Understanding Damages and the Obstacles in Recovering Them
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The object of damages is to compensate for loss or injury. In most intellectual property (IP) law disputes, the degree of harm done to the plaintiff is key to evaluating how much they must be compensated through damages. In India, the focus in the early stages of any IP dispute is to seek an injunction to stop the infringement, other than in SEP disputes where the plaintiff would insist on a pro-tem security deposit.
In general, the culture of damages is still developing in India. The focus on IP litigation is the grant of a preliminary injunction. In most cases, the parties arrive at a settlement out of court or through negotiations or other alternate dispute resolution mechanisms once the infringing activity is ceased post-grant of a preliminary injunction. Further, the time it takes for a full trial is also a factor that dissuades IP holders from pursuing the trial for seeking damages.
Factors for calculating damages
The court, when arriving at the damages to be awarded, would consider assessing the following factors, depending upon the facts of the case, including:
- the nature of the patentee’s business and the patented products;
- the distribution of the patented products;
- whether patent is part of SEP;
- the patentee’s loss because of the unlawful sale of the defendant’s goods – the loss must be the natural and direct consequence of the defendant’s acts;
- the time period of defendant’s business and sales made by it during this time period;
- the percentage of royalties or licence fees in the specific domain;
- royalties lost by plaintiff due to the infringement;
- profit earned by the defendant based on non-payment of royalty; and
- actual loss caused to plaintiff or patentee that would have accrued to the plaintiff or patentee from the sale of patented product.
These are broad factors that can serve as a guideline for the plaintiff to collect information and documents to support its claim for damages. The defendant will, of course, challenge the documents and industry trends on percentage of profit margin by bringing its own set of reports and evidence. Further, for licence fees, the defendant may demand to see other such licence agreements signed by the plaintiff.
Damages under the Indian Patent Act
The Indian Patent Act does not define ‘damages’. As per section 108 of the Indian Patent Act, the courts may grant an injunction and, at the plaintiff’s request, either damages or an account of profits in an infringement suit.
Section 11A(7) of the Indian Patents Act 1970 enables a patent owner to claim damages from the date of publication of the patent application. However, the applicant shall not be entitled to institute any infringement proceedings until the patent has been granted.
Damages under the Indian Trademark Act
The Indian Trademarks Act also does not define ‘damages’. As per section 135 of the Indian Trademarks Act, the courts may grant relief in any suit for infringement or for passing off in terms of injunction, damages or an account of profits, together with or without any order for the delivery-up of the infringement labels and marks for destruction or erasure.
Damages under Intellectual Property Rights Division Rules 2021 by the Delhi High Court
A party seeking damages or account of profits must give a reasonable estimate of the amount claimed and the foundational facts and account statements in respect thereof, along with any evidence, documentary or oral, led by the parties to support such a claim.
In addition, the court will consider the following factors while determining the quantum of damages:
- lost profits suffered by the injured party;
- profits earned by the infringing party;
- quantum of income that the injured party may have earned through royalties or licence fees had the use of the subject intellectual property rights been duly authorised;
- the duration of the infringement;
- degree of intention and neglect underlying the infringement; and
- conduct of the infringing party to mitigate the damages being incurred by the injured party;
Overall, the concept of damages and the evidence required to prove the quantum of damages to be awarded by the court for trademark and patent infringement disputes remain the same.
Types of damages awarded by the court in IP cases
Generally, the court awards ‘compensatory damages’ in cases where the plaintiff has suffered damages on account of the defendant’s infringing activities. Compensatory damages are calculated taking into consideration factors such as how old is the defendant’s business, sales made by it during this time period, the percentage of profits in the specific domain, profits earned by defendant based on the turnover and actual loss caused to plaintiff or patentee.
The burden remains on the plaintiff to establish how they have reached the claimed figure and what calculation has been employed, and it must withstand court’s scrutiny.
Punitive damages, aggravated damages, special damages and exemplary damages
Punitive damages are to punish a defendant for their conduct as a deterrent to the future commission of such acts. Punitive damages (also referred to as exemplary damages) are damages awarded, in addition to the compensatory damages, to punish a defendant for outrageous conduct or wrong behaviour and to deter the defendant and others from committing similar activities in the future. Further, they are designed to punish habitual wrongdoers and to prevent them and others from engaging in similar conduct in the future.
