Monthly Archives: October 2017

Sarine Technologies Ltd v. Divora Bhandari Corporation & Ors

When it comes to one of the most contentious aspects of copyright law in software, two things come to our mind:

  1. The idea-expression dichotomy and;
  2. Which part of software is copyrightable, and which part is patentable.

The present case of Sarine Technologies Ltd. v. Divora Bhandari Corporation &orsunfolds many perplexing facts of the copyright Law.

The Plaintiff is an Israeli company established in 1988 that is engaged with the business of providing diamond dealers/ merchants with the best in class equipment and services for mapping, processing, and trade of diamonds and other gemstones.They developed“Advisor” software that generates an optical planning and polishing plan so that maximum value can be derived from rough stone in furtherance of its business.

The plaintiff claimed their copyright ownership on the software “Advisor”, stating that computer program comes under the domain of copyright, and therefore the same is claimed under copyright ownership on the ‘sixth version of the Advisor software’ in the USA and Israel through registration and common law respectively. They claimed the same in India as well. Further, they asserted that Defendants illegally use their Advisor software, and have also ‘developed pirated software copy’ in the name of “Mandakini- Work Manager”, leading to their unjust enrichment, and hence the defendants are liable under section 51 of the Copyright act, 1957.

On the other hand, Defendants are engaged in the business for four years for providing scanning services to diamond merchant, and also provide such scanning machines for sale to its customers. For this purpose, they have developed software namely ‘Mandakini- Work Manager’ without any reference to the plaintiff’s software.

The suit was originally filed in the district court of Surat for infringement by the defendants under sections 51 r/w 55, 58,63 and 63B of Copyright Act, 1957, where the permanent injunction restraining the defendants to engage with the copyrighted software and damages prayed by the plaintiffs which were enhanced to INR 50 Crores due to which it was transferred to Commercial court in consonance with the pecuniary jurisdiction.Further, plaintiffs filed an “Interim Injunction Application” under Order XXXIX Rules 1 and 2 of the Code of Civil Procedure, 1908 seeking an ex parte ad interim injunction restraining the defendants from using, distributing, selling, offering for sale any inclusion scanning services which is claimed to have been infringed by the defendants.

There were few questions that were answered in the proceedings of the case:

  1. How has the plaintiff claimed its copyright protection in India when neither it is first published nor it is registered in India?

 Plaintiff  has copyright ownership on the ‘Avisor software version 6.0’ in Israel, as it was first published in the country and they claimed copyright in the USA through copyright registration according to Title 17 of US copyright Act.[1] Both these countries are party to the Berne Convention and so is India. By virtue of being signatory to the Berne Convention, the plaintiff can claim their copyright ownership on the said software.[2]In addition to this, section 40 of the Copyright Act, 1957 enables the plaintiff to copyright protection in India as it extends protection to the foreign works.

The defendants alleged that there is no evidence as to whether the software is being developed by the employees in ‘contract of service’ or ‘contract for service’. To this, the plaintiff put forth that where the work is developed in course of the author’s employment, under contract of service or apprenticeship, the employer shall be the first owner of the work of copyright, in absence of any agreement to the contrary.[3] Further, plaintiffs cleared that although they have copyright in version 6 of their software, due to this reason, they have copyright in all derivative works which include previous versions of the computer programme as well.[4]

  1. Whether the software is copyrightable or not?

Going by the statutory provisions, section 2 (o) of the copyright Act, 1957, computer program is included in the definition of ‘literary work’ but not software per se. Further, section 2 (ffc) defines computer programs as set of instructions expressed in words, codes, schemes or in any other form including machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result. This principle was also supported in SAS Institute Inc v World Programming Ltd[5], where the EU court of justice, by referring to the Software directives held that expression of ideas in form of source code/ object code is protected under the copyright law and not the ideas in form of functionality.In the present case, the plaintiff claimed that they have copyright over their software in the USA through its registration under statutory provisions[6] and in Israel through common law.

