Memorandum For Respondent Side © With Rajiv Gandhi School of Intellectual Property Law

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN
INSTITUTE OF TECHNOLOGY, KHARAGPUR, 2016
TEAM CODE: RG - 06
BEFORE THE HONBLE SUPREME COURT OF ARYAVARTA
WRIT PETITION CLUBBED WITH SPECIAL LEAVE PETITION

W.P. (CIVIL) NO.___ OF 2016 CLUBBED WITH S.L.P. (CIVIL) NO. ____ OF 2016
UNDER ARTICLE 136 AND 139A OF THE CONSTITUTION OF ARYAVARTA READ WITH SECTION 261
OF THE INCOME TAX ACT, 1961
AKSMIT IMPEX ..... .PETITIONER

V.
THE CUSTOM OFFICIALS...... RESPONDENT

CLUBBED WITH
SARTRI PVT. LTDAPPELLANT
V.
COMMISSIONER OF TAXRESPONDENT
AND
SARTRI PVT. LTD. & ANR......APPELLANTS
V.
VINSHUK PVT. LTD. & ORSRESPONDENTS
UPON SUBMISSION TO THE HONBLE CHIEF JUSTICE AND HIS COMPANION

JUSTICES OF THE SUPREME COURT OF ARYAVARTA
MEMORIAL ON BEHALF OF THE RESPONDENTS

i

TABLE OF CONTENTS
Table of contents..ii
List of Abbreviations..iii
Index of Authorities.v
Statement of Jurisdiction......x
Issues Raised...xi
Statement of Facts..xii
Summary of Pleadings..xiv
Pleadings..1
(1) Whether there has been any violation of fundamental rights or not?
(2) Whether the agreement between Sartri Pvt. Ltd. And Zen Pte. Ltd. Is in
accordance with arms length pricing?
(3) Whether there has been a patent infringement on behalf of the respondents?
Prayerxvi
ii

LIST OF ABBREVIATIONS
&..And
ACAppeal Cases
AIR...All India Reporter
All ER... All England Reporters
ALP..Arms Length Price
AO Assessing Officer
App.Appeal
Art...Article
CIT. Commissioner Income Tax
cl..Clause
CUP..Comparable Uncontrolled Transaction
DB..Divisional Bench
Ed...Edition
HonbleHonourable
ibid.Ibidium
ILR.Indian Law Reports
ITAIncome Tax Act, 1961
ITATIncome Tax Appellate Tribunal
ITR.. Income Tax Reporter
ITR..Income Tax Rules, 1962
LR..Law Reports
iii

MAM...Most Appropriate Method

No..Number
Ors...Others
PCPrivy Council
PIL..Public Interest Litigation
SartriSartri Pvt. Ltd
SC..Supreme Court
SCC.Supreme Court Cases
SCR.Supreme Court Reporter
TNMM.Transactional Profit Margin Method
TPO.Transfer Pricing Officer
U/A...Under Article
U/S. Under Section
UOI Union of India
V..Versus
Zen ...Zen Pte. Ltd.
iv

INDEX OF AUTHORITIES
CASES CITED:
1. R. J. Singh Ahluwalia v. Delhi, AIR 1971 SC 1552
2. Chitturi Subbanna v. Kudapa Subanna and Ors. 1965 SCR (2) 661
3. Hughes Systique India P. Ltd. v. ACIT, (2013) 25 ITR 556 (Delhi)(Trib.)
4. Aztec Software Technologies Services Ltd. vs. ACIT, (2007) 294 ITR 32 (Bang);
5. UCB India Pvt. Ltd. v. ACIT, (2009) 30 SOT 95(Mum)
6. ACIT v. MSS India Pvt. Ltd. [2009] 32 SOT 132 (Pune)
7. DIT (International Taxation), Mumbai v. Morgan Stanley and Co. Inc, 2006 ITR (284)
260
8. Commissioner of Wealth Tax, Gujarat v. Ellis Bridge Gymkhana, AIR 1998 SC 120
9. Serdia Pharmaceuticals (India) (P.) Ltd. v. CIT, [2011] 44 SOT 391(Mum)
10. E-Gain Communication Pvt. Ltd. vs Income Tax Officer, 118 TTJ 354
11. Quanta Computer Inc V LG Electronic Inc (No. 06-937)453 F 3d 1364 reversed
(Supreme Court, 09 June, 2008)
12. Ninestar v. ITC; 667 F.3d 1373 (Fed. Cir. 2012)
13. US v Moore 604 F. 2d 1228
14. Jazz Photo v. ITC, 264 F.3d 1094 (Fed. Cir. 2001) Judges Newman, Michel, Gajarsa.
15. Boesch v. Graff 133 U.S. 697, 701-03 (1890)
16. Adams and Keeler v. Standard Folding Bed 157 U.S. 659 (1895)
17. Bloomer v.McQuewan,55U.S.539(1853)
18. Adams v.Burke,84U.S.453(1873)
v

