Case Study on: Interdigital v. Xiaomi
In its recent judgment, Delhi High Court has captured all the eye and been the topic of the hour directing towards the structure of “Confidentiality Club” as in Interdigital Technology v. Xiaomi Corporation. The case study focuses on the Defendant’s rights beyond the standard-essential patent litigation.
The patent infringement case involving Standard Essential Patents (‘SEPs’) covers technologies essential for standard-compliant devices. The enforcement of the SEP is taken care of to grant the FRAND licence(s). The motive of the confidentiality club holds one to have access to business-sensitive information that otherwise pertains disputes. By letting the representative of the party have access directly into confidential matters destabilize the entire purpose.
Therefore, marking the confidentiality structure, it’s often aimed with the information or document that forms part of or is enabled to form part of the Confidentiality Club. Even within a set of confidential information, it is often the situation that there are degrees of sensitivity attached to such information. It is critical for the Court to first appreciate these factors before determining the structure of confidentiality. In case of any dispute amongst the parties on whether something is confidential and/or in the ‘highly sensitive category’, it may be more prudent to make this determination before deciding upon the structure of such ‘Confidentiality Clubs’.
Facts of the Case:
- In this case, the plaintiff filed suit against Xiaomi, alleging infringement of the patent by utilizing SEPs without taking a license from Interdigital. Interdigital claims remedy against Xiaomi in the form of a permanent injunction or by obtaining a license for the use of SEPs held by the plaintiff.
- The plaintiff had licensed its SEPs to third parties and invited Xiaomi for getting the license for the same. The plaintiff had rejected the rate proposed by Xiaomi for not confirming to FRAND (fair, reasonable and non-discriminatory) parameters.
- The Defendant needs information concerning the third-party licensee’s identity, the scope of the license granted and exact area to such licensee and other such information, which can be received from comparable license agreements.
- The Defendant finds the need for it in order to assess the rate of royalty, falling under FRAND.
- Further in the response, Interdigital advances a royalty rate but denies Xiaomi access to comparable license agreements. Such agreements consist of confidential data and trade secrets that cannot be divulged to Xiaomi, a competitor.
- After receiving permission from the Court, the plaintiff proposes to form a confidential club where knowledge would be shared at two tiers. The documents, reserved for Legal Eyes Only (LEO), befalling under the inner tier would be available only to the technical experts, ex-house advocates and attorneys of Xiaomi and not to the employees, officers of Xiaomi.
- This implies that advocates and technical experts of Xiaomi, without taking any suggestions from its employees, would negotiate the amount of royalty rate based on third-party licensing agreements. Keeping in mind that such rates confirm to the FRAND criteria and are appropriately beneficial to their client.
In this case, along with the Standard Essential Patents, the confidentiality club’s structure was proposed to uphold the dignity of the business’s confidential matters. The Hon’ble High Court of Delhi rejected the plaintiff’s proposal to restrict access into several confidential information upon the Defendant’s perspective and portray a broader view.
The proposition of providing access only to its advocates and experts while denying Xiaomi to access them is absolutely unacceptable. The two-tier confidentiality club should be constituted only after both the parties to dispute give their consent. The Court laid down that agreement, in case of any, between the parties to a dispute will prevail over the judgment. Rather than a two-tier confidential club, a single-tier club should be constituted with conditions prescribed. The business interests of both the parties to dispute hold equal importance to impart justice.
Relevance for Defendants Rights beyond SEP Litigation standard-essential patent:
In my interpretation of the judgement declared, the Court does not balance the harm caused to the plaintiff, whereas, the right of the Defendant to access the information, on an equal footing. The Court does not negate that declaration of information about analogous licensing agreements can cause irreversible harm to the plaintiff, as alleged.
The business interests of Interdigital, howsoever legitimate, cannot prevail over the paramount concern of the grant of fair opportunity, and natural justice, to Xiaomi, to meet the case set up by Interdigital. Herein the Court recognizes Interdigital business considerations as legitimate. The Court does not even recognize it appropriate to interrogate the degree of potential harm that may be caused or its stability/irreversibility.
