Punitive Power: Indian courts finally begin awarding punitive damages in IP cases

The dearth of respect for intellectual property rights in developing countries is legendary, even among the emerging economic powers. It's only recently, for example, that China and Russia have demonstrated a meaningful responsiveness to the problem of enforcement.

But India--a common-law country with a modern legal system that has strong roots in the British tradition--has proved the exception. Since 2005, the Delhi High Court, the country's most influential court of first instance, has begun awarding punitive and exemplary damages in IP cases.

These are not isolated instances.

"From Indian independence in 1947 to 2005--a period of nearly 58 years--there were no reported cases of damages in IP litigation in India," says Pravin Anand, the managing partner of Anand & Anand in New Delhi. "In the four years since, the Delhi court alone has granted punitive and exemplary damages in more than 50 cases."

Shaalu Mehra, chair of Perkins Coie's India practice, says he would advise clients to avoid Indian courts whenever possible. "The results have been too unpredictable, and litigation can be tied up procedurally to the point where the commercial disputes at issue are no longer relevant," he adds.

Some experts believe this pattern of punitive damages that has emerged in IP cases may be indicative of Indian courts adopting Western-style jurisprudential approaches as the country is forced to accept the industrial world's business practices. Regardless, the trend has been welcome news for U.S. and other foreign companies doing business in India. And not surprisingly, U.S. companies have been in the vanguard of the movement.


Time is Right

Although damages in India are traditionally compensatory in nature, the concept of punitive or exemplary damages has always existed in the country's common law. But because proportionality of punishment has been an important principle in the system, it was only in 1996, in the celebrated case Common Cause v. Union of India, that the Supreme Court of India came around to actually making such an award.

In that case, the court found that a government minister had acted oppressively by unfairly allowing certain people to build gas stations, and it awarded about $100,000 in punitive damages.

The decision fell somewhat short of causing a flood of punitive damages awards, but it did establish firmly that relief in this form was available. Common Cause established that, as in the U.S., punitive damages were appropriate for deplorable conduct such as fraud and malicious, reckless, abusive and oppressive behavior.

Still, injunctive relief remained the primary remedy in IP cases. That changed in 2005 with the Delhi High Court's ruling in Time Inc. v. Lokesh Srivastava. The U.S.-based magazine sued a Hindi-language Indian magazine for copying its distinctive red cover design. Time also complained the magazine's title, Sanskaran, was a transliteration of the English word "time."

The court said the time had come for granting punitive and exemplary damages in IP matters, and awarded roughly $10,000 in compensatory damages and $12,500 in punitive damages to Time.

"This was the Indian courts' first recognition of the importance of protecting the IP rights of Western countries in particular," says David Wingfield, an international litigation partner at WeirFoulds in Toronto. "And while the actual amounts of the award may seem modest in the U.S. context, they represent a significant deterrent in the context of the domestic Indian economy."

Indeed, Indian judges have commented (favorably) that awarding punitive damages was an adequate deterrent because it could "spell financial disaster" for affected defendants. Since Time, a host of multinational concerns including Microsoft, Adobe, Yahoo!, Cartier, Autodesk, Hilton, Adidas-Salomon and the Scotch Whisky Association have won punitive or exemplary awards in copyright, trademark and patent cases.

"The main reasons judges have given for justifying these awards are the increase in piracy and the need for deterrence, the importance of compensating plaintiffs in an environment where the costs of litigation are increasing, and the need to relieve pressure on the country's criminal justice system [IP infringement can be a criminal offense in India] by fashioning more attractive civil remedies," Anand says.

Still, until recently the trend has remained fairly subdued on international legal radar screens. The publicity surrounding the recent case Adobe Systems Inc. v. Bhoominathan, however, has moved it into the spotlight.


Carving a Path

This may be because two software giants, Microsoft and Adobe, were involved as plaintiffs in the copyright infringement suit. The case also dealt with the widespread international problem of alleged pirating of two of the world's ubiquitous software brands.

After receiving word that an individual in India was selling copies of their software, Microsoft and Adobe applied to the Delhi High Court for an inspection order. The subsequent raid found 18 hard drives containing infringing versions of Microsoft software, although it did not turn up any pirated copies of Adobe products.

Evidence at trial established that the defendant's activities would have deprived Microsoft of potential revenue (not profit) amounting to $70,000. The court ordered payment of roughly $10,000 to compensate the plaintiff for lost profits and an equal amount for punitive damages.

As it turns out, Microsoft has been a leader among U.S. companies seeking to enforce IP rights in India. In 2006, the company claimed punitive damages of $10,500 in Microsoft Corp. v. Deepak Raval that also involved copyright infringement. In agreeing to the award, Justice Arjun Sikri of the Delhi High Court showed an acute awareness of the danger widespread IP violations presented.

"In the present case, the claim of punitive damages is of only [$10,500], which can be safely awarded," Sikri wrote. "Had it been higher even, this court would not have hesitated in awarding the same. This Court is of the view that punitive damages should be really punitive and not flea bite, and quantum thereof should depend upon the flagrancy of the infringement."

The difficulty is that not all Indian judges feel that way.


Proper Approach

"The important caveat is that it is primarily the Delhi High Court, rather than courts throughout the country, that is granting punitive damages," Anand says. "We need to spread the culture to other courts too."

There remain groups of judges who are sensitive to the financial impact of punitive damages while recognizing the need to deter piracy.

"These judges have been extremely creative and innovative in designing new remedies to suit the complex social and economic environment of the country," Anand says. "For the most part, these remedies, which are in the nature of community service, are a softer approach."

Whether the softer approach will do the job remains to be seen. But in India, at least, the courts are doing something concrete.

"As the economy grows rapidly, the legal system is becoming increasingly sophisticated in dealing with commercial issues," Anand says.

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Julius Melnitzer

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