Dismissal Of Suit In Absence Of Individual Civil Rights vis-a-vis Specific Relief Act: Delhi High Court

10th April, 2020 - 1:10 pm Categories: Legal Issues 0 Comments

In a recent judgment by J. Rajiv Sahai End law in the case of Claudia de Simone & Ors. Vs. Actial Farmaceutica Srl & Ors., the Delhi High Court dismissed the suit seeking  grant of injunction against manufacturing, importing, advertising, selling, offering to sell and stocking their new product or any other formulation amounting to drug under the brand VSL#3 without getting appropriate approval from DCGI and also for restraining the defendants from linking/relating their new product to plaintiff no. 1 or to De Simone Formulation or to tests, research, studies conducted with respect to De Simone Formulation and ancillary reliefs thereto.

ARGUMENTS BY THE PLAINTIFF:-

The two plaintiffs, namely (i) Professor Dr. Claudio De Simone resident of Switzerland; and, (ii) Next Gen Pharma India Pvt. Ltd., New Delhi, have instituted this suit against defendants no. 1 to 5, namely (a) Actial Pharmaceutical Srl, formerly known as CD Investment Srl; (b) CD Pharma India Private Limited; (c) VSL Pharmaceuticals, Inc.; (d) Franco Pirovano; and, (e) Sun Pharma Laboratories Ltd.,pleading that,

(i) the plaintiff no. 1, at the end of 1990s, developed formulation known as the De Simone Formulation, with a high bacterial concentration identified by a unique immunological and enzymatic profile manufactured by mixing strains with very high degree of concentration and in a specific ratio amongst them; the saidpro-biotic formulation was made from blending of eight strains of bacteria;

(ii) De Simone formulation was initially registered with US Patent Department under No.5716615 on 10th February, 1998, with plaintiff no. 1 as a co-inventor and the same was re-issued on 22nd January, 2008 with plaintiff No. 1 as sole inventor;

(iii) though this patent expired on 9th February, 2015, the plaintiff no. 1 is the sole owner of Know-How, strain selection and blending ratio, which are secret till date, of De Simone formulation;

(iv) that a Product Development and Collaboration Agreement dated 11th July, 2000 was executed between plaintiff no. 1 and certain others for economic exploitation of the plaintiff No. 1’s inventions but the said agreement did not purposely include De Simone formulation;

(vi) a new company named CD International SA was established in Luxembourg where an Italian company belonging to the plaintiff no. 1 and two others had 33% share each;

(vii) CD International SA established the defendant no. 1 in Italy and which established defendant no. 3 in USA;

(viii) the plaintiff no. 1 was appointed Chief Executive Officer (CEO) of defendant no. 3 in accordance with the aforesaid Product Development and Collaboration Agreement dated 11th July, 2000;

(ix) the defendant no. 3 acquired ownership rights over trade mark VSL#3 on 18th September, 2000 and vide Patent License Agreement dated 30th January, 2001, the plaintiff no. 1 granted license for commercialization of De Simone formulation patent to defendant no. 3, till the expiry of the patent, which expired on 9th February, 2015;

(x) the right of bulk manufacturing of De Simone formulation has been granted to an American company who sells the same only to parties/entities approved by plaintiff no. 1;

(xi) that the Know-How and the ratio in which the strains are blended to make De Simone formulation is highly confidential and known only to the plaintiff no. 1 and informed to the manufacturers under strict conditions of confidentiality;

(xii) on 28th January,2010, the plaintiff no. 1 and the defendant no. 3 entered into Know-How Agreement designed to ensure that the defendant no. 3 too could continue to market De Simone formulation in USA even after expiry of the patent;

(xiii) the said Know-How Agreement was to become effective upon the expiration of the Patent Licence Agreement dated 30th January, 2001 and was to remain in effect till 31st January,2016 with right to the plaintiff no. 1 to terminate earlier than that;

(xiv) that for Indian territory, vide Know-How Agreement dated 6th December, 2004, plaintiff no. 1 granted permissive rights for a period of ten years starting from 6th December, 2004,to defendant no. 2, to import De Simone Formulation and further market the same in India;

(xv) the defendant no. 2 was incorporated in India with plaintiff no. 1 and three others as Directors; (xvi) the defendants no. 1 to 4 including their representatives and distributors are collectively referred to as “CD Group”;

