Secrets and Standards: Analaysing Pro-tem Securities in InterDigital v. Oppo [PART II]
This is Part II of the two-part post on the recent Delhi High Court (DHC) decisions on the InterDigital-Oppo SEP dispute. In Part I of the post ( here ), the single judge bench judgement on 31st May 2024 regarding confidentiality and disclosure of agreements for FRAND rate determination was focussed upon. On the same day, the Division Bench (DB) of the DHC consisting of J Vibhu Bakhru and J Tara Vitasta Ganju in Guangdong Oppo Mobile Telecommunications Corp. Ltd. v. InterDigital Technology Corporation ( pdf ) permitted Oppo to provide a bank guarantee from an Indian bank as ‘pro-tem’ security to secure InterDigital’s royalty claims for the aforementioned SEPs and allow the former to continue selling their phones during the period of litigation without facing an interim injunction. The DB has taken a close look at pro-tem securities and weighed in on the validity of bank guarantees for such purposes. This part focuses on the DB’s findings on the submission of pro-tem securities and their appropriate form.
Pro-tem Securities Are All the Rage in SEP Cases
In SEP litigation, claimants argue for securing interim relief even before determining the three factors (a prima facie case, balance of convenience, and irreparable harm) otherwise required to obtain such relief given the prolonged nature of SEP suits. A pro tem security is an interim security made by a party before the merits of the claims are fully determined as a temporary measure by the court to prevent prejudice to the Patentee due to delays in the interim stage.
The DHC has come up with a lot of interesting jurisprudence on pro-tem securities in the past few years. In Intex Technologies v. Telefonaktiebolaget L M Ericsson , the DHC acknowledged the concept of pro-tem security and recognised the Court’s authority to issue deposit orders even at the initial hearing if warranted by the facts. Subsequently, in Nokia Technologies OY v. Guangdong Oppo Mobile Telecommunications Corp. Ltd. (discussed here ), the DHC permitted the provision of pro-tem security to the holder on demonstration of prima facie grounds in favour of the plaintiff. The Court also clarified that a pro-tem security order is not equivalent to an injunction order since it does not halt or restrict the sale and manufacture of the allegedly infringing devices. These two judgements were then used by the DHC to allow pro-tem securities in the Order dated 28 August 2023 in Atlas Global Technologies LLC v. TP Link Technologies & Ors . And now in the present case, the DHC has reiterated all the above principles set above and has given out some more important insights into its application.
Analysing the DB Judgement of Oppo v. InterDigital
In the 31st May 2024 judgement, the DB permitted the defendants (Oppo) to provide a bank guarantee from an Indian bank (IDBI in this case) to temporarily secure the plaintiff’s (InterDigital) royalty claims. This allows them to continue the manufacture and sale of phones without an injunction.
A single-judge bench (SB) order finds relevance in this discussion. Issued in February 2024 by Justice Prathiba M Singh (discussed here ), it directed the defendants to deposit funds with the Court’s registry as an interim measure to cover license fees for previous years (FY 2021-22, 2022-23, and 2023-24). The SB imposed a ₹5 lakh penalty on the defendants for causing significant delays in the case. Previously, the defendant deposited its pro-tem security in the form of a Global Bank Guarantee from HSBC Paris to be honoured in India. However, HSBC India consequently refused to accept liability citing the distinction between HSBC-India and HSBC-Paris as separate entities (Para 22). The Court rejected the bank guarantee from HSBC-Paris as it falls outside the jurisdiction of the Delhi High Court. Challenging the February 2024 order, the defendants requested permission to provide a guarantee from an Indian bank instead of making a court deposit, arguing they were not at fault for the delay caused by HSBC’s non-compliance with the guarantee directions.
Mathews, in a prior post, has also raised concerns about the SB order on aspects of how InterDigital initially accepted the guarantee but later sought safeguards to ensure it only applied to the Indian proceedings. He also questioned procedural fairness, especially considering that the court hadn’t found a prima facie case against the defendants. The DB’s judgement clarifies these questions and gives us the following important aspects for deliberation:
Allowing Bank Guarantees as Pro-tem Securities
The contentions of the defendants are practical and sensible given that deposits of such high amounts in the form of cheques or cash are neither feasible nor viable, and so the use of financial instruments becomes non-negotiable. Fortunately, in the DB judgement, J Vibhu Bakhru and J Tara Vitasta Ganju held similar views and approved the defendants’ proposal to secure the plaintiff’s claims with a guarantee from an Indian bank. The Court found no justification to prevent the defendants from providing a bank guarantee from an Indian bank.
