Recent trends in navigating damages in Indian trademark litigation

Introduction

There is a sufficiency in the world for man’s need but not for man’s greed.

Prefacing a judgment with these poignant words from Mahatma Gandhi, the Bombay High Court took a strict view of the blatant counterfeiting activities by a defendant in a trademark infringement matter and imposed 50 million Indian rupees in costs upon the infringer in Nippon Steel & Sumitomo Metal Corp v Kishor D Jain & Anr (COMIP (L) 383/2019, order date 15 April 2019). In this article, we will delve on the approaches adopted by courts in India in matters such as this for quantifying the damages so awarded.

Intellectual property (IP) cases in India that go through the rigmarole of trial and evidentiary stages are far and few. Parties generally negotiate and settle at a lump sum figure in lieu of costs and damages at pretrial stages, particularly where the infringer is aware that he or she does not have a case on the merits and is likely to be burdened not only with damages but would also have to bear significant costs on counsel’s fees. The plaintiff often also finds it convenient to arrive at such arrangements, partly with a view to reducing expenditure on litigation, and partly due to there being a good chance that the infringer might not have the wherewithal to pay up exorbitant amounts in damages, even if held liable by the court. Consequently, cases where courts get tasked with assessing damages are rare, as any evaluation of damages is supposed to be based on cogent evidence being placed on record by the plaintiff, which must also withstand the court’s scrutiny.

In the past decade or so, courts have become more and more conscious of the expectations of prevailing litigants to be requited for the losses incurred, even where such losses might be difficult to prove, at least insofar as IP matters are concerned. This tonal shift of courts handling IP matters in India is concomitant with the government’s endeavours at improving the efficiency and predictability of the Indian justice system, which is, in turn, aimed at attracting and retaining foreign and domestic investments in the Indian market. Such decisions also help rebuild trust of the businesses and the people alike in the justice system who get reassurance that, at the end of a long and taxing litigation exercise, there is some respite available to them in the nature of damages.

Statutory bases for claiming and quantifying damages

Courts in India are statutorily empowered to grant damages to prevailing plaintiffs in suits for infringement or passing off, in addition to injunctive relief. The Trade Marks Act 1999 (section 135) and the Copyright Act 1957 (section 55) expressly provide damages as a relief in infringement matters, apart from injunctive relief. In trademark infringement and passing off matters, the plaintiff has to choose one of either damages or an account of profits to be produced and an equivalent amount paid by the defendant, but cannot seek both. No such requirement of election in remedies, however, is statutorily incorporated in the Copyright Act, though such a requirement has been read in a few decisions, such as P Lakshmikantham v Ramkrishna Pictures (AIR 1981 AP 224).

Further, under trademarks and copyright law, the defendant is exempt from paying damages and accounting for profits from sales of the infringing products or work or from the passing off activity (as the case may be), if he or she can satisfy the court that when he or she commenced the activity complained of, he or she was not aware of and had no reasonable ground to believe that the trademark being asserted by the plaintiff was registered or was in use (section 135(3)(b)(i) and section 135(3)(c)(i), Trade Marks Act), or that the work alleged to have been infringed by him or her was copyright protected (section 55 proviso, Copyright Act). Further, in trademark infringement and passing off matters, to avail of this exception, the defendant would also have to show that as soon as he or she became aware of the existence and nature of the plaintiff’s right in the concerned trademark, he or she ceased use thereof forthwith (section 135(3)(b)(ii) and section 135(3)(c)(ii), Trade Marks Act).

Some guidance for the methodology to be employed for quantifying damages has been provided in the Intellectual Property Division Rules of the Delhi High Court and the Himachal Pradesh High Court. Both these rules, which are largely pari materia to each other, inter alia, provide that any party seeking relief of damages or accounts of profit from the court shall give a reasonable estimate of the amounts claimed as well as the foundational facts and account statements in respect thereof along with any evidence in support of such claim. The evidence in this regard can be either documentary or even oral. Pertinently, the rules also provide some factors that the court shall keep in mind while determining the quantum of damages, which include lost profits suffered by the injured party, profits earned by the infringing party, the estimated amount in royalty and licensing fees that the injured party may have earned had use of the subject IPR been duly authorised and the duration of the infringement. Similar guidance is, however, not available under the procedural rules of other high courts that have dedicated IP divisions, namely, Calcutta and Madras.

