidavit, the patent deserved to be revoked all the more without any need for enquiry on the aspects of willful suppression and the materiality of the information suppressed.

The Patentee/Plaintiff on the other hand contended that that the revocation of a patent is not warranted unless the Court finds that the omission was deliberate and the information not submitted was material to grant of patent. Since such adjudication requires a detailed examination, at trial, the Plaintiff contended that the Single Judge was right in dismissing the application under Order 12 Rule 6. 

In this context, readers may recall my earlier post on Section 8 in the context of the Roche vs. Cipla decision of Justice Manmohan Singh, wherein I had said the following:

“1. Is there any room for exercise of discretion under Section 64(1)(m) once violation of Section 8 is established to the satisfaction of the Court or the IPAB?

2. Assuming there exists room for exercise of discretion, did the Learned Single Judge take a reasoned approach in exercising his discretion to not revoke the patent? In other words, has the Single Judge sufficiently reasoned as to why he was of the opinion that the patent on Erlotinib did not deserve to be revoked “solely on the ground of non-compliance” of Section 8?”

  

I had further gone on to say the following:

“Section 64(1)(m), when read with the preamble, reads as follows:

64. Revocation of Patents: (1) Subject to the provisions contained in this Act, a patent, whether granted before or after the commencement of this Act, may, [be revoked on a petition of any person interested or ofthe  Central  Government  by  the  Appellate  Board  or  on  a  counterclaim  in  a  suit  for infringement of the patent by the High Court] on any of the following grounds, that is to say—

(m)  that the applicant for the patent has failed to disclose to the Controller the information required by section 8 or has furnished information which in any material particular was false to his knowledge;

The Learned Single Judge placed reliance on the “may” in the preamble to sub-section (1) to conclude that the “may” provided for exercise of discretion by the Court or the IPAB. The question is, is the “may” to be interpreted as “shall”, or as “may”?

It needs to be pointed out that the preamble, and consequently the “may” in Section 64(1) is applicable equally to all 14 grounds of revocation which are enumerated under Section 64(1). Therefore, it would be difficult and probably even untenable to argue that certain grounds are more serious (or more equal) than the rest.

In other words, it may not be possible to argue that violation of Section 8 is a minor ground compared to other so-called “substantive” grounds such as novelty or obviousness. Specifically, it may not be possible to argue that the “may” is a “shall” for certain grounds, but remains a “may” for certain other grounds.

Further, there are two sub-grounds within Section 64(1)(m) itself, namely:

A. that the applicant for the patent has failed to disclose to the Controller the information required by section 8; or

B. that the applicant has furnished information which in any material particular was false to his knowledge

These two grounds refer to two different circumstances. In the first circumstance, there is a failure on the part of the applicant to disclose information sought under Section 8. Specifically, the failure must relate to details of foreign application sought in Form 3. Such failure need not be deliberate or calculated. There just needs to be failure to disclose. Therefore, it could be said that the scope of analysis is restricted to establishing whether or not there was a failure to disclose by the applicant.

Before we jump to any conclusion, it needs to be pointed out that what amounts to “failure to disclose” is a subjective enquiry based on what constitutes sufficient disclosure under Section 8. It could also be argued that subjectivity allows for exercise of discretion. However, the exercise of discretion is limited to evaluating the adequacy of disclosure, and no more. If the applicant has disclosed the details sufficiently as sought in Form 3, there is no question of violation of Section 8.

However, if the disclosure is less than adequate, it must be concluded that the applicant/patentee has indeed violated Section 8. Once this conclusion is reached, there appears to be no more room for exercise of discretion. In other words, once failure to disclose is established, the “may” in the preamble to sub-section (1) of Section 64 cannot be used to further exercise discretion. Revocation appears to be the only legal and  logical course of action.

As regards the second circumstance which refers to willfully furnishing false information, it is clear that there must be a positive act on the part of the applicant to supply information which he knows to be false in a “material” way. Simply put, the false information must necessarily have a bearing on the decision of the Controller to grant or refuse a patent. Obviously, in this circumstance, the Controller has the power to exercise his discretion to understand whether the false information was “material” in any way to the outcome of the examination process.

To summarize, on a strict reading of relevant portions of Section 64(1)(m), it could be argued that there does not exist a room for exercise of discretion once failure to disclose information under Section 8 is established. Therefore, since the Learned Single Judge had arrived at a finding of contravention of Section 8 by the patentee, I don't think the Court had the option of not revoking the Erlotinib patent.”

  

Applying this logic to the Phillips case, it could be said that the Plaintiff’s patent is liable to be revoked for failure to disclose information in light if its own admission. However, it must also be noted that such revocation was being sought summarily under Order 12 Rule 6. Therefore, given the grave implications for the patentee, a Court would not be wrong in coming to the conclusion that the issue deserved deeper analysis at trial.

Now let us see what the Division Bench had to say. In paragraph 25, the Court notes, based on the affidavit of the Plaintiff's patent agent, that certain information was inadvertently omitted/not disclosed by the Plaintiff’s patent agent to the Indian Patent Office, despite having received the information from the Plaintiff. In such a situation, the Court ought to have held that only at trial it may be understood as to whether the failure of a patent agent to disclose information amounts to failure of the patentee to furnish information under Section 8. This would have been a better issue to frame and decide. Instead, in paragraph 27 of the decision, the Court goes on to observe that the issues that need to be looked into at trial are the alleged suppression and the materiality of the suppressed information. In my humble opinion, although the Court was perhaps correct in taking the view that the issue deserved a trial, it has erred in its appreciation of Section 64(1)(m) and the latter's application to the facts of the case. Simply put, the conclusion may be correct but the reasoning is flawed.

