Sue and Settle–no Damages please!

Quite often than not, IP cases result in settlement soon after injunction application is decided. In many cases an exparte interim injunction coupled with search and seizure (through local Commissioner) at the manufacturing unit of the infringing party results in sufficient pressure on the party to negotiate settlement. As a part of settlement, the Defendant would agree to suffer a decree of permanent injunction, delivery up of goods etc but not pay damages. Generally, the negotiation would cover a proposal from Plaintiff to pay actual cost incurred (not legal fees) e.g. Court fees, local Commissioner fee and incidentals. In cases where seizure is large, the Plaintiff would use that as a leverage to seek higher cost/damages. As the trial (some changes seen with commercial courts being created) is a long drawn process putting onus on IP holder to prove its case and make out a claim for damages, the pragmatic view is to adopt ‘sue and settle’ policy.

My recent experience 

A pharmaceutical client that I am representing took the view that he will not settle for a partly sum of Rs. 50,000 as the seizure from the Defendant’s premises was significant. The Defendant took the stand that he cannot afford more than Rs 50,000 (approx US $ 800). When the case came before the Court, the judge’s first reaction was you do not want to settle? You are getting a final order (decree!) and delivery of goods for destruction. The attention turned to Section 135 (3) (c) since it was a passing off case. The relevant section is reproduced below-

Section 135 Relief in suits for infringement or for passing off

  • ….
  • ….
  • Notwithstanding anything contained in sub-section (1), the court shall not grant relief by way of damages (other than nominal damages) or on account of profits in any case-
  • —-
  • —-
  • where in suit for passing off, the Defendant satisfies the court-

 (i) that at the time he commenced to use the trade mark complained of in the suit he was unaware and had no reasonable ground for believing that the trade mark of the Plaintiff was in use, and

 (ii) that when he became aware of the existence and nature of the Plaintiff’s right in the trade mark, he forthwith ceased to use the trade mark complained of.

The court was of the view that as the Defendant has ceased use of the mark when he became aware of existence of Plaintiff’s trade mark (this being first hearing after ex parte interim injunction was granted), relief of damages cannot be granted. My argument was that the Defendant has to satisfy the Court that at the time he commenced use of infringing trade mark (in this case packaging) he was a) unaware of Plaintiff’s trademark b) had no reasonable ground for believing that the Plaintiff mark was in use.

I submitted this does not apply to the facts of the case as the Defendant is not only in the same business (pharmaceutical) but also adopted the packaging for selling same composition of drug. After much deliberation on how settlement is encouraging the infringement, no conclusive finding was given by the court. Sensing the mood of the court, the other side sought time to file their response (written statement). However, what appears is that there is an advantage for infringers in IPR cases as damages in a contested IPR case is an exception.

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