Award of Punitive Damages by the Delhi High Court: No Method to the Madness

In the realm of trademark law, Indian courts, especially the Delhi High Court, have failed to articulate a set of coherent, uniform, intellectually defensible and legally tenable parameters for computing the amount of damages to be awarded to successful plaintiffs.
To be sure, the problem is not one which is exclusively confined to trademark law. As Prashant has noted, the Delhi High Court’s jurisprudence on punitive damages in IP cases in general is founded upon a fallacious understanding of applicable legal principles and blind reliance on precedents which are completely inapposite for purposes of helping a court decide the quantum of damages.

A recent judgment
by Justice Manmohan Singh, in a case of trademark infringement and passing off, has further exacerbated the problem of courts awarding damages without proper application of mind and has heightened the need for the High Court to survey the damage that its jurisprudence on damages has inflicted upon Indian IP law.

While the case is otherwise quite unremarkable in that it reaffirms well accepted principles relating to trans-border reputation, passing off actions, well known marks and bona fide use, what makes this judgment stand out is the Court’s decision to award 10 lakh rupees to the plaintiff as punitive damages.

Agreeing with the plaintiff’s contention that the word PRIUS, used to denote the plaintiff’s hybrid car, has acquired the status of a well-known mark, the Court granted a permanent injunction, preventing the defendants from using the word ‘PRIUS’ or words such as TOYOTA, INNOVA and TOYOTA DEVICE, which are indicators of the plaintiff’s brand, as markers of their products.

Reasons for grant of damages:

After having conclusively ruled in the plaintiff’s favour, the court embarked upon an enquiry to decide what the most appropriate remedy in this case would be.

In this respect, the court had to adjudicate upon 3 main arguments that were advanced by the plaintiff in support of its prayer for the grant of punitive damages.

First, it argued that the defendants had misrepresented to the court that their use of the words TOYOTA, TOYOTA DEVICE, QUALIS and INNOVA was made honestly in consonance with well accepted commercial practices. By using the plaintiff’s trademarks in a patently dishonest and malafide manner and thereby deceiving customers into thinking that the quality of the defendants’ products would be at par with the plaintiff’s cars, the plaintiff argued, the defendants had substantially eroded the plaintiff’s reputation.

Second, arguing that the word ‘PRIUS’ was used by the defendants only to encash the plaintiff’s goodwill and reputation, the plaintiff contended that the defendants ought to be punished for knowingly using a mark belonging to another proprietor for advancing their own commercial interests.

Finally, it was argued that the defendants’ remarkable transformation from a small manufacturer of automobile accessories and spare auto parts into a large-scale business enterprise was attributable in large part to the fact that they were able to leverage the plaintiff’s reputation by using its trademarks. This, it was argued, was sufficient to prove that the plaintiff was entitled to claim a large portion of the defendants’ sales revenues in the form of damages.

Consistent with its general approach on the issue of damages, the Court accepted the plaintiff’s prayer for the grant of punitive damages and merely reiterated its finding that the reasons offered by the defendants for justifying the use of the plaintiff’s trademarks were unreasonable and unacceptable in support of its determination.

What’s more, the court’s arbitrary determination of 10 lakh rupees as the amount of punitive damages further fortifies the argument, advanced by a number of IP experts, that the Delhi HC’s jurisprudence on punitive damages is nothing but the product of smoke and mirrors.

The Court explained its determination on the ground that the defendants’ sales during the concerned period were worth approximately 40 crores. 0.5% of this amount, i.e. 20 lakh, can be regarded as a reasonable estimate of punitive damages. However, in the facts of this case, the court held that 10 lakh rupees would be the appropriate amount. Nobody knows how the court arrived at the 0.5% figure or why it came to the conclusion that 10 lakh, not 20 lakh, would be appropriate in this case.

The reasoning (or the lack thereof) adopted by the court while crafting an award of punitive damages in this case is virtually identical to the approach followed in the Sholay case that Prashant blogged about here and the Honeywell International case that Kiran covered here. In each of these 3 cases, the court, after ruling in the plaintiff’s favour, proceeded to cite the cases of Time Incorporated vs. Lokesh Srivastava & Anr and Microsoft Corporation Vs. Rajendra Pawar & Anr. In support of the proposition that punitive damages should be granted in IP cases and then arrived at a figure (virtually out of the air) as the appropriate amount of damages.

In addition, this judgment further cements the Court’s tendency of granting punitive damages without even assessing the quantum or desirability of granting compensatory damages which essentially amounts to turning the entire law of damages on its head, as Prashant has noted.

Not only does the Court fail to factor into its analysis the defendants’ wealth and financial status – which should be standard operating procedure while adjudicating upon prayers for the grant of damages, as Kiran has argued – but it also does not assess whether the grant of punitive damages is likely to deter such conduct in future.