19. Quanta Computer, Inc. v. LG Electronics, Inc.128 S. Ct. 2109 (2008)

20. Strix Ltd. V. Maharaja Appliances Ltd., (2008) I.A. No.7441 of 2008 in C.S. (OS)
No.1206 of 2008 (India).
21. Grimme Landmaschinenfabrik GmbH & Co KG V Scott [2011] Bus LR D 129
22. Deckenheizung (BGH X ZR 153/03), 13 June 2006 (German Supreme Court)
23. Haubenstretchautomat (BGH X ZR 173/02), 9 January 2007 (German Supreme Court)
24. Luftheizgert (BGH X ZR 176/98), 10 October 2000 (German Supreme Court)
BOOKS REFERRED:
1. Blacks Law Dictionary, 8th edition
2. Cambridge Learners Dictionary, 1st edition
3. Law of Income Tax, SampathIyenger
4. The Law and Practice of Income Tax, Kanga and Palkhiwalas by Dinesh Vyas
5. The Law and Practice of Income Tax, Kanga and Palkhiwalas by Arvind Datar
LEGAL DATABASES:
1. Hein Online
2. Manupatra
3. SCC Online
4. West Law
LEXICONS:
vi

1. AiyarRamanathan P, Advanced Law Lexicon, 3rd edition, 2005, Wadhwa Nagpur.

2. Garner Brayana, Blacks Law Dictionary, 7th edition, 1999.
LEGISLATIONS:
1. Code of Civil Procedure, 1908
2. Income Tax Rules, 1962
3. IPR Enforcement Rules, 2007
4. The Constitution of India, 1950
5. The Copyright Act, 1967
6. The Income Act, 1961
7. The Patents Act, 1970
8. The Trademark Act, 1999
9. The Transfer of Property Act, 1882
vii

STATEMENT OF JURISDICTION
The Honble Supreme Court of Aryavarta has the jurisdiction in this matter under Article 136
and Article 139A of the Constitution of Aryavarta read with Section 261 of the Income Tax Act,
1961.
viii

ISSUES RAISED
If it may please this Honble court, in the interest of justice and on account of the reason of
necessity and brevity, this Honble bench is empowered to address the following issues, provided
as hereunder:
ISSUE 1:
WHETHER THERE HAS BEEN ANY VIOLATION OF FUNDAMENTAL RIGHTS OR

NOT?
ISSUE 2:
WHETHER THE AGREEMENT BETWEEN SARTRI PVT. LTD. AND ZEN PTE. LTD.
IS IN ACCORDANCE WITH ARMS LENGTH PRICING?
ISSUE 3:
WHETHER THERE HAS BEEN A PATENT INFRINGEMENT ON BEHALF OF THE
RESPONDENTS?
ix

STATEMENT OF FACTS
Brief Background of the case:
1. RGS Public Ltd., a US based company has a patent on a 3-D printer kit. These kits are
used to increase the efficiency and high value addition to the print. The kits were sold
under the brand name of RiskaTM and under the following three schemes:
i.
Scheme 1: No discount- No terms & conditions.
ii.
Scheme 2: Discount 40%- conditions mentioned hereunder:

-Cartridges are to be refilled, refurbished or purchased by authorized RiskaTM
sellers only.
-Under no circumstances the customer shall resell RiskaTM to any other person or
entity.
iii.
Scheme 3: (only for users who availed Scheme 1) Discount on refilling of

cartridges & same conditions as in scheme 2.
2. RGS incorporated 2 companies viz. ZEN (in Singapore & assigned all the trademarks and
patents in Aryavarta to it) & Melaka (in Ireland and granted license to manufacture,
export & sell RiskaTM in EU countries)
3. Sartri (incorporated in Aryavarta) was also involved in a business of spare parts for 3D
printers. RGS as a part of business expansion plan asked ZEN to grant an exclusive nontransferable, non-alienable, non-licensable license to Sartri. Thereafter Sartri started
importing RiskaTM. The kits were priced at Rs. 1,00,000/- each unit and a profit of Rs.
25000/- on each unit was earned. For this agreement Sarti had to pay Rs. 24 Crores in 4
equal installments in each financial year and 15% running royalty of the price per unit of
x

