Ericsson v. Intex, Part 1 – SEPs, Injunctions, and gathering clouds for Software Patenting?

In the recent judgment by Justice Manmohan Singh of the Delhi High Court in the case of Telefonaktiebolaget LM Ericsson v. Intex, Swedish telecom giant Ericsson was granted an injunction against Intex for any devices that infringed on the eight Standard Essential Patents that are part of Ericsson’s portfolio. The Court also ordered Intex to pay 50% of the royalties from the filing of the suit to Ericsson. We had covered this issue earlier here and here. The Court has also laid down a troublesome position of law regarding the patentability of computer software clarifying Section 3(k), following the same along the lines of the EU, UK, and US jurisprudence, which shall be discussed in detail in a follow-up post. [Long post ahead.]

This ruling came after years of negotiation and disagreements between the two companies. The debate started back in 2008, when Ericsson approached Intex with the claim that the devices it was importing into and selling in India infringed the patents it held. Ericsson claimed that its patents were SEPs that are necessary for any devices that claim to be compliant with multiple standards, including 2G/EDGE, 3G and AMR. It offered to license its patents to Intex on FRAND licensing terms, and the parties entered negotiations, despite clear reluctance on the part of Intex. Ericsson instituted similar negotiations with Gionee and Micromax around the same time, which we have discussed here and here. Ericsson is also involved in an SEP battle with Xiaomi, which has been discussed here.

While Intex was negotiating with Ericsson, and making its reluctance clear, it also instituted proceedings against the company in the CCI for abuse of dominance and filed petitions for revocation of patents in the IPAB. Curiously, Intex’s arguments for the abuse of dominance admitted the essentiality of the patents owned by Ericsson, while it took a directly contrary position in its arguments in front of the Delhi High Court, stating that the essentiality of the patents had not been proven. To provide some background to this, the arguments of the two parties are given below.

The plaintiffs, Ericsson, argued that it owned multiple SEPs which are necessary for any device to comply with the 2G, 3G and ARM standards, and that Intex was selling products that claimed to be so compliant, but had not licensed the patents from it. It further substantiated its arguments with the results of a series of in-house tests it had performed on the devices, and the affidavit of an expert, Mr. Vijay Ghate. It thus claimed that the Intex devices were infringing on its patents.

The defendants on the other hand argued that the essentiality of the patents in question had not been established in the first place, and that there were multiple ‘serious challenges’ pending against the same for violations of Section 8 and Section 64 of the Indian Patents Act. Intex here was relying on the argument that the validity of the patents must be established first, before any action can be taken for infringement, and that that cannot be done at the interim stage. It further argued that it had not been established that its devices were using the patents in question in the first place, questioning the accuracy of Ericsson’s in-house testing and its expert.

The defendants also had an issue with the fact that the plaintiff wanted the royalties to be made on the basis of the selling price of each device, and argued that it should only have to pay on the basis of the profit margin on the sale price of the chipset in which the technology is used.

The Court dismissed the arguments of the defendant with regards to Sections 8 and 64, finding that none of the actions of the defendant, including its lack of provision of all the details of the proceedings against its patents in the various foreign offices, seriously damaged the validity of the suit patents in question.

The Court also dismissed the defendant’s arguments regarding the fact that the plaintiff had yet to establish the essentiality of its patents, and that this could only be established once the challenges to the same were addressed. It stated that on the basis of the arguments of both the parties, the suit patents were prima facie valid, and furthermore that this plea was barred by the principle of approbate or reprobate – that is, that it cannot argue in front of the CCI that Ericcson’s patents were essential and hence it dominated the market, and in front of the Court that the patents were not essential. Therefore, it took the arguments made by Intex before the CCI as an admission on part of Intex as per the essentiality of Ericsson’s patents. The Court also noted that the actions of Intex throughout the process, starting from 2008 itself, show that it was acting in bad faith, and was trying to avoid paying royalties to Ericsson. The defendant’s argument regarding charging royalties as per chipset rather than selling price of devices was also rejected by the Courts, as per the balance of convenience.

And in an interesting, and troublesome, development, the Court also dismissed the arguments of the defendants on the count of the non-patentability of computer programmes under Sections 3(k) and 3(m) of the Act. The Court conducted a detailed analysis of the position of the law in the European Union, the United Kingdom and the United States, analysing the ‘technical features/character’ and ‘significantly more’ tests used in these countries. These tests are used here to allow the patenting of computer programmes despite the specific exclusion under the respective laws. These tests essentially require that as long as the invention itself is patentable, the mere factum of its implementation by ‘modern technical means in the form of a computer program’ should not be a bar to the granting of the patent. The patent that is granted here is not on the idea of invention, but the technical process by which the invention carries it out.

Taking all of the above into account, the Court stated the following: “thus, it […] appears to me prima facie that any invention which has a technical contribution or has a technical effect and is not merely a computer program per se […] and […] is patentable”. The vagueness and broadness of this statement leave considerable room for movement, leading to a plethora of potential issues. (For more background on this issue, refer to our earlier posts here and here.)

Thus, all the arguments made by Intex were dismissed by the Court, and arguably rightly so. The contrasting positions taken by Intex in front of the CCI and the Delhi High Court, and its clear reluctance in the negotiations with Ericsson are clear indicators of bad faith. Even though its arguments regarding the challenges to the validity and essentiality could have been accepted, Intex hacked off its own leg with its own axe by taking diametrically opposite positions in two different Courts. The challenges to Ericsson’s patents were necessarily evaluated only at a prima facie level, and will hopefully see a more detailed consideration in the final order.

The Court thus ordered Intex to pay Ericsson 50% of the total royalty amount, as per total selling price per device, and not chipset, from the date of filing the suit within four weeks, and ordered that the rest of the amount be paid to the Court Registrar.

But the most crucial takeaway from this judgement is the position the Court has taken on patentability of computer software. It clarifies and consolidates the debate that has surrounded Section 3(k) of the Act, around the ‘per se’ part of the section, which we discussed in a previous post here. This clarification marks, perhaps, a new era in the realm of patenting software in India, the consequences of which only time can tell. But, as I shall argue in my follow-up post, it may not be a step in the right direction for innovation as a whole.

The full order is available here.