Introduction:

In a significant judgment impacting intellectual property enforcement and standard essential patent (SEP) disputes in India, the Delhi High Court elaborated on the legal framework and scope of pro tem deposit orders in SEP-related litigation. The ruling arose from a commercial suit filed by Dolby International AB & Anr., a Europe-based audio and video technology leader, against Lava International Limited, an Indian mobile phone manufacturer, alleging infringement of SEPs owned by Dolby. Justice Amit Bansal, while addressing the issue, clarified that Indian courts are empowered to direct implementers of patented technology to make a pro tem deposit—a temporary security amount—pending adjudication of an interim injunction application. The Court observed that this extraordinary relief seeks to strike a balance between protecting SEP holders’ rights to receive fair value for the use of their technology and safeguarding the implementers’ rights to contest the validity of the patents during the litigation. Importantly, the Court held that pro tem deposits can be ordered under Section 151 of the CPC without the need for a separate application. The ruling rejected a previous approach requiring a four-fold test, simplifying the criteria for granting such orders, and thus set a crucial precedent for SEP disputes in India’s growing technology market.

Arguments on Behalf of the Plaintiff (Dolby International):

Senior Advocate Mr. Chander M. Lall, appearing for Dolby, argued that Dolby is a global innovator in audio and video technologies and holds multiple SEPs, forming an integral part of widely adopted standards. These technologies are critical in the functioning of modern mobile phones. The defendant, Lava International, has been manufacturing and selling mobile phones that incorporate these standards without obtaining a proper license from Dolby.

Counsel contended that despite repeated negotiations and offers to enter into a Fair, Reasonable, and Non-Discriminatory (FRAND) license agreement, Lava deliberately avoided entering into such agreements and continued to commercially exploit Dolby’s patented technologies. This conduct, Dolby argued, indicated Lava’s unwillingness to act as a “willing licensee,” which is a critical benchmark in SEP jurisprudence.

Dolby stressed the importance of pro tem deposit orders as a mechanism to prevent implementers from enjoying prolonged, royalty-free use of SEP technology during litigation, which often stretches for years. It was submitted that several leading manufacturers and competitors of Lava have already accepted Dolby’s licensing terms, demonstrating that Dolby’s rates are fair and industry-accepted.

Dolby also highlighted global jurisprudence where courts have recognized the need to secure payments for SEP usage during pending disputes, citing that failure to do so could irreparably harm SEP owners and distort competitive markets. Accordingly, Dolby urged the Court to direct Lava to make a substantial pro tem deposit based on comparable licensing rates as a condition for continuing to use Dolby’s technology during the pendency of litigation.

Arguments on Behalf of the Defendant (Lava International):

Senior Advocate Mr. Jayant Bhushan, representing Lava, contested Dolby’s plea by asserting that Dolby had not established a prima facie case regarding the essentiality and validity of the asserted patents. Lava claimed that the patents in question were neither duly proven to be standard-essential nor beyond challenge in terms of validity under the Patents Act.

It was argued that granting a pro tem deposit without a thorough inquiry into these foundational issues would unfairly prejudice Lava’s right to challenge the patents. The defendant relied on the four-fold test laid down in Nokia Technologies v. Guangdong Oppo (2022), which requires courts to examine (i) essentiality and validity of the patents; (ii) utilization by the defendant; (iii) whether such utilization constitutes infringement; and (iv) reasonableness of the royalty rate. According to Lava, any deviation from this standard would dilute judicial scrutiny and grant SEP holders disproportionate leverage over implementers.

Furthermore, Lava asserted that Dolby was attempting to use pro tem deposit orders as a coercive tool to force implementers into unfavorable licensing agreements without proper adjudication. The defendant emphasized that such interim monetary directions could impose undue financial burdens on domestic manufacturers, hampering business operations and innovation in India’s mobile industry.

Court’s Judgment and Detailed Analysis:

Justice Amit Bansal delivered a comprehensive judgment that not only resolved the dispute at hand but also clarified the jurisprudential contours of pro tem deposit orders in India. The Court began by explaining the nature and purpose of such orders, defining them as an extraordinary, temporary relief aimed at maintaining equity during the pendency of interim injunction applications in SEP litigation.

Key Findings:

• Source of Power – Section 151 CPC:

The Court categorically held that Indian courts possess inherent powers under Section 151 CPC to pass pro tem deposit directions. These powers can be exercised even without a separate application, provided the circumstances warrant such interim balancing of rights.

• Balancing SEP Holder and Implementer Interests:

Justice Bansal noted that SEP litigation involves a unique dynamic, where patent holders seek royalties for the use of technologies indispensable to industry standards, while implementers often question the validity or essentiality of such patents. Pro tem deposits, therefore, serve as a safeguard to ensure that implementers do not enjoy royalty-free use during lengthy trials, while also preserving their right to contest the patents.

• Prima Facie Assessment – Essentiality and Validity:

Before directing a pro tem deposit, courts must arrive at a prima facie finding regarding the essentiality and validity of the asserted SEPs. However, the Court clarified that this does not require an exhaustive analysis akin to what is necessary for granting an interim injunction. Rather, courts can rely on surrounding circumstances, such as:

The number of licenses granted by the SEP holder for the same technology.

• • Enforcement of the SEPs before competent forums.
  • Industry acceptance, where other major players pay royalties for similar SEPs.
  • Conduct of parties during negotiations, indicating whether they acted as willing licensors/licensees.
• Rejection of the Four-Fold Test:

Significantly, the Court rejected the four-fold test from Nokia Technologies v. Oppo, observing that requiring courts to delve deeply into essentiality, validity, infringement, and royalty calculations at this stage would defeat the purpose of a pro tem order. Justice Bansal reasoned:

“If in every case the Court were to conduct an in-depth examination of issues relating to the essentiality and validity of the suit patents, the whole objective behind a pro tem deposit would be defeated.”

• Role of Negotiation Conduct:

The Court emphasized that the conduct of parties during negotiations is a key determinant of whether a party is acting as a willing licensor or willing licensee. Implementers who delay negotiations or refuse to engage meaningfully cannot exploit the situation by continuing to sell devices using SEPs without compensation.

Ultimately, the Court directed Lava to make a pro tem security deposit, calculated based on comparable licensing arrangements, within a stipulated timeline, ensuring that Dolby’s interests were safeguarded while Lava retained its right to contest the patents during trial.

• Broader Legal Implications:

This ruling represents a crucial development in India’s SEP enforcement landscape, where litigation has historically been prolonged, often to the disadvantage of patent holders. By streamlining the approach to pro tem deposit orders and rejecting overly complex tests, the Delhi High Court has aligned Indian practice with global trends that prioritize interim equity over procedural rigidity. The judgment reinforces India’s commitment to fostering a balanced, innovation-friendly legal environment, crucial for attracting technology investments and maintaining fair competition in the digital economy.