Delhi High Court: Indian Court’s are Empowered to pass ‘Pro-Tem Order’ When Implementer Fails to Make Payments Over Use of SEP Holder’s Technology

Delhi High Court: Indian Court’s are Empowered to pass ‘Pro-Tem Order’ When Implementer Fails to Make Payments Over Use of SEP Holder’s Technology

The Delhi High Court has ruled in favor of Nokia in a patent infringement suit against Oppo and ordered Oppo to furnish security payment of the India portion of the last-paid license fee.

The two-judge’s bench of Justices Manmohan and Saurabh Banerjee has significantly ruled that the High Courts have the power to pass ‘pro-tem security deposit’ order where an implementer fails to make payments to a Standard Essential holder and continues to derive benefit by using its technology.

A pro-tem order is where the Court, as a temporary arrangement, directs an implementer to make payments as security to safeguard the interests of a Standard Essential Patent holder, till the dispute between the parties is finally decided.

The bench observed that, “This view, according to the Court, promotes a modernized and fair patent system, encourages ingenuity, creativity and intellectual activity as well as provides for a conducive environment for knowledge transfer. Needless to state that the nature of pro-tem security/deposit order as well as interim order will necessarily depend on the factual matrix of each case.”

The Court passed the verdict while setting aside an order passed by the single judge on 17 November 2022, dismissing Nokia's application seeking a direction to Chinese smartphone manufacturer Oppo for deposit of an amount with the court as ‘royalty’ for alleged infringement of its patents in cellular technology.

The case dates back to 2018, when Oppo had secured a license from Nokia for using some of its technology for a period of three years. Oppo had also made advance payments for the use of this technology. The agreement, however, did not cover the use of patents relating to 5G standards. Considering that 5G devices account for 52 percent of Oppo's sales in India, the company would have had to pay a substantially higher amount to Nokia.

Nokia alleged that after the expiry of the 2018 agreement, Oppo had witnessed an unprecedented increase in the sale of its devices and had sold around 77 million devices in India without paying a single rupee in royalty.

It was Nokia’s case that it had offered to discuss the renewal of the agreement, but Oppo had refused to negotiate in good faith. Nokia then initiated a suit in the Delhi High Court for infringement of its patent for 2G, 3G, 4G and 5G devices in India.

Nokia sought a pro-tem (temporary) deposit from Oppo of an amount either based on the latest counter offer made by Oppo for a global licence during the negotiations or an amount equivalent to the royalty paid under the 2018 agreement.

However, a single judge of the Delhi High Court dismissed the application seeking interim deposit, stating that the court did not have the power to do so without going into the merits of the case. Nokia then appealed against the order before a two-judge bench of the High Court.

On the other hand, Oppo argued that a patent holder cannot seek an interim or even a permanent injunction as a matter of right. Oppo also argued that Nokia was seeking interim security in the initial stages of the case, without substantiating any of its claims.

It was contended by Oppo that Nokia’s demands were not in compliance with the Fair, Reasonable and Non-Discriminatory (FRAND) agreement on fair practice in the use of patents.

In appeal, Nokia contended that sufficient facts and law was pleaded before the single judge while seeking the pro-tem deposit. It was also submitted that Oppo had not only admitted to the past licensor-licensee relationship between the parties based on a 2018 Agreement, but had also offered to make payments of royalties.

The bench while ruling favor of Nokia, set aside the single judge’s order and noted that nearly two years have lapsed since the institution of the suit by Nokia but ‘not a single farthing’ has been paid by Oppo.

The Court asserted that, “in order to decide an application for interim relief under Order XXXIX Rules 1 and 2 Code of Civil Procedure, 1908 (CPC), the Court has to examine various aspects on merits, which would necessarily take time. In the interregnum, the infringing party would freely sell its devices using such Standard Essential Patents. If no security is offered during the interregnum, such party benefits, to the disadvantage of the Standard Essential Patent holder as well as the other willing licensees and gets an unfair competitive edge in the market.”

Therefore, upon perusal of Section 151 along with Order XII Rule 6 and Order XXXIX Rule 10 of Code of Civil Procedure, 1908 (CPC), the Court held that the High Courts have the power to pass orders for deposit of money pending decision in a suit, if the facts so warrant.

However, the bench clarified that a pro-tem security order cannot be likened to an injunction order because unlike an injunction order, it does not stop or prevent the manufacturing and sale of the infringing devices.

The Court noted that if Oppo does not make a temporary deposit, Nokia will suffer an irreparable loss as its patents will be used without the benefit of royalty.

In this regard the bench discerned, “The intent of a pro-tem security order is to either ensure maintenance of status-quo or to retain the Courts power and ability to pass appropriate relief at the time of disposal of the injunction application under Order XXXIX Rules 1 and 2 or at the final stage. In the facts of the present case, the pro-tem security order does not confer any advantage upon Nokia as it only balances the asymmetric advantage that an implementer has over a Standard Essential Patent holder.”

The Court added that Section 151 of the CPC can be called in aid to cover cases which are analogous to the principles in question but may not be directly covered by the express words in CPC.

Moreover, the Court rejected Oppo’s contention and held that, “This Court is of the view that the Oppo FRAND case in China is a prima facie admission that Nokia does own Standard Essential Patents and that Oppo must necessarily license it against FRAND royalty payment.”

According to the bench, the bank guarantee is encashable only once a FRAND agreement has been concluded and there is a default in payment obligations under the yet to be concluded agreement.

The Court noted that though German Courts have not expressly assessed the sufficiency or adequacy of the bank guarantee, yet insufficiency of the past bank guarantee is evident from the fact that despite a bank guarantee having been furnished, the German Court has found Oppo to be an unwilling licensee and has permanently restrained it from manufacturing and selling its devices in that country.

Therefore, the Court concurred with the learned senior counsel for Nokia that German bank guarantee is a ‘smokescreen’ as it will only come into fruition once a license agreement has been signed, i.e., it provides no security at all until a license agreement is entered into, the order said.

Lastly, while concluding the bench remarked that, “Keeping in view the status of Oppo as an ex-licensee, its admission that its phones use Nokia’s patents, its willingness to renew the 2018 Agreement and make interim payments as late as June 2021, the fact that it has approached a Court in China for determining a FRAND rate as well as the consistent practice of this Court and the financial condition of Oppo, this Court is of the view that the impugned judgment is contrary to the facts as well as settled principles of law.”

While allowing Nokia’s appeal, the Court ordered Oppo to deposit the last paid amount attributable to India i.e., 23% under the 2018 Agreement within four weeks.

Nokia was represented by Senior Advocates, Gourab Banerjee and Pravin Anand, managing partner of law firm Anand and Anand.