Doctrine of First Sale Limited to Selling the Branded Item in the Same Condition When it was First Sold: Delhi High Court - SSRANA

Doctrine of First Sale Limited to Selling the Branded Item in the Same Condition When it was First Sold: Delhi High Court

March 27, 2019

www.delhihighcourt.nic.in

Recently, in an order passed by Delhi High Court in the case of Patanjali Ayurved Limited v Masala King Exports Trading Pvt. Ltd. & Ors. held that the doctrine of first sale which cuts off trade mark owner’s rights after its products are first sold would be limited to selling the branded item in the same condition when it was first sold. It granted an ex-parte ad-interim injunction against Masala King Exports Trading Private Limited and 11 other companies from exporting products manufactured by Patanjali Ayurved Limited (PAL) in the international market till the next date of hearing. However, it allowed them to sell Plaintiff’s product in the domestic market.

BRIEF FACTS

  • The Plaintiff in this case is ‘Patanjali Ayurved Limited’ which is submitted to be a Company established in 2006.
  • It was submitted that it is leading manufacturer and marketer of herbal, nature-based products and herbal medicines under the trade mark “PATANJALI” word and device both in Hindi and English along with part of its logo comprising of lines/strokes in green and orange color.
  • It submitted that its products were available globally through its authorized distribution channels. It also brought to notice of the Court that since 2006, it had set up an extensive warehouse and distribution network comprising of over 47,000 retail counters, 3500 distributors in 18 states. It further stated that its sales and advertisement expenses in year 2016-17 was INR 10,000 Crores.
  • It got registration of “PATANJALI” word in various classes. It is claimed that its mark enjoys trans border reputation and goodwill.
  • Pursuant to a market research, it came to Plaintiff’s knowledge that the Defendants had been procuring its goods which were meant exclusively for sale in the domestic market and were illegally exporting them without any authority, which was resultantly also infringing the exclusive right to use the registered trade mark of the Plaintiff.
  • It submitted that to prevent such illegal export, it had also issued letters to Custom Authorities, however the illegal exports continued. It also lodged complaints with Commissioner of customs. However, the Customs authorities stated that the Intellectual Property Rules did not apply to exports and no action was taken on the complaint.

PLAINTIFF’S CONTENTIONS

  • It contended that presently it does not have any authorized channel for export of its products and the entire export was done solely by itself through its own. It was stated that the packaging of the products that was meant for domestic sale was completely different from those that was meant for export.
  • It elaborated that the products which were exported were packaged complying with metrological standards of the country where the products were required to be exported.
  • It contended that exports made illegally which do not comply with legal requirements create grave risk to its goodwill and reputation and impacts the sale and exports of its products. It contended that the illegal exports using registered trade mark without any license, permission or authority infringed the trademark “PATANJALI”.
  • It was submitted that it also came across instances where its goods had been tampered or altered, whereby creating a risk towards the quality of the goods and the reputation attached with them.
  • It contended that the packaging of the product was materially altered by affixing stickers on the same for the purposes of export. It submitted a picture of an authentic “Atta” packet and one that was illegally exported by the Defendants.
  • It argued that based on the product it was apparent that on the original packet it was duly printed that it was to be consumed within four months. However, the products which were allegedly exported illegally had another sticker placed over the details printed on the packet that stated that the “Atta” was good for nine months.
  • It further referred to several pictures of the products explaining the differences. The comparison of Plaintiff’s product in domestic market and the one for export is given in a tabular representation below:
  • It was further argued that for the products which were meant for domestic sale worded “intended for sale in Indian subcontinent only” appearing on the packaging. In contrast, the products meant for export had the words “export only” printed on them. The difference in the packaging was explained by way of illustration in respect of the its toothpaste and facewash. These products when sold in international market not only had a detailed ingredient list but the packaging of the product was also distinctly different from that of domestic products.
  • It submitted that as per the requirement of Food and Drug Administration (FDA), the description of the products was far more detailed. In case the indications on a particular product were not in compliance with the regulations of the FDA, the products were put in an import “Alert list” and as a result the import of such products gets impaired.
  • It further submitted that it had received queries from persons who purchased its products from the local shops in Illinois, USA and got alerted to the fact that its products were being exported through unauthorized channels.
  • Therefore, it argued that the acts of Defendants and such other entities, who led to creation of unattended grey market, exposed it to unwarranted legal risks in those jurisdictions as the buyers of the product would purchase the products believing them to be lawfully imported products.
  • It clarified it is confining the prayer in the interim application for seeking injunction in respect of export of the its products in the international market only.

