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TEAM CODE:

RG08

3rd IIT LAW SCHOOL NATIONAL MOOT COURT COMPETITION, 2016

IN THE HONBLE SUPREME COURT OF ARYAVARTA

Special Leave Petition No. ________/2016


(Under Article 136 of the Constitution of Aryavarta)
Sartri Pvt. Ltd. and Zen _____________________________________________ Petitioners
v.
Vinshuk Pvt. Ltd. and Ors. __________________________________________ Respondents

Special Leave Petition No. _______/2016


(Under Article 136 of the Constitution of Aryavarta)
Sartri Pvt. Ltd. _____________________________________________________ Petitioner
v.
Income Tax Appellate Tribunal _______________________________________ Respondent

Transferred Writ Petition No. _______/2016


(Under Article 139A of the Constitution of Aryavarta)
Aksmit Impex ______________________________________________________ Petitioner
v.
Commissioner of Customs ___________________________________________ Respondent

Most respectfully submitted before the Honble Judges of the Supreme Court of Aryavarta

WRITTEN SUBMISSION ON BEHALF OF PETITIONERS


DRAWN AND FILED BY COUNSELS FOR THE PETITIONER

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TABLE OF CONTENTS

TABLE OF ABBREVI ATION ........................................................................................... III


INDEX O F AUTHORI TIES ............................................................................................... VI
STATEMENT OF JURISDICTION ................................................................................ XII
STATEMENT OF FACTS ............................................................................................... XIII
ISSUES RAISED............................................................................................................. XVIII
SUMMARY OF PLEADINGS ......................................................................................... XIX
ARGUMENTS ADVANCED.................................................................................................. 1
I.

THAT THE FIRST-SALE/EXHAUSTION DOCTRINE IS NOT APPLICABLE ON


THE INITIAL SALE OF RISKA KITS. .................................................................. 1
A.

THAT THE FIRST SALE OF RISKA KIT IN EU WAS A CONDITIONAL

SALE. ................................................................................................................................. 1
B.

THAT THE PATENT RIGHTS WERE NOT EXHAUSTED. .............................. 6

C.

THAT EVEN IF AN UNCONDITIONAL SALE TOOK PLACE,

EXHAUSTION IS NOT APPLICABLE. .......................................................................... 7


II.

THAT HUN SHUI, AKSMIT IMPEX AND VINSHUK ARE LIABLE FOR
PATENT INFRINGEMENT. ..................................................................................... 11
A.

THAT VINSHUK AND AKSMIT IMPEX ARE LIABLE FOR DIRECT

INFRINGEMENT. ........................................................................................................... 11

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B.

THAT VINSHUK AND HUN SHUI ARE LIABLE FOR INDUCING

INFRINGEMENT. ........................................................................................................... 13
C.

THAT THE RESPONDENTS ARE LIABLE TO PAY DAMAGES FOR THE

PETITIONERS LOSS OF GOODWILL AND CUSTOMER RELATIONSHIP. ......... 15


III.

THAT THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD IS NOT


THE MOST APPRORIATE METHOD FOR DETERMINING ARMS LENGTH
PRICE FOR SARTRIS TRANSACTION. ............................................................... 17

A.

THAT THE TPO ERRED IN APPLYING THE CUP METHOD. ...................... 17

B.

THAT TNMM IS THE MOST APPROPRIATE METHOD. ............................... 18

IV.

THAT THE FUNDAMENTAL RIGHT TO PROPERTY OF AKSMIT IMPEX HAS


BEEN VIOLATED. ................................................................................................... 21
A.

THAT THE SEIZURE OF PROPERTY WAS MADE IN AN UNFAIR AND

ARBITRARY MANNER, WITHOUT FOLLOWING THE PROCEDURE


ESTABLISHED BY LAW. ............................................................................................. 21
B.

THAT THE CUSTOM AUTHORITIES ARE NOT COMPETENT TO DECIDE

ON MATTERS REGARDING PATENT INFRINGEMENT. ........................................ 23


PRAYER ............................................................................................................................. XXI

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TABLE O F ABBREVIATION

ABBREVIATIONS

EXPANSION

Paragraph Number

&

and

AC

Appeal Cases

AIR

All India Reporter

Art.

Article

Cal.

High Court of Calcutta

Cal. App.

California Courts of Appeal

CUP

Comparable Uncontrolled Price

CIT

Commissioner of Income Tax

DCIT

Deputy Commissioner of Income Tax

Del (DB)

High Court of Delhi

EC

European Commission

ECJ

European Court of Justice

ECR

European Courts Report

Ed.

Edition

EEA

European Economic Area

EEC

European Economic Committee

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ELT

Excise Law Tribunal

ENPR

European National Patent Reports

EPC

European Patent Convention

ETMR

European Trademarks Reports

EWHC(PAT)

High Court of England & Wales (Patents


Court)

EU

European Union

f.2d

Federal Reports Second Series

f.3d

Federal Reports Third Series

Fed.Cir.

Federal Circuit

F.Supp.

Federal Reports Supplement

Honble

Honourable

ILM

International Legal Material

IPQ

Intellectual Property Quarterly

IPR

Intellectual Property Rights

INJIPLaw

International Journal of Intellectual


Property Law

ITAT

Income Tax Appellate Tribunal

ITR

Income Tax Rules

JIPR

Journal of Intellectual Property Rights

Pg.

Page No

RAJ

Recent Arbitration Judgments (SC)

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RPC

Report of Patent Cases

SC

Supreme Court

SCC

Supreme Court Cases

UCLA L.Rev

UCLA LAW REVIEW

UNTS

United Nations Treaty Collection

WIPO

World Intellectual Property Organisation

WL

Westlaw

v.

Versus

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INDEX O F AUTHORI TIES

STATUTES

The Constitution of India.

The Patents Act, 1970, No.39, Acts of Parliament, 1970(India).

The Customs Act, 1973, No. 52, Acts of Parliament, 1962(India).

The Income-tax Act, 1973, No. 43, Acts of Parliament, 1961.(India).

The Trademarks Act, 1999, No.47, Acts of Parliament, 1999(India).

RULES

Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, Notification No.
47/2007-Cus. (N.T.), (8-5-2007).

The Income-tax Rules, 1962, Notification No. 14/1962-IT, (ITR), (26-3-1962).

TREATISES

Convention for the European Patent for the Common Market. (2007).

TRIPS, Agreement on Trade-Related Aspects of Intellectual Property Rights (1994).

INDIAN CASES
1. ADM, Jabalpur v. Shivakant Shukla, (1976) 2 SCC 521 ............................................ 20
2. Frigoglass India Ltd V. DCIT, 2014 SCC Online ITAT 1347 .................................... 18
3. Garware wall-ropes Ltd. v. A.I Chopra Engineers & Contractors, (2008) 17 SCC 4229
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4. Govind v. State of M.P, AIR 1975 SC 1398 ................................................................ 20


5. Iljin Automotive Pvt. Ltd v. Asst Commissioner of Income-tax, (2011) ITAT 1014617
6. John Wiley & Sons Inc. & Ors. v. Prabhat Chander Kumar Jain & Ors., ILR (2010) 5
Del 510 ........................................................................................................................... 7
7. L.G. Electronic Ltd v. Bharat Bhogilal Patel & Others., 2012 SCC Online Del 3608 22
8. Mentor Graphics Pvt. Ltd. v. Deputy Commissioner of Income Tax, 2007 Indlaw
ITAT 21 ....................................................................................................................... 17
9. Noble Resources & Trading India Pvt. Ltd v. Assistant Commissioner of Income-tax,
2014 SCC Online ITAT 487 ........................................................................................ 18
10. Raj Parkash v Mangat Ram, AIR 1978 Del 1 .............................................................. 10
11. Rampgreen Solutions Pvt. Ltd. v. CIT, 2015 Indlaw DEL 5662 ................................. 18
12. Sumitomo Corp. India. Pvt. Ltd. v. CIT, 2016 SCC Online DEL 4203 ...................... 16
13. Telefonaktiebolaget LM Ericcson Torshamnsgatan v. Union of India, (2012) 194 DLT
248 (DB) ...................................................................................................................... 22
14. Usha International Ltd v. Commr. of Custom, 2003 (158) ELT 303 Tri Kolkata ...... 21
15. Warner Bros. Entertainment Inc. and Others v Santosh, 2009 SCC OnLine Del 835... 9
EU CASES
1. Case C-355/96, Silhouette International Schmied GmbH & Co. v Hartlauler
Handelsfesellschaft mbH, [1998] ECR 4799 ................................................................. 8

