Vringo v. ZTE: DHC vacates injunction against ZTE

Our readers would remember that some time back we had carried a post on the dispute between Vringo & ZTE.  As a background, Vringo had filed two different law suits against ZTE.  One law suit was filed by Vringo / Vringo Infrastructure Inc.  against ZTE India, and Xu Dejun in November 2013 (“Nov. law suit”), and we had covered this law suit in our post in great detail.  The Nov. law suit alleged that ZTE had infringed Vringo’s Indian patent 243980 (‘980 patent).  The ‘980 patent relates to provisioning for a mobile station operable with a network and a packet data serving node.  An injunction was granted on Nov. 8, which injunction was later removed, and we had covered it in our post.   When the injunction was vacated, ZTE was asked to pay bond of approximately $800,000 and provide accounting by way of affidavit.  This post deals with another law suit filed by Vringo against ZTE for infringing Indian patent 200572 patent.  Justice V.K. Shali in an eloquent decision that covered the factors involved in a patent litigation for an injunction, patented technology and the non-infringement position, expert affidavit filed by Vringo, vacated the injunction against ZTE.  Very long post follows.

Background: In January 2014, Vringo filed another law suit against ZTE, and Indiamart Intermesh Ltd., a distributor of ZTE products (“Jan. 2014 law suit”).  The Jan. 2014 law suit alleged infringement of Indian patent 200,572, (‘572 patent). The ‘572 patent related to making a handover decision in a mobile communication system.”  In February, the Court granted an ex-parte preliminary injunction, restraining ZTE and its officers, directors, agents, distributors and customers from importing, selling, offering for sale, advertising, installing, or operating any infringing devices.  On March 15, 2014, ZTE appealed.

Factual Matrix: The ‘572 patent is the Indian counter part of US patent 6285884, and deals with a method and arrangement for making a handover decision in a mobile communication system of multi-layer radio coverage, which comprises measuring at a mobile station (MS) a radio signal transmitted by a base station (BTS) of a microcell, and reporting the measurement results at substantially regular intervals.  A relative speed for the mobile station is determined on the basis of the number and classification of the measurement results received at substantially regular intervals. Mobile stations moving at a speed slower than the relative speed are defined as slow moving and commanded to register in the base station of a suitable microcell (A, B, C) – see figure below.

US06285884-20010904-D00001Vringo alleged that ZTE’s basestations infringed not only the ‘572 patent, but Vringo’s other patents as well.  Vringo also stated that it had obtained injunctions against ZTE in multiple countries including UK, Germany, France, Australia, Romania,  Netherlands, USA etc. qua the same / similar patent portfolio.  Vringo also included an affidavit of an “expert” who had compared the technologies in ZTE’s base-stations and that as disclosed in Vringo’s patents.  Apart from these, Vringo alleged that it had a prima facie good case, that the balance of convenience was also in its favour, and that it was suffering irreparable loss on account of unhindered infringing material being brought, installed, sold, by ZTE in India and hence ex parte ad interim injunction be granted.

ZTE put in appearance, and stated that it had filed its written statement and reply to Vringo’s application.  ZTE specifically stated that the technology used in it’s base stations was very much different than as disclosed in Vringo’s patents.  More specifically, ZTE asserted that unlike Vringo’s patent where they try to find the user of a cell phone in a particular micro cell, ZTE’s technology measured the average use of the cell phone at a given place for a specified period.  Based on the average use, the position is recorded and a user is allowed to shift from a macro to a micro cell.

Grounds: 1.  ZTE also contended that Vringo had claimed that the cause of action accrued to them in December 2012 (when Vringo – purchased from Nokia a bunch of of CDMA patents), but that Nokia was aware that ZTE was using their technology at least since 2002, but still despite being fully aware of such use did not take any action against ZTE.  Hence Vringo’s case was barred under limitation and as Vringo / Nokia were aware of the usage no irreparable harm could occur.

2.  ZTE also raised the issue of sham assignment as the valuation of the entire bouquet of patents was at 10 US Dollars, and hence there was also gross under valuation.  Vringo countered this by stating that it was prepared to give a full copy only for the perusal of the court. As regards the under valuation – Vringo stated that at best the under valuation was an irregularity but the document of assignment could be admissible.

3.  ZTE contended that the expert affidavit filed could not be relied upon by the court as the expert had a degree of management whereas the conclusion and content was entirely based on science.  ZTE also asserted that it had already filed a counter claim for revocation of the ‘572 patent under Section 64 of the Patents Act.  ZTE averred that Vringo had claimed that ZTE was selling goods in India but nowhere had they claimed that they too were commercially exploiting the patent – And that Vringo had not filed the statement of working under section 146 of the Patents Act.

Prima Facie case: The prima facie comparison between the patent and the allegedly infringing base station cannot be done by the court at this stage as it essentially involves scientific evidence which needs great deal of specialized knowledge in telecommunications and experience as to how the cell phone technology functions. “This can be opined by an expert, who has experience in the field of telecommunication and help the court in understanding the patent, its technology viz-a-viz the technology which has been adopted by the defendants.” 

The Court considered that unlike Section 31 of the Trademarks Act, there is no presumption of validity of a patent. Hence it is upon the plaintiff in a patent infringement suit to prima facie prove that the infringer is using the same technology which is patented by them.  This onus is very heavy on the plaintiff to be discharged in the first instance. The plaintiffs must establish such acts as will prima facie satisfy the court that there are strong and prima facie reasons for acting on the supposition that the patent is valid….It cannot be said that the plaintiffs are having a prima facie good case on the basis of the registration of the patent alone. It is required to do something more. This something more is being sought to be shown by an affidavit by the plaintiffs which claims to be an affidavit of an expert.

The Court agreed with ZTE that Vringo’s so called expert was not an expert for the purpose of showing infringement and validity of the ‘572 patent.  The court went into great detail re the affidavit filed by the expert.  The Court held that the expert affidavit could not be the basis of terming him to be an expert in telecommunications which is form of a science so as to make his affidavit admissible under Section 45 of the Indian Evidence Act, 1872.  The expert ought to have some basic degree in science or telecommunication or B.Tech engineering dealing in telecommunication and electronics and thereafter some research work having been conducted by him which would have qualified him to be an expert within the definition of Section 45.  To the contrary, he only had a degree in business administration and his holding of different assignments and posts only shows that though he was employed by various telecommunications or computer companies, but the nature of work was essentially of a ‘generalist’, as a management consultant so as to boost the sales of a particular technology or a product rather than that of an expert in telecommunication. The expert has also not shown any special technical knowledge about the telecommunication or the technology in question and by simply stating that he has written books or research papers would not be good enough to term him an expert in the light of the fact that the opinion of an expert under Section 45 of the Evidence Act, 1872, is relevant.

The Court also looked at the Patents Act re the requirements of an expert and stated that the legislature in its wisdom was cognizant of the fact that the patent law may deal with very intricate inventions in science, technology, communication, pharmaceutical apart from various other fields which the courts may not be very familiar with where a suit for infringement is brought about, that is why a provision for appointment of a scientific advisor has been made under Section 115 of the Patents Act, 1970 to seek their expert assistance.  Under Rule 103 of the Patents Rules, 2003 for a person to be qualified as a scientific advisor, he must fall in all three categories: a) He holds a degree in science, engineering or technology or equivalent; b) He has at least fifteen years practical or research experience; and c) He holds or has held a responsible post in a scientific or technical department of the Central or State Government or in any organization.

Hence the court concluded that the expert affidavit could not be treated as expert affidavit and accordingly, Vringo was not able to make out a prima facie case, which is the first requirement for an injunction.

Balance of Convenience:  Under this factor, the Court considered that the ‘572 patent had been assigned to Vringo by Nokia Telecommunication in 2006, but curiously enough Nokia, despite having known the fact that their patent was being allegedly infringed by ZTE, did not chose to seek any damages from them as no suit or proceeding was ever filed by them before the assignment of this patent in favour of the plaintiffs.  The Court referred to the decision of Franz Xaver Huemer vs. New Yash Engineers; AIR 1997 Delhi 79 stating that a foreigner, who has registered patents in India and who has not kept them in use in India, thereby seriously affecting market and economy in India, cannot, in equity, seek temporary injunction against others from registering the use of patented device.  Vringo tried to rebut this arguing that a patent may be commercially exploited either by the patentee or by its licensee as held under N.R.D. Corporation of India vs. D.C. & G. Mills Co.; AIR 1980 DEL 132.

The Court took a strong view to the fact that the averments regarding use and commercial exploitation was made in the rejoinder rather than in the pleadings itself.  “A party cannot be permitted to raise an argument which is not even pleaded. Rejoinder is an opportunity given to the plaintiffs for explanation, refutation, implication and not to set up a new case. In any case, even if these averments of the plaintiffs are taken on their face value, it becomes a debatable issue which needs to be adjudicated by the court but prima facie the balance of convenience does not turn out to be in favour of the plaintiffs or rather it turns out to be in favour of the defendants as any restraint on the defendants from manufacturing, selling or distributing the product which they are doing and which according to the plaintiffs is infringement of their patent, would cause harm to them.”

