The 15th Raj Anand Moot Court Competition
The Problem -

FACTS:

A. Krishna Extrusions Pvt. Ltd. (KEPL), a light engineering company, was patentee of an Indian patent and a patent of addition, relating to an improvement thereto (“the Patents”). Both patents were in the field of machinery for making complex plastic extrusions. In the main patent the principal claims consisted of three independent sets of claims: the first five claims were broad and related to the machine itself. The second group of claims 6-9 likewise related to the machine but were more narrowly drafted in relation to the extrusion nozzle and die-mounting; the remaining claims related to a method of making extrusions by means of any such machinery. The patent of addition consisted entirely of product claims to the machine, which were based upon the second, narrowly drafted set of claims in the main patent.

B. KEPL’s in-house development capacity was limited and in developing the machine subject of the Patents, KEPL had at one stage needed the assistance of an independent consultant Shivkumar, in finalising the design of the nozzle feature. Shivkumar was a freelance engineer with considerable experience in the plastic extrusion field. Before Shivkumar undertook his work and before he had been shown any of KEPL’s existing ideas (or development work), KEPL required Shivkumar to enter into a written agreement with them to the effect that:

    (i) Shivkumar would keep confidential all the work which he carried out in connection with the development of the machine for ten years thereafter, and

    (ii) If (as was expected), a patent or patents were granted in India (or elsewhere) as a result of this collaborative development, Shivkumar would make no claim to be named as a co-inventor.

C. The Patents were in due course applied for and before grant, the machine was launched. KEPL had expended a very substantial sum of money in establishing a purpose-built factory, which was dedicated to the production of this machine. The machine was commercially successful - from the start. KEPL manufactured, sold and exported the machines to extruders. A substantial post-sale business arose as a result of the sale of spare parts for these machines. KEPL’s customers included its wholly-owned subsidiary KEPL (Extrusions) Ltd, a plastics extrusion company. In addition, KEPL had granted (and registered in the Patent Register) an exclusive manufacturing licence under the Patents to its subsidiary shortly after the Patents were granted to whom it charged an inflated purchase price - for legitimate tax reasons. Such licence contained known-how clauses, which included the use of engineering drawing made by or under the guidance of Shivkumar, for spare parts.

D. The machines sold by KEPL fell within the product claims of the Patents and use of the machines fell within the method claims.

E. Some two years before the end of the life of the Patents, KEPL’s principal commercial rival Ganesh Plastics, began to offer for sale, sell and export, competitive machines which KEPL believed infringed all its principal product claims and in use, would infringe the method claims. It sued Ganesh Plastics for infringement of the Patents claiming injunctive relief and an inquiry as to damages alternatively an account of profits. Ganesh Plastics denied infringement and counter-claimed for revocation of the Patents on the grounds of lack of novelty and/or obviousness in the light of a single prior art citation. It was agreed that liability (if any) and damages would be adjudicated separately so as to save costs.

F. Because it was KEPL’s exclusive licencee under the Patents, KEPL’s subsidiary was joined as co-plaintiff in the action. At the date of commencement of the action, the subsidiary had not yet begun to exercise its rights under this licence but began to do so shortly after the action had begun, having made full preparation to do so some time before. At the date of judgement, the subsidiary was paying the parent royalty on machines falling within the Patents.

G. KEPL also sued Shivkumar for breach of contract alternatively, breach of confidence and claimed an injunction and damages for breach of contract alternatively, breach of confidence against him. It also sought an injunction and damages for breach of confidence against Ganesh Plastics.

H. KEPL’s action had been assigned to a ‘fast track’ court procedure, which had enabled judgement to be given some six months before the date of expiry of the Patent.

THE FINDINGS AT TRIAL:

  1. At trial, on infringement, the learned judge found that the product claims of the main Patent had been infringed and that use of Shivkumar’s machines for extruding plastic would infringe its method claims. He found that the export models of Shivkumar’s machines infringed the Patent of addition.

  2. On validity the judge held that the first (i.e. broad) set of claims of the main Patent were invalid in the light of the prior art citation. On argument as to the form of order to be made on these findings, KEPL undertook to the court that it would in any event at once seek leave to delete the invalid claims.

  3. The court then considered argument of Patents Act 1970, Sec. 114 (Relief for infringement of a partially valid patent). On KEPL’s undertaking to remove the invalid claims, the judge granted injunctive relief in respect of the valid claims forthwith and ordered the issue of whether the invalid claims had originally been drafted with reasonable skill and knowledge to be assessed at a further hearing. As a result, the learned judge held that though the patentee’s conduct was blameless at the priority date of the Patents, KEPL had become aware of the existence of the prior art citation before commencement of the action and should have sought to amend at an earlier date.

  4. As to breach of contract/breach of confidence, the Court found that Shivkumar had been in gross breach of contract and granted the plaintiffs damages in respect thereof. It also granted injunctions against both Shivkumar and Ganesh Plastics in respect of misuse of confidential information. However the judge held that as Ganesh Plastic’s management had been deliberately misled by Shivkumar as to the role he had previously played in the development of KEPL’s extrusion machine and that as Ganesh Plastics were unaware of Shivkumar’s contract with KEPL, they were not liable for damages under this head.

  5. In the light of these findings, the plaintiffs sought aggravated damages against Shivkumar. The judge held that Shivkumar’s liability in this regard should fall for determination by the Court which in due course undertook the damages enquiry/assessment.

  6. KEPL and its subsidiary sought and were granted an order that permitted “limited discovery” as would enable them to elect between the options of rendition of accounts of profits and damages. After this discovery, KEPL and its subsidiary elected for damages. It was also established as a result of the evidence adduced on “discovery” that Ganesh Plastics held a very large quantity of spare parts for the machines which had not been made in accordance with Shivkumar’s engineering drawings, a fact which Ganesh Plastics alleged was irrelevant at least for the purpose of the patent damages inquiry.

  7. The court granted damages on all counts against the defendants including aggravated damages against Shivkumar. In quantifying damages, the judge used the “royalty rate” yardstick.

The defendants appealed against the above findings in the Delhi High Court on, interalia, the following grounds:

  1. The trial court order permitting the Plaintiffs to seek “limited discovery” so as to enable the Plaintiffs to make a choice between rendition of accounts of profit and damages is not supported by any statutory provision.
  2. The trial court has not used the proper yardstick for determining damages.
  3. The trial court ought to have considered several mitigating factors while granting damages.
  4. The order granting damages for loss of profits of spare parts is again bad in law, as the spare parts are not covered by the patents in question.
  5. Shivkumar argues that he is not liable for damages on account of infringement of patent, since the said infringement was committed by Ganesh Plastics and not by him.
  6. Shivkumar claims that the contract of confidentiality entered into with KEPL amounts to a restraint of trade and is therefore violative of Section 27 of the Indian Contract Act.

Plaintiffs also appeal on interalia the following grounds:

  1. The trial court ought to have granted damages commensurate with lost sales, price erosion damages, accelerated market entry damages, treble damages etc.
  2. The court ought to have granted damages for breach of confidence by Ganesh Plastics as well.