Schneider Electric Industries ... vs Telemecacique & Controls (India) ...
2000 Latest Caselaw 1201 Del

JUDGMENT

Mukul Mudgal, J.

1. This is an application for interim injunction in a suit filed by the plaintiff against the defendant for infringement of its registered patents and designs in respect of electric contactors and its accessories known as 'D2' range. The plaintiff has submitted that the law of patents and design does not permit a third party to claim a concurrent user or even a bonafide user in respect of an infringement of a patent or design. The plaintiff is a French Company manufacturing electrical equipment. The present suit is filed by the plaintiff alleging infringement of its patents in respect of various items including contactors and overload relays.

The defendant in reply to the interim application has pleaded as under:-

a) The plaintiff does not have the locus standi to institute the present proceedings. ,

b). The design registrations relied upon in the plaint have lapsed.

c) Functional shapes or mechanical devises cannot be the subject matter of design registration.

d) The patents are invalid as the patented features are in the nature of obvious improvements.

e) The plaintiffs case is hit by acquiescence, estoppel, delay and laches.

f) The defendant has spent Rs. four crores on the development of improved and allegedly infringing range of products.

g) The court must lift the corporate veil and look at who are the real partners of the Joint Venture.

The Plaintiff was originally known as Schneider Electric S.A. and is now known as Schneider Electric Industries S.A. It is averred that in 1983 a French Company known as La Telemecacique Electric (hereinafter referred to as 'LTE') entered into a joint venture agreement with an Indian party for establishing a joint venture company for manufacturing certain contactors, relays and add on units in India. Consequently the defendant, as Indian Company called Telemecaniqe and Controls (India) Limited was incorporated in 1984 and 38% of the shares in the said company were held by LTE. Pursuant to the relationship between the parties several agreements were entered into between them. One agreement for supply of technical information and another one for technical services both dated 28th November, 1984 were entered into. The Government granted permission to this collaboration agreement. These agreements were to remain in force for a period of 8 years from the date they were taken on record. It is submitted that consequently after 8 years the technical services agreement came to an end on 28th February, 1993. The Plaintiffs case is that this agreement was in respect of the product known as 'D1' range having contactors and enumerated as annexure to the technical information agreement. The relevant information was made available under this agreement to the defendant 1 the year 1985. It is submitted that the obligation under the agreement was an out right sale of the technical information of the products available with the LTE at certain point of time. There was no requirement in the agreement to make available to the defendant any developments or improvements of such technical information which came to be in the possession of LTE after the date of the agreement.

In March, 1984 all rights of LTE vested in Schneider Electric S.A. (the previous name of the Plaintiff) with all rights including patents, and designs. Thereafter LTE merged into the holding company of the plaintiff and such merger was approved on 9th June, 1997. The plaintiffs grievance in this suit is in respect of the 'D2' range of contactors and other products. The Plaintiffs case is that the 'D2' range of products as enumerated in Paragraph 13 of the plaint were new inventions made by it and were not offered to the defendant and were sold in India directly by the Plaintiff through its Indian subsidiary under the name of Telemecacique, formed by the plaintiff on or around 1994. It is averred by the Plaintiff that the defendant started marketing the products similar to the 'D2' range of the Plaintiff and on the plaintiff contacting the defendant the plaintiff was informed that the said products of the defendant are only a modification of the earlier 'D1' contactors and have been manufactured and marketed by the defendant for quite some time.

The defendant's case in short is that under the technical information agreement dated 28th November, 1984 the plaintiff transferred to the defendant company the latest technical information as was available with the plaintiff on the said date in respect of contactors, relays, add on blocks and motor starters. The defendants case is that the plaintiff was bound to give to the defendant improvements or modifications relating to the products. The defendant thus claims that what is termed as 'D2' range of product is nothing but an improvement or modification of the 'D1' range of products and the defendant was entitled to be granted the same in view of their agreement with the plaintiff in respect of the D-l range. It was submitted that the range of products in question was continued to be referred to as the defendant's range of product internationally and only in India it was known as D2.

