Diyora and Bhanderi Corporation v. Sarine Technologies Ltd.: Software Copyright, Expert Comparison, and the Boundaries of Judicial Scope in IP Disputes
Introduction
When a company accuses another of stealing its computer software, one of the most critical and technically challenging questions that arises in court is: how does one actually prove that software has been copied? Unlike a physical product where similarities can be seen with the naked eye, software operates through invisible lines of coded instructions. The only meaningful way to compare two software programs and determine whether one has been copied from the other is to examine their underlying source code and object code — the internal programming that makes the software work.
The case of Diyora and Bhanderi Corporation and Others versus Sarine Technologies Limited, decided by the Supreme Court of India on 30 July 2018, arose in the context of exactly this challenge. The dispute involved a cutting-edge software used in the diamond and precious stone industry and raised important questions about how courts should manage the process of expert comparison of software in intellectual property litigation. The Supreme Court was called upon to decide two focused but practically significant questions: first, whether the appointment of a foreign expert to compare the competing software programs was proper; and second, whether the scope of comparison should be limited to only the registered version of the software or could extend to all previous and unregistered versions as well. Though procedural in nature, the Court's resolution of these questions carries important lessons about the integrity of judicial processes in technology-related intellectual property disputes.
Factual and Procedural Background
Sarine Technologies Limited, the plaintiff and respondent before the Supreme Court, is a company that had developed and owned a software product called Advisor™. This software uses a three-dimensional representation to help analyze how a raw precious stone can best be cut and polished so as to yield the best quality diamonds and gemstones. In essence, it is a sophisticated tool designed for the diamond processing industry to maximize the quality and value extracted from rough stones.
The plaintiff claimed that it had a validly subsisting copyright in the Advisor™ software both in Israel and in the United States of America. Specifically, it had obtained copyright registration in the USA for version 6.0 (also referred to as the 6th version) of the Advisor™ software, bearing the registration number TX8-252-522. The plaintiff also asserted that by virtue of the International Copyright Order, 1999, and India being a member country of the Berne Copyright Union, this copyright protection extended to India in the same manner as if the software had originally been published in India.
The defendants — Diyora and Bhanderi Corporation and others, who are the appellants before the Supreme Court — were also engaged in the business of the diamond industry. The plaintiff alleged that these defendants had infringed the copyright in the Advisor™ software.
On this basis, the plaintiff filed Commercial Trade Mark Suit No. 8 of 2017 before the Court of District Judge at Surat. Along with the main suit, the plaintiff also filed an application for interim injunction (marked as Exhibit 5 in court) seeking an emergency order restraining the defendants from using, distributing, or selling any services that infringed its Advisor™ software copyright, covering both the registered version 6.0 as well as any future machines or devices incorporating the copyrighted software.
The trial court, by its order dated 22 September 2017, dismissed the plaintiff's application for interim injunction. The plaintiff challenged this dismissal before the Gujarat High Court. The High Court, by its order dated 21 December 2017, set aside the trial court's order and remitted the matter back to the trial court for fresh consideration. The High Court's key observation was that the central question — whether the source code or object code of the defendants' software was the same as or copied from the plaintiff's software — had not been properly examined. The High Court directed that both parties should submit their respective source codes and object codes to the court so that these could be sent to an impartial and independent expert for comparison. This remand order of the Gujarat High Court was itself challenged by the defendants before the Supreme Court, but the Supreme Court did not find any ground to interfere, and the Special Leave Petition was dismissed on 16 March 2018.
With the matter thus sent back for a fresh hearing at the trial court level, a series of procedural orders followed. On 12 February 2018, the trial court appointed a Local Commissioner and directed both parties to submit their respective source codes and object codes in sealed covers by 21 February 2018. The parties were also asked to suggest names of experts who could carry out the technical comparison. On 28 February 2018, the trial court directed the plaintiff to confirm on affidavit that it had submitted the source code and object code of the software exactly as registered.
