The Conflict of “Two Tier” Confidential Clubs in view of Principle of Natural Justice and Fair Play

 

 

By Udai Khanna, Associate, AZB and Partners*

The Hon’ble Delhi High Court on December 16, 2020 in the order passed in CS (Comm) 295/2020 titled “Interdigital Technology Corporation v. Xiaomi Corporation” rejected the idea of the constitution of a “two-tier” confidentiality club proposed by Inter Digital Technology Corporation, 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 and instead suggested the terms for constitution of a single-tier confidentiality club.

Factual Matrix :

The Plaintiff had sued the Defendant for infringement of its Indian patents under Nos 262910, 295912, 298719, 313036 and 320182, wherein it alleged that the Defendant had been using the technology contained in these Standard Essential Patents (SEPs) without obtaining any license from the Plaintiff. In this background, the Plaintiff had filed a suit for grant of a permanent injuncting the Defendant from manufacturing, selling, assembling, distributing, advertising, exporting, importing or using technology contained in these SEPs or else to take the license from the Plaintiff for usage of its SEPs as per Fair, Reasonable and Non Discriminatory (referred to as “FRAND”) terms, which are be determined by the Court.

Besides filing an Order 39 Rule 1 and 2 application, the Plaintiff had also filed an application under Chapter VII Rule 17 of the Original Side Rules which talks about setting up of a Confidentiality Club, which is a standard protocol used in the cases of SEP litigations. 

Confidential Club under Chapter VII Rule 17 of the Original Side Rules reads as under:

When parties to a commercial suit wish to rely on documents/information that are commercially or otherwise confidential in nature, the Court may constitute a Confidentiality Club so as to allow limited access to such documents/information. In doing so, the Court may set up a structure/protocol, for the establishment and functioning of such Club, as it may deem appropriate…. The Court may appropriately mould the structure/protocol of the Club, based upon the facts and circumstances of each case.”

The issue which arose in I.A 6441/2020 pertains to the aspect that the Confidentiality Club could be set up in the manner sought by InterDigital wherein it seeked a “two tier” confidential club, comprising of an “outer tier” wherein those documents would be accessible to even advocates for both sides as well as experts appointed by them as also the representatives of both sides and “inner tier” documents (termed as “legal eye”) would only be accessible to the advocates for both sides, excluding the in-house counsel as well as the experts appointed by them.


The Legal Arguments, Discussions and Observations made by the Court:

Mr. Pravin Anand, appears on behalf of the Plaintiff and states that exclusion of representatives of the parties, from having access to the inner tier documents is non-negotiable.

It was contended by him that such an arrangement is accepted and recognised by Courts worldwide while dealing with SEP infringement litigation. 

The Plaintiff argued 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.

This argument was followed by two questions put forth by the court- 

 

·      Firstly, How an advocate could be expected to be appropriately instructed, if he is unable to share, with his clients, the material on which the OP seeks to rely? To this, the counsel added that such arrangements have been created, in the past and have worked out.

 

·       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? To this, the counsel averred that no occasion would arise for the Court to come between client and counsel

 

The court posed these questions keeping in mind that, these two questions could be unwelcomed and unjustified, wherein Court had a chance to enter into the sacred space that exists between the client and counsel. However, the Court did not find the response to the aforementioned questions as satisfactory. The Court also expressed that it does not understand how the Court could insist on Xiaomi, the Defendant herein into contracting with its counsel to keep documents shown to its counsel and on which the Plaintiff- InterDigital relies against the Defendant, undisclosed to Xiaomi itself.

 

Mr. Anand then relied on foreign judgments wherein “two- tier” Confidential Clubs were set up. However, the Court was unwilling to give any weightage to those judgments on the ground that the jurisprudence of natural justice, due opportunity and fair play has its own complexion/ meaning. 

 

While, the Defendant led by Mr. Sai Krishna Rajagopal, Advocate argued that nobody can be permitted to rely on documents, to which the other party has no access. He further averred that 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 relied on the decision of the Delhi High Court in M. Sivasamy v. Vestergaard Frandsen A/S wherein the the Court made the following observation:

 

“… However, according to us, with respect to litigation in India, the Courts in this country would be guided by the provisions of the Laws as applicable in this country and the pleadings in the suit in this court and not by any orders or decisions of the foreign court, unless, the decision of the foreign Court becomes final and so that it can operate as res judicata between the parties and operate in the parameters of Section 13 and Section 44-A of the Code of Civil Procedure, 1908. No useful purpose will be served in making reference to various orders of the Courts in the different countries as one does not know what are the ingredients/requirements of causes of action of the different laws of those countries and what were the pleadings of the cases in the foreign courts.”

 

On the question of whether the Plaintiff was right/ justified in including “comparable patent licence agreement” in an ‘inner tier’ of confidential documents in its rejoinder, to be kept away from the eyes of the defendant, as well as all its officers and employees?, the Court noted in this regard that if the Plaintiff  accepts the request for setting up the two tier confidentiality, the benefit would go to the Defendants as well.

 

Mr. Anand submitted that it was not necessary to disclose all these information’s to the Parties or their personnel wherein, he relied upon the case of Transformative Learning Solutions Pvt. Ltd. vs. Pawajot Kaur wherein it held that “… in certain class of suits, documents filed should not be permitted to go in public domain, as happens on filing in the Court. In some cases of patent infringement or infringement of copyright in source code of a computer software, the need for a party to a lis to see the document may not arise as the opinion with respect thereto is to be given by the expert only”.

 

It was seen that in the aforementioned case, the plaintiff was directed to supply the confidential information, in a sealed cover to the counsels for Defendant No. 1 and 2 after which the Plaintiff filed a review whereby it was contended that the ANNEXURE- F the Original Side Rules did not contemplate the inclusion of parties or their officer or their employees,  as members and reliance was placed also on  clause (b) which talks about each party nominating three counsels who are not in house counsels and no more than 2 experts to constitute this Confidential Club. Thus, on the said premise, neither the parties nor the employees could be part of the Confidential Club.

The Court then moved onto the premise that Original Side framed in exercise of Section 129 CPC would prevail and would abide in case of anything which comes out in contradiction with CPC and one such exception is Chapter VII Rule 17 and thus, in this case the moot question is whether “limited access” would deny the access to the opposite party, the officers or its employees or also to in house counsels or experts. The bench relied on the observations in the decision of Transformative Learning Solutions v. Pawajot Kaur Baweja in Paras 23 and 24 wherein it was held that non disclosure would deprive the defendant of the opportunity of being heard and to defend the suit as also that the Annexure- F is only illustrative and that there is no absolute bar.

The Court also highlighted the distinction with the Transformative Leaning case that the Plaintiff does not seek to withhold the Patents from the Defendants. The Court observes that  Patent infringement, in the case of SEPs, has, however, a unique feature and makes a mention that- A holder of a SEP is not entitled, of right, to seek an injunction against infringement of its SEP, merely on making out a case of such infringement. This, essentially, means that every holder of a SEP is required, in law, to agree to the licensing of its SEP to Willing licensees (referred to as those where license is taken  to exploit SEP, on payment of royalty to Patent Holder on FRAND basis).

The Court moved onto the aspect that whether the rates at which the Plaintiff licensed the SEPs to other licensees is FRAND or not. For that the court, opined that it is necessary that the license agreement be looked at and by limiting the access to the agreement to the Court, plaintiff, defendant, its employee or associate is unthinkable. The Plaintiff contented that “irreversible damage” would be caused if confidential data, contained in the license agreements with third parties, is disclosed to the Defendant. 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 after perusing the fact that the plaintiff desires to include the license agreements in the ‘inner tier’ to be kept away from the eyes of the defendants as well as all their officers and employees, holds that this argument is destructive of the very fundamental notion of natural justice and fair play. The Court holds that the Defendant would have to be made privy to the license agreement and other licensees.

The Court notes that permitting such club would amount to grant of blanket permission to the Plaintiff to keep the documents away from the Defendant. And, not permitting would mean coming in the way of the parties. The fact that if the parties were able to come to a level playing field, the Court mentioned that the judgment should not hamper that arrangement as well.

