FRANDly Wars at Delhi HC: Ericsson cries foul play against Intex; CCI barred from adjudicating the dispute

In 2013, Intex filed a complaint against Ericsson with the Competition Commission of India (CCI) alleging abuse of dominance by the Ericsson whilst negotiating a Standard Essential Patents (SEPs) licensing agreement. Intex, an Indian mobile handset maker complained that the terms of the agreement were highly unfair and discriminatory, and in particular claimed that the royalty rates demanded by Ericsson were extremely high.

The CCI made a prima facie determination of abuse of dominant position and ordered an investigation under Section 26 into the complaint by Intex. You can read Aprajita’s post on the order here. 

On February 23, 2014, Ericsson filed a writ petition challenging the CCI’s order. This post shall discuss the submissions made by Ericsson in this regard. Further, during the course of the preliminary hearings, Ericsson had filed “commercially sensitive information” and had requested to the Court to keep the submission confidential. However, the Court turned down the application without offering Ericsson an opportunity to present its case. This order also has been challenged in the instant writ petition at the Delhi High Court. Ericsson has prayed for a stay on both the orders.

Ericsson’s submissions

1. Intex was an “unwilling licensee”: Ericsson submitted that it made whole hearted efforts to negotiate a global patent license agreement (GPLA) with Intex for a period of more than four years, however, Intex adopted various delaying and mala fide tactics to hinder the process. Further, Ericsson stated that Intex had evinced interest in pursuing negotiations, yet Intex simultaneously went behind Ericsson’s back and filed revocation petitions against five of Ericsson’s SEPs on August 23, 2013. The complaint with CCI was lodged on September 30, 2013.

In the instant petition, Ericsson has cried foul over Intex’s conduct during the negotiations. In contrast Intex had earlier accused Ericsson of shrouding its terms and rates with each licensee under confidentiality agreements and inserting jurisdiction clauses governing the agreement to be a foreign country such as Singapore.

Our more informed readers may also note that Ericsson recently settled all pending disputes with Samsung in the US, and concluded a patent cross license with Samsung.  The settled matters include at least two district court cases, and a U.S. trade commission action.  However, exact details / terms of the agreement are not known.

2. During the communication between the two parties, Intex had acknowledged use of Ericsson’s SEPs and yet continued using it without paying a dime as royalty to Ericsson. During the period of futile negotiations, Intex’s revenues grew by 30%.

3. Ericsson alleges that the revocation petitions and CCI investigations are coercive tactics adopted by Intex to pressurise Ericsson to grant low royalty rates- a “classic reverse hold-up situation”.

4. The matter is outside the CCI’s jurisdiction since the matter is purely contractual in nature and no final rate of royalty was concluded eventually. Technically speaking, an order based on the Director General’s report is passed under Section 27, which pertains to order based on a finding of abuse of dominant position or agreements contrary to the Act. 

I quote from a previous post on FRAND licensing, “Nor has any Competition regulatory body in the world discussed royalty rates. In fact Regulatory bodies over the world have shirked from determining royalty rates. The most significant ruling discussing royalty rates so far has been Judge Holderman’s judgment in the Microsoft-Motorola dispute involving WiFi Technologies.” In the Micromax v Ericsson order, the CCI made preliminary observations on royalty rates. Unless the Delhi High Court in the instant petition restricts the CCI’s jurisdiction on the technicality of the Competition Act governing “failed negotiations” in the coming year, the CCI may make a foray into the difficult task of determination of FRAND royalties.

5. Issue of jurisdiction of the CCI in cases involving royalty rates in relation to licensing of patents is presently sub judice before the Delhi High Court.

In January 2014, through a separate writ petition, Ericsson challenged CCI’s jurisdiction to investigate the Ericsson’s actions inasmuch as the Patent Act itself provides adequate mechanism to balance the rights of patentee and other stakeholders (WP No. 464/2014). The Court here expressed its displeasure at CCI entering into an ‘adjudicatory and determinative’ process by recording detailed and substantial reasoning at Section 26(1) stage itself. The Single judge directed the Director General of CCI to refrain from passing any final order/report pending the adjudication of this matter in the Court and restricted him from summoning any person working abroad without the leave of the Court. It also observed that such orders prejudiced the remedy by rendering it illusory under Section 26(7).

CCI appealed against this order, and a Division Bench of the Delhi HC recently modified the single judge order to the extent that the Director General may call foreign officers for purposes of the investigation. However, Ericsson can approach the court if it feels that the call is unnecessary.

In my opinion, this restriction on the CCI’s powers will severely prejudice the investigation relating to Intex’s complaint also. There is a strong likelihood of Intex or the CCI appealing to the Division Bench against the Single Judge’s order.

All these decisions may very well shape India’s FRAND jurisprudence and if the CCI’s powers are curtailed, the Courts will have to decide the issues involving abuse of dominant position and FRAND terms, which action Indian Courts are ill equipped to do. This is because unlike the CCI that has a separate investigative arm for conducting an investigation into the conduct of a party that has an appreciable adverse impact of competition, no Court has a separate investigation division to look into these matters.  A Court decides issues that are raised before it in a lis.  Before the CCI there is no lis or dispute between private parties that has to be adjudicated–The CCI looks into the aspects of competition and focuses on the conduct. To be fair, whilst CCI may have the wherewithal and expertise (albeit inexperienced on SEP licensing), we will have to wait for the decision to pan out in a web of judicially legislated limitations on its powers.

However, by their very nature patents being a statutory monopoly inhibit competition to an extent, and when a dominant player in the market who is given even higher power in the form of a standard essential patent (SEP) starts dictating terms of licensing to smaller players, the Competition regulator should maintain a careful watch over the market in such a scenario.  A true SEP stands taller than a normal patent (a statutory monopoly) because an implementer has no choice but to use (read infringe) that patent.  It is for this reason that SEPs are license on terms that are really Fair, Reasonable, and Non-Discriminatory (FRAND).

Intex is the second Indian handset maker after Micromax to file a complaint at the CCI. You may read our previous posts on these FRANDly litigations here. We will keep our readers updated on further developments in the matter.

Edit: As stated above, while CCI and Micromax have already appealed against the Single judge’s order, Intex is also likely to do so before the Division Bench of the Delhi HC.