OPPO had secured a license for use of NOKIA’s SEPs in 2018 for a period of three years under the 2018 Agreement titled as “Strategic Cooperation Agreement between Nokia Corporation and Guangdong Oppo Mobile Telecommunications Corp. Ltd.” with effective date of 1st July, 2018. This license expired on 30th June 2021 and while the renewal of the contract was being negotiated between the parties, Nokia has approached courts in India, Germany, UK, Netherlands etc. seeking injunctions against Oppo, the later has approached court in China to determine the FRAND Royalty rates.
By way of an order dated 17th November 2022 a Single Judge bench (at Delhi High Court) dismissed Nokia’s application filed for deposit of royalty payable by OPPO for use of Nokia’s Standard Essential Patents (SEPs). An appeal was filed challenging the order of the Single Judge before a division bench (comprising Two judges) that allowed Nokia’s application for deposit of FRAND Royalty on 3rd July 2023.
The main issues in appeal were, whether this Court has the power to pass a pro-tem order without an exhaustive exploration on merits of the Patents (infringement and validity) and whether a pro-tem order (for deposit of security money) is called for in view of the bank guarantee already furnished by OPPO already in Germany.
NOKIA sought a direction to OPPO to deposit interim security of an amount based on either the latest counter-offer made by OPPO for a global license of NOKIA’s portfolio of SEPs or of an amount equivalent to the royalty paid under the Agreement dated (undisclosed) executed between the parties with effective date of 1st July, 2018. The amount being proportionate to the ratio of the number of the devices sold by OPPO in India vis-à-vis the number of devices sold globally.
NOKIA has over 20,000 patent families worldwide out of which 3,800 patent families have been declared to European Telecommunication Standards Institute (ETSI) as potentially essential for 2G, 3G, 4G and 5G technology. It also has 200 licensees for its patent portfolios which includes several Indian and Chinese companies. NOKIA claims that OPPO is the world’s second largest manufacturer of smartphones having overtaken APPLE and OPPO’s sales in India account for around 23% of its global sales.
The 2018 Agreement was a cross-license agreement for patents belonging to both the parties. NOKIA said that the agreement did not include patents relating to 5G standards and considering that 52% of OPPO’s sales India and 64% of its global sales consist of 5G devices, any new license fee would be substantially higher.
After the expiry of the 2018 Agreement, OPPO had witnessed an unprecedented increase in the sale of its devices and during the period between July, 2021 and December, 2022, OPPO sold around 77 million devices in India without paying a single rupee in royalty to NOKIA.
While the judgement has redacted the commercial figures, it is speculated that OPPO paid around $3.3 for each device under the 2018 agreement and under this arrangement the license fee for 77 million devices will be a minimum of $254 million.
It is interesting to note that the subject matter of the suit involves only three SEPs belonging to NOKIA that are:
Indian Patent No. 286352 (IN’352) titled “System and Method of Providing AMR-WB DTX Synchronization”
Indian Patent No. 269929(IN’929) titled “Method Providing Multiplexing for Data Non-Associated Control Channel”
Indian Patent No. 300066(IN’066) titled “Additional Modulation Information Signaling for High-Speed Downlink Packet Access”
It is important to note that the court has granted a leave to Nokia to add more patents based on new devices that OPPO would have launched or will launch after filing of the suit. This suit was filed before the learned Single Judge in July, 2021 and first order was delivered on 17th November, 2022 and appeal against that order was decided last week (3rd July 2023).
Pleadings and arguments on behalf of NOKIA
The learned senior counsel for NOKIA stated that the impugned order had the effect of promoting and vindicating OPPO’s dilatory tactic of simply making bare denials and thereby allowing it to escape liability despite its financial health being perilous. The Income Tax Department (of India) had raided the offices of OPPO on the ground of tax evasion and thus there are serious doubts with regard to its ability to make good a final decree of damages. It was also contended that the financial liabilities significantly outweigh OPPO’s assets which reflects in notes to financial statements of OPPO for the year ending 31st March, 2021. (Refer Para. 39 of Judgement)
The counsel stated that the bank guarantees furnished by OPPO to NOKIA’s lawyer in Germany is no security as it cannot be encashed unless the parties execute a fresh/second license agreement and OPPO defaults in payment obligations for more than thirty days and even then, NOKIA can secure payment at the branch office of the bank in China only. (The bank guarantees cover global sales and as such necessarily cover Indian sales)
The counsel pointed out that OPPO had been found to be an unwilling licensee by the Courts in Germany and had been subject to injunction orders. He emphasized that instead of executing a license agreement with NOKIA, OPPO had chosen to exit the German market. It was further stated that OPPO had been found to be infringing NOKIA’s patents by Courts in UK and in the Netherlands.
The counsel stated that NOKIA’s cellular SEP portfolio is licensed to some 200 entities and for every day that OPPO does not make any payment for the said portfolio, it gains an unfair advantage over other such willing licensees by using such SEPs without any license. It was again stated that OPPO had been found to be an unwilling licensee and has been injuncted from infringing NOKIA’s patents by Courts in multiple jurisdictions.
The counsel for NOKIA stated that a pro-tem order in the case of SEPs is only a temporary order intended to secure NOKIA’s interests till the trial or till the rights of the parties have been prima facies adjudicated upon by the Court pursuant to an interim injunction application. It was further stated that an order for deposit of money on a pro-tem basis does not enrich NOKIA’s account as it will only be deposited in the Court and will be reimbursed to OPPO in case it secures a victory at the interim or final stage.
Learned counsel for OPPO stated that NOKIA’s contention that since OPPO has sought FRAND rate fixation from the Chongqing Court in China, it has admitted to the essentiality and validity of NOKIA’s portfolio is misleading.
The Court stated that furnishing of pro-tem security is the implementer’s obligation in the negotiation phase itself, as held in Huawei Technologies Co. Ltd. v. ZTE Corp. and ZTE Deutschland GmbH (2015).
The Court further stated that to balance the equities, the Indian Court has the power to pass a pro-tem order. It took into consideration that this Court in Intex Technologies (India) Ltd. vs. Telefonaktiebolaget L.M. Ericsson (2023) relying on 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.
Interestingly, some of the rules specific to SEPs under The Delhi High Court’s Rules Governing Patent Suits 2022 identify the SEP Patent infringement as a different species of infringement and has prescribed a different course of flow, for example:
(e) ‘Infringement brief’ – ‘…. In the case of Standard Essential Patents (SEPs), the infringement brief shall contain claim charts, mapping the patent claims to the standards, and the manner in which the Defendant infringes the same’
(f) ‘non-infringement brief’ – ‘…as also in the case of SEPs, the Defendant shall disclose whether its products comply with the standard or the alternate technology/patent being implemented by it. The said party is also free to furnish its own Claim construction brief or claim mapping, if it so chooses, to support the plea of non-infringement’
3. Contents of pleadings
A. Plaint – The plaint in an infringement action shall, to the extent possible, include the following aspects:….
(ix) “Precise claims versus product (or process) chart mapping, or in the case of SEPs, claim chart mapping through standards”
B. Written Statement– The Written Statement in an infringement action shall, to the extent possible, include the following aspects:….
(vi) If the Defendant raises a case of non-infringement, the products/process/technology being used by the Defendant would also be specified. Onus of proving infringement would, however, be in terms of Section 104A of the Act;
4. Documents to be filed by either party…
C. Any other documents to be filed by either party…
(ii) Details of licensees, royalty, FRAND pricing (under sealed cover) may be filed.
5. First hearing of the suit……
(v) Upon infringement being prima facie established, the court may pass directions for monetary payments instead of an injunction, in exceptional situations, and on such terms and conditions as the Court may deem fit.”
The Court observed that it may not be necessary for a SEP holder to seek any pro-tem order in foreign jurisdictions/other jurisdictions because proceedings elsewhere are significantly faster than in India.
