In a landmark judgment, the High Court of Delhi has recognised the principle of international exhaustion of IP rights. In the case of Seagate Technology & Western Digital vs Daichi International & Ors. [May 24, 2024], where two manufacturers of Hard Disk Drives (HDDs), Seagate and Western Digital (WD), initiated a case of infringement against Daichi International and various other resellers on account of them selling their refurbished HDDs after removing their trademarks from it. These HDD manufacturers supply their HDDs to various Original Equipment Manufacturers (OEMs) for installation as part of laptops, desktops and other equipment. The HDDs have a lifespan, as prescribed by the manufacturers, and the HDDs are unserviceable by the manufacturers after the said period. The HDDs, however, still retained functionality, and when used equipment is sold and discarded globally, consignments of these end-of-life HDDs are refurbished by various entities and sold to consumers. These refurbished HDDs are typically used for either assembled desktops or surveillance cameras.
Submissions by Parties
Seagate and WD submitted that these end-of-life HDDs could not be sold as refurbished products since the removal of their brand name from the product amounted to impairment, which was not permitted as per Sections 30(3) and 30(4) of the Trade Marks Act, 1999. It was argued that these goods, which bore a registered trademark, were not lawfully acquired and were sold in the market or otherwise dealt with. Moreover, even if they were lawfully acquired, the condition of the goods had been changed or impaired after they were put on the market, and, therefore, cause of action arose in favour of the registered trademark owners. The various issues raised before the Court, including the importation and sale of refurbished HDDs by the defendants, infringe on the plaintiffs’ trademark rights under the Trade Marks Act; the defendants’ actions fall within the exceptions provided in Section 30(3) and Section 30(4) of the Trade Marks Act, the Principle of International Exhaustion of Rights applies in this case.
Submissions by Amicus Curiae
The Amicus Curiae highlighted that simply removing branding does not immediately eliminate infringement and that it is essential to provide a clear notification to avoid customers’ misunderstanding and deception. The Amicus cited U.S precedents to demonstrate that refurbishment is allowed if there is sufficient transparency, guaranteeing that the brand’s standards of excellence are not affected. Additionally, Amicus emphasised that reconditioning a product while removing its marking could still be considered impairment or infringement, provided it is evident that the item in question is no longer connected to the originating brand. Amicus suggested revealing the primary producer to uphold authenticity and prevent customer deception.
Analysis
The Court, after analysing various policies such as the Foreign Trade Policy, 2023 and international case laws on the point of exhaustion and importation, held that Seagate and Western Digital failed to demonstrate any rule, regulation, or policy that prohibits the import of discarded HDDs or equipment into India. The Court held that simply terming an HDD as an “end of life” didn’t imply that it lost its functionality since it is not a perishable product. The import of end-of-life HDDs was held not to be illegal since no policy was found that prohibited, restricted or discouraged such imports. The Foreign Policy 2023, adverted to by the plaintiff, was found to be determinative on the point, and therefore, the imports were held to be legal.
On the question of the sale to Refurbished HDD, it was held to be legitimate since the defendant’s purchase from the importer was legitimate, under invoice and GST payment. The Court further held that a sale and purchase taking place through a formal invoice with tax being paid to the Department of Revenue would prima facie indicate that there was no attempt by either the importer or the Refurbisher to hide the transaction or not disclose the same, or indulge in some surreptitious activity.
The Court further held that the Government in India has encouraged the ‘Right to Repair’, rather than banning the refurbishing market altogether. The Court held that such a step has been taken to address the needs of individuals from all economic strata. The Court further referred to ‘Right to Repair’ portal of the MCA, which serves as a single platform to provide necessary information on repair and maintenance of products to consumers.
On the issue of infringement under section 30(3) & 30(4) of the Trademarks Act, 1999, the Court held that Section 30(3) is premised on three conditions: first, that the goods in question bear a registered trademark; second, that these goods are lawfully acquired by a person; and third, sale of these goods in the market or otherwise dealing those goods by that person.
Assessing these three pre-conditions, the Court held that it is obvious that the goods originally bore a registered trademark of the plaintiffs and, therefore, there is no cavil in that regard. On the issue of lawful acquisition, the Court observed regarding importation that there is no law, regulation, or policy presented to the Court that prohibits such importation of end-of-life products and subsequent sale thereof. On the third pre-condition, the Court held that the Refurbisher’s sale of the goods without the mark should preclude them from taking a defence under Section 30(3).
Conclusion
Therefore, considering the above and other judgments, the Court held that if there is no illegality in import and the original trademark of the manufacturer was in place, the goods could be sold along with a “full disclosure”, and the Court laid down detailed guidelines for “Full Disclosure”:
- Packaging to identify the source of the product.
- Reference to the original manufacturer is to be made through their word mark and not the device mark.
- Packaging must specify that there is no original manufacturer’s warranty.
- Packaging must specify that the product is “Used and Refurbished’.
- Statement regarding the extended warranty by the Refurbisher.
- Packaging must reflect an accurate description of the features.
- All of the above should also be complied with by the defendants in terms of promotional literature, website, e-commerce listings, brochures, and manuals
Authors: Manisha Singh and Anju Agrawal
First Published by: Lexology here