SEP Infringement: 'Unwilling Licensee' Must Make Pro Tem Deposit Even for Expired Patents if Negotiations Were Delayed, Rules Delhi High Court - 2025-09-26

Delhi High Court Orders Lava to Deposit Over ₹20 Crore in Dolby Patent Dispute

New Delhi: In a significant ruling on Standard Essential Patents (SEPs), the Delhi High Court has directed Indian mobile phone manufacturer Lava International Limited to make a "pro tem" (for the time being) deposit of over ₹20 crore in a patent infringement suit filed by audio technology giant Dolby. Justice Amit Bansal, holding Lava to be a prima facie 'unwilling licensee', ordered the deposit to secure Dolby's interests for Lava's use of its patented Advanced Audio Coding (AAC) technology since 2019.

The court's decision reinforces the power of courts to grant interim monetary relief in complex SEP disputes, particularly when an implementer is found to have engaged in dilatory negotiation tactics, a behaviour often described as 'patent holdout'.

Background of the Dispute

The case, Dolby International AB & Anr. vs Lava International Limited , revolves around eight of Dolby's patents, which it claims are essential to the AAC audio technology standard. This technology is widely implemented in mobile phones and tablets.

Dolby initiated licensing negotiations with Lava as far back as December 2018. However, after nearly six years of protracted discussions failed to result in a license agreement, Dolby filed an infringement suit, seeking an injunction and damages against Lava. Dolby contended that Lava was using its patented technology without paying royalties, thereby gaining an unfair competitive advantage.

Key Arguments

Dolby's Position

Senior Advocate Chander M. Lall, representing Dolby, argued that Lava had engaged in 'patent holdout' by deliberately delaying negotiations for years while continuing to sell infringing devices. Key submissions included: - Unwilling Licensee: Lava's six-year delay, constant requests for information without making a counter-offer, and failure to challenge the patents' validity during negotiations demonstrated its unwillingness to take a license in good faith. - Prima Facie Case: Dolby presented claim charts mapping its patents to the AAC standard and provided evidence, including from Lava's own website, showing that Lava's devices were AAC-compliant. - Need for Pro Tem Security: Given Lava’s bleak financial position, including a significant adverse decree in another patent case, a security deposit was necessary to protect Dolby's interests pending the final outcome of the suit. - Expired Patents: Dolby argued that Lava could not escape liability for past infringement just because some patents had expired during the prolonged negotiation period, which Lava itself had caused.

Lava's Defence

Senior Advocate Jayant Bhushan, for Lava, countered that a pro tem order is an extraordinary relief requiring strong prima facie proof of infringement, validity, and essentiality. Lava's main arguments were: - No Liability for Expired Patents: No injunction or royalty could be claimed for five of the eight suit patents that had already expired. - Invalidity and Non-Essentiality: The patents were challenged as invalid, and Dolby had failed to conclusively prove they were essential to the relevant standards. - Unreasonable Offer: Dolby's licensing offer was not on Fair, Reasonable, and Non-Discriminatory (FRAND) terms, making Dolby an 'unwilling licensor'. - Counter-Offer: Lava had made a counter-offer of ₹5.13 per device, which it argued was based on Dolby's own public filings.

Court's Analysis and Legal Precedents

Justice Amit Bansal conducted a detailed analysis of the legal framework for pro tem deposits in SEP cases, relying heavily on Division Bench precedents like Intex v. Ericsson and Nokia v. Oppo .

The Court reiterated that while a prima facie finding on a patent's validity and essentiality is required for a pro tem order, it does not necessitate the "detailed exploration of merits" required for an interim injunction.

"The conduct of the parties during negotiations is one of the key factors to be kept in mind," the judgment noted, emphasizing that an implementer's strategy to simply delay negotiations amounts to 'patent holdout'.

The court found Lava's conduct indicative of an 'unwilling licensee'. It observed that Lava never substantively challenged the validity or essentiality of Dolby's patents during the six years of negotiation, raising these issues for the first time only after the lawsuit was filed.

Regarding the expired patents, the court held:

"Clearly, Lava cannot take advantage of its own wrong - on one hand delaying negotiations and on the other hand seeking to take advantage of the fact that suit patents have expired during the course of negotiations."

The Court affirmed that SEP licensing is for a technology portfolio, not on a patent-by-patent basis, and thus liability for past use remains even if individual patents expire.

Final Decision and Implications

Finding a strong prima facie case in Dolby's favour, the Court ordered Lava to deposit INR 20,08,06,293.92 within eight weeks, covering past sales from 2019 to 2024. Lava has the option to furnish an unconditional bank guarantee for the same amount. The court also directed Lava to make half-yearly deposits for future sales based on the royalty rates offered by Dolby.

This judgment serves as a stern warning to technology implementers against using delay as a negotiation tactic in FRAND licensing discussions. It strengthens the position of SEP holders in India, allowing them to secure their financial interests through pro tem orders without undergoing a lengthy, full-scale interim injunction hearing, especially when faced with an unwilling counterparty.