Guest Post: ‘Interim damages’ in FRAND patent litigation: When did that become a thing?

Prashant Reddy has for our readers an incisive post on interim damages in FRAND patent litigation. Prashant Reddy was an integral part of SpicyIP for many years and is a prolific writer and a wonderful mentor!  Formerly with Lakshmikumaran & Sridharan, Prashant is now an independent IP consultant.

For our other posts on FRAND litigation see here, here, here

‘Interim damages’ in FRAND patent litigation: When did that become a thing?

-Prashant Reddy

In the last few years we have seen some truly astonishing orders of the Delhi High Court in the extremely high stakes FRAND patent litigation instituted by Ericsson against various manufacturers of mobile phones like Micromax, Intex, Xiaomi etc. So far we have seen the Court grant indiscriminate ex-parte interim injunctions against defendants and subsequently offer the defendant the option of continuing with manufacturing provided they were prepared to accept the royalty rates imposed by the court for the period pending trial. It is still a mystery as to how the judges of the Delhi High Court came to these interim royalty rates without a trial – let’s not lose track of the fact that judges around the world are breaking their heads listening to expert witnesses and lawyers in hotly contested patent infringement trials before coming to a conclusion on royalty rates.

A more recent judgment (accessible here) of the Delhi High Court in the case of Ericsson v. Intex however goes beyond the above prescription and ventures into what I can only describe as unchartered territory. Unlike earlier cases, where the Courts have only prescribed a future royalty rate as a pre-condition to relax the interim injunction, the present judgment of Justice Manmohan Singh actually requires Intex to pay Ericsson interim damages for past conduct. At page 254-55 of a 257 page judgment (which should have ideally concluded in 50 pages) Justice Singh orders “That 50% amount of royalty in the same manner as per details mentioned in Suit No.442/2013 from the date of filing of suit till 1st March, 2015 shall be paid to the plaintiff directly by way of bank draft within four weeks from today.” The remaining 50% is required to be deposited with the court. This along with other conditions are mentioned as pre-conditions for Intex to avoid an interim injunction imposing a complete prohibition on manufacture pending completion of trial i.e. Intex had the option to not pay damages or royalties and instead suffer an injunction until conclusion of the trial. Intex was thus pretty much stuck with a Hobson’s choice.

The question that begs to be asked at this stage is whether a judge can order the payment of interim damages directly to the Plaintiff, for past conduct without even conducting a trial?

Traditionally, common law courts ask the plaintiff in IP cases to deposit a bond or surety before granting an ex-parte interim injunction restraining a defendant from carrying out a particular business activity. The logic of such a bond or surety is that if the Plaintiff has submitted inaccurate information to the court the bond can be encashed by the Defendant as compensation. Most Indian High Courts have long done away with this requirement. In fact it is not uncommon for a High Court in India to require the defendant to deposit money with the Court in order to avoid an interim injunction. We’ve seen countless such orders granted in the copyright infringement suits filed just before the imminent release of a new movie. However, even in these cases, the money is deposited with the Court, which usually puts the money in a Fixed Deposit account to earn interest. Such relief is similar to Mareva Injunctions or asset freeze orders where the defendants are restrained from disposing their property pending trial.  The fate of this money deposited with the Court will be decided only after the trial. In no case is the money given to the Plaintiff without giving the Defendant the chance to defend its rights in a trial.

Such relief was granted by the Delhi High Court in one of the early orders in Ericsson v. Mercury and Micromax. The Court ordered the interim royalties for future use to be deposited with the court and not the Plaintiff. In that order, which can be accessed here, the Court held “Micromax undertakes to make a deposit of interim payments in Court, as set out above, within five working days of the intimation by Customs of the arrival of the consignment.” Then in the next order in the same case, by Justice Sistani, accessible over here, the defendants were ordered to pay the future interim royalties, directly to Ericsson provided that Ericsson issued sureties in favour of Micromax. The court also ordered that the deposits already made by Micromax with the Court, pursuant to the earlier order, be paid to Ericsson on the condition that Ericsson furnished a surety in favour of Micromax.

Now, let’s have a look at Justice Manmohan Singh’s order in the Intex case. Not only does he require future royalties to be paid directly to Ericsson as was done in the previous case but he also required Intex to pay 50% of the damages for past use of Ericsson’s patents directly to Ericsson and the remaining 50% deposited with the Court. Please note that all of this is happening at the interim stage before a trial and provides a lovely risk free option for Ericsson since it is not required to provide any sureties to Intex. In fact, this relief sounds suspiciously like a final decree after trial, although in actuality the Court has not even framed issues for trial.

The question now is whether this order is legal? Can Indian judges grant interim damages and fix interim royalties?

It is important to remember that there are several crucial differences between injunctive relief and damages. While injunctions are almost always preventive, damages are affirmative in the sense that the defendant is being deprived of its property. Section 36 of the Specific Relief Act, 1963 clearly allows for the grant of an interim injunction – a codification of age old principles of equity. There is no such provision for interim damages in the law and let’s not forget that damages are not an equitable relief. Unlike injunctive relief, which can balance the relief between both parties, damages is a relief where winner takes it all.

Further, there is simply no provision under the Patents Act, 1970 providing for interim royalties or interim damages. The Copyright (Amendment) Act, 2012 on the other hand specifically allows the Copyright Board to grant interim compulsory licenses which entails the paying of an interim royalty until a final adjudication. Lastly, there is also the troublesome constitutional question of whether or not a court can deprive a defendant of its property without following the procedure established by law. Let’s not forget that Article 300A of the Constitution forbids depriving a person of his property except by the authority of the law. In this case, the CPC establishes a particular procedure to be followed before a court of law can grant damages. That procedure includes a trial, the right to seek discovery of Ericsson’s documents and the right to cross-examine the plaintiff. Intex has been asked to give up its property without the benefit of a trial.

Is this justice?