TEAM CODE: RG08

3RD IIT LAW SCHOOL NATIONAL MOOT COURT COMPETITION, 2016

IN THE HONBLE SUPREME COURT OF ARYAVARTA

SLP No. ________/2016

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

SLP No. _______/2016

(Under Article 136 of the Constitution of Aryavarta)
Sartri Pvt. Ltd. _____________________________________________________ Petitioner
v.
CIT (A) __________________________________________________________ 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 RESPONDENTS

DRAWN AND FILED BY COUNSELS FOR THE RESPONDENT

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T AB LE OF CO NTENTS
LIST OF ABBREVIATION ........................................................................................................ III
INDEX OF AUTHORITIES ........................................................................................................... V
STATEMENT OF JURISDICTION ............................................................................................. IX
STATEMENT OF FACTS ............................................................................................................ X
ISSUES RAISED ..................................................................................................................... XIV
SUMMARY OF PLEADINGS ..................................................................................................... XV
ARGUMENTS ADVANCED ........................................................................................................... 1
I.

THAT THE PATENT RIGHTS OF THE PATENTEE HAVE BEEN

EXHAUSTED FOR SOLD RISKA KITS. .................................................................... 1

A.

THAT THE RESTRICTIONS AMOUNT TO MISUSE OF PATENT RIGHTS........................ 1

B.

THAT THE PATENT RIGHTS HAVE BEEN EXHAUSTED. ............................................. 5

II.

THAT VINSHUK, AKSMIT IMPEX AND HUN SHUI ARE NOT LIABLE

FOR PATENT INFRINGEMENT. .................................................................................... 7

A.

THAT THERE ARE NO PATENT RIGHTS TO BE ENFORCED. ....................................... 8

B.

THAT THE RESPONDENTS ARE NEITHER LIABLE FOR DIRECT NOR FOR INDUCED
INFRINGEMENT. ...................................................................................................... 11

III.

THAT COMPARABLE UNCONTROLLED PRICE (CUP) METHOD USED

BY

THE

TRANSFER

PRICING

OFFICER

(TPO)

WAS

THE

MOST

APPROPRIATE METHOD. ............................................................................................ 13

IV.

THAT THERE WAS NO VIOLATION OF THE FUNDAMENTAL RIGHT

TO PROPERTY UNDER ART. 21 BY THE COMMISSIONER OF CUSTOMS. .... 18

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A.

THE COMMISSIONER OF CUSTOMS HAD THE AUTHORITY TO SEIZE THE RISKA

KITS AS THEY WERE INFRINGING PRODUCTS. ....................................................... 18

B.

PROPER PROCEDURE ESTABLISHED BY THE LAW WAS FOLLOWED BY THE

COMMISSIONER OF CUSTOMS. ............................................................................... 19

PRAYER ............................................................................................................................... XVII

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T A B LE O F A B B R E V I A T I O N

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

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

Honorable

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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 Number

RAJ

Recent Arbitration Judgments (SC)

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 Organization

WL

Westlaw

v.

Versus

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INDEX OF AUTHORITIES
STATUTES:
1.

The Constitution of India, 1950;

2.

The Customs Act, 1973;

3.

The Income-tax Act, 1973;

4.

The Patents Act, 1970;

5.

The Trademarks Act, 1999.

RULES:
1.

Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007;

2.

The Income-tax Rules, 1962.

TREATISES:
1.

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

2.

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

INDIAN CASES:
1.

Aztec Software & Technology Services Ltd. v. ACIT, 2007 Indlaw ITAT 15 ............. 16

2.

Cadbury India Ltd. v. ACIT, 2013 Indlaw ITAT 82 ...................................................... 15

3.

Govind v. State of M.P., AIR 1975 SC 1398 ................................................................. 19

4.

Kapil Wadhwa v. Samsung Electronics Co. ltd., (2012) 194 DLT 23 (DB) .................... 5

5.

Mentor Graphics Pvt. Ltd. v. DCIT, 2007 Indlaw ITAT 21 .................................... 15, 16

6.

Noble Resources & Trading India Pvt. Ltd v. ACIT, 2014 SCC OnLine ITAT 487 .... 18

7.

Sony Ericsson v. Commissioner of Income Tax, (2015) 218 DLT 449 (DB)................ 14

8.

Telefonaktiebolaget LM Ericcson Torshamnsgatan v. UOI, (2012) 194 DLT 248 ....... 20

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9.

Warner Bros. v. Santosh V.G., 2009 Indlaw DEL 970 .................................................... 6

US CASES:
1.

Adams v. Burke, 84 U.S. 453 (1873) ............................................................................. 10

2.

Ansul Co. v. Uniroyal, Inc., 306 F.Supp. 541 (S.D.N.Y.1969)...................................... 10

3.

B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419 (Fed.Cir.1997) ............................ 10

4.

Bauer & Cie v. O'Donnell, 229 U.S. 1 (1913).............................................................. 1, 9

5.

Bloomer v. McQuewan, 55 U.S. 539 (1852) .................................................................... 2

6.

Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8 (1918) .................. 4

7.

Canon Inc. v. GCC Inter., 263 Fed.Appx. 57 (Fed.Cir.2008) .......................................... 9

8.

Ethicon v. U.S. Surgical Corp., 135 F.3d 1456 (Fed.Cir.1998) ....................................... 1

9.

Ethyl Gasoline Corp. v. U.S., 309 U.S. 436 (1940) ..................................................... 2, 3

10.

Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011).................................. 11

11.

Hobbie v. Jennison, 149 U.S. 355 (1893)......................................................................... 2

12.

In Re: Yarn Processing Patent Validity, 472 F. Supp. 180 (S.D. Fla. 1979) ................. 10

13.

Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013)......................................... 4

14.

Largan Precision Co, Ltd v. Genius Electronic Optical Co.Ltd., 2014 WL 5358426,
(N.D.Cal.2014) ............................................................................................................... 11

15.

Monsanto Co. v. McFarling, 363 F.3d 1336, 1341 (Fed.Cir.2004).................................. 9

16.

Morton Salt v. G.S.Suppiger Co., 314 US 488 (1942) ................................................... 11

17.