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2. Loreal Norge AS v. Per Arskog AS, [2008] E.T.M.R. 60 ............................................ 9


UK CASES
1. Badische Anilin and Soda Fabrik v Isler, [1906] 1 Ch. 605 .......................................... 6
2. Betts v. Willmott, (1870-71) L.R. 6 Ch. App. 239 ........................................................ 6
3. Bristol-Myers Co. (Johnsons) Appln. [1975] RPC 127.............................................. 11
4. British United Shoe v Lambert Howarth, (1929)46 RPC 315,320 .............................. 16
5. General Tire v. Firestone Tyre, [1976] RPC 197(HL)................................................. 16
6. Hazel Grove v Euro-League, [1995] RPC 529 ............................................................ 12
7. HTC v. Nokia Corp., [2013] EWHC 3247 (Pat)............................................................ 7
8. National Phonograph Company of Australia Ltd. v. Walter T. Menck, [1911] A.C.
336.................................................................................................................................. 2
9. Roussel Uclaf S.A. v Hockley International Ltd. and Another, [1996] R.P.C. 441 ...... 1
10. United Horse Shoe v Stewart (1885)5 RPC 260,266(HL) ........................................... 16
11. US CASES
12. ACRA v. Lexmark, 421 F.3d 981 (Fed.Cir.2005) ......................................................... 6
13. B. Braun Medical, Inc. v. Abbott Laboratories, 124 F.3d 1419 (Fed.Cir.1997)............ 1
14. Bauer & Cie v. O'Donnell, 229 US 1 (1913) ............................................................... 12
15. Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 699 (Fed.Cir.2008) ..................... 15
16. C.R. Bard v. M3 Systems, 157 F.3d 1340 (Fed.Cir.1998)............................................. 5
17. CrawfordEl v. Britton, 951 F.2d 1314, 1318 (D.C.Cir.1991) .................................... 14

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18. DSU MED. Corp. v. JMS Co., 471 F.3d 1293 (Fed.Cir.2006) .................................... 14
19. Fellowes, Inc. v. Michilin Prosperity Co.Ltd., 491 F.Supp.2d 571 (2007) ................. 13
20. General Talking Pictures Co. v. Western Electric Co., 304 U.S. 175 (1938) ............ 1, 4
21. Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011) ............................... 14
22. Helferich Patent Licensing v. New York Times, 778 F.3d 1293 (Fed. Cir. 2015) ........ 6
23. Jazz Photo Corporation v. International Trade Commission, 264 F.3d 1094
(Fed.Cir.2001) ................................................................................................................ 4
24. Kyocera Wireless Corp. v. International Trade Commission, 545 F.3d 1340
(Fed.Cir.2008) .............................................................................................................. 13
25. Leegin Creative Leather Products v. PSKS, 551 U.S. 887 (2007) ................................ 5
26. Lucent Technologies Inc. v. Gateway Inc., 580 F.3d 1301 (Fed.Cir.2009) ................ 16
27. Mallinckrodt v. Medipart, 976 F.2d 700 (Fed. Cir. 1992) ............................................. 6
28. MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1332 (Fed.Cir.2005) ......................... 13
29. Monsanto Co. v. Homan McFarling, 302 F.3d 1291 (Fed.Cir.2002) ............................ 4
30. Nadell & Co. v. Grasso, 346 P.2d 505 (Cal. App.1959) ................................................ 4
31. Pioneer Hi-Bred International, v. Ottawa Plant Food, 283 F.Supp.2d 1018 (N.D. Iowa
2003) .............................................................................................................................. 6
32. Princo Corp. v. International Trade Com'n, 616 F.3d 1318(Fed.Cir.2010) ................. 12
33. ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (Fed.Cir.1996) ............................................. 5
34. Rite-Hite Corp. v. Kelley Co.Inc., 56 F.3d 1538 (Fed.Cir.1995) ................................ 15
35. Schering-Plough Corp. v. F.T.C., 402 F.3d 1056 (Fed.Cir.2005) ............................... 12
36. SEB S.A. v. Montgomery Ward & Co. Inc., 594 F.3d 1360 (Fed.Cir.2010) .............. 14
37. Senza-Gel Corporation v. John B. Seiffhart, 803 F.2d 661 (Fed.Cir.1986) .................. 4
38. Strix Limited v. Maharaja Appliances Limited, 2009 SCC OnLine Del 2825 ............ 13
39. U.S. v. General Electric, 272 U.S. 476 (1926)............................................................... 2

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40. U.S. v. Hanseyn,791 F.3d 863 (Fed.Cir.2015) ............................................................ 15


41. United Wire Ltd. v. Screen Repair Services Ltd., [2000] E.N.P.R. 324........................ 6
42. USM Corp. v. SPS Technologies, 694 F.2d 505 (Fed.Cir.1982) ................................... 2
43. Virginia Panel Corporation v. MAC Panel Co., 133 F.3d 860 (Fed.Cir.1997) ............. 4
OTHER AUTHORITIES

Andries Van Der Merwe, The exhaustion of rights in patent law with specific emphasis
on the issue of parallel importation, I.P.Q, 4 (2000)............................................................ 9

Deepak, J. Sai, " 107A(b) of the Patents Act: Why it May Not Refer to or Endorse
Doctrine of International Exhaustion?", INJlIPLaw 8 (2008) ........................................... 10

Department of Justice & Fed. Trade Comm'n, Antitrust Guidelines for the Licensing of
Intellectual Property. .......................................................................................................... 13

Department of Social and Economic Affairs, Practical Manual on Transfer Pricing for
Developing Countries, UN New York. .............................................................................. 20

Manual of Patent Office Practice and Procedure, The Office of Controller General of
Patents Designs & Trademark ........................................................................................... 10

Secratariat,

EXCEPTIONS

AND

LIMITATIONS

TO

PATENT

RIGHTS:

EXHAUSTION OF PATENT RIGHTS, Standing Committee on Law of Patents (WIPO)


.............................................................................................................................................. 9

Wentong Zheng, EXHAUSTING PATENTS, 63 UCLA L. Rev. 122, 167 (2016) ............ 7

BOOKS REFERRED

CRAIG ALLEN NARD, THE LAW OF PATENTS (Aspen Publishers, 2d ed. 2011).

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P. NARAYANAN, PATENT LAW (Eastern Law House Private Ltd.,4th ed. 2006).

Dr. RAMAN MITTAL, LICENCING INTELLECTUAL PROPERTY LAW AND


MANAGEMENT (Satyam Law International, 1st ed. 2011).

P. MITTAL, TAXMANNS LAW OF TRANSFER PRICING (Taxmann Allied Services


Ltd., 2nd ed. 2006).

Dr. ELIZABETH VERKEY, INTELLECTUAL PROPERTY LAW AND PRACTICE


(Abhinandan Malik, Eastern Book Company, 1st edition 2015).

Dr. GC BHARUKA, MULLA THE TRANSFER OF PROPERTY ACT (LexisNexis


Butterworths Wadhwa Nagpur, 10th ed. 2006).

ELIZABETH VERKEY, LAW OF PATENTS (Eastern Book Company, 1st Ed. 2005)

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S T AT E ME NT O F JU RI S DI CT I O N

The Petitioners have approached the Honble Supreme Court of Aryavarta under Article 136
and Article 139A of the Constitution of Aryavarta (The laws of Aryavarta are in pari materia
with the laws of India) for Special Leave to Appeal and the transferred writ petition
respectively, reserving the right to challenge the same. The Honble Supreme Court of
Aryavarta has jurisdiction to entertain and adjudicate the instant matters. Article 136 and
Article 139A under which the jurisdiction of the Honble Court is invoked is read as:
Article 136: Special leave to appeal by the Supreme Court
(1) Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special
leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter
passed or made by any Court or tribunal in the territory of India.
(2) Nothing in clause (1) shall apply to any judgment, determination, and sentence or order passed or
made by any Court or tribunal constituted by or under any law relating to the Armed Forces.

Article 139A: Transfer of certain cases


(1) Where cases involving the same or substantially the same questions of law are pending before the
Supreme Court and one or more High Courts or before two or more High Courts and the Supreme
Court is satisfied on its own motion or an application made by the Attorney General of India or by a
party to any such case that such questions are substantial questions of general importance, the
Supreme Court may withdraw the case or cases pending before the High Court or the High Courts and
dispose of all the cases itself: Provided that the Supreme Court may after determining the said
questions of law return any case so withdrawn together with a copy of its judgment on such questions
to the High Court from which the case has been withdrawn, and the High Court shall on receipt
thereof, proceed to dispose of the case in conformity with such judgment.
(1) The Supreme Court may, if it deems it expedient so to do for the ends of justice, transfer any case,
appeal or other proceedings pending before any High Court to any other High Court

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S T A T E M E N T O F FA C T S

BACKGROUND
1. Aryavarta is a country in South Asia. RGS Public Ltd, a company incorporated in USA, is
engaged in the development, manufacture and sale of kits (Riska) used for 3D printers. The
kit increases the efficiency of the printers significantly. RGS is granted patents on the said kit
in Aryavarta and European Union (EU) apart from the US. It has assigned all the patents and
trademarks in Aryavarta to its holding company in Singapore named Zen Pvt. Ltd. Melaka
Ireland Ltd., incorporated by RGS, was granted a license to manufacture, sell and export
Riska in the European Union under the same sale schemes.
RISKA WAS SOLD UNDER THREE DIFFERENT SALE SCHEMES
2. Scheme 1: Riska was sold without any terms and conditions of purchase on the full price of
kit. Whereas, in Scheme 2 a discount of 40% was given under following terms and conditions
inter-alia in the form of shrink-wrap license: (i) Once the cartridge in Riska is exhausted,
the customer shall get it refurbished by authorized sellers of Riska only. (ii) The customer
shall not re-sale Riska to any other person or entity. (iii) The customer shall purchase the
cartridges, only from authorized sellers of Riska. Scheme 3 enabled customers of scheme 1
to get refill there cartridges at lower rates in exchange if they accept terms and conditions of
Scheme 2.
SARTRI PVT. LTD IS A COMPANY INCORPORATED UNDER THE LAWS OF ARYAVARTA
3. RGS made Zen grant an exclusive, non-transferrable, non-alienable, non-licensable license in
respect of Aryavarta patent to Sartri. Sartri started importing Riska from Zen and sselling
Riska inAryavrata, at Rs 1,00,000/- and earned a profit of Rs 25,000 , through its

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authorized outlets under all three existing schemes. Sartri pays an amount of 24 crores rupees
in four equal installments payable before the closing of each financial year and a running
royalty of 15% of the price per unit of Riska.
VINSHUK PVT. LTD. SELLING REFURBISHED PRE-USED RISKA KITS
4. In 2014, Sartri came to understand that some refurbished kits were flowing in the market
which affected the printing quality and resulted in loss of goodwill. Vinshuk Pvt. Ltd., a
company of Aryavarta, manufacturer and seller of spare parts of 3-D printers. It devised a
decided to sale refurbished Riska kit at a much cheaper price than Sartri under brand
Visaka, after importing pre-used Riska. Vinshuk contacted Hun Shui a company based
in Thaikwando, a European country, to collect the used kits sold under the SCHEME-2 and
SCHEME-3. Which were Aksmit Impex, an importing-exporting company of Aryavarta to
buy pre-used Riska kits from Thaikwando and import them into Aryavarta and supply to
Vinshuk. Vinshuk sold the imported pre-used Riska kits at Rs. 75,000/- per unit and earned
a profit of Rs 20,000/- per unit.

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AKSMIT IMPEXS W RIT PETITION


5. Sartri filed a notice with the custom officials under the IPR Enforcement Rules, 2007. The
custom officials seized the consignment containing the pre-used Riska kits imported by
Aksmit Impex. Sartri, filed a patent infringement suit in the High Court against Vinshuk,
Aksmit Impex and Hun Shui. Aksmit Impex filed a writ petition under Article 226 of
Constitution of Aryavarta before the High Court of Sinhabad, against the Commissioner of
Customs for violation of right to property.
REVENUE DEPARTMENTS ACTION
6. The Revenue Department of Aryavarta launched an inquiry into the transactions entered into
by Sartri with Zen and into the returns filed by Vinshuk. Vinshuk had claimed deduction
under 37 of the Income Tax Act, 1961 for expenditure incurred on import of Riska
during the previous year 2014-15. The Revenue Department rejected the same on the ground
that the expenditure was used for an activity prohibited by patent law of Aryavarta and
further Income Tax Appellate Tribunal (ITAT) decided in favor of Revenue Department.
Sartri claimed deduction on 15 % running royalty paid to Zen as according to Sartri it was
revenue expenditure. Further it apportioned Rs. 10,000 from the revenue generated from
every unit of Riska towards the payment of lump sum royalty amount and also claimed it
as a revenue expenditure. Transfer Pricing Officer (TPO) concluded that the arrangement is
not according to Arms Length Price and therefore disallowed the deductions on royalty and
found it to be excessive in nature based on CUP method. It was also found that Melaka paid
5% as royalty to RGS for the sale of Riska in the EU. Sartri contended before Income tax
commissioner (appeals) and being aggrieved it appealed to ITAT. Further being aggrieved
and dissatisfied against the decision of ITAT, Sartri appealed before the High Court.

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IN PATENT INFRINGEMENT CASE


7. Aksmit Impex pleaded before the High Court that it was a mere importer and had no role in
infringement. Vinshuk contended that the conditions on sale of the patented product were
highly restrictive in nature and Sartri and Zen had misused and exhausted the patent rights.
Hun Shui contended that it had no liability whatsoever under primary and/or secondary
theories of infringement. The High Court held that there was no patent infringement.
Subsequently, in the tax matter related to Vinshuk, the High Court held that the revenue
expenditure claimed as deduction by Vinshuk was allowable under 37 of the Income Tax
Act, 1961. Sartris appeal was dismissed by the High Court upholding the order passed by
ITAT.
SPECIAL LEAVE TO APPEAL BEFORE THE SUPREME COURT OF ARYAVARTA
8. Sartri and Zen directly filed an appeal before the Supreme Court of Aryavarta under Article
136 of Constitution of Aryavarta. They contended that the High Court erred in upholding the
exhaustion doctrine in foreign sales since the purported sale was not at all a sale but a
conditional license for mere use and therefore the first sale doctrine was not applicable. The

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Petitioners contended that Aksmit Impex cannot legally import Riska as such act did not
come within the four squares of 107A of the Patent Act, 1970. During the proceedings in
the Supreme Court, it has raised a new ground that the CUP method used by TPO is not valid.
The Supreme Court has
a) Taken up the writ petition filed by Aksmit Impex in the High Court
b) Admitted the appeal filed by Sartri in the tax matter
c) Admitted the appeal filed by Sartri and Zen in the patent infringement matter.
All these matters and issues raised therein are clubbed together and posted for final
hearing on November 13, 2016.

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ISSUES RAISED

I.

WHETHER

THE

FIRST-SALE/EXHAUSTION

DOCTRINE

IS

APPLICABLE?

II.

WHETHER VINSHUK, AKSMIT IMPEX AND HUN SHUI ARE LIABLE


FOR PATENT INFRINGEMENT?

III.

WHETHER

THE

COMPARABLE

UNCONTROLLED

PRICE

(CUP)

METHOD IS THE MOST APPRORIATE METHOD FOR DETERMINING


ARMS LENGTH PRICE FOR SARTRIS TRANSACTION?

IV.

WHETHER THE FUNDAMENTAL RIGHT TO PROPERTY OF AKMIT


IMPEX HAS BEEN VIOLATED?

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SUMMARY OF PLEADINGS

I. THAT THE FIRST-SALE/EXHAUSTION DOCTRINE IS NOT APPLICABLE ON


THE INITIAL SALE OF RISKA KITS.
It is humbly submitted before the Honble Court that the first-sale/exhaustion doctrine is not
applicable on the initial sale of riska kits. Firstly, the first sale of Riska kit in European
union was a conditional sale of the Riska kits. Secondly, that the patent rights were not
exhausted. Thirdly, even if an unconditional sale took place, exhaustion is not applicable.
II.

THAT HUN SHUI, AKSMIT IMPEX AND VINSHUK ARE LIABLE FOR
PATENT INFRINGEMENT.

It is humbly submitted before the Honble Court that Vinshuk, Aksmit Impex and Hun Shui
are liable for patent infringement. Firstly, Vinshuk and Aksmit Impex are liable for direct
infringement as Vinshuk has infringed the patented product by selling refurbished Riska
kits in Aryavarta, in contravention of the Patents Act. Aksmit impex, by importing the
patented Riska kits from EU, has infringed on the rights of the patentee.

Secondly,

Vinshuk and Hun Shui are liable for inducement to infringe. Thirdly, the respondents are
liable to pay damages for the petitioners loss of goodwill and customer relationship.
III.

THAT THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD IS


NOT THE MOST APPRORIATE METHOD FOR DETERMINING ARMS
LENGTH PRICE FOR SARTRIS TRANSACTION.

It is humbly submitted before the Honble Court that that the comparable uncontrolled price
(CUP) method used by transfer pricing officer (TPO) is not the most appropriate method for
determining arms length price for sartris transaction. Firstly, the TPO erred in the

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application of CUP method. Secondly, TNMM should have been the Most Appropriate
method.
IV.

THAT THE FUNDAMENTAL RIGHT TO PROPERTY OF AKSMIT IMPEX


HAS BEEN VIOLATED.

It is humbly submitted before the Honble Court that the Commissioner of Customs has
violated the fundamental right to property of Aksmit Impex by seizing the consignment of pre
used Riska kits which were being imported. Firstly, the seizure of goods was made in an
unfair and arbitrary manner, not following the procedure of law thus violating the article 21
of the Indian Constitution. Secondly, Commissioner of Custom had no authority to decide on
matters regarding patent infringement.

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ARGUMENTS ADVANCED

I.

THAT THE FIRST-SALE/EXHAUSTION DOCTRINE IS NOT APPLICABLE


ON THE INITIAL SALE OF RISKA KITS.

1. It is humbly submitted before the Honble Supreme Court that the First-Sale Doctrine is
inapplicable in the instant case because the initial sale of Riska kits, under SCHEME-2
and SCHEME-3, by Melaka, in EU, was conditional.1 Since the initial sale was made
under a restriction not to sell Riska kits to third parties, the act of importing pre-used
kits into Aryavarta and selling refurbished kits to the customers in Aryavarta, without the
authority of the patentee or his licensee, is infringing. The Petitioners have adopted a
three-pronged approach to substantiate this argument.
A.

THAT THE FIRST SALE OF RISKA KIT IN EU WAS A CONDITIONAL SALE.

2. It is submitted that the patent confers upon the patentee the right to prevent third parties
from using, manufacturing, selling or importing the patented product, without the owners
consent.2 This right to exclude may be waived in whole or in part 3; and as such, a
patentee can attach conditions to the goods, and such conditions will run along with the

B. Braun Medical, Inc. v. Abbott Laboratories, 124 F.3d 1419 (Fed.Cir.1997).

TRIPS, Agreement on Trade-Related Aspects of Intellectual Property Rights, Art.28(1)(a), Apr. 15, 1994,
Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, THE LEGAL TEXTS: THE
RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 320 (1999), 1869
U.N.T.S. 299, 33 I.L.M. 1197 (1994).
3

General Talking Pictures Co. v. Western Electric Co., 304 U.S. 175 (1938).

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goods.4 Furthermore, it has been held that a licensee, by virtue of his statutory monopoly,
may make a sale sub modo, or accompanied by restrictive conditions.5 Such restrictive
licenses, the Courts have held, are legal, if the performance of the conditions is
reasonably within the reward that the patentee is entitled to secure by the grant of the
patent.6
3. In the instant case, it is humbly submitted that the restrictions imposed were in respect of
the cartridge used in the Riska kits, and the ability of the customer to resell the kits to
third parties. These conditions were agreed to by the customers who purchased the kits
under SCHEME-2 and SCHEME-3. The kits sold under SCHEME-1 did not contain any
terms and conditions and the customers were required to pay the full price for the kits,
thus, not limiting the options available to them. On the other hand, the kits under
SCHEME-2 were sold at a discount of 40%. Under the SCHEME-3, the customers could
get the cartridges re-filled at a lower price, in exchange for being bound by the same
terms and conditions as required under SCHEME-2.7
4. The 40% discount, in case of SCHEME-2, and the option to get the cartridges re-filled at
a lower price, in case of SCHEME-3, reflects the value of the limited use rights
conferred on the customers by the patentee.8 It is, thus, humbly contended that the
conditions imposed on the kits have to be analysed in light of the reduced prices of the
product. Furthermore, these restrictions do not amount to a misuse of the patent rights. In
order to justify the validity of the conditions, the Petitioners humbly submit the following
4

Roussel Uclaf S.A. v Hockley International Ltd. and Another, [1996] R.P.C. 441.

National Phonograph Company of Australia Ltd. v. Walter T. Menck, [1911] A.C. 336.

U.S. v. General Electric, 272 U.S. 476 (1926).

Moot Proposition, 2, Pg.2.

USM Corp. v. SPS Technologies, 694 F.2d 505 (Fed.Cir.1982).

Page | 2

RG08_A

line of reasoning.
a.

Restrictions in respect of refurbishment and purchase of cartridges.

5. According to the license agreement attached to the kits sold under SCHEME-2 and
SCHEME-3, the customers had to get the exhausted cartridges refurbished form the
authorized sellers of Riska only. Furthermore, the customers had to purchase the
cartridges from only the authorized sellers of Riska. It is humbly submitted that the
rationale behind this restriction is that the quality of cartridges is essential for good
quality of printing from the printers embodying Riska.9 As a result of refurbished
Riska kits in the Aryavarta market, the printing quality of the printers has been
adversely affected, which has resulted in loss of goodwill and customer relationship for
Sartri.10 Furthermore, the infringed refurbished kits have reduced Sartris market share in
Aryavarta.
6. The Petitioners humbly submit before the Honble Supreme Court that 140(4)(c)11 of
The Patents Act, 1970 lays down, as an exception, that a condition in a license to use the
patented article by which the licensor reserves to himself or his nominee the right to
supply such new parts of the patented article as may be required or to put or keep it in
repair, will not be an impermissible restriction. In the instant case, the cartridge of the
Riska kits forms an essential component of the patented kit. As such, it becomes
necessary for the customer to get it refurbished from time to time, or to buy a new
cartridge altogether, in order to keep the Riska kit in repair. Since the quality of
printing was dependent upon the quality of the cartridge, the restrictions imposed, on the
9

Moot Proposition, 3, Pg.3.

10

Moot Proposition, 7, Pg.5.

11

140(4)(c), The Patents Act, 1970, No.39, Acts of Parliament, 1970(India).

Page | 3

RG08_A

refurbishment and purchase of cartridge, were not merely requisite for maintaining the
quality of printing at an optimum level, but were also essential for preserving the
goodwill of Riska kits.12 The cartridge, thus, was a necessary concomitant of the
Riska kit, and not an entirely separate product.13 Since the restrictions imposed are
reasonably within the patent grant, the Petitioners cannot be said to have misused the
patent rights.14
b.

