Secrets and Standards: Balancing the Confidentiality of SEPs in InterDigital v. Oppo [PART I]
In two significant judgements passed on May 31, a Single Bench and a Division Bench of the Delhi High Court have clarified certain nuances pertaining to Standard Essential Patents (SEP) in India (read more about SEPs here ). Last month Swaraj and Praharsh, in their two-part post (read here and here ), highlighted some problematic aspects of adjudication over SEP disputes in the country. Contrary to the extensive pro-patentee approach in that case (as pointed out by the authors there), the Courts in these two judgements have taken a more balanced approach towards intricate issues of FRAND determination and Pro-tem securities. Both judgements were passed in the dispute between InterDigital and Oppo/ Xiaomi concerning the infringement of InterDigital’s SEPs in 5G mobile handsets. In the first part of the post, I’ll be discussing the single-judge decision passed on applications seeking disclosure of agreements of the parties with different third parties highlighting the crucial clarification by the Court on the necessity of disclosing the defendant’s third-party agreements for FRAND determination (read more about FRAND here ). In the Second part, I shall be focussing on the DB’s clarification on pro-tem securities.
Key Aspects of Discussion in the SB Judgement
The Single Judge judgement ( pdf ) deals specifically with applications for disclosure of agreements to establish two key points: firstly , Xiaomi’s defence of patent exhaustion and secondly , for determination of FRAND rates. With respect to patent exhaustion, Xiaomi argued that since they used Qualcomm’s chipsets under a prior agreement, which contained InterDigital’s technology, Interdigital’s patents should be considered exhausted in light of its earlier agreements with Qualcomm, meaning Xiaomi should not need another license from InterDigital for the same technology in their handsets. According to Xiaomi the technology resides only in the chipset and not the handset as a whole, so when Qualcomm sold the chipsets to Xiaomi, with which they made handsets, the underlying tech had already been exhausted. InterDigital countered that their agreement with Qualcomm pertained to chipset manufacture, not handsets, and related to earlier technologies (CDMA, 2G, and parts of 3G) not directly relevant to the current dispute involving newer technologies.
Regarding the disclosure of documents for FRAND rate determination, InterDigital sought the disclosure of license agreements between Xiaomi and third-party SEP holders such as Ericsson and Orange SA on the grounds of its relevance to determining the FRAND rates.
The DHC considered the relevance and proportionality of disclosing these agreements. It concluded that the agreements with Ericsson and Orange SA were not relevant at this stage for determining FRAND rates. However, the request for disclosure of the parties’ respective agreements with Qualcomm was allowed because it was necessary to establish Xiaomi’s patent exhaustion claims. The disclosures have been directed to be made within four weeks and included in the confidentiality club to ensure the protection of sensitive information.
Both parties requested the establishment of a confidentiality club to protect sensitive information disclosed during the trial, to which the DHC agreed. It allowed the disclosure of the Qualcomm agreements under strict confidentiality to ensure a fair determination of the issues without compromising third-party confidentiality. However, it denied the plaintiffs’ request for third-party agreements that required disclosing the terms of Xiaomi/Oppo’s agreements with other SEP holders and instead limited the scope only to the parties involved in the extant case.
Balancing Transparency with Third Party Interests
The status of SEPs increases the risk of anti-competitive behaviour due to the undue market power they receive from factors such as lack of transparency. Moreover, non-disclosure makes it challenging , if not impossible, to determine whether the licensing terms are “non-discriminatory” in comparison to similar licenses. The DHC has tried walking the tightrope between the need for relevant information to adjudicate the issues fairly and protecting confidential business information of the parties and third parties involved. Requiring both InterDigital and Oppo to disclose their agreements with Qualcomm under a confidentiality club helps ensure critical information availability and sensitive business data protection are simultaneously upheld. However, two specific points stand out in the SB order: firstly , about the effectiveness of the confidentiality clubs for the agreements with Qualcomm, and secondly , the observation of the SB with respect to the non-essentiality of disclosure of the defendant’s third-party agreements for FRAND rate determination.
Confidentiality Clubs and the Struggle with Transparency
Dealing with the first issue, confidentiality clubs in themselves have been questioned on their efficacy multiple times on this blog before ( here , here and here ). Confidentiality clubs undermine the transparency needed for SEPs, as they prevent awareness of different license agreements, enabling SEP owners to demand high fees and disadvantage smaller licensees. In confidentiality clubs, information is restricted to select individuals from both parties, theoretically allowing the defendant to make informed decisions. However, this rarely occurs due to the information imbalance favouring the plaintiff in SEP cases. For instance, the plaintiff often conceals the rates offered to third parties and their acceptance. Another example is that SEP owners often hide claim charts and put them in confidentiality clubs. As argued by Rajiv Kumar Choudhry here , doing this is excessive since standards and configurations are public, and other manufacturers should be able to access this information for public interest and potential litigation involvement.
Analysing the FRAND-liness of SEP Disclosures
With regard to the second issue, Swaraj and Praharsh, in a previous post analysing the Telefonktiebolaget L M Ericsson v. Lava International Ltd judgement, have categorically questioned the impropriety of not allowing access to third-party agreements for FRAND rate determination to stay true to the “non-discrimination” aspect in FRA ’ND’ . The non-availability of ‘how’ and ‘how much’ the FRAND rates have been determined by the SEP owner with other parties lies contradictory to the fundamentals on which FRAND stands, and this non-disclosure-induced ignorance makes the parties more likely to be subject to a higher royalty rate. The scenario in the extant case differs slightly. While third-party terms of the plaintiff’s SEP holders may hold significance, in this case, the plaintiff sought access to the defendant’s third-party agreements, thereby shifting the onus onto them to prove that the rates were FRAND. But logically, this will be an apple-to-orange comparison here. The Court agreed to the defendant’s arguments and noted that the assessment should be based on ‘comparable’ licenses of the plaintiffs or other SEP holders, not the defendants’ third-party licenses. The Court noted that plaintiffs haven’t provided specific reasons for needing these agreements, beyond general assertions of usefulness and rightfully clarified that the onus still remains on the plaintiffs to establish essentiality and infringement by the defendants, with positive evidence required from their end. The Court has appropriately reiterated the observation in InterDigital v. Xiaomi that the onus is on the plaintiff to establish that the rates are FRAND, and correctly held not relevant to determine whether the rates were FRAND (Para 32 of the judgement).
Reinforcing Set Standards: What are the Implications?
Regardless of the uncertainty about how effective confidentiality clubs truly are and what implications the exclusion of third-party agreements will have due to limited transparency, this decision does highlight the necessity for SEP holders and implementers to maintain comprehensive, accurate, and lucid licensing agreements under the anticipation of their needing disclosure during litigation to substantiate claims. The scope of the technology licensed and rights thereon must be clearly put down in black and white. These documents have far-reaching implications for determining party rights when establishing the legitimacy of defences such as patent exhaustion. In line with the same dispute, another pioneering decision by a DB of the DHC passed another decision directing the deposit of pro-tem securities by Oppo. Part II of this post ( here ) discusses the DB’s analysis on pro-tem securities as well as how it overturned another SB order of February 2024 directing license fee deposits for the previous years.
