This post has been written by Chandni Ghatak, who joins The Boardroom Lawyer Team as an Associate Editor. Chandni is a final year student at the National Law University, Jodhpur and currently serves as the Editor-in-Chief of the NLUJ Review.
The Delhi High Court, in Koninklijke Philips Electronics v. Rajesh Bansal, has opened the gates for Standard Essential Patent [“SEP”] related litigation in India by being the first full length judgment to address issues concerning SEP infringement. While the judgment undoubtedly marks a crucial step within patent litigation itself, it leaves room for uncertainty on a few pertinent issues. The primary purpose of this article is to peruse the question of infringement and awarding of damages, which mainly arose within the settled dispute.
What are SEPs and Standard Setting Organizations?
Before engaging in the discussion regarding the specifics of the aforesaid matter, let us break down the basics on concepts relating to SEP transactions. Standardisation of electronic appliances has been a growing demand of the market, in order to make interoperability possible. This concern of ensuring interoperability has only been heightened in light of the growing emergence of “Internet of Things”. Simply put, all mobile phones, for instance, regardless of their manufacturer, share some common and basic elements which are necessary for such phones to work seamlessly. The patent that protects these common elements are known as ‘Standard Essential Patents’. For these manufacturers to adopt the said technology which constitutes an SEP, negotiations are entered into wherein the original patentee (i.e. the first inventor of such standard) commits to license the use of such invention to other firms engaging in the production of products which require incorporating the usage of such technology. The process is facilitated by a Standard Setting Organisation [SSO] which requires such patentees to commit to license such technologies on FRAND (i.e. fair, reasonable and non-discriminatory) terms.
From a peripheral view, this seems no more complex than an ordinary license negotiation. However, due to the increasing number of participants entering the concerned markets and having to implement ‘standards’, such transactions are no more restricted to two willing parties, but also third parties who may take the liberty to use such patented technologies without consent. In addition to this, there still remains a lack of clarity due to the absent and rather subjective definition of what may constitute a FRAND term, which is dependent on each jurisdictions’ interpretation. A clear and universal understanding of FRAND is crucial to how royalty rates are determined, especially in cross-border transactions, such as the one which shall be discussed in the case at hand.
Analysis of Koninklijke Phillips Electronics
The instant case emerged due to the claim raised by Philips [Plaintiff Company] that it’s patent concerning a ‘Decoding device’ had been infringed by the defendant, as the latter used such ‘decoders’ within its own sold DVD players. Further, this technology has been adopted as a standard in the manufacturing of DVD players, thereby attracting the need for adjudging the said dispute by utilising jurisprudence available on SEP infringement and FRAND term application.
In this particular instance, the Hon’ble High Court did not extensively pursue the question of infringement, per se. The reasoning which was utilised to support its finding in favour of the Plaintiff Company was that given the fact that the concerned technology was a prevailing standard, its usage without a license implied infringement. However, it is pertinent to note that establishing infringement in an SEP transaction cannot be adjudged on such logical counts alone. It becomes a necessary step that while doing so, the Courts analyse the prior negotiating history of the parties in relation to the license as well as determine if FRAND terms truly found place within such transaction. In the current instance, the Court did not investigate this point elaborately.
Furthermore, the defendant argued that infringement in this instance was rather unavoidable, leaning towards an implication that SEP usage in general calls for infringement, given the large scale implementation of the standard. Although the Court did not go into rejecting this argument expressly per se, it would have been beneficial if the Court had used the reasoning adopted in the American case of LG Electronics. Here, the Court observed that using a mere defence that implementers often infringe first and then negotiate with SEP holders, is no reason to condone wilful infringement in SEP transactions. The absence of such observation in the current instance creates an undesirable scope for such arguments to be taken up even in future cases, thereby undermining the SEP model in India.
Coming to the second prong of this article, the discourse on FRAND terms and its scope, was not exhaustive in this instance. While the Court elaborately discusses the general law on awarding damages, it appears myopic in this context for there was no discussion of this issue in relation to how FRAND terms operate on issues of royalty determination, for example.
In the current scenario, while the defendants did contend that the royalty rates demanded by the plaintiff were not based on FRAND terms, the deficient discussion was largely because the defendants failed to bring about concrete evidence regarding the same. However, it would have been advantageous if the Court while perusing the royalty rate options provided by the Plaintiff had in fact made its own judgment regarding the appropriateness of the rates demanded. There was very little mention of the royalty rates currently prevailing in the market or the licensing agreements the Plaintiff Company holds in other countries; which are all factors which can be of great assistance to the Court in determining what royalty rate may be reasonable. Although the Plaintiff Company did not exacerbate this dilemma as it only demanded the regular royalty rates despite the count of infringement, the lack of discussion does make India’s stance on what constitutes as FRAND ambiguous. The position on this issue would have been crystallised if the Hon’ble High Court had examined recent tests adopted by Courts to determine reasonableness of FRAND based royalty rates.
What Lies Ahead for India?
Although the discourse in India regarding SEPs’ formally began with the Ericson case in 2011, there has been very little development with respect to developing SEP jurisprudence in India. Given that India has recently been determined as the second largest mobile phone producer in the world, it becomes all the more crucial to develop unambigious SEP related laws. The advent of such manufacturing serves as a boost for local manufacturers to enter the smart phone market. However, the lack of clear laws on the matter, coupled with an absence of sufficient knowledge on part of local manufacturers, only paves the way for frequent SEP infringement.
Currently in India, there exists only the Bureau of Indian Standards (BIS) which acts as a standard setting organisation [SSO]. There is an urgent need for more local bodies to emerge in order to accommodate smaller manufacturers and provide them a platform of negotiating license agreements on FRAND terms. Only if such discussion is organised can there be clear guidance on when and how injunctive relief, in such instances, may be obtained in Indian Courts. This judgment comes at a time wherein law makers and Courts alike ought to comment on the rather obsolete approach imbibed within the current patent laws. Infringement continues to be viewed traditionally, however complex SEP pre-negotiations demand for the laws to adapt to the same.
The judgment certainly is a start in formulating SEP related jurisprudence in India, much to the delight of the technological giants making waves in the country. However, this must not remain as the only step forward in this discussion, lest the issues only turn more complex and ultimately get subject to a subjective analysis of the Courts.