It is also pleaded by the defendant that as per the agreement between the parties the defendant company alone was authorised to sell the products in India and barring some restrictions, could even sell the products in other parts of the world. It is further submitted that the plaintiff permitted the defendant to go ahead with the development of the improved series of the products and this was assented to by the plaintiffs representative and nominee Shri Rene Alletru in the Board Meeting of the defendant company. Tacit approval of the plaintiff was also pleaded in the reply affidavit to the IA. 8522/99 filed on 15.9.99 by the defendant. It is further submitted that even if the 'D2' products are considered to be new, the defendant was entitled to the know-how relating to such products under the aforesaid technical information supply agreement dated 28th November, 1984 since these were only improvements of the 'D1' range. The plaintiffs plea that the 'D2' range of products was a different one is a deliberate ploy to deny the defendants its rights under the earlier agreement. It is also averred that above Rs. four crores were spent by the defendant for developing the versions alleged to be infringing and this was reflected in the balance sheet of the defendant at the relevant time and consequently the balance of convenience was thus in favour of the defendant and the injunction therefore sought by the plaintiff could not be granted.

In so far as the first plea of the defendant that the plaintiffs design have no locus standi to institute the present suit, it is based on the plea that the true proprietor of the designs was LTE and the LTE on 8th October, 1999 after filing of the suit merely filed a request for the recordal of the change of name from LTE to Schneider Electric Industries. The renewal certificates for all the designs registrations are in the name of LTE. The title could not have passed to the plaintiff unless under Section 68 read with Rule 73 of the Act, LTE had applied within six months for recordal of the deed of the assignment dated 28th March, 1994. The Plaintiffs representation to the controller of designs and patents that there was only a simple change of name from LTE to Schneider Electric Industries is an over simplification. In so far as this plea is concerned the plaintiff has responded by observing that as of today the plaintiff is registered as an owner of the patents in question and the plea of improper registration done by the plaintiff is not a plea which is available to the defendant who is not claiming to be the owner of the patents under Section 107 of the Patents Act. The objection to the person whose name should be on the register could only be taken by persons who claims to be the owner of the invention/patent under question and cannot be raised as a defense to this suit. Significantly no one else is claiming ownership of the patents and the plaintiffs ownership cannot therefore be challenged by the defendant who is an infringer. It is also stated that the defendant having copied the patent could not claim to be a person interested. Prima facie the plea of the plaintiff that there is no other claimant to the patents is sufficient at this stage for not acceding to the plea of the defendant as to the maintainability of this application. The plaintiff in fact demonstration that as of today it is registered as the owner of the patents under consideration in this suit at the interlocutory stage. Furthermore the defendant is not claiming to be the owner of the patents in question under Section 107 of the Patents Act 1979 and all the grounds on which a patent can be revoked under Section 64 of the Act are thus not available in defense in any suit for infringement of a patent unless conditions under Section 64 are satisfied. Section 107 of the Patents Act reads as follows:

"107. defenses, etc., in suits for infringement--(1) In any suit for infringement of a patent every ground on which it may be revoked under Section 64 shall be available as a ground for defense.

(2) In any suit for infringement of a patent by the making, using or importation of any machine, apparatus of other article or by the using of any process or by the impartation, use or distribution or any medicine or drug, it shall be a ground for defense that such making, using, importation or distribution is in accordance with any once or more of the conditions specified in section 47."

The relevant portion of Section 64 of the Patents Act reads as under:

"64. Revocation of patents. - (1) Subject to the provisions contained in this Act, a patent, whether granted before or after the commencement of this Act, may, on the petition of any person interested or of the Central Govt. or on a counter-claim in a suit for infringements of the patent, be revoked by the High Court.......

(2) For the purposes of Clauses (2) and (f) of Sub-section (1) -

(a) no account shall be taken of secret use.......

(3) For the purpose of Clause (1) or Sub-section (1) no account shall be taken of any use of the invention

(a) for the purpose of reasonable trial or experiment only........

