Monday, June 24, 2024

Kaushal on Bank Guaranties in Indian FRAND Litigation

Tejaswini Kaushal has published a post on SpicyIP titled Secrets and Standards:  Analysing Pro-tem Securities in InterDigital v. Oppo [Part II].  As the title suggests, this is the second installment of a two-part post relating to the InterDigital v. Oppo FRAND litigation in India, the first addressing confidentiality and disclosure of license agreements.   The second post addresses the use of bank guarantees to secure interim relief to the SEP owner pending trial, which the Delhi High Court recently approved.

The basic idea, as I describe it in a project I am currently working on, is that in some jurisdictions court sometimes permit defendants to post a guaranty, or to actually deposit interim royalties, to avoid being preliminarily enjoined.  In recent years, Indian courts have employed this procedure in FRAND cases, as the post above discusses.  Both IPRED and the UPC also authorize this practice.  See IRPED art. 9(1)(a) (stating that member states shall ensure that courts may condition the continuation of an infringement "subject to the lodging of guarantees intended to ensure the compensation of the rightholder"); UPCA art. 62(1) (authorizing the court “to prohibit, on a provisional basis and subject, where appropriate, to a recurring penalty payment, the continuation of the alleged infringement or to make such continuation subject to the lodging of guarantees intended to ensure the compensation of the right holder”); and it is mentioned as a possibility in the European Commission’s draft regulation on SEPs, in recital 35 and in articles 1(4) and 35(4).  (Huawei v. ZTE also mentions, in its elaboration on the “FRAND dance,” that “where the alleged infringer is using the teachings of the SEP before a licensing agreement has been concluded, it is for that alleged infringer, from the point at which its counter-offer is rejected, to provide appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit” (para. 67). This is not necessarily a court-ordered procedure, but rather part of the implementer's responsibility to show that it is a willing licensee, though I suppose it also would have the effect, discussed below, of reducing or eliminating the interim harm facing the SEP owner and thus should be relevant to whether the owner is entitled to a preliminary injunction.)  On the other hand, article 12 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Laws in Adjudication of Action Preservation Cases Involving IP Disputes (Jan. 1, 2019) (China), states that preliminary injunctions granted by Chinese courts “are generally not cancelled because the respondent provides a guarantee, except with the applicant's consent”); and, as I noted in a post ten years ago titled Setting the Amount of an Injunction Bond (and a Brief Digression about the Wright Brothers), this does not appear to be an authorized practice under U.S. law, although there are some old cases (including one, you guessed it, involving the Wright Brothers of airplane fame) in which federal district courts employed it.  (I should mention as well that Hui Zhang’s very informative 2019 Kluwer Patent Blog post on the Chinese Provisions noted above states that the practice is authorized under German law.  I imagine that must be the case, since IPRED requires it, but if readers can provide me with a citation to any cases in which this procedure has been employed, in Germany or for that matter anywhere else, I would appreciate it.)

If I understand correctly, the effect of the court’s or plaintiff’s acceptance of a bank guaranty or the payment of interim royalties in this context would be to render some of the patent owner’s allegedly irreparable harm—such as the risk of the defendant’s insolvency, or of a final damages judgment failing to properly account for the time value of money or other advantages accruing to the defendant from delay—reparable, and thus would provide a doctrinal basis for denying the preliminary injunction.  (In this regard, I would also note that the InterDigital decision discussed in the SpicyIP post states (at para. 99) that normally the court must first determine that the plaintiff has a prima facie case.  The logic, I think, would be that there is no need to calibrate the effect of a guaranty on the balance of hardships if there is no prima facie case.)  Theoretically, I would imagine that the practice also could enable a defendant who believes the court has erroneously balanced the relative hardships in favor of the plaintiff to “repair” some of the plaintiff’s allegedly irreparable harm by compensating the plaintiff for harms that otherwise would be, at least as a practical matter, non-compensable under governing law, such as harm to reputation or moral prejudice—though I would expect such cases to be extremely rare, perhaps nonexistent.  Again, though, if readers have any further insights on these issues, I would be interested in hearing from you. 

On a somewhat related note, Gregory Bacon and Aida Tohala published a post on the Kluwer Patent Blog last week about a decision of the Hague Local Division of the UPC, Abbott Diabetes Care Inc. v. Sibio Technology Limited, granting a preliminary injunction notwithstanding the defendant's undertaking to withdraw its allegedly infringing product from Germany, France, and the Netherlands.  The court was not persuaded that the undertaking would be effective, because Abbott "was able to purchase the contested device and have it delivered in Germany and the Netherlands, even after the undertakings were given," and because of the "lack of commitment as to penalty in the event of breach."   

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