On 03 May, 2021, the Delhi High Court in InterDigital Corp & Ors. v Xiaomi Corp & Ors. issued its first and presumably first global A2SI (this terminology was first introduced by Florian Mueller on his blog fosspatents.com here). The judgment confirms its earlier order of 09.10.2020 in favour of InterDigital. See previous post here.
In its judgment, the court has directed Xiaomi to indemnify InterDigital against any penalty, if issued by the Wuhan court. Readers would remember that the Wuhan court had issued a penalty of RMB 1 million (~ $150,000) per day against InterDigital in its Anti-Suit Injunction (“ASI”) of September 2020 if InterDigital proceeded with its injunction / damages suit against Xiaomi in before the DHC.
A translation of the Wuhan court judgment may be read from here. Source patentlyo.com. The substantive part of the Wuhan court reasoning is extracted below. This shows that InterDigital is avoiding dealing with Chinese courts and has used the Delhi High Court as forum of choice to get the desired results.
Since 2015, the applicants, as manufacturers of wireless communication terminal equipment and implementers of standard-related patents (including SEPs), have started the license negotiations with the respondents on the licensing of patents related to wireless communication standards. In May 2017, the respondents issued an oral offer to the applicants for FRAND licensing negotiations. On June 15, 2019, the respondents issued a written offer to the applicants concerning patented technologies covering 3G, 4G, 5G and 802.11, HEVC standards, and disclosed its license fee standard for their patented technologies related to standards. The applicants responded positively, and requested the respondents to provide the calculation method of the license fee rate and comparable rates for reference, but the respondents did not make any response. In view of this fact, the applicants issued a counteroffer to the respondents on July 30, 2019 for the aforementioned licensing negotiations. The counteroffer was rejected by the respondents.
In February 2020, the respondents initiated the standard-related patents licensing negotiation offer to the applicants again and sent the offer quotation to the applicants. Upon review, the applicants considered that there was no material change between the offer and the license fee rate proposed by the respondents in June 2019.
For this reason, for a long period of time, the two sides achieved no substantial progress in the negotiations, and the negotiations bogged down. On June 9, 2020, in order to resolve the deadlock in standard-related patents negotiations, the applicants filed a lawsuit with this court, requesting and accepting that this court, in accordance with FRAND rules, determine the global rate or range of rate involved in SEPs license fee negotiations between the parties.
...However, the actions of the respondents after this court had accepted the case showed that the respondents did not respect the court's trial procedure, which hindered the proceedings of the case and caused huge damage to the overseas market of the applicants and their affiliates.
On June 9, 2020, after accepting the case, this court served the respondents with the copy of the complaint, evidentiary materials, court summons and other judicial documents. On July 28 of the same year, the applicants informed the respondents that they had applied to this court to decide the dispute between the two parties on the license fee rate, and entered the proceedings. The next day, the respondents, on account of Xiaomi and their affiliates' infringement on their patents with No.262910, No.295912, No.298719, No.313036, No.320182 registered and held in India,, applied to the District Court of Delhi, India for a temporary injunction and a permanent injunction against the applicants Xiaomi and their affiliates’ producing and selling REDMI NOTE8, REDMIK20 and other wireless communication terminal products (mobile phone products), to restrict Xiaomi and its affiliates from producing and selling the aforesaid infringing products. After the applicants learned that the respondents had applied for a temporary injunction and a permanent injunction against the applicants in the District Court of India, on August 4, 2020, the applicants requested this court to issue an anti-suit injunction to prevent the respondents from interfering and obstructing the trial of this case through the injunctive measures launched against the applicants Xiaomi and their affiliates.