RiskaTM. This venture was flourishing in the domestic markets. In 2014, Sartri came to
know that some refurbished RiskaTM kits were being sold in the market by some
unauthorized sellers. There were multiple complaints from the customers pertaining to
the bad quality of kits, which resulted in loss of goodwill and loss of customer
relationship for Sartri.
4. Vinshuk (another co incorporated in Aryavarta involved in manufacturing & selling of
spare parts of 3D printers), devised a new business strategy and decided to sell
refurbished RiskaTM kits after importing used kits from EU countries. For this purpose
Aksmit Impex, import-export company was contacted to import used kits from EU
countries and Hun Shui, a company based in Thaikwando (a European Country) was
contacted to collect used kits from EU markets. The plan was to import used kits,
refurbish them and sell at cheaper rates under brand name Visaka at Rs. 75,000/- and
earning a profit of Rs 20,000/- on each unit.
Case I: Aksmit Impex v. The Custom Officials

Sartri filed a notice with the custom officials under the IPR Enforcement Rules, 2007. The
custom officials seized the consignment containing used Riska
TM
kits and notice was given to
the concerned parties. Aggrieved by this Aksmit Impex filed a Writ Petition in HC under Art.
226 against the Commissioner of Customs for violation of their Fundamental Right to property.
This Writ Petition was taken up by the Supreme Court.
Case II: Sartri Pvt. Ltd. V. Commissioner of Tax

xi

The Revennue Department instituted an inquiry into the transactions entered into by Sartri & Zen
as Sartri had claimed deduction (claiming it to be a revenue expenditure) on 15%running royalty
paid to Zen. Additionally, it apportioned Rs. 10,000 from the revenue generated from every unit
of Riska
TM
towards the payment of lump sum royalty amount and also claimed it as a revenue
expenditure. The matter was taken up by the Tranfer Pricing Officer who concluded that the
arrangement between Sartri and Zen is not according to Arms Length Price and therefore was
required to be adjusted. TPO disallowed the deductions on royalty payments as he found that 15
% royalty rate was excessive in nature based on Comparable Uncontrolled Price (CUP) method.
According to the TPO, the only other supplier in the market was Vinshuk which sold comparable
product (Visaka). Sartri contended before the Income Tax Commissioner (Appeals) that
RiskaTM and Visaka were not comparable products owing to the fact that one was sold under a
valid license agreement and the other being an infringing product. Being aggrieved by the order
of Income Tax Commissioner (Appeals), ITAT also upheld the order of Commissioner (Appeals)
on similar grounds. Thereafter an appeal was made to the HC u/s 260(A) of Income Tax Act.
This appeal was dismissed by the HC. On appeal to the SC, Sartri raised a new ground that the
CUP method used by TPO under the provisions of Section 92C (1) of the Income Tax Act, 1961
is unconstitutional as CUP method would not be possible to apply in a federal structure like
Aryavarta where taxing rights are distributed between State and Centre.
Case III: Sartri Pvt. Ltd. & Anr. v. Vinshuk Pvt. Ltd. & Ors.
Sartri along with Zen filed a Patent Infringement suit in the HC against Vinshuk, Aksmit Impex
& Hun Shui. In this suit, Aksmit Impex pleaded before the High Court that it was a mere
xii

importer and had no role in infringement of any patented product and that the consignment
seized by the Custom Officials was not in accordance with law. Vinshuk raised its defence on the
ground that Sartri had already exhausted its rights in the patented product once it had sold them
and hence it cannot assert patent rights any further. Moreover, Vinshuk contended that the
conditions on sale of the patented product were highly restrictive in nature and Sartri and Zen
had misused the patent rights. Hun Shui contended that it had no liability whatsoever under
primary and/or secondary theories of infringement. The High Court held that there was no patent
infringement. An Appeal was made to the Honble Supreme Court.
xiii

SUMMARY OF PLEADINGS
WHETHER THERE HAS BEEN ANY VIOLATION OF FUNDAMENTAL RIGHTS OR NOT?

The current Writ Petition was filed by Akshit Impex under article 226 before the Honble High
Court. A writ petition can be filed only on the condition of there being a violation of fundamental
rights. In the instant matter, the Petitioner has not proved that there has been any violation of the
any Fundamental Rights enshrined in Part III of the Constitution. The writ is not maintainable as
there is no violation of Art. 19 and Art. 14. Also, Akshmit Impex is involved in a business,
which is in contravention to the patents act, 1970, he is already in default under law and thus
cannot claim the protection of Article 21.
WHETHER THE AGREEMENT BETWEEN SARTRI AND ZEN PTE. LTD. IS IN ACCORDANCE WITH
ARMS LENGTH PRICING?
It is submitted on behalf of the Respondent that the decision of the ITAT is in accordance with
law and the TPO has rightfully computed the Arms Length Price by use of the Comparable
Uncontrolled Price Method, which is the most appropriate method. Further, the applicability
of all other methods has been repudiated. It has also been submitted that the Appellant should
not be allowed to raise any new grounds at such later stage.
WHETHER THERE HAS BEEN A PATENT INFRINGEMENT ON BEHALF OF THE RESPONDENTS?

In the instant case, the doctrine of first sale has been invoked as Aryavarta follows the principle
of international exhaustion and the patentee cannot be allowed absolute rights. The conditions
mentioned in the shrink-wrap contract are unreasonable as they clearly give arbitrary powers to
the patentee. In Ninestar v ITC it was held that the first sale should be authorized within the
country. Since first sale has been an authorized one, the patent has not been infringed.
xiv

xv

PLEADINGS
Issue 1: Whether any of the fundamental right has been violated.
It is submitted that no Fundamental Right of Akshmit Impex has been violated. Akshmit Impex,
an import-export company was engaged in the business of imported used RiskaTM from
Thaikwando. Sartri Pvt. Ltd. is an exclusive licensee of the RiskaTM kits in Aryavarta. Since
Sartri has filed a Notice under Rule 3 of the Intellectual Property Rights (Imported Goods)
Enforcement Rules, 2007 (hereinafter referred to as the IPR Rules), the custom officials had
seized the consignment being imported by Akshmit Impex. Also the notice for the same was
given to the concerned parties (the petitioner being a concerned party).
It is submitted that the petitioner was importing pre-used RiskaTM kits from Thaikwando, which
resulted in patent infringement of Sartri and thus under the provisions of the IPR Rules the
consignments were seized. There was no violation of the fundamental right to property under
Art. 21 of the Aryavartan Constitution as the petitioner was deprived of his property under the
authority of law and thus no violation of any fundamental right could be claimed.
W.r.t the argument that the principles of natural justice have been violated, it is submitted that
the notices were given to the concerned parties. IPR Rules under Rule 7 provide that after the
suspension of clearance of goods immediate information has to be provided to the importer along
with the reasons for such suspension. In the instant case, Sartri had filed a notice under Rule 3
and subsequently an action was taken up by the custom officials under Rule 7. A proper notice
was given to the petitioner and thus there was no violation of the rule audi alterem partem.

It is further submitted that Rule 2(b) of the IPR Rules which defined intellectual property
specifically includes patent as well, as defined under the Patents Act. Thus, each form of the
intellectual property whether it be Copy Right, Trade Mark, Patent Designs Act and
Geographical Indications of Goods had to be given same treatment. It is contended that once
under these Rules power is given to the custom authorities to suspend the clearance of goods
based on notice given by the right holder after forming an opinion that he had reason to believe
that imported goods are suspected to be infringing intellectual property rights, the competent
authority had adequate jurisdiction to exercise power and this exercise is not dependent upon an
injunction order of the civil court as is being contented by the petitioner.
It is also submitted that the act of importation of kits by Akshmit Impex was an act of
contributory infringement of patent under the provisions of Sec 48A of the patents Act, 1970.
The said section lays down that Whoever offers to sell or sells within Aryavarta or imports into
Aryavarta a component of a patented machine, manufacture, combination or composition,
or a material or apparatus for use in practicing a patented process, constituting a material
part of the invention, knowing the same to be especially made or especially adapted for use
in an infringement of such patent, and not a staple article or commodity of commerce suitable
for substantial non-infringing use, shall be liable as a contributory infringer. (emphasis
supplied)
Since Akshmit Impex is involved in a business which is in contravention to the patents act, 1970,
he is aleady in default under law and thus cannot claim the protection of Article 21.

Issue 2: Whether the Agreement between Sartri and Zen Pte. Ltd. is in accordance with
Arms Length Pricing?
It is humbly submitted before the Honble Supreme Court of Aryavarta that the arrangement
between Sartri Pvt. Ltd. and Zen Pte. Ltd. has not been made in accordance with the Arms
Length principle. It is further submitted that the ITAT has rightly decided in favour of revenue
by upholding the decision of the TPO, wherein the 15% royalty rate as well as Rs. 10000
apportionment toward royalty lump sum payment, was computed to be excessive in nature based
on the Comparable Uncontrolled Price method (hereinafter CUP). Further, the appellant has
raised a new ground debating the constitutionality of the CUP in light of the federal structure of
Aryavarta. It is, therefore, contended that the appellant be barred from raising this new ground.
Further, it is contended that the CUP method is the most appropriate method (hereinafter
MAM) as envisaged in Section 92C(1) of the Income Tax Act, 1961 (hereinafter ITA,
1961).
[2.1] THE APPELLANT SHOULD NOT BE ALLOWED TO RAISE NEW GROUNDS AT
THIS STAGE
In order to disprove the decision of the TPO in determination of ALP, the appellant has
questioned the constitutionality of the CUP method, and has contended that the same would not
be possible to apply in a federal structure like Aryavarta where taxing rights are distributed
between State and Centre. This new ground has been raised during the proceedings before this
honble Apex Bench. Order XVI Rule 2 of the Supreme Court Rules, 2013 bars parties from
relying, at the hearing, on any ground not specified in the statement of the case filed by him.
3