The Division Bench then dwelt on the interpretation of the word ”may” in Section 64(1). Based on a host of precedents, the Court took the view that the “may” was indeed a may which has the consequence of conferring discretion upon the Court while exercising the power of revocation. On this too, I humbly disagree with the Court as stated in my earlier post, the “may” in Section 64(1) is applicable equally to all 14 grounds of revocation which are enumerated under Section 64(1). Therefore, it would be difficult and probably even untenable to argue that certain grounds are more serious (or more equal) than the rest. In other words, it may not be possible to argue that violation of Section 8 is a minor ground compared to other so-called “substantive” grounds such as novelty or obviousness. Specifically, it may not be possible to argue that the “may” is a “shall” for certain grounds, but remains a “may” for certain other grounds.

    

Although testy, I’d like to volunteer with another argument. The Indian Patents Act, 1970 perhaps is inspired by its British counterpart and the use of “may” in certain instances in British English is synonymous with “shall”. In other words, the use of the word “may” is meant to be assertive or in the form of a directive, with no room for exercise of discretion. This must be considered in interpreting the language of the Indian statute. Therefore, given that the “may” used in Section 64(1) applies to both substantive and procedural grounds, it may not be possible to selectively construe the “may” as “shall” for substantive grounds and “may” for procedural grounds.

From the above, it is clear that although in the facts of the case perhaps a trial was necessary, the DB’s interpretation of Sections 8, 64(1) and 64(1)(m) do not do justice to the express language of the provisions and intent of the Legislature. Critically, this is bound to affect the adjudication of the appeal in the Roche-Cipla case where Section 8 has been agitated vigorously by the defendant Cipla. In that case, although the Learned Single Judge concluded that the patentee had violated Section 8, his Lordship ruled that the "may" in Section 64(1) allowed him to not revoke the patent despite the violation. Therefore, the DB's decision could deprive Cipla of an otherwise legitimate ground of appeal. I, for one, will wait to see how the DB's decision is applied in pending matters by Courts and the IPAB.

Standing Committee on Patents of the WIPO to meet from November 3-7, 2014

The Twenty First Session of the WIPO's Standing Committee on the Law of Patents will be held from November 3-7, 2014 in Geneva. The draft Agenda is here. Among the topics that are scheduled to be taken up are exceptions and limitations to Patents Rights, and confidentiality of advice from patent advisors. Both these topics are of interest to me personally, and I hope to read the final report of the session. 

Making Sense of the Supreme Court’s ratio in Dr.Aloys Wobben & Anr. v. Yogesh Mehra & Ors.

Recently, I had the occasion to interpret the judgment of the Supreme Court in Dr.Aloys Wobben & Anr. v. Yogesh Mehra & Ors., wherein it was seized of the following issue- whether under Section 64 of the Patents Act, 1970, a ‘person interested’ has the option of concurrently invoking the jurisdictions of both the High Court in a counterclaim for revocation of a patent, and the IPAB in a revocation petition against the same patent? I had earlier blogged on the dispute here and here.

Although the central findings of the Supreme Court’s decision have been touched upon elsewhere by others, I intend to make sense of lesser-discussed observations of the Apex Court. The discussion of the Court begins at Paragraph 17. In the said paragraph, the Court interprets the contingent clause in the preamble of Section 64 (“Subject to the provisions contained in this Act…”) to mean that the provision is subservient to other provisions of the Act. In other words, it is not the sequence of initiation of proceedings that would dictate the outcome/conclusion, but the existence of a conflict between a proceeding under Section 64 and a proceeding initiated under any other provision of the Act.

For instance, if a person interested institutes a post-grant opposition under Section 25(2) against the grant of a patent, he is barred under law from challenging the vires of the patent again in a subsequent revocation petition or counterclaim under Section 64. This explains the Court’s observation in paragraph 18 that “If any proceedings have been initiated by “any person interested”, under Section 25(2) of the Patents Act, the same will eclipse the right of the same person to file a “revocation petition” under Section 64(1) of the Patents Act. And also, to invoke the right granted under Section 64(1) of the Patents Act, to file a “counter-claim” (in response to an “infringement suit”, to seek the revocation of a patent).”  

The same conclusion has been reiterated in paragraph 26 wherein the Court has observed as follows:

“Firstly, if “any person interested” has filed proceedings under Section 25(2) of the Patents Act, the same would eclipse all similar rights available to the very same person under Section 64(1) of the Patents Act. This would include the right to file a “revocation petition” in the capacity of “any person interested” (under Section 64(1) of the Patents Act), as also, the right to seek the revocation of a patent in the capacity of a defendant through a “counter-claim” (also under Section 64(1) of the Patents Act).” (Emphasis supplied)

What is to be critically noted is that a post-grant opposition under Section 25(2) eclipses only “similar rights/grounds” which are available under Section 64 and not those grounds which are not provided for in the former but are available in the latter. Although the Court has not dealt with such an eventuality, it could be argued (not necessarily successfully) that a person interested may concurrently institute a post-grant opposition and also file a counterclaim on grounds not available under Section 25(2). 

Yet another matter of concern are the observations of the Court in paragraph 18 since the Court seems to have come to the conclusion that the grant of a patent is merely the finalization of the Controller’s decision to bestow a patent on an applicant, but does not translate to the grant of a right to an applicant. In other words, according to the Court, a patentee, although having been granted a patent, does not have a right worth enforcing until the expiry of the post grant opposition period i.e. a year from the date of publication of grant of the patent. Does this mean that a patentee with a patent in his name in the register of patents cannot institute a suit for infringement of the patent until the expiry of the post grant opposition period? On this point, following is the observation of the Court:

“Therefore, it is unlikely and quite impossible, that an “infringement suit” would be filed, while the proceedings under Section 25(2) are pending, or within a year of the date of publication of the grant of a patent.”

