Court confirms SEP holders’ rights to interim security payments

For several years, patent owners pursuing contentious litigation with implementers have been navigating the standard essential patent (SEP) landscape in India, unsure of their destination (injunction, damages, FRAND verdicts), and often wondering if their opponents could be made to protect their interests during the pendency of the suit.

Assuaging their interests is Delhi High Court’s pathbreaking decision, in Nokia v Oppo, which recognises that SEP holders are entitled to pro tem security as a matter of right, although such payments are, of course, subject to trial and the court’s final decision.

The term “pro tem” means “temporarily”, or “for the time-being”. When used in the SEP context, it means payments that are made by an implementer should be regarded as security to safeguard the interests of an SEP holder until the dispute is finally decided.

This decision reversed a setback that Nokia had suffered in November 2022, when the single judge refused Nokia’s application for an upfront, pro tem security payment before the case was heard on its merits.

The High Court held the single judge was incorrect in requiring Nokia to prove Oppo had made unequivocal admissions regarding its liability to make interim payments.

The decision would go on to be credited with another head turning development in the Nokia-Oppo cross-licence agreement giving more teeth, as reported, to Nokia’s bargaining power.

This case is pathbreaking because of Nokia’s unique strategy of seeking security deposit orders, even before making arguments on infringement, validity, and fair, reasonable and non-discriminatory (FRAND).

Indian law under order 39 rule 10 of the Code of Civil Procedure (CPC), 1908, empowers the court to pass interim orders, directing the deposit of an amount in court, in case the defendant admits it owes money to the plaintiff. Using the “landlord-tenant” line of cases, Nokia argued Oppo should at least deposit an amount based on their expired 2018 agreement before the court heard the main case on merits.

The Division Bench, sitting in appeal, upheld Nokia’s argument and ordered Oppo to deposit 23% of what it had paid under the expired 2018 licence agreement. This is because Oppo’s Indian sales amounted to 23% of its total sales globally.

Some of the more important findings of law, which are very beneficial to all SEP holders, are as follows:

• For a modern and fair patent law system, the court should pass pro tem security without much detailed examination of merits. Sometimes, such orders can be passed even during the first hearing.
• Delay favours implementers and works against SEP holders’ interests.
• If a security payment is not ordered, implementers can build on their asymmetrical advantage over SEP holders because they are freely able to sell their devices while the SEP holder continues to fight the case in court.
• A pro tem security order is not the same as an injunction, as it only balances equities. It makes the implementer, who has not paid any money to the patent owner, accountable for using SEPs.
• The landlord-tenant or licensor-licensee analogy of order 39, rule 10 is totally applicable in the SEP context, where an ex-licensee refuses to pay after the licence has expired.
• Nobody offers to pay good money for disputed patents. The act of making counter-offers and filing FRAND-rate setting cases in a foreign jurisdiction, or offering to make interim payments until negotiations conclude, all indicate that the implementer admits the patents are SEPs. These factors also constitute a prima facie case of patent infringement.
• Counter-offers are admissible in court against the party making them as indications of liability to pay money to an SEP holder. The fact that offers are made “without prejudice” does not make them inadmissible in court.
• Pro tem security does not require the court to evaluate patent licence agreements of third parties.
• A claim for pro tem security, or even an injunction, can be made only on the basis of a single patent. One does not need to enforce multiple patents or the whole portfolio.

This decision presents a paradigm shift in India’s treatment of SEP cases and puts the interests of SEP holders front and centre in the debate on access to technology, innovation in society, and a conducive environment for further investment in R&D knowledge transfer.