(4) Without prejudice to the provisions contained in Sub-section (1) a patent may be revoked by the High Court on the petition of the Central Government, if the High Court is satisfied that the patentee has without reasonable cause failed to comply with the request of the Central Government to make, use or exercise the patented invention for the purposes of Government within the meaning to Section 99 upon reasonable terms........"

However, under Section 64 the following persons may petition the High Court for revocation of a patent namely:

(i) Any person interested

(ii) The Central Government

(iii) The person making a counter-claim in a suit for the infringement of a patent.

The defendant is neither claiming to be the owner of the patent nor has the defendant filed any petition or counter-claim before this Court. The only plea of the defendant is that the registration in favour of the plaintiff is improper.

I am prima facie satisfied that the plaintiffs are the owners of the patents and this plea of the defendant can only be considered in detail at the final hearing of the suit.

In so far as the plea of the lapsing of design registration is concerned, from a perusal of the documents filed by the parties it is clear that the defendant alleged that the Plaintiff had only filed documents showing extension of the term of designing to the second term which expired around May-June 1998 or June-July 1999 and the third renewal of the registration which would make the patents current upto date has been filed by the plaintiff which prima facie demonstrates that the design registrations are valid as of date. Thus this plea of the defendant does not prima facie have merit and cannot be entertained.

As far as the third plea of the defendant is concerned it is submitted that the functional shapes or mechanical devices cannot be the subject matter of design registration. The principal submission in support of this plea is that the products in question have no aesthetic value to the eye and the products are purely functional in nature. Furthermore the products are fitted in control panels and are not visible and any plea of aesthetic consideration does not and cannot arise. The customers buy the control panels containing the contactors and over-load relays on purely functional considerations and utilitarian attributes. In so far as this plea is concerned the Plaintiff has replied that the registered designs of the Plaintiff are in respect of those features which are eye catching and not merely functional shapes or mechanical devices. The plaintiff has relied on a photograph of an industrial unit which shows that the plaintiffs products are visible when installed in factories. Reliance has also been placed on decision Stenor v. Whitesides by the defendant to contend that a design which is not visible cannot be registered and in reply to this plea the plaintiff has submitted that this judgment can be distinguished on the ground that the product in question the design of which was said to have been infringed in the above decision needed to be seen by a magnifying glass and, therefore, the product could not be an eye catching one and thus the above judgment could not apply in the facts of the present case when their product is visible and does not require visual magnification.

The learned counsel for the defendant has also relied upon the judgment reported as AMP v. Utihix 1972 RFC 103 which holds that if the shape of the patented article was merely to make the article work and not to appeal to the eye, then it was to be excluded for the statutory protection and considering the appeal to the eye it was the eye of the customer and not the Court which was relevant.

In so far as the reliance on a judgment of AMP v. Utihix (supra) is concerned, the learned counsel (or the Plaintiff in reply submits that the judgment itself laid down a proposition that the eye to which appeal must be made is not the eye of the Court but the eye of the customer. It is also submitted by the Plaintiff that in the aforesaid case the Plaintiff had admitted that there was no artistic conception involved in the device and there is no such plea in the present case.

The learned counsel for the defendant also relied on Niky Tasha v. FG Gadgets AIR 1985 Delhi 136 to contend that in case the validity of the design is challenged the relief of injunction should be refused.

The learned counsel for the Plaintiff has however sought to distinguish Niky Tasha v. FG Gadgets on the ground that the design involved in that case was a recent one and the Plaintiffs designs are eight years old furthermore there is no claim of prior publication/user by the defendant as was the case in Niky Tasha's case.

After considering the rival pleas I am prima facie satisfied that at this stage the defendant has not been able to make out a case that the Plaintiffs design registrations are for merely functional shapes and "mechanical devices. On a perusal of the photographs of the products of the plaintiff it cannot be said at this stage that the products are merely functional and mechanical. Furthermore the products are visible and at this stage it cannot be said that the purchasers of such products are bound to find that the product is devoid of any aesthetic appeal. Prima facie I am of the view that the registered design of the Plaintiff are in respect of the features of the Plaintiffs' products which are visible to the eye when installed and not merely in respect of functional shapes or mechanical devices. Furthermore the designs of the Plaintiff are more than eight years old and have remained unchallenged for such a long period and the plea of the defendant cannot be entertained at this stage and can only be considered after evidence is led.