Court further dealt with the Annexure-F to the Original Side Rules which is cited as “an illustrative structure/protocol of the Confidentiality Club” which may be “appropriately moulded” by the Court. On perusal of clause (b) of the Membership of the Confidentiality Club, it is clearly limited to three advocates and not more than two external experts. Mr Anand submitted, relying on this Annexure, that the parties, and their officials and representatives, may legitimately be excluded from the Confidentiality Club constituted by the Court. The Court relied on Para 24 of the Transformative Learning Case to rule that such a premise is only illustrative and there is no bar. 

It notes that Defendant Company is not being as accommodative and if the Plaintiff does not come to terms with the Defendant company, the inner tier document would remain away from the Plaintiff and Defendant Company, its officers, representative employees, advocates and experts, however, agrees to the submission made by the Defendant as legally sound.  

Moving onto the aspect of  Client- Lawyer Privilege, the Court relied on the Supreme Court decision given in Para 22 in Himalayan Coop. Group Housing Society v. Balwan Singh, wherein it was held that though there may not be a strict law of agency between the client and agent, however, lawyer has to maintain  and respect the clients autonomy and should follow clients instructions than substituting their own jugdments and also, reiterated Para 23 which talks about Bar Council of India Rules, 1975, Part VI Chapter II which provides for “Standards of Professional Conduct and Etiquette” as also Paras 24 and 25 which highlights the duty of an advocate with their clients besides Paras 25, 26, 27, 30 and 31 of the relied on judgment which highlights the code of ethics and the principle of upholding the rights of the clients.

It also relied upon the Apex Courts decision of An Advocate v. B.B. Haradara, and Om Prakash v. Suresh Kumar, iterated that the duty of advocates to act, at all times, under instructions from their clients.

In this background, the Court then reasoned that “SEP infringement litigation cannot be treated as a category sui generis, to which the principles enunciated in these decisions, as well as the Bar Council of India Rules, would not apply.”

The Court then relied upon few cases cited by the Plaintiff counsel wherein either there was no dispute regarding setting up of a confidential club or where the counsel for the parties agreed on giving the copies of the documents and thus, matter was compromised. While in another relied upon judgment, Dolby International AB vs. GDN Enterprises Pvt. Ltd., the reasons for setting up for Confidential Club was already provided but the request for a representative of the Defendant as sought was considered unwarranted whereas in Ericsson vs. Xiaomi, the Court had constituted the Club but again the defendant, the officers and their employees were not added despite the submission being raised but where Section 103(3) which mandated for such disclosure was relied upon by the Court. Lastly, in Genentech Inc vs. Drug Controller, the court had appointed a Local Commissioner before whom the documents could be inspected by two advocates from the Defendants side, wherein the court had rejected the appointment of an external expert. In this aforesaid case, the court had even if inspection was carried out, the external expert would have to divulge the information acquired from the documents to enable the plaintiff to carry out the amendment to establish its claim in the suit, otherwise, the inspection would lose its relevance.

This Hon’ble Court observed that this is totally presumptuous if the position as held in Genentech on access to “inner tier” document was applied in this case with regard to such a submission raised by the advocates and experts of Defendant Company that the rates at which license were granted to third parties could be applied to Defendant Company. Thus, the Hon’ble Court does not rely on the cases relied upon by the counsel for the Petitioner.  

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, while determining of a FRAND rate, it would be essential to know about the peculiar business realities of Defendant Company. This contention was accepted by the Hon’ble Court.

 

The Court accepted Defendant’s arguments that even for a bare assessment of similarity of the case of Defendant Company with the said licensees, it would involve a study of the scope of the license, the area over which the license is granted and other considerations such as royalty rates. It was further observed that such assessment of these factors by “strangers” who are advocates (excluding the in house counsel and external expert) would be unfair and impossible.  The Court also opined that acceptance of such arrangement would result in unequal balance, as the officials and personnel of the Plaintiff would have full access to third party license agreements while none  of the officials the Defendant would be privilege to such access. 

 

The Court also pointed out to the fact that- during the course of the hearing, the thought came to the Court several times that – What if XIAOMI herein is unwilling — as it is, in the present case – for the 3rd party license agreements, on which InterDigital relies, to be shown only to its advocates and experts, and not its own officials of personnel? And, What if Xiaomi says that it is not willing to contract, with its counsel, to keep undisclosed, from Xiaomi, the documents which have been shown to him?

To the above, the counsel for the Petitioner submitted that, having involved the Defendant Company in a litigative exercise, by filing the present suit against it, the Petitioner can insist on the Defendant Company into prosecuting the suit, and defending itself against the Petitioner, without being shown the documents on which InterDigital proposes to rely.

The Bench on hearing the above submission summarily rejected it.

 

While applying the principle as discussed afore-stated dealing with lawyer-client relationship in India, the Court noted that lending the approval to such arrangement of third party agreements and not disclosing to the Defendant Company, its officials and personnel and only shown to advocates (excluding in house counsel) and expert would violate the Bar Council Rules as well as the law laid down in Himalayan Coop. Group Housing Society case.

 

On the question of referring this decision to larger bench by placing it before the Chief Justice of Delhi High Court, the judgment reads that only Dolby International and Ericsson vs. Xiaomi case excludes the official and personnel from such Confidentiality and that this present decision are passed sub silentio and thus, can not be treated as valuable precedents. Thus, the bench does not refer this decision to a larger bench.

On the said basis, the prayer for the Petitioner for setting up of the two-tier confidentiality is rejected and infact a single tier confidentiality is set up on following instructions:

(i) Each party shall nominate four advocates, six representatives and two experts, who would constitute the confidentiality club.

(ii) The members of the confidentiality club alone shall be entitled to inspect the confidential information. In the case of the advocates and experts, such inspection would be to the extent such inspection is required in order to perform their professional duties in relation to the present proceedings on behalf of the party by whom they are engaged.

(iii) The documents, regarded as “confidential information” would be filed in sealed cover, to be retained with the Registrar General of this Court under seal and in safe custody.

(iv) The members of the confidentiality club shall be entitled to inspect the confidential information before the Registrar General and, after the inspection is over, the documents and information shall be resealed and returned to the Registrar General.

(v) The members of the confidentiality club shall be bound by confidentiality orders passed by this Court and will not be allowed to make copies, disclose or publish the contents of the confidential information or documents anywhere else or to any individuals who are not privy to the confidential information, including in other legal proceedings or oral and written communications to the press, etc.

(vi) During the recording of evidence and other proceedings of this Court with respect to the confidential information, or when the confidential information is being looked at, only members of the confidentiality club shall be allowed to remain present. Such proceedings will be conducted in camera.

 (vii) Any evidence, by way of affidavit or witness statement, containing confidential information shall also be kept in a sealed cover reflecting the confidential and designation, with the learned Registrar General, and would be accessible only to the members of the confidentiality club.

(viii) Neither party would be permitted to rely on any material which is not disclosed to the nominated representatives (as opposed to advocates and experts) of the opposite party. Should either party feel that any details, contained in any document, cannot be shown to the nominated representatives of the opposite party, it is at liberty to redact such details or particulars from the document(s) in question. Needless to say, the party that redacts any particular is, in any document or evidence, shall not be permitted to rely on such a redacted particulars. It shall, however, be open to the opposite party to plead that disclosure of such redacted material is necessary for its defence. In such a case, the court would decide, on a document-to-document basis, whether redacting of the “confidential” details, in the document, should, or should not, be allowed. This, in Court’s opinion, is the maximum extent to which the plea, of InterDigital, for keeping away, from the representatives of Xiaomi, “confidential” details and documents, can be accommodated.

(ix) The confidential documents/information shall not be available for inspection after disposal of the matter, except to the parties producing the same.

 

Authors Conclusion:

This is one of the early jurisprudence on the topic of Confidentiality Clubs which finds mention in the Chapter VII Rule 17 of the Original Side Rules of the High Court of Delhi which though remains skeptical in going forward with two tier Confidentiality Club but however, is a step in the evolving jurisprudence. This decision by the Delhi High Court provides a wholesome discussion which aims at balancing the principles of confidentiality as well as the Principles of natural justice and fair play while dealing with Confidential Clubs.