Motion Picture Patents v. Universal Film Mfg. Co., 243 U.S. 502 (1917) .................. 1, 4

18.

Quanta Computer v. LG Electronics, 553 U.S. 617 (2008) ................................. 2, 3, 5, 7

19.

Ricoh Co., Ltd. v. Quanta Computer Inc., 550 F.3d 1325 (Fed.Cir.2008) ..................... 12

20.

Static Control Components v. Lexmark, 615 F.Supp.2d 575 (E.D.Ky.2009) .............. 3, 5

21.

Static Control Components, Inc. v. Lexmark Intern., Inc., 615 F.Supp.2d 575
(E.D.Kent.2010) ............................................................................................................... 2

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22.

Straus v. Victor Talking Machine Co., 243 U.S. 490 (1917) ........................................... 4

23.

Tessera, Inc. v. Int'l Trade Comm'n, 646 F.3d 1357, 1370 (Fed. Cir.2011)..................... 9

24.

U.S. v. Masonite Corp., 316 U.S. 265 (1942) .................................................................. 2

25.

U.S. v. U.S. Gypsum Co., 124 F.Supp. 573 (D.D.C.1954) ........................................ 4, 10

26.

U.S. v. Univis Lens Co., 316 U.S. 241 (1942) ......................................................... 8, 9, 5

27.

Windsurfing International v. Fred Ostermann GmbH, 613 F. Supp. 933 (S.D.N.Y.

1985) ................................................................................................................................. 9

BOOKS REFERRED:
1.

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

2.

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

3.

Dr. RAMAN MITTAL, LICENCING INTELLECTUAL PROPERTY LAW AND

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

4.

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

Services Ltd., 2nd ed. 2006);

5.

Dr. ELIZABETH VERKEY, INTELLECTUAL PROPERTY LAW AND PRACTICE

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

6.

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

Butterworths Wadhwa Nagpur, 10th ed. 2006);

7.

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

8.

Radhika Suri, FUNDAMENTALS OF INDIAN TRANSFER PRICING: WITH

REFERENCE TO US & OECD GUIDELINES, Taxmann Allied Services (2008).

9.

William J. Murphy et al., PATENT VALUATION: IMPROVING DECISION

MAKING THROUGH ANALYSIS, John Wiley & Sons. 352 (Vol. 2, 2012).

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OTHER AUTHORITIES:
1.

Donald S. Chisum, CHISUM ON PATENTS .................................................................. 9

2.

OECD, OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax
Administrations, Organisation for Economic Co-operation and Development ............. 12

3.

Rajya Sabha Secratariat, 227TH Report on the Copyright (Amendment) Bill, 2010,
Parliamentary Standing Committee on Human Resource Development ......................... 5

4.

Secretariat,

EXCEPTIONS

AND

LIMITATIONS

TO

PATENT

RIGHTS:

EXHAUSTION OF PATENT RIGHTS, Standing Committee on Law of Patents

(WIPO) ............................................................................................................................. 5
5.

Shamnad Basheer & Mrinalini Kochupillai, TRIPS, PATENTS AND PARALLEL

IMPORTS IN INDIA: A PROPOSAL FOR AMENDMENT, 2 IJIPL 63 (2009) .......... 5

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S T AT E M E NT OF J URI S D I CT I ON
The Respondents have humbly submitted before the Honble Supreme Court of Aryavarta
under Article 136 and Article 139A of the Constitution of Aryavarta (The laws of Aryavarta
are pari materia with laws of India) for Special Leave to Appeals 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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STATEM ENT O F FAC TS

BACKGROUND
1. Aryavarta is a country in South Asia with its capital at Sinhabad. RGS Public Ltd, a company
of the USA, has been granted patents on the Riska kits used for 3D printers in Aryavarta
and European Union (EU) apart from the US. The kit increases the efficiency of the printers
significantly, which has lead to enhanced sale of 3D printers. RGS assigned all the patents
and trademarks in Aryavarta to its holding company in Singapore named Zen Pvt. Ltd.
Another company Melaka Ireland Ltd. of RGS was granted a license to manufacture sell and
export Riska in the European Union.
RISKA WAS SOLD UNDER THREE DIFFERENT SALE SCHEMES
2. Scheme 1 includes: 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: The customer understands,
agrees and undertakes that: (i) Once the cartridge in Riska is exhausted, the customer shall
get it refurbished by authorized sellers of Riska only. (ii) Under no circumstances the
customer shall re-sale Riska to any other person or entity. (iii) The customer shall purchase
the cartridges, required for the Riska, only from authorized sellers of Riska. There was
another scheme 3 which 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. Zen granted an exclusive, non-transferrable, non-alienable, non-licensable license in respect
of Aryavarta patent to Sartri. Sartri started importing Riska from Zen and started selling
Riska in the domestic market, at a price of Rs 1,00,000/- per unit only and earned a profit

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of Rs 25,000 , through its authorized outlets under all three existing schemes. Sartri agreed to
pay an amount of 24 Crores 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. Sartri was able
to cement its position in the Aryavartas market.
VINSHUK PVT. LTD. SELLING VISAKA KITS
4. In 2014, Sartri came to understand that some refurbished kits flowing in the market. Vinshuk
Pvt. Ltd., a company of Aryavarta, manufacturer and seller of spare parts of 3-D printers. It
devised a new business strategy and decided to sell refurbished Riska kit at a much cheaper
price than Sartri under brand name of Visaka, after importing pre-used Riska from EU
markets. Vinshuk contacted Hun Shui a company based in Thaikwando, a European
country, which collected the used kits sold under the SCHEME-2 and SCHEME-3. Further
Vinshuk contacted Aksmit Impex, an importing-exporting company of Aryavarta which
bought pre-used Riska kits from Thaikwando and imported these kits into Aryavarta and
supplied 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. 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 a
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 appealed to ITAT. Further 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 of any patented product. 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 .The High
Court held that there was no patent infringement.
SPECIAL LEAVE TO APPEAL BEFORE THE SUPREME COURT OF ARYAVARTA
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 PATENT RIGHTS OF THE PATENTEE HAVE BEEN

EXHAUSTED FOR SOLD RISKA KITS?