Consequently, another question arose pertained to where the functionality aspect of the software falls? The plaintiff claimed that their software was the only software that could scan the diamond for marking the edges to be cut by the diamond cutters in the diamond industries. Additionally, they stated that in order to provide inclusion scanning services, Defendants have ‘developed pirated software’ and prayed for injunction referring to Microsoft Corporation v. Vijay Kaushik, where the court granted an injunction on account that the defendants had pirated the plaintiffs software.The plaintiff had also submitted few evidences in sealed envelope under section 151 of CPC, 1908, requesting the court to not to disclose the same to the Defendants. This was refuted by the Defendants stating that this is against the natural justice not to show the evidences on which certain allegations are made out on the Defendants. It was further argued by the Defendants that development of software cannot be referred to as ‘piracy’ as Piracy pertains to use of an unlicensed software or use under an invalid license, and therefore reference to the term “developed a pirated software” is technically incorrect, and demonstrates Plaintiffs’ incorrect understanding of how software works and where Copyright subsists in the software. In the present case, the Defendant independently developed their own software by using their own intellect and therefore the source code of the Defendants’ software is completely different from that of the Plaintiff, which scans the diamonds as to show edges of diamond which are to be cut and polished. Therefore, although functionality of Gal Manager of Plaintiff may be overlapping with Work Manager of the Defendant, the implementation/source code/object code is completely different, which is a clear indicator of non-infringement on the copyright of the Defendant. Moreover, law of copyright does not protect ideas/functionality and instead only gives protection to the particular/specific expression of ideas.[7] Defendants also claimed that they used Advisor software (version 4.7) only by acquiring licence, and that the same was clearly stated in the report of the Local Commissioner. Thus, the defendants cannot be held liable for infringement of copyright.

Lastly, Plaintiffs claimed that results generated by the Defendant’s software are deceptively similar to theirs by relying on reports of Private Investigator appointed by them. The report stated that the output result of the scanned diamond through the Defendant’s software was the same as that of the plaintiff’s output result of Advisor software.The Defendants averred that this appointment of private investigator is flawed as no procedure of law was followed and thus, the veracity of the report cannot be relied upon. However, by looking at the plaintiff’s claim comprehensively, the Plaintiff only focussed on the output results/functionality of the defendant’s software, which does not determine copyright infringement. Neither did the Plaintiff disclose any source/object code that it claims to have been infringed by the Defendants, nor did it demonstrate any similarity in the source/object code by comparing it with the Work Manager software of the Defendants.  Moreover, source code can be written in different ways to perform similar function, which need not infringe any copyright of others. This is the rationale behind computer program coming under the ambit of ‘literary work’ for Copyright protection. Like so, the Defendant has independently developed software‘Mandakini- work manager’ that provides a similar file with different codes without any infringement.Defendants agreed that they are using advisor software version 4.7 but only licensed version of said software, which was clearly evidenced in the report of Local commissioner who was appointed by the High Court of Gujarat to investigate defendant’s premises on 28th June, 2017. This was initially prayed by the plaintiff under order XXVI Rule 9 and 10 of the Civil Procedure Code,1908, before the district court which was denied. However, it was successfully appealed in the High Court.

Further in support of their contention, Defendants referred to SAS Institute Inc v World Programming Ltd[8] where the Chancery court, by referring to the software directives, held that “only the expression of a computer program is protected and …ideas and principles which underlie any element of a computer program…are not protected by copyright.’[9]It was upheld by the Court of appeal. The applicability of this case was questioned by the plaintiff as the referred directive was repealed and also that the software directives are based on local European Laws. But in the present case the Hon’ble court confirmed that new directives[10] are in consonance with the Berne Convention and clearly mention the above held decision by the Chancery Court, hence affirmed the applicability of the said case.

The court raised its concern over the fact that the plaint was silent on comparison of the source code and object code of both the software- ‘Advisor’ and ‘Mandakini- work manager’. The plaint has only focussed on functional aspect of the software mentioning that the extension files generated by plaintiff’s as well as defendant’s software is same, which is subject matter of patent and not copyright. The court highlighted the principle that expression of idea is protected under the copyright law and not the ideas[11].Protection to ideas extends only to the protection granted by Patents. The court referred to Lotus Development Corporation v. Borland International Inc[12], where the United States Supreme Court had upheld that only the object code and source code is protected under copyright and not the operating and application software. The court tested the three step process called Abstraction-Filtration-Comparison Test which would determine the non literal elements of software that are protected by Software.[13]  The court did not find any incriminatory results that prove defendants wrong. Lastly, the court relied upon the reports of Local commissioner, who was appointed to inspect the defendant’s premises, where they did not find any infringing material. Hence on considering three issues, i.e. a) whether the matter is a prima- facie case of copyright infringement, b) where do the balance of convenience lie and; c) whether the plaintiff has suffered an irreparable loss. The court declared that the plaintiff could not proof the validity of the suit filed by them, hence no prima-facie case could be established and therefore, the Hon’ble court dismissed the petition.

