Delhi High Court

Pine Labs Pvt. Ltd. vs Gemalto Terminals India Pvt. Ltd. ... on 8 December, 2009

Author: Manmohan Singh

*            HIGH COURT OF DELHI : NEW DELHI

+          I.A. No. 12825/2009, I.A. No. 13030/2009 and I.A. No.
           14570/2009 in CS (OS) No. 1876/2009

     Pine Labs Pvt. Ltd.                                        ...Plaintiff
                      Through     : Mr. Naveen Goel and Mr.
                                    Mritunjaya Kumar, Advs.

                                  Versus

     Gemalto Terminals India Pvt. Ltd & Ors.             ...Defendants
                    Through : Mr. Sanjay Jain, Sr. Adv. with
                                 Ms. Charu Mehta, Ms. Deepali
                                 Liberahn and Ms. Prabsahay Kaur,
                                 Advs. for D-1
                                 Mr. Jagdish Sagar, Adv. for D-2
                                 Mr. Adhip Iyer and Mr. Praveen
                                 Aggarwal, Advs. for D-3

Reserved on : November 25, 2009
Decided on : December 8, 2009

Coram:

HON'BLE MR. JUSTICE MANMOHAN SINGH

1. Whether the Reporters of local papers may
   be allowed to see the judgment?                      Yes

2. To be referred to Reporter or not?                   Yes

3. Whether the judgment should be reported
   in the Digest?                                       Yes

MANMOHAN SINGH, J.

1. The present suit has been filed by the plaintiff for a decree of

declaration, perpetual injunction and rendition of accounts. The suit was

listed before this court on 7th October, 2009. On that date, this court

granted ex parte ad interim injunction restraining the defendants, their

assigns, licensees, agents, contractors, employees from in any manner

infringing the copyright of the plaintiff in the software known as Version

1.03 for the IOCL Fleet Card Program, from reproducing the work in

any material form and also from creating any third party interest in the

said Version, whether in India or overseas.

2. On filing of an application being I.A. No. 13130/2009 by

defendant no. 1 under Order XXXIX Rule 4 of the Code of Civil

Procedure, 1908 which was listed before this court on 9th October, 2009,

the interim injunction was modified, with the consent of the plaintiff, to

the following extent :

"It is clarified that till further orders the order dated 7th October, 2009 shall not come in the way of the defendant no. 1 continuing to provide services to the Indian Oil Corporation Ltd. Fleet Card Program by use of the software known as version 1.03 or its variant or updated or modified version or in the same manner as the defendant no. 1 has been providing till now."

3. Thereafter, defendant no. 1 filed a suit being CS (OS) No.

2091/2009 praying for the reliefs of permanent and mandatory

injunction, declaration of ownership of copyright and damages for

breach of contract. With the consent of all the parties, I heard the interim

applications in both cases together.

4. By this order, I shall dispose of I.A. No. 12825/2009 filed by

the plaintiff under Order XXXIX Rules 1 and 2, I.A. No. 13030/2009

filed by defendant no. 1 under Order XXXIX Rule 4 and I.A. No.

14570/2009 filed by the defendant no. 3 under Order 1 Rule 10 (2) of the

Code of Civil Procedure, 1908 respectively.

5. Brief facts of the case are that the plaintiff is a software

company duly incorporated under the Companies Act, 1956. Defendant

no. 1 is also duly incorporated and it provides computer hardware

terminals to retail establishments. Defendant no. 2 is a bank which also

engages in installing Fleet Card System for Hindustan Petroleum

Corporation Ltd (hereinafter referred to as „HPCL‟). Defendant no. 3 is a

company appointed by defendant no. 1 to modify and adapt the

plaintiff‟s software.

6. It is submitted that the plaintiff was approached in 2003 by

defendant no. 1 Gemalto Terminals India Pvt. Ltd. (previously named

„Axalto‟) to develop/write certain software and manage the operation of

the Fleet Card Program proposed for Indian Oil Corporation Ltd.

(hereinafter referred to as „IOCL‟). As per the plaintiff, it had previously

written software programs for defendant no. 1 in two matters. With

regard to the present software, a work order dated 17th November, 2003

was issued by defendant no. 1 to the plaintiff wherein it was mentioned

that not only would the plaintiff develop the requisite software but would

also provide services for implementation of the system, including

providing and maintaining server related hardware etc.

7. The plaintiff then developed Version 1.00 in June 2004 and

updated it to Version 1.03 by adding a few additional features and

completed the said work by 16th August, 2004 with a written manual

setting out the entire system specifications.

8. Accordingly, the plaintiff and defendant no. 1 entered into a

Master Services Agreement (referred to as the „MSA‟ for brevity) on

24th June, 2004 which was to govern the agreement/relations between the

parties. It is by reliance on Clause 7.1 of the MSA that the plaintiff is

asserting its copyright in the software as well as the factum of

assignment of the same to defendant no. 1. The said clause reads as

under:

"7.1 Axalto shall be entitled to all property, copyright and other intellectual property rights in the Project Materials which property, copyright and other intellectual property rights Pine Labs as beneficial owner assigns to Axalto. Pine Lab shall advise Axalto in writing and ensure that the Project Materials do not infringe the intellectual property rights of any third party."

9. The relations between the plaintiff and defendant no. 1 were

smooth and cordial for about five years, however, in the year 2009

Defendant no. 1 made a bid for a card program of HPCL, invited by

defendant no. 2. Vide e-mail dated 26th June, 2009 defendant no. 1

informed the plaintiff that it had been awarded the HPCL Fleet Card

Program and that it would be interacting with and customizing the

existing IOCL system, which the plaintiff had in fact created.