Restrictions on the re-sale of Riska kits

7. The customers were restricted from reselling the Riska kits, which they had initially
purchased under SCHEME-2 and SCHEME-3, to any other person or entity. Since the
ability of the customer to resell the product can be restricted 15, it is humbly submitted that
Melaka was compensated only for the right to use the kit, and not for the right of re-sale,
which was expressly reserved with its license agreement.16 This was reflected in the
reduced price of the kits, in case of SCHEME-2, and lower refilling costs, in case of
SCHEME-3.
8. In so far as 10 of the Transfer of Property Act17 is concerned, it is humbly submitted that
the same is not applicable in the instant case. For the application of 10 of the act, it is
essential that the transferor should have included unreasonable restrictions on the
alienating power of the transferee. These restrictions have to be analysed on the anvil of

12

Nadell & Co. v. Grasso, 346 P.2d 505 (Cal. App.1959).

13

Senza-Gel Corporation v. John B. Seiffhart, 803 F.2d 661 (Fed.Cir.1986).

14

Virginia Panel Corporation v. MAC Panel Co., 133 F.3d 860 (Fed.Cir.1997).

15

Mallinckrodt v. Medipart, 976 F.2d 700 (Fed.Cir.1992).

16

Monsanto Co. v. Homan McFarling, 302 F.3d 1291 (Fed.Cir.2002).

17

Moot Proposition, 10, Pg.13.

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RG08_A

the rule of reason.18 By reselling the kits without authority, the benefit of the reduced
prices was passed on to the downstream buyers, without compensating the patentee, in
contravention to the provisions of 48A of the Patents Act.19 Unauthorised sales by the
downstream buyers, thus, worked against the patent statute monopoly, thereby affecting
the sales of the authorised sellers like Sartri in Aryavarta. Therefore, re-sale to third
parties, who had not compensated the patentee or his licensee, was sought to be
prevented.20 Furthermore, the option with the customers to buy Riska kits was not
restricted, since they had the option of buying the kit covered by SCHEME-1; thereby,
not restricting trade. Instead, lowering prices, in order to expand business, benefits the
consumers and forms the essence of competition.21
9. The Courts have recognised the narrow scope of the misuse doctrine and emphasized that
the defence of patent misuse is not available to a presumptive infringer simply because a
patentee engages in some kind of wrongful commercial conduct, even conduct that may
have anticompetitive effects.22 Furthermore, the doctrine of patent misuse has been
restricted to cases involving tying arrangements, package licensing, price restraints or
extended royalty terms, and Courts have been reluctant to expand the doctrine to every
wrongful commercial activity.23 Since the instant case does not involve any of the
aforementioned issues, the restrictions imposed do not involve a misuse of patent rights
on the part of the patentee or his licensee.

18

Leegin Creative Leather Products v. PSKS, 551 U.S. 887 (2007).

19

48A, The Patents Act, 1970, No.39, Acts of Parliament, 1970(India).

20

ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (Fed.Cir.1996).

21

State Oil Co. v. Khan, 522 U.S. 3 (1997).

22

C.R. Bard v. M3 Systems, 157 F.3d 1340 (Fed.Cir.1998).

23

Id.

Page | 5

RG08_A

B.

THAT THE PATENT RIGHTS WERE NOT EXHAUSTED.

10. It is humbly submitted that since the initial transaction was a conditional sale of the
Riska kits, whereby the customer received a conditional license for mere use, the
patentee has not exhausted his rights24 in the product after the first sale.25 Buckley J. has
held that if a purchaser buys from a licensee, to whose licence the patentee has attached
conditions, he will be liable as an infringer if he uses the product beyond the scope of the
license, regardless of whether he knew of the conditions or not.26 The rationale behind
this is that the principle of exhaustion of patent right cannot turn a conditional sale into an
unconditional one.27
11. It is humbly submitted that in the instant case, the initial restrictions imposed on the sale
of the kits were valid, as has been sought to be proven through the preceding arguments.
Since the first sale was conditional, and the restrictions run along with the goods 28, the
First Sale Doctrine is inapplicable, in as much as the restrictions imposed prevented the
rights of the patentee from getting exhausted.29
12. Furthermore, the defence of patent exhaustion, as is adopted by the respondents, is only
available to the authorised acquirers of the product.30 Since the respondents have not
acquired the product with the authority of the patentee or his licensee, the respondents are

24

United Wire Ltd. v. Screen Repair Services Ltd., [2000] E.N.P.R. 324.

25

Betts v. Willmott, (1870-71) L.R. 6 Ch. App. 239.

26

Badische Anilin and Soda Fabrik v Isler, [1906] 1 Ch. 605.

27

Pioneer Hi-Bred International, v. Ottawa Plant Food, 283 F.Supp.2d 1018 (N.D. Iowa 2003).

28

Badische Anilin and Soda Fabrik v Isler, [1906] 1 Ch. 605.

29

ACRA v. Lexmark, 421 F.3d 981 (Fed.Cir.2005).

30

Helferich Patent Licensing v. New York Times, 778 F.3d 1293 (Fed. Cir. 2015).

Page | 6

RG08_A

prevented from raising the defence of exhaustion of patent rights in the instant case.31
13. Moreover, it is humbly submitted that the customers of the Riska kit could not have
passed a better title than they had since they were restricted by the license agreement, in
so far as their ability to resell the kits was concerned.32 The legal rule Nemo dat quod non
habet applies in this case, meaning thereby, that no one can convey a better title than he
owns.33 Since the licensor had licensed the product with certain conditions, a purchaser
from the licensee of any licensed work, having knowledge about the said licensee cannot
get a better title than the licensee and will be bound by the said license.34 Since the
customers were themselves given the product on a license to mere use35, they could not
have passed on a better title than they had. Therefore, no property was transferred by the
customers to Hun Shui in the subsequent sales.
C.

THAT

EVEN IF AN UNCONDITIONAL SALE TOOK PLACE, EXHAUSTION IS NOT

APPLICABLE.

14. It is humbly submitted before the Honble Court that the first-sale/exhaustion doctrine
will not apply in the instant case because the disputed sale took place in EU, which
follows a regional exhaustion policy, and hence will not affect patent rights of Sartri in
Aryavarta.36 Furthermore, imported goods under international exhaustion require

31

Id.

32

Moot Proposition, 2, Pg.2.

33

Wentong Zheng, Exhausting Patents, 63 UCLA L. Rev. 122, 167 (2016).VIEW

34

John Wiley & Sons Inc. & Ors. v. Prabhat Chander Kumar Jain & Ors., ILR (2010) 5 Del 510.

35

Moot Proposition, 8 & 13, Pg.5 & Pg.9.

36

Case C-355/96, Silhouette International Schmied GmbH & Co. v Hartlauler Handelsfesellschaft mbH, [1998]
ECR 4799.

Page | 7

RG08_A

authority of rights holder as per 107A(b) of the Act.37


a.

That EU follows a regional exhaustion policy.

15. It is humbly submitted before the Honble Court that exhaustion doctrine does not apply
to an expressly conditional sale or license38, as has been sought to be proven through the
preceding arguments. Assuming, though not admitting, that an unconditional sale was
made in the EU, it would still not exhaust the rights of the patentee over the product
outside EU since the European Union follows a regional exhaustion policy39; and as such,
the initial sale did not result in the exhaustion of patent rights in Aryavarta.
16. It is humbly submitted that the rights conferred by a Community patent are exhausted
within the EEA itself, once the patented product has been put on the market in one of the
States by the proprietor or with his express consent.40 Hence, the EEA Agreement
foresees the possibility of mandatory EEA-wide exhaustion of intellectual property
rights.41 In the instant case, therefore, patent rights of the Petitioners in Aryavarta were
not exhausted, since the initial sale was made in the EU, and exhaustion does not apply to
sales made outside the EEA. 42
b.

That the import of the Riska kits werent authorized.

17. It is humbly submitted before the Honble Court that the prerequisite under 107A(b) of
37

107A(b), The Patents Act, 1970, No.39, Acts of Parliament, 1970(India).

38

B. Braun Medical, Inc. v. Abbott Laboratories, 124 F.3d 1419 (Fed.Cir.1997).

39

Secratariat, EXCEPTIONS AND LIMITATIONS TO PATENT RIGHTS: EXHAUSTION OF PATENT


RIGHTS, Standing Committee on Law of Patents (WIPO), (Oct.27,2016, 8:30 P.M.),
http://www.wipo.int/edocs/mdocs/scp/en/scp_21/scp_21_7.pdf.
40

Convention for the European Patent for the Common Market, art.28, Dec.13.2007, 76/76/EEC (2007).

41

Loreal Norge AS v. Per Arskog AS, [2008] E.T.M.R. 60.

42

Moot Proposition, 4, Pg.3.

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RG08_A

the Act43, in order to give effect to international exhaustion, is that the importation should
be made from a person who is authorized under the law. The Manual of patent practice
and procedure, 2005 explains that the importation of patented products by any person
authorized by the Patentee will not be considered as an infringing act.44 Alternatively, the
word authorized has to be interpreted in the context of 100 of the Patents Act45, which
provides that the authority can be given by the Central Government or its department.46
18. Thus it is contended that in order to get the authority, as needed under 48A and 107A
of The Patents Act47, the import should be authorized either by the patentee or the
government. 107A(b) of the Act provides that the person who sells or distributes the
patented product, for importation into Aryavarta by the other person, should have been
authorized by the patentee as aforementioned. In the instant case, since Hun Shui (which
sells the kits to Aksmit) was not authorized by the patentee to do the same, the
importation of the Riska kits by Aksmit Impex is not covered by the exception
provided under 107A(b) of the Act.
19. The rationale behind the aforestated argument is that the owner of products covered by
intellectual property right has the exclusive right to put such products on the market.48
Since the sale of Riska was done by Sartri in the domestic market through its

43

Supra note 37.

44

Manual of Patent Office Practice and Procedure, The Office of Controller General of Patents Designs &
Trademark,(Oct.30.2016.4:08PM).http://www.ipindia.nic.in/writereaddata/Portal/IPOGuidelinesManuals/1_28_
1manual-of-patent-office-practice_and-procedure.pdf.
45

100, The Patents Act, 1970, No.39, Acts of Parliament, 1970(India).

46

Garware wall-ropes Ltd. v. A.I Chopra Engineers & Contractors, (2008) 17 SCC 422.

47

48A & 107A, The Patents Act, 1970, No.39, Acts of Parliament, 1970(India).

48

Warner Bros. Entertainment Inc. and Others v Santosh, 2009 SCC OnLine Del 835.

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RG08_A

authorized outlets49, Aksmit Impex was not authorized to sell or distribute the patented kit
under the defense of international exhaustion of patent rights.
Thus, it is humbly submitted that the initial sale of Riska kits, under SCHEME-2 and
SCHEME-3, by Melaka, in EU, were conditional. Further the transaction was a license to
use and not an authorised and an unrestricted sale. Therefore, the first-sale/exhaustion
doctrine is inapplicable.

49

Moot Proposition, 5, Pg.4.

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II.

THAT HUN SHUI, AKSMIT IMPEX AND VINSHUK ARE LIABLE FOR
PATENT INFRINGEMENT.

20. It is humbly submitted before the Honble Court that 48 of the Act50 confers on the
patentee, his agents and licensees the exclusive right to make, use, exercise or distribute
the invention in Aryavarta. The effect of the grant of patent is a quid pro quo. Quid is the
knowledge disclosed to the public and quo are exclusive rights granted for the term of the
patent.51 Since Sartri Pvt. Ltd. gained dominance in Aryavarta market by the introduction
of Riska52, it amounts to infringement if these exclusive rights are infringed.53
21. It is further submitted before the Honble Court that, in the instant case, the act of
importing from EU the pre-used Riska kits, and then selling it in Aryavarta under a
different brand name54, resulted in infringement by the Respondents55 under 48A of the
Act56. This circulation of refurbished Riska kits resulted in loss of goodwill and
customer relationship.57
A. THAT VINSHUK AND AKSMIT IMPEX ARE LIABLE FOR DIRECT INFRINGEMENT.
22. It is humbly submitted before the Honble Court that Vinshuk, in so far as it sold the

50

48, The Patents Act , 1970, No.39, Acts of Parliament, 1970(India).

51

Raj Parkash v Mangat Ram, AIR 1978 Del 1.

52

Moot Proposition, 6, Pg.5-6.

53

Bristol-Myers Co. (Johnsons) Appln. [1975] RPC 127.

54

Moot Proposition, 8, Pg.4.

55

Moot Proposition, 8, Pg.4.

56

Supra note 19.

57

Moot Proposition, 7, Pg.5.

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refurbished Riska kits, and Aksmit Impex, in as much as it imported pre-used Riska
kits into Aryavarta, are liable for patent infringement.
a.

The sale of refurbished pre-used Riska kits by Vinshuk amounts to


infringement.

23. It is submitted before the Honble Court that a legal sale of the patented article subject to
a clearly communicated restriction does not confer authority to sell or use the article in
violation of that restriction58, i.e., does not exhaust the patentee's rights against such
conduct involving that article.59 Thus, any sale in violation of this restriction, or use when
so sold, will constitute infringement.60
24. It is, therefore, submitted that since Vinshuk sold the refurbished Riska kits in the
market under the brand name Visaka without authorization of Sartri or the patentee61,
and in violation of the valid restrictions on resale included in the shrinkwrap contract, it
is liable for infringing the patent.
b.

Aksmit Impexs importation of infringed product makes it liable for direct


infringement.

25. It is humbly submitted that in order to directly infringe the patent, an importation of
an infringing product need not include, nor be followed by, a sale, offer to sell, or any
other particular course of action as included in 48A(1)(a) of the Act62;

58

Schering-Plough Corp. v. F.T.C., 402 F.3d 1056 (Fed.Cir.2005).

59

Princo Corp. v. International Trade Com'n, 616 F.3d 1318(Fed.Cir.2010).

60

Bauer & Cie v. O'Donnell, 229 US 1 (1913).

61

Moot Proposition, 8, Pg.5.

62

48A(1)(a), The Patents Act , 1970, No.39, Acts of Parliament, 1970(India).

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RG08_A

the infringing activity is the unauthorized importation of an infringing product itself.63 As


contended in the aforementioned arguments, the import of Riska kits by Aksmit was
unauthorized and hence an infringing act. The importing and supplying of pre-used
Riska kits to Vinshuk in Aryavarta after buying them from Hun Shui in EU, indicates
that Aksmit Impex had knowledge about the patent of Riska kits. Therefore, there was
an obligation on the Respondents, even while it imported the same product from EU, to
ensure that it was not violating the Petitioners patent.64
B. THAT VINSHUK AND HUN SHUI ARE LIABLE FOR INDUCING INFRINGEMENT.
26. It is humbly submitted before the Honble Court that Vinshuk induced infringement by
devising the plan of importing Riska in Aryavarta from EU, without seeking
authorization as required under law. It is further submitted that Hun Shui also induced
infringement as it took part in the business strategy of Vinshuk by selling pre-used
Riska kits.
a.
27. It

is

submitted

Vinshuk is liable for inducement to infringe.


that

party

who

actively induces infringement of

a patent

under 48A(b)65 must know that the induced acts constitute patent infringement.66 This
section addresses, in the context of induced infringement, the required intent to induce the
specific acts of infringement or additionally to cause an infringement.67 While proof of
intent is necessary, direct evidence is not required; rather, circumstantial evidence may
63

Fellowes, Inc. v. Michilin Prosperity Co.Ltd., 491 F.Supp.2d 571 (2007).

64

Strix Limited v. Maharaja Appliances Limited, 2009 SCC OnLine Del 2825.

65

48A(1)(b), The Patents Act , 1970, No.39, Acts of Parliament, 1970(India).

66

Kyocera Wireless Corp. v. International Trade Commission, 545 F.3d 1340 (Fed.Cir.2008).

67

MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1332 (Fed.Cir.2005).

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RG08_A

suffice.68 Thus a patent holder in order to establish inducement has to prove that once the
Respondents knew of the patent, they actively and knowingly aided and abetted another's
direct infringement.69 Moreover, inducement may also be proved through specific intent
with deliberate indifference70 and willful blindness which is the subjective and
objective determination that the Respondents knew and disregarded the overt risk that an
element of an offence existed.71
28. It is humbly submitted before the Honble Court that Vinshuk has directly infringed
Sartis exclusive rights by selling Riska kits in Aryavarta. Since Vinshuk was a
manufacturer and seller of spare parts of 3-D printers72, it can be reasonably inferred that
Vinshuk was aware about the patent of Riska kits and Sartris leading position in
Aryavartas printer market. Thus, Vinshuks specific intent was to gain profit by selling
Riska at cheaper price. Further, Vinshuk, by actively inducing Hun Shui and Aksmit
Impex to sell and import in violation of Sartris patent rights, induced infringement.
b.

Hun Shui is liable for inducing infringement by aiding and abetting


with willful blindness.

29. It is submitted on behalf of Petitioners that Hun Shui is also an inducing infringer as it is
involved in aiding and abetting Vinshuks direct infringement. Vinshuk contacted Hun
Shui for deliberate collection of pre-used kits of SCHEME-2 and SCHEME-3

68

DSU MED. Corp. v. JMS Co., 471 F.3d 1293 (Fed.Cir.2006).

69

SEB S.A. v. Montgomery Ward & Co. Inc., 594 F.3d 1360 (Fed.Cir.2010).

70

CrawfordEl v. Britton, 951 F.2d 1314, 1318 (D.C.Cir.1991).

71

Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011).

72

Moot Proposition, 6, Pg.4.

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RG08_A

specifically73, which implies that Hun Shui had the knowledge of restrictions on resale of
Riska kits in EU. Hence, Hun Shui deliberately disregarded a known risk that Riska
kit was a patented product. Further, it is submitted that restrictions on resale were
sufficient to make someone believe that there was a high probability of the Riska kit
being patented, but Hun Shui took deliberate steps to avoid knowing the fact and
therefore, willfully blinded itself to infringing.74 This point towards intent to induce
anothers direct infringement75. It is, therefore, submitted that the aforementioned
circumstantial evidence is highly suggestive of willful blindness and hence, induced
infringement by Hun Shui.
C. THAT THE RESPONDENTS ARE LIABLE TO PAY DAMAGES FOR THE PETITIONERS
LOSS OF GOODWILL AND CUSTOMER RELATIONSHIP.
30. It is humbly submitted that the common design for infringement by respondents resulted
in loss of goodwill and customer relationship for the Petitioners. 48A(2) of the Act76
provides that the reliefs would include injunction and, at the option of the plaintiff,
either damages or an account of profits. While assessing damages, the loss sustained, by
the patentee as a direct and natural consequence of the unlawful sale by the Respondents,
is to be considered.77 Money damages are measured by calculating the patent owners lost
profits.78 It is submitted that the share of Riska kits, in 3-D Printers market, in
Aryavarta was between 28-30% in 2014, which, after a subsequent decline, reached 24%
73

Moot Proposition, 8, Pg.6.

74

U.S. v. Hanseyn, 791 F.3d 863 (Fed.Cir.2015).

75

Broadcom Corp. v Qualcomm Inc., 543 F.3d 683, 699 (Fed.Cir.2008).

76

48A(2), The Patents Act , 1970, No.39, Acts of Parliament, 1970(India).

77

United Horse Shoe v Stewart (1885)5 RPC 260,266(HL).

78

Rite-Hite Corp. v. Kelley Co.Inc., 56 F.3d 1538 (Fed.Cir.1995).

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RG08_A

due to the bad quality of refurbished Riska kits flowing in the market.79 This loss of 4%
is in direct consequence of sale of refurbished Riska kits at cheaper price by Vinshuk.
Furthermore, the patentee or his licensee elects to claim the profit of Rs.20,000, made by
the unauthorized sale of each unit of refurbished Riska kit sold by Vinshuk.80
Therefore, the Respondents are liable to pay damages in accordance of lost profits and put
Petitioners in the same position as they would have been in if there was no
infringement.81 Further adequate damages can be rewarded by way of measuring it in
terms of the reasonable royalty82, which Sartri paid, for the license, to Zen.
Thus, it is humbly submitted that Vinshuk, Aksmit Impex and Hun Shui are liable for
patent infringement because the first sale was restrictive. Thus, the rights of the patentee
were not exhausted.

79

Moot Proposition, 7, Pg.5.

80

British United Shoe v Lambert Howarth, (1929)46 RPC 315,320.

81

General Tire v. Firestone Tyre, [1976] RPC 197(HL).

82

Lucent Technologies Inc. v. Gateway Inc., 580 F.3d 1301 (Fed.Cir.2009).

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RG08_A

III.

THAT THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD IS


NOT THE MOST APPRORIATE METHOD FOR DETERMINING ARMS
LENGTH PRICE FOR SARTRIS TRANSACTION.

31. It is humbly submitted before the Honble Court that the Transfer Pricing Officer (TPO)
erred in choosing the most appropriate method, in accordance with 92C(2) of the
Income-tax Act83, for the disputed transactions. It is urged on behalf of the Petitioners that
Transactional Net Margin Method (TNMM) is the most appropriate method due to its
consistency in computing one-side contribution.84
A. THAT THE TPO ERRED IN APPLYING THE CUP METHOD.
32. The TPO found that the transaction between Sartri and Zen was not according to the
arms length price85 and hence, the CUP method as provided under 92C(1)(a) of the
Income-tax Act86, was used. While applying the CUP method, as explained in Rule
10B(1) of Income-tax Rules87, the price for a comparable uncontrolled transaction is
identified and compared to the international transaction which if needed is accounted for
differences, thus the adjusted price being the Arms length price.
33. It is submitted that for the purpose of comparability, an uncontrolled transaction is to be
judged in reference to the specific characteristics of the property transferred or services

83

92C(2), The Income-tax Act, 1973, No. 43, Acts of Parliament, 1961(India).

84

Sumitomo Corp. India. Pvt. Ltd. v. CIT, 2016 SCC Online DEL 4203.

85

Moot Proposition, 11, Pg. 7.

86

92C(1)(a), The Income-tax Act, 1973, No. 43, Acts of Parliament, 1961(India).

87

Rule 10B(1), The Income-tax Rules, 1962, Notification No. 14/1962-IT, (ITR), (26-3-1962).

Page | 17

RG08_A

provided in either transaction.88 The comparability depends on similarity of the product


under the CUP method.89 The royalty rate of 5% paid by Melaka to RGS in the EU90
cannot be used to evaluate the Royalty rate in Aryavarta as excessive because the
conditions prevailing in both the markets are different.91 Moreover, the transaction
between Melaka and RGS, being a controlled transaction, cannot be taken as
comparable.92
34. Since Visaka was an infringing product93, as contended through the preceding arguments,
it cannot be used as a comparable for assessing the CUP. Assessment under the Incometax Act must be based on cogent material, and not on an unsound presumption.94
Therefore, a mere assertion that the royalty rate was excessive, without the availability of
a comparable, makes the averment of the Respondents untenable.
B. THAT TNMM IS THE MOST APPROPRIATE METHOD.
35. It is humbly submitted before the Honble Court that when products are offered by firstmovers in specific segments there may be a dearth of comparables. These transactions
typically involve new technology, cutting-edge research, bundled intangibles which may
not have satisfactory comparables. Such situations may be dealt with by using a one-sided

88

Rule 10B(2)(a), The Income-tax Rules, 1962, Notification No. 14/1962-IT, (ITR), (26-3-1962).

89

Iljin Automotive Pvt. Ltd v. Asst Commissioner of Income-tax, (2011) ITAT 10146.

90

Moot proposition, 11, Pg.8.

91

Rule 10B (2)d, The Income-tax Rules, 1962, Notification No. 14/1962-IT, (ITR), (26-3-1962).

92

Mentor Graphics Pvt. Ltd. v. Deputy Commissioner of Income Tax, 2007 Indlaw ITAT 21.

93

Supra note 90.

94

Supra note 92.

