In one of the first decisions pronounced after a full trial of a patent infringement suit related to ICT domain, the Delhi High court upheld that Philips's Patent IN184753 was a standard essential patent in respect of DVD playback technology and was infringed by the Defendants. The decision is path-breaking to the effect that the Court recognized the essentiality of the patent related to the DVD playback technology, found the acts of the defendant infringing but also awarded damages in favor of the Plaintiff Phillips in accordance with FRAND terms.

At the argument stage, the defendants challenged the validity of the suit patent on the ground that the subject matter of suit patent related to non-patentable subject matter under Section 3(k) of the Patents Act, 1970 as it was directed to algorithm and computer programme per se.  The plaintiff argued that the subject matter was related to a decoding device which is a physical object and not merely an algorithm or software. However, the defendants fairly gave up this issue for the want of pleadings. On the question of essentiality of the suit patent, the Plaintiff submitted that the corresponding US and EP patents having identical claims have been held essential by the Standard Setting Organization and certificates to that effect were produced. The defendant questioned the admissibility and the credibility of such certificates on the basis of lack of independence of the certificate issuing authority, i.e., the DVD forum. The plaintiff counter-argued that the defendants had themselves cross-examined plaintiff's witness in respect of said certificates and that the DVD forum standards were adopted by independent standard setting organizations (SSO), such as ECMA and ISO, and is in the public domain. In any case, one of the defendants had taken a license from the plaintiff earlier and another had applied for the license also indicates that suit patent is a SEP. The court largely on the basis of the essentiality certificates of the US and EP Patents held that the suit patent is a SEP for the fulfilment of the DVD Standard.

On the question of infringement, the plaintiff submitted that the defendants infringed the suit patent because (a) the suit patent is a standard essential patent in the area of DVD playback technology and the defendants who manufacture or assemble DVD players must necessarily be infringing the suit patent and (b) independent expert evidence also proves infringement based on 8 to 14 modulations test (EFM and demodulation techniques) applied by the defendants. The defendants questioned the plaintiff's expert evidence. The defendants also invoked the common law doctrine of exhaustion, i.e., the patent right over a product cannot be enforced against that specific product once it has been sold by the manufacturer or licensee. The defendants also argued that they assemble DVD players with parts, including the MediaTek chip that is also used in Plaintiff's product, purchased from legitimate sources and are therefore not liable for infringement. The court held that the claims of the suit patent are directed towards a decoding device without which DVD players cannot function and that plaintiff has successfully proved infringement by way of essentiality and also by expert evidence by showing the use of EFM and demodulation techniques in defendants' products. The court also held that defendants have failed to provide any evidence that socalled legitimate sources were licensees of the plaintiff and therefore the doctrine of exhaustion does not apply.

The defendants also contended that the plaintiff has demonstrated a clear abuse of its dominant position as it is selectively targeting the defendants though there were 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 the plaintiff is seeking royalty on a patent pool and not individual patent. The plaintiff, however submitted that this issue cannot be decided in the present suit as the same is barred by Section 61 of the Competition Act, 2002 which specifically provides that no Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which is within the domain of Competition Commission or the Appellate Tribunal. With reference to Telefonaktiebolaget LM Ericsson (PUBL) vs. Competition Commission of India and Ors., the court agreed with plaintiff's submissions and held that this issue is beyond the scope of the decision in the present suit.

On the question of damages, the plaintiff submitted that the license rates vary according to the cooperation and conduct of the licensee. In case an entity procures the license of the plaintiff's essential patent then it is required to pay as per the FRAND rate also referred to as compliant rate (in the present case - $3.175 up to mid-2010 and thereafter $1.90 till term expiry in 2015). However, if a party has chosen to infringe the patent of the other party then such licensees are required to pay a slightly higher royalty rate for the period which it had not secured license for the plaintiff's concerned essential patent which is referred to as standard rate (in the present case - $4.58 up to mid-2010 and thereafter $2.50 till term expiry in 2015). The defendants argued that claimed royalty is not as per the FRAND principles. Defendants further argued that no evidence has been provided to prove the process of negotiation or fixation of rates and what would be apportioned by the plaintiff since it has bundled the licenses together. Referring to the US Federal Court's decision in Commonwealth Scientific and Industrial Research Organization vs. CISCO Systems, Inc., the court held that defendants are required to pay royalty to the plaintiff @USD 3.175 from the date of institution of the suits till mid-2010 and after that @USD 1.90 till patent expiry in 2015 with interest @10% annually. The court also held that considering the conduct of one defendants who was an ex-employee of the plaintiff and knew fully well and with impunity infringed the suit patent, was liable to pay punitive damages of INR 5 lakhs. The court also appointed a Local Commissioner to inquire into the number of video players manufactured or sold by defendants during the relevant period and help that the plaintiff shall be entitled to recover the amounts so found due. According to an estimate, Phillips may recover at least Rs. 35 Crores (approx. USD 5.3 million) from the defendants based on the figures to be arrived by the Court appointed Local Commissioner.

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