10. The plaintiff by its e-mail dated 29th June, 2009 to defendant

no. 1 expressed its willingness to work on the said project. Though the

parties discussed the said project, no consensus was ever reached

between them.

11. The plaintiff, by placing reliance on the aforesaid clause

stated that there was assignment of the copyrighted work owned by the

plaintiff and the intention of the parties is clear in so much as the

plaintiff intended to assign his copyrighted work in the manner stated in

the agreement.

12. Thereafter the plaintiff discovered that defendant no. 1 had

sub-contracted defendant no. 3 to create software for HPCL as the

plaintiff had created for IOCL and the plaintiff realized that the source

code of the IOCL program would be handed over by the defendant no. 1

to the defendant no. 3.

13. It is the plaintiff‟s case that Clause 7.1 of the MSA provides

no territorial or time constraints/ restrictions and therefore, Section 19

(5) and (6) of the Copyright Act, 1957 would apply which states that in a

case of copyright assignment, if no time/territory is mentioned, the

assignment would be valid only for a period of 5 years and within the

territory of India.

14. The MSA, as per the plaintiff, is still continuing but the Work

Order dated 17th November, 2003 executed in respect of the IOCL Fleet

Card System has expired despite the plaintiff continuing to work

thereafter in the hope that a new Work Order with revised terms would

be executed. However, no such new Work Order has been executed by

defendant no. 1.

15. Therefore, as per the plaintiff, no software developed by it

after the expiration of the Work Order, i.e. after 31st March, 2009 with

regard to the IOCL Fleet Card Program would be assigned to defendant

no. 1 and after the expiry of five years the same would in fact, belong to

the plaintiff who would be its exclusive owner, the said software being

reverted back after the expiry of five years as per Section 19 (5) of the

16. The counsel for the plaintiff has argued that as per practice,

after the improvement/modification of the software, the plaintiff used the

source code of its software in the new versions. Hence, the defendant

No.1 after the expiry of five years is not entitled to reproduce Version

1.03 in material form.

17. It is the contention of the learned counsel for the plaintiff that

all earlier understandings and agreements between the parties stood

vitiated by their act of entering into the fresh agreement. The plaintiff

has relied upon clause 20 of the agreement in order to buttress this

argument.

18. The counsel for the plaintiff has also argued that the

defendant No.1 has provided the source code of version 1.03 of the

software to the defendant No.3. Therefore, the present suit has been

filed by the plaintiff as the defendant no. 1‟s act amounts to infringement

of copyright claimed by the plaintiff. Further, the plaintiff became aware

that defendant no. 1 was planning to utilize the same software in Africa,

and the same would be illegal, considering that the assignment was valid

for only 5 years and that too only in the territory of India. The said

utilization of Version 1.03 outside India would be in breach of Section

19 (6) of the Copyright Act. Lastly, the learned counsel for the plaintiff

has admitted that the copyright of all the works of versions 1.03 to 1.08

have been assigned to the defendant No.1 and the versions 1.04 to 1.08

are still valid as per the agreement between the parties and the said

agreement continues without any termination between the plaintiff and

defendant No.1.

19. Clause 20 of the agreement provides as under:

"20. Whole Agreement This Agreement constitutes the entire understanding of the parties with respect to its subject matter and supersedes any prior agreements or understandings or representations (unless fraudulent), whether written or oral. The parties agree that it will not have any right of action against each other arising out of or in connection with any such representation unless fraudulent. All warranties, conditions and other terms implied by statute or common law are excluded to the fullest extent permitted by law."

20. Thus, the learned counsel for the plaintiff states that the

intention of the parties is to be seen from the MSA only. Although, the

plaintiff as an independent contractor assigned the copyrighted work to

the defendant no. 1 as per the agreement, but the said assignment being

silent with respect to the extent of territoriality and time frame, the

provisions of Section 19 of the Copyright Act will come into operation.

21. The plaintiff‟s case is that the cause of action in the present

suit accrues once after 5 years, which is time limit prescribed under the

revert back to the original author i.e. plaintiff and the defendant‟s

continuance of the said acts is an infringement of the plaintiff‟s rights.

22. Defendant no. 1 has, in its written statement, stated that it has

filed CS (OS) No. 2091/2009 against the plaintiff for protection of its

intellectual property rights including copyright in various software

applications; for restraining the plaintiff from claiming and representing

itself as the owner of the said software and from disrupting the business

of defendant no. 1 and for damages.

23. It is defendant no. 1‟s submission that the plaintiff agreed to

assign absolutely the software version that it is now claiming to be the

exclusive owner of and the defendant no. 1 is the equitable owner of the

same. The defendant no. 1 outsourced certain work to the plaintiff with

the clear understanding that all intellectual property rights would belong

to defendant no. 1 and the plaintiff expressly and impliedly

acknowledged and accepted the same.

24. The contention of defendant no. 1 is that as per the plaintiff‟s

own admission, the defendant no. 1 enjoys copyright in Versions 1.04 to

1.08 of the software and in such case, defendant no. 1 would logically

enjoy copyright in the source code contained in all these versions also.

25. A submission made by defendant no. 1 is that Version 1.03 of

the software is not in use by it as Version 2.00 is being used and the

source code of the same was handed over by the plaintiff to defendant

no. 1 on 6th, 19th and 20th August, 2009. Defendant no. 1 has then pointed

out several alleged admissions on the plaintiff‟s part in the plaint.

