FRAND-ly Injunctions from India: Has Ex Parte Become the “Standard”?

It would appear so! As readers may recollect, we’ve often railed against the promiscuity of ex-parte injunctions in patent cases. Noting that, contrary to popular perception, India is actually guilty of overprotecting IP on this count.  Sadly, our courts continue to dish out these problematic injunctions, with alarming alacrity. Just yesterday, a single judge of the Delhi High Court granted an ex parte in junction in a case involving a telecommunication “standard” that was allegedly meant to be licensed under FRAND (Fair, Reasonable and Non Discriminatory) terms by the patentee. Gopika will bring you more details on this, but for the moment, suffice it to note as follows:

The ex-parte injunction was issued at the behest of Ericsson (a Swedish multinational giant) against Chinese operator Xiaomi. The patents allegedly relate to AMR technology, 2G and 3G technologies. These appear to be the same set of technology patents under which Ericsson had earlier sued two Indian telecom companies, Micromax and Intex. Despite the Indian telcos mounting a serious challenge to the Ericsson patents in the IPAB and High Court, the court proceeded to grant the injunction. It also bears noting that while Ericsson has largely favourable orders against Micromax and Gionee, it has, as yet, not been successful in restraining Intex. There is also a pending CCI (Competition Commission of India) investigation against Ericsson for alleged unfair and discriminatory patent practices.

Under the terms of the injunction, Xiaomi cannot now sell, advertise, manufacture or import the devices that infringe these technology patents. The judge also issued directions to customs to prevent imports under the IPR RUles, 2007. Gopika will bring you a more detailed analysis soon on this case.

Egging Ex Partes vs Expedited Trials

How on earth can a court grant an injunction without even hearing the defendant in a patent dispute involving a standard? In fact, how can an injunction ever be granted in a case involving a standard essential patent (SEP), when the dispute is always about money/royalties. How then can the injury be said to be “irreparable”, one of the cardinal pre-requisites for the grant of an injunction. I hope this is appealed soon and reversed!

Given that the patented technology is a “standard” here, it is the highest form of a “public good” and cannot be treated as a purely private property right anymore. In fact, given that the very purpose of a standard is to enable uptake and usage by others, the regular injunction rules that apply to other patents cannot apply here. For the purpose of such a patent is not to restrain others from using the covered technology, but to encourage others to use it! Courts should therefore not grant injunctions but order expedited trials in such cases to determine appropriate royalty rates. A recommendation that I (along with my co-authors Prakruthi Gowda and Jay Sanklecha) make in this book chapter here (book titled “Patent Law in Global Perspective” edited by two outstanding IP academics, Margo Bagley and Ruth Okediji), where we note that:

“….when faced with a complex patent dispute where it is difficult to legitimately assess the strength of each party’s case at the interim stage and effectively predict who is more likely to win at trial, courts (should) move directly to the trial stage—a suggestion that is coming to be increasingly adopted by the Indian Supreme Court. We argue that this is a TRIPS flexibility that developing countries, such as India, can legitimately exploit.”

Back to the case at hand, as I noted earlier, the third prong of the interim injunction standard is “irreparable” injury. When the owner of a standard essential patent (SEP) is agreeing to license it out on FRAND rates (and the only dispute is around the quantum of royalties), how can the injury be said to be “irreparable”? Isn’t the patent owner effectively conceding that the injury is compensable through monetary means. And yet in this case, an injunction issues, and that too, an ex parte one!

Make In India: The National Interest Perspective

Further, given that Ericsson sued Indian telecom companies in the past, one needs to carefully reflect on the impact that these patent wars are likely to have on national interest and the growth of the Indian telecom industry. While there are plenty of writings in the pharma space (the various tussles between MNC’s on the one hand and the local generic industry and public health/affordable medication on the other), we haven’t focussed much on the telecom terrain. The time is now ripe to focus on this technology sector as well!

See this ET article from Soma Das and Anandita Singh, which speaks of the latest order in the Ericcson vs Micromax dispute (covered by Rupali on SpicyIP) and reflects a bit on this oft-neglected “national interest” dimension:

The Delhi High Court has asked homegrown handset maker Micromax to pay a royalty that amounts up to 1% of the selling price of its devices to Ericsson for using the Swedish equipment maker’s patents on technologies that are essential to manufacture the products. The interim order holds until December 31, 2015, the deadline set by the court to conclude the trial.

The Gurgaon-based company may have to shell out about Rs 10 crore every month at least till that time, said an industry executive. If the final verdict upholds the interim order, that could even dent the low-cost business strategy of domestic handset and tablet companies by significantly undermining their cost advantage….

“Realising this problem, China instituted laws that the total payout for all such patent holders cannot exceed more than 0.017% of the adjusted sale value of the handsets, thus allowing the Chinese handset makers to produce competitively,” another executive said. Micromax declined to comment, saying the matter is still before the court. Ericsson welcomed the order.

Industry experts said the development could prove counter-effective for Prime Minister Narendra Modi’s Digital India push. “Digital India requires to encourage the domestic industry to start manufacturing low-cost but high-feature mobile phones in India. However, some of the biggest road blocks are the policies adopted by patent holders in arm twisting the Indian industry by demanding huge amounts of royalty based on totally discriminatory policies,” an executive at a handset manufacturer said.”

The Mystery Behind Not Suing Chinese Chipset Manufacturers: Patent Exhaustion?

This case and the manner in which an Indian company (Micromax) was forced to bleed owing to an excessive interim arrangement (where Micromax had to deposit almost 400 crores in court despite a challenge to patent validity) is worrying on several counts.

While this order favours Micromax to some extent in that it lowers the earlier royalty rate (from an earlier 1.25% to a low of .8% now) it is still a high rate, when we consider the fact that the royalty base that Ericsson uses is flawed. It demands royalties based on the total value of the product (the final handset for example), whereas the patented technology resides only in the chipset which are made and traded separately. As Rajiv noted in his lucid exposition of a US case in this regard, royalties are to be charged on the chip set and not the entire product as a whole. This is one of the grounds on which the CCI is presently investigating Ericsson’s alleged unfair and discriminatory patent practices.

In fact, I am given to believe that till date, Ericsson has not sued the Chinese chip set manufacturers (from whom the Indian telcos have been importing for their handsets). In fact, it turns out that this is a deliberate policy by Ericsson. One could argue that this effectivelys mean that it has impliedly licensed chipset manufacturers or acquiesced to their allegedly infringing conduct, making the chipset manufacturers effectively “legal” sellers in China. And this in turn triggers  a perfect defence for Micromax and all the other defendants to claim that they brought the chipsets legitimately from these legal sellers from China and are therefore covered under the parallel imports exception envisaged under section 107 of the Indian Patents Act. Therefore, they are exempted from the charge of patent infringement, even assuming the Ericsson patents are held to be valid and infringed. We’ll do a detailed post on this soon.

In the meantime, those of you willing to join forces with us on the problematic issue of ex parte patent injunctions, do write in with instances/data on such injunctions that we can document when we finally take this issue to the Supreme Court through a PIL.

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