Principle of ‘International Exhaustion’ and Marlboro Cigarette’s Trademark Violation

On Monday, a single-judge bench of the High Court of Delhi (“High Court”), in two similar suits, had granted an ex-parte injunctions in favour of the Plaintiffs, proprietor of trademark ‘MARLBORO’ and ‘ROOF DEVICE’ (“suit trademarks”). While one dispute was related to sale of infringing cigarette products in Mumbai, other dispute was related to its sale in Kolkata. In both the actions, the High Court restrained the defendants from selling counterfeit and grey versions of the cigarette. In Philip Morris Products S.A. & Anr. v. Sameer & Ors ("first suit") and Philip Morris Products S.A. & Anr. v. Anil Kumar Singh & Ors ("second suit") [both dated 10/03/2014], the High Court had awarded damages of Rs. 10,000 against some of the defendants and Rs. 5,000 against other. In reaching its judgment, the High Court also discussed the principle of ‘international exhaustion’ with respect to section 30(3)(b) of The Trade Marks Act, 1999 (“TM Act”).Through both the suits, Plaintiffs had sought to restrain the defendants from using suit trademarks and had sought Rs. 20,00,000/- as damages (apart from punitive damages). The suit(s) were originally filed by Philips Morris Products S.A., the original proprietor of suit trademarks. Later, suit trademarks were assigned in favour of Philip Morris Brands Sarl – by virtue of this, the latter become the substituted Plaintiff No.1.

(Image Source: cgtrader.com)

Factual Background: Sometime in May 2010, it came to the knowledge of the Plaintiffs that some retailers in Mumbai and Kolkata were selling, stocking & distributing the counterfeit as well as grey market versions of Plaintiff’s products (cigarettes). While grey market version products were not meant for sale in India, counterfeit products were duplication of Plaintiff’s products. That is, grey market version is imported through another country, either legally or illegally (e.g., smuggling). On becoming aware of these activities and finding the cigarette products to be infringing, Plaintiffs filed two suits before the High Court. The defendants, in both the proceedings, preferred not to appear or file written statement. As a result, the High Court, apart from considering Plaintiff’s evidence ex-parte, also allowed their application for passing an ex parte decree.

In both the suits, the High Court had appointed two commissioners to inspect the premises of the defendants. With respect to second suit, concerned commissioner found substantial amount of infringing products in the premises of defendant no. 7. (9660 cigarettes); certain amount of infringing product was also found in the premises of defendant no.5. However, in the premises of some of the other defendants (defendants no. 1,2&4 in first suit and defendants no. 1,3,5 & 6), not much infringing product(s) were found. In the premises of the remaining defendants, nothing incriminating was found. Among all the defendants, only defendant no.7 maintained books of accounts, ledger etc.

Relevant Legislations: The Trade Marks Act, 1999; Code of Civil Procedure, 1908

Contentions:

On behalf of the Plaintiffs, it was contended that:

·    Since products sold by the defendants incorporate visual elements of the suit trademarks, there is an infringement of plaintiff’s right(s) under TM Act and under common law.

·      Grey market products, apart from infringing Plaintiff’s trademarks, also violated India’s packing and regulatory laws, for e.g., Cigarette and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade & Commerce, Production, supply and Distribution) Act, 2003.

·    Import and sale of impugned products, which are sold without authorisation and grossly violate India’s regulatory laws, would amount to infringement under TM Act [§ 29(1) read with § 29(6)].

·    Defendants have been passing off infringing cigarettes as the products of the Plaintiffs and that they are aware of the difference between counterfeit and original Marlboro products.

Findings of the Court:

·         Where Products were Counterfeit of Plaintiff’s Original Product

Some of the products, as found in the premises of some defendants, were counterfeit version of plaintiff’s original Marlboro Product. Since these counterfeit products were sold under the suit trademarks, they represented a clear case of infringement under section 29 of the TM Act. As a result, the High Court did not find any difficultly in granting injunction against their sale.

·         Principle of ‘International Exhaustion’: Where Products were ‘Genuine’ but were ‘not meant for sale’ in India:

Contrary to counterfeit version, some of the impugned products, as found in the premises of the defendants, were Plaintiff’s genuine products meant for sale outside India or in Duty Free market in India. Emphasising that section 30 contemplates the principle of international exhaustion, the High Court opined that:

“.......once  the  goods  have  been  lawfully  acquired  i.e. purchased  in  accordance  with  the  law  of  sale  and  purchase  of  goods, whether in India or any other country, the sale of such goods in India would not infringe the registered  trademark in India. Therefore, importer of grey market goods/person representing him/subsequent purchaser would not be liable for infringement under section 29, if the imports/subsequent dealings fall under the purview of section 30(3). The importer/defendant has to prove that the impugned goods, bearing a particular trademark, were placed in any market worldwide by the registered proprietor of the said trademark or with its consent and thereafter, the defendant lawfully acquired them therefrom.”

Hence, if it can be showed that one has legitimately acquired the impugned product in a market, defence under section 30(3) of the TM Act can be resorted to. In reaching this conclusion, the High Court relied on its decision in Kapil Wadhwa & Ors. Vs. Samsung Electronics Co. Ltd & Anr, 194 (2012) DLT 2, wherein the court had opined that section 30(3) should not be narrowly interpreted; that is, it does not contemplate a situation where ‘only  acquisition  with  the  consent  of  the  proprietor  of  trademark  is  lawful acquisition, and it has to originate from the domestic market itself where the trademark is registered’. Rather, it contemplates the principle of 'international exhaustion'. Applying this legal position to the present case, the High Court held that if Plaintiff’s Marlboro products were lawfully acquired in one market and sold in Indian market, it would not amount to infringement.

However, in the present case, defendants did not participate in the proceedings; as such, they were not able to show that they have lawfully acquired the impugned products. As a result, they could not take the benefit of the exception, as available under section 30 of the TM Act.

Conclusion: Having decided in favour of the Plaintiffs, the High Court awarded similar damages in both the suits. In second suit (Kolkata), though substantial amount of infringing product(s) was found in the premises of the defendant no.7, the court opined it was not very large considering the overall sale of the Plaintiffs. Hence, even against defendant no.7, nominal damages of Rs. 10,000 were provided. With respect to other defendants, either damages to the tune of Rs. 10,000 or to the tune of Rs. 5,000 were provided.

Except defendant no.7, none of the defendants were small panshops or nothing incriminating was found in their premises. If defendant no.7 was not a small retailer, then more damages could have been provided. It is especially when the court found that ‘substantial quantity’ of infringing products were present in its premises. The approach that defendant no. 7 did not possess large quantity of infringing products in comparison to Plaintiff’s sales may be problematic. Assume Microsoft sells 1 crore copies of Windows 8 Operating system and, in the premises of defendant, only one lakh infringing copies are found – then what? Should we consider the amount of products infringed or should we compare the amount of infringed products with the sale of the original products. In awarding damages, the High Court had relied on its decision Ardath Tobacco Company & Ors. v. Munna Bhai, 2009(39) PTC 208 (Del), wherein the issue was with respect to small panwalas; in the opinion of the court, Ardath Tobacco Company (supra) stood in similar footing as the present case. However, in the present case, the High Court did not seem to have differentiated between two kinds of retailers while determining damages. Whether, in future, courts will be more liberal in providing damages can only be seen with time.