India: FRAND-ing Patent Licenses And Its Implication In Landmark Cases In India

Last Updated: 10 March 2017
Article by Anjana Mohan

Everyday, a number of products are being invented all over the world, some cascading over the improvement of existing inventions, and the others, portraying a unique set of methods and products unknown to man at large. Simultaneously, there is an eruption of infringements that remain unnoticed or noticed following an incredulous load of proceedings and exorbitant costs. It is essential to protect the rightful rights of these owners against such infringements and unlawful interference to avoid any possible losses or damages in their peaceful functioning of their entities. In the field of protection of inventions, the adoption of Agreement of Trade Related aspects of Intellectual Property Rights (TRIPS) and the Patent Act, 1970 and related amendments aim to let these owners benefit from their inventions without any unnecessary disturbance.

1. DEFINING STANDARDS

In our day-to-day activities, we try to sculpt our needs as per certain benchmarks to achieve our desired results. Similarly in the field of patents, every invention requires certain targets to abide by in order to facilitate an irreplaceable position in the market. To put it technically, standards are technical specifications that seek to provide a common design for a product or process[1]. Ensuring that the products conform to standards facilities almost definite reliability, quality, stability when purchasing the products and subsequently, an increase in their demand. To lay it down simply, a standard is a document that exhibits certain requisites for a particular product, element, system or service or elaborately describes a specific method. Formal standards are declared by Standard Setting Organizations (SSOs) and include establishments such as the European Telecommunications Standards Institute (ETSI), Institute for Electrical and Electronics Engineers (IEEE) and various other ad hoc informal organizations[2]. Standards can also be of two different kinds- those with are mandatory or those that are up to one's discretion[3].

2. STANDARD ESSENTIAL PATENTS

The concept of Standard Essential Patents (SEPs) cropped up when controversies between smartphone giants came about. Standard Essential Patents are basically, patents that inform the users or anyone else that the particular invention conforms to a particular standard denoted by that patent. SEP was also defined by the Washington District Court in Microsoft Corp. v Motorola Mobility, Inc.[4], as "A given patent is essential to a standard if use of the standard required infringement of the patent, even if acceptable alternatives of that patent could have been written into the standard". It is a universal truth that consumers prefer standard compliant products as they deliver an incorrigible quality. Thus, in order to save a spot in the demand market, the inventors are forced to adopt technologies conferred by Standard Essential Patents. In turn, these SEP holders gain a huge competitive edge in the market and do not face any competition until they expire and move into the public domain.

3. FAIR, REASONABLE AND NON-DISCRIMINATORY TERMS (FRAND)

Due to the ubiquitous yearning for snowballing sale of one's products, the market players are in a constant struggle to find the most desirable, the most profitable, and the most economically efficient techniques to garner demand for their brands. For this reason, SEPs play an unparalleled role to fulfill such wishes of the inventors. However, this also means that they have unbridled power in the market. Creating a monopoly of such SEP holders would be detrimental to the inventors, as they will have no say in the unfair and discriminatory terms brought before them. They will be forced to succumb to such terms for meeting the primary objective of every company in the market. There are a number of issues that rise during the event of licensing SEPs to other companies that inevitably cause a disruption in the unadulterated functioning of licenses in the country. A commonly occurring issue is patent holdup when an SEP holder realizes his irreplaceability in the market and consequently, causes a rise in the royalty rates to order to unjustly profit from his dominance, thereby burdening the licensee companies. Another frequent issue is royalty stacking where the companies are forced to pay for all the patents held by the SEP holder, patents that are not even incorporated by them in their products, purely under the coercion by the SEP holders of revoking the license

Hence, in order to evade such prejudiced demands of the SEP holders, the concept of FRAND was incorporated. The SSOs stress the requisite for such holders to enter into a promise to not cultivate any unwanted competitive strategies and misuse of the power granted to them. This promise is to coincide with the FRAND terms. Following the licensing strategies stated under the FRAND terms forms the basis of the standard development process. Conformance to FRAND terms guarantee that the SEP holders do not abuse their dominant position in the market and they license SEPs to desiring companies in a 'fair, reasonable and non-discriminatory' manner.