On 16 March 2018, the trial court appointed Mr. Robert "Bob" Zeidman, whose name was proposed by the plaintiff, as the technical expert to compare the software of both parties and to report to the court as to whether the defendants' source code and object code had infringed the copyright of the plaintiff. The defendants had proposed the names of three well-regarded Indian institutions — the Centre for Development of Advanced Computing (C-DAC), the Department of Computer Science and Engineering at IIT Bombay, and the Department of Computer Science and Engineering at IIT Madras. These suggestions were, however, objected to by the plaintiff on the ground that one of the defendants' advocates had been associated with these institutions, raising a concern about impartiality. The trial court rejected this objection, rightly observing that an advocate having studied at an institution does not mean the institution could be influenced. However, the trial court found that the profiles of the professors attached to the application did not demonstrate that they could conduct the specific task of comparing source and object codes, and therefore appointed Mr. Zeidman as the most competent person for the task.
The defendants challenged the appointment of Mr. Zeidman before the Gujarat High Court in Special Civil Application No. 4468 of 2018. One of their main objections was that sharing proprietary software with a foreign expert could cause them serious prejudice, as the court's processes would not be able to hold a foreign expert accountable if the confidential data were later misused. The Gujarat High Court dismissed this application on 1 May 2018, finding the appointment proper.
After this, the trial court issued another order on 4 May 2018, clarifying that the comparison would be confined only to the source code and object code of the registered version of the plaintiff's software — i.e., version 6.0 with copyright registration No. TX8-252-522. Any additional material furnished by the plaintiff beyond this registered version was specifically excluded.
However, the controversy was not over. On 1 June 2018, the trial court passed another order while considering logistical arrangements for the expert's work, this time directing that the expert could compare the defendants' source and object code with the plaintiff's Advisor™ software across all previous and existing versions, whether registered or not. This significantly expanded the scope of comparison beyond what had been settled in the 4 May 2018 order.
The defendants again went to the Gujarat High Court in Special Civil Application No. 9010 of 2018, challenging this expanded scope. The defendants also raised a challenge to the constitutional validity of Section 8 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015. The High Court dismissed this challenge on 4 July 2018, holding that while exercising its supervisory power under Article 227 of the Constitution of India, it could not act as a court of appeal and interfere with the trial court's order. Since no arguments were advanced on the constitutional validity of Section 8, the High Court did not go into that question.
Both the High Court orders of 1 May 2018 and 4 July 2018 were then challenged by the defendants before the Supreme Court by filing Special Leave Petitions No. 17685-17686 of 2018 on 10 July 2018. When the matter came up before the Supreme Court on 16 July 2018, counsel for the plaintiff on caveat submitted that Mr. Zeidman had already arrived in India to conduct the comparison and that suspending his work would cause the plaintiff great prejudice. The Supreme Court accordingly directed the parties to maintain status quo and also directed that the travel expenses of Mr. Zeidman would initially be borne by the plaintiff, but would be reimbursed by the defendants if their challenge ultimately failed. Leave was thereafter granted and the matter was heard on 30 July 2018.
The Dispute
The case presented the Supreme Court with two focused and specific issues. The first was whether the appointment of Mr. Robert "Bob" Zeidman, a foreign expert, to compare the software of the two parties was proper and should be allowed to stand, particularly given the defendants' objections about the security of their confidential source code and the fact that Indian institutions of adequate standing had been available. The second issue was more significant in terms of principle: once the trial court had already settled by its order dated 4 May 2018 that the comparison would be restricted to only the registered version 6.0 of the plaintiff's software, could the trial court then expand that scope by a subsequent order dated 1 June 2018 to include all previous and existing versions of the Advisor™ software, whether registered under copyright or not?
Reasoning and Analysis of the Court
Justice U.U. Lalit, writing for the bench of two judges (the other being Justice Abhay Manohar Sapre), addressed both issues in a clear and measured manner.
