Extraordinary rules for exemplary damages in IP infringement

The grant by courts of a permanent injunction and exemplary damages against an intellectual property (IP) infringer is meant to be a deterrent against future infringement.

The principles for obtaining injunctions have been clearly laid out by the Supreme Court. In Morgan Stanley Mutual Fund v Kartick Das, the court held that an interim injunction should only be granted when its refusal would involve greater injustice than its grant; the party applying for an injunction has shown utmost good faith, and the applicant has satisfied general principles such as making out a good apparent case, showing the balance of convenience is in its favour and claiming irreparable loss. Any abuse of these principles is dealt with severely by the courts.

The need for punitive or exemplary damages arises where an injunction does not deter the unrepentant infringer who persists in the infringement. In such cases, courts face the difficulty of assessing the amount of punitive damages. The complainant normally demands a disproportionately large figure, exceeding a proper calculation of account and profit. The courts do not lose sight of the fact that in making such an award, they are putting money into a plaintiff’s pocket other than by way of compensation. Granting exemplary damages is an exceptional order and can be made only if the court is satisfied that the punitive or exemplary element is not sufficiently met by awarding the actual loss. However, the Supreme Court has provided no guidance on the way exemplary damages are to be calculated.

The peculiarities of such IP infringement cases require the courts to develop standards to ensure proportionality when awarding exemplary or punitive damages. There is no bar on the courts granting exemplary damages in appropriate IP infringement cases. The Delhi High court in Whatman International Limited v P Mehta and Ors awarded punitive damages, with the court saying, “The defendants have committed an infringement of the plaintiff’s mark and impinged on their rights deliberately, consciously and wilfully for a period spanning over 25 years. Repeated legal action has not deterred them. They showed no remorse in the statements recorded.” The court cited the English cases of Rookes v Barnard (No 1) and Cassell & Co Ltd v Broome, both of which have been cited with approval by the Supreme Court, as authority for the principle that exemplary damages are not free-standing remedies.

One category of cases in which punitive damages may be awarded is where the infringer calculates that the profit they make from infringing will exceed the amount of general and special damages awarded to the IP holder. Accordingly, exemplary damages will be awarded only as an additional head of general damages, or as an upward adjustment to such damages.

Since this case was governed by the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, and the Delhi High Court (Original Side) Rules, 2018, under which actual costs are liable to be awarded, the court also granted the plaintiffs their full costs of almost INR1.5 million (USD20,000), which including the multiplicity of proceedings occasioned by the defendants’ attempts to hide the true facts, court fees and the fees of the local commissioners appointed to take an account of infringing goods at various locations and take statements.

These cases show that willful and repeated acts of infringement of the IP rights of others will be severely dealt with by the courts. Courts possess powers of punitive action against infringers and copycats that deprive such infringers of the profits they calculate will accrue, even after paying the usual levels of damages. As an example, the Delhi High Court in the Whatman case awarded punitive damages of nearly INR40 million (USD524,000) in addition to the costs of litigation. The judiciary will clearly not hesitate to deal with repeated and wilful infringement of intellectual property rights. Although the power will not be exercised as a matter of routine, IP holders are able to protect their rights against sustained, infringing activity. IP protection experts will help rights holders take appropriate action.

The need for punitive or exemplary damages arises where an injunction does not deter the unrepentant infringer who persists in the infringement. In this article, @ DPS Parmar discusses the grant of exemplary damages by courts in some exceptional IP infringement cases.