(xvii) that on the basis of permission given by plaintiff no. 1, defendant no. 2 obtained Import Drug Licence from Drug Controller General of India (DCGI) for De Simone Formulation;

(xviii) the defendant no. 2 entered into agreements with drug manufacturers for packaging and marketing of De Simone Formulation in sachets and capsules;

(xix) the DCGI approved De Simone Formulation for treatment of rotavirus diarrhoea in children, irritable bowel syndrome and mild to moderately activeulcerative colitis;

(xx) in the year 2013, the majority shareholders of CD Group decided to modify/adulterate De Simone Formulation with qualitatively and quantitatively cheap ingredients and sell under the same brand VSL#3 (which belonged to CD Group) without obtaining necessary validation from the authority and without any retesting of the same on animals and humans;

(xxi) plaintiff no. 1 refused to co-operate with such plans and in the year 2014 walked away from the CD Group and terminated the Know-How Agreement dated 28th January, 2010 with defendant no. 3 in November, 2014, for US territory;

(xxii) that for the Indian territory, the plaintiff no. 1, vide letter dated 8th June, 2014 informed defendant no.2 that he will not renew the term of the Know-How Agreement dated 6th December,2004 beyond its initial term of ten years and the said agreement would stand automatically terminated on expiry of its initial term on i.e. 5th December, 2014;

(xxiii) the Know-How Agreement dated 6th December, 2004 determined/terminated on 5th December, 2014 by efflux of time;

(xxiv) the defendant no. 2, after 6^thDecember, 2014, ceased to have any right either to import De Simone Formulation in India or to market the same in India or to take advantage of any information which came during performance of aforesaid agreement dated 6th December, 2004 in any manner whatsoever;

(xxv) that after walking away from the CD Group, the plaintiff no. 1 has withdrawn authority to supply De Simone Formulation to CD Group and since second half of 2016 De Simone Formulation is no longer being marketed under the brand VSL#3 in Europe and USA;

(xxvi) the plaintiff No. 1 has now collaborated with others for sale of De Simone Formulation in different countries of the world;

(xxvii) De Simone Formulation is now marketed also under the brand ‘Visbiome’ in India and some other countries and under the brand ‘Vivomixx’ in some other countries and under the brand ‘De Simone’ in Korea;

(xxviii) vide Agreement dated 12th June, 2014 between the two plaintiffs, the plaintiff no. 1 has granted rights to plaintiff no. 2 to import De Simone Formulation in India; at the same time defendant no. 2 licensed the brand VSL#3 to plaintiff no. 2 in consideration of royalty;

(xxix) that since defendant no. 2 was not in a position to procure and supply De Simone Formulation, the defendant no. 2 granted licence to plaintiff no. 2 for use of the trademark VSL#3 in consideration of royalty equivalent to 90% of the net sales of De Simone Formulation supplied by plaintiff no. 2 to defendant no. 5 till expiry of the Know-How Licence Agreement dated 6th December, 2004 i.e. till 5th December,2014;

(xxx) After 5th December, 2014, royalty at the rate of 15% of the sales value was payable by plaintiff no. 2 to defendant no. 2 for ten years for use of the trademark VSL#3;

(xxxi) De Simone Formulation was first commercialized in India in 2007 and was available under brand VSL#3 till March, 2018;

(xxxii) that though CD Group ceased to have any right or authority to market De Simone Formulation but attempted to counterfeit the same;

(xxxiii) that on the basis of reverse engineering on De Simone Formulation, defendant no. 4 made a counterfeit/spurious formulation for CD Group which was launched in UK in the year 2015 under the brand VSL#3 without subjecting it to clinical trials or tests on animals or humans;

(xxxiv) that despite conducting reverse engineering on De Simone Formulation, CD Group could not find the exact bacteria used in De Simone Formulation and could not make a copy equivalent to De Simone Formulation;

(xxxv) that since the launch of VSL#3 in the manner aforesaid by CD Group, several research groups have conducted comparative studies/research on De Simone Formulation vis-Ã -vist he new VSL#3 and have found the new VSL#3 deficient and different from De Simone Formulation;

(xxxvi) there have been litigations in different jurisdictions in this respect;

(xxxvii) CD Group applied to DCGI for licence to import and market the new VSL#3 but which application was rejected; as a tactical move, the application was withdrawn on 10^thApril, 2018;