II.

WHETHER VINSHUK, AKSMIT IMPEX AND HUN SHUI ARE LIABLE

FOR PATENT INFRINGEMENT?

III.

WHETHER

THE

COMPARABLE

UNCONTROLLED

PRICE

(CUP)

METHOD USED BY TRANSFER PRICING OFFICER (TPO) IS THE MOST

APPRORIATE METHOD FOR DETERMINING ARMS LENGTH PRICE
FOR SARTRIS TRANSACTION?

IV.

WHETHER THE FUNDAMENTAL RIGHT TO PROPERTY GIVEN UNDER

ARTICLE 21 OF THE CONSTITUTION OF ARYAVARTA HAS BEEN
VIOLATED BY CUSTOM OFFICIALS?

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SUMMARY OF PLEADINGS
I.

THAT THE PATENT RIGHTS OF THE PATENTEE HAVE BEEN

EXHAUSTED FOR SOLD RISKA KITS.
It is humbly submitted before the Honble Supreme Court that that the patent rights of
the patentee have been exhausted for sold Riska kits. Firstly, the restrictions
imposed on Riska kit amounted to misuse of patent rights. Secondly, as the sale of
the Riska has already taken place, the patent rights of the Riska kits have been
exhausted.

II.

THAT VINSHUK, AKSMIT IMPEX AND HUN SHUI ARE NOT LIABLE
FOR PATENT INFRINGEMENT.
It is humbly submitted before the Honble Supreme Court that Hun Shui, Aksmit
Impex and Vinshuk have not infringed the patented product. Firstly, there are no
patentees rights to be enforced as the first sale doctrine is applicable. Secondly, that
the respondents are not liable for Direct or Induced infringement

III.

THAT

CUP

METHOD

USED

BY

THE

TPO

WAS

THE

MOST

APPROPRIATE METHOD AS THE COMPARABLE.

It is humbly submitted before the Hon'ble Court that the CUP Method, applied by the
TPO, is the most appropriate method in the facts and circumstances of the case.
Furthermore, the royalty payment by Melaka to RGS can be used as a benchmark for
the royalty transaction between Sartri and Zen. The Hon'ble High Court was, thus,
correct in upholding the application of the CUP Method by the TPO.

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IV.

THAT THE FUNDAMENTAL RIGHT TO PROPERTY GIVEN UNDER

ARTICLE 21 OF THE CONSTITUTION OF ARYAVARTA HAD NOT BEEN
VIOLATED BY CUSTOM OFFICIALS.
It is humbly submitted before the Honble Supreme Court that that there was no
violation of the fundamental right to property under Article 21 by the custom officials
Firstly, the custom authorities had the authority to seize the consignment of the
Riska kits as they were infringing products. Secondly, proper procedure established
by the law was followed by the custom official in seizing the infringing product

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ARGUMENTS ADVANCED
I.

THAT THE PATENT RIGHTS OF THE PATENTEE HAVE BEEN

EXHAUSTED FOR SOLD RISKA KITS.

1.

It is humbly submitted before the Honble Supreme Court that since the Riska kits were
sold by Melaka, in the EU1, the rights of the patentee, in so far as the kits were concerned,
have been exhausted. The Appellants, thus, are prevented from imposing the conditions
attached to the kits, as they were highly restrictive in nature and amounted to misuse of the
patent rights. As such, the restrictions sought to be imposed on the Respondents, with regard
to the sale of Visaka kits, are perverse.
A.

2.

THAT THE RESTRICTIONS AMOUNT TO MISUSE OF PATENT RIGHTS.

It is humbly submitted before the Honble Court that the conditions imposed on the initial
sales in the EU were highly restrictive in nature; and as such, the conduct of the patent
owners amounts to misuse of the patent rights. The averment made by the Appellants,
contending that the purported sale was a conditional license for mere use, goes against the
common law principle that the power of the patentee to sell and yet under the guise of license
put restrictions were repugnant to the rights which naturally arose from the sale which was
made.2 It is humbly contended that the first sale, involving an ostensible license for mere use,
has to be interpreted as a question of law.3 In the instant case, terming the first sale as a
conditional license for use is a mere play upon words4, intended to limit the application of the

Moot Proposition, 4, Pg.3.

Motion Picture Patents v. Universal Film Mfg. Co., 243 U.S. 502 (1917).

Ethicon v. U.S. Surgical Corp., 135 F.3d 1456 (Fed.Cir.1998).

Bauer v. ODonnell, 229 U.S. 1 (1913).

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exhaustion doctrine, by enlarging the scope of the patent monopoly.5

3.

It is humbly submitted on behalf of the Respondents that there are strict limitations6 on the
power of the patentee to attach conditions to the use of the patented article.7 In the instant
case, the restrictions, sought to be imposed, were not on the sale of the Riska kits, rather on
the use of the kits after sale.8 Thus, even if the restrictions were brought to the knowledge of
the buyer and accepted by him, the sale would be a complete one 9; and as such, patent rights
cannot be reserved through post-sale restrictions on use of cartridges imposed on its
customers, even when the subsequent purchaser was on notice of the asserted patent rights. 10
The rationale behind this principle is that since the Riska kits had passed to the hands of
the purchaser, they were no longer within the limits of the patent monopoly11; and as such,
the patentee, by attaching conditions, may not enlarge the said monopoly.12
a.

4.

That the post-sale restrictions on use of cartridge were unenforceable.

The conditions sought to be imposed have to be tested on the anvil of 140 of the Act13,
which provides for restrictive conditions which may not be imposed on the sale or license of
a patented product. The condition, with regard to the purchase of the cartridges, is in violation

Bloomer v. McQuewan, 55 U.S. 539 (1852).

Moot Proposition, 2, Pg.2.

U.S. v. Masonite Corp., 316 U.S. 265 (1942).

Quanta Computer v. LG Electronics, 553 U.S. 617 (2008).

Hobbie v. Jennison, 149 U.S. 355 (1893).

10

Static Control Components, Inc. v. Lexmark Intern., Inc., 615 F.Supp.2d 575 (E.D.Kent.2010).