Damages must be substantiated with evidence

As previously stated, the plaintiff can seek either payment of damages or account of profits from the defendant as relief in a trademark infringement matter. Since account of profits involves a lengthy process of verification of the defendant’s account books, which might or might not be properly maintained, parties often opt for damages for losses suffered due to the complained infringement. However, the claim for damages must be based on cogent evidence, and the onus of proving that the infringer’s activities have resulted in a loss, which need to be made good by the infringer, remains on the plaintiff who seeks recoupment of such losses.

In a recent judgment handed out by the Delhi High Court in a trade mark infringement suit, which saw culmination of a trial stretching over three decades, the court clarified that any award of damages in a trademark infringement suit ‘must be predicated on substantive examination of evidence that justifies the quantum of’ the claimed compensation in Kabushiki Kaisha Toshiba v Tosiba Appliances (2024:DHC:6178 (paragraph 138)). The court also observed that, to justify the claimed damages, the plaintiff ought to present compelling supporting evidence, which could include a reasonable estimate of the claimed amount, foundational facts and account statements, to help establish how the claimed figure was reached. With these observations, the court refused the plaintiff’s claim for damages of 2.5 million Indian rupees. The court turned down the plaintiff’s attempt at determining the quantum of payable damages by extrapolating the defendant’s sales data and estimating the profits earned from sale of the infringing products, deeming it to be speculative and unacceptable. However, keeping in mind that the trial in the suit stretched to over three decades, throughout which period the defendant continued selling the infringing products, and considering that the infringement by the defendant was blatant, the court awarded nominal damages to the tune of 1.5 million rupees.

The above case authoritatively lays down that, in contested matters, where both parties are appearing and subject themselves to the decision of the court, it is for the plaintiff to lead cogent evidence and satisfy the court that the sum claimed in damages is grounded in losses actually suffered on account of the defendant’s infringing activities.

Ascertaining damages in absence of evidence

Often, however, defendants recluse from appearing in court to avoid accounting for the profits made from their infringing activities, or to escape being burdened with damages. In such cases, it becomes impossible for the plaintiff to claim compensatory and actual damages as there is no evidence on record to show the extent or magnitude of sales made by the infringer, which could act as the basis for quantifying damages, making it inevitable to indulge in some estimation or extrapolation of the profits earned by the defendant from the infringing activities.

In a consolidated copyright and design infringement and trade dress passing off case, the Delhi High Court accepted the plaintiff’s evaluation of damages based on the estimated sales of the infringing products made by the defendants and awarded compensatory damages to the tune of 6.996 million Indian rupees and 14.575 million Indian rupees, payable by the importer and manufacturer of the infringing products, respectively (Koninklijke Philips v Amazestore (2019:DHC:2185)). The court arrived at this estimation by multiplying the total number of infringing products imported and exported into India with the retail price of the products mentioned on the product packaging, taken over a period of five years, estimating the profit margin on each sold product at 20 per cent.

Pertinently, in the same case, considering the defendants’ repeated and wilful infringement of the plaintiff’s rights and their deliberate and calculated contempt of the interim injunction order passed earlier in the matter, the court also awarded exemplary damages to the tune of 5 million rupees payable by both the defendants, over and above the actual damages. Notably, the court also propounded an illustrative guide of factors that courts could keep in mind while granting damages against infringers.

The above chart on calculation of damages has formed the basis of award of damages in many subsequent cases and offers a useful guide for courts to follow in dealing with infringement matters.

Additionally, in the absence of any oral or documentary evidence that could assist the court in estimating damages, and where the infringer does not appear, or stops appearing after some time, courts have placed reliance on the report filed by the local commissioner (a court officer tasked with conducting a search and seizure procedure at the defendant’s premises, appointed pursuant to an Anton Piller order). Courts are mindful that a defendant, who does not appear despite knowledge of the court proceedings and does not file evidence as to actual sales of the infringing products, cannot be allowed to take advantage of non-appearance and be in a better position than if he or she were to appear. In such cases, courts have held that the contents of the report filed by the local commissioner shall be treated as part of the evidence in the suit itself and shall form part of the record. Based on the seizures made by the local commissioner from the defendant’s premises, and based on even the statements made by the defendant to the local commissioner regarding the sales made by him or her of the infringing products, courts have deduced estimated profits that the infringer would have made from his or her infringing activities, and proceeded to award damages on the basis of these estimations.

