The damages and privity problem in SEP infringement suits: Will legislation solve the case? – Part I of II

Ericsson granted an injunction in its infringement suit against iBall

Read the order here

traffic-lights-466950_640The smartphone wars have claimed another victim. This time it’s iBall in the Delhi High Court as they were injuncted from importing devices that contained the patents in issue before the court mainly concerning 2G, 3G and EDGE Technologies. As most readers would be aware, Ericsson went on a litigation spree suing a host of Indian communication device manufacturers and importers like Micromax, Intex and like in the present case, iBall. These suits were primarily based on the claim of infringement in a portfolio of Standard Essential Patents, essential to implement the 2G, 3G and EDGE technologies. This two post series analyses the injunction order against iBall passed recently by the Delhi High Court. Part I discusses the prima facie case analysis of the Court and concludes with some observations unique to the SEP context. Part II resumes the analysis with a take on the other two factors and observations on the bigger picture here.

Readers may also keep in mind that these suits are never suits for infringement simpliciter. Since these patents are Standard Essential Patents (SEPs), Ericsson is under a contractual obligation towards a Standard Setting Organisation (SSO) to license these patents away at Fair, Reasonable and Non Discriminatory (FRAND) terms that may allow these companies to implement these technologies. Therefore, these injunction applications often involve simply a determination as to whether both parties were diligent in carrying out their obligations towards coming to an agreement on suitable royalty rates for licensing, once the essentiality of the patent is beyond dispute.

The prima facie case analysis

As with most cases involving SEP portfolios, a prima facie case of infringement is not difficult to make out at all. This is more so the case in India, as the Department of Telecommunications (DoT) in India, pretty much lays down the standards (and consequently the patent portfolios) that devices being imported into India must contain. These include the patents in dispute belonging to Ericsson. A legal import of a communication device into India must therefore necessarily contain one or more of Ericsson’s patents in these portfolios if it were to implement the 2G, 3G or EDGE technologies. In this case, iBall in the information it provided to the Competition Commission of India (read our post on the proceedings here) had also admitted that its imports were mandated by law to contain Ericsson’s patents in order to successfully implement the 2G, 3G or EDGE technologies. Therefore the questions of infringement and essentiality are beyond dispute here. The injunction application however must also address another issue in order to succeed – whether the defendants were ready and willing to execute a FRAND license agreement. This is because as I had mentioned earlier, Ericsson was under a contractual obligation to enter into one and can only therefore allege infringement if this negotiation had failed. The court therefore had to consider whether such a negotiation, or efforts thereto had been made. There was a submission advanced on behalf of the plaintiffs here that no such interest was communicated to them by the defendants and while the defendants claim that they required certain details and documents to establish the essentiality of the patents and infringement, the court clearly notes that the defendants themselves had admitted to both of these. Prima facie case therefore is admittedly in the plaintiffs favour here, both for the requirement to enter into a license agreement and in the larger question of infringement.

Some important observations unique to the SEP context

The other two requirements of balance of convenience and irreparable harm are somewhat murkier here. I’d like to take some space here to highlight that by their very nature, SEP portfolios are designed not to be enforced by infringement suits but rather by licensing agreements that are well negotiated. Consider that there are contractual obligations imposed by virtually every SSO to license these portfolios under FRAND terms. Therefore, when a company participates in the standardisation process, it practically gives up its right to exclude a particular technology or patent from a market by infringement suits and the consequent refusal to license the patent. Instead what the company relies on is the hope of a robust set of licensing agreements that grants it adequate royalty. It cannot hope to exclude by infringement due to a contractual obligation. Of course, infringement suits are an option in case the negotiations to license fail but courts must in these situations be cognisant of how as an end game, patent holders are looking for royalty and not exclusion in an SEP dispute and correspondingly modify the injunction analysis. Damages as direct substitutes to lost royalty are therefore adequate compensation in actions of SEP infringement. Contrast this with cases of patent infringement not involving an SEP where the patent holder has the option to not license his patent and claim exclusion as a remedy. In such cases, one cannot conclude that damages are sufficient as the right to exclude a particular technology is still alive and well with the patent holder and he may not wish to, or is under no obligation to license away his patent.

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