The next plea raised by the defendant is that the patents arc invalid as the patented features are in the nature of workshop improvements. The proposition of the defendant in respect of the aforesaid invalidity of the Plaintiffs' patents are as follows:-

"(i) The validity of a patent can be challenged before the High Court,

(ii) Under Section 107, grounds under Section 64 are available as a defense to the defendant, and

(iii) The products patented are in the nature of 'workshop improvements' and not new inventions and reliance has been placed upon the certificate issued by the Prof. Kothari of the ITI, Delhi."

I will first take up the plea relating to the certificate issued by Prof. Kothari. Prof. Kothari's certificate states that the results obtained by him showed that the operational characteristics of the contactors of D(D-1) and T (D-2) range of Contactors are identical. The report also states the physical evaluation after disassembling shows that the vital components are identical though some parts have been modified in the T(D-2) range of contactors as compared to the D(D-1) range of contactors. The said report concludes by saying that the T(D-2) range of contactors are in essence the D(D-1) range of contactors with some improvement and/or modification and cannot be termed as an entirely new product.

The Plaintiff has in rebuttal submitted that D-2 is a new range of products designed to function with the accept direct commands from a computers. Reliance has also been placed on the expert opinion of Mr. Dujardin. In the said opinion, it has been stated that when a recognized and well-established manufacturer designs a new range of products with the goal to replace an older one, its customers have to switch from the old range to the installing and cabling the products. Consequently the external appearance, connections and arrangements are required to be kept as close as possible to the earlier version to get a maximum compatibility with the products user by the customers formerly, especially for replacement and maintenance. Users have to switch "plug to plug" to the new products range. Dimensions, weight are close but different due to the redesign. The said report produced on behalf of the Plaintiff also enumerates inter-alia the following innovations introduced in the DT range:-

"A) Main contactors

(a) The coil has three terminals.

(b) Side mounted auxiliary blocks.

(c) Input overhead modules.

(d) Front mounted auxiliary blocks.

(e) Thermal overload relays."

The said opinion concludes by saying that the D-2 contactors are a brand new design and not a simple evolution of the D range (D-l range).

Thus there are two conflicting expert opinions. On behalf of the defendant Dr. Kothari opines by inference that the D-2 range of products are mere workshop improvements. Significantly the said opinion of Prof. Kothari also states that the D-2 range cannot be termed as an entirely new product (underlining supplied). The Learned Professor has been fair in his assessment and has stated that the product is not entirely new but he has nevertheless certified that the product is a new product though based on improvement and/or modification of the products. In the light of these two conflicting and different opinions, it is not possible at this stage to come to an conclusion that the plaintiffs' products D-2 are mere workshop improvements. Significantly, the defendant itself has set out a case that it spent nearly a sum of Rs. 4 crores to arrive at the D-2 range of products. Even if the defendant's case that it spent the aforesaid sum of money to arrive at the D-2 range of products is believed, it is difficult to prima facie come to a conclusion that mere workshop improvements could cost a amount as high as Rs. 4 Crores. Furthermore the expert opinion of Mr. Dujardin produced by the Plaintiff, has given cogent reasons for some continuity and consequent similarity in the design of D-l & D-2 range of products. He has also catalogued the novel features of D-2 range. Consequently at this stage I am unable to agree with the plea of the defendant that the plaintiffs case for an injunction must fail because the D-2 range products are mere workshop improvements.

It is also necessary to take into the account the fact that if the defendant was of the view that the D-2 range was a mere modification/improvement of the existing D-1 range it was entitled to invoke the Technical Services Agreement as per its own interpretation of this agreement to seek these improvements. Significantly the defendant has neither sought the D-2 range under the agreement for D-l range by any correspondence nor taken any action against the Plaintiff to seek what according to it are the modified designs of the existing D-l range of contactors to which according to its own case it was entitled to. Significantly there is no categorical statement by the defendant that the product developed by it is materially different from that of the plaintiff. This inaction by the defendant to enforce valuable rights which according, to the defendant flowed from the technical services agreement, does not support the plea of the D-2 range being mere workshop improvements which they were entitled to. Significantly the defendant itself by its letter dated 31.3.1999 addressed to the Superintendent of Central Excise described its products questioned by the plaintiff in this suit as its new range. Thus this plea of the defendant cannot also be sustained at this stage.

The next plea of the defendant is that the plaintiffs' case is hit by acquiescence, estoppel, delay and laches, for this purpose, the defendant has sought to place reliance on Board Meetings held on 26.3,1992 and 25.11.1992 wherein the Plaintiffs' representative Mr. Rene Alletru participated. It is necessary for this plea of acquiescence to be considered as it is vital for granting an injunction to consider whether the plaintiff moved the Court with despatch.

The Minutes of Meeting dated 26.3.92 show that Mr. Alletru stated that the D-2 is not an improved version of D-l but a new product.

The following extracts from the Minutes of Board Meeting dated 26.3.1992 and 25.11.1992 are significant:-

"Mr. Rene Alletru stated that D2 and F New are not improved versions of the Company's current product range. He stated that according to TE, these are new products and even if certain parts are common as in the current range of Company's products, the application of new products is much larger than D1."

He further pointed out for the information of the members of the Board that for manufacturing D2, the cost is very high because all plastic parts are totally new which means new moulds, new material and special tolerances. Besides, it is very costly to develop these products since it took several years for TE to develop these products.

Mr. P.R. Khanna expressed the view that TE does not seem to be prepared to give to the Company the know-how relating to these improvements/modifications. He therefore, suggested, if the Company could develop these improved versions itself without receiving the know-how from TE. 25th November, 1992

The Managing Director replied that the development of such improved products would not be difficult for the Company. However, TE is obliged under the agreements between our two Companies to provide the technical know-how for these improvements. He further informed the Board that the Company itself is currently engaged in research and development for carrying out improvements/modifications in its current range of products/The expense on such R&D is totally allowable under the Income Tax Law as Legitimate expense.

Managing Director clarified that it had now become incumbent for the company to develop new products and make improvements in its current products, since it was last achieving saturation point for the sale of its existing version of D-2 F range of Contactors. He further stated that as already discussed at previous meetings, the company had taken steps to manufacture the improved version of Contractors on the lines of the improvements incorporated in D-2 and F now being manufactured by TE. The Company had two options open to it, either to insist that TE supplied to it the know-how for the manufacture of improved version, or to independently develop and implement this know-how. Rather than embark on a powerful coercion or confrontation with its partners, the company had for the present chosen to independently develop know-how to manufacture the improved version.

"After some discussions the Directors were of the view that in view of the foregoing the company proceed with the development of D-2 & F New versions of contactors as previously decided."

These extracts from the Minutes cannot be construed as a permission given by the plaintiff to the defendant to develop its new range of products so as to reproduce the Plaintiffs' D-2 range of products. These minutes inter-alia clearly show the assertion of the plaintiffs representation Mr. Rene Alletru, that D-2 is not the improved version of the company's product range and the defendant had decided to develop D-2 independently after plaintiff had refused to give the know-how to the defendant. Thus the plea of estoppel and acquiescence cannot be sustained at this stage.

It is also necessary to consider the question of laches pleaded by the defendant. Among other things, the defendant has stated that the improved range of D-2 products were exhibited by it in the Elecrama Fair in 1996. The Plaintiff has pointed out, and in my view rightly, that the mere production of a pamphlet of the said Fair filed by the defendant merely demonstrates that defendant bad attended at the Fair and it has not been demonstrated to. the Court that the D-2 range was exhibited at this Fair.

