Delhi HC Issues Directions For Sale Of Used Hard Disk Drives

It would be in the fitness of things to mention that while ruling on a very significant legal matter pertaining to the sale of used hard disk drives, the Delhi High Court in a most learned, laudable, landmark, logical and latest judgment titled Seagate Technology LLC vs Daichi International and other connected matters in CS(COMM) 67/2024, I.A. 4731/2024, I.A. 5897/2024, I.A. 6336/2024 & I.A. 6337/2024 and cited in Neutral Citation No.: 2024:DHC:4193 that was reserved on May 2, 2024 and then finally pronounced on May 21, 2024 has issued a slew of directions for the sale of used and refurbished hard disk drives (HDDs). There cannot be even an iota of doubt that it is these directions that constitute the cornerstone of this notable judgment. It thus merits no reiteration that these commendable directions definitely deserves to be implemented most promptly. So it is thus inevitable that we need to discuss first and foremost these commendable directions in detail that have been mentioned so brilliantly in the concluding part of this notable judgment.

Directions

Most significantly, what actually constitutes the real cornerstone of this notable judgment is then postulated in para 116 stating succinctly that, "Basis this analysis and discussion, the Court deems it fit to pass the following directions for sale of refurbished goods by the defendants. The defendants will be permitted to sell the refurbished HDDs, provided they comply with the following:

(i) Packaging to identify the source of the product: Packaging in which the refurbished product is sold, will clearly indicate that the HDD is manufactured by the concerned plaintiffs (Seagate or WD as the case may be). This may be displayed in a manner not to deceive the customer that the sale itself is of the original Seagate or WD i.e. it should be clear, but not dominating the packaging.

(ii) Reference to the original manufacturer is to be made through their word mark and not the device mark: Reference to the plaintiffs should be through their word marks as in "Seagate" or "WD", as the case may be. Defendant shall not use plaintiffs' logos, in order to not cause any deception to the consumer.

(iii) Packaging must specify that there is no original manufacturer's warranty: A clear statement must be made to the effect that there is no manufacturers' warranty or service by (Seagate or WD, as the case may be) on this product.

(iv) Packaging must specify that the product is "Used and Refurbished": A prominent statement on the front of packaging to the effect that the product is "Used and Refurbished" by the concerned defendants (Consistent or Geonix or Daichi, as the case may be)

(v) Statement as to extended warranty by the Refurbisher: A clear and prominent message that the warranty or service of specified years is being provided by the concerned defendants (Consistent or Geonix or Daichi, as the case may be), along with customer care details and contacts.

(vi) Packaging must reflect an accurate description of the features: An accurate, truthful, precise description of features and purpose of the refurbished product, without any misleading, half-truth, deceptive, ambiguous statements (which could potentially mis-inform the consumer as to the features of the product and the purposes for which it could be used).

(vii) All of the above should also be complied with by the defendants on promotional literature, website, e-commerce listings, brochures and manuals.

I.A. 1790/2024 (application under Order XXXIX Rules 1 and 2 CPC) & I.A. 7986/2024 (application under Order XXXIX Rule 4 CPC) in CS(COMM) 67/2024;

I.A. 2803/2024 (application under Order XXXIX Rules 1 and 2 CPC) in CS(COMM) 114/2024;

I.A. 4404/2024 (application under Order XXXIX Rules 1 and 2 CPC) & I.A. 7392/2024 (application under Order XXXIX Rule 4 CPC) in CS(COMM) 168/2024;

I.A. 5124/2024 (application under Order XXXIX Rules 1 and 2 CPC) in CS(COMM) 191/2024;

I.A. 5160/2024 (application under Order XXXIX Rules 1 and 2 CPC) in CS(COMM) 192/2024

At the very outset, this brief, brilliant, bold and balanced judgment authored by the Single Judge Bench comprising of Hon'ble Mr Justice Anish Dayal of Delhi High Court sets the ball in motion by first and foremost putting forth in para 1 that, "These suits have been filed by Seagate Technology LLC ("Seagate") and Western Digital Technologies Inc. ("WD") against the following parties: Daichi International ("Daichi"), Consistent Infosystems Pvt. Ltd.("Consistent"), Geonix International Pvt. Ltd. ("Geonix") and Cubicor Information Systems Pvt. Ltd. ("Cubicor")."

As we see, the Bench then lays bare in para 2 that, "The issue relates to refurbishment of Hard-Disk Drives ("HDDs"), which are imported into India by various importers, resold to refurbishers in India, who, in turn, remove the marks of ‘Seagate' or ‘Western Digital' from the HDDs, refresh and repackage it under their own brand names, and sell it as refurbished products with an extended two-year warranty."