11

U.S. v. Masonite Corp., 316 U.S. 265 (1942).

12

Ethyl Gasoline Corp. v. U.S., 309 U.S. 436 (1940).

13

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

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of 140(1)(a) of the Patents Act14, since it requires the purchaser of Riska kit to acquire the
cartridge from the authorized sellers of Riska only.15 Further, the conditions imposed
require the purchaser of the kits to get the cartridge refurbished from only the authorized
sellers of Riska.
5.

It is humbly contended that merely because the cartridge was essential for the good quality of
printing, as averred by the Appellants, it is not competent for the patent owner to expand the
scope of its monopoly by restricting the use of the patent to materials necessary in its
operation, but which are not part of the patented invention.16 Thus, the patent monopoly of
one invention may no more be enlarged for the exploitation of a monopoly of another, than
for the exploitation of an unpatented article.17
b.

6.

That the restrictions on the resale of Riska kit were unconscionable.

It is further humbly submitted that the restriction imposed on the ability of the customer to
resell the Riska kits is in violation of 10 of the Transfer of Property Act.18 Once the kits
were sold, they were no longer within the limits of the patent monopoly, conferred by the
Patents Act; the kits became the private property of the individual customers.19 The right to
vend was exhausted by a single, unconditional sale, the kits sold being thereby carried outside
the monopoly of the patent law and rendered free of every restriction which the vendor may

14

140(1)(a), The Patents Act, 1970, No.39, Acts of Parliament, 1970(India).

15

Moot Proposition, 2, Pg.2.

16

Static Control Components v. Lexmark, 615 F.Supp.2d 575 (E.D.Ky.2009).

17

Ethyl Gasoline Corp. v. U.S., 309 U.S. 436 (1940).

18

Moot Proposition, 10, Pg.13.

19

Static Control Components v. Lexmark, 615 F.Supp.2d 575 (E.D.Ky.2009).

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attempt to put on it.20 Since Melaka had sold the Riska kits in the EU, its rights, with
regard to controlling the future sales, were exhausted.21 The purpose of the shrink-wrap
contract, thus, was not to grant a conditional license for mere use but to sell the kits and yet
place unreasonable restrictions upon its further alienation.22 This kind of prohibition on resale
is manifestly anti-competitive.23
7.

It is humbly contended, that it was not competent for the patent owner, by notice attached to
the Riska kits, to send their product forth into the channels of trade subject to conditions as
to use.24 Assuming, though not admitting, that the patent owner could attach certain
contractual conditions on use of the patented product, such conditions would be subject to
patent and contract laws as well as the doctrine of patent misuse.25
8. It is humbly submitted that a patentee does not have the right to use the special privilege of a
patent monopoly to secure rights not granted by the patent and that are contrary to public
policy.26 The doctrine of patent misuse, thus, equitable in nature27 is not restricted to a closed
category of wrongful practices, but applies to whatever the form of the suit by the patent
owner may be.28 Since, in the instant case, the patent owner seeks to impose unreasonable
restrictions on post-sale use and re-sale of the kits, the conditions amount to misuse of the

20

Quanta Computer v. LG Electronics, 553 U.S. 617 (2008).

21

Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8 (1918).

22

Straus v. Victor Talking Machine Co., 243 U.S. 490 (1917).

23

Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013).

24

Motion Picture Patents v. Universal Film Mfg. Co., 243 U.S. 502 (1917).

25

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

26

Windsurfing International v. Fred Ostermann GmbH, 613 F.Supp. 933 (S.D.N.Y. 1985).

27

Id.

28

U.S. v. U.S. Gypsum Co., 124 F.Supp. 573 (D.D.C.1954).

Page | 4

RG08_R

patent rights by the Appellants.

B.
9.

THAT THE PATENT RIGHTS HAVE BEEN EXHAUSTED.

Since the first sale, in so far as the Riska kits are concerned, has already been made by
Melaka in the EU, the monopoly of the patentee has been exhausted and, thus, he cannot
control the use or disposition of the article.29 Melaka had the authority to sell the Riska kits
under the three schemes.30 Since the first sale by Melaka to its customers in EU was
authorized, it exhausted the patent owners right to restrict the use of the kits.31 After the first
authorized sale to a purchaser who buys it for use in the ordinary pursuits of life, patent rights
are exhausted32, regardless of the method by which monopoly is sought to be extended.33

10.

It is further humbly submitted that the initial sales were made in the EU does not render the
exhaustion doctrine inapplicable. The aforementioned argument of the Respondents is
supported by the Standing Committee Report of WIPO on the Law of Patents, which, citing
107A of The Patents Act34, puts Aryavarta in the category of countries which follow an
international exhaustion policy.35 The High Court36 relied on the Parliamentary Standing
Committee Report37 as an indicator of the governing principle of international exhaustion in

29

U.S. v. Univis Lens, 316 U.S. 241 (1942).

30

Moot Proposition, 4, Pg.3

31

Quanta Computer v. LG Electronics, 553 U.S. 617 (2008).

32

Static Control Components v. Lexmark, 615 F.Supp.2d 575 (E.D.Ky.2009).

33

U.S. v. Univis Lens, 316 U.S. 241 (1942).

34

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

35

Secretariat, 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.
36

Kapil Wadhwa v. Samsung Electronics Co. ltd., (2012) 194 DLT 23 (DB).

37

Rajya Sabha Secratariat, 227TH Report on the Copyright (Amendment) Bill, 2010, Parliamentary Standing

Page | 5

RG08_R

Aryavarta.
11.

According to the language of 107A (b) of the Act38, once the first sale of any product had
been authorized by the patentee, a parallel importer could buy that product from any reseller
and not necessarily from the one that had the express permission of the patentee to resell or
distribute. In other words, such importer does not need to ensure that any of the sellers from
whom he/she buys the goods (whether second, third or fourth) were expressly or impliedly
authorized by the patentee.39 Thus, once Melaka had put the Riska kits in the market, by
way an authorized sale, the patent owner can do little about further acts of commercial
exploitation in the domestic market40, including its import. It is, thus, humbly submitted that
since the patent rights were exhausted after the sale of the kits, the conduct of the
Respondents does not fall within the scope of the patent monopoly.

