Evolving principles for award of punitive damages

By Aprajita Nigam and Dheeraj Kapoor, LexOrbis

The principles involved in award of damages in intellectual property (IP) litigation in India have seen much evolution in the recent past. The landscape of the award of punitive damages was aggressively set in January 2005, when a single judge of Delhi High Court in a suit for trademark infringement in Time Incorporated v Lokesh Srivastava and Anr (2005), observed that: “This court has no hesitation in saying that the time has come when the courts dealing actions for infringement of trademarks, copyrights, patents, etc., should not only grant compensatory damages but award punitive damages also with a view to discourage dishearten law breakers who indulge in violations with impunity out of lust for money so that they realize that in case they are caught, they would be liable not only to reimburse the aggrieved party but would be liable to pay punitive damages also, which may spell financial disaster for them.

Aprajita NigamAssociateLexOrbis
Aprajita Nigam

The court, relying on Mathias v Accor Economy Lodging Inc (2003), had reasoned that one function of punitive damages is to relieve the pressure on an overloaded system of criminal justice by providing a civil alternative to criminal prosecution of minor crimes and it is often very difficult for a plaintiff to give proof of actual damages suffered by him as the defendants who indulge in such activities never maintain proper accounts of their transactions as it is unlawful. The court had accordingly awarded punitive damages of ₹500,000 (US$7000) to the plaintiff as claimed.

The next sharp turn in the landscape of damages came in 2014, when in the case of Hindustan Unilever Ltd v Reckitt Benckiser India Ltd, a division bench of Delhi High Court overruled the earlier reasoning with respect to punitive damages.

The court observed that the difficulty in holding that every violation of statute can result in punitive damages would be that even though the statutes might provide penalties, sentences and fines and such provisions invariably cap the amount of fine, sentence or statutory compensation, civil courts will nevertheless be able to proceed unhindered, on the assumption that such causes involve criminal propensity, and award punitive damages despite the plaintiff’s inability to prove any general damage.

Dheeraj KapoorAssociateLexOrbis
Dheeraj Kapoor

The court further held that the reasoning that one function of punitive damages is to relieve the pressure on an overloaded criminal justice system by providing a civil alternative is wrong because in cases of crimes, the law indicates the punishment; no statute authorizes the penalization of trademark infringement with a monetary fine that goes not to the public exchequer, but to private coffers. Also, penalties and offences require the prosecution to prove them without reasonable doubt. Therefore, to say that a civil alternative to an overloaded criminal justice system is in public interest would be sanctioning violation of law, which can lead to casual, unprincipled and eventually disproportionate awards.

The division bench of Delhi High Court in the above case also gave instructions to the courts to follow and observe the conditions and principles while awarding punitive damages. Such conditions would be:

  • Where there has been oppressive, arbitrary or unconstitutional action by the defendant. In other words, where the conduct of the defendant in the case or before the court has been reprehensible, contemptuous and oppressive.
  • Wrongful conduct by the defendant which has been calculated by him for himself that may well exceed the compensation payable to the claimant; and
  • Any case where exemplary damages are authorized by the statute.

The division bench also clarified that the burden of proof to establish the case within the above three categories shall be on the plaintiff. This approach seems to be more circumspect and judicious in deciding whether the case warrants or that the plaintiff deserves an award of punitive or exemplary damages.

Although this case of 2014 overruled the reasoning in the case of Time Inc, the case has time and again been referred to by the courts when the question of awarding punitive damages has been in issue. This path lighted for granting damages in trademark litigation, has been the chosen track to form the basis of award of damages in other domains of IP as well such as copyrights and patents.

The intent of the Indian courts has been to cause deterrence and to discourage infringing acts. Accordingly, punitive damages are triggered by the conduct of the defendant such as high-handed, malicious, vindictive, and oppressive behaviour, and flagrancy of violation. The aim of punitive damages is not to compensate the plaintiff, but rather to punish the defendant.

Aprajita Nigam is an associate and Dheeraj Kapoor is a senior associate at LexOrbis.

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