Truth be told, the Bench then points out in para 3 that, "Apparently, there are three major manufacturers in the world of HDDs viz. Seagate, WD, and Toshiba. These HDD manufacturers supply their HDDs to various Original Equipment Manufacturers ("OEMs") for installation as part of laptops, desktops and other equipment. The HDDs have a lifespan, as prescribed by the manufacturers, and the HDDs are unserviceable by the manufacturers after the said period."

Do note, the Bench notes in para 4 that, "The HDDs, however, still retain functionality, and when used equipment is sold and discarded globally, consignments of these end-of-life HDDs are refurbished by various entities and sold to consumers. These refurbished HDDs are typically used for either assembled desktops or for surveillance cameras."

To be sure, the Bench observes in para 5 that, "Seagate and WD allege that these end-of-life HDDs could not be sold as refurbished products since the removal of their brand name from the product amounted to impairment, which was not permitted as per Sections 30(3) and 30(4) of the Trade Marks Act, 1999 ("Trade Marks Act")."

As things stands, the Bench then reveals in para 6 that, "Essentially, the argument was that these goods, which bore a registered trademark i.e. ‘SEAGATE' or ‘WD', were not lawfully acquired and were sold in the market or otherwise dealt with. Moreover, even if they were lawfully acquired, the condition of the goods had been changed or impaired after they were put on the market, and, therefore, cause of action arose in favour of the registered trademark owners."

Simply put, the Bench then propounds in para 7 that, "The issue, therefore, was of refurbished goods being sold after removal of the original brand, with no reference to the original manufacturers, thereby severing the umbilical cord with the original registered trademark owner; and whether in this situation an action for infringement or impairment could be considered."

To put things in perspective, the Bench then envisages in para 8 that, "These matters came up before two Coordinate Benches of the Intellectual Property Division of this Court and were subsequently clubbed together to be heard by this Bench. Two sets of orders were passed by the Coordinate Benches initially: (i) in some matters, ad interim injunction was passed restraining the defendants from selling or dealing with the refurbished HDDs; and (ii) in others, while the dealing was allowed, it had to be done with a disclaimer on the product packaging in a legible and discernible manner, to the effect that the goods in question were "used and refurbished goods". While the initial set of matters were being heard, couple of other proceedings were filed, in which injunctions had not been passed and they were kept for determination along with these connected matters viz. CS(COMM) 335/2024 filed by Seagate against Cubicor which was an importer of these HDDs."

Needless to say, the Bench states in para 71 that, "It is an admitted position that these refurbished HDDs sold by the defendants were originally manufactured by either Seagate or WD, were sold to OEMs, and these products became "end-of-life" when the warranty expired."

It is worth noting that the Bench notes in para 110 that, "The analysis in this article resonates with the interpretation, as discussed above, by the Court. The situation at hand, therefore, demands balancing the interest of trademark owners on one hand, the refurbishers in secondary markets on the other, consumers requiring a different price point on the third, and the goal of society as a whole to preserve resources and reduce waste. It is this balancing of interests, which imbues the opinion of this Court, and prompts the Court to pass directions as under."

Be it noted, the Bench notes in para 111 that, "Refurbished, secondhand, pre-owned goods exist in most countries of the world since it caters to a different market, that of a lesser paying customer. Originally manufactured goods, with their mint new warranty, are obviously sold at the maximum retail price and will be bought by people who require them and are ready to pay for them, which is the market of the manufacturer/ authorized distributor/wholesaler/ retailer. Once the sale has happened and the warranty period attached to the goods is exhausted, none of these entities i.e. manufacturer/OEM/ wholesaler/distributor/retailer in the chain would be liable for any repair or servicing. Of course, if the retailer for purposes of promoting its sale, decides to give an additional warranty over and above the manufacturer's warranty or the OEM's warranty, that will only be a sales incentive."

Finally, the Bench then concludes by directing in para 117 that, "Accordingly, these applications being I.A 1790/2024 and I.A. 7986/2024 in CS(COMM) 67/2024, I.A. 2803/2024 in CS(COMM) 114/2024, I.A. 4404/2024 and I.A. 7392/2024 in CS (COMM) 168/2024, I.A. 5124/2024 in CS (COMM) 191/2024, and I.A. 5160/2024 in CS (COMM) 192/2024 are disposed of in terms of the directions above.

CS (COMM) 335/2024 & I.A. 9181/2024

1. List before the Court for directions on 27th May, 2024.

CS(COMM) 114/2024

1. List before the Joint Registrar on 29th August, 2024.

2. Judgment be uploaded on the website of this Court."