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Pine Labs Pvt. Ltd vs Gemalto Terminals India Pvt. Ltd & Others

The present case had been filed by the plaintiff (Pine Labs Pvt. Ltd) against defenders (Gemalto Terminals Pvt. Ltd & others) for a decree of declaration, perpetual injunction and rendition of accounts. The suit was listed before the High Court of Delhi on 7th October 2009. The injunction was granted by the court restraining the defendants, their assigns, licensees, agents, contractors, employees from in any manner infringing the copyright of the plaintiff.

Defendant filed an application to modify the injunction on 9th October 2009. Court modified the interim injunction stating that the defendant can continue providing services to Indian Oil Corporation Ltd. Fleet Card Program.
Brief History of the case:

Plaintiff is a software company, whereas Defendant 1 (Gemalto Terminals) provides computer hardware terminals to retail establishments. Defendant 2 is a bank that also engages in installing Fleet Card System for Hindustan Petroleum Corporation Ltd (HPCL). Defendant no. 3 is a company appointed by defendant no. 1 to modify and adapt the Plaintiff software.
In 2003, Defendant no.1, Gemalto Terminals approached the plaintiff to develop/write certain software and manage the operation of the Fleet Card Program proposed for Indian Oil Corporation Ltd. (IOCL). A work order was issued by defendant no.1 on 17th November 2003. Plaintiff was asked to provide services for implementation of the system, including providing and maintaining server-related hardware, etc. along with the development of required software. Plaintiff developed the software Version 1.00 and updated it to Version 1.03 with few additional features and completed work by August 2004 along with a written manual providing system specifications for the developed software.

Plaintiff and Defendant no.1 (earlier called as Axalto) entered into a Master Services Agreement (referred to as the MSA for brevity) on 24th June 2004. According to Clause 7.1 of MSA, the plaintiff is asserting its copyright in the software as well as the factum of assignment of the same to defendant no. 1. The clause states that “Axalto shall be entitled to all property, copyright and other intellectual property rights in the Project Materials which property, copyright and other intellectual property rights Pine Labs as beneficial owner assigns to Axalto. Pine Lab shall advise Axalto in writing and ensure that the Project Materials do not infringe the intellectual property rights of any third party.”

In 2009, Defendant no. 1 made a bid for a card program of HPCL, invited by defendant no. 2. Defendant no. 1 e-mailed the plaintiff on 26th June 2009 and informed that it had been awarded the HPCL fleet card program and it would be customizing the existing IOCL system, which the plaintiff had in fact created. On 29th June 2009, the plaintiff responded to the mail expressing willingness to work on the said project.

Later, the plaintiff discovered that defendant no. 1 had cub-contracted defendant no.3 to create software for the HPCL fleet card, and the plaintiff realized that defendant no. 1 transferred the source code of the IOCL program to defendant no. 3. It is plaintiffs case that Clause 7.1 of the MSA provides no territorial or time constraints/ restrictions, but Section 19 (5) and (6) of the Copyright Act, 1957 would apply which states that in a case of copyright assignment, if no time/territory is mentioned, the assignment would be valid only for a period of 5 years and within the territory of India. As no new work was assigned to plaintiff from the defendant no. 1 regard to IOCL fleet card program, rights provided by the plaintiff to the defendant no. 1 expired after 5 years; plaintiff would become the exclusive owner of that software, according to Section 19 (5) of the Copyright Act, 1957.

The counsel for the plaintiff argued that the defendant no. 1 provided Version 1.03 of the software to the defendant no.3. Plaintiff filed a case against defendant no. 1 for infringement of copyright. Further, the plaintiff came to know that the defendant no .1 was planning to use the same software in Africa. Plaintiff argues that it was illegal, as the agreement was valid only for 5 years that too only in the Indian Territory. Utilization of software outside India will result in a breach of Section 19 (6) of the Copyright Act. Plaintiff further agreed that Version 1.03 to Version 1.08 were assigned to the defendant no.1 and copyrights of Version 1.04 – 1.08 were still valid as per agreement between the parties.

Defendant no. 1 filed case against the plaintiff for protection of its intellectual property rights including copyright in various software applications; for restraining the plaintiff from claiming and representing itself as the owner of the said software and from disrupting the business of defendant no. 1 and for damages.

Defendant no.1 submitted that plaintiff agreed to assign the defendant no. 1 as the equitable owner of the software, for which it is now claiming to be the exclusive owner. Defendant no. 1 outsourced the work to the plaintiff with a clear understanding that all intellectual property rights would belong to the defendant no. 1. Defendant further says that the defendant still enjoys the copyright ownership in Version 1.04 – 1.08 of the software.

