In one of my previous posts, Answers to First Pop Quiz (sepessentials.com), I reviewed the primary jurisdictions in which SEP cases usually are filed, what makes those jurisdictions popular (or unpopular) for cases filed by SEP holders or by implementers and why each of them is an outlier in its own way. Today, I’m taking a similar look at another emerging jurisdiction – India – and its recent SEP related jurisprudence.
For years the conventional wisdom was that it was too complicated, too hard, too slow and too uncertain to file a patent lawsuit in India. This now seems to be changing with a host of suits filed by SEP holders in India. And with the emerging Indian jurisprudence favoring SEP holders (even at the expense of Indian companies), I expect we will see more cases filed in India (or at least in Delhi) by SEP holders going forward.
The recent High Court of Delhi’s decision in the lawsuit filed by Telefonaktiebolaget LM Ericsson (“Ericsson) against Intex Technologies solidifies India’s SEP jurisprudence. Intex is an Indian company owned by the Basal family that is India’s second largest mobile phone distributor. The lower court decided that eight of Ericsson’s patents were prima facie valid, essential and infringed (but did not make a determination as to whether they were, in fact, valid, essential and infringed) and that Ericsson had prima facie met its obligation to make a FRAND offer. The lower court also found that Intex’s prolonging of pre-suit negotiations, filing of an action in the Competition Commission of India and filing of a patent invalidity suit in the Intellectual Property Appellate Board during the license negotiations showed Intex’s unwillingness to execute a FRAND license. The lower court also decided that the chipset was not an appropriate basis for the calculation of SEP royalties and that using the end device as the basis of such calculation was non-discriminatory. The lower court awarded an interim judgement requiring Intex to pay a royalty on the entirety of Ericssons portfolio (including non-Indian patents) with 50% of the interim judgement up front and to provide a bank guarantee as to the rest.
The High Court upheld the decision, setting India (or at least the Delhi courts) on a troubling path in which preliminary injunctions may be granted for FRAND committed SEPs and companies may be made to pay up front for SEP licenses on a “prima facie” showing without a full trial on whether the patents are, in fact, standard essential and valid and before determination of what a FRAND rate should be.
Here are some of the most important (and troubling) things to note from the decision:
1. The Court cited to the U.K.’s “seminal decision” in Huawei v. ZTE in making its determination that “the Standard Essential Patent regime envisages a candid and transparent negotiation between a willing licensor (Patentee) and willing licensee (implementer).” Decision at 30, 32. In other words, in order to justify granting an injunction for a FRAND committed SEP, the Delhi High Court has fallen into the black hole that is the willing/unwilling licensor/ee framework created by certain EU and UK courts. I call it a black hole because, in my experience in negotiating SEP licenses, the willing/unwilling framework creates years of delay in negotiations and, in the event a suit is filed in the EU or other jurisdiction in which such framework has been adopted, in court determinations.
2. The Court also stated that in order to be considered a willing licensor, the licensor must make a FRAND offer. In order to be considered a willing licensee, a licensee must respond in a timely fashion to the licensor’s offer. Although the Court stated that in certain situations the licensor must provide information necessary, subject to confidentiality agreement, for a licensee to evaluate an offer, the Court did not appear to be bothered if the licensor did not actually provide any information. The Court found that because “normally” an implementer can review its own SEP licenses with other SEP holders, the implementer had to respond to an offer regardless of whether the licensor provided access to its other agreements to that implementer.
3. But the High Court went even further holding that:
The Standard Essential Patents regime incorporates mutual reciprocal obligations on both the Essential Patent holder and the implementer. It is not a ‘one way street’ where obligations are cast on the Essential Patent holder alone. Consequently, the Standard Essential Patents regime balances the equities between the Patentee and the implementer and ensures a level playing field.
In other words, even though only the SEP holder has entered into a FRAND commitment, somehow the implementer is bound by the SEP holder’s FRAND agreement. I remember back to the days in which no one was quite sure if an implementer had the right to enforce the FRAND commitment because the implementer was not a party to that FRAND agreement. How far we’ve come – now, at least in India, the SEP holder can enforce on the implementer a commitment made by no one.
4. And then the Court went even further finding that a preliminary (“interim”) injunction was reasonable on a prima facie showing that the patents are essential and the implementer is unwilling.
5. So, what did the Court agree was a prima facie showing of unwillingness? Intex had spent several years negotiating with Ericsson but had not provided a FRAND offer (as noted above, the Court rejected Intex’s explanation that it needed license information from Ericsson before accepting the offer or making a counter-offer). Intex also filed what the Court said were "late" revocation petitions in the Patent Office on several of the patents and Intex also filed a complaint with the Competition Commission of India (“CCI”). In other words, the Court found that seeking to enforce your rights in other forums can be prima facie evidence of unwillingness if, for example, the timing is somehow off. In this case, the lower court judge had relied upon (and the High Court endorsed that reliance) the fact that Intex had not filed revocation proceedings during license negotiations but had filed only after Ericsson had filed suit against other parties.
Of course, the judgment also notes that Ericsson was trying to license a portfolio of about 33,000 patents. It is unclear to me how a party is supposed to determine which of those 33,000 patents, and how many, are important enough to file on before the patent holder files lawsuits. One assumes that any patents asserted in a lawsuit are ones the patent holder believes to be the most important. But, until the patent holder files a lawsuit, the implementer is just throwing darts at the board trying to guess which ones to file revocation proceedings on. The amount of money that could be wasted trying to guess correctly seems astronomical and out of reach of most implementers. It seems eminently reasonable for an implementer, in those circumstances, to wait to file any revocation proceedings but the Courts in this case disagreed. The Court also relied upon statements made by Intex in its CCI filing about validity and essentiality while chastising Intex for (in the Court's opinion) trying to delay the negotiations by filing that complaint.
6. Finally, the Court found that, on the prima facie evidence and without a full adjudication, Intex should pay the entire royalty amount sought by Ericsson immediately and up front.
This decision makes India an outlier. India now (a) allows interim injunctions in patent cases based only upon a prima facie showing of essentiality and FRAND and (b) requires implementers to pay up front based only on such a prima facie showing. India has entered the SEP wars way out on a limb and squarely on the side of SEP holders.