Interim Injunctions: What’s The Damage? – Part II

[This post was co-authored with Praharsh Gour. This is part II of our two-part post on interim injunctions. You can view Part I here.]

In our previous post, we summarized some of the many issues with interim injunctions in high-tech patent matters. We also pointed to an earlier suggestion of doing away with the interim phase altogether. We highlighted that aside from the possible pro-patentee bias in the grant, there is also the issue of public interest perhaps not being sufficiently being accounted for. And finally, we also pointed out that in the pharma sector in particular, there is good reason to believe that a high number of patents are erroneously granted in the first place, further exacerbating problems caused by unfair and long-lasting interim injunctions.

As explained by the Delhi High Court in Shenzen OnePlus Technology Co. Ltd. v. Micromax Informatics Ltd., “…A delicate balance has to be struck between the right of the plaintiff and the right of the defendant at the stage of granting an ad-interim injunction. Only if a Court were to find that so grave and so irreparable is the injury that even a day’s delay cannot be brooked, and so strong is the prima facie case made out, only then would a Court be justified in granting an ad-interim injunction…” Thomas covered the case and the subsequent appeal here and here.

The Delhi High Court recently reiterated in Natco Pharma v. Bayer Healthcare (2019) that for an interim injunction to be granted, discussion of the necessary factors i.e. prima facie case, balance of convenience and irreparable hardship (and public interest when necessary) must be present. The order also went on to reject the notion that interim injunctions are to be granted as a matter of routine. Pankhuri and Bhavik have discussed this order by the Division Bench here. 

However, as several other cases have shown, it would still be quite a large assumption to think that all is now well. For instance, just this year, the Delhi High Court granted an interim injunction in Novartis Ag v. Sun Pharma Industries (2020), where, despite holding that the three factors had been established, the court still had not recorded its reasons for reaching this conclusion, nor did it mention the public interest factor. Namratha has analysed this court order here. 

Currently, measures taken by defendants usually include applying for the vacation of interim injunctions or post-grant opposition or counterclaims for invalidity of the suit patent. While oppositions or counterclaims will take time, getting an order for vacation of interim injunction, (especially ex-parte interim injunction), under Order 39 Rule 4 of the Civil Procedure Code, is  “a herculean task”, as noted in an obiter by the Delhi High Court in Microsoft v. Dhiren Gopal (pdf), covered by Saahil here. (Side note: In the 2014 Enercon decision, the Supreme Court clarified that multiple remedies could not be pursued simultaneously at different fora. Aparajita and Shamnad had discussed this in detail here, and here and here respectively.)

When it comes to ex-parte interim injunctions, if the injunction continues for more than 30 days (without reason), defendants can appeal to have the injunction vacated/modified, as held by the Supreme Court in A. Venkatasubbiah Naidu v. S. Chellappan and Ors. The Court also went on to say, “In appropriate cases the appellate court, […] may suggest suitable action against the erring judicial officer, including recommendation to take steps for making adverse entry in his ACRs”. (Note: there are possibly different interpretations on course of action in these situations, as held in Shri Westarly Dkhar And Ors v. Shri Sehekaya Lyngdoh). 

Bonds and Damages: A Quantum of Solace? 

In situations where the courts decide they must go ahead with an injunction, there are two (seemingly underutilised)  measures available, which can be resorted to as a counter-balance to the limitations discussed in the previous post- of time, high error rate, lack of expertise to rely on, etc. Having such safeguards in place isn’t essentially questioning the capability of the courts in any manner but rather is arising out of the nature of interim injunctions. As said interim injunctions are supposed to be equitable in nature, it is expected that the power to issue interim injunctions comes with a larger responsibility that no untoward loss occurs to any of the parties. 

i) Deposit of a security bond with the court 

As described above, there are situations where an interim injunction not only restrains the defendant from doing business for a long period of time, but also deprives the public of more affordable, and critical medicines. A security bond obligating the plaintiff to deposit an amount upfront for the potential loss to the business of the defendant, and, as we would suggest, potential damages to public interest, not only provides some remedy to the defendant in case of wrongful interim injunction, but also keeps the plaintiff in check, to approach the court with demands of interim injunctions in only apt situations. If the security bond has a ‘damages in case of harm to public interest’ component, this could be directed to a patient group or some relevant NGO. 

The above alternative of asking for a security may or may not fit in non pharma/medicine situations/sectors and it would be open for the court to decide on this. Order 39 Rule 2(2) of the CPC prescribes the discretionary power of courts to put in place terms on the grant on an injunction, including keeping accounts, giving security, or any other manner the court thinks fit. The Supreme Court in Raunaq International Ltd. v. I.V.F Construction Ltd. has discussed this requirement:

“The party at whose instance interim orders are obtained has to be made accountable for the consequences of the interim order. … the petitioner asking for interim orders, in appropriate cases should be asked to provide security for any increase in cost as a result of such delay, … in consequence of an interim order. Otherwise public detriment may outweigh public benefit in granting such interim orders. Stay order or injunction order, if issued, must be moulded to provide for restitution”. 

