At 100 pages, the pro tem security deposit order issued by the Delhi High Court in favour of InterDigital is the longest of the court’s SEP ad-interim orders, and offers a lot to unpack. To its credit, the order presents an overall balanced opinion, a clarity in delineation of the ad-interim stage from a future interim injunction and a steady point of view on the persuasive value of foreign decisions. This case changes some big rules of the pro tem jurisprudence. The court has refused to conduct a prima facie inquiry on infringement of suit patents. Consideration of the financial health of the SEP implementer is now effectively nullified; though on paper, it remains a condition for grant of security deposit. The rate calculation methodology for computation of the security deposit is still unexplained; in all of pro tem jurisprudence this part has been the most uncertain. How much of this change survives in the still evolving Indian SEP jurisprudence remains to be seen until the next pro tem order!
Standard essential patents (SEPs) are patents that cover technologies that are essential to the implementation of technical standards. SEP holders are required to license SEP portfolios on fair, reasonable and non-discriminatory (FRAND) terms. What exactly constitutes a FRAND royalty range is highly fact-sensitive. The CJEU’s ruling in Huawei v. ZTE established the FRAND protocol, which sets out the basic steps for negotiating a FRAND rate. In the event that negotiations are unsuccessful, the protocol requires the SEP implementer to deposit a security amount with the SEP holder based on its past acts of use. In India, the Delhi High Court has been creating jurisprudence on this deposition of security through ‘pro tem’ deposit orders as an ad-interim remedy while the FRAND rates are determined. The present order between InterDigital and Transsion is the latest in this line of cases that we have been covering here.
Facts of the case
InterDigital Patent Holdings (‘InterDigital’) is an American technology R&D company with strong patent holdings in cellular wireless and video technologies. Shenzhen Transsion Holdings is a Chinese consumer electronics enterprise that operates brands such as itel, Infinix and TECNO. The dispute concerns 5 SEPs owned by InterDigital, of which 4 patents cover 3G, 4G, 5G standards and 1 patent relates to HEVC standards. Shenzhen’s unlicensed use is alleged to be continuing since April, 2016. Correspondence between the parties began in June, 2019. Since then, negotiations have reached the point of a third counteroffer.
The Plaintiffs contended that several claim charts had been forwarded to the defendant. Foreign decisions on patents comparative to the suit patents, along with declarations to standard setting organisations (SSOs) were cited to show prima facie essentiality and validity. Data on royalty rate calculation through independent reports, royalties paid by other licensees and a prior arbitration decision between the plaintiff and Samsung was also provided to the defendants. Six years of negotiations not culminating into a FRAND offer was argued as proof of the defendants’ unwillingness. The plaintiffs contended that the pro tem rate should be based on the plaintiff’s offer and not the defendant’s counter-offer. Further, some of the suit patents in this case had been previously adjudicated on by the DHC resulting in a pro tem order against Oppo.
InterDigital has claimed that self-declarations to the SSO cannot be accepted as proof of essentiality and validity since these facts are not verified by these organisations. Emphasising on the need for a fact-sensitive enquiry, they distinguished the facts of the present case from previous pro tem decisions. Through this, they argued that continuous negotiations and counter-offers showed their willingness to engage in the FRAND bargain. The lack of consensus was owing to the ask of supra-FRAND rates as evidenced from foreign proceedings and non-filling of third-party license agreements (TPLAs). The defendants presented their own set of foreign decisions where the comparative patents had been invalidated.
Analysis
- Separation from Interim Injunction
A prominent clarification that this order provides for pro tem jurisprudence is the consolidation of the normative separation of pro tem deposit orders from interim injunctions. The balancing of equities at this stage requires a lower threshold, “only a prima facie understanding of whether the patents are essential and valid are to be considered.” The court also stressed on the need for a fact-sensitive enquiry, noting how geopolitical differences impact commercial strategies. This is quite apt, given that arguments in this case referenced many different jurisdictions; and is a course correction after the Malikie pro tem order (see analysis here). In effect, this order lowers the pro tem threshold for SEP holders – more on this below.
- Validity and Essentiality
In Philips v. Oplus, the court had held that proving validity of one patent establishes prima facie validity of all the suit patents. The present case shows a successful use of this strategy by the plaintiffs through their emphasis on Indian Patent No. 313036 (IN ’306). Copies of the registration certificate, complete specification, and the E-Register maintained by the Patent Office showed validity of the patent in India. For added emphasis, reliance was placed on proceedings of the UK High Court where the counterpart European Patent (UK) No. 2 485 558; the US inter partes review where counterpart US 8619747 and US 9203580; and Brazilian judicial decision where counterpart PI0706896, was held valid and essential (paras 48 – 52). Other proceedings in China, UK and Brazil also showed validity of counterpart foreign patents. The grant of pro tem deposit in previous suits filed by the plaintiff against Oppo was also helpful in cementing these claims.
The defendants counter-argued that some of the asserted suit patents were invalidated in proceedings in China (paras 14.9-10). The court, however, considered the average of the foreign decisions, finding that invalidation in one jurisdiction (China) did not stand ground before validations in several other jurisdictions (USA, UK, Germany) (para 75). Going ahead, success in reliance on foreign jurisdictions could, perhaps, now simply be a numbers game.
Essentiality was shown through claim chart mapping of IN ‘306 to ETSI/3GPP declarations and through DEKRA test reports. The court’s clarification that this material used to arrive at prima facie opinions are open to be contested for probative value at later stages is a welcome clarification and is in line with observations in Philips and Bansal (see here and here).
- Infringement
The defendants raised contentions related to the application of the High Court of Delhi Rules Governing Patent Suits, 2022; specifically on the issue of monetary payments being permissible on a finding of prima facie infringement only in exceptional situations (Rule 5(v)). I have noted previously that pro tem deposits orders, while relying on this rule, were issued without an explicit explanation of what amounts as an ‘exceptional situation’. The present decision now nullifies the application of Rule 5(v) to these ad-interim injunctions altogether by holding that prima facie infringement cannot be determined at this stage of the proceeding.
Since this court has held that an assessment of prima facie infringement of suit patents would fall within the Nokia four-fold test which has previously been overruled for being onerous on SEP holders, this seems to be a new jurisprudential change in the pro tem rules.
For future pro tem litigation, this reduces the burden on SEP holders. Showing infringement through the direct or indirect tests (which a two-step process of first, mapping the SEP holder’s patent claims to a declared standard; and second, mapping the implementer’s products as using the same standards) will now surface at later stages of the trial.
- Financial condition of implementer
Another big change through this order in pro tem jurisprudence is reduced emphasis on the implementer’s financial condition. In almost all previous security deposit orders a precarious financial condition, lack of financial assets in the country and a flight risk had been established as justificatory criteria to mandate security deposits. In the present case, arguments on economic financial health of the implementer lose their strength. Going ahead, the implementer’s future capability to pay the full FRAND royalties could be irrelevant for security deposition.
- Quantification of deposit
This court has also clarified that implementer’s willingness to license also does not preclude them from deposition of security. Balancing of equities is re-emphasised as the purpose of the security deposit on the understanding that a licensee, though willing to negotiate, is still causing financial loss to the SEP holder in the duration of use the SEPs without payment of royalties. Now, the issue of quantification has three questions: whether TPLAs are necessary, whether the assessment of FRANDness of the offer is necessary, and how to calculate the amount of pro tem security.
The defendants contended (para 14.14) that Rule 4A(viii) of the High Court of Delhi Rules Governing Patent Suits, 2022, mandates the plaintiffs to file TPLAs. And, stressed on the UK court of appeal’s finding of the rate was supra-FRAND. In fact, the UK ruling has been important in academic discussions for just that fact (see here). Thus, the plaintiffs were seeking ‘maximum revenue extraction’ (para 14.8). The court held that a disclosure of TPLAs was not necessary to arrive at a FRAND rate in view of the correspondences between the parties, the defendants’ established position in the market to be able to deduce a rate themselves, and orders of this court in Nokia and Dolby that have clarified that PLAs are not required for pro tem calculation. It was also noted that had the defendants’ disclosed their annual sales, the plaintiff’s proposed rate could have been tailored to meet the FRAND mandate (para 71).
Finally, on the methodology for quantifying the pro tem security, the court has considered the rate as applicable to the entire SEP portfolio, which includes Indian and foreign patents. With both the TPLAs and annual sales data absent, the court relied on the defendant’s counter-offer. Once again, why does a 1/5th amount of (presumably) the third counter-offer satisfy balancing of equities, is not explained. It simply appears fair to the court. Atlas used 1/5th of a counter-offer; maybe the fraction has simply hardened into custom. Nevertheless, relying on the implementer’s counter-offer is half way in line with the Huawei protocol, as opposed to the plaintiff’s demand of payment equal to their offer. The other half is that Huawei ties the security to ‘acts of past use’, which was absent here.
Conclusion
When I asked in February whether temporary deposit orders were here to stay, InterDigital v. Transsion was one of the four pending matters I had in mind. The answer, once again, is yes. The order is based solely on Section 151 of the CPC. The refusal to find infringement at this stage negates the use of Rule 5(v) of Patent Rules, 2022. The criterion of financial health also stands eliminated: precarious finances justify a deposit since the interests of the SEP holder needs to be protected, and robust finances also justify a deposit since the implementer can afford to pay. Hopefully, if there is a trial, a claims-based assessment of suit patents to justify validity and essentiality would trump the tallying of foreign jurisdictions. Twelve years on, the calculation of the security deposit remains the least transparent part of every pro tem order.
Finally, ad-interim orders are not precedents. The court is very right in stating that “the considerations of or directions for deposit of pro tem security cannot be made subject matter of a straightjacket formula”; nevertheless, a jurisprudence developing from scratch needs somewhere to anchor itself, and rules of the game have changed yet again.