Ordinarily, the Apex Court of India is reluctant to entertain an entirely new plea, not raised
before lower Courts.1 The Supreme Court of India in Chitturi Subbanna v. Kudapa Subanna and
Ors.2, held as follows:
Considerations of public policy require that a successful party should not, at the
appellate stage, be faced with new grounds of attack after having repulsed the original
ones. The proper function of an appellate court is to correct an error in the judgment or
proceedings of the court below and not to adjudicate upon a different kind of dispute a
dispute that was never taken before the court below. It is only in exceptional cases that
the appellate court may in its discretion allow a new point to be raised before it
provided there are good grounds for allowing it to be raised and no prejudice is caused
thereby to the opponent of the party permitted to raise such point.
Therefore, given that the respondent would be prejudiced in a scenario where the new ground is
entertained, it is humbly submitted that the same would generally not be heard by this Bench.
[2.2] THE TPO HAS CORRECTLY ASSESSED THE ARMS LENGTH PRICE
The term arms length price refers to the price applied in a transaction between persons other
than associated enterprises, in uncontrolled conditions. 3 Section 92C(1) of the ITA, 1961
requires computation of the ALP in relation to an international transaction between associated
parties by use of the most appropriate method. Rule 10C(1) of Income Tax Rules, 1962
R. J. Singh Ahluwalia v. Delhi, AIR 1971 SC 1552

1965 SCR (2) 661
3
Section 92F, Income Tax Act, 1961
2

(hereinafter ITR, 1962) defines the most appropriate method as the method which is best
suited to the facts and circumstances of each particular international transaction.
The Comparable Uncontrolled Price method is the Most Appropriate Method
In the present matter, the TPO has applied an external CUP and has benchmarked the price (15%
royalty) paid as per the international transaction between Sartri Pvt. Ltd. and Zen Pte. Ltd.
regarding sale of RiskaTM, against the price paid in the uncontrolled transaction, i.e. the
transaction between Vinshuk Pvt. Ltd. and Aksmit Impex regarding sale pre-used RiskaTM kits. It
must be noted, that Sartri and Zen qualify as associated enterprises as they fall within the scope
of the definition provided under Section 92A(2).
CUP method evaluates whether the amount charged in a controlled transaction is at arm's length
with reference to the amount charged in a comparable uncontrolled transaction. The CUP seeks
to provide a direct estimate of the price the parties would have agreed to, had they resorted
directly to an open market alternative to the controlled transaction.4 The results derived from
applying CUP method generally will be the most direct and reliable measure of an arm's length
result for the controlled transaction.5
The first step toward the determination of ALP is the comparability analysis which involves the
determination of comparables. Where comparables may be determined accurately, traditional
transaction methods (CUP, Cost Plus method, Resale Price Method) are generally favored over
Hughes Systique India P. Ltd. v. ACIT, (2013) 25 ITR 556 (Delhi)(Trib.)

Aztec Software Technologies Services Ltd. vs. ACIT, (2007) 294 ITR 32 (Bang); UCB India Pvt. Ltd. v. ACIT,
(2009) 30 SOT 95(Mum)
5

transactional margin methods (TNMM, Profit Split method). In ACIT v. MSS India Pvt. Ltd.6, the
Pune Bench of the ITAT stated:
"However, whenever necessary inputs for applying one of these methods are
available and there is no dispute about comparability of those inputs, there is no good
reason to resort to transactional profit methods. It would thus follow that in a situation
in which the assessee has followed one of the standard methods of determining ALP,
such a method cannot be discarded in preference over transactional profit methods
unless the revenue authorities are able to demonstrate the fallacies in application of
standard methods
CUP is a particularly reliable method where an independent enterprise sells the same product as
is sold between two unassociated enterprises.7 In the instant case, it is averred that the transaction
subsisting between Vinshuk and Akshmit Impex has a high degree of comparability with the
impugned transaction. The Supreme Court has emphasized the importance of FAR analysis
(analysis of the functions performed, and associated resources employed, by the taxpayer in the
controlled and uncontrolled transactions) for benchmarking exercise for determination of ALP of
an international transaction.8 With regard to a FAR analysis, it is revealed that both Sartri and
Vinshuk are characterized as full-fledged distributors. Both perform the same functions and
assume similar risks. Differences arise only with regard to product comparability. Where Sarti is
involved in the sale of RiskaTM, a patented kit used for 3-D printers, Vinshuk is involved in the
[2009] 32 SOT 132 (Pune)

Paragraph 2.18 of OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations July
2010
8
DIT (International Taxation), Mumbai v. Morgan Stanley and Co. Inc, 2006 ITR (284) 260
7

sale of Visaka, essentially a pre-used RiskaTM kit. However, the employment of such an
intangible does not present any irreconcilable price difference which eliminates the use of CUP
method, and the same may be adjusted to account for the use Aryavarta Patent AR420100. It is
further assumed that the price paid per unit (exclusive of any royalty) by both Vinshuk and Sartri
is similar. Thus, the payment of Rs. 25000 in the form of 15% royalty per unit and Rs. 10000
apportioned sum toward payment of lump sum royalty is, by any standard, excessive. Therefore,
the price paid by Sartri is much above the computed ALP.
The Transactional Net Margin method is not the most appropriate method under section 92C(1)
By virtue of the well-known rule of strict construction of taxing statutes9, Courts have stated
from time to time that the methods mentioned in Section 92C(1) have not been enumerated in
order of priority and it is the MAM which must be applied.10 Of the five methods mentioned
under Section 92C(1), both Resale Price Method and Cost Plus Method must be disqualified as
MAM due to their dependence on gross profit margins, which cannot be calculated on the basis
of the available data. Further, Profit Split Method is applied in order to compute the ALP in
situations involving multiple inter-related transaction which cannot be evaluated separately.
Further, it is humbly submitted that the TNMM should also be disqualified as the MAM in the
present case.
TNMM requires comparison between net profit margin derived from the operation of the
uncontrolled parties and net profit margin derived by an associated enterprise on similar
Commissioner of Wealth Tax, Gujarat v. Ellis Bridge Gymkhana, AIR 1998 SC 120
Serdia Pharmaceuticals (India) (P.) Ltd. v. CIT, [2011] 44 SOT 391(Mum)
10

operation.11 Net profit equals the operating profit before interest and taxes of a company. The
greatest weakness of TNMM is that the net margin of a taxpayer can he influenced by some
factors that either do not have an effect, or have a less substantial or direct effect, on price or
gross margins. These aspects make accurate and reliable determinations of arm's length net
margins difficult.12
Further, in markets characterized by high entry barrier, small number of competitors, and wide
possibilities for product differentiation, all differences are likely to have material effect on the
profitability of the examined activities and compared activities, and in such a case would require
adjustment. 13 Thus, since the 3-D printer kit market of Aryavarta falls within the described
category, the TNMM fails to be applicable.
Issue 3: Whether there has been a patent infringement on behalf of the respondents?
In the legal parlance and as per the Doctrine of Exhaustion of Rights14, certain limits are imposed
upon the patentees exclusive rights. According to this doctrine, a patented items initial
authorized sale terminates all patent rights to that item.
The doctrine of exhaustion is circumscribed by the following factors:
11
Rule 10B(1)(e) of the Income Tax rules, 1962

Paragraph 2.64 of OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations July
2010
13
E-Gain Communication Pvt. Ltd. vs Income Tax Officer, 118 TTJ 354
14
Quanta Computer Inc V LG Electronic Inc (No. 06-937)453 F 3d 1364 reversed (Supreme Court, 09 June, 2008)
12

i)
Exhaustion kicks in only if the first sale is made by or with the authorization of the
patentee.15
ii)
Exhaustion in relation to a particular patented article does not impact any of the
exclusive rights of the patentee with respect to her other patented articles.16
In the instant case, the pre-used17 3-D printer18 kit was collected by Hun Shui and handed over
to Akshmit Impex. The sales were made in furtherance of the three schemes19 as devised by RGS
Public Ltd. For the above pre-used criteria to be fulfilled, the first point of the aforementioned
factors stands proved. The second point requires the patented article to not impact any other
exclusive rights of the patentee with respect to any other patented articles. No other patent is
brought forward in the present case. In Ninestar v ITC20 it was held that the first sale should be
authorized within the country. It is to be noted that the pre-used RiskaTM kits were collected from
Thaikwando, an European Country. It is pertinent to note that RiskaTM was only available with
authorized sellers across the countries and that, they were authorized to make the first sale. In
Jazz Photo v. ITC,21 it was said, United States patent rights are not exhausted by products of
foreign provenance. To invoke the protection of the first sale doctrine, the authorized first sale
must have occurred under the United States patent. citing Boesch v. Graff22.
Adams and Keeler v. Standard Folding Bed23 also illustrated that a purchaser obtained the right
15
Ninestar v. ITC; 667 F.3d 1373 (Fed. Cir. 2012), cert. denied 568 U.S. ___ (2013)
US v Moore 604 F. 2d 1228 as quoted in Words and Phrases First Sale (n.6)
17
Para 8, Page 5 of the Moot Compromis
18
19
20
Supra Note 2
21
264 F.3d 1094 (Fed. Cir. 2001) Judges Newman, Michel, Gajarsa.
22
133 U.S. 697, 701-03 (1890)
23
157 U.S. 659 (1895)
16

to use24 and to resell25 the patented invention free and clear of geographic restrictions limiting
the rights of the assignee seller.
In Quanta Computer, Inc. v. LG Electronics, Inc.26, the Supreme Court revisited the exhaustion
doctrine after a sixty-six year hiatus27, reversing a Federal Circuit case finding no exhaustion
when post-sale restrictions were placed on licensed components.
10
In a highly antici- pated
opinion28, Justice Thomas used a formalistic analysis of the license at issue. According to the
Court, because the license lacked express restrictions on the licensees rights to make, use and
sell the patented invention, any downstream purchases from the licensee exhausted the patent
owners rights in practicing the invention using component parts manufactured by the licensee.29
It is also humbly contended that the conditions of the license imposed unreasonable restrictions
on the alienating powers of the transferee and is void under Section 10 of the Transfer of
Property Act, 1882, which reads, Transferor shall have no right to put unreasonable restrictions
on the alienating power of the transferee if such transfer is absolute in nature.
In Strix Limited v. Maharaja Appliances Limited (2009)30a single bench of the Delhi High Court
refused to accept the de- fense under Section 107A(b) pleaded by the defendants. In this case, the
plaintiffs owned a patent in India on kettle heaters with sensors. The defendants initially
24
Bloomerv.McQuewan,55U.S.539(1853);Adamsv.Burke,84U.S.453(1873)
Keeler, 157 U.S. at 661 ([I]t is obvious that a purchaser can use the article in any part of the United States, and,
unless restrained by contract with the patentee, can sell or dispose of the same.).
26
128 S. Ct. 2109 (2008)
27
Before Quanta, the Court last visited patent exhaustion in Univis, 316 U.S. 241
28
Stuart Weinberg, Supreme Court To Hear Case on Patent Licenses, WALL ST. J., Jan. 2, 2008 at B3A; Posting of
Charles R. Macedo et al. to PatentlyO, Quanta v. LG: Will the Supreme Court Clarify the Exhaustion Doctrine?
29
Amelia Rinehart, Contracting Patents: A Modern Patent Exhaustion Doctrine, 22 HARV. J.L. & TECH. 484
(Sept. 11, 2009)
30
Strix Ltd. V. Maharaja Appliances Ltd., (2008) I.A. No.7441 of 2008 in C.S. (OS) No.1206 of 2008 (India).
25
10

purchased products from the plaintiffs and sold them in India. However, the defendants found
that Chinese kettles of the same variety, but with improved quality, could be imported. The
defendant contended that the Chinese supplier held valid patents on the imported product and,
hence, the plaintiff could not initiate an infringement action. The defendant also counterclaimed
invalid- ity of patents held by the plaintiff in India. The defendants argument under Section
107A(b) was that since it was importing products for which patents were held by the Chinese
supplier, it was not liable for infringing similar patents in India31.
It is pleaded before this honble court that Akshmit Impex has wrongly been made a party to this
patent infringement suit. Akshmit has no role in the patent infringement.Akshmit was only a
mere importer of the consignments which contained the pre-used Riska kits. It is submitted that
Sec 48A(1)(c) of the Patents Act, 1970 states that Whoever offers to sell or sells within
Aryavarta or imports into Aryavarta a component of a patented machine, manufacture,
combination or composition, or a material or apparatus for use in practicing a patented
process, constituting a material part of the invention, knowing the same to be especially
made or especially adapted for use in an infringement of such patent, and not a staple article
or commodity of commerce suitable for substantial non-infringing use, shall be liable as a
contributory infringer.
In Grimme Landmaschinenfabrik GmbH & Co KG V Scott32, the court held that whether an act
constitutes contributory infringement or not-the test to be applied in establishing knowledge that
intended user would use the machine in an infringing manner. In the instant case, the importer
31
Basheer &Kochupillai
32
[2011] Bus LR D 129
11

Akshmit Impex could not in any manner have had the knowledge of the use of the kits that were
being imported. Akshmit was only concerned with the import of the consignment and had
nothing to do with the acquiring of the kits or the subsequent use of the kits.
In para 131 of the judgment it has been held that Although the test is expressed in the
Deckenheizung 33 , Haubenstretchautomat 34 and Luftheizgert 35 cases in slightly different
language, they are all to the same effect, and are consistent with what Jacob J said in Chapmans
case. In short, the knowledge and intention requirements of article 26 and section 60(2) are
satisfied if, at the time of supply or offer of supply, the supplier knows, or it is obvious in the
circumstances, that ultimate users will intend to put the invention into effect. That is to be proved
on the usual standard of balance of probabilities. It is not enough merely that the means are
suitable for putting the intention into effect (for that is a separate requirement), but it is likely to
be the case where the supplier proposes or recommends or even indicates the possibility of such
use in his promotional material.
It is submitted that knowledge being a crucial element of contributory infringement, is absent in
the case in hand and thus the respondent, Akshmit Impex, can under no circumstances be held
for infringement of patent of Sartri.
It is submitted that Akshmit is an import-export company incorporated under the laws of
Aryavarta. Vinshuk contacted Akshmit to import the kits from Thaikwando. It is contended that
no information pertaining to the patent was provided to Akshmit and thus Akshmit could under
33
(BGH X ZR 153/03), 13 June 2006 (German Supreme Court)

