Dolby v. GDN Enterprises & Oppo

On 23rd November, a Single Judge Bench of the Delhi HC passed orders in Dolby International v. GDN Enterprises[1] altering its earlier order dated 27th October, 2016 on the rate of royalties payable by Oppo. The Delhi HC order in the instant case is significant because it reduced the earlier rate fixed by the Court on the ground that the earlier rate was being charged on Dolby’s entire portfolio of patents, many of which were not the subject-matter of the present dispute.

Background of the case:

Dolby (US company specialising in audio technology) recently filed a patent infringement suit in India for unauthorised use of Dolby’s patents by Chinese smartphone manufacturers, Oppo & Vivo (defendants).[2] In 20th October 2016, the Court passed an ex-parte interim injunction against the defendants restraining them from manufacturing/selling/importing devices which infringed Dolby’s SEPs. On 27th October, the Court ordered Oppo & Vivo to deposit interim royalties to the Court at the rate of INR 34 per handset sold/manufactured/imported in India by the defendants[3]; the amount for each month was to be deposited by the 8th of the succeeding month by the defendants. Indian entities, GDN Enterprises & Das Telecom (through which Oppo & Vivo did business in India) were impleaded as defendants in the suit; the order also stated that the defendants would enter into negotiations with the plaintiff, Dolby, over FRAND licensing terms. Subsequently, GDN filed an interim application (IA No.14417/2016) in the Court challenging the Court’s order for payment of interim royalties on the ground that GDN was no longer manufacturing for Oppo.[4] The other defendants (collectively ‘Oppo’) also filed an interim application (IA No.14492/2016) against the Delhi HC order challenging the royalty rate fixed by the Court. The Court heard arguments in both the interim applications on 23rd November.

Parties’ arguments & Court’s order in the instant case:

IA No.14417/2016-

The applicant/defendant, GDN inter alia argued that it was not liable to make payments to Dolby because Dolby in its suit had pleaded cause of action only against Oppo and not GDN. Therefore, GDN argued that finding cause of action against it would be wrong on the part of the Court since this was an adversarial proceeding as opposed to an ‘inquisitorial proceeding’.[5] The Court refused to hear the matter in the instant proceedings because GDN had failed to file the requisite affidavit.

IA No.14492/2016-

Oppo argued that Dolby had brought a case against the makers of Blackberry in the US involving the same patents/inventions that were the subject matter of the present suit. In the US case, Dolby in its pleadings had admitted that its patents were algorithms. Based on this, GDN argued that Dolby could not hold patents over those inventions in India since section 3(k) of the Patents Act, 1970 prohibits patentability of inventions which are algorithms. The Court was of the opinion that the section 3(k) argument could not be decided without allowing Dolby to file a reply as to whether Dolby had patented the algorithm in India or Dolby’s patent was in fact over the technology which incorporated the algorithm (permissible under Indian law).

Oppo next argued that the patent infringement suit filed by Dolby involved only 4 of Dolby’s patents whereas the royalty rates fixed by the Courts in its October order related to some 600 patents owned by Dolby. Oppo further stated that Dolby held only 8 registered patents in India and therefore, Oppo could not be made to pay royalty rates on Dolby’s entire portfolio of 600 patents. In response to this, Dolby argued that it was charging “similar FRAND rates from other manufacturers similarly placed” as Oppo; therefore, Dolby contended that this was an international practice and cited a judgment of the District Court of Germany to support its contention. Dolby further relied on the Ericsson case where interim royalties had been ordered on the entire portfolio of patents. Dolby also stated that in Ericsson the Court had (prior to its order) determined whether for use of a patent, the rates prescribed for the entire family can be directed to be paid” and decided in the affirmative.[6]

The Court agreed with Oppo’s arguments that royalties should be payable on the patents involved in the case and not on the entire portfolio of Dolby’s patents. The Court stated, “It indeed troubles me that the defendants, even by way of an interim arrangement, should be made to pay the rates which the plaintiffs have prescribed for a family of as many as 600 patents when this suit has admittedly been filed for enforcing rights in four patents only”. Accordingly, the Court modified its earlier order and directed that royalties be payable at INR 20 per unit instead of INR 34 per unit by Oppo; the Court clarified that the order would not apply retrospectively and would be subject to the filing of an affidavit of undertaking by Oppo.[7]

[1] CS (COMM) 1425 of 2016. http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=229348&yr=2016

[2] It is not clear when exactly the suit was filed in the Delhi HC. The first order relating to the dispute available on the court website is dated 27.10.2016. http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=208102&yr=2016

[3] The amount offered by the defendants was INR 32 per unit and that proposed by Dolby was INR 38 per unit.

[4] http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=226461&yr=2016

[5] India has an adversarial legal system where the judge plays the role of an “impartial referee” rather than playing an active role in seeking out the truth (a feature of the civil law system).

[6] Oppo opposed the Ericsson argument made by Dolby (further details of this are not provided in the HC order).

[7] The Court also clarified that since the other defendants were not present during the proceedings, the earlier order (dated 20th October) would continue to operate against all defendants except Oppo.