Standard Setting Organizations (SSOs) set standards and essential features that must be fulfilled by specific essential items, materials, components, systems or services. Few examples of such SSOs in India are Bureau of Indian Standards (BIS), Telecom Standards Development Society of India (TSDSI), Telecommunication Engineering Centre (TEC), The Global ICT Standardization Forum for India (GISFI) and Development Organization of Standards for Telecommunications in India (DOSTI). When such specific essential item, material, component, system or service is in conformity with the set standards and essential features they bear a mark indicative of its conformity. When a manufacturer of such specific essential item, material, component, system or service holds a patent on such, it is referred to as Standard Essential Patent (SEP).
In the absence of SEPs on essential technologies likes the smart phones, computers etc., it would be impossible to manufacture the same. Standards that are laid down by the SSOs for specific essential item, material, component, system or service is advantageous to both consumers and manufacturers. The inevitability of SEPs in manufacturing of technology puts the SEP holders in a dominant position, making it imperative to lay down reasonable conditions for access to these essentials standardised technologies. The dominant position of the SEP holder may in addition give rise to “Royalty stacking”- a tactic of withholding a license unless and until a manufacturer agrees to pay an unduly high royalty rate for an SEP which is also referred to as “hold-up.” (Ericsson, Inc. v.D-Link Sys., Inc.,773 F.3d 1201, 1209 (Fed. Cir. 2014)
In order to keep a check and to mitigate the risks arising from the dominant position of SEP holders, SSOs require their respective members (holder of SEPs) to commit and license their product to third parties on Fair, Reasonable and Non- Discriminatory (FRAND) terms. Under these agreements, an SEP holder cannot refuse a license to a manufacturer who commits to paying the FRAND rate (Microsoft Corp. V. Motorola, Inc.). FRAND terms have not been spelt out by any organisation hence it has been left to the parties (licensor and licensee) to negotiate the terms of each license adhering to non-discriminatory basis on fair and reasonable terms and conditions. Therefore, this arrangement of patent rights does away with the absolute ownership otherwise enjoyed by a patent holder and makes it imperative for the SEPs holder to license on FRAND terms. A true strength of a particular patent emerges through litigation, judicial deliberation and interpretation. A majority of litigation cases involving FRAND in SEP relate to areas of determination of royalty rate in FRAND agreements, abuse of dominant position by the SEP Holder, imposition of unreasonable FRAND terms and seeking of injunctive relief for infringement of SEPs.
FRAND based litigations in India
Recent cases involving Ericsson in India can be credited to laying foundation for FRAND based litigation in India. Ericsson successfully brought a suit seeking damages and an ex parte and permanent injunction which would become one of India’s largest sum ever sought in a patent suit in the Indian IT/telecoms sector. In this case by Ericsson against Micromax for infringement of its SEPs relating to 2G, 3G and 4G technology, a single judge bench of the Delhi High Court granted an ex parte injunction, including measures for the confiscation of Micromax consignments. Micromax in a countermove laid another milestone by filing a complaint before the Competition Commission of India alleging abuse of dominant position by Ericsson.
- Micromax Informatics Ltd v Telefonaktiebolaget LM Ericsson, Case No 50/2013, Competition Commission of India (CCI)
Micromax Informatics Limited (“Micromax‟) in its complaint against Telefonaktiebolaget LM Ericsson (“Ericsson”) alleged Ericsson’s demand of unfair, discriminatory and exorbitant royalty for its patents compared to royalties charged by other patentees for patents similar or comparable to the patents regarding GSM technology amounted to abuse of dominant position and anti-competitive practice. Micromax further alleged that Ericsson had abused its dominant position by charging exorbitant royalty as there was no alternate technology available and Ericsson was the sole licensor for the SEPs necessarily implemented in 2G and 3G Wireless Telecommunication Standards. Micromax in order to substantiate its claim of Ericsson’s exorbitant royalty alleged that the royalty was not being charged on the basis of cost of product licensed but was being charged on the basis of value of the phone in which product of the Ericsson was being used and that Micromax had to pay a percentage of cost of the phone as royalty. CCI deciding on the matter noted that FRAND licences are primarily intended to prevent Patent Hold-up and Royalty Stacking. On perusal of the evidences placed on record the CCI observed that Ericsson enjoyed complete dominance over its present and prospective licensees in the relevant product market. It further opined that the royalty rate practices adopted by Ericsson were discriminatory as well as contrary to FRAND terms. Charging of two different license fees per unit phone for use of the same technology prima facie is discriminatory and also reflects excessive pricing vis-a-vis high cost phones. Therefore, the CCI concluded that the royalty rates charged by Ericsson had no linkage to patented product, contrary to what is expected from a patent owner holding licences on FRAND terms. The commission ruled it to be a fit case for further investigation and ordered investigation in the matter by the Director General.
