In an excellent piece, Palak Shah explores a recent controversy involving Asian Paints (AP), Paladin Paints and Jayram Mangesh Nadkarni (JNM), Director and Technical Advisor of Paladin Paints.
Briefly put, JNM, after leaving AP as a Chief Technology Officer in the 1960s, began his own company in 1985 under the banner “Paladin Paints and Chemicals”. There, according to the piece, he invented a next-gen, green technology-based Single Pack Epoxy Resin (SPER), which provided superior adhesiveness and anti-corrosive properties without requiring any expensive hardener. As Shah notes, this was a ‘crucial’ technology which was useful in the manufacturing of industrial paints. From 2006 until 2019, Paladin Paints had been commercialising the technology without paying any royalty to JNM according to Shah’s piece. It was only in 2019, that Paladin and JNM inked a technology transfer agreement with a royalty arrangement. (as indicated in JNM’s written statement before the Controller) Later, JNM applied for a patent on the technology in 2019 along with various others. (Patent no. 201921008027) However, Shah notes that there are allegations that Mr Ashwin Dani, promoter of AP, with an eye to acquiring the technology, used related entities of AP to become majority shareholders of Paladin and took over its management from the Nadkarni family in 2014. AP, through Paladin, began asserting ownership over the SPER patent, including patents over other paint technologies. Eventually, it challenged the validity of the patent applications before the Controller on grounds of wrongful obtainment, public knowledge and commercial usage which I discuss below. The controversy presents interesting questions relating to corporate governance, however, this post focuses on issues relating to patent law only.
According to Shah, JNM had filed for four patents for technology relating to epoxy resin technology, out of which two have been decided in favour of JNM. As of date, I could only find two patent application nos. 201921008027 and 201921051663 filed by JNM, of which only the former has been decided by the Controller in JNM’s favour. Therefore, in this post, I will focus on patent application no. 201921008027.
Trade Secret and Technology Transfer Agreement
JNM and PNJ did not apply for a patent for the technology until 2019. Rather, as they say, they preferred to keep the technology a secret. In the meantime, they signed two agreements- a.) technology ‘licensing’ agreement, 2019 (Paladin Paints) and b.) A tri-party agreement, 2006 (Asian paints; Paladin Paints). (These agreements can be found in the WS filed by JNM in application no. 201921008027)
An important question arises here- Was this ‘secret’ kept in a way sufficient to be called a Trade Secret? Did the technology for manufacturing CSNL-based SPER remain a trade secret despite sharing the know-how and confidential information with Asian Paints and Paladin Paints?
An information becomes a trade secret when-
- It has commercial value;
- It is not in the public domain; and
- The trade secret holder takes reasonable measures to maintain confidentiality. (here)
It seems undeniable that the technology to manufacture SPER has intrinsic commercial value. The mere fact that ASL and Paladin inked two technology transfer agreements for consideration of crores of rupees is a testament to the commercial value of the technology.
Was the technology in the Public domain?
According to Shah, SPER technology has been ‘commercialised’ by Paladin Paints since 2006. The piece nowhere refers to an agreement under which the technology was being marketed by Paladin. It was not until 2019 that a technology licensing agreement was signed between JNM and Paladin which contained clauses against sharing the technology with third parties and liabilities for disclosure of confidential information. Can one say that ‘reasonable steps’ were taken to maintain the confidentiality of the technology between 2006 to 2019?
It was argued by JNM that although the technology was commercialized, the technique or composition of the technology was never disclosed to the public. While it may be true that technology does not fall into the public domain merely because it was commercialized. (discussed in later sections) Nevertheless, there is a burden on the TS owner to prove that ‘reasonable’ steps were taken to maintain the confidentiality or secrecy of the TS. Otherwise, if no measures were taken to prevent the information from becoming ‘public knowledge’, it does not qualify as a TS.
In this case, it will have to be seen whether ‘reasonable’ steps were taken between 2006-2019 to protect the technology from disclosure, if any. Since the technology was commercialized, it cannot be assumed that such steps were taken to keep the information secret. Rather, the commercialization of the technology raises the burden that much higher to prove that reasonable steps were indeed taken to protect the technology against public disclosure.
Work for Hire- Wrongful Obtainment?
In the Pre-grant opposition filed by Paladin Paints (dated 02.09.2021 – thus under the ‘new’ management), one of the grounds raised u/s. 25(1)(a) of the Patent Act was that JNM ‘wrongfully obtained’ the invention. See here for more on who can file a patent application.
Here, Paladin Paints, as the Opponent, argued that JNM, who was the Director of Paladin and Technical advisor, was paid ‘consultancy’ fees by the company. PNJ, executive director, on the other hand, drew substantial remuneration from the company when the patent was filed. Further, it was argued that the applicants were using ‘materials’ and ‘resources’ provided by the company for research on single-pack epoxy resin and the expenses for filing of patent were also borne by the company. Therefore, they argued, the patent belonged to the company rather than JNM and PNJ.