Unfortunately, the above conclusion is ambiguous since it does not appear to be based on the law and seems to be driven more by “practical” considerations which may not even hold water in all situations. Further, in arriving at this conclusion, the Hon’ble Apex Court has not discussed those provisions of the Act which deal with institution of suits for infringement, leaving its “practical” finding bereft of concrete statutory support.

It remains to be seen in the times to come if the decision of the Court has raised more questions than it has answered. Comments and corrections are welcome.           

Distinction between Falsification and Falsely Applying a Trademark

Section 102 of the Trademarks Act 1999 defines as to what constitutes falsification of a trade mark and falsely applying a trade mark. Section 103 prescribes penalties for falsification and falsely applying a trademark. Both provisions are part of Chapter XII of the Act which deals with Offences and Penalties. Reproduced below is Section 102:

102. Falsifying and falsely applying trade marks.—

(1) A person shall be deemed to falsify a trade mark who, either,—

(a) without the assent of the proprietor of the trade mark makes that trade mark or a deceptively similar mark; or

(b) falsifies any genuine trade mark, whether by alteration, addition, effacement or otherwise.

(2) A person shall be deemed to falsely apply to goods or services a trade mark who, without the assent of the proprietor of the trade mark,—

(a) applies such trade mark or a deceptively similar mark to goods or services or any package containing goods;

(b) uses any package bearing a mark which is identical with or deceptively similar to the trade mark of such proprietor, for the purpose of packing, filling or wrapping therein any goods other than the genuine goods of the proprietor of the trade mark.

(3) Any trade mark falsified as mentioned in sub-section (1) or falsely applied as mentioned in sub-section (2), is in this Act referred to as a false trade mark.

(4) In any prosecution for falsifying a trade mark or falsely applying a trade mark to goods or services, the burden of proving the assent of the proprietor shall lie on the accused.

Based on a clear reading of sub-section 1 of Section 102, it is evident that the said sub-section deals with “making” of a mark which is either identical or deceptively similar to an existing trade mark (registered or unregistered, as stated in the definition of a trademark in Section 2(1)(zb)(i) for the purposes of Chapter XII). It must be noted that the reference here is to the making of the mark itself and not to its application to goods or in relation to services (“application” of the trade mark for the purposes of this Chapter is enumerated in Section 101). Therefore, the act of manufacture of the mark without the consent of the proprietor of the trade mark is deemed as falsification of the trade mark. Further, the said sub-section also includes within the scope of falsification any unauthorized alteration, addition or effacement of a genuine trade mark.

In contrast, sub-section (2) of Section 102 deals with falsely applying/using an existing trade mark or its deceptively similar variant without the assent of its proprietor. Sub-section (3) of Section 102 classifies both a falsified trade mark and a falsely applied trade mark under the category of “false trade marks”.  It must be noted that the prohibition under Section 102 does not appear to be restricted to the class of goods or services in connection with which the proprietor of the genuine trade mark uses the trade mark. In other words, a person who applies/uses a false trade mark in any class of goods or services could attract the prohibition of Section 102. To this extent, the scope of the bar under Section 102 appears to be wider than Section 29.  

Further, sub-section (4) of Section 102 takes the position that when an accused is confronted with the use of a false trade mark, the lack of the proprietor’s consent shall be presumed and the burden is on the accused to rebut the said presumption. That said, sub- section (1) of Section 102 makes a reference to a “deceptively similar” mark and not merely a similar mark. Does the use of the word deceptively require the proprietor of the mark to establish malafide intent on the part of the accused to deceive the public to make a case under Section 102? Considering that the use of a deceptively similar mark also constitutes infringement within the meaning of Section 29 (if the mark is registered), it would be interesting to understand the practical evidentiary import of the words deceptively similar. I will discuss this in the next post.    

Does Section 22 of the Designs Act,2000 Limit Damages in a Suit to INR50000?

It appears there is some confusion among practitioners regarding the interpretation of Section 22 of the Designs Act, 2000, which deals with piracy of registered designs and reliefs available to the owner of a registered design. Specifically, there seems to be some doubt with respect to the maximum value of damages that the owner of a registered design may claim in a suit for design infringement. One school of thought is of the opinion that Section 22(2) and the first proviso thereunder limit/cap damages that a design owner may seek in a suit to INR 50,000/-. Is this truly the case?

A clear reading of each of the sub-clauses of Section 22(2) reveals the following:

1)  The provision provides two options/reliefs to a registered design owner in the event of infringement of a design. The first relief is where the design owner may recover a maximum of INR 25,000/-.from the infringer for “every contravention” in the form of a contract debt

2) The second relief is one which permits the owner of the design to institute a suit for damages and permanent injunction against the infringer   

3) It is to be noted that the reliefs are disjunctive in nature which means the owner of the design has to elect between the two

4) Critically, what is to be noted is that the limit/cap of INR 50,000/- for “every design” prescribed in the first proviso is restricted to the first relief and does not apply to the second relief. Simply put, there is no pecuniary limit whatsoever on damages that a registered design owner may seek should he opt to institute a suit for damages and injunction under the second relief

If this is the case, how does one interpret the first relief and the first proviso together? Based on a combined reading of Section 22(2)(a) and the first proviso, it follows that when the design owner opts for the first relief by way of a contract debt, although, he is entitled to recover  maximum of  INR 25,000/-  from the infringer “for every contravention”, it is to be noted that he may recover a maximum of INR 50,000/- for infringement of a design regardless  of the number of contraventions with respect to the design. In other words, under the first relief, the statutorily prescribed limit is INR 50,000/- for infringement of a single design regardless of the number of contraventions. Therefore, if in the same infringing act, the infringer violates multiple design registrations of the same design owner, the owner is entitled to recover a maximum of INR 50,000/- for each of the designs. 