In a recent case involving infringement of food products of a well-known Indian brand, involving mala fide copying of trademarks and trade dress of the plaintiff’s products by the defendant, who also abstained from appearing before the court in the proceedings, the court relied on the local commissioner’s report for estimating the average business, which the defendant would have been conducting under the infringing marks and packaging, and awarded a sum of 5 million Indian rupees as cumulative actual and exemplary damages in favour of the plaintiff (Haldiram India Pvt Ltd v Berachah Sales Corporation & Ors (2024:DHC:2517)). In another case, the court relied on the statements made by the defendant to the local commissioner and calculated the profits that would have been earned by the defendant from sales of infringing products and imposed actual damages of 1 million Indian rupees on the defendant (Puma SE v Ashok Kumar (2023 SCC OnLine Del 6764)).

In fact, in an appeal arising out of a case of alleged product disparagement by way of commercial advertisement by a market rival, a two-judge bench of the Delhi High Court ruled that the court of first instance’s decision to not impose any actual damages on the defendant, despite arriving at a finding that the advertisement in question constituted disparagement, was unsustainable (Hindustan Unilever Limited v Reckitt Benckiser India Limited (2014:DHC:620-DB)). The appellate court observed that the single judge’s insistence on the plaintiff to produce evidence to establish that it suffered actual losses on account of the advertisement complained of was incorrect. The court reasoned that, in cases involving the disparagement or slander of goods, some rough and ready calculations ought to be resorted to for calculating damages as it may not be practically possible for the successful plaintiff to quantify the extent of loss caused by the impugned advertisement due to presence of dynamic factors, such as the nature of the product in question, the long-term impact of the advertisement and consumer mannerisms. In fact, considering facts such as the number of times the advertisement was telecast, the expenditure by the defendant on the impugned advertisement and the expenditure by the plaintiff towards advertising its product, the appellate court held the plaintiff to be entitled to 2 million Indian rupees towards general damages.

Factors for awarding exemplary damages

In the same case as above, the appellate court also threw a word of caution at courts awarding exemplary and punitive damages at the drop of a hat in IP infringement matters. The court cautioned that grant of punitive and exemplary damages must be based on the satisfaction of the factors laid down in the seminal decisions of the House of Lords in Rookes v Barnard ([1964] 1 All ER 367) and Cassell & Co Ltd v Broome (1972 AC 1027). The court cautioned that treating awards of punitive damages as an alternative under civil law for dealing with defendants whose infringing activities are of ‘criminal’ propensity, with a view to reduce the burden on the overloaded criminal justice system, as had been suggested in a few previous decisions, was incorrect. The court opined that such an approach would lead to unprincipled and disproportionate judge-centric awards of damages. The court noted that the award of punitive and exemplary damages must be resorted to only where the court is satisfied that actual damages awarded for the defendant’s wrongdoing are inadequate in the circumstances. This reasoning by the two-judge bench has formed the basis of many subsequent courts in deciding against granting exemplary damages. As such, it can be said that the award of exemplary damages can only be in addition to, but never in substitution of, an award of actual damages.

Conclusion

The lack of statutory guidance for courts for evaluating damages under the Indian trademark and copyright statutes has resulted in courts laying down broad criteria for deciding when, and to what extent, shall plaintiffs be entitled to claim damages from the infringers. The decisions in Koninklijke Phillips v Amazestore and the reiteration of the principles laid down by the House of Lords by the two-judge bench in Hindustan Unilever v Reckitt offer valuable assistance to courts for determining quantum of damages to be awarded.

The overall judicial trend is, however, still fraught with lack of uniform and binding principles. Further, the deterrent effect of exorbitant amounts being handed over in damages on infringers is also without cogent empirical evidence. Nevertheless, in appropriate cases, the recent judicial trend dictates that courts are not hesitating any more in granting actual damages, even where direct supporting evidence might not be readily available from the record.

Rights holders can gather assurance from the contemporary judicial approaches in infringement matters, as discussed above, which show that, notwithstanding the lack of statutory guidance for deciding where and how much should be awarded to claimants in actual, nominal or exemplary damages, courts will nonetheless be alive to the pressing need of curbing the menace of infringement and counterfeiting and will chart out a course that best serves the interest of an IP owner who acts in a bona fide manner, within the bounds of settled and globally accepted judicial principles.