In this article, Deepshikha Sarkar does a case Study of Ericsson’s dispute with Indian Mobile Manufacturers.

Background of the case

Ericsson is an IT and communications equipment and services Swedish multinational who sued Micromax an Indian mobile handset manufacturing company.

Ericsson being the largest holder of SEPs regarding technology including 2G (GSM, GPRS, EDGE),3G ( UMTS, WCDMA, HSPA),4G (LTE) sued Micromax for patent infringement in March in the Delhi High Court as-as result of which the court ordered the parties to enter into a contract under FRAND terms on an ad-interim basis for one month with certain prescribed royalty rates a mediator was appointed too.

This step above failed, and in June 2013 Micromax sued Ericsson with the allegation that the setting of royalties by Ericsson was completely unfair and abusive.

Intex is a company incorporated in India with a business which includes TVs, DVD players, Headphones and predominantly mobile phones. In 2013 Intex sued Ericsson on the same terms as Micromax stating that their royalty setting was discriminatory and abusive also. The suit also contained a patent infringement claim against Intex for the same patents it had sued Micromax for initially in March 2013.

What is Ericsson’s business model and what was the issue in this case?

Ericsson is a Telecom giant incorporated in Sweden. As a part of its business model, it believes in licensing its Standard Essential patents and the reinventing the royalties receives into research. This facilitates global collaboration and commercialization for best technological standards in the business.

ISSUES

Whether Ericsson is the registered proprietor of the suit patents?

Whether Ericsson has offered to Intex a license on fair, reasonable and non-discriminatory (FRAND) terms and conditions?

Whether Ericsson has offered to Intex a license on fair, reasonable and non-discriminatory (FRAND) terms and conditions?

Whether Intex and Micromax are an ‘unwilling licensees’?

Whether Intex and Micromax has negotiated in a bonafide manner with the Ericsson to take a license in respect of the Ericsson’s Standard Essential Patents

Whether Intex and Micromax are infringing the suit patents?

Whether the suit patents are invalid in nature and are liable to be revoked in the light of the grounds raised by Intex and Micromax in its counterclaims?

Whether Ericsson is entitled to damages/payment of royalties from the Intex and Micromax for sales made by it of devices working as per the Ericsson’s patented technology and if so, since what period and for what amounts?

How Ericsson tried to use Indian customs law to protect its IP rights?

Intellectual Property Rights (Imported Goods), Enforcement Rules, 2007 was used the by Delhi High Court to hold that Ericsson would be allowed to work with Customs officials to inspect the importation of the consignments of Micromax and Intex.

As per the Judgement, the Ericsson was able to direct Customs authority to restrict importation of Intex’s mobile devices which infringed the suit patents.

During the pendency of the suit, the Micromax was asked to pay money to the court if they intended to keep importing and selling its products in India without the customs impounding their consignment.

Along with that, in the Licensing agreement which was entered into by Micromax and Ericsson also contained a clause in which Micromax undertook to make a deposit of interim payments in Court within five working days of the intimation by Customs of the arrival of their consignment. After which Ericsson shall inspect the consignment and inform the Customs Authorities that it has no objection and only then would the consignment be handed over to Micromax.

The effect of this clause continued as a director of the Court as a part of the final judgment of as well.

Did the court grant favorable interim or final orders for Intex?

No, there were no favorable interim or final orders for Intex in the matter, in fact, all the orders passed were adverse.

Regarding the issue of Patent infringement, the Court held that since the SEPs (suit patents- AMR, EDGE, 3G) are incorporated in the handsets sold by Intex and hence there is an infringement of the suit patents.

It was also held that the royalties set by Ericsson were justified as they were equal to that asked from other licensees and there was no discrimination.

The court directed the Central Board of Excise and Customs and Commissioner of Customs not to allow import of such goods which infringe the suit patents.

For the interim period of pendency of the suit the court decided royalty rates and fixed the period for the payment of the same, and this payment was to continue in 6 months till the disposal of the suit. 50% of which amount was to be paid to Ericsson directly and 50% as bank guarantee to the Registrar General of the Court. There was a restraining order on the manufacture, assembly, importation, sale, an offer of sale or advertisement of any product that used the suit patents as a part of their technology during the pendency of the suit.