However, this raises a few more questions. Since the first relief does not provide for an injunctive relief, does it mean that after the recovery of a maximum of INR 50,000/- for infringement of every design, the design owner does not have the right to recover more money in the event of a subsequent infringement? If yes, where is the incentive for the design owner to opt for the first relief if it does not act as a deterrent to the infringer? Importantly, if with respect to a first cause of action the design owner opts for the first relief, is he barred from instituting a suit for damages for a subsequent cause of action/infringement by the same infringer?

I look forward to comments and corrections from the readers.       

Are the decisions of the Competition Commission in rem?

A few days ago I had a discussion on competition law with a distinguished colleague of mine whose depth and perspicacity I deeply respect. During the course of the discussion, the question that came to my mind was whether the orders/decisions of the Competition Commission of India (CCI) are judgments in rem, or are they restricted to the parties to a given case? Following are the scenarios which need to be looked into: 

1.       If an agreement entered into by X with Y is ultimately held to be anti-competitive under Section 3 by the CCI, would the finding apply to an identical agreement entered into subsequently by X and Z?  Also, would the finding apply to an identical agreement entered into by X and P prior to the finding of the CCI? 

2.       Would the finding apply to identical/similar agreements entered into by A and B either before or after the finding of the CCI in the case involving X and Y?

Be it Section 3 of the Act which deals with anti-competitive agreements, or Section 4 which deals with abuse of dominant position, or Section 6 which deals with regulation of combinations, the attempt is to proscribe/forbid certain types of behaviour which have an adverse bearing on competition in the market. In other words, the focus is on the behaviour of the entities, as opposed to the entities themselves. Therefore, it could be said that if a certain clause or transaction or practice is held to be anti-competitive or abusive, such a finding could apply to third party enterprises indulging in identical/similar practices, even if such parties were strangers to the earlier proceedings. To that extent, it could be said that the CCI is laying down the law on legally acceptable behaviour in the market.

However, practically, does this mean the CCI can forego investigation and proceed to declare as anti-competitive the agreements between X and Z, or X and P, or A and B? Sections 42A and 53N could help address these questions. Reproduced below are the said provisions:

Compensation in case of contravention of orders of Commission

42A.Without prejudice to the provisions of this Act, any person may make an application to the Appellate Tribunal for an order for the recovery of compensation from any enterprise for any loss or damage shown to have been suffered, by such person as a result of the said enterprise violating directions issued by the Commission or contravening, without any reasonable ground, any decision or order of the Commission issued under sections 27, 28, 31, 32 and 33 or any condition or restriction subject to which any approval, sanction, direction or exemption in relation to any matter has been accorded, given, made or granted under this Act or delaying in carrying out such orders or directions of the Commission.

Awarding compensation

53N.(1)Without prejudice to any other provisions contained in this Act, the Central Government or a State Government or a local authority or any enterprise or any person may make an application to the Appellate Tribunal to adjudicate on claim for compensation that may arise from the findings of the Commission or the orders of the Appellate Tribunal in an appeal against any findings of the Commission or under section 42A or under sub-section(2) of section 53Q of the Act, and to pass an order for the recovery of compensation from any enterprise for any loss or damage shown to have been suffered, by the Central Government or a State Government or a local authority or any enterprise or any person as a result of any contravention of the provisions of Chapter II, having been committed by enterprise.

 (2) Every application made under sub-section (1) shall be accompanied by the findings of the Commission, if any, and also be accompanied with such fees as may be prescribed.

 (3) The Appellate Tribunal may, after an inquiry made into the allegations mentioned in the application made under sub-section (1), pass an order directing the enterprise to make payment to the applicant, of the amount determined by it as realisable from the enterprise as compensation for the loss or damage caused to the applicant as a result of any contravention of the provisions of Chapter II having been committed by such enterprise:

Provided that the Appellate Tribunal may obtain the recommendations of the Commission before passing an order of compensation.

 (4) Where any loss or damage referred to in sub-section (1) is caused to numerous persons having the same interest, one or more of such persons may, with the permission of the Appellate Tribunal, make an application under that sub-section for and on behalf of, or for the benefit of, the persons so interested, and thereupon, the provisions of rule 8 of Order 1 of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908), shall apply subject to the modification that every reference therein to a suit or decree shall be construed as a reference to the application before the Appellate Tribunal and the order of the Appellate Tribunal thereon.

 Explanation.—For the removal of doubts, it is hereby declared that—

(a) an application may be made for compensation before the Appellate Tribunal only after either the Commission or the Appellate Tribunal on appeal under clause (a) of sub-section(1) of section 53A of the Act, has determined in a proceeding before it that violation of the provisions of the Act has taken place, or if provisions of section 42A or sub-section(2) of section 53Q of the Act are attracted.

(b) enquiry to be conducted under sub-section(3) shall be for the purpose of determining the eligibility and quantum of compensation due to a person applying for the same, and not for examining afresh the findings of the Commission or the Appellate Tribunal on whether any violation of the Act has taken place.