The term ‘punitive damages’ was used by the court in a number of trademark cases as discussed below, but was replaced with aggravated or special damages post decision in Hindustan Unilever Limited v Reckitt Benckiser India Limited.1 The court took the stand that punitive damages in the form of punishment was not the function of civil courts. The court instead used the terms ‘special damages’, ‘aggravated damages’ and ‘exemplary damages’. Thus, these terms are used interchangeably when the plaintiff has made a case for grant of special damages by demonstrating that the defendant was wilfully infringing its rights and other factors demonstrating bad faith.
Nominal damages are awarded to the aggrieved party who is able to establish that they have suffered an injury caused by the wrongful conduct of a wrongdoer but cannot offer proof of a loss that can be compensated. The amount awarded is generally a small, symbolic sum.
Calculation of damages
In Koninlijke Philips NV & Anr v Amazestore & Ors,2 the court held that the degree of misconduct by defendants in a civil suit was determinative of the nature of relief to be granted. Hence, applying the principles described above, it was held that the following rule of thumb should be followed while granting damages in cases of intellectual property infringement.
|Degree of malafide conduct
|First-time innocent infringer
|First-time knowing infringer
|Injunction and partial costs
|Repeat knowing infringer that caused minor impact to the plaintiff
|Injunction, costs and partial damages (depending upon on the amount claimed and facts of the case. These will be in the form of compensatory damages)
|Repeat knowing infringer that caused major impact to the plaintiff
|Injunction, costs and compensatory damages
|Infringement that was deliberate and calculated, and wilfully in contempt of court
|Injunction, costs and aggravated damages (compensatory and additional damages) Aggravated damages are over and above compensatory damages. The terms ‘aggravated damages’, ‘special damages’ and ‘exemplary damages’ are used interchangeably by the courts. They signify damages to be awarded where compensatory damages may not be sufficient considering the conduct of the defendant.
Through this judgement, it is clear that the law is well settled that the degree of bad faith conduct has a direct impact on the quantum and nature of damages that could be awarded in addition to a claim for actual or compensatory damages.
Trend of Indian courts of granting punitive damages and supporting cases
The concept of punitive damages has developed in India more in relation to trademark cases, with courts noticing that the defendant purposely stays away from the proceedings in many such cases. Thus, the plaintiff has no material to quantify the damages. In many cases, the defendant does not maintain accounts to determine the actual sales of the infringing goods.
The trend of awarding punitive damages started with Time Incorporated v Lokesh Srivastava,3 where the court granted both compensatory damages and punitive damages for infringement of the trademark. The court awarded the plaintiff about US$6000 for loss of reputation, plus about US$6000 in punitive damages.
Following the Time Incorporated decision, punitive damages were also awarded in the following cases:
- In Hero Honda Motors Ltd v Shree Assuramji Scooters,4 the court took the view that damages must be awarded against defendants who chose to stay away from proceedings of the court, and they should not be permitted to enjoy the benefits of evasion of court proceedings. The underlying principle is that defendants who appear in court may be burdened with damages, while defendants who chose to stay away from the court would escape these damages.
- The Delhi High Court decision in Whatman International Limited v Paresh Mehta & Ors5 dealt with the plaintiff’s trademark and copyright infringement by the defendants despite legal action having been taken against them on multiple occasions. The court considered the defendant’s conduct to be wrongful and accepted that defendants had committed an infringement of the plaintiff’s mark deliberately, consciously and wilfully for a period spanning over 25 years. Repeated legal action had not deterred them. They showed no remorse in the statements recorded. Thus, applying the principles in Rookes v Barnard (supra), the court concluded that this is a fit case for an award of aggravated damages of US$414 million.
- In the 2018 decision of the Bombay High Court of Glenmark Pharmaceuticals v Curetech Skincare and Galpha Laboratories Ltd,6 the court awarded exemplary damages of about US$1,80,857, finding the defendant to be a habitual offender. The decision was based on the fact that the defendant was a habitual offender and operated with a set modus operandi of copying brands of other companies to make profits. The court also observed that the objective of Indian courts to award exemplary damages in IPR cases is to deter the offender from indulging in any infringing activities in the future. The courts can also be expected to be stricter when the infringers are pharmaceutical companies or companies selling drugs. Thus, they can impose much more significant penalties on these companies as exemplary damages along with the usual compensatory damages for infringement of IP and loss caused thereof.
