Delhi High Court rejects the request for a “two-tier” Confidentiality Club

A Single Judge Bench of the Delhi High Court, in a patent infringement suit between Interdigital Technology Corporation and Xiaomi Corporation[i], has rejected Interdigital’s request for constitution of a “two-tier” Confidentiality Club, wherein the parties, as well as their officials, personnel and employees, would have no access to the “inner tier” documents, comprising third- party comparable patent license agreements on FRAND terms, which would only be accessible by advocates (who are not in-house counsel) and experts.

The Court held that such an arrangement, unless mutually agreed upon by the parties, would be violative of the provisions of the Bar Council Rules as well as the law laid down in various previous decisions and would also be against the principles of natural justice and fair play.

Facts of the case -

The Plaintiff had sued the Defendant for infringement of its Indian patents under Nos 262910, 295912, 298719, 313036 and 320182 and had alleged that the Defendant had used the technology contained in these Standard Essential Patents (SEPs) without obtaining any license from the Plaintiff. Thus, the Plaintiff had filed a suit for grant of a permanent injunction against the Defendant from manufacturing, selling, assembling, distributing, advertising, exporting, importing or using technology in its devices, which infringes the Plaintiff’s SEPs or to take a license from the Plaintiff for usage of its SEPs as per FRAND terms, which are be determined by the Court.

The Plaintiff had also filed an application under Chapter VII Rule 17 of the Original Side Rules for setting up of a Confidentiality Club, which is a routine protocol in SEP litigations.

The Plaintiff had requested for setting up of a “two-tier” Confidentiality Club, wherein the “outer tier” documents and material would be accessible to the advocates of both sides, experts appointed by them, as well as representatives of both parties, whereas the “inner tier” documents would be accessible only to the advocates of both sides (who would not be in-house counsel), and experts appointed by them.

The issue in the present matter was not whether the Confidentiality Club should be set up or not but if it should be set up in the manner as requested by the Plaintiff.

Submissions of the Plaintiff -

The Plaintiff had contended that such an arrangement is accepted and recognised by Courts worldwide while dealing with SEP infringement litigation. Further, the Plaintiff had contended that such an Agreement would be reciprocal in nature and would also benefit the Defendant. The Plaintiff also submitted that in cases such as this, it was an accepted legal position that it was not necessary that all information be disclosed to the parties, or their personnel.

In response to the Court’s query pertaining to how an advocate could be expected to be appropriately instructed, if he is unable to share, with his clients, the material on which the opposite party seeks to rely, the Plaintiff had averred that such arrangements have been created, in the past, and have worked.

Further, in response to the Court’s second query pertaining to how the court could come between the advocate and his client, insofar as the “inner tier” documents were concerned, and injunct the advocate from disclosing the documents to his client, the Plaintiff had averred that no occasion would arise for the Court to come between client and counsel since if the Court were to accede to the prayer, it would be for Xiaomi to instruct its Counsel not to disclose the “inner tier” documents to it.

Submissions of the Defendant and Reasoning of the Court -

The Defendant had submitted that nobody can be permitted to rely on documents, to which the other party has no access. Moreover, granting access to advocates and experts is not an alternative to granting access to the parties themselves. Further, the Defendant had also relied on the hallowed principle that an advocate acts only on the instructions of his client.

The Court accepted Defendant’s arguments that it is essential for the officials of Xiaomi to be able to peruse the covenants of the third-party license agreements to examine whether the royalty rates offered by InterDigital to the third- party licensees were actually FRAND and to assess whether the case of Xiaomi was similar to that of any of the licensees in the said license agreements. The Defendant argued that while it may be possible for an external expert to opine whether the conduct of InterDigital, with regard to the licensees in other license agreements, is FRAND or not, determining of a FRAND rate, between InterDigital and Xiaomi, would require the peculiar business realities of Xiaomi to be borne in mind.

The Court observed that without knowing the identity of the licensee, the particulars of the license agreement, or its covenants, it defeats comprehension as to how the Defendant can be expected to make any submission, regarding whether the rate, at which such license has been granted, is, or is not, FRAND. Thus, it was deemed to be obvious that the Defendant would have to be aware of the license agreements with other licensees.

The Court, with regard to the fact that Courts worldwide have agreed to such arrangement, held that the mere fact that overseas courts have acquiesced to the setting up of such Confidentiality Clubs cannot be of any substantial significance in deciding the present application of the Plaintiff.

The Court further stated that Rule 17 in Chapter VII of the Original Side Rules marks a departure from the regime of complete transparency which has been envisaged by CPC. In this regard, the Court went on to say that “there may be documents, relied upon by one party, on which expert opinion is provided, which may not need to be seen by the opposite party, as an expert has already opined on the document. That, however, would be an issue which arises on a document-to-document basis, based on the document and the contents of the report of the expert. Whether either of the parties, to a litigation, needs, or does not need, to see a particular document, would be a decision which essentially rests with the party itself. Can InterDigital, simply put, assert that Xiaomi does not need to see a document on which InterDigital places reliance, to contest the case initiated by it against Xiaomi? The answer, in my view, has unexceptionably to be in the negative.”

The Court also accepted the Defendant’s contention that acceptance of the arrangement would result in an unequal balance, as the officials and personnel of InterDigital would have complete access to and would be privy to the contents of the third-party license agreements, whereas none of the officials and personnel of Xiaomi would be privileged to gain such access.

Regarding Plaintiff’s contention that “irreversible damage” would be caused if confidential data, contained in the license agreements with third parties, is disclosed to Xiaomi, the Court stated that said argument is oblivious to the damage that would result to Xiaomi, were it to be required to defend the action brought by Plaintiff, without being shown such third-party license agreements.

The Court emphasised that if both the parties were themselves amenable to such an agreement, then the Court would not come in their way and the decision only upholds when one of the parties is not agreeable to such a constitution of the “two-tier” Confidentiality Club.

Decision of the Court -

In the present case, since Xiaomi is not agreeable to such an arrangement and submits, categorically and unequivocally, that it “cannot concede to documents, on which InterDigital relies, being kept away from its officers and employees, and disclosed only to its advocates and experts”, the Court ruled that the prayer for keeping certain documents and information inaccessible to Xiaomi and its personnel, and allowing access only to the advocates and experts nominated by Xiaomi, is completely unacceptable.

However, the Court opined that parties are at liberty to redact details or particulars from the document which they feel cannot be shown to the nominated representatives of the opposite party. Further, the party that redacts any particular shall not be permitted to rely on such a redacted particular. The opposite party is allowed to plead that disclosure of such redacted material is necessary for its defence and in such a case, the court would have to decide on a document-to-document basis, whether redacting of the “confidential” particular should be allowed.

This judicious decision by the Delhi High Court aims at balancing confidentiality and the principles of natural justice and fair play and is significant in the evolving jurisprudence of the Confidentiality Clubs in India.

For any questions, please fee free to write to Ms. Saumya Kapoor, Senior Associate, at saumya.kapoor@iprattorneys.com

[i] Interdigital VC Holdings Inc & Ors. Vs Xiaomi Corporation & Ors., Cs(Comm)-296/2020 And Cs(Comm)-295/2020

The article was originally published on www.lexology.com on December 22, 2020 and can be accessed here.