About the time period before the suit, Intex was directed to furnish accounts form the date of use of the suit patents to date of filing of the suit.

Also, the court dismissed Intex’s claim of the invalidating the suit patents. The court held that the suit patents were compliant with the Patents Act, 1970.

The court held that the infringement suit by Ericsson was valid and not only had Intex infringed the patents but also acted in bad faith when it did not negotiate to enter into a licensing agreement on being approached by Ericsson for monetary benefit.

Did Indian players dispute Ericsson’s rights or was there a dispute on the quantum of royalty?

Intex and Micromax questioned both the Indian companies claimed the following:

One of Micromax’s complaint to the CCI in 2013 was that Ericsson was abusing its dominant position by charging exorbitantly high royalty in a discriminatory manner.

Intex challenged Ericsson practice of “charging royalties on the basis of the sale price of the mobile phone as opposed to the profit margin on the sale price of the baseband processor/chipset.”

Intex asserted by citing US Courts decisions that ‘use of exclusionary remedies by owners of alleged SEPs has been frowned upon by US courts as well which are usually perceived as being pro-patentees,’ thus arguing that the court should not grant an injunction against Intex.

The Indian Companies also alleged that the statutory obligations laid down under Sec 8 of The Patents Act,1970 were not followed by Ericsson and enough foreign prosecution details about corresponding patents were not disclosed.

The validity of the suit patents were challenged as well, on the basis of  Sec 3(k) and Section 3(m) of the Patent Act 1970.

How did they calculate royalty?

The interim Royalty rates decided were as follows:

Micromax complained that the royalty demanded by Ericsson was unfair related to the SEPs. They contended that the royalty should be based on the patents relating to the chipset technology and not in an unfair and arbitrary manner by calculating royalty as a percentage of Net Selling Price of the licensed downstream product.

According to Ericsson since there was no one in the market with even a close alternate technology and that is why they believed that they had the right to charge royalty at the rates mentioned above.

The Court agreed with Ericsson and held that the net Selling Price of the downstream product is a valid base for calculation of royalty. The Court ordered that FRAND licensing agreement should calculate royalty derived from “sound economic reasoning.”

When the case(Micromax) was before the CCI before coming to the Delhi High Court. On 12/11/2013, the CCI held that as per Section 26(1) of the Competition Act, 2002, “Ericsson holds a dominant position in the market for devices that use GPS/GPRS/EDGE standards as it is the largest holder of SEPs in India relating to 2G,3G, and 4G.”

Did Indian players dispute Ericsson’s rights or was there a dispute on the quantum of royalty?

Although there was an Issue framed regarding the validity of the suit patents and whether Ericsson’s patent rights were valid or not? The primary issue ( and discussion) was regarding the method of calculation of royalty and whether such royalty was charged on FRAND terms or not.

Is this an IP issue or a competition law issue? What is the competition law angle?

This case had issues related to both Competition Law as well as Patent Law as well.

One issue regarding the “jurisdiction” of the CCI. It was dismissed simply by highlighting the fact that the matter had issues concerning purely Competition Law as well. Namely, Whether there was a prima facie case of abuse of dominance as the royalty charged by Ericsson was on the sale price of the product and not on the value of the technology of the SEP.

The judgment on the above-mentioned issue was challenged by Ericsson in the High Court saying that the Patent Act had the remedy about Licensing and the Patent Act, 1970 would override the Competition Act, 2002.

After dealing with this question of “inconsistency,” of both the Acts the Court held that the remedies for abuse of patent rights provided by both laws are quite different. The Patent Act provides the remedy of compulsory licensing for abuse of patents, i.e., a remedy in personam, while Section 27 of the Act provides various remedies that include levying penalties, cease and desist order, i.e., remedies in rem.

And hence, there was no such issue of inconsistency between both the regimes which could not be harmonized. Also, it was held that the CCI could exercise jurisdiction even though there was a pending civil suit for infringement.