Case Law Summary: Claudio De Simone v. Actial Farmaceutica SRL

Introduction

When Intellectual Property Rights often overlap with each other, it is not surprising that creators face dilemmas over choosing the ideal protection for their creation. One such overlap can occur between patent and trade secret, and this overlap became the central issue in the case of Prof. Dr. Cluadio De Simone & Anr. v. Actial Farmaceutica SRL. & Ors. (2020). Now, let us look at the facts and issues of the case, and the decision given by the Delhi High Court.

Parties to the suit

Plaintiffs:

1. Prof. Dr Cluadio De Simone, and
2. Next Gen Pharma India Pvt. Ltd.

Defendants:

1. Actial Pharmaceutical Srl, formerly called CD Investment Srl;
2. CD Pharma India Pvt. Ltd;
3. VSL Pharmaceuticals, Inc.;
4. Franco Pirovano; and,
5. Sun Pharma Laboratories Ltd.

Facts of the case

1. Plaintiff no. 1 in this case, Prof. Dr Cluadio De Simone, developed the De Simone Formulation, a highly potent and concentrated probiotic made of eight strains of bacteria. This formulation was patented in the United States under registration no. 5716615 on February 10th, 1998. The patent, however, expired on February 9th, 2015. Yet, Plaintiff no. 1 claimed to be the sole proprietor of the know-how. It is to be noted that the plaintiff never filed for patent registration in India.
2. Plaintiff no. 1 had shares in a Luxemburough company called CD International SA. This company had established Defendant no. 1, Actial Pharmaceutical Srl in Italy and Defendant no. 3, VSL Pharmaceuticals in the USA. CD International has a subsidiary in India, which is Defendant no. 2. Defendants no. 1, no. 2, no. 3, and no. 4 are collectively called the CD Group.
3. Plaintiff no. 1 and Defendant no. 3 entered into a patent licensing agreement for the Formulation. On the expiry of the patent, they entered into a know-how agreement on 28th January 2010, giving Defendant no. 3 the right to continue using the Formulation in the US market till 31st January 2016. However, In November 2014, Plaintiff no. 1 decided to terminate this know-how agreement.
4. In the Indian market, Plaintiff no. 1 and Defendant no. 2, CD Pharma India Pvt. Ltd entered a licensing agreement on 6th December 2004, allowing them to import and market the Formulation. Defendant no. 2 had also obtained a license from the Drug Controller General of India (DCGI) in order to import the Formulation. This agreement, however, was meant to operate for only a period of 10 years, rendering it expired in December 2014. Till the expiry of this agreement, Defendant no. 2 had supplied the Formulation to Defendant no. 5.
5. In 2013, Defendant no. 2 decided to substitute the ingredients of the Formulation with cheap ones. The new formula of Defendant no. 2 did not go through testing and was not authorised by Plaintiff no. 1, and the same was sold under the trademark ‘VSL#3’. Plaintiff no. 1 disapproved of this and refused to renew their know-how agreement. Hence, the agreement stood terminated due to the expiry of the 10-year period.
6. On the 12th of June, 2014, Plaintiff no. 1 and Plaintiff no. 2, Next Gen Pharma, entered into an agreement, which allowed Plaintiff no. 2 to import the Formulation to India. Plaintiff no. 1 and Defendant no. 2 entered into an agreement that allowed Plaintiff no. 1 to use the mark ‘VSL#3’ in exchange for a royalty.

Arguments of plaintiffs

1. The plaintiffs contended that the defendants were counterfeiting and adulterating the Formulation.
2. The plaintiffs contended that the mark ‘VSL#3’ has acquired distinctiveness and is reputed to be associated with the Formulation. They argued that the CD Group’s use of the mark to sell the adulterated and counterfeited formulation is passing-off as it poses a likelihood of deception among the consumers.
3. They also contended that the defendants marketed the Formulation in the same trade dress, as a probiotic food when in reality it is a drug. They argued that such misrepresentation is detrimental to the health of the consumers.
4. On the above grounds, the plaintiffs prayed for a permanent injunction to restrain the defendants from: 
5. manufacturing, importing, marketing, and selling their new drugs without the approval of the DCGI;
6. using the mark ‘VSL#3’ for the advertisement and sale of any new drugs;
7. deceiving the public by connecting their products with the original De Simone Formulation.

Issues

1. Can plaintiffs claim rights over the know-how of the Formulation as a trade secret?
2. Can the plaintiffs restrain the defendants from using the mark ‘VSL#3’ on the ground of passing-off?
3. Can the plaintiffs seek an injunction against the defendants to restrain them from manufacturing the Formulation?

Decision

The single-judge bench of the Delhi High Court held that the Formulation received a patent in the United States. The judge also stated that passing-off has only been recognized in Section 27(2) of the Trade Marks Act, 1999. Since it is a patented innovation and not a trademark, the plaintiff cannot claim relief for passing-off as the law does not recognize passing-off for patents.

On the question of the use of the mark ‘VSL#3’, the Court noted that the plaintiffs cannot claim rights over a mark they did not own in the first place, and hence the Court refused to grant an injunction.

On the issue of the rights of the know-how, the Court cited the decision in Navigators Logistics v. Kashif Qureshi (2018), which held that confidential information does not receive recognition as property in Indian law. The Court further held that know-how can receive trade-secret protection, only if it is not available in the public domain. In this case, the invention was only patented in the USA, and not India, and the patent had expired in 2015, which puts the invention in the public domain. Hence, the Court decided that since the innovation was out in the public domain, the plaintiffs cannot restrain the Defendants from manufacturing the Formulation in spite of the existence of the know-how agreement.

Regarding the contention that the harmful adulterated formulation goes against the public interest, the Court ruled that the plaintiffs can seek no relief as it is not a personal right.

On the above grounds, the Delhi High Court dismissed the case.

Analysis

The judgment of the Delhi High Court clarifies why the invention in issue cannot qualify for trade secret protection. The judgment noted that this was an attempt by the inventor to claim a monopoly over the invention on the expiry of the statutory period of patent protection. The Court ruled that since the invention is out in the public domain, the plaintiff cannot seek an injunction against the defendants from manufacturing the Formulation, in spite of the know-how agreements. The decision of the Delhi High Court clearly stands against the perpetual monopolization of intellectual properties by inventors, prioritizing the interests of the general public over the individual interests of creators.

References

1. https://indiankanoon.org/doc/52129591/
2. https://www.probiotixx.info/en/about/
3. https://www.lakshmisri.com/Media/Uploads/Documents/L&S_IPR_Amicus_April_2020.pdf