The following table shows damages awarded by the Indian courts in IP matters. All of these are post-2015 decisions and thus reflect current trends in damages being awarded by the Indian courts.
|Vior (International) Ltd & Anr v Maxycon Health Care Pvt Ltd7
Court: High Court of Delhi
Case No.: CS(COMM) 712/2018
Order dated: 12 April 2018
|High Court passed an order of permanent injunction against the defendant Damages of about US$14,000
|Koninklijke Philips NV v Rajesh Bansal and Ors8
Court: Delhi High Court Case No.: CS (COMM) 24/2016 and CS (COMM) 436/2017
Order dated: 12 July 2018
|Compensatory damages: defendants were required to pay royalties to the plaintiff (US$3.175) from the date of institution of the suit until 27 May 2010 and from 28 May 2010 (US$1.90) until 12 February 2015
Punitive damages: about US$7,000
|Merck Sharp and Dohme Corp and Anr v Abhaya Kumar Deepak and Anr9
Court: Delhi High Court Case No.: CONT (CAS) (C) 846/2018
Order dated: 11 March 2019
|Court imposed a cost of US$96,474
Respondents were asked to plant 140,000 trees
|Ferrero SPA and Ors v Ruchi International and Ors10
Court: High Court of Delhi
Case No.: CS (Comm) 76/2018
Order dated: 2 April 2018
|Permanent injunction against the defendants
Court awarded compensatory damages to the plaintiff of about US$14,000
|Whatman International Limited v P Mehta & Ors
Court: High Court of Delhi
Case No.: CS (COMM) 351/2016 & I.A. 5235/2018
Order dated: 1 February 2019
Awarded punitive damages of about US$2,66,750 against the defendants
Also awarded actual cost
|Glenmark Pharmaceuticals Ltd v Curetech Skincare and Galpha Laboratories Ltd
Court: High Court of Bombay
Case No.: Notice of Motion (L) No. 1890 of 2018 in COMIP (L) NO. 1063 of 2018
Order dated: August 28, 2018
|Court granted permanent injunction
Awarded punitive damages of about US$180,900
|Yahoo Inc v Mr Rinshad Rinu and Ors11
Court: High Court of Delhi Case No.: CS (COMM) 668/2016
Order dated: 3 July 2017
Court granted permanent injunction in favour of the plaintiff
Challenges of recovering damages
The above are some of the cases, from a large number of cases, where the Indian court awarded damages to the parties.
However, practically, the recovery of damages from the defendants is a challenging task for the following reasons, among others:
- the infringers are fly-by-night operators, and change location frequently and are not traceable once a summons is served or a search and seizure is carried out at their premises;
- the defendants do not maintain the proper books of accounts and pay taxes to avoid determination of their source of supplies and the real health of business;
- generally, the defendants in many cases do not participate in the case proceeding and change their location to avoid damages award being enforced; and
- the recovery of damages involves the filing of execution proceedings that can be time consuming and expensive for the plaintiff to provide the defendant’s assets that can be attached to recover the damages.
Overall, with the discovery provisions under the Commercial Courts Act, the determination of damages has become simpler considering that the plaintiff can ask the defendant to disclose details of its sales turnover, cost of manufacture and selling price and provide its sales figures or books of account under the discovery provisions.
Further the Commercial Court can impose costs based on the conduct of parties. In determining the cost, the court can consider whether the party has succeeded partially or wholly, whether frivolous claims or counterclaims were made and whether an offer for settlement was unreasonably rejected. The order for costs can include the fees and expenses of the witnesses, legal fees and, broadly, any fees involved in furthering the proceedings. Thus, at the stage of the final decision, the court can order the losing party to pay the winning party’s cost. The winning party must file an affidavit of actual cost incurred with supporting documents.
1 Hindustan Unilever Limited v Reckitt Benckiser India Limited, AIR 2013 CAL 90.
2 Koninlijke Philips NV v Amazestore, (2019) 260 DLT 135.
3 Time Incorporated v Lokesh Srivastava, 2005 (30) PTC 3 (Del).
4 Hero Honda Motors Ltd v Shree Assuramji Scooters, 2005 (125) DLT 504.
5 Whatman International Limited v Paresh Mehta & Ors, 257 (2019) DLT 472.
6 Glenmark Pharmaceuticals v Curetech Skincare and Galpha Laboratories Ltd, 2018
(76) PTC 114 (Bom).
7 Vior (International) Ltd. & Anr. v. Maxycon Health Care Pvt. Ltd, 2018 SCC OnLine Del 8361.
8 Koninklijke Philips Electronics N.V. v. Rajesh Bansal and Ors, (2018) 251 DLT 602.
9 Merck Sharp and Dohme Corp and Anr vs. Abhaya Kumar Deepak and Anr, CONT
(CAS) (C) 846/2018.
10 Ferrero SPA and Ors. v. Ruchi International and Ors, 2018 SCC OnLine Del 8129.
11 Yahoo Inc v Mr Rinshad Rinu and Ors, 2017 SCC OnLine Del 8949.