Western Digital Technologies v. Hansraj Dugar, on a plain reading, may not seem a significant judgement. To me, however, it indicates a continuing shift in attitude of the Delhi High Court towards refurbishers. In this post, my aim is to give a round-up on cases where trade mark infringement has been alleged owing to refurbishment of goods. I argue, analyzing the recent case, that the Court is softening its stance on infringement when it comes to refurbishers. What explains this shift? How are the Courts doing it? More importantly, what does it mean for the refurbishment industry in India? The post will touch upon these questions.
Customs Deciding Infringement of Trade Mark
Hansraj Dugar (‘HD’) had imported discarded HDDs bearing the mark of Western Digital (‘WD’). The goods were, thus, used and second-hand. The Customs, under rule 7(1)(b) of the IPR (Imported Goods) Enforcement Rules, 2007, informed WD that the imported HDDs infringed their trade mark. Simultaneously, it also suspended the clearance for importing the infringing HDDs. Under rule 7(5) r/w 8, WD produced technical reports which showed that the HDDs were produced by Western Digital and supplied to Original Equipment Manufacturers (OEMs) in Korea and Hong Kong. The goods were subsequently confiscated the goods under Section 110 of the Customs Act.
Customs Circular no. 13/2012 empowers the Custom authority to determine whether a consignment of goods infringes rights of the IPR holder. Clause 4(ii) of the circular, however, provides for parallel imports of legally acquired goods u/s. 30(3) of the TM Act without the consent of the rightsholder. The only condition is that the goods are not “materially altered or impaired after they were put in the market.”
Although the Circular allows parallel imports, the ground reality is far more different. The glaring problem is empowering the customs department to decide the issue of infringement. Parallel imports, although allowed, has been in a state of legal flux. The exact scope of ‘legitimate reasons’ u/s. 30(4) has not been clarified by the Courts. In fact, 30(4) does not mention the term ‘material alteration’ mentioned in circular 13/2012. The scope of the term ‘impairment’ is also undefined by the Act. Does importing second-hand good constitute material alterment? Does importing a refurbished good constitute impairment? The answer to these questions are yet to be definitively answered by the Courts. It is wishful thinking to expect the Customs to get it right.
In fact, in a 2007 circular, the Customs department noted that determination of copyright and TM infringement by customs officers is relatively easier compared to Patent cases. The assumption, in the context of refurbished goods, does not hold true. In the present case, the HDDs were detained by the customs for more than five years until the DHC ordered their release. Although I do not have exact figures, it is obvious that such prolonged detention results in monetary losses for the refurbishment industry. For instance, in this case, HD submitted that it was suffering financial hardship owing to demurrage charges.
The Customs, in my opinion, needs to come out with a circular clarifying that if refurbished goods are intended to be sold with complete disclosure, it cannot be detained u/s. 30(4). Otherwise, the purpose of allowing parallel imports u/s. 30(3) will be defeated.
What the Court held?
The present case is different from the previous ones (as I detail below) since the HDDs never came to be in the HD possession. As a result, he never had the opportunity to tamper the good (repair) or repackage the good (rebrand). In its submissions, the HD said- “it was willing to ensure full disclosure at the time of any resale, clearly identifying the goods as refurbished and not backed by any warranty or guarantee from the plaintiffs.”
After extensive quoting of Kapil Wadhwa and Seagate, the Court held that there is no bar against importation of ‘end-of-life’ goods bearing the mark of another entity. As long as the refurbished good carries the disclosure (original manufacturer, warranty, specifying the good is used and refurbished), the importation of the good is legal u/s. 30(3). On the other hand, if the used good are merely resold (without repairs), the disclosure must specify that the good is not directly imported from the manufacturer nor is it covered by the manufacturer’s warranty.
Thus, the Court makes a distinction between ‘as is’ and ‘refurbished’ goods. Although both goods need to accompanied with a disclosure, the contents of the disclosure differ. For ‘as is’ goods, the disclosure requirements will be the same as laid out in Xerox. For refurbished goods, the disclosure requirements are laid out in Seagate.
A Soft Spot for Refurbishers Developing?
The decision indicates a softening stance of the DHC towards refurbishers in TM infringement cases. Let me illustrate.
- Repair and Resell?- Slow Down you Crazy Child!
In Western Digital v. Rajesh Verma (2016), the DHC restrained the Defendants from selling refurbished HDDs. The Defendant resold the repaired HDDs bearing the mark of the original manufacturer i.e. the registered mark was not removed. The Court held that refurbishment of the HDDs resulted in material alteration u/s. 30(4). As a result, the Defendants were restrained from selling the HDDs.