On the first question regarding the appointment of Mr. Zeidman as the expert, the Supreme Court was candid that it did not approve of the manner in which the plaintiff had objected to the three reputed Indian institutions suggested by the defendants. The Court noted that C-DAC, IIT Bombay, and IIT Madras are institutions of great repute and standing. The mere fact that one of the defendants' advocates had studied at those institutions was, as the Court observed, no ground to have any apprehension about the impartiality and integrity of those institutions. The professors suggested from these institutions were acknowledged to be experts in their field, particularly in computer software and software decoding. The Court found no reason why they could be said to lack the requisite experience for comparing the two software programs. The Court made clear that this observation was not a comment on Mr. Zeidman's competence, which was not disputed — the point was that the Indian professors were equally qualified and ought not to have been dismissed by the plaintiff on such a flimsy ground.
However, having noted this, the Court took into account an important practical reality: by the time the matter came before the Supreme Court, the defendants had already accepted Mr. Zeidman's appointment through their own conduct. Various emails and correspondence placed on record demonstrated that after the appointment was made, the defendants were themselves actively in touch with Mr. Zeidman — asking him about his willingness to visit India, discussing logistics, and enquiring about his fees. This conduct showed, as the Court found, that the defendants had not merely accepted but had clearly acquiesced in the arrangement. The Senior Advocate for the plaintiff, Mr. Gopal Jain, correctly submitted that at this stage, having practically cooperated with and acquiesced in Mr. Zeidman's appointment, there was no justification for the defendants to turn around and contest it. The Supreme Court, therefore, rejected the defendants' challenge to the appointment of Mr. Zeidman and affirmed it.
On the security concern raised by the defendants — that sharing their proprietary source code with a foreign expert posed a risk of data compromise — the Court found this concern addressed by the practical arrangements described by the plaintiff's counsel. The comparison exercise was to be carried out using a separate laptop with no internet connection, which would always remain in the custody of the Local Commissioner. After each day's work, all the material on the laptop would be erased. The Court found these precautionary steps adequate to ensure the safety and security of the data shared by both parties. The objection on grounds of data security was therefore rejected.
The Court also made an important clarificatory observation at this juncture: the task entrusted to the expert, Mr. Zeidman, was only to compare the respective software programs and prepare a report. The question of whether the defendants' software actually infringed the plaintiff's copyright was not for the expert to decide — that would remain entirely for the court to determine after examining the expert's report along with all other evidence. This clarification was important to ensure that the expert's role was understood correctly as that of a technical assistant to the court, and not as an adjudicator.
On the second and more legally significant question — the scope of comparison — the Court's reasoning was direct and principled. The plaintiff had brought its claim based on two foundations: first, its registered copyright in version 6.0 of the Advisor™ software (registration No. TX8-252-522 in the USA); and second, rights under common law in respect of all earlier and unregistered versions of the software. When the interim injunction application was considered at the earlier stage, the court had proceeded primarily on the basis of the registered copyright. The plaintiff had never sought, at the interim stage, to rely on its common law rights in earlier unregistered versions to establish a prima facie case.
Given this background, the trial court had passed the order dated 4 May 2018 specifically confining the comparison exercise to the source code and object code of the registered version only. That order had never been challenged by the plaintiff — the plaintiff accepted it without any objection. Once a party accepts an order without challenge, it cannot later seek to go behind that order and expand what it had already agreed to. The trial court's subsequent order dated 1 June 2018, which expanded the scope to all previous and existing versions of the software — whether registered or not — was, in the Supreme Court's view, an error. The trial court had no occasion or reason to expand the scope once the parties had accepted the restriction, and particularly when the plaintiff had not challenged the 4 May 2018 order. The Supreme Court therefore accepted the defendants' argument on this point, set aside the expanded scope directed by the order of 1 June 2018, and directed that the comparison shall be restricted to the source code and object code in respect of the registered version 6.0 of the plaintiff's software.