Following are the similarities and differences between Sections 42A and 53N: 

1. Section 42A applies to violation of specific directions/orders issued against a specific enterprise, whereas Section 53N applies to situations covered by Section 42A as well as to subsequent violations of Chapter II of the Act (which contains Sections 3, 4 and 6) by the same enterprise. In other words, the scope of Section 53N is broader and in either instance, it is the COMPAT that shall decide an application for compensation.

2.  Under both provisions, an application for compensation may be moved by “any person” who is aggrieved either by violation of the CCI’s directions/orders by an enterprise against which the directions/orders were issued, or by a violation of the Act itself by such an enterprise subsequent or prior to the its conduct being declared as anti-competitive by the CCI or the COMPAT. 

Critically, Section 53N(1) read with the Explanation (a) to Section 53N answers the queries raised in the post. An application for compensation against an enterprise such as X may be moved only after its conduct has been found violative of the Act either by the CCI or COMPAT. Further, such an application can be moved by “any person” who has suffered damage or loss as a result of the conduct. Therefore, if X’s conduct with Y has been found anti-competitive, and X has entered into identical/similar transactions with P and Z in the past or future, Y,P and Z may all apply to COMPAT for compensation against X.

However, as the explanation implicitly clarifies, the finding with respect to X’s conduct cannot be directly applied/extended to an agreement between A and B, even if the agreement is identical/similar to the X’s agreement with Y, until it is determined afresh by the CCI or COMPAT (in appeal) that such agreement between A and B is violative of the Act.

Simply put, if a certain conduct of a party has been found violative of the Act, the Commission need not revisit the illegality of the party’s conduct over and over again in order to award compensation to parties affected by the party’s conduct.  However, if a stranger to the earlier proceedings indulges in identical/similar conduct, it needs to be investigated and a fresh finding must be arrived at.

The other important caveat is that if a party’s conduct involves abuse of dominance under Section 4 of the Act, it may not be possible to extend the findings arrived at in one case to past or future conduct since it would need to be ascertained if the party was in a position of dominance in each of the impugned transactions. This is because under Section 4, only the conduct of dominant parties may be investigated. Therefore, if a party is no more dominant at the time of the subsequent transaction, the earlier finding may not be valid, which means a de novo investigation is necessary to arrive at the finding of abuse of dominance.

Comments and corrections are welcome!

Legality of a Contractual Estoppel against Challenge to Patent Validity

Can a licensee who has reaped the benefits of a patented invention challenge the validity of the patent? Under the Patents Act, 1970, yes. Section 140(1)(d) provides that it shall not be lawful to insert in a patent-related contract or license a clause that prevents the licensee from challenging the validity of the licensed patent. It goes on to say that such a condition shall be void.

The said provision, which flows from Article 40 of the TRIPS, was introduced in the Act as part of the 2002 amendment. Interpreting the provision in Enercon (India) Limited v. Aloys Wobben in January 2013, the IPAB observed as follows:

“Licensee Estoppel

14.       The learned counsel for the respondent submitted that though S.140 of the Patents Act provides for avoidance of certain restrictive conditions, it is always subject to Ss. 115 and 117 of the Indian Evidence Act.  Having pleaded that the applicant is the transferee of the technology transferred, it cannot destroy the validity of the intellectual property that was transferred.  There is lack of good faith.  Learned counsel referred to paragraph-18 of the written statement filed by the applicant herein in the suit before the Delhi High Court. It was submitted that after revocation petition was filed, the applicant stopped paying the royalty.  Learned counsel referred to various paragraphs in the written statement. Learned counsel submitted that an order of revocation is a discretionary remedy and the discretion shall not be exercised in favour of the applicant. Learned counsel referred to the derivative action suit filed before the Bombay High Court.  Learned counsel submitted that the applicant must surrender the rights under the agreement (Intellectual Property Licence Agreement) before it attacks the patent. 

15.       In response, Mr. R. Parthasarathy, learned counsel for the applicant submitted that on 8.12.2008, the licence had been terminated and once it has been terminated, the subsequent  application for revocation  will not be barred by estoppel.  Learned counsel submitted that the respondent cannot plead in the same breath that the license has been terminated and that the applicant as the licensee is estopped from challenging it. According to him, the suit in the Bombay High Court was for a relief regarding the payment of royalty, etc. where the Court will decide the construction of documents and it is still pending before the Bombay High Court.  Learned counsel submitted that the answer to the question whether a licensee can file a revocation is ‘yes’ and referred to S. 140 of the Patents Act.  He submitted that the power under S. 64 is very wide.  He referred to the decision in Lear, Inc v. John S. Adkins [395 U.S.653, 89, S.Ct.1902].   

16.       So we will see whether even if the applicant is a person interested, he is estopped from suing for revocation being a licensee. S. 140 says that it is not lawful to insert in a licence to manufacture or use a patented article or to work any process protected by a patent, any condition of prevention to challenges to the validity of a patent.  This is the law.  This condition will govern all licences which relate to or are in relation to a patented article or a process protected by a patent.   Learned counsel for the applicant relied on AIR 2010 SC 259 in which it was held that there can be no estoppel against a statute. 

17.       In Lear Incorporated v. John S.Adkins [395 U.S.653, 89, S.Ct.1902], it has been held that the contractual rights give way to public interest in a challenge to a patent and therefore, even a licensee can attack an unworthy patent.  In Lear , the inventor was Adkins.  He was hired by Lear Incorporated to develop a gyroscope which was required in the aviation industry.  Adkins developed an invention which Lear incorporated in its production process.  In the litigation where Adkins claimed compensation for Lear’s use of the improvements which the inventor has patented, Lear sought to prove that Adkins inventions were not sufficiently novel.  The inventor argued that as a licensee, Lear must pay.  The California Supreme Court relied on the rule of estoppel to bar Lear from proving that Adkins’ invention was not patentable.  The U.S. Supreme Court granted Certiorari in this case to reconsider the Hazeltine rule which invoked estoppel to deny a licensee the right to prove that the licensor’s idea was really a part of the public domain.  The U.S. Supreme Court said that the present federal policy favoured free competition in ideas which do not merit patent protection, and  that the licensee estoppels had an uncertain status and it is a product of judicial efforts to accommodate the competing demands of the common law of contract in the federal law of patents.  It observed that instead of a creative compromise, there has been a chaos of conflicting case law. It also observed as under:

“Surely the equities of the licensor do not weigh very heavily when they are balanced against the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain.  Licensees may often be the only individuals with enough economic incentive to challenge the patentability of an inventor’s discovery.  If they are muzzled, the public may continually be required to pay tribute to would-be monopolists without need or justification.  We think it plain that the technical requirements of contract doctrine must give way before the demands of the public interest in the typical situation involving the negotiation of a license after a patent has issued.”

The U.S. Supreme Court also held that the overriding federal policies would be significantly frustrated if licensees are required to continue to pay royalty during the time they are challenging the patent’s validity.  The Court observed that enforcing this contractual provision would undermine the strong federal policy favouring full and free use of ideas in the public domain.  So we have the Act which says that the conditions which restrict the right of a licensee from challenging the patent are illegal and we have the opinion of the U.S. Supreme Court explaining why a licensee is entitled to invalidate the patent. This restriction imposed by S.140, is another indicator of the public interest angle in patent law. While the law shall protect the rights of the property owner, it will not restrict the rights of the interested person to challenge the grant, so that unworthy patents are restored to the public domain.

Because of the costs of the litigation and the very special nuances of the technology, it may very well be that the licensee alone is capable of challenging the patent. He has the funds and the knowledge to launch the attack on the subject matter of the invention. This is why the U.S. Supreme Court held that it would be inequitable to restrict him from attacking the patent by any condition in the contract. The Parliament has specifically introduced this provision in our Patents Act which is a special enactment as far as patents are concerned and hence it will prevail over the general rules relating to contract. Therefore no licensee can be estopped from challenging the patent. This objection is rejected.”

I don’t think I could have captured the spirit and objective of Section 140 better. What needs to be understood is that the freedom to challenge the validity of a patent extends to a compulsory licensee and a prospective licensee as well. Considering additionally that a licensee or a prospective licensee is also a “person interested” within the meaning of Section 2(1)(t) of the Act who has the commercial incentive and the technical wherewithal to challenge the validity of the patent, I tend to agree with the policy intent underlying Section 140. 

Will the Ministry of Commerce under the New Government Deliver the Goods?

After a marathon election campaign that started last September, the Bharatiya Janata Party (BJP) emerged victorious on May 16, 2014 winning a clear majority on its own (282 seats out of the total 543 seats in the Lower House of the Indian Parliament). Today the Union Council of Ministers formally took oath, including Ms.Nirmala Sitharaman, who is widely seen as the next Minister of State for Commerce. As most of our readers know, the Department of Industrial Policy and Promotion (DIPP) which is the nodal department for all Intellectual Property-related issues, falls under the Ministry of Commerce and Industry.

Given that the Ministry of Commerce through the DIPP is responsible for formulating manufacturing and innovation-related policies, it’d be interesting to see what the new dispensation does to revive the manufacturing sector and to boost innovation.  On this blog, we had earlier written two posts on a National Innovation Policy and the importance of investment in innovation and research in times of recession. Following are a few relevant extracts from both these posts:

“As is wont, the situation today has a macroscopic perspective and a microscopic one. As far as the macroscopic view is concerned, the services sector is a tempting seductress which promises returns in a geometric progression within a narrow time window and is not as infrastructure-intensive as the manufacturing sector. This makes it an easier and “softer” option for economies which do not have the political will to invest in hard infrastructure (Indian economy being a case in point).  

The microscopic view, which is corollarial to the macroscopic one, is that investment in hard infrastructure requires a highly-skilled and reliable industrial workforce, which is willing to constantly learn and adapt to newer technologies and style of functioning (this calls for industry-friendly labour laws as well). This means, besides private enterprise, the government too needs to play a huge role in creating, training and nurturing a workforce, and in chalking out a comprehensive pan-nation industrial innovation policy.

Importantly, the latter again calls for establishment of well-networked innovative institutions which have collaboration-friendly structures to combine their research firepower in good times and in times of dire need to pull out the country’s economy from doldrums. One of the countries which has such an approach at the heart of its innovation policy-making is Germany. Not-so-incidentally, Germany happens to be those rare developed economies which did not buckle under the recession to the extent that US and UK have.

How has Germany’s industrial/innovation policy helped it cocoon itself to a significant extent from the harsh effects of the recession? There is an extremely informative and insightful paper covering the theme of this post and this specific issue. The paper entitled “Can the Relative Strength of the National Systems of Innovation Mitigate the Severity of the Global Recession on National Economies?  – The Case of Selected Developed Economies” was presented by A.Baskaran and M.Muchie this April at the DIME Final Conference at Maastricht, Germany.