In Western Digital v. Amit Tanna (2016), however, the DHC took a different view. The Defendant were selling used HDDs bearing the Plaintiff’s mark. Unlike Rajesh Verma, no repair were done to HDDs in the case. The Court refused to injunct the Defendant from selling the goods. It directed the Defendant to disclose that the good was not covered original warranty and the original expiry date.
Thus, in 2016, the emerging view was that repaired goods could not be resold u/s. 30(3). However, subsequent cases show an even more rigid stance.
In Western Digital v. Raaj Computers (2022), the Defendants were reselling refurbished HDDs bearing the original mark of the Plaintiff i.e. the marks were not removed. The Court held this to be the case of passing off. If the good and its labelling were tampered with, the Defendant could not avail protection u/s. 30(3).
In Western Digital v. Geonix (2024), the Defendants used to refurbish the HDDs and remove the original mark of the Plaintiff. Unlike Rajesh Verma, the mark of the Plaintiff was removed and replaced with the Defendant’s own mark. The Court held that removal and replacement of the original mark i.e. reverse passing off was a ‘legitimate reason’ u/s. 30(4) to oppose the sale. Thus, the protection of exhaustion u/s. 30(3) did not apply. The Court did not say whether repair or refurbishment resulted in material alteration.
Thus, until Geonix, the refurbishment industry was in a state of flux: the Court was injuncting further resale of refurbished good. It was immaterial whether you removed the mark or not. If you did, it was tampering with goods u/s. 30(4). If you did not, there was likelihood of confusion and passing off.
- Repair all you want: AS LONG AS YOU DISCLOSE!!
Seagate was decided three months after Geonix. The facts were similar. The original mark of the HDDs was removed and replaced with the Defendant’s own mark after refurbishment. Unlike Geonix, the Court allowed the resale of the goods. Although it did not allow removal of mark, it mandated the Defendant to resell the good with ‘full disclosure.’ The disclosure is meant to convey to the customer that the good is used and refurbished, doesn’t come with manufacturer’s warranty, end-of-life, serviceability etc. Thus, the consumer is fully aware that the HDDs is not sold with the authorisation of the manufacturer. The Court also emphasised the importance of refurbishment industry and right to repair.
The present case is the latest case to be decided after Seagate. The Court, here also, has continued with a softening stance towards refurbishers. If the good is used (not refurbished), it can be sold with disclosure laid down in Xerox. If it is used and refurbished, it can be sold with disclosure laid down in Seagate.
Market? Price Difference? Missing Considerations
In all the above orders, the Courts have missed a crucial fact in the confusion analysis- nature of market. None of the orders discuss whether, given the nature of the market, is a consumer of the repaired product likely to be confused as to the true origin of the good? In Geonix, Raaj Computers and Seagate, the HDDs were being resold in Nehru Place, Delhi which is an (in)famous grey market. As this Guardian article shows, one can find both counterfeit and genuine goods in the market. It is also a hub for refurbishment of electronic devices. In this market, the Defendants in above cases were re-selling ‘used and refurbished’ genuine goods i.e. not counterfeit. Further, the price of the goods being sold much cheaper than the new and original goods.
In Nehru Place, the consumer buying an electronic good (for e.g. HDD) does not expect it to run as good as a new and original one. There is acceptance that the good, even if genuine, will be of inferior quality compared to the original one. In fact, Courts in US consider this factor while assessing likelihood of confusion. In Nitro Leisure Products v. Acushnet, the Court of Appeals had observed that consumers of used and refurbished good do not expect the good to measure up to or perform at the same level as if new. In Champion too, the Court observed that inferiority is expected by consumers in used goods.
Thus, the Courts are applying distinct tests to likelihood of confusion for used and refurbished goods. A similar consideration is missing in DHC’s orders. I believe this is an important consideration in TM cases relating to refurbished goods in India. Any reasonable consumer buying an electronic good in a grey market at half the original price does not expect the good to be originally manufactured or run as efficiently as original. The scope of confusion in the context of refurbished good is, thus, significantly thin.
If the Court is concerned with post-sale confusion i.e. confusion that occurs after the goods or services have been purchased, it has never stated the same. If that is the case, even disclosure will not be helpful since a third-person might believe that the HDD (with ‘Seagate’ mark) is an original and unused good. These are the complex issues which the Courts are yet to unravel in these orders.
(I am grateful to Prof. Lath for her insights on the issue.)