The Delhi High Court’s recent decision determining infringement of the Patent owned by Philips that were declared as Standard-Essential Patent (SEP) by European Patent office and US. Thus axiomatically an essential Patent in India has been widely welcomed by other SEP holders. The suit concerned DVD video player technology over which Philips has claimed Patent. The defendants were importing DVD player components and assembling them in India. The case has been decided after a fast track full trial. Brief facts of the case are outlined below, the complete copy of the judgment can be accessed from http://lobis.nic.in/ddir/dhc/MUG/judgement/12-07-2018/MUG12072018SC242016.pdf

Facts of the case:

• Plaintiff (Philips) filed two suits alleging infringement of its essential DVD Video Player patent, in particular Indian Patent registered under No. 184753 seeking the reliefs of permanent injunction, directions to the defendants to provide complete details, delivery, rendition of accounts, damages, etc. The plaintiff claim it offers two types of patent licenses to DVD Video players manufacturers firstly, the PHILIPS ONLY version offering only patents of Philips and secondly the JOINT version offering patents of Philips, Sony, Pioneer and LG.
• The two suits concerning the Indian Patent No. 184753 related to Channel (De)coding technology used for DVD Video Playback function in a DVD Video Player. The patent relates to “Decoding Device for converting a Modulated Signal to a series of M-Bit Information Words”.

The case was decided with following Issues framed by the Court:

Whether the plaintiff (Philips) is the proprietor of Indian Patent registered under No. 184753? and (ii) Whether the suit patent of the plaintiff is invalid?

The Issue/s were decided in favor of plaintiff on the basis of certificate of registration.

The defendants contended that the suit patent is an algorithm, thus not an invention under Section 3(k) of the Patents Act. However, since there was neither any pleadings nor any evidence led on this count by the defendants, thus, challenge to the validity of the suit patent was not considered.

Whether the suit patent is an essential patent in respect of DVD player technology?

Plaintiff stated:

• The corresponding patents of the plaintiff i.e. US-5696505 and EP-745254B1 have already been granted essentiality certificate and, thus, impliedly the suit patent was also considered a standard essential patent, as the claim of the suit patent was corresponding to those in US-5696505 and EP-745254B1

Defendant stated:

• The suit patent in India is not essential because (a) there is no standard in India which corresponds to the impugned standard in the suit relating to DVD technology, and, (b) that such a standard has not been recognized by any government authority in India
• No person competent to prove that the suit patent is an essential standard patent has been examined by the plaintiff.

The issue was decided in favor of the plaintiff where it was held that the suit patent being IN-184753 is a standard essential patent in respect of DVD technology player as a perusal of the claim in the suit patent reveals that the same is equivalent to the claims 33 to 37 of the US No.5696505 and EP 0745254B1.

Whether the defendants have infringed the plaintiffs’ Indian Patent No. 184753?

Plaintiff stated:

• Since the plaintiff owns a standard essential patent thus defendants who manufacture or assemble DVD players must necessarily be infringing the plaintiff’s patent.
• Claim in the Indian suit patent is a decoding device which is a physical object and not an algorithm.

Defendant stated:

• It assembles DVD players with parts purchased from legitimate sources including the chip and hence are not liable for infringement.
• Plaintiff has failed to plead in the plaint or lead evidence based on “claim vs. product” analysis or on the construction of the claims of the suit patent.
• The plaintiff’s patent rights cannot be exercised against the defendants on the common law doctrine of exhaustion as the plaintiff has already put its product in the market and therefore, cannot pursue infringement proceedings against third parties.

This Issue was decided in favour of the plaintiff on both the counts, that is, the plaintiff having proved that the suit patent was a standard essential patent, the use or manufacture by the defendants without a license amounted to infringement.  The products of the defendants on the basis of the test carried out by the witness infringe/s the suit patent.

Whether the defendants had knowledge of the plaintiffs ‘patents in respect of DVDs and the plaintiffs’ licensing programs?

The court observed that the plaintiff is the holder of a standard essential programme and also that the defendants have infringed the suit patent, thus, even if the defendants had no knowledge of the licensing programme they were in law bound to take the license from the plaintiff.  Hence the issue was decided in favour of the plaintiff and against the defendants.

Whether the plaintiffs along with various other members of the DVD forum are misusing its position with a view to create a monopoly and earn exorbitant profits by creating patent pools? 

Plaintiff stated:

• Mere formation of patent-pools (such as 6C, 3C) and cross-licenses for an essential patent to members of the pool is neither anti competitive nor amounts to abuse of dominance and the royalty is always determined on FRAND principles

Defendant stated:

• Plaintiff has demonstrated clear abuse of its dominant position as it is prosecuting the defendants though there are as many as 35 manufacturers of DVD players in India and only 13 are licensed even as per the admission of the plaintiff and that it seeks royalty on the patent pool and not individual patent.

Thus issue was held to be beyond the scope of the decision in the present suit.

Whether the defendant No.2 is liable to pay any license fee to the plaintiffs and if so at what rate? and Whether the plaintiff is entitled to a decree of damages or any other relief?

Plaintiff stated:

• The license rates offered by the plaintiff vary according to the cooperation and conduct of the licensee. Plaintiff claims both actual and punitive damages
• The license fee should be charged based on the sale of the DVD player as a whole.

Defendant stated:

• Plaintiff’s claim of royalty is not in keeping with Fair, Reasonable and Non-discriminatory (FRAND) principles

The court considered that the plaintiff is seeking royalty at FRAND terms and that too at the PHILIPS ONLY option. The court required the defendants to pay royalty to the plaintiff at the rate of USD 3.175 from the date of institution of the suits till 27th May, 2010 and from 28th May, 2010 at the rate of USD 1.90 till 12th February, 2015 with interest at the rate of 10% per annum from the end of the month for which royalty is due till the date of payment per video player manufactured/sold. However, no injunction was e granted to the plaintiff for the as the suit patent had expired on 12th February, 2015. A decree of punitive damages to the tune of ₹5 lakhs was also passed in favour of plaintiff.

The decision is being welcomed by the technology owners as it clears deck for SEP being recognized, and royalties being paid to the Plaintiff, an appeal against the decision is quite likely.

Our Comment

Exhaustion of rights is one of the major defenses in such cases and was raised by the Defendant in this case as well arguing that the plaintiff has already put its product in the market, therefore, cannot pursue infringement proceedings against third parties. Further, the components were purchased by them from authorised licensees of the Plaintiff. The court in its conclusion noted that the defendants failed to discharge the onus that the parties (Shuntak trading Company and Sheenland Corporation) from which it purchased the chips were the authorised licensees of the plaintiff and thus the plea of the defendants that there is no infringement by virtue of doctrine of exhaustion was rejected. The conclusion may be sound from evidence point of view however it still leaves the question open of protecting an assembler who may have bonafidely purchased the components from a supplier. Overall, the judgment shifts the onus on assemblers to ensure that the third parties from whom it is purchasing the components has legal rights.

Disclaimer: The content of this article is based on personal understanding of the authors and is not intended for any legal advice. Customized solutions and strategy needs to be devised for specific situation.