The High Court  of Bombay (Court) has dismissed the notice of motion (interim application) of Darius Rutton Kavasmaneck (Darius) in his suit (in the nature of derivative action) to inter alia restrain Keki Hormusji Gharda (Dr Gharda), the Managing Director of Gharda Chemicals Limited (Company), from selling, transferring or creating any third party rights on the patents which Dr Gharda had obtained in his individual name.

Background

A minority shareholder of the Company, Darius’ grievance was that Dr Gharda (who was also his uncle) had obtained and/or applied for the patents in his own name whereas the patents ought to have been obtained/applied in the name of the Company. In their defence, Dr Gharda, the Company and other defendants inter alia contended that: (i) the issues raised by Darius were already decided against Darius in other litigations, (ii) derivative action can be only filed in exceptional cases and the present action was merely for personal interest, (iii) there is no law which provides that the employee generated patents should belong to the employer, (iv) under the terms of employment, Dr Gharda was only entrusted with powers of management and he was not required to make inventions, (v) allowing the derivative action or any application thereto may mean revoking the patents which was not in Company’s interest, and (vi) Darius’ conduct is tainted, against the interest of the Company and he has approached the Court with unclean hands.

Order

After hearing the parties, the Court dismissed the Notice of Motion with costs of INR 10 lakhs inter alia on the basis that: (i) Darius’ derivative action was not maintainable as it was only in personal interest and not in the interest of the Company, (ii) allowing such actions may lead to revocation of patents which was not in the interest of the Company, (iii) Darius was a competitor (in view of his interest in a rival company) of the Company and the so called derivative action was to stifle competition, (iv) a derivative action was not maintainable if the plaintiff had an ulterior motive to drive the competitor’s objectives and was prompted by family hostilities, and (v) Darius had failed to prove that Dr Gharda had a duty to invent in his capacity as managing director of the Company and therefore, there was no question of breach of fiduciary duty.

Khaitan Comment

This decision is important from the aspect of ownership of intellectual property (IP) in case of employer-employee relationship. With the (Indian) Copyright Act, 1957 (Copyright Act) allowing deemed employer ownership in case of works created by employees during the course of employment, companies often tend to misunderstand this applicability towards other IP statutes like the (Indian) Patents Act, 1970, the (Indian) Designs Act 2000 and the (Indian) Trade Marks Act, 1999. Therefore companies need to be cautious whilst preparing their employment contracts in case the IP created by the employees does not fall under the purview of the Copyright Act. If the intention is to own the IP, companies need to include specific assignment clauses in the employment contracts.