Delhi High Court asks INTEX to pay Royalty for use of Ericsson’s Standard Essential Patents
Standard Essential Patent regime envisages a candid and transparent negotiation between a willing licensor (Patentee) and willing licensee (implementer). The regime incorporates mutual reciprocal obligations on both the Essential Patent holder and the implementer. It is not a ‘one way street’ where obligations are cast on the Essential Patent holder alone
The Delhi High Court’s Rules Governing Patent Suits 2022 have formally recognized Standard Essential Patents and the different legal tests that are involved in their adjudication.
The fact that the judge-population ratio is extremely poor in India, expeditious disposal of patent suits cannot be expected at the cost of other suits.
Ericsson, SEP holder had brought a suit against Intex seeking royalties on FRAND terms for use of its patents as prolong negotiations had failed. The Court after hearing both parties held that:
- Ericsson’s eight suit patents were prima facie valid, essential and that Intex has prima facie infringed Ericsson’s patents.
- Ericsson demonstrated prima facie compliance with its Fair, Reasonable and Non-Discriminatory (in short ‘FRAND‘) commitment and Intex’s act of prolonging pre-suit negotiations and thereafter initiating proceedings against Ericsson before the Competition Commission of India (in short ‘CCI’) and Intellectual Property Appellate Board (in short ‘IPAB‘) during licensing negotiations prima facie showed its unwillingness to execute a FRAND licence.
- chipset basis for calculation of Royalty cannot be accepted and the practice of royalty calculation on the end-device price is non-discriminatory
Finally, the Court directed Intex to pay 50% royalty at the interim stage and balance50% by way of a bank guarantee.
Cross Appeals were filed by both Ericsson and Intex against the Single Judge decision to the Division Bench of the Delhi High Court.
- Ericsson in its Appeal had prayed that Intex be directed to pay the entire royalty amount and not split as a bank guarantee and royalties.
- Intex on the other hand argued that:
- Single Judge could not have passed a direction to pay as well as deposit royalty at the interim stage since Standard Essential Patent owners’ only entitlement, even according to law laid down by foreign Courts, is royalties at the end of the trial.
- In Standard Essential Patent matters no injunction can be granted, even if an implementer is an unwilling licensee.
The four-factor test to be satisfied is not made out in this case (i) the asserted suit patents are in fact Standard Essential Patents, (ii) the technology used by the implementer infringes the Standard Essential Patents, (iii) the royalty rate at which patentee is willing to license its Standard Essential Patents are FRAND, and (iv) implementer is unwilling to take the licence at the FRAND rate.
Appeal Court’s Analysis and Findings on SEP Licensing:
Obligations of SEP Holders
- SEP holders are required to disclose relevant patents as being SEPs and make them available to all willing users. They should avoid “hold up” situations and offer licenses to all willing licensees on FRAND terms.
- Implementers need to avoid “hold out” situations and cannot remain silent during negotiations. They must either accept the SEP holder’s offer or give a counteroffer along with appropriate security to prove that they are a willing licensee.
SEPs recognition in Indian Law
- While SEPs are not specifically referenced in the Patents Act, 1970, various court decisions have recognized their importance.
- The Delhi High Court’s Rules, governing Patent Suits 2022 have formally recognized Standard Essential Patents and the different legal tests involved in their adjudication.
Injunctive Relief Against Unwilling Licensee
- SEP owners can seek interim and final injunctive relief against an “unwilling licensee” who engages in “hold out” behaviour.
- There is no prohibition in Indian law against a SEP owner from seeking an injunction.
Test of Infringement in SEP Matters
- The Court opined that the “indirect” test method is a better way of proving SEP infringement and essentiality.
- The “indirect” method includes mapping the SEP to the standard and showing that the implementer’s device also maps to the standard.
Injunction May Be Granted if Prima Facie Infringement of even one of the Patent is established.
- An injunction can be granted if the patentee shows that even if one of the patents in a product has been infringed. In such case the implementer’s product cannot be sold and all the thousands of patents therein will be of no use to the implementer. Accordingly, if a case for infringement, even with regard to one Patent, is made out, it is like a ‘silver bullet’SEP owners can sue implementers by showing that one or a handful of representative patents are infringed, and an evaluation of these patents can determine FRAND terms for the entire portfolio.
Final Decision on Essentiality and Validity Not Required for Preliminary Injunction
- The Court opined that the four-fold test in Nokia Vs. Oppo provides for an unequivocal admission on (i) essentiality and validity of the suit patents (ii) fact of utilization (iii) fact that such utilization, absent payment of liability would amount to infringement (iv) that the royalty rate proposed by the Plaintiff was FRAND. This puts an onerous burden on SEP owners at the interim stage and is contrary to Indian law and does not apply even in normal patent suits.
- If the four-fold test stipulated in Nokia Vs. Oppo is applied to SEP cases, then effectively there will be no interim order like a temporary injunction or conditional order of deposit in the Standard Essential Patent suits. If the four-fold test is accepted, there will be no incentive to innovate.
Admission of Essentiality and Infringement if Alleged Abuse of Dominant Position
- If an implementer alleges that a SEP owner is abusing its dominant position by holding SEPs, the perusal of a complaint before another forum is prima facie an admission that the patents are essential and infringed.
- If the implementer believes that it is not infringing the SEP owner’s patents, it should seek a declaration of non-infringement or groundless threat under Sections 105 and 106 of the Act.
Presumption of patent invalidity cannot be based solely on a pending revocation petition.
- The Delhi High Court clarified that the mere filing of a revocation petition against a patent does not create a presumption of the Patent’s invalidity. To question the validity of a granted patent, a credible challenge must be raised, and it cannot be solely based on the ground that a revocation petition is pending.
- The timing of the revocation petition is also crucial, as the delay in filing the petition while being on notice by the SEP owner for a long time shows the non-seriousness and inability to raise a credible challenge to the validity of the Patent in question.
The Court found that Ericsson had shown in its cross-appeal that “the terms suggested by Ericsson are prima facie FRAND terms” and that “to ensure parity with other implementers, Intex must pay in full for the past use of the Standard Essential Patents.” The Court based its decision in part on the fact that the “telecom industry has overwhelmingly accepted Ericsson’s Standard Essential Patents” and “more than one hundred licences have been executed by Ericsson for the same technology globally, and similar implementers are paying royalty in accordance with the terms suggested by Ericsson.” The Court did not discuss those licencing terms beyond noting at the outset of its decision that the lower Court rejected Intex’s argument that the royalty base should be the chipset, not the end product, where the lower court “held that the chipset basis for calculation of royalty cannot be accepted and the practise of royalty calculations on the end-device is non-discriminatory.” The Court ultimately ordered that “Intex to pay the entire royalty amount to Ericsson within four weeks.”