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The Delhi High Court’s decision in Sergi Transformer Explosion Prevention Technologies Pvt. Ltd. v. Kumar Pratap Anil & Ors. is likely to influence the licensing strategies of patentees as well as the licensees. The Delhi High Court discussed the importance of the registration of a license/ assignment deed, as mandated by the Indian Patent Law, and the consequences of non-registration of such deeds.

In the context of patents, a license agreement or an assignment deed may be understood to be agreement between the patentee (or the right holder) and the licensee (in case of a license agreement) and/or assignee (in case of an assignment agreement) through which the patentee allows (in case of a licensing agreement) or transfers (in case of an assignment agreement) some or all of the rights, conferred by the patent law, on the patentee to the licensee and/or assignee in exchange for a consideration, which may be in the form of a one-time payment or a royalty which is paid either periodically or based on the volume of commercial utilization of the licensed or assigned rights. Even though the Indian Contract law recognizes both oral and written agreements, Section 68 the Indian Patents Act states that any license/assignment agreement shall not be valid unless the same is in writing embodying all the terms and conditions governing the rights and obligations of the parties and are duly executed. The Indian Patents Act, in Section 69, also states the procedure for registration of an assignment or license agreement.

Previous Case
Way back in 2009, in the case National Research Development Corpn. v. ABS Plastics Limited, the Delhi High Court affirmed the principles established under Section 68 and 69 of the Patents Act. The court held that where a right under patent is assigned or licensed in favour of another party, it is not valid unless it is in writing between the parties and has been filed in a prescribed manner with the Controller of Patents

In the current case, the Plaintiff, Sergi Transformer Technologies Pvt. Ltd. (henceforth referred to as Sergi Transformer) filed a suit seeking permanent injunction against the Defendants and Mr. Phillipe Magnier (proforma defendant-the patentee) from infringing the Indian Patent No. 189089 (the patent). The patent describes a “Method and Device for Preventing / Protecting Electrical Transformer against Explosion and Fire”. Sergi Transformer claimed to be the exclusive licensee of the above-mentioned patent by virtue of a license agreement dated 1st August, 2006. Further, it was also stated in the plaint that Sergi Transformer had initiated the process of registration of the license agreement with the Indian Patent Office in Kolkata on 15th March, 2010.
During the pendency of said suit, the Defendants filed an application under Order VII Rule 11 read with Section 151 of the Civil Procedure Code, 1908 (CPC) to dismiss the above-mentioned suit on the ground that the suit was not maintainable as the license agreement forming the basis of the said suit was not registered with the Indian Patent Office, as is mandated by the Indian Patent Law.
The Defendants also alleged that the Sergi Transformer’s license agreement was not valid as it has not been duly executed and it was a back-dated document that had been created by the Sergi Transformer to file the said suit. The Defendants also argued that although Sergi Transformer claimed that the license agreement was executed on 1st August, 2006, with effect from 1st January, 2006; it was not until 15th March 2010, that Sergi Transformer took steps to register the license as required under the Indian Patent law and Sergi Transformer has not mentioned any reason for the delay in registering the license agreement.
Sergi Transformer argued that the non-registration of a license deed does not render it void and it had written to the Controller of Patents under Section 69 of the Indian Patent Law to register the same. Sergi Transformer also argued that Sections 109 and 69 of the Indian Patents Act did not bar filing of an infringement suit in absence of registration of license/ assignment deeds. Sergi Transformer also highlighted that the Indian Patent law, as amended, does not specify any time period within which an application for registration of a license/ assignment deed should be filed.

On the arguments made with respect to Order VII Rule 11 CPC, the Delhi High Court. in light of the decision of the Supreme Court in Liverpool & London S.P. & I Assn Ltd. v. M.V. Sea Success [(2004) 9 SCC 512], reiterated that at the stage of considering an application under Order VII Rule 11 of the CPC, the Court has to examine only the plaint averments and the list of documents filed along with the suit. The Court thus held that other pleas advanced by parties including pleadings in the written statement have no relevancy in deciding such an application.
For the arguments with respect to the requirement of registration of license/ assignment deeds, the Court, on perusal of Sections 68 and 69 of the Indian Patents Act prior to and after the amendment in 2005, observed that the un-amended Section 68 states that, a license or assignment agreement shall have effect from the date of execution, only on registration and an application for such registration has to be filed with the Controller within six months from the date of execution of document. However, post-amendment under Section 69(5) of the Indian Patents Act, the validity of the license or assignment agreement as evidence is to be considered only after the document is registered in the Office of the Controller (i.e. the Indian Patent Office), unless the Controller or the Court direct otherwise with reasons recorded in writing. Further under Section 69 of the Indian Patents Act there is no time prescribed for filing such an application for registration.
The Court emphasized on a harmonious interpretation and conjoint reading of Sections 68, 69, 109 and 110 of the Indian Patents Act. Although there exists no bar to file a suit for infringement by the exclusive licensee even if the license agreement is not registered under the Indian Patents Act, the Court observed that (in light of the wordings; “unless the Controller or the Court….directs otherwise”; under Section 69(5) of the Indian Patents Act) the only case where an un-registered license or assignment deed shall be admitted in evidence of the title of any person to a patent is if the Controller or the Court specifically directs in this regard in writing.
In the current case, though Sergi Transformer had filed the license agreement before the Indian Patent Office for registration, the Controller had not passed any specific order. Hence, the Court held that unless the agreement is registered or the court/ the Controller passes any such order, the license agreement is not to be considered in evidence by the Court.
With respect to the questions on the legality of the license agreement of Sergi Transformer, the Court held that these issues would be considered by the Indian Patent Office when it decides on Sergi Transformer’s application to register the license agreement.
Although the Court declined to dismiss the suit only on the basis of lack of registration of Sergi Transformer’s license agreement, the Court directed the Indian Patent Office to decide on the registration of Sergi Transformer’s license agreement within 6 months from the date of the order. Further, the Court also adjourned all pending applications and suit proceedings in relation to the current case, till the Indian Patent Office passes an order on the registration of Sergi Transformer’s license agreement.

Practical significance
The Delhi High Court seemed to be highly reluctant to grant any relief whether interim or final, pending registration of the patent license or assignment agreement under the Indian Patents Act. Though, as per the Indian Patents Act, it is mandatory to register the license or assignment agreement with the Indian Patent Office, given the huge backlog of applications for registration of license agreements pending in the Indian Patent Office, the practice of staying proceedings pending the determination of registration of the license agreement is a matter of concern for a patentee/licensee seeking to enforce their rights in India. It is beneficial for both the patentee and the licensee/ assignee to register the license/ assignment deed, with the Indian Patent Office, as soon as the same has been executed.

Comparison with the position in the US
There is a provision for registering licenses with the USPTO but it is not mandatory. Reference: MPEP Section. I did not understand the significant benefits of registering a license agreement with the patent office. I will discuss the same in a separate post soon.