On August 11 of the same year, this court sent copies of the complaint, evidence and court summons and other documents to the respondents via E-mail. After these emails were successfully sent, the two respondents refused to reply to this court. On September 2, the same year, this court again sent copies of the indictment, evidence, litigation formalities, court summons and other judicial documents to the two respondents by express mail. According to the tracking information of the express delivery, the lawsuit documents of the case had arrived in the United States on September 14 of the same year, and the delivery was successfully completed on September 19 of the same year. But the respondents still did not sign the receipt and reply to this court. On September 23, the same year, after the applicants completed the required procedures for the application for this anti-suit injunction, this court accepted its application for an anti-suit injunction and initiated the review procedure for an anti-suit injunction. The above indicates: First, after the applicants notified the respondents that this court could accept this kind of case, the respondents got the information that this court had accepted the case. However, the respondents did not respect and cooperate with this court in initiating the proceedings of this case, but initiated the temporary injunction and permanent injunction proceedings in the District Court of India in order to exclude this court from jurisdiction of this case and neutralize this case, causing interference and obstruction to the hearing procedure of this case. ... ------------------------------------------------------------------------------
Delhi High Court judgment:
The judgement is 107 pages long and the real analysis is in last 35 odd pages, the remainder being facts of the case, Indian case law, or foreign case law pertaining to on anti-suit injunctions.
In issuing its overly broad (my view) order, the court seems to be guided on the fact that InterDigital had not been served any notice of the Wuhan proceedings (even though notice was given by email on 11.08.2020, and thereafter on 02.09.2020). The court records in para 94.3:
….Even as regards the main complaint and the documents filed by the defendants, in that regard, the Wuhan Court records, candidly, that service of the complainant and the documents were still in process, but that it was nevertheless proceeding to issue the anti-suit injunction “directly”, “in a sense of behavior preservation”. Whether the Wuhan Court was justified in doing so, or not, is not for me to comment on, in the present proceedings. Suffice it to state that, in the circumstances, the contention that the order of the Wuhan Court was passed after due notice to the plaintiffs is obviously unacceptable.
One doubt that emerges here is that the procedure to obtain an ex parte hearing / status quo order is somewhat similar to the process adopted by the Wuhan court. Like the Wuhan court, we too have a similar procedure where a party is heard and an ex-parte order / status quo order depending the test as laid down under Order 39. Hence, if the Wuhan Court has termed its order as a ‘behavior preservation order’, I see no issues: after all we too issue notice to the opposite party under Order 39 Rule 4 after the ex-parte order is issued. Here the court ignores the long negotiations held between the parties and that the matter was sub-judice in China. The court also ignores that InterDigital is avoiding service: The Wuhan court had served InterDigital by email. Thereafter express delivery was also sent to InterDigital. Despite that InterDigital chose not to appear before the Wuhan court, but filed the infringement action in the Delhi High Court.
The court then compares the suit in New Delhi to the proceeding in Wuhan.
In para 96, the Court considers InterDigital’s ETSI commitment to grant licenses of its SEP portfolio. The para goes on to identify several of Xiaomi’s handsets that supposedly infringe InterDigital’s patents, and also that Xiaomi has been unwilling to take a license to the FRAND terms.
Prayer in the New Delhi suit
Para 6 provides, “…as such, in the suit, the plaintiffs have not sought an absolute injunction, against the defendants, from using the SEPs held by the plaintiffs, but have sought for an injunction in the event the defendants are not willing to obtain licences, from the plaintiffs, for use of the said SEPs, at FRAND royalty rates.”
This can be stated as InterDigital wants the court to determine FRAND royalty rates, andindeed para 7 provides, “Determination of the FRAND rate at which the defendants could obtain licences, from the plaintiffs for using their SEPs is, therefore, unquestionably an inalienable part of the present litigation.”
Para 97 provides the details of the Wuhan Complaint:
“The prayer clause, in the Wuhan complaint of the defendants, requested the Wuhan Court “to determine the global royalty rates or the range for the licensing of all standard essential patents (“SEPs”) and patent applications in (the plaintiffs) 3G, 4G patent portfolios that (the plaintiffs) hold or have the right to license in accordance with FRAND principal”.”…
The same para goes on to state:
“The complaint thereafter refers to a Confidentiality Agreement executed between the plaintiffs and the defendants in December 2016, for a potential patent cooperation project, whereafter it is asserted that substantive licensing negotiations, for the patents held and managed by the plaintiffs, commenced. Details of the negotiations follow, resulting in the defendants alleging that “the royalty rates for the relevant wireless communication SEPs offered by InterDigital (were) obviously too high, which violate(d) FRAND licensing obligations”. Exception has also been taken, into the complaint, to the refusal, by the plaintiffs, to disclose the basis on which they had worked out the royalty rates.”
