This piece has been authored by Shereen Moza,4th Year Student | Rajiv Gandhi National University of Law, Punjab

Keywords: Standard Essential Patents (SEPs), FRAND, Confidentiality Clubs, Delhi Original Side Rules, 2018, Intellectual Property Division Rules, 2022

1. Introduction

Fair, Reasonable, and Non-Discriminatory (FRAND) rate in licencing is a crucial tenet in the complicated world of patents and technological standards. FRAND rate licencing of Standard Essential Patents promotes innovation and competition in the technological sector, by ensuring that crucial patented inventions are made accessible to all on a price that can be afforded by them. However, in order to protect this sensitive commercial information, the process of negotiating Standard Essential Patents (SEPs) licencing agreements at FRAND rates frequently necessitates a high level of discretion, giving rise to “Confidentiality Clubs.” In the simplest terms, a Confidentiality Club is a famous mechanism in patent litigation, to share confidential commercial information between parties. It usually includes the advocates and external experts as members and the shared information is strictly accessible by them only.

Across patent litigation, whenever Standard Essential Patents (SEPs) are brought into question for cases involving infringement, these FRAND licensing rates are analysed through documents that are considered of evidentiary value. This confidential information is shared within a sealed cover with the elected representatives of both parties. However, the procedure here is presented with a conundrum when it comes to the involvement of either parties’ in-house representatives. The presence of in-house representatives in these clubs leads to the risk of leakage of this confidential commercial information in future prospects and therefore requires an expedited analysis by the relevant courts.

2. Regulatory Frameworks Impacting Confidentiality Clubs

The rise of patent revolution in India over years led to the increase in sharing of confidential information for these SEPs licensing agreements. This led to the increasing need to codify this procedure for the efficient creation by courts.

2.1. Delhi High Court (Original Side) Rules, 2018

To undertake this sharing of information whilst balancing the interests of either parties, Indian courts (specifically the Delhi High Court vis-à-vis the Original Side Rules of 2018) codified the law surrounding these clubs following the U.K. inspired pattern of elected representatives of either parties to be part of these clubs and accommodate dissemination of information in a restricted manner. These Original Side Rules of the Delhi High Court in Chapter VII Rule 17 qua Annexure F specified on the non-inclusion of in-house counsels and interested parties as an elected representative in these clubs and restricted these clubs to the inclusion of just the representing counsels and external experts for evaluation.

Consequently, this system prompted questions. The main concern centred on the fact that, in contrast to in-house counsel(s) and representatives, external specialists lack a comprehensive knowledge of the company’s daily activities owing to their non-involvement in the organization’s management. This prompted concerns about the validity and appropriateness of relying on external experts to make insightful and sensible recommendations for this highly classified information.

Another conundrum was created by the interested parties’ isolation from these confidential exchanges. It became abundantly clear that counsels would eventually need to provide case-related information to the interested parties in order for them to effectively represent their clients but doing so would go against the restriction of disseminating information to anyone outside the club, which is a cornerstone of the confidentiality clubs as per these rules. If followed, the regulation was a direct violation of the established principle of an advocate acting only as per the directions and in the interest of the party they represent.

2.2 Delhi High Court Intellectual Property Rights Division Rules (IPD), 2022

Post the issues being raised on the constitution of confidentiality clubs as per the Original Side Rules of Delhi High Court, the Intellectual Property Division Rules codified these confidentiality clubs in relation to the matters of intellectual property getting in its aegis, Patents, and consequently SEPs. Rule 19 of the Intellectual Property Division Rules specifies the inclusion of in-house counsels in these confidentiality clubs, contrary to clause two of the Original Side Rules. Additionally, the rules stated that representatives elected by the parties should not be involved in the day-to-day operations of the company. However, the formation would be as per the Original Side Rules, 2018.

This specification led to more questions pooling in on the validity of this procedure. The parties at dispute contested the possibility of leakage of this highly confidential commercial information to the in-house representatives that are involved in the day-to-day activities of the company (possibly including their SEP licensing procedures as well) and how this can cause grave and irreparable damage to the companies disclosing information. Additionally, the possible inclusion of interested parties led to the same risk being enhanced.

This in consequence has created the conundrum of whether to accommodate in-house counsels in the confidentiality club as per the IPD Rules, 2022 or to exclude them as per the Original Side Rules, 2018.

3. Key Legal Precedents: the Inclusion Dilemma in SEPs Litigation

Post the codification of these rules, multiple precedents where these clubs were formed raised a dissimilarity in their formation.

3.1. Telefonktiebolaget LM Ericsson (publ.) v. Lava International Ltd. (2016)¹

Ericsson, a telecommunications company, filed a patent infringement lawsuit against Lava International Ltd., an Indian mobile phone manufacturer. Consequently, Ericsson filed for the establishment of a confidentiality club to scrutinize the patent licensing documents. Since the case was pre-codification, the club was formed at the discretion of the court, where three lawyers were included (with the exception of any in-house counsel of either company) and external experts.

3.2. Transformative Learning Solutions Pvt. Ltd. & Ors. v. Pawajot Kaur Baweja & Ors. (2019)²

While the matter was related to copyright infringement and not SEP licensing, the confidentiality club formed in the present matter was inclusive of the parties. The court held that non-disclosure of any information or document from the defendant denies them the chance to be rightly heard and diminishes the ability to file an apt defence.

3.3. Genentech Inc. & Ors. v. Drugs Controller General of India (2020)³

The present case involved Genentech which was a pharmaceutical company. Post application for the establishment of a confidentiality club, the court approved the same, however, permitting an internal expert in the company to review the reports that were filed. The Court ruled that even if a third-party expert conducts the examination; he is still required to reveal the information derived from the records so that the applicant for the inspection may make the necessary adjustments and prove its case in court. According to the Court, an inspection loses its value if the results are not used deliberately by the organisation that requested it.

3.4. Interdigital Technology Corp. v. Xiomi Corp. (2020)⁴

In the hotly debated case of Interdigital v. Xiomi, the plaintiff i.e. Interdigital requested for the formation of a confidentiality club as per their suggestions. This included a creation of a two-tier confidentiality club which excluded the parties, in-house counsels and employed representatives from viewing these confidential information. The court held against this prayer specifying how this was against the principles of natural justice relying on the reasoning of Transformative Learning Solutions Pvt. Ltd.

4. Navigating the Tightrope: Regulatory Compliance and Practical Complexities

Confidentiality clubs, as discussed above, are inspired by the framework of litigation in U.K. Courts. Similarly, issues relating to the inclusion of in-house counsels have been discussed in multiple landmark cases in U.K. as well, specifically, Oneplus v. Mitsubishi.⁵ and Interdigital v. Oneplus⁶ reiterating the ratio in the Mitsubishi case. In these judicial decisions on the conundrum of inclusion/non-inclusion of in-house representatives and parties, the courts deliberated extensively on the need to strike a delicate balance between the disputed considerations.

On one hand, there is the need to ensure the inclusion of necessary participants, while on the other, there is the equally compelling requirement to uphold principles of natural justice and equitable proceedings. The courts are acutely aware of the inherent risk that exposing highly confidential and commercially sensitive information may entail, which could result in substantial harm and damage to the party divulging such information in case these members are included.

5. Analysis and Possible Solutions

To equitably resolve this dilemma by balancing the interests of both the parties, the court can create a criteria for confidentiality. The rate of confidentiality can be determined as per the commercial importance of the information and how much damage the possible leak can cause.

Additionally, the Indian courts can also create a confidentiality club as per the discussions of the Court of Appeal in the case of Oneplus v. Mitsubishi, where Lord Justice Floyd created a three tier club. First tier being the Attorney’s Eyes Only (AEO) including only the attorneys of either side. Second tier being the Highly Confidential Material (HCM). This includes the parties and their representatives. The last tier is Ordinary Disclosure Materials (ODM) which is governed by the Civil Procedure Rules. In cases where the Attorney feels that the information has to be disclosed to the parties, they may be allowed to do so. However, in cases where the technicality of the information is so supreme that sharing of the same with the parties will not necessarily acquire any apt suggestion, the information can be restricted from sharing.

This brings about an equitable solution to the problem while balancing the needs and interests of either side i.e. the party to whom the information is disclosed and the party that is disclosing the information.

6. Conclusion

The inclusion of in-house counsel within confidentiality clubs in the terrain of SEPs licensing has illuminated the multifaceted nature of this issue. It is highlighted through the contradicting clauses of the two Rules that codify the same i.e. the Delhi High Court (Original Side) Rules, 2018, and the Delhi High Court Intellectual Property Rights Division Rules, 2022, and how that has led to variance between multiple precedents over the years. The courts need to analyze the reservations of both sides before reaching a solution, as was done in the U.K. jurisdiction.

India, whilst at its peak of technological advancements and rapid growth needs to solidify any reservation or issue in the realm of patent litigation to continue its rapid growth in the market of SEPs and licensing at FRAND rates as confidentiality clubs, and the role of in-house counsels within them will remain at the forefront of the legal discourse for dissemination of any information necessary for proper litigation till it is resolved.

END NOTES

1. Telefonktiebolaget LM Ericsson (publ.) v. Lava International Ltd., 2016 SCC OnLine Del 1354.
2. Transformative Learning Solutions Pvt. Ltd. & Ors. v. Pawajot Kaur Baweja & Ors., AIR 2019 Del 197.
3. Genentech Inc. & Ors. v. Drugs Controller General of India, 2015 SCC OnLine Del 13191.
4. Interdigital Technology Corporation v. Xiomi Corporation, (2021) 277 DLT 396.
5. Oneplus v. Mitsubishi [2020] EWCA Civ 1562.
6. Interdigital v. Oneplus [2023] EWCA Civ 166.