Thus, it is humbly submitted before the honble Supreme Court that as the post-sale
restrictions on use of cartridge were unenforceable and the restrictions on the resale were
unconscionable, hence, the patent rights of the patentee have been exhausted for the sold
Riska kits.

Committee on Human Resource Development (Oct.30.2016), http://164.100.47.5/newcommittee/reports

/EnglishCommittees/Committee%20on%20HRD/227.pdf.
38

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

39

Shamnad Basheer & Mrinalini Kochupillai, TRIPS, Patents and Parallel Imports in India: A Proposal for
Amendment, 2 IJIPL 63 (2009).
40

Warner Bros. v. Santosh V.G., 2009 Indlaw DEL 970.

Page | 6

RG08_R

II.

THAT VINSHUK, AKSMIT IMPEX AND HUN SHUI ARE NOT LIABLE FOR
PATENT INFRINGEMENT.

12.

It is humbly submitted before the honble court even though 48A of The Patents Act41
provides that any person who, without the requisite authority, makes, uses, offers to sell or
sells any patented invention within Aryavarta or imports into Aryavarta any patented
invention during the term of such patent, infringes the patent, the doctrine of exhaustion
forms the exception to the aforementioned rule of infringement. 42 The rationale behind this is
that a patentee, who has sold his product in the market, cannot be allowed to derive profits
from the subsequent transactions entered into by the purchaser.

13.

It is further submitted before the Honble Court that Vinshuk Pvt. Ltd., a company
incorporated under the laws of Aryavarta, legally sold

refurbished Riska kits after

importing them from EU markets.43 It is contended that the conditions on the sale of the
patented products by Petitioners were highly restrictive, and hence invalid. Since this conduct
amounted to misuse of patent rights by Petitioners, the sale was, in effect, unrestrictive.
Moreover, as aforementioned that Sartri had already exhausted its rights in the patented
product once it was sold in

EU, hence, Sartri cannot assert patent rights any further. It is

submitted that since Sartri had already exhausted its patent rights, Aksmit legally bought the
pre-used Riska kits from Hun Shui, without the need of Sartri's authority in this regard.
Furthermore, the exhaustion of Sartri's patent rights had enabled Hun Shui to legally purchase
the said kits from EU customers. It is, thus, humbly contended that Hun Shui is not liable for
patent infringement.

41

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

42

Quanta Computer v. LG Electronics, 553 U.S. 617 (2008).

43

Moot Proposition, 8, Pg.5

Page | 7

RG08_R

14.

Subsequently, Aksmit Impex legally bought the aforementioned pre-used Riska kits from
Hun Shui, which were refurbished and sold in the Aryavarta market by Vinshuk, without
requiring Sartri's authority in this regard.44 Therefore, it is humbly submitted that Hun Shui,
Aksmit Impex and Vinshuk have not infringed the patented product.
A.

15.

THAT THERE ARE NO PATENT RIGHTS TO BE ENFORCED.

It is humbly submitted before the Honble Court that the restrictions imposed on resale of the
Riska kits and post-sale restrictions on cartridges were unreasonable and unenforceable.
Since the sale was authorized as Melaka sold kits under license for sell45, the sale of Riska
kits were authorized and unrestricted. Hence the authorized First-sale of kits in EU by
Melaka relinquished the patent monopoly i.e. exhausted the entire patent rights with respect
to the kits sold.46 Further Aksmit Impex for any importation of pre-used Riska kits doesnt
need any authority since Aryavarta recognizes international exhaustion by virtue of the
language of 107A(b) of the Act.47 Therefore Vinshuk, Aksmit Impex and Hun Shui are not
liable for patent infringement.

16.

It is humbly submitted before the Honble Court that the restrictions imposed on resale of the
Riska kits and post-sale restrictions on cartridges48 were unenforceable and unreasonable,
such that patent in dispute was for Riska kit rather than a combination of the Riska kit
and the cartridge.49 Thus, the authorized First-sale of the kits in EU, by Melaka,

44

Moot Proposition, 8, Pg.5.

45

Moot Proposition, 4, Pg.3.

46

U.S. v. Univis Lens Co., 316 U.S. 241 (1942).

47

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

48

Moot Proposition, 2, Pg.2.

49

Canon Inc. v. GCC Inter., 263 Fed.Appx. 57 (Fed.Cir.2008).

Page | 8

RG08_R

relinquished the patent monopoly, thereby exhausting the patent rights with respect to the kits
sold.50 Hence, the downstream purchasers of the product cannot be held liable for patent
infringement as there were no patent rights to preserve. Moreover, since Aryavarta follows
the policy of international exhaustion, 107A(b) of the Act,51 the Respondents did not require
express authority from the Appellants before importing Riska kits into Aryavarta.
17.

Hence conditions on cartridges with the sale of Riska by Petitioners make restrictions
excessive as given in 140(iii)(c) of the Act.52 Furthermore, restrictions on cartridges were
post-sale restrictions, which are ineffective.53 This is because no restriction is enforceable
under patent law upon a purchaser of a sold article.54 It is further submitted that Petitioners
have used restrictive conditions on licenses or sales to broaden the scope of the patent grant,
such that an accused Respondents may invoke the doctrine of patent misuse to defeat the
petitioners claim.55 It is humbly submitted that it is the adverse effect upon the public interest
of a successful infringement suit in conjunction with the patentees course of conduct which
disqualifies him to maintain the infringement suit, regardless of whether the particular
defendant has suffered from the misuse of the patent.56

18.

It is the leading treatise on patent law stating that prohibiting production or sale
of competing goods is a classic act of misuse and notes that the courts have consistently
taken the view that a provision in a patent license requiring a party not to deal in products that
50

U.S. v. Univis Lens Co., 316 U.S. 241 (1942).

51

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

52

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

53

Tessera, Inc. v. Int'l Trade Comm'n, 646 F.3d 1357, 1370 (Fed.Cir.2011).