(xxxviii) to work around the rejection of the application to import and market the new VSL#3 as a drug, CD Group launched the same as a probiotic food in India under the brand VSL#3 in the year 2018;

(xxxix) that while marketing new VSL#3 as a probiotic food under the brand VSL#3, the defendants are inducing public, authorities and professionals to believe that their product is the same as De Simone Formulation which was sold as drug under the same brand i.e. VSL#3;

(xl) the defendants have retained the same trade dress and are publicizing the new VSL#3 as the same as De Simone Formulation, earlier sold under the said trade mark and are also on their website, relying upon study done of effect of VSL#3 formulation on children with severe sepsis;

(xli) though earlier the defendants were, on their packaging, claiming the new VSL#3 to be having seven strains of bacteria, to go give false sense of similarity with the original VSL#3 De Simone Formulation, they have now started claiming that new VSL#3 contains eight strains of bacteria;

(xlii) in any case, the new VSL#3 does not have same strain in same proportion as in De Simone Formulation;

(xliii) that new VSL#3 is not merely a probiotic food but is a drug as defined in Section 2(b) of Drugs and Cosmetics Act, 1940;

(xliv) the defendants cannot sell and market their new product under the brand VSL#3 or under any other brand identical or deceptively similar thereto;

(xlv) the new VSL#3 is marketed as a probiotic food, to cause deception and confusion amongst buyers, traders and medical practitioners at the risk of health of patients;

(xlvi) untested probiotic carriesserious risks; and,

(xlvii) various other litigations are pending in India also betweenthe plaintiffs and the defendants

Therefore, in view of the facts as claimed by the Plaintiff in their Plaint, the relief sought was for:

1. permanent injunction to restrain the defendants from manufacturing, importing, advertising, selling, offering to sell and stocking their new product or any other formulation amounting to drug without getting appropriate approval from DCGI
2. permanent injunction to restrain the defendants from manufacturing their new product or any other formulation amounting to drug under the brand VSL#3 or under any other brand identical or deceptively similar thereto
3. permanent injunction to restrain the defendants from linking / relating their new product to plaintiff no.1 or to De Simone Formulation or to tests, research, studies conducted with respect to De Simone Formulation and ancillary reliefs thereto.

However, when the matter was heard in court, the Court was of the opinion that the Plaintiff had not asserted any individual civil rights. The Court pointed out that the enforcement of penal law is barred under Section 4 of the Specific Relief Act, 1963. The Counsel for the Plaintiff pointed out that under the third prayer of the plaint, the individual civil rights of the Plaintiff have been asserted. They further claimed that (i) the subject matter of the patent and the know-how are distinct, and the rights in the know-how to prevent others from making the patented product can be asserted; (ii) though such others may not include those who have learnt the know-how by reverse engineering, but would certainly include the persons to whom the plaintiffs had disclosed the know-how under a contract inasmuch as such persons cannot take an undue advantage of such disclosure and confidentiality and the liabilities there under have to continue notwithstanding the expiry of patent and expiry of the agreement; (iii) that there can be an intellectual property in a trade secret; though such intellectual property is not recognized by any statute relating to intellectual property in India but is recognized under Section 6 of the Income Tax Act, 1961; and, (iv) that Section 27 of the Contract Act, 1872 is generally used qua employment contracts and would have no application to a confidentiality obligation under a know-how contract.

Held:

The Court in this case held that no cause of action had arisen against the Defendants. The primarily reasons, according to the Court being:

1. Section 27 of the Contract Act makes void i.e. unenforceable, every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind.

2. The Patent Application without the know-how would be incomplete, and stand to be opposed under Section 25 of the Patents Act.

3. The trade mark for the product is anyway not owned by the Plaintiffs.

The Court first pointed out that the Plaintiffs hold no patent in India and that they used to hold a patent in the USA, which too, had expired. The Court further went on to explain that there exists no common law right in an invention and only statutory rights exist, that too for a limited period of time. Therefore, it is only when a patent has been obtained with respect to an invention in accordance with the Patents Act that the inventor or the patentee is entitled to prevent others, who do not have his consent, from the act of making, using, offering for sale, selling or importing the patented product or from using the patented process. Save as conferred by Section 48 of the Patents Act, there is no right in common law for any inventor to restrain others from commercially exploiting the invention. The Court opined that the intellectual property of copyright, designs and patents, unlike of trade marks, is purely and simply a statutory right and there are no rights including claims in tort of unfair competition or unjust enrichment, in intellectual properties of literary and art work or design or invention save as provided under the respective statutory regimes of Copyright Act, Designs Act and the Patents Act. In doing so, the Court would overstep and step in to legislate into existence new categories of Intellectual Property, and further, mere information cannot be subject matter of protection under common law.