For considering the plea of laches, it is necessary to consider the Letter dated 11.3.1999 sent by the plaintiff to the defendant. The said letter brought to the notice of the defendant that in the last Elecrama Show held in Mumbai, the defendant was displaying and marketing the contactors overload relays, primers and motor-starters corresponding to the plaintiffs' range of products of the D-2 Series. The said letter called upon the defendant to cease manufacture, assemble and the sale of D-2 range of products. In reply to the aforesaid letter, the defendant wrote back on 20th April, 1999. The first serious exchange of correspondence showing the assertion of rival rights between the parties took place in March-April, 1999 and this suit was filed on 6th September, 1999. Significantly since both the plaintiff and the defendant had a collaboration agreement for the 'D1' range of products, the time taken to file the suit cannot be of such significance as sought to be portrayed by the defendant. Another significant fact is that the invoices filed by the defendant on 22.10.1999 prima facie do not appear to pertain the D-2 Range but to D-l Range: Considering these circumstances, the plaintiffs' plea for an injunction cannot be said to be barred-by laches.

In so far as the plea of Rs. 4 crores spent by the defendant on the improvement of range is concerned, the R & D expenses shown by the plaintiff as discernible from the balance sheets filed were in the region of about Rs. 64 lacs for the years 1995-1999. However, a Certificate of their Chartered Accountant was later filed alongwith the written arguments which sought to explain the research and development expenses. In my view, the original R & D expenses, shown in the Balance sheet subsequently been tried to be explained away by the Certificate of Chartered Accountant to plead that the amount spent was in fact Rs. 4 crores. Considering the fact that the R & D expenses are tax deductible as noted in the above extracted minutes of the meetings of the defendant-Company, it is not clear why the defendant did not claim it in its balance sheets. I am of the view that prima facie the defendant has not been able to establish at this stage the expense of Rs. 4 crores said to be incurred by it for research and development purposes for arriving at the D-2 range. The contemporaneous documents at least do not establish this figure of Rs. 4 crores. This explanation was later sought to be given by virtue of a Certificate of a Chartered Accountant dated 11.11.1999. which read as follows:

"We have verified the annexed statement of development expenses incurred on the "T" Range products for the financial years 1992-93 to 1996-97 as prepared by M/s. Telemecacique & Controls (India) Limited with the books of accounts and records produced to us. As per information, explanations and confirmations given to us the expenditure, referred and detailed in the said statement is true and correct in accordance with the books of ac counts produced to us."

In any case even assuming that the expenditure was actually incurred by the defendant, if a patent is violated this is not a valid defense in law. The plea that the defendant's own research enabled it to arrive at D-2 product range independently does not appear to be convincing. The similarity between the rival products is rather striking and it is not possible to sustain the plea of the defendant that the defendant's own research enabled them to arrive at almost identical products. The physical examination of the competing products by me reveals that the differences between the products, if any, are purely cosmetic in nature and in essence the products are the same. Before I part with this case I must note that even at the interlocutory stage without the pleadings being complete, there have been lengthy arguments and voluminous pleadings even at this stage perhaps occasioned by the large stakes involved. I have dealt with the application for interim relief by taking only a prima facie view of factors which 1 consider relevant for the purpose of the interim order and have not considered all the pleas and authorities cited.

In view of the above discussion and considering the fact that a patent is a statutory monopoly and has a fixed time span, I am of the view that the Plaintiff has made out a prima facie case for the grant of an interim injunction in its favour.

In view of the above discussion, I am satisfied that the plaintiff has made out a case for grant of interim injunction and accordingly IA, 8522/99 is allowed and that till the disposal of the suit, the defendants, their agents, servants and assignees are restrained from manufacturing and advertising as its own and selling D-2 range of products of the plaintiff, enumerated in paragraph 13 of the plaint.

The interim application is accordingly disposed. Suit No. 1919/99

List this matter before the appropriate Court on 21.12.2000 for further proceedings, subject to the orders of the Judge-In-Charge (Original Side).