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High Court Rules That Claims For Trade Secret Protection Become Invalid If The Innovation Forms Part Of The Public Domain Despite The Know-how Agreement.

Ifrah Murtaza ,
  07 December 2023       Share Bookmark

Court :
Hon’ble High Court of Delhi
Brief :

Citation :
CS(OS) 576/2019, IA No.15741/2019

Case title: 

Prof. Dr. Cluadio De Simone & Anr. v. Actial Farmaceutica SRL. & Ors.

Date of Order: 

17th March 2020

Bench: 

Hon’ble Mr. Justice Rajiv Sahai Endlaw

Parties: 

Plaintiff(s): Prof. Dr. Cluadio De Simone & Anr.

Defendant(s): Actial Farmaceutica SRL. & Ors.

SUBJECT:

In this legal case, the plaintiffs claimed that the defendants engaged in unfair competition, passing off, and unjust enrichment by marketing a new product called "VSL#3," allegedly relying on the studies and reputation of the plaintiffs' patented product, "De Simone Formulation." The Hon’ble High Court of Delhi (hereinafter referred to as ‘the High Court’ or ‘the Court’), however, dismissed the case, stating that the plaintiffs failed to establish a cause of action. The Court emphasized that the plaintiffs lacked existing patent protection in India, and the U.S.-based patent for their product had expired, rendering the innovation part of the public domain. As a result, the court found no basis for the reliefs claimed by the plaintiffs and dismissed the suit.

IMPORTANT PROVISIONS:

The Constitution of India, 1950:

  • Article 19
  • Article 21

The Code of Civil Procedure, (CPC):

  • Order VI Rule 17

The Specific Relief Act, 1963 (SRA):

  • Section 4

The Drugs and Cosmetics Act, 1940 (DCA):

  • Section 2(b)

The Income Tax Act, 1961:

  • Section 6

The Contract Act, 1872:

The Trade Marks Act:

  • Section 27(2)

The Patents Act, 1970:

  • Section 48
  • Section 7
  • Section 10
  • Section 25
  • Section 84

OVERVIEW:

  • Professor Dr. Claudio De Simone (plaintiff) developed a probiotic formulation known as the De Simone Formulation in the late 1990s, consisting of eight strains of bacteria.
  • The formulation was patented in the US, and even though the patent expired in 2015, the plaintiff claims ownership of the know-how and the blending ratio of the strains.
  • Various agreements were made between the parties for the commercialization of the formulation, including a Product Development and Collaboration Agreement.
  • Over time, there were changes in the ownership structure of the companies involved, and the formulation was marketed under the brand VSL#3.
  • Disputes arose when the CD Group, including some defendants, allegedly modified the formulation with cheaper ingredients and continued to sell it under the VSL#3 brand.
  • Professor Dr. Claudio De Simone terminated agreements and collaborations with the CD Group in 2014.
  • The defendants are accused of launching a new product (referred to as the new VSL#3) that allegedly deviates from the original De Simone Formulation, causing confusion and deception in the market.
  • The plaintiffs seek permanent injunctions to prevent the defendants from manufacturing, selling, or advertising the new product without proper approval. They also want to restrain the defendants from using VSL#3 or any similar brand and linking their product to Professor Dr. Claudio De Simone or the original formulation.
  • The case revolves around intellectual property rights, breach of agreements, and alleged deception in marketing a probiotic formulation.

ISSUES RAISED:

  • Whether a patent can exist without disclosing know-how for others to make the patented product after the patent term expires?
  • Whether enforcing such rights would violate Section 27 of the Contract Act?
  • Whether there can be any tort in India contrary to the statutory law, specifically Section 27 of the Contract Act?