4. THE ERICSSON AND MICROMAX CASE

On the 4th of March, 2013, Ericsson filed a case of patent infringement against Micromax for eight of its SEPs which related to its 2G, 3G and EDGE devices, in the Delhi High Court. In response, on the 19th of March 2013, the Court passed an order stating that both the companies would enter into a contract under FRAND terms for the next month purely under an ad-interim arrangement, with prescribed royalties given in the table below.

A mediator was appointed to resolve the disputes between the two companies, but it was in vain. As a result, on the 24th of June 2013, Micromax filed information under Section 19(1)(a) of the Competition Act, 2002, alleging Ericsson to have inculcated an abusive and unfair mode of setting royalties. On the 12th of November 2014, the Court agreed to a new set of interim arrangement for the parties wherein Micromax was asked to pay the royalty on different terms given in the table below.

Phones/devices Capable of GSM Capable of GPRS + GSM Capable of EDGE+ GRPS+GSM WCDMA/HSPA, calling tablets
From 19/03/2013(earlier interim order) 1.25% of sale price 1.75% of sale price 2% of sale price 2% of sale price Dongles or data cards- USD 2.50
From date of filing till 12/11/2015 (later interim order) 0.8% of net selling price 0.8% of net selling price 1% of net selling price 1% of net selling price
From 13/11/2015 to 12/11/2016 0.8% of net selling price 0.8% of net selling price 1.1% of net selling price 1.1% of net selling price
From 13/11/2016 to 12/11/2020 0.8% of net selling price 1% of net selling price 1.3% of net selling price 1.3% of net selling price

With regard to the complaint filed by Micromax, it was stated that Ericsson was allegedly demanding an unfair royalty for its SEPs relating to the GSM Technology. It contended that the royalty should be based on the patents relating to the chipset technology and not arbitrarily calculate the royalty as a percentage of the sales price of the licensed downstream product[7]. It also stated that Ericsson was confident that there was no alternate technology for its patents in the market and hence, Ericsson believed that it had the right to charge such royalty for its patents. Moreover, Ericsson also wanted Micromax to sign a Non-Disclosure Agreement, which was restrictive and was not in conformance with the FRAND terms. On the 12th of November 2013, under Section 26(1) of the Competition Act, 2002, in pursuance to the complaint filed by Micromax, the CCI laid down the following:

  1. Ericsson was the largest holder of SEPs in the country with regard to 2G, 3G and 4G patents used for smart phones, tablets, etc. Due to this, it undoubtedly held a dominant position in the market for devices that use the GSM and CDMA standards.
  2. While FRAND licenses were primarily meant to prevent patent hold-up and royalty stacking, the competitive endurance showcased by such SEP holders might prove detrimental to their integrity.
  3. Ericsson's royalty rates were excessive and absurd, and these royalties had not linkage to the patented products. Thus, it was clear that there were discriminatory and contrary to the FRAND terms.

Due to these inferences, CCI ordered for an investigation on the same matter by the Director General, which was challenged by Ericsson in the court. What happened to the case from this point shall be discussed in detail in combination with two other cases with Ericsson.

5. ERICSSON AND INTEX CASE

In 2013, Intex had filed a suit against Ericsson on the same terms as in the case of Micromax, about setting discriminatory and unreasonable royalties for the SEPs. The CCI, on its account, ordered for an investigation along with the complaint filed in the previous case. Ericsson filed a writ petition against this move for an investigation. Alongside, it filed a suit against Intex for the alleged patent infringement of the same eight patents and demanded damages of Rs. 56 crores.