26. The defendant No.1 has denied the plaintiff‟s allegation of

infringement of copyright as false as the software applications to be used

by defendant no. 1 are completely different from the ones being used by

it currently. These codes are also different from the IOCL Version 1.03

and its subsequent modifications. Further, assuming that the two

softwares are similar, it is the plaintiff‟s case that defendant no. 1 has

27. The learned senior counsel Mr. Sanjay Jain appearing for the

defendant No.1 has also referred para 14 of the plaint wherein the

plaintiff has admitted that the plaintiff had agreed to assign the copyright

in the software development to the defendant No.1. In support of his

contention, the learned senior counsel for the defendant No.1 has

referred clauses 7.2, 7.3 and 7.4 of MSA which read as under:

"7.2 At the request, and expense of Axalto, Pine Labs shall do all such things and sign all such documents or instruments reasonably necessary to enable Axalto to obtain, defend and enforce its right in the project materials.

7.3 Upon request of Axalto, and in any event, upon expiration or termination of this Master Agreement, Pine Lab shall promptly deliver to Axalto all copies of the project material then in Pine Labs custody, control or possession.

7.4 The provisions of this clause shall survive the expiration or termination of this Agreement."

28. Mr. Jain argued that in view of clause 7.2, it is clear that the

plaintiff had agreed to assign all documents/instruments necessary to

enable defendant No.1 to obtain, defend and enforce its rights in respect

of the project materials.

29. The learned senior counsel for the defendant No.1 has argued

that in the absence of execution of an actual assignment document,

Section 19 of the Copyright Act has no application in the facts of the

present case as Section 19 (1) of the Copyright Act lays down the word

„assignment‟ and assignment means it should be expressly in writing.

Therefore, Sections 19(5) & (6) of the Copyright Act are not applicable

in the present case.

30. Mr. Jain, learned senior counsel, further argued that there was

understanding between the parties that defendant No.1 would be called

upon as and when the plaintiff would sign such assignment, deeds,

applications and affidavits etc. which may be required to formally assign

legal ownership in such work to defendant No.1. He also referred

certain correspondence in this regard. It is also argued by him that the

said defendant No.1 is the rightful owner of the copyright in the software

created by the plaintiff for defendant No.1‟s various programmes in

question and thus, the defendant No.1 has the right to call for the formal

assignment of such copyright in accordance with clause 7.2 of MSA.

31. According to the defendant No.1, plaintiff has become

unreasonable and is now trying to take advantage of Sections 19(5) &

(6) of the Copyright Act which is not available to the plaintiff

considering the facts and circumstances explained in the written

statement. It is submitted that as per paragraph 18 of the plaint, the

plaintiff has admitted that MSA continues to be in force and therefore

clause 7 of the MSA has to be given full effect and the Court has to see

the intention of the parties in order to apply clause 7 of the MSA.

32. The Senior counsel for the Defendant No.1 has strenuously

argued that the MSA is not „assignment‟ within the meaning of Section

19 of the Act. Rather, it is submitted that clause 7 of the MSA is an

„agreement to assign‟.

33. Learned counsel for the plaintiff has countered the

submissions of the defendant No.1 by stating that under Section 19 of

the Copyright Act, the plaintiff is the first owner of the copyright and in

view thereof, the defendant No.1 cannot claim any joint ownership of the

software. The learned counsel for the plaintiff has also referred para 7 of

the written statement wherein it is contended by the defendant No.1 that

version 1.03 of the software is not in use at present in any of the systems

of the defendant No.1. His submission is that if defendant No.1 is not

reproducing the work of Version 1.03, then the question of any injury or

hardship to the said defendant does not arise. He further submitted that

at the same time, no material has been placed by the defendant No.1 to

prove that it has stopped using the said version.

34. He has also argued that in view of the evidence produced by

the plaintiff from the website of the defendants after the passing of

interim order dated 7th October, 2009, there is a sufficient material on

record to show that the defendant No.1 is still reproducing the work of

Version 1.03 in material form and the plaintiff‟s application under Order

39 Rule 2A CPC being IA No.14369/2009 in this regard is pending

against the defendants wherein the plaintiff has filed screen shots and

transaction receipts of HPCL drive track plus programme which show

almost complete similarity with the ICOL programme developed by the

plaintiff.

35. The contention of the plaintiff is that the defendant No.1

cannot take an alternative plea under the circumstances as at one hand

defendant No.1 in the written statement has submitted that it is not using

Version 1.03 of the software and at the same the plaintiff has produced

cogent evidence along with its application which shows that the HPCL

Drive Track Plus Programme is almost completely similar to the

plaintiff‟s software.

36. The plaintiff has argued that there is no agreement to assign

between the parties. Therefore, the question of equitable ownership of

defendant No.1 is taking an alternative plea now with a view to try to get

rid of the mandatory provision of Sections 19(5) and 19(6) of the

the MSA as a whole and not in piecemeal by referring the clauses 7.2,

7.3 and 7.4 of MSA.

37. The learned counsel for the plaintiff has also referred the

following judgments :

(i) Macmillan and Company vs. K. and J. Cooper - AIR 1924 Privy Council 75.

(ii) Filmtech Corporation vs. Allied Signal Inc. & UOP Inc.

- US Court of Appeals for the Federal circuit 939 F. 2d 1568.

(iii) Arachanid Inc. vs. Merit Industries - US Court of Appeals for the Federal Circuit 939 F. 2d 1574.

(iv) Autodesk Inc. vs. Dyason - (1992) HCA 2 - High Court of Australia.

(v) Speedplay Inc. vs. Bebop, Incorporated - US Fed Circuit Court of Appeals 98-1527-1528.

(vi) Microfibres Inc. vs. Girdhar and Co. and Ors., 2006 (32) PTC 157 (Del)

After going through the above-mentioned judgments I have found that

the facts and circumstances in each referred judgment are different from

the case at hand as some are pertaining to patent matters and others are

related to abridgement of copyrighted works which do not deal with any

dispute similar to the dispute in hand and therefore, are inapplicable

considering the facts of the present case.

38. With respect to the e-mails written by the plaintiff to the

defendant No.1 prior to period of execution of MSA, the learned counsel

for the plaintiff submits that the correspondence, e-mails etc. exchanged

between the parties have already been superseded in view of clause 20 of

MSA, hence, the same cannot be relied upon by the defendant No.1.

39. This Court has gone through the pleading and documents

filed by the parties and submissions made at the bar and now I shall deal

with the contentions of the parties.

I.A. No. 14570/2009

40. Before dealing further with the interim application relating to

grant of injunction, I shall dispose of the third application being I.A. No.

14570/2009 filed by defendant no. 3 under Order I Rule 10 (2) read with

Section 151 of the Civil Procedure Code. Defendant no. 3 has submitted

that it has no agreement/ work order with defendant no. 1.

41. The cause of action of the present suit arises from the MSA

dated 24th June, 2004 and defendant no. 3 is not a party to the said

agreement. Since defendant no. 3 is not party to the MSA, there is no

cause of action against him. It is contended that defendant no. 3 is

neither a necessary nor a proper party in the present proceedings and its

presence is not necessary for adjudication of the same. In view of these

submissions, it is prayed that defendant no. 3 be deleted from the array

of parties in the present suit.

42. In its reply to this application, the plaintiff has submitted that

this court granted an injunction on 7th October, 2009 restraining the

defendants from infringing the plaintiff‟s copyright in the software

Version 1.03. But defendant no. 3 has violated this order, and for that

reason the plaintiff filed an application under Order XXXIX Rule 2A

wherein notice was issued to defendant no. 3.

43. The plaintiff‟s contention is that defendant no. 1 has

subcontracted the modification of the plaintiff‟s software to defendant

no. 3, which constitutes an infringement of the plaintiff‟s software.

44. Further, in its written statement, defendant no. 1 submitted

that modification work of the software was being carried out by a

company called M/s. COMMDEL Consulting Services Pvt. Ltd. As per

the plaintiff‟s information, the modification work was being carried out

by a company owned by Mr. Amit Verma and Mr. Nitin Gupta. Mr.

Nitin Gupta is the Director of defendant no. 3 and has signed the

application under consideration on its behalf. The plaintiff has now

learnt that COMMDEL Consulting Services Pvt. Ltd. and the defendant

no. 3 company are both being run by the same persons who operate from

the same address and therefore, the plaintiff has filed an application for

impleadment of COMMDEL Consulting Services Pvt. Ltd. as according

to it, defendant no. 3 is using multiple names to avoid detection.

45. The plaintiff has attached Form-32 of Sh. Ram Kanwar

Gupta, Director of M/s. COMMDEL Consulting Services Pvt. Ltd. and

Form-32 of Sh. Nitin Kumar Gupta, Director of defendant no. 3. It is the

plaintiff‟s contention that a glance at these documents would prove

beyond doubt that defendant no. 3 and M/s. COMMDEL Consulting

Services Pvt. Ltd. are connected and operate from the same premises.

Due to the afore-mentioned reasons, the presence of defendant no. 3 is

necessary for effective adjudication of the present dispute.

46. After perusal of the parties‟ contentions, and in view of the

documents attached by the plaintiff, it is not proper to delete defendant

no. 3 at this stage. If necessary, the contentions of defendant no. 3 shall

be considered at the time of framing of issues. Application disposed off

accordingly.

I.A. No. 12825/2009 and I.A. No. 13030/2009

47. In order to decide the interim applications, the present

discussion can be categorized into the following two heads:

(i) Ownership of the plaintiff in the copyright;

(ii) Assignment of the copyright.

I shall be discussing the said heads separately for the sake of

convenience.

48. Before commenting upon the validity of the assignment or

the agreement entered into between the parties, it becomes imminent to

first discuss whether the plaintiff can be conclusively stated to be owner

of the copyrighted works. This discussion of ownership becomes

imperative as it is only the owner under Section 18 of the Act who can

assign either the current or the future work.

Ownership of the plaintiff in the copyright

49. The ownership of the copyright of the software is in dispute

in the present matter. The ownership of the copyright is statutorily

recognized under Section 17 of the Copyright Act which provides for the

rule that the author shall be the owner of copyright, subject to the

provisions of the Act. The said section reads as under:

"17. First owner of copyright - Subject to the provisions of this Act, the author of a Work shall be the first owner of the copyright therein :

Provided that -

(a) In the case of a literary, dramatic or artistic work made by the author in the course of his employment by the proprietor of a newspaper, magazine or similar periodical under a contract of service or apprenticeship, for the purpose of publication in newspaper, magazine or similar periodical, the said proprietor shall, in the absence of any agreement to the contrary, be the first owner of the copyright in the work in any newspaper, magazine or similar periodical, or to the reproduction of the work for the purposes of its being so published, but in all other respects the author shall be the first owner of the copyright in the work.

(b) Subject to the provisions of clause (a), in the case of a photograph taken, or a painting or portrait drawn, or an engraving or a cinematograph film made, for valuable consideration at the instance of any person, such person shall, in the absence of any agreement to the contrary, be the first owner of the copyright therein.

(c) In the case of a work made in the course f the author‟s employment under a contract of service or apprenticeship, to which clause (a) or clause (b) does not apply, the employer shall, in the absence of any agreement to the contrary, be the first owner of the copyright therein.

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50. The stipulations to which ownership of copyright is subject

are Section(s) 18, 19 and 20 relating to assignment, transmission or

devolution of title and other provisions of the Act. Section 17 also

contains a proviso which gives the statutory ownership in certain cases.

Under these circumstances, the ownership is governed by the provisions

of Section 17 proviso and certain other provisions of the Act.

51. Section 17 proviso (c) deals with a situation where the work

is created in the course of the employment of the employer. In such a

case, the work shall belong to the employer who shall be the owner of

the work in the absence of any contract to the contrary. This furthers the

discussion of the issue relating to „contract of employment‟ and „contract

for employment‟, which are clearly distinguishable from each other and

determine the applicability of the section. In the former case, ownership

vests with the employer unless there is agreement/ intention to the

contrary and in the latter, ownership vests with the employee unless

there is an agreement/ intention to the contrary. The degree of control,

supervision, time spent, directions and specifications given by the

employer determines the nature of employment.

52. If we examine the present case from the perspective of a

contract of employment, the ownership of the work belongs to the

defendant no. 1 who was the employer and there is no need to look into

any further agreement or the MSA, which although is disputed by the

parties but is irrelevant for the purposes of the present proceeding and

the ownership in such case will vest with the said defendant by virtue of

the applicability of Section 17 (c) proviso of the Act.

53. It is another thing that the plaintiff in the plaint and in the

agreement has taken the status of an independent contractor, which

means that the plaintiff has created the software for the employer under a

contract for service. The exception to the same is again the intention/

agreement to the contrary.

54. That being the position, if again an examination of ownership

is carried out by applying the contract for service tests, it is apparent that

there is a clear intention to the contrary. Such intention to the contrary

can be inferred by taking into consideration the following chain of

events:

a) Prior to entering into the MSA, the plaintiff wrote an email

communication dated 20th February, 2004 wherein the plaintiff has

stated that the work has been created for a valuable consideration

for and on behalf of the Defendant no. 1 and the plaintiff has been

paid in full and the copyright and other rights vest with the

Defendant no. 1 and the plaintiff does not claim any right in the

same.

b) That the plaintiff himself states that the MSA is an assignment and

that it has assigned the rights including the copyright to the

defendant no. 1 by virtue of the MSA.

55. By giving a meaningful reading to the above, the intention of

the parties as inferred at this stage is that despite there being a contract

for employment, there is an intention to the contrary and the plaintiff

intended to vest ownership in the work with defendant No.1.

56. The courts have time and again examined the existing

documents for arriving at the real intent of the parties. The documents

and their relation with whichever names or howsoever these are stated in

the agreements does not preclude the court from examining the real

intention of the parties for measuring the ownership of the work by

applying the intention test.

57. Similar views have been expressed by the Bombay High

Court in Zee Entertainment Enterprises Ltd v. Mr. Gajendra Singh

and Ors, 2008(36)PTC53(Bom) in the following words:

"44. The proposition is not well founded. There may be cases where a document between the parties indicates the relationship to be either a contract of service or a contract for service but that is not necessarily conclusive of the matter. That by itself would not preclude the court from examining all the facts and circumstances of the case while determining the true relationship between the parties."

58. The plaintiff‟s contention that only the MSA should be seen

and not the prior correspondences and agreements including the email

dated 20th February, 2004 for inferring the real intention of the parties is

rejected in view of the aforementioned legal position. In the later part of

the judgment, I have discussed the validity of the assignment and also its

impact on the parties which shall further crystallize the issue.

59. Hence, at this stage it is suffice to say that prima facie, doubt

can be expressed over the ownership of copyright as claimed by the

plaintiff, be it from the standpoint of the contract of employment or

contract for employment. I shall now discuss the other contentions of

the parties under the next head.

Assignment of Copyright

60. The plaintiff has based its claim of copyright on the software

by stating that the plaintiff has prepared Version 1.03 of the said

software and thereafter entered into the MSA whereby the plaintiff

assigned the said software to defendant no. 1. According to the plaintiff,

the said assignment being silent as to time period and territory, by

operation of the provisions of Section 19 of the Copyright Act, the

assignment would be deemed to be of 5 years and confined to India by

deeming action of law and all the rights (including copyright) therefore

would revert back to the plaintiff. Such right could be enforced against

the defendant for continuance of the act of reproducing the software after

the period of assignment.

61. The learned counsel for the defendant no. 1 however disputes

the said contention and submits that there is a difference between an

„agreement to assign‟ and the actual assignment. The provisions of

statutory assignment under Section 19 of the Act will not apply to an

agreement to assign. He further submits that whether it is an agreement

to assign can be seen from the clauses of the MSA which provide for

certain acts to be done in the future. Thus, according to the Defendant

no. 1‟s counsel, the MSA being an agreement to assign and not the

assignment itself, the provisions of Section 19 of the Act will not affect

any rights under the agreement.

62. In the earlier part of the order, I have expressed prima facie

doubts on the title of the plaintiff on the copyrights. However, now for

the sake of evaluating arguments, I shall proceed on the premise that the

plaintiff has title over the works and on that basis whether there is any

case made out for temporary injunction.

63. Assignment of copyright is one of the modes of acquisition of

title on a copyrightable work. The said assignment of copyright can be

made under the provisions of the Copyright Act and can be subject to

several limits which the copyright owner can impose at the time of

entering into an assignment agreement. As the Copyright Act is

protective legislation because it protects the interests of the authors, the

statute itself provides the limits on the interest passed at the time of

assignment if the assignment is silent on territoriality, time limit etc.

Further, Section 19 prescribes the mode of entering into assignment

which reads as under:

"19. Mode of assignment.-- [(1)] No assignment of the copyright in any work shall be valid unless it is in writing signed by the assignor or his duly authorised agent. [(2) The assignment of copyright in any work shall identify such work, and shall specify the rights assigned and the duration and territorial extent of such assignment. (3) The assignment of copyright in any work shall also specify the amount of royalty payable, if any, to the author or his legal heirs during the currency of the assignment and the assignment shall be subject to revision, extension or termination on terms mutually agreed upon by the parties. (4) Where the assignee does not exercise the rights assigned to him under any of the other sub-sections of this section within a period of one year from the date of assignment, the assignment in respect of such rights shall be deemed to have lapsed after the expiry of the said period unless otherwise specified in the assignment.

(5) If the period of assignment is not stated, it shall be deemed to be five years from the date of assignment.

(6) If the territorial extent of assignment of the rights is not specified, it shall be presumed to extend within India. (7) Nothing in sub-section (2) or sub-section (3) or sub- section (4) or sub-section (5) or sub-section (6) shall be applicable to assignments made before the coming into force of the Copyright (Amendment) Act, 1994.]"

All of the above-mentioned is applicable when there is an

assignment of an existing work. It appears from the conduct of the

parties that at the time of execution of the MSA, both the parties were

unaware about the implication of Section 19 (5) and (6) of the Copyright

Act, 1957, otherwise they would have been a specific clause in the MSA

in this regard. However, in the present case, the parties also dispute

whether the same is a valid assignment or an agreement to assign.

64. There are two types of agreements, one being assignment and

the other being an agreement to assign. It is relevant to mention the

statutorily recognized distinction between the two under the provisions

envisaged under Section 18 of the Act, which reads under:

"18. Assignment of copyright - (1) The owner of the copyright in an existing work or the prospective owner of the copyright in a future work may assign to any person the copyright either wholly or partially and either generally or subject to limitations and either for the whole term of the copyright or any part thereof.

Provided that in the case of the assignment of copyright in any future work, the assignment shall take effect only when the work comes into existence.

(2) Whereas the assignee of a copyright becomes entitled to any right comprised in the copyright, the assignee as respects the rights to assigned, and the assignor as respects the rights not assigned, shall be treated for the purposes of this Act as the owner of copyright and the provisions of this Act shall have effect accordingly.

(3) In this section, the expression, "assignee" as respects the assignment of the copyright in any future work includes the legal representatives of the assignee, if the assignee dies before the work comes into existence."

65. From a bare reading of the section, it is discernible that the

Act recognizes two kinds of assignment, one being assignment of

existing work and the other being assignment of future work. This is one

instance of recognition of such agreements in the statute. Now, we can

take this discussion further to understand the repercussions of both kinds

of agreements.

66. Assignment of copyright in existing work can pass right, title

and interests in the copyrighted work either absolutely or partially. The

said assignment is subject to covenants entered into by the parties which

are determinative factors as regards the absolute or partial interest in the

work. Assignment is also subject to Section 19 of the Act.

67. The other agreement is the agreement to enter into

assignment or agreement to assign future work. The law as it emanates

from various judicial authorities and English law on the subject

recognizes marked differences between the two kinds of agreements.

68. The basic difference in both kinds of assignment is that in the

actual assignment, the interest, whether absolute or partial, passes along

with the beneficial interest. On the other hand, the agreement to assign

or other vernacular for the same being „assignment in equity‟ exists

independent from the actual assignment. The said agreement is termed as

„equitable assignment‟ due to the reason that the said assignment is such

which passes rights and interests in equity to the assignee with the

assignor/author retaining beneficial rights. This generally happens in

commissioned works where the parties enter into agreement to assign

future works. The same is the situation in the present case.

recognize the separation of equitable title from that of the beneficial one.

The authority discusses this issue in the following excerpts:

"5- 168 Equitable title by virtue of contract. There is no limit to the variety of contractual situations in which the parties may agree that the copyright in a work yet to be created will belong to someone other than the first legal owner. Contracts pursuant to which the making of the work is commissioned is the common examples, and are considered separately , below. If the contract contains a valid assignment of future legal title in the work to be created, then the legal title will vest in the assignee when the work is made. Often , however, the agreement is silent or ineffectual to transfer the future legal title but if the intention of the parties express or implied is that a party other than the first legal owner should be entitled to the copyright, then that party will acquire an equitable title in the copyright when the work is made provided that he is entitled to enforce his claim in the equity to have the title vested in him by the legal owner."

Similarly Haslbury discusses this concept of equitable assignment:

"An `equitable assignment' may be created by agreement expressed or implied. An agreement which contemplates that a future document of assignment is to be executed has been held to take effect as an `equitable assignment'. An `equitable assignment' if it purports to assign the whole of the copyright, is not a partial assignment merely because it is equitable. (Halsbury's Law of England Vol. 9 para 870, page 556). The law implies a term that an assigner shall not do anything that will render what he has assigned valueless as by publishing a similar work. Ibid, para 872 page 557)."

Edition), it is stated in para 10.25, at page 337:-

"Ownership in equity can arise in a number of ways; (I)

under an agreement to assign the copyright. Where the work is already in existence the intended assignee becomes the owner in equity if the contract is one which is specifically enforceable."

70. Iyenger in his commentary on The Copyright Act, 1957

(1983 Edition) has also stated (at page 136) that a mere agreement to

assign gives equitable rights, that is, it operates as an equitable

assignment of the copyright; the plaintiff could maintain as equitable

assignee of the copyright, an action for damages for infringement of

71. From the above, it is clear that equitable assignment exists in

cases involving the agreement to assign future work and equitable

assignment generally flows from contractual relations where work is

commissioned. Applying the said principles to the present case, it can

be said that a bare reading of clause 7 of the agreement demarcates the

two interests, the beneficial interest and the equitable interest.

72. The usage of the expression "beneficial owner" in context of

the plaintiff makes the intention of the parties to enter into agreement

clear and unequivocal, demarcating the two interests. The intention

further is clarified once the agreement provides for future obligations of

the parties. It is a matter of fact that MSA was entered into in June, 2004

and future software was developed between June-August, 2004 and

subsequently, at the time of agreement, the software was yet to be

created. The intention is again reflected when the right to enforce is

accorded to the defendant. It is also not disputed that the plaintiff was

paid for the creation of the work. Rather, the plaintiff himself in his

email acknowledged that the plaintiff has been paid with respect to

the creation of the work. Under these circumstances, one can say with

the certainty that the present agreement or MSA is an agreement

wherein intention of the parties, whether express or implied, is such so

as to create inference of equitable title in favour of defendant no.

73. It is further necessary to discuss the status of the right of

equitable owner vis-à-vis legal owner. The relation between the

equitable owner and the first owner is that of a beneficiary and of a

trustee. The equitable owner has a legal right of enforcement by way of

specific performance or declaration asking for vesting of the copyright

title. This becomes a necessary part of the discussion as the present case

is a case involving dispute between the legal owner and equitable owner.

The said relation between the two owners has succinctly put forth by

Copinger in the following manner :

" 5-183. Rights as against legal owner. By definition, except as against a purchaser of the legal title for value without notice, the equitable owner has a right to an assignment of the legal title which may be enforced by a decree of specific performance or perhaps an order vesting the copyright in him."

74. Now I shall deal with the contention of the plaintiff regarding

the reverting back of rights under Section 19 of the Act. I have already

come to prima facie finding that the MSA is an agreement to assign and

that it creates equitable title. The agreement vesting equitable title is

independent and dehors from the statutory legal assignments which

impose impediments of various kinds. This is clear when the assignment

has to be in writing as per Section 19 of the Act but equitable assignment

recognizes oral assignment in the absence of the writing.

75. The said concept of equitable assignment is not new to our

Indian copyright jurisprudence and the same has been recognized by a

Single Judge of this court in Sunil Aggarwal & Anr v. Kum Kum

Tandon & Ors, PTC (Suppl)(1) 709 (Del) wherein the court stated that

even in the absence of assignment in writing, equitable assignment is

permissible.

76. From the above, it can be inferred that an assignment in

equity by its very nature is a creation of equity and is unaffected by

statutory assignment. Section 19 imposes several prerequisites and

conditions which operate on an assignment as per the provisions of the

Act. The assignment in equity is based on the intention of the parties

whether express or implied and is unfettered and unbridled by the

provisions of Section 19. This being the position in the matter, it is not a

convincing submission that by operation of Section 19, the rights of the

plaintiff revert back to it and thus lead to an enforceable right. Equitable

assignment once being out of operation of Section 19, the question of

reverting back of rights does not arise.

77. Last but not the least, if this court examines the point of an

ordinary assignment, even then it is doubtful as to who the plaintiff can

sustain the claim of reversionary right in all the versions of this software.

This is because, it is the plaintiff‟s own case it has developed versions

1.04 to 1.08 based upon the main version being 1.03, the rights of which

have been assignment to defendant No.1 from time to time.

78. It is also the plaintiff‟s case that the plaintiff has developed

Version 1.03 software for and on behalf of the defendant no. 1 and for

undertaking the same, the MSA was entered into by the parties. It is

further the case of the plaintiff that under clause 20 of MSA all previous

understandings, agreement must not be read as the MSA being the last

agreement denotes the intention of the parties.

79. On the other hand, the defendant no. 1‟s case is that the

plaintiff has been engaged for developing the copyrighted works on

behalf of the said defendant and the said defendant relies upon the email

communication dated 20th February, 2004 wherein the plaintiff has

acknowledged that it has been paid full consideration for the creation of

the software and the plaintiff does not claim any right over the copyright

of the works created. The said communication reads as under:

"Pine has developed software based on specifications provided by Axalto. Pine does not make any claim on the IPR‟s of that part of work that has been done by Pine and has been fully paid for by Axalto. Pine recognizes that Axalto intends to make a claim on the IPR of such work and Pine has no objection to such a claim being made. Pine warrants the performance of the work done as per the warrantee clause (to be defined)."

80. Undisputedly, the plaintiff has admitted the fact that the

versions 1.04 to 1.08 assigned by the plaintiff to defendant No.1 which

are still in force are improvements of version 1.03. Para 16 and 17 of the

plaint are relevant in this regard and they read as under :

"16. As the plaintiff was also continuing to develop and write software, which updated and added other modules to the version 1.03, the copyright in the amendments/updation was

also assigned to the defendant No.1 for a period of five years with effect from the date the amended works came into existence.