DEFENDANTS’S CONTENTIONS

  • Since it was the first hearing, an ex parte order was passed against the Defendants did not appear before the Court, the proceedings went ex-parte.
  • Learned Senior Standing Counsel Mr. Amit Bansal, appearing on behalf of the Custom Authorities, on instructions, stated that the Customs Authorities did not have a mechanism to monitor the export of the items in question that were the subject matter of the present suit. It further explained that, at the time of the export, the brand names were not disclosed, and therefore, it was unable to verify whether Defendants were indeed exporting Plaintiff’s products.

COURT’S ANALYSIS

  • On the basis of the product pictures submitted by the Plaintiff, it observed that the Defendants, by such acts of tampering with expiry date were defrauding the general public into believing that the product was exported by the Plaintiff and since the product mentioned an expiry date of way over four months, the consumers fall at a risk of consuming “Atta” that was no longer fit for consumption. This in turn will tarnish the reputation of the Plaintiff and put the products of the Plaintiff in bad light.
  • It was of the view that the facts of Kapil Wadhwa & Ors v. Samsung Electronics Co. Ltd & Anr.[1], dealing with Section 30(4) of the Trade Marks Act, 1999, was entirely different. It therefore noted that in the case the products were not being impaired. However, in the present case the products were being completely altered which was evident from the manner in which the product meant for domestic sale were being altered by affixation of a sticker on the reverse for exporting the product.
  • Further, it noted that the facts and the ratio in Philip Morris Products S.A. v. Sameer & Ors[2]. would get attracted as the case pertained to a situation where the Defendants acquired the impugned goods from unauthorized channels/sources.
  • It threw light on the contention of the Plaintiff that it did not authorize any dealer to carry out the export of its product, the acquisition of the products for the purpose of export could only be done through the Plaintiff. It held that the goods of the Plaintiff that were being exported were meant only for domestic sale.┬á Thus, export of such products would conflict the rights of the Plaintiff and prima facie, it would also be an infringement under Section 29 (1) read with Section 29 (6) of the Act.
  • On the question of first sale doctrine it held that in case the Defendants were permitted to alter the product in question, in the manner which was alleged to have been done, it would attract the provisions of Section 30(4) of the Trade Mark Act 1999. The doctrine of first sale which cuts off trade mark owner’s rights after its products were first sold would be limited to selling the branded item in the same condition when it was first sold. The acts complained of, like affixing stickers and altering the entire list of ingredients/nutritional facts amounts to “materially” changing the product made by the trademark owner. This would certainly put the image of the Plaintiff in peril and thus would contravene Section 30 (4) of the Trade Mark Act,1999.

The Court finally held that the Plaintiff made a strong prima facie case for grant of ex-parte ad-interim injunction against the Defendants. Balance of convenience was in favor of the Plaintiff and irreparable harm would be caused if, the Defendants were not restrained from continuing the illegal export of the Plaintiff’s product in international market. Accordingly, for the present, till the next date of hearing i.e. April 23, 2019, the Defendants their employees, servants, agents, representatives, assignees, dealers, distributors, retailers through themselves and through assigns and representatives and all other servants, agents, stockiest, acting for and on their behalf were restrained from exporting, (online/offline/directly or indirectly), Plaintiff’s goods in the international market bearing the trademark/artistic design/logo PATANJALI/PATANJALI AYURVED LIMITED or any other trade mark, as may be identical with or deceptively/ confusingly similar to Plaintiffs’ trademark “PATANJALI/PATANJALI AYURVED LIMITED”. It was made clear that the Defendants may continue to sell Plaintiff’s product in the domestic market.

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[1] 2012 SCC OnLine Del 5172

[2] (20145) 4 High Court Cases (Del) 35

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