6. ERICSSON AND BEST IT WORLD (INDIA)

In November 2011, Ericsson had sent a letter to Best IT World that it had infringed the same eight patents as in the previous cases due to its GSM and WCDMA related products. Ericsson suggested both the companies get into a Global Patent Licensing Agreement (GPLA) for all the infringed patents. Best IT stated that it was interested in entering the said agreement only under the condition that Ericsson discloses the alleged infringed patents in order to find out whether the allegations were valid and enforceable in the country. Ericsson intentionally refused to respond to that request and went ahead to impose the need to draft an NDA with ten years confidentiality agreement wherein all the confidential information would be shared only with the company affiliated to it, and any disputes arising out of the same would be settled in Stockholm, Ericsson's location of its headquarters, which was evidently onerous and one-sided. It further stated that the license agreement to be entered into would have to apply to the previous and future sale of the company. In September 2015, Best IT filed a suit under Section 4 of the Competition Act, 2002 against Ericsson for an abuse of dominant position.

Thus, as occurred in the cases above, the CCI ordered for an investigation to take place. Ericsson challenged the order of CCI and claimed that the order was 'arbitrary in nature and without jurisdiction'. It was noticed by the Delhi High Court that the plea by Best IT ought to be disregarded as it had not entered into the licensing agreement with Ericsson and that it was evident that it used Ericsson's SEPs.

ANALYSIS OF THE ABOVE ERICSSON CASES

Extracting the detail from the Micromax v Ericsson case, Intex v Ericsson case and Best IT World (India) v Ericsson case about Ericsson filing writ petition against the order of CCI for investigations, as per the judgment laid down by the Delhi High Court on the 30th of March 2016, the CCI had the authority to direct the investigations as in the event of an abuse of dominance, jurisdiction lies within the scope of Competition Act. The court agreed to use the net sales prices of the downstream product as the royalty base, and ordered that the royalty for licenses based on FRAND must be derived from sound economic reasoning.

In the Micromax case, the court ordered Micromax to pay the royalties as per the rates stated in the later interim order, rates mentioned in the table.

By the judgment delivered on the 13th of March, 2015, the Delhi High Court ordered that the royalties which were stated in the case of Ericsson v Micromax shall be applicable in this case too. The only difference that lies is that the court ordered Intex to pay 50% of the royalty as per total selling price per device and not chipset, from the date of filing of the suit till 1st of March, 2015, shall be paid directly to Ericsson by way of a bank draft within four weeks from the date of the judgement. The balance shall be secured with a bank guarantee within the said four weeks with the Registrar General, who would invest the same in an FDR for twelve months.

As per the order passed on the 2nd of September, 2015, the court declared that Best IT World must restrict importing mobiles, handsets, devices, tablets, etc. all articles that infringe the patents of Ericsson, which would be operative from the 9th of September, 2015.

7. ERICSSON AND XIAOMI TECHNOLOGY

Ericsson had filed a patent infringement suit for eight of its patents essential to 2G and 3G standards registered in India, against Xiaomi in December 2014. Ericsson had requested to obtain license from it before it sold the infringing products in India, but Xiaomi had entered into an agreement with Flipkart Internet Private Limited to sell the products under Xiaomi's name. It had begun launching such products from the month of July 2014. Subsequently, the court had issued an injunction order against Xiaomi to restrain the import or sale of its infringing device. Xiaomi appealed to the injunction stating that it had entered into a 'Multi Product License Agreement' with Qualcomm Incorporated and used the chipset, which in turn was licensed to Qualcomm by Ericsson. Thus, it argued that it had not infringed any of Ericsson's patents. As an interim measure, on the 16th of December 2014, the court allowed Xiaomi to sell only those devices that contained the chipsets, which were licensed by Qualcomm and had to deposit Rs.100 per device with the Registrar General of the Delhi High Court.

