Neon Laboratories v. Medical Technologies – First in the market, or first to the registry?

The case of Neon Laboratories v. Medical Technologies came up to the Supreme Court through an appeal from the judgment of the Gujarat High Court on the matter, which had confirmed the Trial Court’s grant of injunction in favour of Medical Technologies Ltd. (‘MT’), against Neon Laboratories Ltd. (‘NL’). MT had filed a suit against NL for injunction, damages and account of profits, on the basis of allegations of passing off. The post discusses the facts and issues of the case.

The Court starts of by noting that while it does not normally entertain appeals against interlocutory orders, ‘leave’ was granted in this case probably because of, in the case of trademarks, the increasingly crucial nature of ad interim injunctions due to delays in Indian courts because of to the docket explosions, often very nearly deciding the lis and the dispute itself Our regular readers may remember that we have discussed the problems with interim injunctions in the context of patents along similar lines earlier in our Interrogating Interim Injunctions series, here.

Since the Court was looking into the issue of the grant of an ad interim injunction, and therefore noted that it had to test the existence of the following three factors in order to reach its decision:

• Whether the applicant, here MT, had established a prima facie case in its favour;
• Whether the ‘balance of convenience’ lay in MT’s favour; and
• Whether there will be ‘irreparable loss or damage’ to MT if the injunctory relief was to be declined.

The dispute centred on MT’s ‘Profol’ drug, and NL introduction and sale of a drug, with the same compound, under the name of ‘Rofol’. Crucially, while MT started using the name ‘Profol’ in 1998 and never registered it, NL registered the trademark ‘Rofol’ in 1992 but didn’t use it till 2004. Therefore, while MT had a prior user date, NL had a prior registration date, complicating the issue. As the Court noted, “In this interregnum, the Plaintiff-Respondents had not only applied for registration but had also commenced production and marketing of the similar drug and had allegedly built up a substantial goodwill in the market for PROFOL”

The question, therefore, becomes one of ascertaining if NL’s prior registration would have the effect of “obliterating the significance of the goodwill” that had been established in this interregnum by MT and its drug. The Court does not answer the question itself, leaving that task for the later parts of the suit, only looking at it from the perspective of a prima facie case in order to ascertain the question of the injunction. In doing so, the Court looked at Section 34 of the Trademark Act. It interprets Section 34 along the ‘first user’ doctrine, stating that a proprietor of a trade mark does not have the right to prevent the use by another party of an identical or similar mark, in cases where the second user commenced prior to the user or date of registration of the mark.

This was, of course, in favour of NL, as they had registered their trademark long before MT started marketing Profol. But the Court took a purposive interpretation of this section, and stated that it was intended to protect the ‘prior user’, here MT, from a proprietor who is not exercising its mark. The Court also noted, in support of this interpretation, that Section 47 of the Act also signals much the same intent, where it allows for a registered trademark to be taken off the register for lack of use. Therefore, the Court noted, the Act does not permit “the hoarding of or appropriation without utilization of a trademark”.

The Court then noted NL’s curious non-use of their trademark for a period of twelve years, even to the extent of not objecting to MT’s use of the mark ‘Profol’, so much so that the legal proceedings in question were started by MT itself, with NL filing against MT later in 2005, succeeding in obtaining an injunction in 2012. It discussed and noted the pre-eminence of the ‘First in the Market’ test, noting that NL’s lack of use of their mark could very well be seen as an abandonment of the same, even noting the possibility that it’s delayed use was to “exploit the niche” created by MT in the market.

Crucially, NL’s counsel attempted to differentiate the case from the precedents of Whirlpool and Milmet by stating that those trademarks had attained a ‘worldwide reputation’, which the mark in question had not. Rejecting this argument, the Court held that “as world shrinks almost to global village, the relevance of the transnational nature of a trademark will progressively diminish into insignificance.” The Court’s pronouncement here, if accepted as precedent, has the potential to directly affect future trademark disputes, with particularly interesting questions of ‘reputation’ and ‘goodwill’.

The Court avoiding making any final pronunciations on the issue, stating that “we must abjure from going into minute details and refrain from discussing the case threadbare, in order to preclude rendering the suit itself an exercise in futility and the decision therein a foregone conclusion“. Therefore, the Court held that MT, the Plaintiff-Respondents, had made a prima facie case that they had already been using their trademark before NL, the Defendant-Appellant, started using its mark. Therefore, on the basis of the ‘first in the market’ test, the Court stated that MT would be entitled to a temporary injunction. The Court then found that the two other the ‘balance of convenience’ and ‘irreparable loss’ were also in favour of MT, since they would suffer from losses if the injunction was granted while the Defendant-Appellant has been injuncted from using the mark Rofol since 2005. On this basis, the Court dismissed NL’s appeal, and allowed the injunction to continue to be in force.

The original order is available here. H/t Mr. Shiwprasad Wanve for bringing this case to our attention!

This post has been corrected to state that the appeal in question was filed by Neon Laboratories, against an injunction obtained in favour of Medical Laboratories, not the other way around.