Para 98 provides the conclusion: “Holistically viewed, I do not think that the Wuhan Court was justified either in holding that the plaintiffs had sought to interfere with the complaint filed by the defendants in the Wuhan Court, by filing the present suit, or that they intended to exclude the jurisdiction of the Wuhan Court thereby.”
This reasoning provides a higher pedestal to the patentee, and the alleged infringer is left to bear the brunt of the order. How can InterDigital be entitled to a FRAND royalty before determining: validity, essentiality and / infringement of each of its patents. Isn’t a court entitled to hold specific views about the lis it is approached to adjudicate upon. It is reasonable for the Wuhan court to view the Indian filing as an impediment in the final determination of global FRAND rates.
The matter in India is one for determination of damages. Here it must not be forgotten that in patent matters: damages come at the end of a trial, where the Plaintiff has shown that it has a right, that right has been infringed, and that claimed damages will make it whole – i.e. are in proportion to the Plaintiff’s losses. Even assuming that InterDigital’s patents are: (1) Valid, (2) Essential, and (3) Infringed, all that InterDigital is entitled to is a FRAND royalty (see para 7). The question whether the demand is FRAND is itself a question that, as para 7 provides, is up for deciding. Despite recording this fact (last sentence) in para 98, the order does not factor the same into consideration.
Once a different court is seized of the same matter (determination of FRAND royalty / global royalty), the Delhi Court should have gone slow as itself observes the Supreme Court’s order in Modi Entertainment Network v. W.S.G. Cricket Pte Ltd. (para 23,page 24) and the seven principles it laid down for issuance of an anti-suit injunction in para 24.
In particular, the present order loses site of the fact that global royalty rate determination is up in Wuhan (para 97) and that a confidentiality agreement is already in place between InterDigital and Xiaomi in 2016 (para 97). The court also loses site of the fact that the Wuhan matter is for a global royalty rate determination, which includes India. Hence it is India that is a forum-non conveniens, not China.
Sufficient to state that once the Wuhan court sets a global rate, there would no requirement for any court leave alone the Delhi Court to determine validity, infringement, essentiality, etc.
However, reasoning in para 99 loses site of this fact and presumes that the Indian court will set out to do all that at least for the patents in suit, no matter that it has to reach the same result that the Wuhan court is tasked with.
Hence the court wrongly concludes that the Wuhan Court order of 23.09.2020, “…falls into error falls into error in opining that the plaintiffs had, by initiating the present proceedings before this Court, sought to exclude the jurisdiction of the Wuhan Court. Rather, the Wuhan Court has, by its order, sought to exclude the jurisdiction of this Court to adjudicate on the lis brought before it by the plaintiff which this Court, and no other, is empowered to adjudicate,…” The order also concludes that there is no overlap / minor overlap between the two matters, which does not prevent it from adjudicating the same.
The Court in issuing its order also provides that if the Wuhan court enforces its ASI order, and directs InterDigital to deposit penalties for prosecuting its Indian suit, then Xiaomi must compensate it by depositing a corresponding amount with the Court in India. This amount could be secured by InterDigital thereafter.
This is an entirely wrong conclusion and the order makes no reference to the advanced negotiations held into by the parties. The Delhi High Court order makes selective reference to the Wuhan court order and does not refer to the substantive facts / reasoning therein.
If one reads the Chinese court order, it is clear that InterDigital is forum shopping and using one court to issue orders to avoid those from a different jurisdiction.
Some aspects that should have been considered by court (or should have been brought to the attention of the court) but were not:
I. InterDigital in Chinese Courts
The DHC does not keep in view the conduct of the parties: In 2013, InterDigital did not participate in antitrust proceedings brought in by Huawei in China for the fear that its executives would be arrested. Shenzhen-based Huawei claimed InterDigital charged it a royalty rate far above what it obtained from Apple Inc and Samsung Electronics Co Ltd. See post on reuters on this issue and InterDigital’s own SEC filing.
This proceeding was a result of the suit that InterDigital had brought against Huawei and others in the U.S. International Trade Commission for infringing its SEPs on 26.07.2011. And very predictably on 05.12.2011, Huawei filed a suit against InterDigital in Shenzhen Intermediate Court in China. This suit alleged that InterDigital held a dominant market position in China and the United States in the market for the licensing of essential patents owned by InterDigital and had abused its market power by engaging in unlawful practices, including differentiated pricing, tying, refusal to deal, etc.
On 04.02.2013, the Shenzhen Court held that InterDigital had violated China’s Anti-Monopoly Law by (1) seeking royalties from Huawei that the court believed were excessive, (2) tying the licensing of essential patents to non-essential patents, and (3) requesting as part of its licensing proposals that Huawei provide a grant-back of certain patents to InterDigital. The court ordered InterDigital to cease the alleged excessive pricing and bundling of non-essential patents with essential patents and pay Huawei approximately USD3.2 million in damages.
InterDigital appealed to the Guangdong High Court, which affirmed the Shenzhen Intermediate Court’s decision in its entirety. The High Court found the two acts of InterDigital to constitute an abuse of its market dominance.
1. Offer a global license for its standard essential patents only;
2. InterDigital will not require that a Chinese manufacturer agrees to a royalty-free, reciprocal cross-license of the Chinese manufacturer’s similarly categorized standard-essential wireless patents;
3. Binding arbitration before commencing exclusionary action or injunctive relief: InterDigital will offer Chinese manufacturer (with whom it is not able to agree global royalty rates for its SEPs) the option to enter into expedited binding arbitration under fair and reasonable terms to resolve the royalty rate and other terms of a worldwide license under InterDigital’s wireless standard-essential patents. III. Standard declarations and patents in China
The Wuhan court was adjudicating upon a global rate: This required it to see all possible SEP declarations made by InterDigital. I did a small declaration search.Per this search done on ETSI (ipr.etsi.org), InterDigital has made 74 declarations with China specific patents vs. 32 declarations having India specific patents. Each of these declarations have additional patents and the number is in the hundreds. It is clear that InterDigital itself considers China to be a more important market than India, and which is why more filing in China as compared to India.
One additional information that might be seen is that the declarations with India specific patents are recent: specifically 2014 onwards. This means that the affinity that InterDigital has towards filing patents in India is recent as compared to China.
Hence the court should have allowed for a determination of global royalty rate first and gone slow. It would be check mate for InterDigital if the Wuhan court issues a global license for its wireless SEPs. Adjudicating the validity, essentiality, and infringement of the same here in Delhi would then be a futile exercise.
IV. Practical reasons why Chinese courts should evaluate the FRAND royalty
In the end I must add practical reasons why a Chinese court should determine the royalty rate, and not Indian courts. This is because the Chinese courts control the complete semiconductor ecosystem that builds all parts that go into the mobile phone: from the display to the touch pad, to the baseband processor, to the memory, to the antenna, everything is manufactured in China. Of course, there are some components that are made in India but they are at the lower end of the supply chain.
Hence the Chinese courts have complete information as far as rate determination goes. This is important because InterDigital (and other SEP owners) does not license baseband processor providers: for good reason. they will get less royalty.
In the image below (front and back end semiconductor of a mobile phone), the only component that relates to SEP in the cellular context is the baseband processor. Other components are device specific and have no relation to the baseband processor. In other words, there is no issue before the Indian court whether the royalty demanded is FRAND. The issue before the Indian court is complicated by the presence of the confidentiality club.
Image from: Click here. Similar charts may be seen here.