On the 22nd of April, 2016, the Court revoked the interim injunction on Xiaomi on account of concealment of significant information regarding the alleged infringing patents, by Ericsson. It laid down that Xiaomi was using the 3G patents licensed by Qualcomm, which in turn was licensed to it by Ericsson. The amount of royalty paid by Xiaomi to Qualcomm was provided to Ericsson as royalty and hence, there lay no requirement of paying royalty directly to Ericsson.

8. ERICSSON AND LAVA INTERNATIONAL PRIVATE LIMITED

Ericsson challenged Lava in a suit for patent infringement related to its AMR, GSM and EDGE technologies. On an order passed by the Delhi High Court in March 2015, both the companies tried to negotiate an agreement on FRAND terms but it was in vain. An interim order was passed by the Delhi High Court, operative from the 21st of June, 2016, ordering an injunction to prevent the import, export, manufacture and sale of mobile phones that use the concerned patents of Ericsson. The final order on the case is still pending before the Court.

With the judiciary at the brim of delivering justice to the deserving, the SSOs and various organization striving to protect the rights and inventions of the lawful owners, the Intellectual Property Appellate Board to discuss matters of concern of the distressed, and the laws on various aspects merging to bridge the gap between the people and justice, it is almost impossible to fathom a situation wherein the aggrieved parties could not be redressed. The only aspect which have to be looked into by these mechanisms is its clear and untainted practice. The salvo of the dominance and power of multi-national companies being fired at domestic companies who strive to maintain a position in the market have to be adjudicated in a fair manner, without any involvement of duress and coercion. The elixir of righteousness lies in the hands of these deciding authorities. The real question here is 'Would the adjudicators choose impartiality and morality, or would they surrender to dominance?'

Footnotes

1. ONLINE NEWSPAPER/ MAGAZINE/BLOG ARTICLES

  1. Narula, Ranjan. "Standard Essential Patents." Rouse The Magazine, 2015. Available On Http://Www.Rouse.Com/Magazine/News/Standard-Essential-Patents/?Tag=India
  2. Rao D And Shabana N, Standard Essential Patents, Singhania & Partners, Available On Http://Www.Singhania.In/Wp-Content/Uploads/2016/04/Standard-Essential-Patents.Pdf
  3. Lakshane R, "Compilation of Mobile Phone Patent Litigation Cases in India", The Centre for Internet & Society, Available on http://cis-india.org/a2k/blogs/compilation-of-mobile-phone-patent-litigation-cases-in-india
  4. Chawla K, "Ericsson v. Intex, Part 1- SEPs, Injunctions, and gathering clouds for Software Patenting?", SpicyIP, available on http://spicyip.com/2015/03/ericsson-v-intex-part-1-seps-and-injunctions-and-a-new-era-of-software-patenting.html

2. ONLINE JOURNALS AND OTHER GUIDELINES

  1. Sidak G, Frand In India: The Delhi High Court's Emerging Jurisprudence On Royalties For Standard-Essential Patents, Journel Of Intellectual Property Law & Practise, 2015, Vol. 100, No.8, Available On Https://Www.Criterioneconomics.Com/Docs/Frand-In-India-Royalties-For-Standard-Essential-Patents.Pdf
  2. Meniere Y, 'Fair, Reasonable And Non-Discriminatory (Frand) Licensing Terms', Jrc Science And Policy Report, 2015, Available On Http://Is.Jrc.Ec.Europa.Eu/Pages/Isg/Euripidis/Documents/05.Frandreport.Pdf
  3. Department Of Industrial Policy And Promotion, Ministry Of Commerce & Industry, Government Of India, Discussion Paper On Standard Essential Patents And Their Availability On Frand Terms, Available On Http://Www.Ipindia.Nic.In/Whats_New/Standardessentialpaper_01march2016.Pdf
  4. Agreement On Technical Barriers To Trade, Annexure I, Available At Https://Www.Wto.Org/English/Docs_E/Legal_E/17-Tbt.Pdf
  5. Delhi High Court Cases, available on http://delhihighcourt.nic.in/
  6. Indiankanoon, available on http://indiankanoon.com/

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