However, in a regime of civil compensatory damages, can the conduct of a party during litigation legally justify an award that exceeds demonstrable loss? More specifically, when the Indian patent law provides no mechanism for enhanced damages, is the court's method of using the defendant's conduct as a royalty rate multiplier jurisprudentially sound or a workaround for a prevailing legislative gap?

The Notional Royalty Method v. The Deterrence Policy

The notional royalty framework considers the royalty rate that the parties would've otherwise agreed upon in a hypothetical negotiation conducted at the time the infringement commenced, with both parties assuming full knowledge of the patent's validity and the infringer's use.

In the CCA v. Rosenberger case, the single most probative reference point available to the court was the confidential license with CommScope, which was the only existing license for IN'893. Based on an examination of this license, the court arrived at a royalty range and then moved to a higher end of that range in reference to Rosenberger' conduct.

Ultimately, the court's implicit logic lies in the deterrence rationale which purports that an infringer who litigates in baith faith should be liable to pay more than a complaint licensee. Deterrence on the one hand is a legitimate policy objective; however, it is a rationale of criminal law and not a part of civil compensatory damages. It is important to note that civil courts are not ipso facto empowered to deter through damages, unless authorized by the legislature. Therefore, in the absence of a dedicated provision allowing royalty rate to be employed as a deterrence mechanism, such an approach risks judicial overreach even if well-intentioned.

What is interesting to note is that in case the court wished to punish Rosenberger's conduct through financial means, it had access to alternative means in the form of costs. A more doctrinally transparent approach would have been to award costs on an indemnity basis, while keeping the royalty rate anchored to the CommScope benchmark.

The conduct-adjusted royalties in absence of statutory will, has created a doctrinal instability which, if left unaddressed, would generate a range of practical implications and consequences for all future patent litigation in India.

Most pertinently, plaintiffs will now routinely attempt to construe a record of defendant's 'bad faith' by documenting delayed disclosures, unavailability of witnesses or withdrawn marketing materials, specifically in an attempt to argue and negotiate a royalty uplift at the damages stage. This approach risks creating an incentive to instrumentalise every procedural irregularity into an argument for damages, shifting patent trials towards collateral disputes about discovery behaviour rather than the merits of the patent itself.

The Reform Proposal

The solution to the doctrinal problem identified here is not to criticise the court's instinct – that was correct – but to provide a cleaner instrument in terms of statutory reliance.

First, a proactive amendment in the form of an addition of a sub-section to Section 108 of the Patent Act, stipulating enhanced damages in cases of wilful infringement or bad faith litigation conduct is recommended. The amendment may be inspired by the structure of 35 U.S.C. § 284 instead of creating an open-ended judicial discretion; specifying that enhanced damages may be awarded up to a defined multiple of the compensatory award, with a finding of wilfulness being a prerequisite and that the enhancement is a separately mentioned component of the judgement, subject to independent appellate scrutiny.

Secondly, pending such legislative reform, courts faced with such egregious infringers are recommended to adopt a uniform practice of incorporating a separate itemised head of recovery for awarding conduct-based royalties. This approach would help preserve the integrity of the original royalty rate at a figure which is anchored in market realities, while simultaneously making the deterrent component transparent and therefore open to challenge on appeal on an independent basis without delving into the validity of the suit patent once again.

Therefore, a combined order might be read as follows:

“Compensatory damages at a notional royalty of X% on infringing sales to the equivalent of ₹A. Additional damages for wilful and flagrant infringement, and/or bad faith litigation to the tune of ₹B. Total = ₹A + ₹B.”

The Delhi High Court's intuitive judgement in the present case is a thoughtful, creative and in essence a correct piece of judicial reasoning. Rosenberger infringed a valid patent, continued to litigate in bad faith, and therefore ought to pay substantially.

But instinct, however sound, is no comparison to doctrine. The mechanism employed by the court by employing a royalty rate way above the only market comparable available to it, solely on the basis of the defendant's conduct, performs the function of punitive damages in the garb of compensatory calculation.

Until the law joins pace, courts must employ an explicit, separately structured instrument for punishing flagrant infringement in order to avoid risking doctrinal costs.

Amit Kumar Panigrahi, Supervising Partner at Kochhar & Co

Sahil Arora ( Principal Associate) at Kochhar & Co

Ishikaa Seth (Associate) at Kochhar & Co

Views are personal.