India: Abuse Of Dominant Position In IPR License Agreements: Ericsson-Intex Spat

Last Updated: 27 May 2014
Article by PSA

Introduction

An Indian mobile handset maker, Intex Technologies (India) Limited ("Intex") filed a complaint with the Competition Commission of India ("CCI") against the Swedish company, Telefonaktiebolaget LM Ericsson ("Ericsson") in 2013 alleging abuse of dominance by Ericsson while negotiating a licensing agreement. Intex complained that Ericsson offered to enter into a global patent license agreement with them and demanded exorbitant royalty rates and unfair terms for licensing its patents, which Intex finally did not agree. CCI made a prima facie determination of abuse of dominant position and ordered an investigation under section 261 of the Competition Act, 2002 ("Act"). However, before the investigation was completed, Ericsson filed a writ petition at the Delhi High Court ("DHC") challenging this order of CCI.

In light of the above facts, this e-newsline will examine the two proceedings: (i) complaint with CCI; and (ii) the case before the DHC; and explain how a case of alleged abuse of dominant position was made out here when the issue is related to patent licensing agreement, which falls within the exception of the anti-competitive agreements.

1. Factual Matrix and the CCI Order

Ericsson had a sizeable business in handset manufacturing and manufacturing network; however, pursuant to a change in strategy its focus shifted on the business of patent licensing/monetization, which formed one of its prominent revenue streams. While licensing, Ericsson executed a global patent licensing agreement with the licensee and gained royalty. In parallel, it also executed Non-Disclosure Agreements ("NDAs") asking the licensee to keep the terms of the licensing agreement and NDA confidential. Intex sourced custom-made mobile devices, among other products from various countries and marketed them in India under its brand name. In 2013, while executing the licensing agreement with Ericsson, Intex complained to CCI that:

(i) The terms of the licensing agreement were highly unfair and discriminatory;

(ii) The royalty rates were extremely high, excessive and discriminatory; and

(iii) Ericsson had refused to share with Intex the commercial terms and royalty payments it had with other companies on the grounds of NDA with them, which strongly suggested that different royalty rates/commercial terms were being offered to the potential licensees belonging to the same category.

In the complaint, Intex informed CCI that Ericsson had licensed the patents to different companies in the same market on different terms and conditions and charged different rates of royalty thereby forcing inequitable and discriminatory market pricing of same products. This practice and insistence of Ericsson was likely to render the business of Intex unviable, if its competitors were able to sell the same products at lower rates. Intex approached CCI to investigate the matter and determine the potential abuse of dominant position by Ericsson. Dominant position2 has been defined under the Act to mean a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour. Abusive conduct may include imposing discriminatory or unfair or excessive price or conditions of sale, restricting or even limiting production/technical development, exclusive deals or cross-subsidizing the costs in one market by leveraging a dominant position in some other market.

Ericsson claimed to be the patentee of a huge portfolio of Standard Essential Patents3 required for mobile handsets and network stations. CCI noted that SEP holders are under an obligation "to license the SEPs to every party under Fair, Reasonable and Non-Discriminatory (FRAND) terms, in terms of the irrevocable commitment made to standard setting organization, such as the European Telecommunications Standard Institute (ETSI)4," FRAND licenses are primarily intended to prevent patent hold-up and royalty stacking. This means that when standard technologies are protected by patent rights, there is a possibility for "hold-up" by the patent owner to demand higher royalties or burdensome licensing terms before the standard was chosen. 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. By standardization, which is a voluntary process, a number of companies reach a consensus for setting common technology standards under the support of a standard setting organization, which in the present case is ETSI. In simple terms, standardization is the process of developing and implementing technical standards. Such technological standards are termed as SEP, when they are patented and for which there are no non-infringing alternatives. Once a patent is declared as SEP, it faces no competition from other patents unless that patent becomes obsolete due to new technology/inventions.

Upon review of the information and documents filed by Intex, prima facie it became apparent to CCI that Ericsson was dominant in the relevant market of GSM and CDMA technologies in India and it held a large number of GSM and CDMA patents. CCI prima facie found that Ericsson was dominant in this particular market as:

(i) Ericsson had 33,000 patents to its credit, with 400 of which were granted in India. It was the largest holder of SEPs for mobile communications like 2G, 3G and 4G patents used for smart phones, tablets etc;

(ii) Ericsson held SEPs and there were no other alternate technology in the Indian market, so, it enjoyed complete dominance over its present and prospective licensees in the relevant product market.

CCI considered the following facts in order to conclude prima facie abuse of dominance:

(i) The royalty rates charged by Ericsson were contrary to the FRAND terms as they had no linkage to the patented product;

(ii) Ericsson refused to share the terms of FRAND licenses given to licensees similarly placed to Intex, possibly because Ericsson was imposing discriminatory and non uniform terms;

(iii) Each user of Ericsson's SEP was made to sign NDA, which meant that users were not able to find out terms of royalty given to other users and this reduced transparency; and

(iv) A jurisdiction clause, in violation of FRAND principles, was imposed, which debarred Intex from having disputes adjudicated in India (where both parties carry on business).