However, Ericsson in a reply challenged the said order of CCI in the Hon’ble High Court of Delhi vide W.P No. (C) 464/2014 by questioning the jurisdiction of CCI to investigate the action. The Hon’ble High Court vide order dated 21st January, 2014 restrained CCI and director general of investigations from passing any Final Order in the matter.
Ericsson taking its SEPs battle further filed another suit before the Delhi High Court against Intex Technologies for damages and an ex parte and permanent injunction relating to products incorporating its SEPs in the 2G, 3G and 4G technology space. Intex Technologies following in the same steps as Micromax (supra) filed a complaint before the CCI.
- Intex Techs. (India) Ltd v Telefonaktiebolaget LM Ericsson
This complaint before the CCI was brought by Intex against Ericsson alleging Ericsson of demanding exorbitant royalty rates and setting unfair terms in licensing its SEPs. Having considered the materials placed on record, CCI in this case held that Ericsson refused to share the commercial terms and royalty payments of the FRAND license agreement which strongly suggested the discriminatory commercial terms being offered by Ericsson. Further CCI opined that, Ericsson’s act of forcing a potential licensee to execute NDA and imposing excessive and unfair royalty rates prima facie was abuse of dominance. In addition to this, the CCI also opined that charging different licensing fees for the use of the same technology from different users is against FRAND terms. CCI noted that jurisdictional clause of the agreement imposed by Ericsson debarring Intex from getting disputes adjudicated in the country where both parties were in business and vesting jurisdiction in a foreign land prima facie was also an abuse of dominance. CCI satisfactorily concluding the abuse of dominance by Ericsson, ordered the Director General to club the investigation with the claims that Micromax (supra) and Intex had brought against Ericsson.
On Delhi High Court’s stay of the CCI’s final report in W.P No. (C) 464/2014, Intex filed a special leave petition before the Supreme Court on the CCI’s jurisdiction to address licensing and anti-competitive issues. The Supreme Court redirected the matter to the Delhi High Court directing it to determine CCI’s jurisdiction to conduct investigations into determining the royalty rate between parties.
- Best IT World (India) Private Ltd. v Telefonaktiebolaget LM
Another case brought against Ericsson for abuse of dominance under FRAND terms involving its SEPs, met with the same fate as the previous two cases. In this case Best IT World (India) Private Ltd alleged that, Ericsson was persuading Best IT World (India) Private Ltd to enter into one sided and onerous NDA; demanding unreasonably high royalties by way of a certain percentage value of handset as opposed to the cost of actual patent technology used etc. clearly demonstrating the abuse of dominant position by Ericsson.
The Commission considered all the material available on record and based on the arguments advanced observed that, as there was no alternate technology available for Ericsson‘s patents in the 2G, 3G, and 4G standards, Ericsson enjoyed a complete dominance over its present and prospective licensees in the relevant market. The CCI opined that practice of forcing a party to execute NDA and imposing excessive and unfair royalty rates, prima facie, amounted to abuse of dominance. Further, it observed that as the allegations brought forward by Best IT World (India) Private Ltd were similar to the previous cases i.e., Case No. 50 of 2013 [Micromax Informatics Limited V. Telefonaktiebolaget LM Ericsson (Publ)] and Case No. 76 of 2013 [Intex Technologies (India) Limited V. Telefonaktiebolaget LM Ericsson (Publ)] against Ericsson wherein the Commission was of the prima facie view that the conduct of Ericsson amounted to abuse of dominant position, CCI found this case similar and fit for an, ordered an investigation into the matter.
However, Ericson filed an appeal against the order of CCI in the Hon‘ble High Court of Delhi. In response to which the Hon’ble Court held that the petitioner may supply information as requisitioned by the DG, but neither would the DG submit a final report, nor would the CCI pass a final order in the matter.
FRAND based injunctive relief has grown to be a safe harbour provision for SEP holders, which might result in brewing anti-competitiveness and have a destructive outcome as seen in Motorola v. Apple case, which will be discussed in the next post. In India, Injunction has been used as a weapon by SEP Holders to assert their right over SEPs. As seen above, the Delhi High Court successfully granted injunction in favour of Ericsson against Micromax for alleged infringement of 8 patents purportedly essential to wireless standards and ordered confiscation of Micromax consignments at the border by the customs authorities, the situation prevailed until Micromax deposited royalties.
We will take a look at FRAND based litigation in other countries in the following post.
Authored by Bhuvana Babu.