On the question of costs, the Court recalled its earlier direction of 16 July 2018 that all travel expenses of Mr. Zeidman would be reimbursed by the defendants if their challenge failed. Since the defendants' challenge succeeded on one of the two issues — namely, the scope of comparison — the Court took a balanced approach and directed that only one half of the travel expenses borne by the plaintiff should be reimbursed by the defendants, rather than the entire amount.
Final Decision of the Court
The Supreme Court disposed of Civil Appeal Nos. 7304-7305 of 2018 with the following directions. On the first issue, the appointment of Mr. Robert "Bob" Zeidman as the technical expert was affirmed. His engagement was upheld as proper given the defendants' acquiescence, and the safety arrangements for protecting the confidential source codes were found to be adequate. On the second issue, the Court accepted the defendants' submission and directed that the scope of the comparison exercise shall be confined only to the source code and object code of the registered version 6.0 of the plaintiff's Advisor™ software, setting aside the expanded direction given by the trial court on 1 June 2018. On costs, the defendants were directed to pay one half of the plaintiff's expenditure on Mr. Zeidman's travel, within 7 days of the plaintiff disclosing the amount spent, which was to be disclosed within 3 days of the judgment. No other costs were awarded. The Court expressly clarified that it had not gone into the factual merits of the dispute, and the trial court was to proceed to determine the matter afresh on its own merits, uninfluenced by any observations in the Supreme Court's judgment.
Point of Law Settled
This judgment settles two practically important procedural principles in the context of software copyright litigation. First, when a party has accepted a court order and has demonstrated acquiescence in an arrangement through its own subsequent conduct — such as corresponding with an appointed expert and facilitating the engagement — it cannot at a later stage challenge or seek to reverse that arrangement. The principle of acquiescence operates as a significant bar. Second, and more importantly, the scope of an expert comparison exercise ordered by a court in an intellectual property dispute must be kept within the boundaries actually litigated at the relevant stage. At the interim injunction stage, where the court has proceeded on the basis of registered copyright rights, the scope of the expert comparison directed to assist that inquiry cannot be unilaterally expanded by the court to include unregistered or common law rights unless those rights were actually placed in issue and contested at that stage. An order settling the scope of such comparison, once accepted by all parties without challenge, acquires a binding character that the same court cannot unilaterally revise without proper cause.
Case Details
Title: Diyora and Bhanderi Corporation and Others Vs. Sarine Technologies Limited
Date of Order: 30 July 2018
Case Number: Civil Appeal Nos. 7304-7305 of 2018 (Arising out of Special Leave Petition (Civil) Nos. 17685-86 of 2018)
Neutral Citation: MANU/SC/0791/2018
Equivalent Citations: (2018) 8 SCC 804; 2018 (9) SCALE 423; 2018 (3) RCR (Civil) 983
Court: Supreme Court of India
Hon'ble Judges: Justice Abhay Manohar Sapre and Justice U.U. Lalit
Disclaimer: Readers are advised not to treat this as a substitute for legal advice as it may contain errors in perception, interpretation, and presentation.
Written By: Advocate Ajay Amitabh Suman, IP Adjutor [Patent and Trademark Attorney], High Court of Delhi
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Headnote
Held: In a suit for copyright infringement of software, where the trial court has by a prior order — accepted by all parties without challenge — confined the scope of expert comparison to the source code and object code of the registered version of the plaintiff's software, the trial court cannot subsequently expand that scope by a fresh order to include all previous and existing versions whether registered or otherwise, especially when at the interim stage the matter proceeded only on the basis of the registered copyright and the plaintiff's common law rights in unregistered versions were not placed in issue. Once a party accepts such an order without challenge, it cannot seek an expansion of scope through a subsequent application. The expert's role is confined to comparing the respective software and reporting to the court; the question of whether the comparison establishes copyright infringement is for the court alone to determine. Further, a party that has itself cooperated with and acquiesced in the appointment of a court-appointed expert through its own subsequent conduct cannot at a later stage challenge that appointment. The objection that an advocate's educational association with an institution makes that institution partial is without merit and deserves rejection.
