Quick on the heels of the Delhi High Court order (July 1, 2025) directing the South Korean Firm to Deposit INR 290 Crores (25% of the claimed damages of INR 1160 Crores) in Communication Components Antenna Inc. vs Ace Technologies Corp. & Ors. (CS(Comm) 1222/2018) as security in patent infringement suit, another pro tem order of the Delhi High Court (July 10, 2025) directed Lava International Limited to deposit INR 20.81 Crores as security or provide a bank guarantee to cover past sales from 2019-2024 in an ongoing SEP infringement suit filed by Dolby International AB.
In the matter of Dolby International AB & Anr vs Lava International Limited [CS(COMM) 350/2024 with I.A. 9655/2024, I.A. 9658/2024, I.A. 9659/2024, I.A. 9660/2024 and I.A. 9666/2024], Dolby alleged that Lava used its audio coding technology without a license. The trend of seeking a pro tem security deposit is not new in India. In a former case, the fact that the Defendant claimed to "not have any assets in India was a reason for the grant of such an order. According to records, there are several cases where the court issued pro tem orders for depositing security in the court in suits filed by Dolby against third parties in India, where its SEPs relating to its AAC portfolio have been asserted. For instance, in Dolby vs GDN Enterprises (Oppo Suit) and Dolby vs Das Telecom (Vivo Suit), the Delhi High Court, on October 27, 2016, directed Oppo and Vivo to deposit a sum of INR 34/- per unit in Court. Later, the amount was modified from INR 34/- per unit to INR 20/- per unit. However, Vivo and Oppo were directed to file bank guarantees for a differential amount of INR 14/-.
Case Information
In the present suit, Dolby asserted infringement of its AAC patent portfolio, covered by a number of patents, against Lava. Initial attempts by Lava to procure appropriate licenses were unsuccessful. Dolby alleged that Lava used its audio coding technology without a license. The Advanced Audio Coding (AAC) portfolio of patents is for audio coding technology, enhancing the functionality of systems/devices such as mobile phones and tablets.
Legal Principles for Allowability of Pro Tem Security Deposits Order
In this case, the court analysed the judicial precedents, viz. Intex vs Ericsson, Nokia vs Oppo, and Guangdong Oppo vs Interdigital Technology (setting out the norms for determining allowability pro tem security deposits order) and observed that from these judgments:
"the following legal principles can be culled out:
- The SEP cases are different from normal patent infringement cases to the extent that an SEP holder does not have the right to claim an injunction against an implementor without holding negotiations with the implementor, as per the FRAND protocol;
- Indian courts are empowered to pass a direction for a pro tem deposit, and this power can be exercised under Section 151 of the CPC, without filing a separate application for the same;
- Pro tem orders are in the nature of ad-interim orders, which operate till the time an application for interim injunction is decided by the Court;
- Pro tem deposits are granted to balance the SEP holders' right to receive value for the use of their technology with the implementor's right to contest the patent. This ensures that the implementor does not unfairly benefit from the use of patented technology during the course of a potentially lengthy litigation, where the issues such as validity, essentiality and FRAND terms have to be determined;
- Normally speaking, a pro tem order should be directed only after a prima facie finding on essentiality and validity of the suit patents. However, for passing pro tem orders, no detailed exploration of merits of the case is required, as is required for purposes of grant of an interim injunction;
- The four-fold test laid down by the Single Bench in Nokia v. Oppo (supra) would not apply for purposes of grant of a pro tem order;
- The Court can form a prima facie view based on surrounding factors. Where the Court is of the view that the challenge to essentiality and validity of the SEP is merely an afterthought, it would be a relevant factor in determining the question of prima facie essentiality and validity of the suit patents. Therefore, determination of pro tem would depend upon the facts and circumstances of a case;
- Conduct of the parties during negotiations is one of the key factors to be kept in mind while determining whether a potential licensor and licensee were willing licensors or willing licensees, respectively. An unwilling licensee cannot be permitted to freely sell its devices using the SEPs of the patent owner, without making a pro tem security deposit;
- There is no requirement for the patent owner to furnish any third-party licensing agreements to the implementor at the stage of negotiations or at the stage of determining pro tem deposit."
Premise of Court's Ruling
The court examined the strength of the Dolby case for the permissibility of grant of pro tem deposits on three premises, viz.
- Validity of the suit patents,
- Essentiality of the suit patents, and
- Infringement of the suit patents by the defendant.
On the validity and essentiality issue, the court looked into the conduct of Lava, like a belated challenge of patents and documents relating to essentiality, and held that
"41. .........Therefore, in my considered view, the determination of pro tem deposit has to be very factcentric. In cases where the implementor has not made a credible challenge to the essentiality and validity of the suit patent during the negotiations stage and makes a challenge only during the litigation as an afterthought, the Court can look at the surrounding factors to determine prima facie validity and essentiality of the suit patents. Otherwise, the threshold for deciding a pro tem deposit would become the same as that for deciding an interim injunction application. This is not to say that the Court does not have to examine the aspects of validity and essentiality of the suit patents at all. "
What Favoured the Plaintiff
When the court analysed the correspondence exchanged between the parties, the court found that:
- .........
- Dolby initiated communication with Lava as early as 31st December,2018, demonstrating its willingness to enter into a license with Lava.
- Dolby provided the technical information regarding its SEPs. including claim charts and details about the standards they correspond to.
- Dolby provided all technical clarifications sought by Lava.
- Dolby offered royalty rates that were similar to rates offered to other similarly situated entities.
- Lava never made any counter-offer during the course of the negotiations.
- Lava insisted on a license only in respect of a subset of the standard SEP portfolio offered by Dolby, which is contrary to the established industry practice.
- Lava kept on insisting that Dolby should provide third-party confidential licensing agreements to Lava, which was unjustified.
- Lava never disputed or questioned the validity of the SEPs asserted by Dolby, nor did it counter Dolby's claim charts on merits.
Concluding Remarks
It is now common for the plaintiff to seek a pro tem order for depositing securities or a bank guarantee in a SEP infringement dispute. Courts in India are alive to the situation of enforcement of IPRs and possible delays to get the final trial in such cases. If we see the background of the Pro tem security deposit orders of the Delhi High Court, we will find that such an interim order is a prelude to speeding up the process of a consented negotiated settlement. Interestingly, the SEP matter between Dolby was settled between Vivo and Oppo when both took a Global Patent License Agreement.
We may note that this arrangement is not a substitute for an injunction where the defendants are restrained and stopped from carrying out the alleged infringing activity till the suit is decided. However, a pro tem order for depositing security allows the defendant to carry out such activity. The scope of the pro tem order is limited to ensuring that during the pendency of the suit, the SEP holder is not left without any security, while the implementer retains full opportunity to contest all substantive issues. Pro tem deposits are granted to balance the SEP holders' right to receive value for the use of their technology with the implementor's right to contest the patent. This ensures that the implementor does not unfairly benefit from the use of patented technology during the course of a potentially lengthy litigation, where the issues such as validity, essentiality and FRAND terms have to be determined.
In this case, the court favoured Dolby for the reasons (1) Lava never disputed or questioned the validity of the SEPs asserted by Dolby, nor did it counter Dolby's claim on the merits, (2) Dolby offered royalty rates that were similar to rates offered to other similarly situated entities. (3) The essentiality of the suit patents was established. It may also be noted that this order was passed keeping in mind the fact that the SEP cases are different from normal patent infringement cases to the extent that an SEP holder does not have the right to claim an injunction against an implementor without negotiating with the implementor, as per the FRAND protocol. The court in this case also asserted that the determination of the allowability of a pro tem deposit order must be fact-centric.
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