[This post has been co-authored with Swaraj Paul Barooah].
Putting an end to a 24 year old patent infringement suit, the Delhi High Court has directed Maharaja Appliances Ltd. (the defendant) to pay upwards of 81 lakhs (INR 81,44,925 to be precise) as damages to Strix Ltd. The decision is important on three counts- First, it is perhaps one of the rare decisions where the court has computed notional damage on a “reasonable royalty basis”; Second, it is one of the few patent cases where a decree has been issued by the court after an interim injunction; Third, it acts as the proverbial stick for the defendants who abandon the litigation midway to avoid producing its accounts.
Background
The dispute started off as a heated battle between the parties over the plaintiff’s ‘Liquid Heating Vessels’ patent, which the plaintiff claimed was used by the defendant in its electric kettles. The plaintiff alleged infringement over this while the defendant challenged the patent’s validity for lacking novelty and being obvious. Additionally, the defendant claimed that the plaintiff’s patent was not worked in India; even while acknowledging that it had earlier been purchasing heating vessels by the plaintiff directly! As a further twist, the defendants stated that they changed suppliers after facing some quality issues and switched to an unnamed Chinese supplier, who the defendant claimed had their own patent on the imported vessel.
An interim injunction was granted to the plaintiff in 2009 and through the present judgement, the court decreed the suit in favour of the plaintiff.
Finding on the Validity of the Suit Patent and Infringement
Before getting into the damages calculation – a quick overview of the issues brought up. On the suit patent lacking novelty and obviousness, there were three prior art documents put forward. Two of them were set aside as they were dated after the priority date of the suit patent. Regarding the third prior art document (EP0469758), the court held that though the result of the invention cited in the third prior art document and the suit patent is the same i.e. cutting of the heating of the vessels, the mechanism adopted by the inventions are different.
Regarding non-working, the court pointed to the defendant’s purchase of the products from the plaintiff to hold that the plaintiff commercially exploited its patent by marketing them in India and thus held that the defendant was unable to establish the invalidity of the suit patent. Unfortunately, it appears the Form 27 for those years are not available online, so we haven’t been able to independently check any figures on this.
On infringement, the court relied on Sotefin SA v. Indraprastha Cancer Society and Research Centre stating that to establish infringement, all that is required is to compare the granted claims of the suit patent with the defendant’s product. Doing so, the court held that the defendant’s product contains all the features claimed in the plaintiff’s suit patent.
On the importation by the third party (Chinese supplier), the court held that though the defendant was trying to rely on the principle of exhaustion, it had neither produced any patent nor details of its Chinese supplier. It also turns out that the plaintiff’s corresponding patent has been enforced in China against certain third parties! And thus the court labeled the defendant’s claim as a red herring.
Fantastic Damages and How to Calculate Them?
A legal notice had been issued to the defendant on September 27, 2007 and this was subsequently followed by an interim injunction on September 10, 2009. This was used by the court to issue a retrospective finding that the defendant had been selling the infringing products “openly and intensively” for a period of two years between 2007 to 2009. There were no witnesses produced by the defendant even after filing its evidence by way of an affidavit, which was recorded by the Joint Registrar in 2012, and thereafter the defendant had stayed away from the proceedings. The court took this to mean it was avoiding producing its accounts before the court. Reprimanding this practice, the court first relied on Inter Ikea Systems BV & Ors. v. Imtiaz Ahamed to hold that a party who chooses not to participate in a court proceeding, cannot enjoy the benefits of such conduct. And then on Koninklijke Philips Electronics N.V. v. Rajesh Bansal and Ors. and Rule 20 of the IPD Rules (Page 15) to hold that factors like sales made by the defendant, royalty which the defendant would have to pay etc. can be used to calculate damages. Lastly, the court relied on Gerber Garment Technology Inc. v Lectra Systems Ltd. to hold that when a patentee cannot prove the loss then the same can be allotted on a reasonable royalty basis. This is akin to notional damages, where the court recognises that harm has been done, but due to lack of evidence from the defendant, is unable to know the exact amount.
To check this, the court looked at the following information:-
Defendant’s Kettle cost: INR 1400 (as per an invoice produced by the plaintiff)
Patented heating vessel system: INR 270 (as per the plaintiff)
Defendant’s Turnover (2007): 180 crores (as per a press clipping earlier placed on record by the defendant)
Types of products the Defendant is selling: 18 (as per defendant’s website)
As per this information, the court concluded that there was approximately 10 crores of revenue per product category. Then, “ …, considering that kettles may not be one of the most expensive product categories, the annual sales of kettles are taken at Rs.5 Crores and divided into the two models of kettles sold by the Defendant.”. Using this basis for 2 years (2007-09), it arrived at a total amount of INR 5 crores of the kettle (with the suit patent) sold. Dividing 5 crores by (INR) 1400, they arrived at 35,700 units of the kettle being sold, with total unaccounted patent costs being 35700x (INR) 270 = INR 96,39,000, with the court writing it as “at least 96,00,000 as profits”. (presumably Nevertheless, acknowledging that this was only a broad estimate, the court then proceeded to award INR 50,00,000 as damages in favour of the plaintiff. In addition to this, following the 2021 Supreme Court order in Uflex Ltd. v. Government of Tamil Nadu & Ors, the court awarded actual costs in pursuing the suit for 15 years as well. This amounted to INR 31,44,925, thus bringing the total amount to an outstanding INR 81,44,925 towards the plaintiff! The order also stated that they are to pay up within the next 3 months failing which the plaintiff would be entitled to recover the amount along with 7 percent simple interest!
This case highlights the issue of parties seriously contesting their claims in IP litigation only till an injunction is granted by the court and abandoning the trial thereafter. While this seems to have happened in trademark law disputes (eg: Starbucks Corporation vs Teaquila A Fashion Cafe & Anr), this seems to be one of the rare (maybe our readers know other examples?) patent law disputes where the court has calculated notional damages on the basis of publicly available information.