Mutual Consent Agreements to be Varied only Mutually
The DB observed that the original bank guarantee arrangement had been based on mutual consent in October 2022. The DB notes in para 54 that “ it is trite law that a consent order cannot be modified save and except with the consent of the parties .” If this consent order proved unworkable, the SB in February should have reconsidered the matter rather than altering the terms without considering the defendants’ perspective.
Interim Orders must not be Punitive
The Court also noted that the SB had rejected the defendants’ offer for an Indian bank guarantee in February. It did so, citing potential advantages for the defendants compared to the October 2022 arrangement. Highlighting this aspect, the DB stressed that interim orders should not be punitive in paras 96 and 106 of the judgement. The DB commented that directions to make a deposit equal to the defendants’ counteroffer should secure the plaintiffs, not punish the defendants. The SB’s reasoning that the defendants shouldn’t be in a better position than under the consent order was seen to be flawed. The DB noted that allowing defendants to furnish bank guarantees from an Indian bank doesn’t unfairly advantage them. Furthermore, the DB observed that once it was clear the consent terms weren’t implemented, the applications for pro-tem measures needed fresh consideration on their merits.
Looking Out for Future Problems
India is enjoying an improving reputation as a favourable venue for global technology companies to enforce or defend their patent rights (discussed here ). Sisvel, Nokia, Xiaomi, InterDigital, Lenovo, and others are among the many patent holders suing in India to enforce their rights, which is a testament to this rising trend. The DHC’s equitable handling of SEP disputes in recent times showcases India’s expanding jurisprudence and enhanced capability to adjudicate complex IP disputes effectively. From its humble beginnings of SEP adjudication with the first-ever SEP decision by DHC in 2018 ( Koninklijke Philips v. Rajesh Bansal and Koninklijke Philips v. Bhagirathi Electronics ) , it has come a long way. Also in 2018, it set policies for SEP holders in India in Telefonaktibolaget LM Ericsson v. Intex Technologies Pvt Ltd (discussed here ). In 2022, it mandated pro-tem security payments as part of license negotiations in the case of Nokia Technologies Oy v. Guangdong Oppo Mobile Telecommunications Corp Ltd (discussed here ). While it can be perceived that the courts often lean towards favouring SEP holders, as seen in cases like Lava v. Ericsson where excessively high damages were awarded by the Court (discussed here ), we can also see instances, like the judgements covered in part I and this post, where the courts also strive to balance perspectives.
That being said, Prashant Reddy, in his piece for The Hindu (paywalled), has expressed very valid concerns about the potential crisis in India regarding the use of SEPs by technology companies when SEP owners demand high royalties, leading to anti-competitive practices. He notes that the judiciary’s role in regulating SEPs has been marred by lethargy and activism, resulting in prolonged litigations and unfair interim remedies like hefty deposits before trials. Such judicial actions risk hindering India’s manufacturing growth and investment attraction. He has advocated government intervention to regulate SEPs, citing the European Parliament’s similar measures and India’s lack of influence over SEP selection by Standard Setting Organizations (SSOs).
Coming onto pro-tem orders, they are stealing the spotlight in recent SEP litigations, and DHC has been playing an active role in contributing to the jurisprudence of this upcoming phenomenon. Allowing pro-tem securities can help keep business for the implementer up and running while keeping the balance of convenience with the right to royalties for the holder. However, the potential for disruption in SEP litigation remains a concern, underscoring the importance of judicious and fair use of pro-tem deposits in Indian SEP jurisprudence. Although designed to protect the interests of SEP holders temporarily, an untimely application of this measure could unfairly favour the claimant and hinder the defendant’s ability to present a case on its merits. The increasing prevalence of pro-tem deposits in SEP cases warrants careful consideration by the courts to avoid turning this remedy into a disadvantage.
