All’s Fine with Pine Labs as Karnataka HC Vacates the Problematic Interim Injunction Order on the Point of Sale Machine

All’s Fine with Pine Labs as Karnataka HC Vacates the Problematic Interim Injunction Order on the Point of Sale Machine

Time Stamp: May 5, 2023 7:11 AM
Source Node: 2630499
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[This post is co-authored by SpicyIP interns Rohan Srivastava and Srujan Sangai. Rohan and Srujan are Second Year students at the National Law School Of India University and have a keen interest in IPR and Technology Law. Rohan’s previous post can be accessed here and Srujan’s previous post can be accessed here.]

In March 2023, the Karnataka High Court in Innoviti Payment Solutions v Pine Labs, vacated an interim injunction order passed by the trial court in favor of Innoviti Payment Solutions. The subject patent IN309274 was granted in the year 2019 and relates to a communication verification system capable of generating a transaction-specific unique QR-Code on a Point of Sale (POS) terminal. POS terminals are retail store hardware devices used for processing debit/credit card payments. In this post, we take a look at the order by the Karnataka High Court, its reasons for the vacation of the interim injunction and comment on the challenges of granting ex-parte interim injunctions in technical patent disputes.

Background 

In 2019, Innoviti Payment Solutions sought a permanent injunction against Pine Labs’ ‘Plutus Smart’ technology for allegedly infringing Innoviti Payment Solutions’ 2019 patent (IN309274). It was contended that Plutus Smart used a communication verification system capable of generating a transaction-specific unique QR-Code on POS terminals, which was allegedly covered by the Innoviti patent. Accepting their arguments, the Trial Court passed an ex-parte interim injunction against Pine Labs, prohibiting them from using this technology. Subsequent to the order, Pine Labs entered representation and filed its written statement along with a counterclaim against Innoviti Payment Solutions. The said counterclaim was filed under section 64(1) of the Patents Act and contended that the Innoviti Patent ‘274 was liable to be revoked. On Innoviti’s assertion that it enabled the “generation of a transaction-specific QR code” for the first time, Pine argued that the same has been existing in India and is used by the SBI, Bharat QR code, Axis Bank, Flipay, and is covered by earlier US patents. It was also argued that the said invention is statutorily non-patentable in light of section 3(k) of the Patents Act (read more about Section 3(k) here and here). 

The counterclaim also raised an allegation of suppression of material facts by Innoviti Payment Solutions. It was argued that Innoviti Payment Solutions had intentionally not stated that originally, it had put forth 15 claims for the grant of a patent, out of which, claim Nos. 1 to 8 were refused/rejected by the patent office, and only claim Nos. 9 to 15 were granted under the suit patent which are also liable to be revoked.

Partial grant of Patent by the Patents Office

It is the latter contention that gains significance on how the case ends up being decided. Though the court didn’t expressly state that the plaintiff deliberately suppressed the above information, it did agree that the plaintiff’s contention to have a patent over the POS machine is factually incorrect (para. 25). The court assessed the 15 original claims, 7 accepted claims and the order of the controller to hold that :- 

  1. Original claims 1-8 were rejected/ deleted for lack of novelty in light of the existing prior art. 
  2. The deleted original claim no. 8 pertains to a terminal device. 
  3. Original claims 9-15 (accepted claims 1-7) pertain to computer program algorithm.
  4. The suit patent does not contain any terminal device/ POS machine. 

Thus, the court clarified that what is patented is only the server simpliciter consisting of a processor and memory which has been devised to a function / work for the purpose of secure communication for UPI/QR Code based payments. This is significant because Innoviti Payment Solutions’ entire claim of infringement hinged on the fact that Pine Labs had utilised their patented POS device. 