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RG08_A

method (like TNMM) for which the tested party is the one that does not contribute such
intangibles.95
36. Furthermore, the TPO has erred in selecting CUP as the Most Appropriate Method under
92(C)(2) of the Income-tax Act96. The CUP method can only be used if there are preexisting comparables, since the requirement for comparability of property and services is
the strictest for the CUP Method.97 It is submitted that if complete data of a comparable
uncontrolled transaction is not available, the Revenue is at liberty to discard the
CUP method and resort to any other suitable method.98 It is, thus, submitted that TNMM,
being the most appropriate method in the facts and circumstances of the case, should be
used by the TPO to compute ALP. Under TNMM, the net profit margin realized by the
enterprise from an international transaction or a specified domestic transaction entered
into with an associated enterprise is computed in relation to costs incurred or sales
affected or assets employed or to be employed by the enterprise or having regard to any
other relevant base.99 Moreover, net margins, as used under TNMM, is less affected by
transactional differences than is the case with price, as used in the CUP Method.100
37. Since the non-availability of comparable transactions renders the CUP method
inapplicable101, and since product comparability is not an essential for computing ALP

95

Department of Social and Economic Affairs, Practical Manual on Transfer Pricing for Developing Countries,
UN New York (Oct.30, 2016, 9:41 AM) http://www.un.org/esa/ffd/documents/UN_Manual_TransferPricing.pdf
.96 Supra note 83.
97

Rampgreen Solutions Pvt. Ltd. v. CIT, 2015 Indlaw DEL 5662.

98

Noble Resources & Trading India Pvt. Ltd v. Assistant Commissioner of Income-tax, 2014 SCC Online ITAT
487.
99

Rule 10B 1(e), The Income-tax Rules, 1962, Notification No. 14/1962-IT, (ITR), (26-3-1962).

100

Supra note 92.

101

Frigoglass India Ltd V. DCIT, 2014 SCC Online ITAT 1347.

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RG08_A

under TNMM, the TPO erred in not choosing TNMM as the most appropriate method. It
is, thus, humbly contended that the lack of comparable products for Riska in the
market102, were sufficient grounds for the TPO to opt for TNMM.
Thus, it is humbly submitted that the CUP Method, chosen for determining Arms
Length Price for Sartris transaction, is not applicable in the facts and circumstances
of the case, due to the unavailability of a comparable product.

102

Moot Proposition, 11, Pg.8.

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IV.

THAT THE FUNDAMENTAL RIGHT TO PROPERTY OF AKSMIT IMPEX


HAS BEEN VIOLATED.

38. It is humbly submitted before the Honble Court that the Commissioner of Customs has
violated the fundamental right to property of Aksmit Impex by seizing the consignment of
pre used Riska kits which were being imported.103 [A] The seizure of goods

104

was

made in an unfair and arbitrary manner, without following the procedure established by
law, thus violating the Article 21 of the Constitution of Aryavarta. [B] Custom officials
were not competent to decide on matters regarding patent infringement.
A. THAT THE SEIZURE OF PROPERTY WAS MADE IN AN UNFAIR AND ARBITRARY
MANNER, WITHOUT FOLLOWING THE PROCEDURE ESTABLISHED BY LAW.
39. It is humbly submitted before the Honble Court that the seizure of the consignment by
the custom officials under 110 of the Custom Act105 was made subsequent to the notice
filed by Sartri under the IPR Enforcement Rules, 2007. It is asserted here that the seizure
of imported goods by custom officials on a notice of right holder was done in an arbitrary
and unfair manner, without following the procedure established by law106 i.e. the IPR
Enforcement Rules, 2007.
40. It is further submitted that IPR Enforcement Rules are deemed to be law as rules or

103

Moot proposition, 9, Pg.6.

104

Moot proposition, 9, Pg.6.

105

110, The Customs Act, 1973, No. 52, Acts of Parliament, 1962(India).

106

ADM, Jabalpur v. Shivakant Shukla, (1976) 2 SCC 521.

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regulations made in exercise of statutory powers are law.107 It is contended that under
Rule 7(2) of IPR Enforcement Rules, the Commissioner of Customs may, suspend the
clearance of goods, in respect of which he has reasonable grounds to believe that the
imported goods are infringing intellectual property rights. 108
41. It is contended that in the instant case direct seizure was done by the Customs
Commissioner109 instead of suspending the clearance of goods and issuing notice to the
importer.110 Furthermore, Rule 7(2) of the IPR Enforcement Rules provides that the
commissioner of customs shall immediately inform the importer of the suspension
of clearance of the goods and shall state the reasons for such suspension.111
42. In the instant case, the seizure was done without affording the applicant an opportunity of
being heard (audi alteram partem).112 Since no notice regarding the suspension of
clearance was given to Aksmit Impex before the seizure, the principle of audi alteram
partem has been violated. Therefore, the seizure was made in an unfair and arbitrary
manner, without giving the other party a right to be heard, thereby violating the principles
of natural justice.

107

Govind v. State of M.P, AIR 1975 SC 1398.

108

Rule 7(1)(b), Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, Notification No.
47/2007-Cus. (N.T.), (8-5-2007).
109

Moot proposition, 9, Pg.6.

110

Rule(1)(b), 7(2), Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, Notification No.
47/2007-Cus. (N.T.), (8-5-2007).
111

Rule 7(2), Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, Notification No.
47/2007-Cus. (N.T.), (8-5-2007).
112

Usha International Ltd v. Commr. of Custom, 2003 (158) ELT 303 Tri Kolkata.

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B. THAT

THE CUSTOM AUTHORITIES ARE NOT COMPETENT TO DECIDE ON MATTERS

REGARDING PATENT INFRINGEMENT.

43. It is submitted before the Honble Court that the seizure was in contravention to Clause 4
of the IPR Enforcement Rules, 2007 which provides instructions for implementation. The
Clause 4 of the rules clearly distinguishes that while it is not difficult for customs officers
to determine Copyright and Trade Marks infringements based on available data/inputs, it
may not be so in the case of Patents, Design and Geographical Indications unless the
offences have already been established by a judicial pronouncement in India and the
Customs is called upon or required to merely implement such order. 113
44. It has been held by the Court, in L.G. Electronic Ltd v. Bharat Bhogilal Patel & Ors. 114,
that mere reading of Clause 4 makes it clear that in cases of, Patents, Design and
Geographical Indications, the custom officials are merely implementing agencies to
enforce the orders, and the custom department would be entitled to enforce the same i.e.
to refer to assistance of judicial pronouncement.115 Hence, the custom authorities were not
competent to decide on the matter regarding patent infringement.
45. Thus, it is humbly submitted that the custom official in seizing the imported goods which
were allegedly infringing did not follow the procedure established by law and instead
took action in an unfair and arbitrary manner, thus violating Article 21 of the Constitution
of Aryavrata.

113

Cl.4, Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, Notification No. 41/2007-Cus.
(N.T.), (30-10-2007).
114

L.G. Electronic Ltd v. Bharat Bhogilal Patel & Others., 2012 SCC Online Del 3608.

115

Telefonaktiebolaget LM Ericcson Torshamnsgatan v. Union of India, (2012) 194 DLT 248 (DB).

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RG08_A

It is humbly submitted that the fundamental right to property given under Article 21 of the
Constitution of Aryavarta has been violated by Custom Officials, since Aksmit Impex was
not afforded the right to be heard.

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PRAYER

Wherefore, in light of the issues raised, arguments advanced and authorities cited it is most
humbly and respectfully prayed before this Honble Court to adjudge and declare that:
1. Vinshuk, Aksmit Impex and Hun Shui were liable for patent infringement.
2. That the Respondents shall be permanently restrained from refurbishing and selling
the Riska Kits.
3. The Respondents are liable to pay damages and lost profits.
4. The TPO erred in applying the CUP method to calculate the arms length price.
5. That the Right to property, under Article 21, of Aksmit Impex has been violated.
In the alternative, pass any other relief which the Court may deem fit and proper.
All of which is humbly submitted.

Sd/_____________________________
(Counsel on behalf of the Petitioners)

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