A submission made by defendant no. 1 is that Version 1.03 of the software is not in use by it as Version 2.00 is being used and the source code of the same was handed over by the plaintiff to defendant no. 1 on 6th, 19th and 20th August 2009. Defendant no. 1 has then pointed out several alleged admissions on the plaintiff’s part in the plaint.
Defendant no. 1 denied plaintiffs allegation of infringement of copyright as false as the software applications to be used by defendant no. 1 are completely different from the ones being used by it currently. These codes are also different from the IOCL Version 1.03 and its subsequent modifications. Defendant No.1 has also referred para 14 of the plaint wherein the plaintiff has admitted that the plaintiff had agreed to assign the copyright in the software development to the defendant No.1. the defendant No.1 has referred clauses 7.2, 7.3 and 7.4 of MSA which read as under:
7.2 – “At the request, and expense of Axalto, Pine Labs shall do all such things and sign all such documents or instruments reasonably necessary to enable Axalto to obtain, defend and enforce its right in the project materials.
7.3 – “Upon request of Axalto, and in any event, upon expiration or termination of this Master Agreement, Pine Lab shall promptly deliver to Axalto all copies of the project material than in Pine Lab’s custody, control or possession.”
7.4 – “The provisions of this clause shall survive the expiration or termination of this Agreement.”
The senior counsel for the defendant No.1 has argued that in the absence of execution of an actual assignment document, Section 19 of the Copyright Act has no application in the facts of the present case as Section 19 (1) of the Copyright Act lays down the word assignment and assignment means it should be expressly in writing. Therefore, Sections 19(5) & (6) of the Copyright Act are not applicable in the present case.

Plaintiff argued that, in view of the evidence produced by the plaintiff from the website of the defendant no.1 after the passing of interim order dated 7th October 2009, there is a sufficient material on record to show that the defendant No.1 is still reproducing the work of Version 1.03 in a material form wherein the plaintiff has filed screenshots and transaction receipts of HPCL drive track plus program which show almost complete similarity with the IOCL program developed by the plaintiff.
In this case, two issues to be decided:
I) ownership of the copyright and
II) valid assignment of the copyright

I) Ownership of the copyright :
Understanding about ownership becomes important as it is only the owner under Section 18 of the Act who can assign either the current or the future work. The ownership of the copyright is statutorily recognized under Section 17 of the Copyright Act which provides for the rule that the author shall be the owner of the copyright, subject to the provisions of the Act.
Section 17 proviso (c) deals with a situation where the work is created in the course of the employment of the employer. In such a case, the work shall belong to the employer who shall be the owner of the work in the absence of any contract to the contrary. This furthers the discussion of the issue relating to the contract of employment and contract for employment, which are clearly distinguishable from each other and determine the applicability of the section. In the former case, ownership vests with the employer unless there is agreement/ intention to the contrary, and in the latter, ownership vests with the employee unless there is an agreement/ intention to the contrary. The degree of control, supervision, time spent, directions, and specifications given by the employer determines the nature of employment.
If we examine the present case from the perspective of a contract of employment, the ownership of the work belongs to the defendant no. 1 who was the employer and there is no need to look into any further agreement or the MSA. It is another thing that the plaintiff in the allegation made against the defendant and in the agreement has taken the status of an independent contractor, which means that the plaintiff has created the software for the employer under a contract for service.
Prior to entering into the MSA, the plaintiff wrote an email communication dated 20th February 2004 wherein the plaintiff has stated that the work has been created for valuable consideration for and on behalf of the Defendant no. 1 and the plaintiff has been paid in full and the copyright and other rights vest with the Defendant no. 1 and the plaintiff does not claim any right in the same.
Hence, at this stage it suffices to say that prima facie, doubt can be expressed over the ownership of copyright as claimed by the plaintiff, be it from the standpoint of the contract of employment or contract for employment.

II ) valid assignment of the copyright :
MSA is not as an assignment but an “agreement to assign”.
It is admitted by both the parties that the basic system design and the fundamental operative software was contained in version 1.03. All the subsequent versions were primarily adaptations of version 1.03 with a few additional new features, improving the performance of version 1.03. The plaintiff has admitted that the copyright in the vests of the new version in the additional features mentioned above. However, these additional new features are not really useable without the source code in version 1.03. From the above, it is clear that even if the rights pertaining to version 1.03 revert back to the plaintiff (which although according to this court is prima facie not possible) for the reasons given in the preceding Para’s of the order, it is not clear how the rights pertaining to the other versions, which are valid and subsisting can revert back. Thus, the contention of the plaintiff is without any substance and is prima facie, irrational, and is not sustainable. Therefore, the plaintiff is disentitled from the grant of interim relief for this reason as well.
The rights of the plaintiff revert back to it for the software and thus lead to an enforceable right.

About the Author: Mr. Nagaraj Mannikeri is a Patent Consultant at the Institute of Intellectual Property Research & Development (IIPRD).

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