The Creeping ‘Judicial Activism’ in Patent Litigation

For several decades now, Indian courts have earned a reputation for unrestrained judicial activism in the fields of political, social, and environmental rights. Often, such judicial activism, which ignores the letter of the law in favour of the judge’s personal politics, has opened the door for the courts to usurp governance from an elective government. From mandating all public transport in Delhi to run on liquefied natural gas to prohibiting the sale of liquor within 100 metres of national highways, the judicial activism of the courts has often been sweeping and without basis in parliamentary law. 

Much of this judicial overreach, spearheaded by the Supreme Court, has been justified on the touchstone of Article 142 of the Constitution, which gives the court the power to pass any order necessary for ensuring 'complete justice'. The contemporaneous provision in the Code of Civil Procedure, being invoked by the Delhi High Court to justify its unprecedented judicial activism in commercial litigation, is Section 151. Like Article 142 (which is limited to the Supreme Court), Section 151 allows all civil courts to use their 'inherent powers' to 'meet the ends of justice'.

A stark example of such judicial activism, is the Delhi High Court’s handling of lawsuits pertaining to the infringement of standard essential patents (SEP) in the area of telecommunications. These patents cover technologies which have been declared an industry standard by industry-driven standard-setting organisations (SSOs). Once a technology is declared as a standard, it is required to be used by everyone in the industry so as to ensure inter-compatibility between different manufacturers. This requirement gives the owners of SEPs incredible monopolistic power since, in theory it gives them the upper hand in any negotiations over licensing fee. Cognisant of this monopolistic power that vests in the owner of SEPs, SSOs generally require owners of SEPs to commit to licensing their patents on a fair, reasonable and non-discriminatory basis (FRAND). This rarely ever happens, and many countries have had to initiate sweeping antitrust investigations into the licensing practices of major SEP owners.

India is the only significant Asian economy to not have investigated the owners of these SEPs for abusing their patents in violation of competition law. China, South Korea and Taiwan have all imposed massive fines on Qualcomm, the biggest owner of SEPs, for violating their competition laws. In India, efforts by the Competition Commission of India to investigate Ericsson for violation of SEPs, have faltered for over a decade on the issue of its jurisdiction in patent cases.

On the other hand, SEP owners aggressively enforce their patents in India. Lawsuits pertaining to the infringement of SEPs are complicated, requiring the courts to parse through various issues across law, technology and competition law. The only Indian judgment rendered after trial, in a case of SEP infringement by the Delhi High Court, in Lava International v. Ericsson (2024) took eight years to be decided. Ironically, this inability of the courts to deliver timely justice has been cited as a reason by the Delhi High Court, to craft an extraordinary, unprecedented and patently unfair remedy in commercial law, wherein defendants, who are often manufacturers of smartphones and communication equipment, are ordered to deposit a percentage of damages sought by the patentees, even before the trial has been conducted to determine the validity or infringement of patents! To quote an extract of a recent judgement of the Delhi High Court in Dolby International v. Lava International: 'The Court has to be conscious of the fact that trials in India take a long time to conclude, and therefore, there has to be a mechanism put in place to ensure that a patent owner is not left with a paper decree, in the event it ultimately succeeds.'

Two recent judgements by the Delhi High Court, delivered in July, ordering defendants to deposit significant royalties with the court before a trial has even commenced, have fortified a trend set into  motion over the last decade. In one case, a Korean company manufacturing communication equipment has been ordered to deposit Rs. 290 crores. In a second case, an Indian company manufacturing smartphones has been ordered to deposit Rs. 20 crores. The registry of the court is required to deposit this amount in a fixed deposit, and depending on the final judgement delivered years later, the deposit is either transferred to the patentees or refunded to the defendants. Even if the defendant wins and gets a refund of the deposit, it loses money because the rate of interest for an FD will rarely cross 9%, while the rate of interest for working capital can easily touch 25% for businesses in India. In addition to the deposits, both defendants have also been asked to secure bank guarantees for the remaining damages claimed by the patentees. 

The problem with these orders is that neither the Code of Civil Procedure nor the Specific Relief Act, vests in courts the power to order defendants to pay up damages prior to a trial. A trial is the only time the court can test the veracity of evidence, and this is crucial, especially in patent cases where courts regularly invalidate patents on a variety of grounds. But like the Supreme Court, the Delhi High Court has invoked its 'inherent powers' under Section 151 to invent a new remedy that finds no mention in the law or history.

In addition to Section 151, the Delhi High Court in an extraordinary move also enacted for itself the Delhi High Court Patent Rules, 2022 to provide itself with the right to grant such deposit orders. The legality of the High Court using the route of delegated legislation to create a set of remedies not mentioned in the law is seriously questionable since the rule-making power of the High Court which is an administrative exercise and not a judicial function, is generally limited to crafting procedural rules, not substantive remedies.

Setting aside the issue of judicial activism and the questionable exercise of delegated legislative powers by the High Court, there is also the question of fairness and equity expected of any judicial system. Even India’s infamously draconian tax laws require litigants to deposit monies only after one round of adjudication has been completed between the government and the taxpayer. It is wholly unprecedented to invoke the 'inherent powers' doctrine to order a litigant to part with their money before a trial has concluded.

The very fact that litigants are being made to pay damages before a fair trial, raises the question of whether these deposit orders being crafted by the Delhi High Court put India in violation of its obligations under Article 42 of the Agreement of Trade-Related Intellectual Property Rights (TRIPs) and numerous Bilateral Investment Treaties (BITs) to provide all litigants with 'fair and equitable' judicial procedures. To order the deposit of damages, without the benefit of a trial, would very likely fail the 'fair and equitable' standard expected under international law. Given that some of these orders are being passed against foreign companies, it is only a matter of time before the Indian judiciary faces another embarrassment along the lines of the White Industries case (2010) where an international arbitral tribunal found India to be in violation of its BITs obligations because of an unreasonable delay of nine years by the Supreme Court in disposing of an appeal filed by an Australian company.

The government must intervene with legislation to curb this practice of mandatory deposits or bank guarantees. Apart from fairness, equity and judicial impropriety, these judgements of the Delhi High Court endanger the 'Make in India' mission, which aims at boosting manufacture in India. Patent royalties are a 'tax' on domestic manufacturing since most of these royalties go to companies headquartered in the West, often in tax havens.

The government faces enough challenges in attracting investment by domestic and foreign capital in manufacturing – judicial activism in patent infringement cases creates avoidable uncertainty which must be nipped in the bud. Manufacturers, be it Indian or foreign, who are willing to risk investments in manufacturing in India, contribute to jobs and tax revenues in India. They should be favoured as part of the government’s industrial policy to encourage manufacturing in India. Judicial activism, as far as possible, should be discouraged in cases of commercial litigation.

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This article has been authored by Prashant Reddy Thikkavarapu, author of Create, Copy, Disrupt: India’s Intellectual Property Dilemmas (2017) and Tareek Pe Justice: Reforms for India’s District Courts (2022). The article is a part of RSRR's Excerpts from Experts Series.