Secondly, the Court, in view of its past decisions, observed that under Section 27 of the Contract Act, which is an extension of Article 19 (1) (g) of the Indian Constitution, it would be incongruous that the law, on the one hand would disable a plaintiff from enforcing a contract where the defendant had voluntarily agreed not to do something, by going to the extent of declaring such contract void, but on the other hand, enable the same plaintiff to the same relief under the law of tort. It was further observed that Section 27 of the Contract act is a matter of Public Policy of India and does not create any personal right, which can be waived. They emphasize that what is not contractually enforceable is also not enforceable invoking law of torts. Therefore, the law of tort of unreasonable interference in carrying on business, in view of Section 27 of the Contract Act, was not the existing law within the meaning of Article 19 (6) of the Constitution, since the right saved by Section 27 is a facet of Article 21 of the Constitution of India.

Thirdly, the Court held that even if the Plaintiff was the inventor of the product, no right of restraint would exist against the Defendant since the patent had not been applied for. The Court, in the instant case, when faced with the question whether an invention which does not qualify as patented product and has no property right therein, can acquire property rights by the third person entering into an agreement of exchange of Know-how and thus claiming confidentiality, by referencing the case of Navigator Logistics Ltd v Kashif Qureshi& Ors¹, opined that confidential information and trade secrets are not equated to property in India; that the know-how, without the patent being applied to was in public domain; that information claimed to be confidential could be protected as trade secret only if such information was not available in the public domain and was hence unknown to others.

It was also observed that Section 7 of the Patent’s Act, titled “Form of Application” requires every patent application to be accompanied with a provisional or complete specification and Section 10 of the Act titled “Contents of Specifications” requires the specification to describe the invention sufficiently indicate in the title the subject matter to which the invention relates and to fully and particularly describe the invention and its operation or use and the method by which it is to be performed, the best method of performing the invention which is known to the applicant and for which he is entitled to claim protection. Under Section 25 of the Patents Act, the same could be opposed on the ground of the complete specification furnished not sufficiently and clearly describing the invention or the method by which it is to be performed.

The Court further explained the requirement for such a provision, referencing to Section 84 dealing with Compulsory Licensing under the Patents Act, which enables a person other than the patentee to work the patent. This would only be possible when the patent in itself is self-sufficient to enable such a person to work the patent without any consent of the patentee. If the Know-How for manufacture of a product for which the patent has been obtained and which patent has lapsed was not proved in the specifications required to be furnished for obtaining a patent, no compulsory license with respect to the said patent could have been granted inasmuch as compulsory license would have been unable to work the patent without also knowing the other know-how, which know-how seemingly remained with the Plaintiff No. 1 in the instant case.

The Plaintiffs further sought to restrain the Defendants from selling their products under the brand name VSL#3 which even by Plaintiffs’ own averments in the plaint was owned by Defendant No. 2. Therefore, the passing off claim with regard to the brand name by the plaintiff was held to be unfounded as the restraint on use was sought with respect to propd the requirement for such a provision, referencing to Section 84 dealing with Compulsory Licensing under the Patents Act, which enables a person other than the patentee to work the patent. This would only be possible when the pateerty that plaintiffs, as per the Court, did not own in the first instance. Therefore, no merit was found in the contention of the counsel for the plaintiffs, of any separate property right, besides the patent, for working the patent.

The Court while parting with the case remarked that if the Plaintiffs want to institute a suit for the injury caused to the public via the misrepresentation, they can file a PIL as per rules of the court, however, no relief could be granted to them under the Specific Relief Act 1963 and the Suit in conclusion was dismissed.

Author: Suvangana Agarwal, Litigation Associate, at Khurana & Khurana, Advocates and IP Attorneys.  In case of any queries please contact/write back to us at suvangana@khuranaandkhurana.com.