Therefore, it is clear from the present case that the Court has firmly quoted that copyright does not protect ideas but only the expression of those ideas. The court made it clear in case of computer programs that only the expression of a computer program is protected, and ideas/principles that underlie any element of a computer program are not protected by copyright. Accordingly,  the court dismissed the petition.

[1] Section 101 : Definition of Computer Program; Section 102: subject matter of copyright.

[2]Article 1, Berne Convention For Protection Of Literary and Artistic Works: The countries to which this Convention applies constitute a Union for the protection of the rights of authors in their literary and artistic works.

[3]Section 17, proviso (c)

[4]Aspen Tech.,Inc. V. M3 Tech., Inc.

[5][2012] E.C.D.R. 22

[6]Title 17 of the United States Code

[7]Mishra BandhuKaryalay&Ors v. Shiv RatanlalKoshal, AIR 1970 MadhPra 261

[8][2012] E.C.D.R. 22

[9]SAS Institute Inc v World Programming Limited; [2013] EWCA Civ 1482

[10]Directives 2009/24/EC

[11]R.G Anand v. Delux Films &ors, AIR 1978 SC 1613)

[12] Lotus Dev. Corp. v. Borland Int’l, 49 F.3d 807, 1995 U.S. App.

[13]Computer Associates International, Inc. V. Altai, Inc. 982 F. 2d 693(2nd Circuit, 1992)

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Curious Case of Corporate Viel in Revocation Petition

This case pertains to a suit filed by Galatea Ltd. & Anr (Petitioners), against Diyora & Bhanderi Corporation (Defendants) and thirteen other defendants, for infringing of its patent IN 271425 (suit patent) for a ‘device which eliminates presence of gas bubbles from the immersion medium”. Along with the suit, the plaintiffs filed an application under order 39 Rule 1 & 2 of Civil Procedure Code, seeking interim injunction restraining the latter from using, selling or offering to sell the patented device, which was denied by the district court Vadodra. Later, it was appealed by the Plaintiff in High Court that appointed a local commissioner to make a report on investigation held in the defendants’ premises and remanded the case back to the district court.

The defendants filed written statement denying all the allegations made by plaintiff, and also filed a counter claim under section 64 (1) (e) and (f) of Patent Act, 1970 for revocation of the patent in the High Court of Ahmedabad due to lack of  novelty[1] and inventive steps[2]. The proviso to section 104, Patent Act, 1970, necessitates the transfer of the case to the High Court.

The issue that the Plaintiff raised was that revocation by means of counter-claim filed by Defendant Nos. 4 & 5 before High Court is not maintainable as revocation petition has already been filed by Defendant no. 3 before the IPAB, being the same entity as Partners in Defendant no. 3 are directors in Defendant Nos. 4 and 5.

PLAINTIFF’S CONTENTION

Plaintiff relied on the case of Saurabh Exports v. Blaze Finance & Credits (P.) Ltd[3]where the Defendants entered into an agreement with the Plaintiff under which the Plaintiff made a deposit of 15 lakhs in the company, which the defendants failed to pay and all the defendants denied their liability to repay the same. Hence, the court lifted up the corporate veil on the basis that, theDefendants’companieswere a family arrangement made to defraud the Plaintiff under the cloak of a corporate entity. This makes the company and the directors liable. Referring to this case, the Plaintiff claimed that since partners and directors of Defendant Nos. 3, 4, and 5 are same, corporate veil of Defendant nos. 4 and 5 should be lifted and counterclaim should not be maintainable as it would lead to same relief of patent invalidation being asked through two judicial entities (IPAB and High Court). Thus, the Plaintiff argued that Defendant entities are not separate but are alter-egos of each other and that multiple entities of Defendants are created to conceal improper activities conducted by them. Where the corporate charter is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned.[4]

Plaintiff referred to the case of Dr. Alloy Wobben & Ors. V. Yogesh Mehra & Ors,[5]where the court held that the use of the word or” in Section 64(1) demonstrates more than one remedies but that cannot be simultaneously used.Further, it was argued by the plaintiffs that since defendant no. 3 have already filed a revocation before IPAB, the revocation petition filed by Def. Nos. 4 and 5 are not sustainable as all of them are single entity. Hence, the subsequent revocation filed before the High Court must be stopped as the Defendants cannot avail dual remedy for the same cause of action, thereby making the counter-claim non-sustainable.

DEFENDANT’S CONTENTION

Defendants first highlighted a principle of Patent Law that if validity of a patent is challenged, i.e. revocation is pending for the patent suit, then no injunction can be granted.[6] Thus, plaintiff’s interim application under order 39 rule 1 & 2 of CPC, for seeking ex- parte injunction restraining the defendants from manufacturing, selling, offering for sale any infringed device must be rejected.

Defendants submitted their arguments on two grounds:

  1. Defendants asserted that Defendant nos. 3, 4, 5 are different entities.Defendant no. 4 and defendant no. 3 are completely different entities dealing with different line of business, although partners and directors are common. They explained,“Each company is a separate and distinct legal entity and the mere fact that two companies have common shareholders or common Board of Directors, will not make the two companies a single entity. Nor will existence of common shareholders or Directors lead to an inference that one company will be bound by the acts of the other.”[7] With regard to Defendant no. 5, it is totally a different entity as it is Private Ltd Co, incorporated under Company Act, 1956 comprising of different partners. The plaintiff has itself involved defendants 4 and 5 in the present suit, resulting them to have locus-standi in the case to file a revocation petition by means of a counter-claim according to section 64 of Patent Act, 1970.
  2. Corporate veil is applicable only in certain cases such as Tax evasion, fraud, enemy character, ultra vires Act, and act against public interest, negligent activities or company avoiding legal obligations. They further emphasized that corporate veil is a rule, and lifting of corporate veil is an exception that can be done only on limited circumstances. Corporate veil should be applied only in scenarios where it is evident that company was a mere camouflage or sham deliberately created by persons exercising control over the said company for the purpose of avoiding liability.[8]Thus, lifting of corporate veil is not valid in the present case as the defendant’s business is a bona fide company incorporated having a separate juristic entity.

JUDGEMENT:

Consequently, the District court of Vadodra, decided the whole case by discussing the following two issues.

Issue 1: Whether defendant no. 3, 4 and5 are different entities or not?

Defendant no. 3 is a partnership firm, and all partners of defendant no. 3 are the directors of defendant no. 4, which is a private Ltd. Company. Thus, these two entity are not independent of each other, rather they are an alter – ego of each other. Thus, the counter claim with regard to defendant no. 4 is not maintainable. However, defendant no.5 is a Private Limited Company incorporated under Company Act, 1956, having different directors. Hence, it is completely a separate entity from defendant 3 and 4.

Issue 2: Whether the ‘Lifting of corporate veil’ applicable on the present case?

The court held that corporate veil cannot be lifted and in case of defendant no. 5, no case has been raised by the plaintiff where defendant no. 5 falls under the scope ‘corporate veil’ as corporate veil can be lifted only in certain cases as mentioned by the defendants by referring to plethora of cases.[9]The plaintiff could not put the defendant company in fissures of those specific cases. The court listed out following six legal positions where the  corporate veil can be lifted:[10]

  • ownership and control of a company were out enough to justify piercing the corporate veil;
  • the Court cannot pierce the corporate veil, even in the absence of third party interests in the company, merely because it is thought to be necessary in the interests of justice;
  • the corporate veil can be pierced only if there is some impropriety;
  • the impropriety in question must be linked to the use of the company structure to avoid or conceal liability;
  • to justify piercing the corporate veil, there must be both control of the company by the wrongdoer (s) and impropriety, that is use or misuse of the company by them as a device or façade to conceal their wrongdoing; and
  • the company may be a ‘façade’ even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions.

Thereby, on discussing the above issues, the Hon’ble Court dismissed the counter-claim of defendant no. 4 for the reason that it is the same entity as of defendant no.3. But the court accepted the counter-claim submitted by defendant no.5 taking it as a separate entity from Defendant nos. 3 and 4. Thus, the court ordered for transfer of the case to High Court of Gujarat according to Section 104 of Patent Act.

[1] Section 64 (1) (e) of the Patent Act : that the invention so far as claimed in any claim of the complete specification is not new, having regard to what was publicly known or publicly used in India before the priority date of the claim or to what was published in India or elsewhere in any of the, documents referred to in section 13:

[2]Section 64 (1) (e) of the Patent Act : that the invention so far as claimed in any claim of the complete specification is obvious or does not involve any inventive step, having regard to what was publicly known or publicly used in India or what was published in India or elsewhere before the priority date of the claim:

[3] [2006] 133 Comp. Cas. 495

[4]Singer India v. Chander Mohan Chadha[2004] 122 Comp. Cas. 468 (SC)

[5][(2014) 15 SCC 360]

[6] TVS Motor Company Limited v. Bajaj Auto Limited, 2009 (40) PTC 689 (Mad); Standipack Private Limited v. Oswal Trading Co. Ltd., 1999 (19) PTC 479.

[7]Indowind Energy Ltd vs. Wescare (I) Ltd.& Anr, AIR 2010 SC 1793

[8] Balwant Rai Salulja V/s. Air India Ltd., AIR 2015 SC 375

[9]Saurabh Exports V/s. Blaze Finlease and Credits Pvt. Ltd.  (supra); Chander Mohan Chadha and Ors.,(supra), Delhi Development Authority; Indowind Energy Ltd. V/s. Wescare; Balwant Rai Salulja V/s. Air India Ltd.(supra)

[10]Balwant Rai Salulja V/s. Air India Ltd.,AIR 2015 SC 375

IPOS: Launch of Patents Formalities Manual

Recently, Singapore’s IP regime has seen a rapid growth and is gradually becoming Intellectual Property centre/hub in entire Asia.  To strengthen its Patent regime, few days back,  [3] the Intellectual Property Office of Singapore (IPOS),   on 24 Jul 2017 launched a ‘Patents Open Dossier” [1] to provide a single point of access for innovators enabling them to access published patent documents. The POD provides easy access to the applicant as well as the third party to keep track of patent applications, amongst other services.

Further, on 1 August 2017 IPOS [2] launched an online “Patents Formalities Manual” as part of their ongoing efforts to update their practices for helping inventors/innovators on their patent applications and improve on the turnaround time for the application process. This manual can be accessed by general public through the online portal of IPOS https://www.ipos.gov.sg/ [4]. This manual provides set of guidelines detailing the Registry’s practices, procedures and requirements for Patent applications and national phase entry for International applications, in Singapore. The “Patents Formalities Manual” is designed to provide the applicants with a better understanding of the procedures for applying a patent application under the Singapore patents act & rules as well as the procedure for applying as a national phase entry of the Patent Co-operation Treaty (PCT).

Out of many others, the “Patents Formalities Manual” is the most recent step taken by IPOS in enhancing the user experience for their applicants or other stakeholders by aiming to improving the filing accuracy in their patent applications with the IP office and address issues encountered during patent application process.

Patent applicants can refer to the manual on ‘https://www.ipos.gov.sg/resources/patent’ [5] for the most current practices. On this page, the applicants can access all the necessary & relevant documents which are related to filing for a patent in Singapore. The applicants may also refer to the manual to help in their filing process. Some of the documents are:

  • Forms & Fees For Filing In Singapore
  • PCT Forms & Fees
  • Guidelines and Useful Information
  • Circulars
  • Practice Directions

 

References:

[1]https://www.ipos.gov.sg/media-events/happenings/ViewDetails/launch-of-patents-open-dossier/

[2]https://www.ipos.gov.sg/media-events/happenings/ViewDetails/launch-of-patents-formalities-manual/

[3]https://www.ipos.gov.sg/docs/default-source/about-ipos-doc/full-report_update-to-ip-hub-master-plan_final.pdf?sfvrsn=2

[4]https://www.ipos.gov.sg/

[5] https://www.ipos.gov.sg/resources/patent

Author: ShilpiSaxena, Jr. Patent Associate at Khurana & Khurana Advocates and IP Attorneys can be reached at shilpi@iiprd.com.