In a landmark decision, the Division Bench of the Delhi High Court yesterday recognized the principle of international exhaustion under the Trade Marks Act, 1999. The Bench comprising of Justice Pradeep Nandrajog and Justice Siddharth Mridul partially allowed an appeal filed by Kapil Wadhwa (Appellant) against the order of the Single Bench in Samsung Electronics Co. Ltd. & Anr. v. Kapil Wadhwa & Ors [C.S. (OS) No. 1155/2011] dated February 17, 2012. The Appellants were represented by Sai Krishna and instructed by Shwetashree Majumdar of Fidus Law Chambers and Mr. Pravin Anand appeared for the Respondents.
By way of a quick recap, Samsung Electronics Co. Ltd. and its Indian subsidiary (Respondents) sued the Appellant, previously an authorized dealer of the Respondent, for unauthorized sale of Samsung printers imported from foreign markets into India. The printers sold by the Appellant to were cheaper in comparison to similar products sold by the Respondent. Furthermore, the Appellants were slapped with allegations of meta-tagging and deep hyperlinking with Respondents website for the sale of imported printers. Justice Manmohan Singh held the Appellants guilty of trademark infringement and also ruled that:
(a) Section 29(1) read with 29(6) prohibits the sale of imported genuine products without the authorization of the registered proprietor in India; &
(b) Section 30(3) embodies only National Exhaustion principles and does not extend to products acquired from a foreign market.
For a detailed analysis of the decision of the Single Judge, read Arun Mohan’s guest post here.
Findings of the Division Bench
In determining the sole issue raised in the appeal that whether the Indian Trade Marks Act, 1999 embodies national exhaustion or international exhaustion principles, the Division Bench found the following:
I. Section 29: The Bench upheld the Single Judge’s view that the sale of imported products without the consent of the registered proprietor constituted ‘use of the mark’ as per Section 29(1) read with Section 29(6). Pertinently, the Bench pointed at Section 29(6)(c) which makes explicit reference to import of goods under the mark. The Bench, however, opined that it was ‘premature’ for the Single Judge to have inferred that the legislative intent of Section 29 imposed barriers on importation without any discussion on Section 30.
II. Section 30(3): The crux of the dispute hinged upon whether Section 30(3) permitted sale of imported products without the consent of the registered proprietor? For the sake of convenience, Section 30(3) is reproduced below:
Where the goods bearing a registered trade mark are lawfully acquired by a person, the sale of the goods in the market or otherwise dealing in those goods by that person or by a person claiming under or through him is not infringement of a trade by reason only of –
(a) the registered trade mark having been assigned by the registered proprietor to some other person, after the acquisition of those goods; or
(b) the goods having been put on the market under the registered trade mark by the proprietor or with his consent.
The Division Bench disagreed with the interpretation of the Single Judge for the following reasons:
Firstly, the Single Judge erroneously concluded that the expression ‘lawfully acquired’ in Section 30(3) meant ‘acquisition by consent for the purposes of import’. The Division Bench adduced the incorrect interpretation to a question posed initially by the Judge, viz. whether the provision confers rights to users or merely provides a defense to infringement? The Bench opined that conclusion of the Single Judge that Section 30(3) conferred no additional rights on users led to this incorrect view.
Secondly, the Bench saw no merit in the Single Judge’s interpretation that permitting imports based on sub-section (b) and ignoring sub-section (a) will entail absurdity. The Bench held that ‘the two situations are distinct and operate in mutually exclusive areas and the question of any one being interpreted in a manner to render the other otiose does not arise.’
Thirdly, the Bench identified a ‘patent fallacy’ in the Single Judge’s view that the scope of the expression ‘the market’ in Section 30(3) is limited to domestic markets and therefore import of products requires the consent of the registered proprietor. In pertinent part, the Bench observed that:
There is no law which stipulates that goods sold under a trade mark can be lawfully acquired only in the country where the trade mark is registered. In fact, the legal position is to the contrary. Lawful acquisition of goods would mean the lawful acquisition thereof as per the laws of that country pertaining to sale and purchase of goods. Trade Mark Law is not to regulate the sale and purchase of goods. It is to control the use of registered trademarks.
Fourthly, reliance placed on the trademark legislations in EU, UK, Australia, Brazil, Turkey, Singapore and Hong Kong by the Single Judge to ascertain the scope of the word ‘market’ was of no avail. The Division Bench stated that the statutes abroad clearly indicate whether international exhaustion applies or otherwise. Therefore, these provisions are no assistance to clear the ambiguity in the existing Indian provisions. In this regard, the Bench observed that:
Thus the neutral expression ‘the market’ without the legislature adding words to indicate whether it was the domestic or the international market which was in the mind of the legislature does not justify the conclusion arrived at by the learned Single Judge as the only logical conclusion.
Lastly, the Bench deciphered the legislative intent to have recognized the applicability of international exhaustion based on textual interpretation and use of external aids. In ascertaining the textual meaning, the Bench observed that the presence of definitive article before ‘market’ in sections 29(6)(b) and 30(3), 30(3)(b) and 30(4) indicated that the expression is not used to specify a particular market but is used only to demarcate an economic area or space as distinguished from other spaces, whether private or public. On the other hand, the Statement of Objects and Reasons of the Trade Mark Bill 1999, India’s communications at the Uruguay Rounds and report of the Standing Committee on the Copyright (Amendment) Bill, 2010 overwhelmingly suggest India’s support for international exhaustion principles.
III. Section 30(4): The Bench found merit in the argument of the Respondent that deficiency in services by the Appellant might prejudice the former’s reputation. This concern, however, was not sufficient to oppose further dealing of the work and instead the Bench directed the Appellant to issue an appropriate disclaimer.
Order of the Bench
The Division Bench partially set aside the order of the Single Judge to the extent that Appellants were earlier restrained from importing and selling Respondents products in India. Further, the order directed the Appellant to prominently display in their showrooms that the products sold were imported and that the Respondents do not provide any warranty or after sale services over such products. The injunction on the website, however, still continues.