EVIDENCE OVER ASSUMPTION: THE COURT’S STANCE ON CALCULATING IPR DAMAGES BY ADVOCATE ALOK KUMAR

1. FACTS OF THE CASE

The case concerned a dispute over alleged infringement of a registered trademark used for Ayurvedic eye drops. The respondent, a proprietor of a registered brand under the name “Nayan Jyoti,” claimed that the appellant, a family-run firm manufacturing Ayurvedic medicines, had unlawfully used a deceptively similar mark titled “Amrit Nayan Jyoti” for its products. The respondent alleged that the appellant had copied the essential features of the registered mark, including the color scheme, packaging design, and visual elements, thereby misleading consumers and benefiting from the respondent’s established goodwill. The District Court, after evaluating the evidence, held in favor of the respondent and awarded damages exceeding forty-eight lakh rupees along with litigation costs. The appellant challenged this decision before the Delhi High Court, primarily disputing the calculation of damages.

2. ISSUE BEFORE THE COURT

The appeal before the Delhi High Court raised two principal issues. First, whether the District Court possessed the necessary territorial jurisdiction to hear and decide the trademark infringement suit. Second, whether the computation of damages by the lower court was based on sound legal principles and supported by sufficient evidence, or whether it rested on conjecture and arbitrary assumptions.

3. COMPLEX TERMS USED IN THE JUDGMENT

The judgment employed several specialized legal and intellectual property terms. “Deceptive similarity” refers to the resemblance between two marks likely to mislead consumers about the source of goods. “Trade dress” denotes the overall appearance and packaging of a product that indicates its origin. The term “test purchase” describes a method where an investigator buys a product to verify allegations of infringement. An “account of profits” is a legal remedy requiring the infringer to surrender profits gained from infringement. Additionally, “ex parte injunction” signifies an interim order granted without hearing the opposing party, while a “Local Commissioner” is a court-appointed officer who inspects and reports on specific factual matters such as seizure of goods.

4. CONTENTIONS OF THE PETITIONER (APPELLANT)

The appellant contended that the District Court’s award of damages lacked an evidentiary foundation. It argued that the respondent had not submitted credible proof or calculations to justify the damages claimed. The appellant objected to the assumption that the seized goods represented one month’s stock and to the use of the maximum retail price rather than actual profit margins in computing losses. It was also alleged that the product price had been incorrectly taken as forty-five rupees instead of the actual selling price of forty rupees per unit. Furthermore, the appellant maintained that damages could not be assessed on the value of packaging materials or on speculative assumptions about duration of business. The appellant emphasized that the respondent’s submissions on damages were presented only at the stage of final written arguments, without cross-examination or verification. Lastly, the appellant asserted that it was manufacturing its product lawfully under a valid Ayurvedic license and had not acted in bad faith.

5. CONTENTIONS OF THE RESPONDENT

The respondent maintained that the lower court’s decision was correct and supported by available evidence, including the report of the Local Commissioner, who had seized infringing goods from the appellant’s premises. It was argued that since the appellant had withheld its financial records and failed to contest the claim effectively, the District Court was justified in estimating damages on the basis of the commissioner’s findings. The respondent relied on judicial precedents permitting reasonable estimation of damages when an infringer suppresses evidence of its sales or profits. It was further contended that the appellant’s affidavit consenting to part of the decree amounted to implicit acknowledgment of liability and that no proof had been provided regarding the appellant’s alleged manufacturing license for the disputed goods.

6. DISCUSSION ON RELEVANT LAWS AND RULES WITH EXAMPLES

The Court examined the statutory framework governing such disputes, notably Section 135 of the Trade Marks Act, 1999, which authorizes courts to award injunctions and damages in infringement cases. However, the Act does not prescribe a formula for determining damages. The Court, therefore, referred to Rule 20 of the Delhi High Court Intellectual Property Rights Division Rules, 2022, which outlines factors for assessing damages — including lost profits, profits earned by the infringer, the duration and intent of the infringement, and the conduct of the infringing party. The Court cited important precedents such as Banyan Tree Holding (P) Ltd. v. A. Murali Krishna Reddy, which established tests for jurisdiction in online infringement cases; Kabushiki Kaisha Toshiba v. Tosiba Appliances Co., emphasizing that damages must be proven with evidence; and Koninklijke Philips v. Amazestore, recognizing compensatory principles for repeated infringement. These authorities collectively underscore that damages in intellectual property cases must be based on clear, demonstrable evidence rather than on estimation alone.

7. COURT’S OBSERVATIONS

The High Court held that the District Court had correctly exercised jurisdiction, since the appellant’s interactive website allowed customers in Delhi to place orders and receive deliveries, thereby satisfying the “sliding scale” and “effects” tests for online commercial activity. However, on the question of damages, the Court found significant procedural and evidentiary flaws. It observed that the respondent had not produced adequate proof of financial loss or submitted any verified records to support the claim for damages. The computation made by the District Court, based on the assumption of one month’s stock and doubled to cover two months, was found to be arbitrary and lacking factual foundation. The Court reaffirmed that the burden of proving damages rests on the claimant and that compensation cannot be based on hypothetical calculations. The absence of cross-examined evidence and rational methodology rendered the damages award unsustainable.

8. JUDGMENT

The Delhi High Court partly allowed the appeal. It upheld the findings of infringement and jurisdiction but set aside the damages awarded by the District Court. The case was remanded for fresh consideration solely on the question of damages, directing the lower court to permit both parties to present proper financial evidence and expert analysis if required. No costs were imposed, and the appellant was permitted to withdraw the amount deposited during the proceedings. This judgment highlights an important principle in intellectual property law: while protecting trademark rights is essential, courts must ensure that any monetary awards are grounded in verified evidence and rational analysis rather than speculation. It reflects a careful balance between safeguarding intellectual property and maintaining fairness in compensatory justice.

DATE OF DECISION

12.11.2025

CASE NUMBER

RFA(COMM) 214/2025