Therefore, the CCI ordered detailed investigation of the matter and, also, clubbed this matter with the ongoing investigation in another case (Micromax Informatics Limited and Ericsson), wherein Micromax had similarly alleged that Ericsson was demanding unfair, discriminatory and exorbitant royalty for its patents regarding GSM technology. In that case, it was alleged that the royalty demanded by Ericsson was excessive when compared to royalties charged by other patentees for patents similar or comparable to the patents held by Ericsson and CCI had ordered an investigation.

2. The case before DHC

Miffed by the CCI orders of November 28, 2013 (Micromax) and January 16, 2014 (Intex), Ericsson moved the DHC challenging the jurisdiction of CCI to rule on these cases. It alleged that CCI has no jurisdiction to investigate Ericsson's action in as much as the Patent Act itself provides adequate mechanism to balance the rights of patentee and other stakeholders and took refuge of sections 3(5)(i) and 62 of the Act. Under section 3(5)(i), anti-competitive agreements does not restrict the right of a person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights conferred under the Patents Act, 1970. Section 62 provides that the application of other laws is not barred and the remedies of the Act shall be in addition to, and not in derogation of, the provisions of any other applicable law for the time being in force. In light of the aforesaid, Ericsson alleged that the matter was outside the jurisdiction of CCI since it was purely contractual and no final rate of royalty was concluded eventually.

Further, talking about its efforts during the negotiation of the global patent licensing agreement, Ericsson contended that it made whole hearted efforts to negotiate licensing agreement with Intex for more than four years. However, Intex adopted various delaying and mala fide tactics to hinder the process. Eventually, Intex had evinced interest in pursuing negotiations, yet it simultaneously went behind Ericsson's back and filed revocation petitions against five of Ericsson's SEPs with the patent office. Thereafter, it lodged the complaint with CCI. Ericsson alleged that during the inter-se communication, Intex had acknowledged use of Ericsson's SEPs and yet continued using SEPs without paying any royalty to Ericsson. During the negotiation period, Intex's revenues grew by 30%. Finally, Ericsson contended that the revocation applications filed by Intex and CCI investigations are coercive tactics adopted by Intex to pressurize Ericsson to grant low royalty rates.

The DHC expressed its displeasure at CCI entering into an "adjudicatory and determinative" process by recording detailed and substantial reasoning at section 26(1) stage itself, wherein it has the obligation to do so at section 26(7) stage. Citing a Supreme Court ("SC") judgement in CCI vs. Steel Authority of India Limited and Another5, wherein it was held that an order passed under section 26(1) of the Act is an administrative order and an aggrieved party has a right to challenge it at section 26(7) stage, the DHC observed that such orders prejudiced the remedy by rendering it illusory under section 26(7). Finally, the single judge directed the Director General of CCI to refrain from passing any final order/report pending the adjudication of this matter in the DHC and restricted CCI from summoning any person from Ericsson working abroad without the leave of the DHC. As this order restricted the investigative powers of the CCI, it appealed against this order before a Division Bench of the DHC, which decided to modify the single judge's order to the extent that the Director General could call foreign officers for purpose of the investigation. However, in such an event, Ericsson could approach the DHC if it felt that summon from CCI was unnecessary. Certainly, the above orders of DHC have limiting effect on the investigating powers of the CCI but since these matters are still at their preliminary stages, it would be too premature to comment on the overall effect of the orders. It seems that CCI could appeal against the order of the Division bench as well.

Conclusion

The Act certainly does not prohibit companies from maintaining a dominant position but what is prohibited is the abuse of such dominant position. Transparency is the hallmark of fairness and it applies to conduct of business as well. The larger question is whether CCI be allowed to investigate the conditions imposed by an owner of IP for the protection of its rights and to restrain any infringement. Patents Act provides statutory protection for commercial exploitation of patents to its holder. Section 3(5) of the Act provides an exception of anti-competitive agreements and clearly mentions that nothing contained in section 3 of the Act shall restrict "the right of any person to restrain any infringement or to impose reasonable condition, as may be necessary for protecting any of his rights...." But does that mean that holders of protected IPRs can impose any condition? The answer would be in the negative because if they do so, CCI can certainly investigate the "reasonableness" of the conditions imposed in their agreements. In the current spat, if the investigations lead to the finding that Ericsson's global patent licensing agreements with discriminatory non disclosure conditions and different royalty terms with each party could have an appreciable adverse effect on competition and is actually an abuse of dominant position in the relevant market in India, the DHC will certainly allow CCI to adjudicate on the matter and could remove all restrictions imposed on CCI so far.

Footnotes

1 This section provides for the procedure for inquiry on receipt of a reference.....or on information received under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Direct General to cause an investigation to be made into the matter.

2 See section 4(2) Explanation (a) of the Act.

3 An SEP is a patent that claims that an invention must be used to comply with a technical standard. These essential standards are established by technical or industrial experts and these experts are usually the insiders of the industry because every company or industry involved has proprietary technology and they want to see their technology used in the standard.

4 A non-profit organization with more than 700 member organizations from 62 countries, which is officially recognized by the European Union as a European Standards Organization. ETSI produces globally applicable standards for information and communication technologies i.e. fixed, mobile, radio, converged, broadcast and internet technologies, some of which are covered by patents held by ETSI or ETSI members like Ericsson.

5 (2010) 10 SCC 744.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
Anupam Sanghi And Associates
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
Anupam Sanghi And Associates
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions