HITTING OUT AT HOLDING OUT! Delhi High Court Delivers Definitive Decision Recognizing The Importance Of SEPs And The Need To Protect SEP Owners!

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On 29th March, 2023 Division Bench of the Delhi High Court decided two cross-appeals and have laid foundational principles of SEP litigation (Intex Technologies v. Ericsson, FAO (OS) (COMM) 296/2018; Ericsson v. Intex Technologies, FAO (OS) (COMM) 297/2018).
India Intellectual Property
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On 29th March, 2023 Division Bench of the Delhi High Court decided two cross-appeals and have laid foundational principles of SEP litigation (Intex Technologies v. Ericsson, FAO (OS) (COMM) 296/2018; Ericsson v. Intex Technologies, FAO (OS) (COMM) 297/2018). The appeals were against an interim, conditional injunction order passed by the Single Judge in 2015.

This decision marks India's definitive moment in the global SEP litigation space. The interjection of this decision is that it settles guidelines after harmonizing SEP cases from leading jurisdictions, and yet the final set of principles that it endorses are bespoke and unique to the realities of Indian litigation and the Indian market.

Facts (in brief)

Ericsson had unsuccessfully negotiated an SEP licensing deal with Intex for over 5 years. Offers and counteroffers were rejected by respective parties.

In 2013, in the midst of licensing negotiations, Intex had filed a complaint before the Competition Commission of India (CCI) alleging anticompetitive conduct and abuse of dominance on part of Ericsson. It also filed invalidation actions against 5 of Ericsson's patents before the then existing Intellectual Property Appellate Board (IPAB).

Thereafter, in 2014, Ericsson filed a patent infringement suit before the Delhi High Court, and claimed infringement of 8 Standard Essential Patents (SEPs). The SEPs pertained to 2G, 3G cellular technology.

In 2015, the Single Judge had found in favour of Ericsson, and had passed a conditional injunction against Intex. Intex had a choice of either taking its 2G,3G complaint phones out of the market, or pay interim royalties to Ericsson. 50% of the amount was to be paid directly to Ericsson, while the remaining 50% was to be furnished through Bank Guarantees.

Both parties appealed. Ericsson sought full payment, while Intex sought a full reversal of the decision.

Decision (on facts)

The appeal court agreed with Ericsson. It gave considerable weight to the fact that Ericsson had executed 100 license agreements with other implementers, and during negotiations Intex itself had expressed its desire to license Ericsson's patents.

It found little weight in Intex's non-essentiality argument, considering Intex negotiated with Ericsson for 5 long years. On invalidity, the Court took a bold stance and said that although the legislature did not contemplate patent registration to mean prima facie evidence of its validity, the Court must protect a patent that has passed scrutiny by the patent office, especially since Intex's attack on validity wasn't inherently strong.

Thus, Ericsson's terms were found as prima facie FRAND compliant, and Intex was directed to make full payment to Ericsson.

Principles of law for SEP litigation

Some of the ground-rules set by the court, which now hold the field in Indian SEP litigation are as follows:

  1. SEP litigation is a different genre.
    • Unlike other patentees, SEP owners are inherently disadvantaged as they are deprived of the freedom of choosing licensees; licensing on anything but FRAND terms; freedom of claiming injunctive relief without prior negotiations.
  2. FRAND is not a one-way street, and obligations are reciprocal.
    • An implementer cannot be silent in negotiations, and it certainly cannot insist on accessing the SEP owner's third party license agreements before making a counteroffer. It should rely on its own agreements with other SEP owners to assess what it considers an appropriate FRAND rate.
    • It has to either accept the offer made to it, or make a counteroffer with security payment to protect the interests of the SEP holder. It should not gain an unfair advantage over other willing licensees, by not living up to its obligations.
  3. The legal regime in India must not promote holdout
    • A well-resourced infringer naturally chooses to reject all license offers, and compels an SEP owner to initiate litigation, which costs millions of dollars. At the end of the dispute, the implementer then expects royalties to be paid as if parties had agreed upon the rate voluntarily during negotiations.
    • There is no point in promoting such litigation which involves expenditure of money and resources, which could be better spent in advancing technologies.
    • Holdout gives an unreasonable leverage to the implementer/infringer over the SEP holder, and the longer the SEP portfolio remains unlicensed, the SEP technology becomes undervalued.
  4. Security payment can be secured even before arguments on interim injunction
    • A recent decision in Nokia v. Oppo by the Single Judge denying pro tem security payment to Nokia before the parties were heard on interim injunction was held as being incorrect.
    • An SEP holder does not have to show an admission by the implementer regarding infringement, validity or FRAND nature of the SEP owner's offer. The Single Judge was incorrect in making this as the test for ordering pro tem payment in SEP cases. It is too high a burden to discharge. If an implementer were to make admissions on all these aspects, then it effectively means that the SEP owner has won the case finally.
    • Ad-hoc money deposit orders can be passed in favour of SEP holders on day 1 of the lawsuit, in appropriate cases. There is no need to wait it out till parties argue their respective cases on a prima facie basis, to pass security orders protecting the SEP holder while the lawsuit is decided.
  5. Interim injunctions will be available to SEP owners against unwilling licensees.
    • Implementers are wrong in making the argument that the UK Supreme Court's (UKSC) leading decision of Unwired Planet v. Huawei disentitles SEP holders from claiming interim injunction.
    • In fact, the UKSC specifically held that each country must decide injunction applications in SEP disputes, as per their legal regimes. German courts pass injunction orders without hearing validity issues (which are tried separately), while other EU courts don't address FRAND or unwillingness issues at all, before granting injunctions in SEP cases.
    • It is only a practice of UK Courts to first decide validity and infringement before deciding FRAND issues. This is not substantive law, but a practice followed by the UK Courts, although the UK Court of Appeals in Optis v. Apple noted that the practice may lead to a dysfunctional system.
    • The practice in India is different. Interim injunctions should be awarded against unwilling licensees.
  6. An SEP holder does not always have to map an implementer's products to the standard.
    • Declarations by implementers that their devices comply with 2G, 3G, 4G, 5G (and other) SEP technology is sufficient.
    • The indirect method of proving infringement is sufficient.
  7. Filing a case based on 1 SEP is sufficient.
    • Injunctions can be granted on the whole infringing device, by demonstrating infringement of 1 SEP only.
    • FRAND terms of the portfolio can be evaluated based on a handful of representative patents.
  8. If an implementer sues an SEP holder claiming abuse of its dominant position by virtue of holding SEPs, then it prima facie admits that the patents are SEPs, and are infringed.

While deciding the factual controversy between Ericsson and Intex, it is clear that the Court saw authoring this decision as an opportunity to give direction to Indian law and practice. After analysing leading decisions from the UK, USA, EU, Germany, Netherlands, it came to the conclusion that Indian litigation cannot and should not grant an unreasonable leverage to implementers over an SEP holder, and that there is nothing symmetric about letting an implementer access SEP technology for free, while making the SEP holder wait for the lawsuit to finish before being able to claim (albeit temporarily) monetary or injunctive relief.

SEP holders will find comfort and confidence in their enforcement prospects in India, knowing that Indian Courts have taken a very modern approach, and have placed fostering innovation and enforcing patents at the centre of SEP jurisprudence.

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.

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