In fact, we can see this approach in other jurisdictions too, presumably because the TRIPS Agreement in Article 50 (3), mandates that judicial authorities are given the power to order the applicant (patentee) to provide a “security or equivalent assurance sufficient to protect the defendant and to prevent abuse.”  

Practices in China and USA, ranked no 1 and 2 in terms of patent applications filed as well as granted, are also worth looking at. In both these countries, it appears to be mandatory for applicants to deposit a security bond with the court, for potential damages occurring to the defendant due to a wrongful injunction order. In the US, the defendant must prove that the damage accrued from the injunction to avail the security bond (see Buddy Systems Inc. v. Excer- Genie, Inc.). Whereas, Chinese laws prescribe strict liability, which means that the defendant will be eligible for the monetary compensation out of the bond if the final decision of the court is in its favor (see this piece by Hui Zhang et. al for a summary on China’s law on interim injunction). Huang Chih Sung has discussed patentee’s liability in China, USA and Taiwan in depth, in cases of wrongful interim injunctions in his paper available here.

Though Indian courts have occasionally availed this method (or an undertaking to the same effect), it seems to be a rare occurrence. Given the frequency of loosely granted patents, as well as grant of interim injunctions – it may be a step in the right direction to require a security deposit to ensure that flimsy interims aren’t requested, as well as to provide more confidence with which injunctions, when necessary, can be granted. 

ii) Compensatory Remedy

The Delhi High Court in Himalaya International Ltd. v. Himalaya Drug Company (2017), elaborated the remedy under Section 95 of the CPC, which provides for compensation to the defendant where a temporary injunction has been granted on insufficient grounds. The court however cautioned that the defendant is to institute a counter suit for recovery of damage only after final determination of the previous suit, for it to have a prima facie case. The court further clarified that this remedy will not affect the remedy to institute a fresh counter suit. In the (presumably few) scenarios where there is a provable case of malicious prosecution, Section 35 A of the CPC read with Section 95 also gives power to the court to ask for damages. While the Indian Supreme Court has interpreted the remedy under Section 95 to be limited to INR 50000, the Single Judge bench of Delhi High Court in the Himalaya International decision clarified that “ Though, I entertain doubts whether a suit for recovery of damages on account of obtaining wrongful injunction would qualify as a commercial dispute but if it is so ….following the parity of reasoning as in deletion of Section 35A(2), in commercial suits, the maximum compensation which the Court can award for obtaining injunction on insufficient grounds, cannot be Rs.50,000/- as provided in Section 95(1) of the CPC.”  

Courts in other jurisdictions have utilized similar provisions too. Prof Thomas Cotter, in his blog posts here and here, has discussed the remedies available in case of erroneous injunctions in certain other jurisdictions. Most notable in his examples is the €3.65 million in damages from a French court in  Laboratoires Negma SAS v. Biogaran SAS due to a preliminary injunction of a patent that later found to be invalid, together with abuse of proceedings claim. Similarly,  Scandinavian courts for instance have explored compensating defendants for losses accruing out of wrongful interim injunctions. And as discussed by H.C. Sung  in his paper, mentioned above, US courts have indicated that if the defendant is able to establish the plaintiff’s mala fide intentions to institute the suit, then the plaintiff’s liability shall not be limited only to the amount filed as the security bond, but can extend over and above it.  

Conclusion

As long as interim injunctions continue to flow, this discussion of what safeguards to take against erroneous injunctions will continue to be relevant.  The larger question though is whether courts believe they should take precautions against the giving of erroneous injunctions. The number of times that courts have advised caution suggests that they at least believe other courts may be treading this zone. 

Requiring security bonds or undertakings from plaintiffs seems like a viable “middle path” which resolves the question of whether an injunction is erroneous or not simply by imposing it as a condition for which one party can ask another party to suspend activities without final resolution. It ensures that serious plaintiffs are taken seriously, and that defendants have a realistic way of compensation should it turn out to be necessary. Since the language of Rule 2(2) makes it a discretionary power, it can also be suggested that courts should be open to the alternative of issuing interim injunctions in situations where the plaintiff voluntarily submits an undertaking, assuring to compensate the wrongful consequential damage to the defendant. 

To sum up, our takeaways bring us to roughly the following suggestions for courts to consider: 

1. Bypass the interim phase altogether. If this is not feasible: 
2. Turn down the request for interim injunction in lieu of the defendant maintaining books of accounts (this assumes the plaintiff has shown everything except irreparable loss).
3. If the plaintiff has satisfied the irreparable loss criteria as well, then grant an injunction on the condition that a security deposit is granted (one that takes into account potential harms to public interest as well).
4. If there are genuine economic reasons for the plaintiff to be unable to furnish the security deposit, then require an undertaking to pay.