On Page 11, the authors of the paper enumerate what they perceive to be the strengths and weaknesses of the German system of innovation vis-a-vis its ability to mitigate the effects of recession. Some of the strengths listed therein are relevant to the post, which are as follows:

(i) In contrast to ‘Anglo-Saxon model’ of growth based on financial services (e.g. the UK) and property market, the German economy is strongly rooted in manufacturing, companies invest in long-term growth, and workers-managers relationship is based more on close cooperation;

(ii) Structural reforms in the labour market and corporate sector before the recession helped the German economy to become more competitive;

(xiii) Germany has developed FDI strategies around incentives and clusters and developed world renowned centres of excellence and developed globally recognized position as leaders in certain growth sectors such as clean technology.  Germany has also developed well recognized excellence in innovation, and has created the best environment for R&D, which continues to attract companies from abroad to work close to the leading German companies and to access the best talents in the country

The above paper apart, what is even more educational is the recommendation of the Commission of Experts (EFI) (a commission established by the German government) to the German government in its 2009 Report. Under the head aptly titled “Education, research and innovation- a particular priority in recession”, the Commission recommends thus in no uncertain terms:

“The Expert Commission suggests that in the course of implementing the second recovery package, more attention should be paid to the concerns of education, research and innovation. If this is not done, there will be a severe shortfall in the funds available in future to improve the competitive position of Germany. Currently, the German innovation system is still competitive in an international comparison. However, competition is becoming considerably more intense as other industrialised countries and some key emerging economies redouble their efforts. Germany‘s position with respect to R&D will therefore come under pressure if the level of expenditure for research and innovation is only maintained at present levels. There is an urgent need to expand education, research and innovation.”

...

“Innovation and SMEs

To finance innovation, the report implicitly recommends the creation of a vibrant and responsive equity market to fund innovation by Small and Medium-sized Enterprises (SMEs). What is interesting is that in the literature that one has come across thus far, the pervasive opinion is that innovation is primarily churned out of SMEs (and not behemoths, although it is behemoths which typically flaunt their patent filing statistics).

In Germany, the report says, 70% of its employees work in SMEs and 43 % of all SMEs in Germany are innovative. In the report, an SME is deemed as innovative if it brings new or improved products into the market.

The report further observes that investment in innovation by SMEs is integrally dependent on the state of the economy. To ensure that such investment remains insulated from the health of the economy in some measure, the report recommends an innovation-friendly tax system. Even if an innovation-friendly tax system is put in place and an active venture capital market is promoted, how does one generate demand for the products of such innovation?

The question is, what exactly is expected of such innovation? Is innovation during recession meant to create products/processes which can kick-start the economy? Or is it meant to bring back pre-recession growth figures once the recession dies its cyclical death? Or is it meant to reduce future vulnerability to recession by creating a strong post-recession technology base? Can a single approach bring about any or all of these outcomes? I guess that would be entering the realm of a trained economist, which I am not, hence opinions are welcome.

Anyways, the report recommends a combination of topic-independent R&D support in the tax system and project-specific funding, both of which are intended for SMEs.

The University Angle

Among the other recommendations, there are two which deal with universities. The first one is about creating an attractive science/technology labour market. This came as a surprise to me because I did not expect an advanced technology regime such as Germany to have trouble attracting scientific talent. 

Besides working on qualitative development of the German education system, the report recommends creating a framework to encourage retention of home-grown talent and relaxation of immigration norms for highly-skilled foreign nationals (recently, Australia welcomed highly-skilled human resources from India under its Global Non-discriminatory Immigration Programme).

The second recommendation relating to universities was to boost university-industry interaction to “intensify and improve knowledge and technology transfer”. One of the suggested steps, which I felt was nuanced, is to avoid imposing a universally binding technology transfer framework which spell out the minutiae for all research institutions and universities.

It is probably best to lay down a common policy which encourages a culture of research accountability and incentivization, without using a straitjacketed approach that is blind to the dialectics of individual technology sectors. But there is definitely a consensus on the need for universities to play a more active role in facilitating commercial application of their own research, and not restricting themselves to merely providing skilled manpower to the applied sciences industry.

Tapping the Knowledge-intensive Services Industry

The report seeks to tap the under-utilized knowledge-intensive services industry in Germany. “Knowledge-intensive services” refer to provision of services by way of high-end technology and engineering consultancy. This is one sub-sector of the services sector which ensures that there is an area of the economy which, although “soft”, still requires highly-qualified technology professionals, as opposed to other areas such as legal, business and financial consultancy services (the so-called Anglo-saxon model).

The reason knowledge-intensive services are a relatively untapped area in Germany is probably because its business houses are globally-renowned brands for product development, be it the chemicals industry or the auto industry. Considering the fact that exports drive the product-based industries of Germany, and the fact that the Chinese low-wage model makes it difficult to compete price-wise, it is strategically important for Germany to rapidly ramp up the scale of its knowledge-intensive services.

Lessons for India

From my limited understanding, most of the recommendations in the report for the German economy seem applicable to India as well. Given the on-going discussions on the need or otherwise for the Public-Funded Intellectual Property Bill (the so-called Indian Bayh-Dole), I now see the wisdom in  the calls for undertaking a thorough study on the nature of Indian research institutions and universities, and their core-strengths and weaknesses, before introducing a cut-and-dried legal framework.

As for the industrial policy, India must look at increasing the contribution of the manufacturing sector to the GDP, which is currently hovering at around 15%. Although knowledge-intensive services already form a respectable part of the Indian services sector (since quite a few Indian arms of foreign multinationals play the role of engineering services division), it is just not enough to remain content with our role as sidekicks to product developers.

India has the natural resources to play a prominent, if not dominant, role on the global manufacturing scene. Along with China, India too has embarked on a quest for more minerals in African markets; therefore, what now needs to be scaled up along with our quest for natural resources, is the ability to produce goods for domestic and global consumption.

