OPPO directed to pay “Pro-tem security deposit” for Nokia’s Standard Essential Patents

• In a case concerning Standard Essential Patents (SEP), the Court has the power to pass a pro-tem order without an exhaustive exploration of the quantum of royalty payments.
• If the negotiations between the parties fail, it does not mean that an implementer can continue to derive benefits by using the technology of the Standard Essential Patent proprietor in the interregnum without making any payments for such use.
• A pro-tem security order intends to ensure maintenance of status-quo.

Facts

The Present appeal was filed by the appellant-plaintiff (‘Nokia’) challenging the order dated 17th November 2022 passed by the Single Judge of the Delhi High Court dismissing Nokia’s application for the interim payments by Oppo. Nokia, in its lawsuit, sought directions asking a) Oppo to deposit interim security of an amount based on either the latest counteroffer made by it for a global license of Nokia’s portfolio of Standard Essential Patents or b) of an amount equivalent to the royalty paid under the Agreement executed between the parties proportionate to the ratio of the number of devices sold by Oppo in India vis-à-vis the number of devices sold globally.

Oppo had, in 2018, secured a license to use Nokia’s Standard Essential Patents for a period of three years (until 30 June 2021). The 2018 Agreement was a cross-license agreement for patents belonging to both parties.

Nokia argued that the 2018 Agreement did not include patents relating to the 5G standards, and considering that 52 percent of Oppo’s sales in India and 64 percent of its global sales consist of 5G devices, any new license fee would be substantially higher.

After the expiry of the 2018 Agreement, Oppo witnessed an unprecedented increase in the sale of its devices, and during the period between July 2021 and December 2022, it sold around 77 million devices in India without paying a single rupee in royalty to Nokia. It is also Nokia’s case that despite making efforts, including making itself available for discussions on the technical and economic fronts, Oppo refused to execute a fresh/second license agreement.

Upon failure of execution of the fresh/second license agreement between the parties, Nokia filed the lawsuit (being CS(COMM) 303/2021) for infringement of its three Standard Essential Patents by their manufacture, sale, etc., of the cellular devices which comply with 2G, 3G, 4G and 5G telecommunication standards by Oppo. These Standard Essential Patents are (i) Indian Patent No.286352 (IN’352), titled “System and Method for Providing AMR-WB DTX Synchronization,” (ii) Indian Patent No.269929 (IN’929), titled “Method Providing Multiplexing for Data Non Associated Control Channel” and (iii) Indian Patent No.300066 (IN’066) titled “Additional Modulation Information Signaling for High-Speed Downlink Packet Access” (hereinafter referred to as the ‘suit patents’).

Court Ruling:

The court ruling on a few important aspects concerning the ‘pro-tem security deposit’ are covered below:

Furnishing of pro-tem security is the implementer’s obligation in the negotiation phase itself

The Court relied on Huawei Technologies Co. Ltd. v. ZTE Corp and ZTE and held that the payment of pro-tem security is the implementer’s obligation in the negotiation phase itself.

To balance the equities, the Indian Court has the power to pass a pro-tem order, if the facts so warrant

If the negotiations between the parties fail, it does not mean that an implementer can continue to derive benefits by using the technology of the Standard Essential Patent proprietor in the interregnum without making any payments for such use.

The Court also noted that nearly two years have elapsed since the institution of the suit, and not a ‘single farthing’ has been paid by Oppo. Consequently, to balance the equities between the parties, this Court has the power to pass a pro-tem order being a temporary arrangement without a detailed exploration of merits if the facts so warrant.

The Court also relied on Ericsson Vs. Intex, CS(OS) 1045/2014   where the Delhi High Court Rules governing patent suits, 2022 has recognized the concept of pro-tem security and has held that the Courts have the power to pass deposit orders even on the first date of hearing if the facts so warrant.

A pro-tem security order can not be linked to an injunction

This Court opined that a pro-tem security order cannot be linked to an injunction order because, unlike an injunction order, it does not stop or prevent the manufacturing and sale of infringing devices. 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 the decision of the injunction application. 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 further directed Oppo to deposit the money in Court, which will be reimbursed to Oppo should it succeed at the interim or final stage.

The Court allowed Nokia’s appeal to set aside the challenged order. The Court also directed the respondent to deposit the ‘last paid amount’ attributable to India i.e., 23% of the last paid amount under the 2018 Agreement within four weeks.

Our comment 

The order establishes that SEP holders can ask the Court for the direction of a “Pro-tem security deposit” during the initial stages even when the matter is not dealt with in detail by the Court. On the point of prima facie infringement by Oppo, the Court importantly mentioned that an injunction can be secured, even if the infringement of one patent is established either prima facie or at the final stage. Thus, to restrain the sale of an infringing device, a Standard Essential Patent holder does not have to base its case on each of the thousands of patents that it owns and are used in the product; it can do so by showing that one or a handful of representative patents are infringed.

The fact that the Court has the power to pass a pro-tem order without an exhaustive exploration of merits is a welcoming development in favor of the SEP holders.

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