(BGH X ZR 173/02), 9 January 2007 (German Supreme Court)
35
(BGH X ZR 176/98), 10 October 2000 (German Supreme Court)
34
12

no circumstances be presumed to know that the kits were being imported under patent
infringement or that the use of these kits will result into any patent infringement.
It is submitted before the honble court that the respondent Vinshuk is not liable for the patent
infringement as Sartri had already exhausted its rights in the patented product once it had sold
them and hence it cannot assert patent rights any further.
13

PRAYER
IN THE LIGHT OF THE ARGUMENTS ADVANCED, CASES AND AUTHORITIES CITED, THE COUNSEL FOR
RESPONDENTS HUMBLY REQUESTS THE HONBLE SUPREME COURT OF ARYAVARTA TO:
1. TO DISMISS THE PRESENT PETITION AND APPEAL ON THE GROUND OF AS IT IS NOT

MAINTAINABLE IN THE EYES OF LAW.
2.
TO UPHOLD THE EARLIER ORDER(S) OF THE HONBLE HIGH COURT OF SINHABAD PASSED IN
FAVOR OF THE RESPONDENTS.
3.
TO UPHOLD THE DECISION OF THE DECISION OF THE ITAT AND DECLARE THAT THE
ADJUSTMENTS MADE BY THE TPO ARE GOOD IN LAW.
4. TO UPHOLD THE DECISION OF THE HIGH COURT PASSED IN THE PATENT INFIRNGEMENT CASE
AND PASS ANY OTHER ORDER, DIRECTION OR RELIEF THAT THE COURT MAY DEEM FIT SO THAT
THE MERITS OF THE CASE MEET THE ENDS OF
JUSTICE, FAIRNESS, EQUITY
AND
GOOD
CONSCIENCE.
FOR THIS ACT OF KINDNESS, THE RESPONDENTS SHALL DUTY BOUND FOREVER PRAY.
SD/COUNSELS FOR RESPONDENTS
CUSTOM OFFICIALS
COMMISSIONER OF TAX
VINSHUK PVT. LTD.
xvi

AKSMIT IMPEX
HUN SHUI
xvii

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RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

INSTITUTE OF TECHNOLOGY, KHARAGPUR, 2016

BEFORE THE HONBLE SUPREME COURT OF ARYAVARTA

WRIT PETITION CLUBBED WITH SPECIAL LEAVE PETITION

AKSMIT IMPEX ..... .PETITIONER

THE CUSTOM OFFICIALS...... RESPONDENT

VINSHUK PVT. LTD. & ORSRESPONDENTS

UPON SUBMISSION TO THE HONBLE CHIEF JUSTICE AND HIS COMPANION

MEMORIAL ON BEHALF OF THE RESPONDENTS

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MAM...Most Appropriate Method

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

19. Quanta Computer, Inc. v. LG Electronics, Inc.128 S. Ct. 2109 (2008)

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

1. AiyarRamanathan P, Advanced Law Lexicon, 3rd edition, 2005, Wadhwa Nagpur.

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

WHETHER THERE HAS BEEN ANY VIOLATION OF FUNDAMENTAL RIGHTS OR

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

Scheme 1: No discount- No terms & conditions.

Scheme 2: Discount 40%- conditions mentioned hereunder:

Scheme 3: (only for users who availed Scheme 1) Discount on refilling of

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

Case I: Aksmit Impex v. The Custom Officials

kits and notice was given to

Case II: Sartri Pvt. Ltd. V. Commissioner of Tax

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

WHETHER THERE HAS BEEN ANY VIOLATION OF FUNDAMENTAL RIGHTS OR NOT?

WHETHER THERE HAS BEEN A PATENT INFRINGEMENT ON BEHALF OF THE RESPONDENTS?

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

R. J. Singh Ahluwalia v. Delhi, AIR 1971 SC 1552

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN

Hughes Systique India P. Ltd. v. ACIT, (2013) 25 ITR 556 (Delhi)(Trib.)

MEMORIAL ON BEHALF OF THE RESPONDENTS

RAJIV GANDHI SCHOOL OF INTELLECTUAL PROPERTY LAW, INDIAN