The Court pointed out that in Intex vs. Ericsson, it was held that SEP owners who file lawsuits can pray for interim and final injunctive relief if an infringer is deemed by a Court to be an ‘unwilling licensee,’ often as indicated by the use of ‘stalling’ and other opportunistic bargaining and litigation tactics.
The Court further opines 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 stated that cases concerning SEPs would also constitute a separate sub-species of patent litigation as SEP holder does not have the freedom to claim an injunction against an infringer, without prior negotiations under FRAND terms.
The Court recognized that the four-fold test as stipulated in the impugned judgement passed by the learned Single Judge was held to be contrary to law in Intex vs. Ericsson. It was of the opinion that the four-fold test casts an onerous burden upon the Standard Essential Patentee and that too at an interim stage itself. The four-fold test stated that for admission in a case of SEP FRAND infringement, there has to be an unequivocal admission on:
essentiality and validity of the suit patents
fact of utilization
fact that such utilization, absent payment of liability would amount to infringement
that the royalty rate proposed by the Plaintiff was FRAND.
The Court observed that in the present case, OPPO has clearly admitted that it is an ex-licensee of NOKIA and its need to secure a license of NOKIA’s SEPs after the expiry of the 2018 Agreement. It has also admitted that it owes money by making counter-offers, including offers to make interim deposits.
The Court admitted it has has passed pro-tem orders relating to SEP disputes in many cases such as Xiaomi Technology and Anr. Vs. Telefonaktiebolaget LM Ericsson (Publ) and Anr. [FAO (OS) 522/2014]; Telefonaktiebolaget LM Ericsson (Publ) vs. Mercury Electronics and Anr. [CS (OS) 442/2013]; and Philips vs. Xiaomi [CS (COMM) 502/2020].
The Court stated that consent of the parties cannot be held to confer jurisdiction on the Courts to pass orders which it could not have done otherwise. If passing of pro-tem orders were beyond the jurisdiction of the Courts the same could not have been passed merely because the parties consented to it.
The Court pointed out that OPPO itself licensed the SEPs of NOKIA against royalty payments under the 2018 Agreement over a three-year period and admitted its obligation in law to secure a new license agreement commencing July, 2021 for SEPs of NOKIA, and thus there arises a prima facie presumption that the challenge to essentiality and validity of NOKIA’s patents is merely an afterthought and that it would be fair to infer that no one pays good money for generally disputed patents.
The Court also pointed out that OPPO repeatedly made several counter-offers after detailed technical discussions as well as agreed to make interim payments to NOKIA and even filed a suit in Chongqing China for determination of FRAND rates. It is also to be noted that OPPO rejected NOKIA’s proposal for arbitration by stating that parties can have interim payment decided by a ‘suitable court’.
The Court held that the 2018 Agreement was not a license for non-SEPs, but only a deferred agreement to not sue for three years as OPPO had agreed to pay FRAND royalties to NOKIA. The Court also acknowledged that NOKIA is not seeking pro-tem security for its non-SEPs in the present case.
The Court found it pertinent to mention that out of thirteen (13) proceedings filed globally inter se between the parties with regard to the same portfolio of SEPs, eleven (13) Courts have found infringement to be established and have found OPPO to be an unwilling licensee.
The Court reiterated the judgement in Intex vs. Ericsson and held that an injunction can be secured, even if the infringement of one patent is established either prima facie, or at the final stage.
The Court also mentioned 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. The Court also noted that pursuant to the order of the German Court, OPPO has chosen to suspend its operations in the German market, rather than take a license for NOKIA’s SEPs. Thus, the Court found OPPO, prima facie, to be an unwilling licensee.
The Court keeping in view the status of OPPA 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 consistence practice of this Court and the financial condition of OPPO, held that the impugned judgement passed by learned Single Judge is contrary to the facts as well as settled principles of law.
The Court directed OPPO to deposit the ‘last paid amount’, attributable to India i.e. 23% of the undisclosed amount under the 2018 Agreement within four weeks (from 3rd July 2023).