54

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

55

Monsanto Co. v. McFarling, 363 F.3d 1336, 1341 (Fed.Cir.2004).

56

Windsurfing International v. Fred Ostermann GmbH, 613 F. Supp. 933 (S.D.N.Y. 1985).

Page | 9

RG08_R

compete with the patented product constitutes misuse per se.57 Further, Doctrine of patent
misuse applies to use of patent as vehicle for price-fixing or imposition of
other restrictions upon resale of patented product.58 Since Sartri was the only seller for
Riska kits in Aryavarta59, its restriction on resale was aimed at eliminating competition;
hence anti-competitive60, and unreasonable. Hence further use and sale by downstream
purchasers of the kit will not amount to infringement.61
19.

It is, thus, humbly submitted that because of the nature of patent grants and because of the
equity doctrine of patent misuse, such owner may, as to future protection of his rights and
after the baleful effects of the misuse have been fully dissipated, relieve himself of this
impediment by ceasing the unlawful use.62 This is known as the doctrine of purge.63 Since
the doctrine of misuse was developed based on the strong public policy against allowing one
who wrongfully uses a patent to enforce it during the misuse, the remedy of purge has
developed, requiring that there be a showing that a dissipation or purge of the misuse has
occurred, before the patentee may enforce his patent.64 The patent right of the Appellants,
therefore, cannot be enforced until the effects of the misuse have been purged.65

57

Donald S. Chisum, Chisum on Patents 19.04[3], [3][b], at 19451, 463 (2010).

58

Ansul Co. v. Uniroyal, Inc., 306 F.Supp. 541 (S.D.N.Y.1969).

59

Moot Proposition, 6, Pg.4.

60

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

61

Adams v. Burke, 84 U.S. 453 (1873).

62

U.S. v. U.S. Gypsum Co., 124 F.Supp. 573 (D.D.C.1954).

63

Id.

64

In re Yarn Processing Patent Validity, 472 F. Supp. 180 (S.D. Fla. 1979).

65

Morton Salt v. G.S.Suppiger Co., 314 US 488 (1942).

Page | 10

RG08_R

B.

THAT

THE RESPONDENTS ARE NEITHER LIABLE FOR DIRECT NOR FOR INDUCED

INFRINGEMENT.

20.

It is humbly submitted that the European Union follows a policy of regional exhaustion.66
This implies that the sale of a patented product in EU will exhaust the rights of the patentee
throughout the regional bloc of countries. In the instant case, Melaka sold the Riska kits in
the EU, thus exhausting its right in the patented kit. Subsequently, Hun Shui collected the
pre-used Riska kits from the EU market and sold it to Aksmit Impex in the European
Union itself. It is, thus, submitted that since the patent rights had already been exhausted in
the kits after the first sale, the act of collecting pre-used Riska kits and selling them to
Aksmit Impex, within the EU itself, does not amount to patent infringement as there were no
patent rights to preserve.

21.

Furthermore,

inducement

requires

that

the

alleged infringer knowingly induced

infringement of a patent and possessed specific intent to encourage another's infringement67;

accordingly, it requires evidence of culpable conduct, directed to encouraging another's
infringement68. Hun Shui, in the instant case, was contacted by Vinshuk merely to collect the
pre-used Riska kits and sell it to Aksmit Impex. Moreover, there is no evidence to support
that Hun Shui knew about the rights of the Respondents in Aryavarta and sold it with specific
intent to actively induce infringement. Therefore, Hun Shui is not liable for primary and/or
secondary infringement.
22.

Aksmit Impex, after purchasing the kits from Hun Shui, imported them into Aryavarta. The

66

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.
67

Largan Precision Co, Ltd v. Genius Electronic Optical Co.Ltd., 2014 WL 5358426, (N.D.Cal.2014).

68

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

Page | 11

RG08_R

Riska kits were then supplied to Vinshuk. As aforestated, Aryavarta follows a policy of
international exhaustion by virtue of the language of 107A(b) of The Patents Act. Since,
Aksmit Impex did not require prior authority from the Appellants for importing the kits, their
conduct, in so far as the importation into Aryavarta and subsequent supply to Vinshuk is
concerned, does not amount to infringement.
23.

It is humbly submitted that after the first sale in the EU, the patent rights were exhausted.
Furthermore, the application of the policy of international exhaustion in Aryavarta allows the
Respondents to import the kits without the prior authority of the Appellants. Moreover, the
exemption under 107A(b) includes the right to sell and distribute, since the absence of the
word sale appears more as an oversight than a deliberate attempt to curtail the scope of the
international exhaustion principle envisaged under section 107A(b).69 Since there are no
patent rights to enforce, Vinshuk cannot be held liable for patent infringement.

24.

It is humbly submitted before the Honble Court that since Vinshuk, Aksmit Impex and Hun
Shui have not directly infringed the patented product for reasons discussed above, none of the
Respondents can be held liable for inducement to infringe. The aforementioned argument
finds force in the rationale that in order to establish Respondents liability
for inducing infringement of a patent, the Petitioners are required to prove that Respondents
actively and knowingly aided and abetted another's direct infringement.70 It is, thus, a
prerequisite of a claim for inducement of infringement that there is direct infringement of the
patent claims.
It is humbly submitted that Vinshuk, Aksmit Impex and Hun Shui are not liable for patent
infringement of the Riska kits.
69

Shamnad Basheer & Mrinalini Kochupillai, TRIPS, Patents and Parallel Imports in India: A Proposal for
Amendment, 2 IJIPL 63 (2009).
70

Ricoh Co., Ltd. v. Quanta Computer Inc., 550 F.3d 1325 (Fed.Cir.2008).

Page | 12

RG08_R

III.

THAT COMPARABLE UNCONTROLLED PRICE (CUP) METHOD USED BY

THE

TRANSFER

PRICING

OFFICER

(TPO)

WAS

THE

MOST

APPROPRIATE METHOD.
25.

It is humbly submitted before the Honble Court that the payment of royalty by Sartri to Zen
was not at arms length price, since the payment of running royalty at 15% of the price per
unit of Riska was excessive in nature. The TPO has adopted the Comparable Uncontrolled
Price (CUP) Method to reach the aforementioned conclusion.

