Delhi High Court limits confidentiality club access to information

SEP disputes have popularised the use of confidentiality clubs, which have become a reasonably secure way to share protected information necessary to adjudicate FRAND licensing disputes. However, what happens when a party redacts certain parts of third-party agreements? The Delhi High Court has addressed this question in Koninklijke Philips NV v Vivo Mobile Communications Co Ltd and Ors (IA no 18902/2022 in CS (COMM) 383/2020).

Background

Philips has sued Vivo (the implementer) for infringement of its SEPs related to 3G, HSPA, HSPA+ and 4G/LTE telecommunication technologies. Vivo had challenged the essentiality of the suit patents and asserted that Philips violated its FRAND obligations by denying access to all third-party licensing agreements. Vivo further challenged Philips’ royalty rate calculation, which was based on the entire portfolio rather than the specific patents asserted in the infringement suit. Aside from the above, according to Vivo, there was no infringement because the suit patents’ technology was implemented in the ‘chipsets’ sourced from Qualcomm and MediaTek, not in the handsets manufactured by Vivo. Therefore, either the chipset makers were liable, or if Philips had agreements in place with them, then the patents would be exhausted, and Philips would be prevented from claiming further licences from Vivo.  

Accessing third-party agreements

To test the veracity of Vivo’s assertion, Philips filed an application before the court seeking discovery by way of interrogatories and production of chipset-related licence agreements (IA 3048/2021). Vivo opposed the application, arguing that since Philips was claiming that its patents were standard essential, the burden of proof rested on them to show mapping between industry standards and their patents (ie, the onus was not on Vivo to establish that the patented technology lay in the chipsets).

The court disagreed and asked Vivo to answer the interrogatories and produce its licence agreements with Qualcomm and MediaTek. The court reasoned that allowing the application for discovery would expedite the trial because the agreements would help to ascertain truth in Vivo’s assertions. In order to protect sensitive information, the court also directed that the disclosure be made under a confidentiality club consisting of two experts and eight lawyers for Philips.  Vivo attempted again to oppose the above and filed an application to review the court’s order, but it was refused.

Battle of redactions

After its initial reluctance, Vivo allowed the members of Philips’ confidentiality club to inspect the third-party agreements, which it produced in redacted form. Philips unsuccessfully objected to the redaction, requesting that the court initiate contempt-of-court proceedings against Vivo for failing to comply with the court’s discovery order. In response, Vivo filed a separate application, requesting that the court allow it to produce redacted agreements related to 3G, HSPA, HSPA+ and 4G/LTE technologies (IA no 18902/2022). 

Vivo asserted that pursuant to the court’s discovery order, the third-party licence agreements were to be submitted to ascertain whether the asserted patents’ technology was present in the outsourced chipset or handset of Vivo’s products, with the ultimate aim of revealing what technology was licensed to it by Qualcomm and MediaTek. Vivo, therefore, contended that the redactions were appropriate – they related to royalty and payment terms between the agreements’ parties. This information would only become relevant at a later stage, when – or if – FRAND rates are determined. Until then, it asserted that discovery should be limited to the unredacted portions because Philips has not yet established that the asserted SEPs are valid, essential and infringed. Philips argued that due to the redactions, confidentiality club members could not discern valuable information (eg, FRAND rates) relevant to the litigation.

Delhi High Court’s ruling

The court reviewed both the redacted and unredacted versions of the agreements and found that the redacted parts solely concerned commercial terms and payment arrangements. It disagreed with Philips’ contention that full access was necessary for its economic expert to verify Vivo’s proposed FRAND rates. Rather, the court observed that question of deciding FRAND terms and royalty rates would arise only after infringement is established. It also stated that since the discovery order was issued to help Philips ascertain if the asserted patents were incorporated into the chipset or handset manufactured by Vivo, the redacted portions were irrelevant at this stage of litigation. Therefore, the court permitted the redactions and opined that redaction of irrelevant information helps preserve the confidentiality club’s integrity.

The decision strikes a balance between access to information and protection of information that is not yet relevant. This is crucial in preliminary discovery requests as it allows a party to seek confidential information required to challenge the other party’s assertions while appreciating that not everything must be disclosed at once. Focusing on relevancy, the court has now provided nuance concerning access given to members of a confidentiality club. Conversely, we may now see more battles in which parties test the limits of acceptable redactions. Stay tuned – the main suit of infringement is pending, and it will be interesting to see how the proceedings play out in the coming months.