Punitive Damages and the Defendant’s wealth : An overlooked nexus?

In a recent matter before Justice Manmohan Singh of the Delhi HC, the plaintiff, Honeywell International Co. was granted a permanent injunction restraining infringement of their trademark. They were further awarded punitive damages in addition to cost of proceedings, to the tune of three lac rupees. The case itself is not a complicated one and interested readers can check the order directly for more details on it. Perhaps, however, the highlight of the judgement in this case is the award of a rather steep amount of pecuniary damages despite the absence of any evidence as to actual damages or award granted thereof. In a recent guest post, Prashant wrote a great piece highlighting some issues in the recent Sholay judgement, (also decided by the Delhi High Court), where punitive damages were awarded even in the absence of actual damages. The reasoning for awarding punitive damages in the instant case is similar to that the Sholay case, with the same judgements being cited by Justice Manmohan Singh in both cases– Time Incorporated Vs. Lokesh Srivastava & Anr and Microsoft Corporation Vs. Rajendra Pawar & Anr.

In his post, Prashant effectively traced the history of awarding punitive damages in Indian IP jurisprudence, pointing out that it first arrived as an American concept imported by the Delhi HC in the Time Incorporated Vs. Lokesh Srivastava & Anr judgement where the judge took the principle from Mathias v. Accor Economy Lodging, Inc. 347 F.3d 672 (7th Cir. 2003), despite the case having nothing to do with trademark infringement and while also misapplying the ruling!

The question of whether punitive damages should be awarded requires the consideration of whether the defendant’s misconduct ‘shocks the conscience’, and has an element of ‘wilful and wanton disregard’, as punitive damages are known to be awarded only in extremely rare cases. In the current case, it appears that the Court has gone on to award punitive damages without looking into the nuances of this borrowed concept.

Since Prashant has already discussed the need for there to be a close link between actual damages and punitive damages before a claim for the latter is allowed, through this post I shall briefly attempt to establish why the financial status of the defendant must be a crucial consideration after the claim has been allowed, in deciding the quantum of punitive damages to be awarded.

Indian trademark laws do not embody any explicit provision pertaining to punitive damages. In the US, while the Lanham Act too does not explicitly provide for punitive damages for infringement of marks, Section 35(a) of the Act allows a Court to award damages above the actual damages – essentially giving the courts the authority to penalize for misconduct.

i-say-we-go-for-the-record-in-punitive-damages-north-carolinaThe question of the extent of punitive damages to be awarded necessitates the consideration of the three ‘guideposts’ recognized by the US Supreme Court in the BMW v. Gore in deciding the extent to which the award is to be allowed – a) reprehensibility of the defendants conduct, b)the relationship between the actual damage and the punitive award and c) the difference between the punitive award and the relevant civil penalties. These have been deemed to be indispensable ingredients of any process aimed at determining the amount of punitive damages to be awarded. However, as acknowledged by the US Supreme Court in Exxon Shipping Co. v. Baker, while US law sets down broad limitations governing the award of punitive damages, it leaves many questions open to be independently considered and decided by state laws. Individual state laws can vary in deciding, firstly, whether punitive damages can be awarded at all, and secondly, the factors that are to be taken into account in considering a punitive damages claim.

It is an established fact that punitive damages are not recoverable by the plaintiff as a matter of right or as an independent form of relief, and are generally awarded only to supplement compensatory damages, with the exact amount being awarded at the court’s discretion. This necessitates the existence of a recognized and established set of standards against which the extent of punitive damages (if deemed necessary) must be examined on a case-to-case basis.

McIntyre. J., in Vorvis v. Insurance corporation of British Columbia quite aptly stated “Punitive damages, as the name would indicate, are designed to punish. In this, they constitute an exception to the general common law rule that damages are designed to compensate the injured, not to punish the wrongdoer”. Where compensatory damages are to be awarded to the plaintiff for actual injury and loss suffered, the defendant’s  financial status assumes no significance because the objective is to put the plaintiff in the same financial position that he would have been in had the tort not been committed, thus making him whole again (Lovelace Med. Ctr. v. Mendez). It is only when punitive damages are to be granted, does this factor actively come into play. The function of punitive damages is associated with punishing the defendant for previous misconduct as well as deterring similar reprehensible activities by others – this purpose is deemed to be achieved only when a duty to pay damages has been imposed on the wrongdoer in proportion to his wealth, or alternatively, profitability of the defendant’s misconduct (Cummings Med. Corp. v Occupational Med. Corp).

In Neal v Farmers Ins. Exch., the Supreme Court of California held that the purpose of deterrence, through an award of punitive damages, will not be achieved if the defendant is able to absorb the award with little or no discomfort. At the same time, the award must not be such that, in light of the defendant’s financial position and the gravity of the particular act, exceeds the level necessary to properly punish and deter. Further, the Illinois Courts’ Civil Jury Instructions and § 11-1-65 (2014) of the Mississippi Code also point to the defendant’s financial condition as a pertinent ( but not mandatory) factor to be considered in assessing the extent of the punitive damages award.

It therefore follows that the extent of additional or punitive damages must ideally vary with the ability of the defendants to pay – punishment cannot be fairly imposed by the Court without knowledge of the wrongdoer’s existing financial condition if a fair decision as to the extent of punitive damages to be awarded is to be arrived at. Where damages are not wealth-calibrated, how will punitive damages be used as an effective deterrent, and especially so in cases where suits are filed against the misconduct propagated by large corporations? Won’t wealthy defendants then have an incentive to continue engaging in actions of serious corporate impropriety, where punitive damages are measured only against the gravity of the act and not also against its net worth? Does it not take more to punish the rich than the poor?

Without evidence of the defendant’s financial position, how will a Court determine whether an award of punitive damages is insufficient, proportionate or excessive? Yes, the defendants had committed infringement, and yes, they were proceeded ex-parte – but that does not, by itself, warrant the award. How does the Court in the instant Honeywell matter make the determination that an award of three lacs is sufficient to achieve the objective of deterrence, without having any knowledge whatsoever with regard to the existing financial position of the defendant, his ability to pay and how much is enough to achieve the goal of deterrence?

Where the legitimacy of a claim for pecuniary damages has (apparently) been recognized by the Court, the next logical step would entail assessing the approximate amount of pecuniary damages to be awarded based on specific considerations. If the Court in this matter has indeed leaned on any such considerations at all before making his decision, why haven’t they been mentioned/discussed in the judgement itself?

To my knowledge, there currently exist no recognized standards in India that can be used by Courts as yardsticks to assess whether the facts in a particular matter warrant an award for punitive damages, and if so, then to what extent.  Would this make it legitimate for the Court to arbitrarily decide when to grant punitive damages and to what extent, simply because there appears to be no legal precedent in the country? Why has the Court not turned to American jurisprudence for further insight in the matter, especially since the very concept of pecuniary damages in IP jurisprudence has been brought to India from the US?

We would love to have our readers share their thoughts on this – if you think there’s an important angle I’ve missed out here, or simply have more to add, please write do write in with your take on this!

My thanks to Swaraj for his inputs.

Kiran George

Kiran Mary George is a Third Year student at ILS Law College, Pune. Her first stint in the world of Intellectual Property law was an internship with a registered copyright society that granted her an insight into the world of copyright in music. Since then, her interest in IPR has taken strong hold, and she enjoys keeping close tabs on developments in the field. She is still discovering her interests, but so far takes a special liking to open access, copyright and trademarks.

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