17. The following is a summary of the various updates provided by the plaintiff to the defendant No.1 and the dates on which the same were provided, i.e. the dates on which the works came into existence:



             Version of Date provided to the Date on which
             Software     Defendant No.1     assignment expires
                            th
             Version 1.03 16 August 2004     15th August 2009

             Version 1.04 27th May 2005               26th May 2010

             Version 1.05 24th March 2006             23rd March 2011

             Version 1.06 14th September 2006         13th September 2011

             Version 1.07 21st January 2009           20th January 2014

             Version 1.08 10th February 2009          9th February 2014

81. It is admitted by both the parties that the basic system design

and the fundamental operative software was contained in version 1.03.

All the subsequent versions were primarily adaptations of version 1.03

with a few additional new features, improving the performance of

version 1.03. The plaintiff has admitted that the copyright in the new

versions vests in the additional features mentioned above. However,

these additional new features are not really useable without the source

code in version 1.03.

82. From the above, it is clear that even if the rights pertaining to

version 1.03 revert back to the plaintiff (which although according to

this court is prima facie not possible) for the reasons given in the

preceding paras of the order, it is not clear how the rights pertaining to

the other versions, which are valid and subsisting can revert back. Thus,

the contention of the plaintiff is without any substance and is prima

facie, irrational and is not sustainable. Therefore, the plaintiff is

disentitled from the grant of interim relief on this reason as well.

83. Lastly, coming to the principles of grant of temporary

injunction, the plaintiff has to prima facie satisfy three threshold tests:

(i) Prima facie case

(ii) Balance of convenience

(iii) Irreparable Injury

84. On a prima facie case view, I have expressed my doubts on

the ownership on the copyright over the works in the manner pleaded by

the plaintiff. It is a matter which is to be considered at the trial i.e.

whether the plaintiff‟s contention that there has been an actual

assignment is valid or not, although prima facie, the said agreement

appears to an assignment in equity or an agreement to assign rather than

assignment.

85. The principle of law relating to temporary injunction during

pendency of the suit is well recognized in the decision of the Supreme

Court in the case of Dalpat Kumar vs. Prahlad Singh AIR 1993 SC 276.

The relevant portion of the observations of the Supreme Court in the said

case states as under:-

"4. ... It is settled law that the grant of injunction is a discretionary relief. The exercise thereof is subject to the court satisfying that (1) there is a serious disputed question to be tried in the suit and that an act, on the facts before the court, there is probability of his being entitled to the relief asked for by the plaintiff/defendant; (2) the court's

interference is necessary to protect the party from the species of injury. In other words, irreparable injury or damage would ensue before the legal right would be established at trial; and (3) that the comparative hardship or mischief or inconvenience which is likely to occur from withholding the injunction will be greater than that would be likely to arise from granting it.

5. ...Prima facie case is not to be confused with prima facie title which has to be established, on evidence at the trial. Only prima facie case is a substantial question raised, bona fide, which needs investigation and a decision on merits. Satisfaction that there is a prima facie case by itself is not sufficient to grant injunction. The court further has to satisfy that non-interference by the court would result in irreparable injury to the party seeking relief and that there is no other remedy available to the party except one to grant injunction and he needs protection from the consequence of apprehended injury or dispossession of apprehended injury or dispossession. Irreparable injury, however, does not mean that there must be no physical possibility of repairing the injury, but means only that the injury must be a material one, namely on that cannot be adequately compensated by way of damages. The third condition also is that „the balance of convenience‟ must be in favour of granting injunction. The court while granting or refusing to grant injunction should exercise sound judicial discretion to find the amount of substantial mischief or injury which is likely to be caused to the parties, if the injunction is refused and compare it with that it is likely to be caused to the other side if the injunction is granted. If on weighing competing possibility or probabilities of likelihood of injury and if the court considers that pending the suit, the subject matter should be maintained in status quo, an injunction would be issued. Thus the court has to exercise its sound judicial discretion in granting or refusing the relief of ad interim injunction pending the suit."

In M/s. Gujrat Bottling Co. Ltd. & Ors. Vs. Coca Cola Co.

& Ors., AIR 1995 SC 2372, it was observed as under :

"46. ... The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial. The need for such

protection has, however, to be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated. The court must weigh one need against another and determine where the 'balance of convenience' lies. See : Wander Ltd. and Anr. v. Antox India P. Ltd., 1990 (Supp) 1 SCC 727 . In order to protect the defendant while granting an interlocutory injunction in his favour the Court can require the plaintiff to furnish an under taking so that the defendent can be adequately compensated if the uncertainty were resolved in his favour at the trail."

86. The balance of convenience at this stage tilts towards

defendant as the intention of the parties being the defendant shall remain

the owner and further there is an equitable right which vests with the

defendant and the plaintiff thus be not inconvenienced but the defendant

will more inconvenienced at this stage if the injunction is granted/

continued against the prima facie equitable assignee. The irreparable

damage will be much more to the defendant and not to the plaintiff if the

interim order granted on 7th October, 2009 is continued in its operation.

The plaintiff has admittedly also filed the suit for recovery of damages to

the tune of Rs. 20 lac. During the course of hearing, learned counsel for

the defendant no. 1 is agreeable to deposit the said amount as security

amount in order to secure the interest of the plaintiff at this stage so that

if the plaintiff‟s claim ultimately succeeds after the trail of the suit, the

plaintiff may be duly compensated.

87. For the reasons mentioned above and after thoughtful

consideration, the present application along with I.A. No. 13030/2009

are disposed off with the following directions :-

(a) that the interim order granted on 7th October, 2009 is

vacated subject to the condition that the defendant No.1

shall furnish security of a sum of Rs.20 lac to be deposited

with the Registrar General of this Court within a period of

two weeks from today, who shall keep the said amount in

an FDR initially for a period of one year;