ARGUMENTS ADVANCED BY THE PLAINTIFF(S):

  • The defendants were selling products deceptively like the plaintiff’s.
  • The defendants were selling the product without permission from the Drug Controller General of India (DCGI).
  • The claim for permanent injunction was based on the concept of unjust enrichment rather than the similarity of trademarks.
  • Even if the patent had expired, they could assert rights in the trade secrets associated with the patented product based on the argument that the subject matter of the patent and the subject matter of the know-how were distinct.
  • Individuals or entities to whom the plaintiffs had disclosed the know-how under a contract could not take undue advantage of that disclosure, and their liabilities under the confidentiality agreement had to continue even after the expiration of the patent and the agreement.
  • The intellectual property rights could exist in a trade secret, even if not explicitly recognized by Indian statutes on intellectual property, referring to Section 6 of the Income Tax Act, 1961.
  • Reference was made to the case of Mohan Rawale vs. Damodar Tatyaba Alias Dadasaheb (1994) to argue that the mere weakness of the case is not a ground for striking it out if some cause of action is disclosed.

JUDGEMENT ANALYSIS:

  • The court considered the contentions of the plaintiffs and concluded that the plaint does not disclose a cause of action against any of the defendants on the grounds of passing off their goods as that of the plaintiffs.
  • The plaintiffs claim that De Simone Formulation, which is alleged to be passing off, is a patented product. However, the patent mentioned is under the laws of the USA, and the plaintiffs do not assert that De Simone Formulation had any patent in India.

Unlike intellectual property in trademarks, where the common law tort of passing off is statutorily recognized, there is no common law right in an invention, as claimed by the plaintiffs for De Simone Formulation.

  • The court referenced several cases, including Entertainment Network vs. Super Cassette Industries, Times Warner Entertainment Company vs. RPG Netcomm, The Gramophone Company of India vs. Super Cassette Industries, and Bristol-Myers Squibb Holdings Ireland Unlimited Company vs. Natco Pharma, to emphasize that intellectual property rights in copyright, designs, and patents are purely statutory and do not encompass common law rights of unfair competition or unjust enrichment.
  • It is not within the court's authority to legislate new categories of intellectual property, and it should not create judicial remedies to address what it considers unfair.
  • The court argued that recognizing a general action for unfair competition would be inconsistent with the established limits of traditional and statutory causes of action available to a trader.
  • Recognizing a general misappropriation or unfair competition theory would create a non-existent distinction between copying and appropriation or misappropriation.
  • If an agreement is not contractually enforceable, it cannot be enforced by invoking the law of torts. This underscores the principle that legal remedies, whether contractual or tortious, must adhere to the established legal framework.
  • Unlike in England where restraints of trade may be valid if reasonable and necessary, in India, agreements in restraint of trade are governed by Section 27 of the Contract Act. The question of the reasonableness of restraint is not within the purview of Section 27.
  • The Court noted that Section 27, after the promulgation of the Constitution of India, has a different connotation given the status of the Fundamental Right to practice any profession or to carry on any occupation, trade, or business under Article 19(1)(g).
  • The court emphasized that restrictions on this right can only be imposed by law, in the interest of the public, and if reasonable.
  • The plaintiffs do not have any rights concerning De Simone Formulation and, therefore, cannot prevent the defendants from claiming their product to be the same as De Simone Formulation. The absence of rights in De Simone Formulation precludes the plaintiffs from asserting any claim in this regard.
  • Asserted that legal remedies, whether contractual or tortious, must adhere to established legal principles.
  • The court rejected the argument that an invention without a patent and no property right therein can acquire property rights through a third person entering into a Know-How exchange agreement.
  •  Confidential information and trade secrets, without patent protection, are not equated to property in India.
  • Emphasizing that Know-How, without a patent application, was in the public domain, rejecting the claim for trade secret protection.
  • Plaintiffs were unable to show a personal cause of action, leading to the dismissal of the suit.

CONCLUSION:

The High Court dismissed the plaintiffs' suit seeking a permanent injunction against the defendants. It found no merit in the plaintiff's claim of a separate property right beyond the patent for De Simone Formulation, emphasizing that plaintiff no.1 lacked rights in India without a patent. The court highlighted the public interest nature of the claim and suggested pursuing a Public Interest Litigation following court rules. Regarding the claimed reliefs, especially permanent injunctions, the court stated that they fall under the Specific Relief Act, 1963, applicable to individual civil rights. As the plaintiffs failed to establish such rights, the court concluded that they were not entitled to the relief of injunction, ultimately dismissing the suit without costs.

 

 

 
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