High Court Can Pass ‘Pro-Tem Security’ Order When Implementer Fails To Make Payments Over Use Of SEP Holder’s Technology: Delhi High Court

The Delhi High Court has 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 Patent (SEP) 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.  

A division bench of Justice Manmohan and Justice Saurabh Banerjee observed that the court has the power to pass such orders as a temporary arrangement, if the facts of the case so warrant, without a detailed exploration of merits.

“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 ruled.

The bench made the observations while setting aside an order passed by the single judge on November 17 last year 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.

Nokia owns three Standard Essential Patents (SEPs) which are stated to be necessary to make cellular systems 2G, 3G, 4G or 5G compliant. The Finnish multinational company last year filed a suit before the High Court accusing Oppo of infringing its patents. 

Oppo in 2018 had obtained a license from Nokia for utilising its SEPs on payment of royalty at FRAND rates. The license expired in 2021 but, according to Nokia, Oppo continued to use its SEPs  without renewal of the agreement or taking of any fresh license.

Before the single judge, Nokia had sought a direction to Oppo to deposit, with the Court, an amount which would represent the royalty, at FRAND rates, "on payment of which Oppo could be granted a license to use the suit patents and to which Nokia, consequently, claims to be entitled."

However, the single judge ruled that the court cannot rely on the first FRAND license agreement as a basis to direct deposit by Oppo of any amount in terms of Order XXXIX Rule 10 of the CPC.

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.

On the other hand, Oppo submitted that in Standard Essential Patent matters, a patent holder cannot seek an interim or even a permanent injunction as a matter of right. 

It also contended that Nokia’s insistence that the court should order a pro-tem deposit, even prior to a prima facie assessment on merits, lacks basis in law as the same can only be directed pursuant to a finding of essentiality, validity and infringement of the asserted patents.

Ruling in favour of Nokia, the court 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.

“…in order to decide an application for interim relief under Order XXXIX Rules 1 and 2 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,” the court said.

However, it 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 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 bench said.

Analyzing Section 151 along with Order XII Rule 6 and Order XXXIX Rule 10 of CPC, the court said that the High Courts have the power to pass orders for deposit of money pending decision in a suit, if the facts so warrant.

It added that Section 151 of the Code 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.

“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,” the court said.

Allowing Nokia’s appeal, the court directed Oppo to deposit the last paid amount attributable to India i.e. 23% under the 2018 Agreement within four weeks.

“Such an approach balances the interests of right owners with the larger public interest. Keeping in view the aforesaid findings, this Court is of the opinion that the balance of convenience is in favour of Nokia and if a pro- tem order is not passed, Nokia shall suffer irreparable harm and injury,” the court said.

Nokia was represented by Senior Advocate Gourab Banerji and Advocates Pravin Anand, Vaishali Mittal, Siddhant Chamola, Rohin Koolwal and Pallavi Bhatnagar from Anand and Anand.

Title: NOKIA TECHNOLOGIES OY v. GUANGDONG OPPO MOBILE TELECOMMUNICATIONS CORP LTD & ORS.

Citation: 2023 LiveLaw (Del) 542

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