Today our population and its increasing panache for diverse consumption give Indian players a chance to test their manufacturing capabilities before they venture into foreign markets. Indian SMEs in particular must seize the initiative, but I think the hurdle before them is to attract engineering talent which either opts for cushy management positions in business consultancy majors, or gravitates towards non-Indian manufacturing giants.”

Taking forward this train of thought, I think it may be important for the HRD Ministry and the Ministry of Commerce to work together to develop a trained workforce and to provide avenues to utilize the skills of the workforce. Further, the National Manufacturing Policy needs to lay stronger emphasis on innovation, IP creation and IP protection. The High Level Committee constituted under the Policy must include an expert on innovation and IP, preferably a committee of MHRD IP Chairs.

Having said the above, it is clear that there’s a lot that can be done and there is no dearth of suggestions coming from all quarters. But if the last ten years have proved anything, it is this- execution above all needs political will, and hopefully the new dispensation has what it takes to once and for all prove that India does not need to cite democracy as an excuse for poor execution each time it is compared with China. Here’s wishing the new Government the very best in its sincere endeavours! 

Delhi High Court: Prima Facie Territorial Jurisdiction for Passing Off may be based on Statements made in a Legal Notice

On May 7, 2014, in an appeal from an order of a Single Judge returning the plaint for want of jurisdiction in an action for passing off filed by LT Foods Ltd against Heritage Foods India Ltd over the mark "HERITAGE", a Division Bench of the Delhi High Court held that so long as the plaint contains necessary pleadings to establish the territorial jurisdiction of the Court, it cannot be returned for want of jurisdiction. Following are the relevant extracts from the decision:

“6. It would be evident from the above paragraphs that the appellant/plaintiff had averred the following:-

1. That the plaintiff/appellant received a cease and desist notice from the defendant alleging infringement and passing off of its trade mark HERITAGE;

2. That the defendant had started selling rice under the trade mark HERITAGE;

3. That in the notice dated 4.3.2011 issued by the defendant to the plaintiff, the defendant had stated that the goods of the defendant under the trade mark HERITAGE were being sold or supplied directly or indirectly throughout the length and breadth of the country;

4. That in view of the statement made by the defendant/respondent in the legal notice dated 4.3.2011, the plaintiff/appellant stated that the defendant had admitted that it also sold and supplied goods directly or indirectly in Delhi as Delhi would be included in the length and breadth of the country.

7. On the basis of the above four aspects which have been clearly and categorically averred by the plaintiff/appellant in the said plaint, it has been contended that this Court would have territorial jurisdiction to try the Suit even in respect of a passing off action apart from an action based on the cease and desist notice itself.

8. It is well settled that in examining the case from the stand point of Order 7 Rule 10 CPC the plaint must be taken as it is and the averments made therein must be accepted as true. Only if, on assuming the averments made in the plaint to be true and correct, the Court comes to the conclusion that it would not have territorial jurisdiction, could the plaint be returned for filing the same in a Court having jurisdiction. The Court while examining this aspect of the matter cannot go beyond the facts stated in the plaint. In other words the Court cannot examine any defence contained in the written statement filed on behalf of the defendants. The principles for rejecting a plaint under Order 7 Rule 11 or returning a plaint under Order 7 Rule 10 CPC, are more or less similar. Observations of the Supreme Court in the case of Exphar SA v. Eupharma Laboratories Ltd., A.I.R. 2004 SC 1682 are apposite and they are reproduced herein below:

"9. Besides when an objection to jurisdiction is raised by way of demurrer and not at the trial, the objection must proceed on the basis that the facts as pleaded by the initiator of the impugned proceedings are true. The submission in order to succeed must show that granted those facts the Court does not have jurisdiction as a matter of law. In rejecting a plaint on the ground of jurisdiction, the Division Bench should have taken the allegations contained in the plaint to be correct"

Para 6 of the decision reveals that territorial jurisdiction was sought to be established by the Appellant/Plaintiff on the basis of the statements made by the Respondent/Defendant in the latter’s cease and desist notice to the Plaintiff that its goods bearing the impugned trademark were available “directly and indirectly across the length and breadth of the country”. The Court held that territorial jurisdiction could be established at the prima facie stage on the basis of such statements. Below is the relevant observation of the Court:

“13. Ms Prathiba Singh, the learned senior counsel, also pointed out that while in paragraph 26 of the plaint there is mention of the „cease and desist‟ notice dated 04.03.2011, there is also mention of the appellant’s / plaintiff’s reply to the said notice dated 19.04.2011 where the plaintiff has denied the statement of the defendant in the said notice dated 04.03.2011 to the effect that the defendant sold or supplied, directly or indirectly, the goods bearing the trade mark "HERITAGE" throughout the length and breadth of the country. However, we feel that this does not enable the respondent / defendant, at this prima-facie stage, to detract from the position that the respondent / defendant had, in the said notice dated 04.03.2011, clearly stated that it had sold the goods under the said trade mark "HERITAGE" directly or indirectly throughout the length and breadth of the country which, obviously, would include Delhi as well. Whether the respondent / defendant can explain this admission and explain the circumstances so that it is not bound by it is a matter for trial. But at this prima-facie stage, the appellant / plaintiff has founded his cause of action on passing off on this admission on the part of the respondent / defendant and it is immaterial that the appellant / plaintiff had in its reply to the notice taken a contrary view.”

One critical lesson that could be drawn from the decision is that statements must not be made in a legal notice without application of mind and without understanding their legal implications in a court of law.