FRAND Litigation and SEP Dispute- Indian Perspective

With a telecom subscriber base of 1203.6 million, India has the second largest telecommunication market in the world[1]. These numbers indicate the paramount and emerging importance of Standard Essential Patents (SEPs) and related disputes in the Indian sub-continent. In view of these numbers, the Indian litigation regime has encountered cases which have helped in contouring the Indian Judiciary’s stance on FRAND litigation and SEP disputes. Some of the major telecom players involved in SEP disputes in India, include, Ericsson, Intex, Micromax, Lava, Interdigital etc.

SEPs and FRAND

Prior to delving into the intricacies of FRAND litigation and SEP disputes in India, it would be relevant to get a basic understanding of the concepts which govern the SEPs and the applicability of FRAND terms.

Standards and SEPs- It refers to a set of technical specifications which provide a common decision for a product or a process[2]. SEP refers to a patented technology which claims that an invention must be used to comply with a standard. The term was also defined by the Washington District Court in the case of Microsoft Corp. v. Motorola Mobility, Inc.[3], as a patent that is essential to a standard if use of the standard requires infringement of the patent, even if acceptable alternatives of that patent could have been written into the standard.

SSOs or the Standard Setting Organizations develop and establish the technology standards and are responsible to bring together various stakeholders, to collaborate and find the best technical solutions for a standard[4].

FRAND Terms- Many times SSOs require their members to undertake that they will grant licenses to companies that wish to use the standards in question. Such licenses are made available under Fair, Reasonable and Non-Discriminatory (FRAND) terms to mitigate chances of any competition. Hence, the owner of SEP is under an obligation to license its patented technology that sets a standard and the license must be granted on FRAND terms[5]. The licensing of a SEP on FRAND terms forms the foundation of the standards development process[6].

Issue of Patent Hold-up- The SEP dispute arises when there is a patent hold up, i.e., the owner of the SEP holds onto its patent and denies disclosing its patent to the SSO and later demands more value, when the access to its SEP is required to implement the standard[7].

The Competition Commission of India (CCI) in the case of Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson[8], while dealing with the issue of patent hold-up, observed that “Hold-up can subvert the competitive process of choosing among technologies and undermine the integrity of standard-setting activities. Ultimately, the High costs of such patents get transferred to the final consumers.”

Indian Judiciary’s stance on FRAND litigation and SEP disputes

Koninklijke Philips Electronics N.V. vs. Rajesh Bansal and Ors.[9](2009) – Commonly known as the Philips case, it was one of the first cases that marked the uncharted territory of SEP disputes in India. In this case, Philips filed two patent infringement suits against local DVD manufacturers, alleging infringement of its SEP. it was also alleged that the defendants were importing components of DVD players and incorporating them in infringing DVD players which were being sold under the brand names of Passion and Soyer.

The Plaintiff also claimed that despite demands from Philips, the Defendants had not entered into a license for the patented technology, which finally led to the filing of the instant case by the Plaintiffs.

What did the Court say- While accepting the arguments advanced by the Plaintiff, the Court was of the view that the patent in suit was a SEP and that product that was being used by the Defendant complied with the standard, and hence infringed the Plaintiff’s SEP.

On the point of damages, as the Defendants had not entered into a license and had not produced any evidence to support their contention that Plaintiff’s rates were not Fair, Reasonable and Non-discriminatory (FRAND), the court, while accepting the rates mentioned by Plaintiff, fixed the royalty at US$ 3.175 per unit; however, the actual damages were not set out on account of a lack of sales data. A local commissioner was appointed by the Court to assess the quantum of damages.

Suits filed by Ericsson against Xiaomi and Ors.[10] (2014)- In this case, Ericsson, which holds SEPs related to cellular communication standards, including 2G and 3G standards, initiated an infringement suit against Xiaomi, alleging that Xiaomi had used Ericsson’s patented technology without licence and also refused Ericsson’s request to license the patents in suit on FRAND terms.

Subsequently, the Hon’ble Delhi High Court passed an interim injunction, restraining Xiomi from selling, importing or advertising its products in India and the Customs Authority was also directed to not permit Xiaomi’s products in India. Later, in appeal, Xiaomi argued that it acquired Ericsson’s SEP from Qualcomm. Qualcomm and Ericsson had signed a global patent licensing agreement that allowed Qualcomm to utilize the SEP which was sold to other device manufacturers, including Xiaomi.

What did the Court say- Resultantly, the Division Bench of Delhi High Court permitted Xiaomi to sell and import the devices that contained the patented technology, i.e., chipsets, as an impermanent measure. Later, in the final order of 2016, the Court delivered an order in favour of Xiaomi on the ground that Ericsson had deliberately concealed the fact about its global patent licensing with Qualcomm. The order was applicable for two chipsets that Xiaomi had licensed from Qualcomm.

SEP and Monopoly- Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (2013)[11]– In this case before the CCI, the informant, i.e., Micromax, alleged that Ericsson was demanding unfair, discriminatory and exorbitant royalty for its patents with respect to GSM technology. It was also alleged that the royalty demanded by Ericsson was excessive when compared to royalties charged by other patentees for similar patents.

Ericsson argued that it demanded a royalty based on the sale price of the product, whereas Micromax contended that the royalty should be applicable on the chip (patented technology) and not on the device.

What did CCI say- The CCI noted that the allegations made by the informant and not refuted by OP with respect to royalty rates indicated that the practices adopted by OP were discriminatory as well as contrary to FRAND terms. Subsequently, the CCI was of the opinion that it was a fit case for an investigation into the allegations made by the informant under Section 4(2) of the Competition Act, 2002, which prohibits imposition of unfair and discriminatory conditions in the purchase or sale of goods or services amounting to an abuse of a dominant position.

Intex Technologies (India) Ltd. Telefonaktiebolaget L M Ericsson (2023)[12]– Initially, Ericsson, the SEP owner, had initiated a suit against Intex and sought royalties on FRAND terms for use of its patents as negotiations had failed. The Single Judge of Delhi High Court held that Ericsson’s 8 patents in suit were valid and that Intex had prima facie infringed the patents.

In appeal, Intex argued that the patents in question could not be presumed to be standard or essential and emphasised that the Court could not have passed a direction to pay as well as deposit royalties at the interim stage. Intex also contended that, in SEP matters, no injunction can be granted, even if an implementer is an unwilling licensee.

What did the Court say- The Division Bench of the Delhi High Court in appeal elaborated obligations of a SEP holder and stated that SEP owners were under an obligation to disclose relevant patents as being SEPs and make them available to all willing licensees on FRAND terms and avoid “hold up” situations.

Finally, in view of facts and circumstances of the case, the Court was of the view that Intex had failed to raise a credible challenge against the validity of the patents in suit and also held that Intex is prima facie an intentional unwilling licensee.

Lava v. Ericsson (2024)[13]– In this recent case, Ericsson licensed its patents to companies involved in the selling and manufacturing of telecommunications equipment. A major portion of a global portfolio of patents owned by Ericsson are SEPs which are used in implementation of various standards set by the SSOs. Ericsson alleged that Lava was using its SEP’s without obtaining any license from them on FRAND terms. Ericsson additionally claimed that they had requested Lava to enter into negotiations and offered to license their SEP’s on FRAND terms. However, Lava ignored Ericsson’s request and continued manufacturing devices without license thereby infringing Ericsson’s patent rights.

What did the Court say- The Hon’ble Court followed a two-step test established in the case of ERICSSON v. INTEX⁴. This test involved mapping the patent to the standard to determine if it was a SEP, and then confirming that the implementer’s device also aligned with that standard. Lava’s claims that they did not require a license for importing mobile handsets from licensed entities into India were dismissed by the Court. Nevertheless, the Court emphasized that the responsibility to pay a license fee to the patent owner lies with the brand owner who sells the device to end consumers, rather than the manufacturer and directed Lava to pay damages to Ericsson of INR 244 crores (Approx. 29.9 million USD) for infringing upon its 2G and 3G patents.

Conclusion

The above rulings in the realm of SEP disputes and litigation certainly sets the stage for India’s evolving jurisprudence on the subject. The recent judgements/precedents set by the Indian Courts accentuates the fact that India is an IP friendly jurisdiction and has a robust IP ecosystem wherein willing licensees can have access to standard patents while ensuring that the rights of SEP owners are secured.

[1] https://www.ibef.org/industry/telecommunications

[2] Hovenkamp H, Janis M & Lemley M, IP and Antitrust: An analysis of Antitrust Principles Applied to Intellectual Property Law (Aspen Law & Business, NY), 20023-04

[3] CASE NO. C10-1823JLR

[4] https://www.wipo.int/en/web/patents/topics/sep

[5] https://ipindia.gov.in/writereaddata/Portal/News/196_1_standardEssentialPaper_01March2016_1_.pdf

[6] UNDERSTANDING PATENTS, COMPETITION AND STANDARDIZATION IN AN INTERCONNECTED WORLD, ITU, 2014 AVAILABLE AT HTTP://WWW.ITU.INT/EN/ITU-T/IPR/PAGES/UNDERSTANDING-PATENTS,-COMPETITION-AND-STANDARDIZATION-IN-AN-INTERCONNECTEDWORLD.ASPX

[7] Microsoft Corp. v. Motorola Mobility, Inc., CASE NO. C10-1823JLR

[8] 2013 SCC OnLine CCI 78

[9] CS (COMM) 24/2016, filed initially in 2009

[10] Telefonaktiebolaget LM Ericsson v Xiaomi Technology and Ors., CS(OS) 3775/ 2014

[11] Competition Commission of India- Case No. 50/2013

[12] FAO(OS) (COMM) 296/2018

[13] https://ssrana.in/articles/lava-ericsson-scores-frand-ruling-patent-infringement-damages/