26.

It is humbly submitted that the CUP method is the most direct and reliable way to employ the
arms length principle. Consequently, it is preferred over all other methods.71 While applying
the CUP Method, as explained in Rule 10B(1) of the Income Tax Rules, the price for a
comparable uncontrolled transaction is identified and compared to the international
transaction which, if needed, is accounted for differences; the resultant adjusted price being
the Arms Length Price.72 For the purpose of comparability, an uncontrolled transaction is to
be judged in reference to the specific characteristics of the property transferred or services
provided in either transaction.73 A case is said to be comparable when it is from the same
genus of products and also other relevant factors, such as, type of products, market share,
assets employed, functions performed and risks assumed, are also similar.74

27.

It is further submitted that the CUP Method can be applied to determine the arms length

71

OECD, OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations,
Organisation
for
Economic
Co-operation
and
Development,
(Oct.2,2016,3:04P.M.),
http://www.ilsole24ore.com/pdf2010/SoleOnLine5/_Oggetti_Correlati/Documenti/Norme%20e%20Tributi/201
1/02/istruzioni-uso-societa-perdite-fiscali/ocse-linee-guida-2010-prezzi-trasferimento.pdf.
72

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

73

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

74

Sony Ericsson v. Commissioner of Income Tax, (2015) 218 DLT 449 (DB).

Page | 13

RG08_R

conditions for a transfer of intangibles or rights in intangibles. 75 The advantage of applying

this method to patent-related transfer pricing issue is that if a comparable transaction can be
found, it will provide a market-derived valuation based on the decisions of a willing and
independent buyer and seller and thus avoid the messiness of attempting a more elaborate
valuation calculation with the accompanying uncertainty and risks coupled with the myriad
assumptions that may be involved.76
28.

In the instant case, since the Riska kit, which employs Robocasting, is patented, there is a
limited supply of similar such kits in the market. In case there are no inter-company
transactions, there may be no reason to reject a company merely because it is part of a
group.77 The royalty transaction, thus, can be judged on the anvil of similar payments made
by group companies to their associated enterprises in other countries and region. 78 Therefore,
the TPO was constrained to take into account the royalty payment of 5% made by Melaka to
RGS for the sale of Riska kits in the EU. Moreover, since it is rare to locate an identical
transaction, the arm's length price is determined by taking the results of a comparable
transaction in comparable circumstances and making suitable adjustments for the
differences.79

29.

It is further submitted on behalf of the Respondents that royalty is a payment reserved by the

75

OECD (2014),Guidance on Transfer Pricing Aspects of Intangibles, OECD/G20 Base Erosion and Profit
Shifting Project, OECD Publishing, (Oct. 5, 2016, 2:55 PM) http://dx.doi.org/10.1787/9789264219212-en.
76

William J. Murphy et al., PATENT VALUATION: IMPROVING DECISION MAKING THROUGH

ANALYSIS, John Wiley & Sons. 352 (Vol. 2, 2012).
77

Radhika Suri, FUNDAMENTALS OF INDIAN TRANSFER PRICING: WITH REFERENCE TO US &

OECD GUIDELINES, Taxmann Allied Services 80 (2008).
78

Cadbury India Ltd. v. ACIT, 2013 Indlaw ITAT 82.

79

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

Page | 14

RG08_R

grantor of a patent, payable proportionately to the use made of the right by the grantee.80
Thus, the quantum of royalty payment depends upon the extent of patent rights transferred to
the grantee i.e., Sartri. In the instant case, Sartri was licensed merely to import and sell
Riska kits in Aryavarta.81 Furthermore, the aforementioned license was non-transferable,
non-alienable and non-licensable. Melaka, on the other hand, was granted a license to
manufacture, sell and export Riska kits in the EU, in exchange for a royalty payment of
5%. It is contended that specific characteristics of the controlled transaction, with regard to
the functions performed and risk assumed, has to be taken into account while computing the
arms length price. Since the patent rights, transferred by way of a license to Sartri, were
limited as compared to the rights transferred to Melaka, the payment of 15% running royalty
was excessive in nature.
30.

The only comparable product of the Riska kit, in the market, was Visaka.82 Since Visaka
was not an infringing product, it can be relied upon as a benchmark for the related party
transaction between Sartri and Zen. Moreover, Vinshuk was involved in a transaction with
Aksmit Impex for the purchase of Riska kits which were imported from the EU.

31.

Furthermore, the burden to establish that the international transaction was carried at arms
length is on the taxpayer. He also has to furnish comparable transactions, apply appropriate
method for determination of arms length price and justify the same by producing relevant
material and documents before the revenue authorities.83 The rationale behind this principle is
that the taxpayer, as a party to the transaction, has full knowledge of the transaction carried

80

H.C.Black, BLACK'S LAW DICTIONARY, rev. St. Paul, MN: West Publishing Company 1496 (4th ed.,
1968).
81

Moot proposition, 5, Pg. 4.

82

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

83

Aztec Software & Technology Services Ltd. v. ACIT, 2007 Indlaw ITAT 15.

Page | 15

RG08_R

on and profit earned by him. As a person associated with that particular line of business
activity, the assessee is reasonably expected to be not only aware about nuances of that
business, but also about the economic conditions and peculiar circumstances, if any, of that
business. He is likely to know even about comparable uncontrolled transactions. 84 It is
humbly submitted that the Appellants, in the instant case, have not discharged their burden of
proving that the transaction undertaken by them was at arms length.
32.

It is, thus, humbly submitted that the TPO was correct in holding that the royalty payment
was excessive in nature. Moreover, this view was affirmed by the Honble High Court and
requires no alteration. Furthermore, the selection of CUP method by the TPO as the most
appropriate method was correct and in accordance with the Income tax rules.85

33.

It is humbly submitted before the Honble court that the CUP method is the most direct and
reliable way to employ the arms length principle. Consequently it is preferred over all other
methods.86 The CUP method is explained in Income tax rules 10B(1), according to which 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
is the Arms length price.87 For the purpose of comparability, an uncontrolled transaction is to
be judged in reference to the specific characteristics of the property transferred or services
provided in either transaction.88 A case is said to be comparable when it is from the same
genus of products and also other relevant factors, such as, type of products, market share,
84

Id.