Furthermore, it would be pertinent to note that there is no statutory basis for the grant of punitive damages by an Indian court in any IP dispute. Section 135(1) of the Trademarks Act, which was at issue in this case, empowers the plaintiff to ask for the grant of damages or accounts of profits in addition to injunctive relief. This section does not contemplate the grant of punitive damages for at least two reasons.

First, Section 135(1) explicitly uses the word ’damages’ in contradistinction to ‘exemplary damages’ or ‘punitive damages’. If it was the intention of the legislature to allow for the grant of punitive damages, wouldn’t the section have said so? Also, conceptually speaking, damages, unlike fines, serve a compensatory purpose as this article clearly notes. This being the case, it cannot be anybody’s argument that the term ‘damages’ includes within its fold punitive damages.

Second, the Section envisages two alternative and mutually exclusive remedies: Damages or accounts of profits. Accounts of profits is an equitable remedy in which the defendant is directed to pay to the plaintiffs the profits flowing from the infringing activity. If one applies the canon of noscitur a sociis, which makes it clear that words in a statute must derive their meaning from the context in which they are used, it becomes clear that the Act envisages the award of damages as nothing more than 1 of two possible remedies to restore the plaintiff back to the position where it would have been had the infringement not taken place.

Grant of Punitive Damages in other Jurisdictions:

As a closer scrutiny of the legal regimes governing the grant of punitive damages in other jurisdictions unequivocally indicates, India’s approach to the grant of such damages is an aberration and merits urgent reconsideration.

In the UK, the two main principles governing the grant of damages in trademark infringement cases are: First, the plaintiff has the burden of proving the losses suffered by it that merit the grant of damages. And, second, the central goal animating the remedy of grant of damages is the compensation of the plaintiff for the losses suffered by it and not the punishment of the defendant.

Similarly, Article 13 of the EU Directive on the Enforcement of Intellectual Property Rights sets forth the factors which courts must take into consideration while calculating the amount of damages. While the list includes such factors as the negative economic consequences flowing from the infringement or the loss of profits suffered by the plaintiff, there is no mention of the use of damages as an instrument to deter the misconduct of potential defendants in future.

In France, while the discretion of judges to grant damages is uncanalized, they are empowered to grant compensatory, and not punitive damages.

In fact, as this terrific paper by Faegre and Benson LLP on the grant of punitive damages in trademark infringement cases indicates, no major jurisdiction except the U.S. allows for the grant of punitive damages in trademark cases. Even in the US, the Lanham Act does not envisage the grant of punitive damages, but some state laws provide a legal basis for the imposition of punitive damages, typically up to 3 times the amount of actual damages, when the high threshold for the grant of such damages is met.

Remedying the damage caused by the grant of punitive damages: suggestions for reform

As this excellent paper by Eashan Ghosh on the grant of damages in trademark infringement cases by the Delhi HC from 2005 to 2014 indicates, the jurisprudence of the court as regards the grant of damages is mired in considerable confusion and lacks a sense of continuity or uniformity.

It would be profitable to set forth the 3 questions that Ghosh urges the Court to consider for making the process of quantifying damages more legally robust and mathematically defensible.

A. Where does the infringement fall to be located on the deceptive similarity continuum?
As Ghosh explains, the answer to this question would lie in finding the extent and scope of the similarity between the two marks.
B. What is the estimated annual capacity of the infringer’s business and how long has the infringer been in business?
The aim of this question is to ascertain the defendant’s wealth and the duration for which it has been using the impugned mark as evidenced by registration certificates or market intelligence reports.
C. Is the infringement of a flagrant or brazen nature?
The answer to this question, as Ghosh notes, should be central to the determination of a prayer for the grant of punitive damages.

In addition to these 3 questions, I think two points should be added.

First, instead of regarding the grant of damages as a logical extension of a ruling in the plaintiff’s favour, the Court must treat this determination as a distinct and discrete enquiry which requires a different factual and legal determination. Only by segregating these two determinations will the Court be able to give this enquiry the attention that it deserves.

Second, instead of mechanically citing the case of Time Inc. and its progeny in every judgment in which the determination of damages falls for consideration, the court must substantiate its conclusion by citing cases whose factual matrix is substantially similar to the facts of the case that the court is confronting. Only by engaging in this exercise will the Court be in a position to bring in a sense of predictability in the way it weighs different factors while computing damages.

If the court is serious about ensuring that its IP jurisprudence is principled and progressive, it must make a concerted effort to undo the damage that its precedents on punitive damages have caused.

PS: Thanks to Prashant Reddy and Rajiv Choudhry for pointing me to Eashan Ghosh’s paper!

Rahul Bajaj

Rahul Bajaj is a fourth year law student at the University of Nagpur. His interest in intellectual property law began taking a concrete shape when he pursued Professor William Fisher's online course on copyright law in the second year of law school. Since then, Rahul has worked on a diverse array of IP matters during his internships. He is particularly interested in studying the role of intellectual property law in facilitating access to education.

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