The plaintiff argued that rejection of the patent of the POS was not of significance as the same was already covered in the accepted claim no. 1 of the suit patent (Claim no. 9 in the original claims that were filed.) regarding the communication verification system which involves the functioning of the POS. (for a better understanding see here (pdf) for the marked-up copy of the amended claims and here(pdf) for the clean copy of the amended claims.) However, this argument did not hold water as the court held that POS is an independent device and there can be QR-generating POS which have nothing to do with the Plaintiff’s patented CVS. It was reasoned that mere description of functionality which involves the POS in the patent does not mean that the POS itself is also a part of the patent, as the POS is able to function independently as well. In order to show an infringement, it had to be shown by the plaintiff that Plutus Smart utilised the plaintiff’s CVS which was the sole thing patented after the rejection of half of the claims. In light of the above observation, the court held that though the plaintiff claims to have a patent over POS machine as well as the methodology/ algorithm/ computer program, the same is factually incorrect and the suit patent is “restricted / limited to a communication verification system comprising of a processor and memory and a description of how the said hardware components work and perform and nothing beyond the scope of the same.”

Ex-Parte Order of the Trial Court

A cursory glance at the order clearly reveals that the Trial Court failed to check if the allegedly infringed claim was covered by the patent or not. The patent only extended to the Communication Verification System as is clear from a reading of the claim granted by the patents office. Paragraph 30 of the order reveals that the plaintiff had not placed any evidence to establish the infringement and there was not even a strong prima facie case in favour of the plaintiff. Yet, despite this the trial court went ahead with the interim injunction order. The importance of the “prima facie case” factor, out of the three factors of interim injunction, has recently been highlighted by the J&K High Court in Surinder Pratap Singh v. Vijay Kumar, wherein the court had reiterated that in the absence of a prima facie case, balance of convenience and injury to the party will not be material at all.

In specialised fields like intellectual property rights, the issues involved are often complex and technical. This is further complicated when the authorities that hear the matter are not versed in the technical knowledge of the concerned field. As a result, granting an ad-interim ex-parte order based on incomplete or inaccurate information can cause irreparable harm to the affected party and at times to the general public as well. There is also the possibility of a grant of unfair or unreasoned injunction which could damage the reputation of the respondent’s business. This issue was raised by Praharsh in his post last week, wherein he highlighted how the court took note of the harm suffered by the defendants owing to the erroneously passed interim order. 

In the present case, we see how it was the defendant who had to enter representation and clarify the scope of the patent, while the Trial Court failed to even consider the scope of the patent and seemingly took the petitioner’s word for it. In such a situation the onus should ideally be on the plaintiff to make sure that they approach the court with complete and accurate pleadings and assist the court in forming a reasoned opinion. However, in the present case, the plaintiff omitted in doing so and projected a broader scope of the actual claims covered in the granted patent. Ideally, on this ground, the court could have imposed costs on the plaintiff, for concealing material information. However, the High Court merely vacated the impugned interim injunction order, without venturing into this aspect. 

The present case is an alarming reminder of the frequency and proclivity of Indian Courts to easily grant such injunctions. India has long had the issue of frequent interim injunctions which are granted due to the need to maintain expediency, often making these injunctions the norm. The Supreme Court in numerous cases (Union of India v. Era Educational Trust, Morgan Stanley Mutual Fund v. Kartick Das, Ramrameshwari Devi v. Nirmala Devi, Colgate Palmolive v. Hindustan Lever Ltd.) has stated that such ex-parte orders can cause havoc and there should be restraint and caution in granting such orders. It has also laid down guidelines that are to be followed while granting injunctions and in what circumstances ex-parte orders may be passed. But as this case demonstrates, such guidelines are disregarded by the courts.

Perhaps, a more proactive role from the court especially in ex-parte injunction is warranted given that such non-application of mind can be prejudicial to the interests of the defendants who may be faced even with infringement suits like the present one. The courts have time and time again clarified, like in the recent J&K order as well, that interim injunction should not dilute their exceptional character and should not be granted without a proper inquiry and proper reasons.

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