85

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

86

OECD, OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations,
Organisation
for
Economic
Co-operation
and
Development,
(Oct.2,2016,3:04P.M.),
http://www.ilsole24ore.com/pdf2010/SoleOnLine5/_Oggetti_Correlati/Documenti/Norme%20e%20Tributi/201
1/02/istruzioni-uso-societa-perdite-fiscali/ocse-linee-guida-2010-prezzi-trasferimento.pdf.
87

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

88

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

Page | 16

RG08_R

assets employed, functions performed and risks assumed, are also similar.89
34.

Hence, the TPO was correct in choosing Visaka, as the comparable because it was the only
other 3D printer kit available in the market.90 Placing reliance on the case of Noble Resources
& Trading India Pvt. Ltd v. Assistant Commissioner of Income Tax, 2014, the court held that
several benches of the Tribunal has held that CUP is the most appropriate method in the case
of trading transactions provided the uncontrolled transactions relied by the assessee are really
comparable and necessary data requiring adjustments, if any, is available. 91 As it has already
been proven that Visaka was not an infringing product, the selection of CUP method by the
TPO as the most appropriate method was correct and in accordance with the Income tax
rules.92

It is humbly submitted that the CUP method used by the TPO was the most appropriate
method as the comparable used was not an infringing product.

89

Sony Ericsson v. Commissioner of Income Tax, (2015) 218 DLT 449 (DB).

90

Moot Proposition, 6, Pg. 4.

91

Noble Resources & Trading India Pvt. Ltd v. Assistant Commissioner of Income Tax, 2014 SCC OnLine
ITAT 487.
92

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

Page | 17

RG08_R

IV.

THAT THERE WAS NO VIOLATION OF THE FUNDAMENTAL RIGHT TO

PROPERTY UNDER ARTICLE 21 BY THE COMMISSIONER OF CUSTOMS.

35.

It is humbly submitted before the Honble Court that the seizure of the goods imported by
Aksmit Impex was made in a fair & reasonable manner following a due procedure established
by law under 110 of the Custom Act. Rules or regulations made in exercise of statutory
powers are law.93 The Commissioner of customs had the authority to seize the imported
Riska kits as they were infringing products. As prescribed under the Rule 3 of the custom
enforcement rules, 200794, Sartri had filed a notice with the custom officials.95 Proper
procedure established by law was followed by the custom officials as prescribed under the
IPR Enforcement Rules, 2007 in seizing the consignment under the IPR Enforcement Rules,
2007.
A.

THE

COMMISSIONER OF CUSTOMS HAD THE AUTHORITY TO SEIZE THE RISKA

KITS AS THEY WERE INFRINGING PRODUCTS.

36.

The Custom officials had the reason to believe that the pre used Riska kits which were
being imported were infringing because they were being imported to Aryavarta by Aksmit
Impex without the authority of Sartri. Sartri being the company that sold the Riska kits in
Aryavarta through its authorized outlets96, as it had been granted the license for the sale of
Riska in Aryavarta. Thus, Aksmit Impex was liable for infringement under 48A of the
Patents Act, 197097 as Aksmit Impex did not have authorization to make, use, or sell the
93

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

94

Rule 7(9), Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, Notification No. 47/2007Cus. (N.T.), (8-5-2007).
95

Moot Proposition, 9, Pg.6.

96

Moot Proposition, 5, Pg.4.

97

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

Page | 18

RG08_R

patented product during the life term of Sartris patent in Aryavarta.

37.

It is further submitted that under Rule 7(9) of the IPR Enforcement Rules98 clearly states that
the seizure of the goods alleged to be infringing can be done by the custom officials. In cases
of patent infringement, in absence of judicial pronouncement, the custom authority can
determine that whether there was patent violation or not.99
B.

PROPER

PROCEDURE ESTABLISHED BY THE LAW WAS FOLLOWED BY THE

COMMISSIONER OF CUSTOMS.

38.

It is humbly submitted before the Honble court that the procedure followed by the custom
officials for the seizure of goods was reasonable and fair because the custom officials had
followed the procedure as laid down in Section 110 of the Custom Act in a fair manner.

39.

100(2) of the Custom Act100 requires the notice to be sent under clause (a) of 124 of the
act101 within six months of the seizure of the goods which was followed in the instant case.102
As mentioned in 9 lines 3 of the moot proposition Aksmit Impex was sent the notice
regarding the Seizure of their imported consignment without such lapse.103

40.

Further, the Article 50 (2) of the TRIPS states that judicial authorities shall have the authority
to adopt provisional measures inaudita altera parte where appropriate104, thus the delivery of

98

Rule 7(9), Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, Notification No. 47/2007Cus. (N.T.), (8-5-2007).
99

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

100

100(2), The Customs Act, 1973, No. 52, Acts of Parliament, 1962(India).

101

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

102

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

103

Moot Proposition, 9, Pg.6.

104

TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights, art.6, Apr. 15, 1994,
Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, THE LEGAL TEXTS: THE

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the notice is given after the seizure, henceforth not violating the principles of natural justice
as any delay made can cause irreparable damage to the right holder.105
It is humbly submitted that the custom commissioner of customs has not violated Aksmit
Impexs fundamental right to property because the seizure of the imported goods which are
infringing products has been made in accordance with the procedure established by law.

RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 320 (1999), 1869
U.N.T.S. 299, 33 I.L.M. 1197 (1994).
105

TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights, art.6, 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).

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RG08_R

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. That the Exhaustion/First Doctrine is not applicable.
2. Vinshuk, Aksmit Impex and Hun Shui are not liable for patent infringement.
3. The TPO is correct in assessing that the transaction is not according to Arms Length
Price based on CUP method.
4. That the Fundamental Right to property, under Article 21, of Aksmit Impex has not
been violated by the Commissioner of Customs.

In the alternative, pass any other relief which the Court may deem fit and proper.
All of which is humbly submitted.
sd/__________________________
(Counsel on the behalf of Respondents)

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