As pointed out here and here, the Patent Act has no provision clarifying who ‘owns’ an invention made by an employee in the course of employment. (unlike the Copyright Right) Rather, employers rely upon assignment agreements which transfer the ownership of the invention made by the employee to them. In the absence of such an agreement, it is unlikely for an employer to succeed in a claim of ownership over the invention made by an employee.
Darius Rutton Kavasmaneck v. Gharda Chemicals Ltd. (Bombay High Court 2015) provides some cues for the present dispute. In that case, the Managing Director of the company had obtained patents for an invention which was used by the company royalty-free. Later, a derivative action was brought claiming that the patents were wrongfully obtained by the MD which belonged to the Company. How so? Two grounds were raised. First, the inventor being the MD, drawing substantial remuneration, owed a Fiduciary Duty to register the patent in the name of the company. Second, since the MD utilized the R&D facility and resources of the company, the patent ought to be registered in the name of the company.
The court, although did not give a final finding, made some pertinent observations. On fiduciary duty, it recorded that there was no document which suggested that the MD, as part of his employment, had to invent or do any research. In the absence of any duty to invent, the MD owed no fiduciary duty to register the patent in the name of the company. (see here on duty to invent) On utilization of resources of the company, the court did not give any observation or finding. However, a similar line of reasoning could be used that since the MD had no duty to invent, the patent did not belong to the company.
In the present case, similar arguments have been raised. As discussed, unless it can be shown that there was a duty to invent or that the patent was assigned to Paladin Paints, it is unlikely that Paladin’s claim for ownership will succeed in appeal irrespective of JNM’s position in the company or that fact that he was not paid royalties. Of course, the currently known factual matrix is very limited and there is a strong possibility that there may be other factors currently not being accounted for.
For now, the Controller has rejected the contention of wrongful obtainment. (without a reasoned finding nonetheless)
Commercial Usage of Invention
The opponent also argued that the SPER technology was disclosed and commercialized before it was patented in 2019. Hence, it was argued that the application ought to be rejected u/s. since it was ‘publicly known’ and ‘publicly used’.(Sec. 25(1)(d)) The applicant conceded that the invention was commercially exploited but argued that the exact composition of the specification was not disclosed.
In Monsanto Company v. Coromandel Indag Products Ltd., the SC held that an invention is ‘publicly known’ if it is known to the persons who are engaged in the pursuit of the knowledge of the patented product or process either as men of sciences or men of commerce or consumers. Further, in The Bombay Agarwal Co. v. Ramchand Diwanchand, the HC noted that if the inventor had secretly prepared a product and sold it without disclosing the process of manufacturing, it would not mean ‘public use’.
It seems that it is not enough to argue that an invention was ‘commercialized’ to argue that an invention is invalid for a grant of patent. The opponent also needs to establish that in the course of such commercialization, the process of manufacturing the same was disclosed. In this case, the Controller accepted the applicant’s counter that though SPER was commercialized, neither its composition nor the technique of the technology was disclosed.
When Can a Secretly Manufactured Invention be said to be Disclosed?
A very old case of Lallubhai Chakubhai Jarivala v. Shamaldas Sankalchand Shah (Bombay High Court 1934) is interesting to take note of here. Here, the court noted that the sale of a secretly manufactured article will amount to public use if the article is of such a character that upon examination by an expert, one can ascertain the secret of the manufacture. In other words, if the buyer of the product, upon examination by the expert, can arrive at the process of manufacture of the invention, it will amount to public use.
Although the above is not a binding precedent, it nevertheless provides an interesting argument for the opponent to raise in appeal. The argument also has relevance for trade secrets discussed in the first part of this post.
Trade Secret and Patent: Why Challenge the Patent?
In the present case, the challenge to the patent for SPER, if successful, would mean that the information contained in the patent specification will fall into the public domain. In other words, anyone can use it. Would this be beneficial for Paladin Paints (read Asian Paints)?
JNM transferred the technology for manufacturing SPER to Paladin Paints in 2019 under a ‘technology transfer agreement’. Paladin has been manufacturing and commercially exploiting the same since 2006. However, in the hearing before the Controller, Paladin could not provide specifications and compositions of SPER, thereby failing to prove that SPER technology was public knowledge. In my opinion, there could be two reasons for the same.
One, Paladin, was not aware of the compositions and techniques behind the technology. This is hard to believe given the fact that it had been marketing SPEL paints since 2006 and manufacturing the same under a technology licensing agreement in 2019.
Second, it did not want to reveal the manufacturing technology before the Controller lest it becomes public knowledge which seems more plausible. If we assume Paladin has the manufacturing technology (compositions and techniques), it begins to make sense why it is challenging the SPER patent.
Notwithstanding the patent getting rejected and falling into the public domain, the information from the patent application alone may not be enough to manufacture the SPER technology paints. Only Paladin, equipped with the manufacturing technology from the technology licensing agreement, will be able to manufacture the same. Therefore, the strategy adopted by Paladin seems wise and practical.
Conclusion
The present case raises important questions about the public use of patented technology, ownership of the patent, and duty to invent. These questions have wider implications for the innovation industry and corporate structure. It is important to acknowledge Mr. Palak Shah for writing an excellent deep dive into the whole controversy with precision and lucidity. One can only hope for more of such hard-hitting journalism.