The Court looked at Section 109, 110 of the Patents Act and found that since Vringo averred that Nokia Samsung, Alcatel etc. were licensees of the patents, how come that these licensees did not object to the non-licensed sales by ZTE as their sales would have been negatively impacted by the sales from ZTE.  “While as the fact of the matter is that there is no complaint from the licensee to the original patentee regarding infringement. If there is no complaint made by the licensee to the original patentee and similarly, no action was brought by the original patentee before assignment to the plaintiffs, it becomes an important fact which cannot be ignored. This becomes a triable issue as to whether the technology of the plaintiffs is being infringed or not by defendant Nos.3 and 4 and at this point of time, the court cannot assume that the technology of the plaintiffs is being infringed. Therefore, this also tilts the balance of convenience in favour of the defendants rather than the plaintiffs. On this score also, I must go in favour of the defendants and not in favour of the plaintiffs.”

Irreparable Loss: This is the third condition which the Court also found against Vringo.  Under this heading, the Court must be satisfied that non-grant of ad interim injunction to the plaintiffs would result in irreparable loss to the plaintiffs. An irreparable loss is a loss which cannot be compensated in terms of money. A loss which can be calculable in terms of money or for which money can be adequately compensated, can never be said to be an irreparable loss.  The Court looked at Section 48 of the Patents Act (Rights of a patentee) and various judgments cited by Vringo but held that prima facie Vringo was no able to make out a case.   The judgments referred to were: Micromax Informatics Limited vs. Telefonaktiebolaget LM Ericsson (PUBL); 2013 (56) PTC 592 (Del), Strix Limited vs. Maharaja Appliances Limited; MIPR 2010 (1) 0181, Hindustan Lever Limited vs. Eureka Forbes; ILR (2008) Supp. 6 Delhi 1, Bayer Corporation & Ors. vs. Union of India & Ors.; 2009 (41) PTC 634 (Del.), etc.

The Court also referred to the directions given by the Division Bench in respect of the case filed qua infringement of the ‘980 patent that had held that the Customs authorities intimate Vringo of ZTEs consignments, and that Vringo inspect the goods. After inspection, the products could be released to ZTE or the concerned importer. ZTE would then deposit a bank guarantee of 5 crores or bank guarantee of 2.5 crores and remaining as security before the Registrar. ZTE would also by way of affidavit disclose all sales of CDMA products for any future imports, accompanied by quarterly statement of accounts etc.

Accordingly, the injunction granted to Vringo was vacated as there was no prima facie case. the balance of convenience was in ZTE’s favour and as Vringo could be compensated, there was no irreparable harm.  However, the conditions of bank guarantee etc.were imposed on ZTE’s future sales.

Finally, the Court also appointed three experts from the domain – one each from IIT Delhi, Delhi College of Engineering, and Netaji Subhas Institute of Technology to submit a report to the court for its consideration.  The experts would consider submissions and presentations etc. from both the parties.

Analysis: This is undoubtedly a major judicial pronouncement on the issue of injunction and patents.  However, it does not stop just there – it provides the standard for a person to be an expert in the field at issue.  It also provides the framework for adequately determining balance of convenience in patent cases.  Procedurally, it provides the relevant guidelines for what could be included in a rejoinder.  Finally, it underscores the importance of an expert and appropriate usage thereof in patent matters.

Vringo or ZTE could very well appeal to the Supreme Court against this order. Vringo against the fact that regardless of the fact that the expert affidavit, the plaint substantially disclosed that the patent was being infringed.  This is because a comparison would show that Nokia/Vringo’s patent disclosed location of a user to a micro cell includes a simple determination first of where (i.e in which micro cell under a macro cell) a user was, versus ZTE’s admission that a user is allowed to reach a micro cell.  However, this is a matter of trial.  ZTE could appeal that since no factor was adjudged in Vringo’s favour, yet they were asked to render bank guarantee, accounts etc. for both ‘572 patent infringement case as well as under the ‘980 case.

Disclaimer: My firm currently represents Micromax, Intex in the patent infringement law suits filed by Ericsson.


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1 thought on “Vringo v. ZTE: DHC vacates injunction against ZTE”

  1. Line 9, Para 3 of Section “Prima Facie Case” probably mistakenly mentions Section 45 of Indian Patent Act. Perhaps, it should be Indian Evidence Act, 1872.

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