Wednesday, May 03, 2006

Intellectual Property [Damages] - India

Calculating damages
Over the recent months, one of the most debated topics in the Indian IP industry has been the calculation of damages in IP cases and the methodology to be adopted in quantifying damages. The rights holders major concern has been that the law does not impose a sufficient financial deterrence to help the clamp down on infringement and piracy. The Courts decision discussed below provides much needed progressive guidance to rights holders and recognises that the loss of revenue model may not be universally appropriate in determining damages.

Background The plaintiff, The Himalaya Drug Company (THDC) filed the copyright infringement and passing off action (CS (OS) 1719/2000) against Sumit, proprietor of the website THDC has been engaged in the manufacture and sale of Ayurvedic Medicinal preparations since 1930. In 1998 it launched the website with various writes up on ayurveda & ayurvedic herbs etc and integrated a database of a wide variety of medicinal herbs with relevant information, namely HIMALAYAS HERBS.
In 2000, THDC noticed the website, which reproduced their entire herbal data verbatim, information of herbs, and detailed monograph etc. Consequently, THDC filed the action at the Delhi High Court. It obtained an interim injunction order from the Court.
During the trial, apart from the above arguments, THDC pointed out at that the grammatical errors which appear on its website have also been copied by the defendant and the metatag of the source code of the defendants website included the trade mark HIMALAYA DRUG CO. THDC argued that it took more than one year to prepare the database. THDC filed advertisements from the leading newspapers and journals, and computer print outs of email messages in relation to the website to establish its reputation.
In support of its claim for damages, THDC filed an Affidavit prepared by its financial department with a chart of expenditure under three categories 1) manpower 2) website cost 3) average overhead cost; totaling INR794227 (approximately US$17,600).
THDCs argued that since the proceedings were ex parte, the extent of the Defendants business could not be ascertained for computing damages on a loss of revenue basis. However, compensatory damages may be quantified by adopting the principle of what would be the similar cost of creating such a portal if the defendant had not copied the website.
The Court examined the Affidavit and accepted THDCs arguments. It held that THDC spent considerable time, labour, skill and money in preparing the database. The arrangement of features on the website, including the section HIMALAYAS HERBS, get up and look and feel cumulatively constitutes a trade dress and the defendant had attempted to pass off its herbal database, thus violating THDCs rights. The Court consequently passed an order for permanent injunction.
The Court also accepted THDCs request for damages and awarded INR794227 (approximately US$17,600) as compensatory damages. As regards punitive damages, the Court relied upon the decisions in Time Incorporated v Lokesh Srivastava & anr? ( CS (OS) No.2169/1999) and Mathias v Accor Economy Lodging report in 347 F.3d 672 (7th Cir.2003) and awarded damages equivalent to the compensatory damages in order to provide a financial deterrence.
An important tool
As espoused by the Court, damages can become an effective and important tool in the IP right holders? arsenal to prevent misuse. It may present a stronger deterrent to the offenders. In 2005, the Delhi High Court took the bold step of awarding punitive damages for the first time in Time Incorporated v Lokesh Srivastava & anr. Later in Microsoft Corporation v Yogesh Papat and Anr (CS(OS) No. 103/2003), the Court took size of seizure into account to arrive at the loss of revenue in awarding the damages.
Compensatory damages must be measured against actual or foreseeable damages caused by the defendant?s wrongful conduct; the process to assess such damages is so cumbersome that rights holders often give up their claim. Generally, the Courts in India follow the stricter view and insist that damages should be quantified by looking at the profit made by the infringer or loss accrued to the plaintiff on account of sale of infringing product. The reality is that infringers do not maintain records of transactions, making it very hard to quantify damages; which obviously means no financial deterrence to the infringers/ pirates.
The notable point is that while the statute provides too little guidance as to how to quantify damages, judges are bestowed with wide powers to award meaningful damages. In the present case, the Court agreed to assess the compensatory damages by calculating the expenses incurred by the plaintiff for the development of the website in lieu of actual damage caused to them or profit earned by the defendant. While determination of punitive damages is left for the Court to establish on the basis of the degree of infringement, the demand for textual provisions which specifically create checks and balance for assessing the compensatory damages recoverable in IP cases may not be too distant. It also questionable if the Court would have awarded heavy damages, as claimed by the plaintiff, if this was a contested case. Nevertheless, it is indeed a positive step in building damages jurisprudence.
Rodney D. Ryder

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