Interdigital had invited Xiaomi into the platform, and not vice versa, which holds out that litigation cannot be a one-way street” and critically notes that it is the plaintiff who has brought the Defendant to Court.
Further, the essence of the entire discussion on SEP litigation is that the Defendant’s ingress to information in comparable license agreements is a consideration that is relevant in nature at the time of defending the suit and making an argument regarding the rates of royalty whether falling under FRAND compliant. The terms of FRAND must be non-discriminatory by definition, which is why comparing rates with other license agreements becomes relevant.
Whether, in reaching a particular royalty rate to a licensee, for the exploitation of its SEP, the plaintiff has discriminated, favourably or otherwise, qua that particular licensee, becomes, therefore, a relevant consideration, in assessing whether the rate extended to the licensee is, or is not, FRAND. To the fundamental principles of natural justice, fair play and due process, the damage that would ensue was the Defendant to be excluded access from such allegedly “comparable” license agreements, is serious and irreparable. Any procedural arrangement, which is fraught with the possibility of such damage has, in my view, to be unequivocally jettisoned.
Therefore, in my opinion, the above-quoted lines by the Hon’ble High Court put up with the relevancy of this holding extends beyond SEP litigation to all cases involving trade secrets that also indicates towards the commercially valuable confidential information. This has significance on the Defendant’s right to access information that is pertinent to defend the case, regardless of the information being confidential in nature.
It is not to be forgotten that trade secrets in India are safeguarded under the law of contract, or in the absence of a contract, under an equitable duty of confidence. In this particular case, it makes it evident that the Defendant cannot be rejected from examining contractually guarded confidential information if such information is necessary or marks evident importance for one to defend the suit. This is majorly due to concerns of equal opportunity, fair play and natural justice that the plaintiff may have in holding this information secret. The relevance of access to confidential information for the Defendant is uncomplicated and instinctive in nature to prove in SEP litigation. However, the fact would not render this decision inapplicable beyond SEP litigation where such relevance can similarly be proved.
It was in the case of Transformative Learning Solutions Pvt Ltd. v. Pawajot Kaur Baweja, where the Delhi High Court, pertaining to the allegation of infringement of the plaintiff’s copyright in a customer’s list. In this case, the plaintiff had sought an injunction against the defendants, from disclosing their confidential information and trade secrets, among other things. The particular decision relies upon the above-mentioned case.
The question that stroked up in the case was whether such “limited access” could be so restricted as to deny access to the opposite party, as well as its employees and officials, and restrict the access only to its nominated “ex-house” counsel and experts. The Court answered it based upon the Defendant’s right to access this information, where it is relevant to defend her suit. Therefore, the judgment should not be interpreted to be limited to just SEP litigation. It is a useful precedent to argue promoting the Defendant’s right to know in civil suits across the board where the Court may create confidentiality clubs.
It terms right to state that application of the decision beyond SEP disputes might be limited, given that the harms through disclosure of confidential information in areas such as trade secrets might be substantially high to push for the exclusion of interested parties who might unduly gain from such confidential information. The judgement sheds light upon the only concerning issue of whether such a structured Confidentiality Club arrangement can be obstructed upon Xiaomi against its goals. It answers this question in negative connotation but notes that the decision does not have a bearing on similar arrangements if both parties agree to them as a result of some common understanding amongst themselves.
Therefore, though the judgment condemns the denial of a fair opportunity to the defendants, to meet the plaintiffs’ case set up, it does not offer any pushback against non-disclosure documents or business that affects the public’s right to be aware. However, in a report titled, ‘Open Courts in the Digital Age’, the answer to what constitutes confidential information is not always transparent, especially when parties have not contracted or granted amongst themselves on this question.
- Judgements quoted from :
- Facts of the case from:
- The judgement of the case:
- Relevance and about “Confidentiality Club”: