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

Ericsson granted an injunction in its infringement suit against iBall

Read the order here

traffic-lights-466950_640This two part series discusses the injunction order passed against iBall by the Delhi High Court. Part I of this series had dealt with an analysis of the prima facie case and had concluded with some observations that demonstrate that SEP patent portfolio owners may actually be better compensated by damages rather than an injunction. Part II below continues with an analysis on the balance of convenience and irreparable harm factors and makes some concluding observations as to how this order may be symptomatic of a larger problem and possible remedies.

The balance of convenience and irreparable harm analysis

Tackling the question of irreparable harm first, the logic of the court is the oft repeated reasoning that patent protection is in itself extremely short and therefore patent holders must be protected on a priority basis. While it is not easy to disagree here, the problem with the order is where it states that the irreparable harm also arises due to the fact that without this injunction,

“the defendant would keep on marketing the mobile devices without the FRAND agreement and without paying any royalty.”

By the courts own reasoning here, royalty is a consideration that the defendant could have paid the plaintiff. This royalty payment could therefore be effected by the payment of damages as an adequate remedy.

In the court’s balance of convenience analysis, this strange sentence finds its way into the order,

“In case the defendant is not infringing the patent, the interim order would not harm the business of the defendant if the technology of the defendant is distinct and not amounting to infringement of plaintiff’s rights.”

I fail to see how putting a stop to the business of the defendants and therefore the livelihood of 4000+ people (estimate based on an anonymous tip) would not damage the defendant at all, considering its primary business and in fact identity in the Indian market is as an electronic device provider. I must reiterate here that the analysis is perhaps digestible in an infringement suit simpliciter but not in the instance of an SEP patent portfolio, where three factors impede this reasoning: one, that damages may compensate the plaintiffs; two, that these patent portfolios were not substitutable and three, that the plaintiffs were under an obligation to license out this portfolio under FRAND terms.

Damages as an adequate remedy

The Supreme Court of India has on numerous instances (most notably in Gujarat Bottling Company) stated that an injunction may be granted only in instances where damages may not adequately compensate the injunction seeker. While temporary injunctions may be exempt from this requirement under certain circumstances, the court’s balance of convenience analysis, should have considered this element as per the reasoning of the Supreme Court in Colgate Palmolive (India) Ltd. v. Hindustan Lever Ltd. In the present case, and as has been my objective in this series to demonstrate, damages can adequately compensate an SEP patent portfolio holder. The defendant, as held in the order itself, is clearly not a fly by night operator and must therefore maintain regular books of accounts detailing sales and revenue making damages easily assessable. The alternative preferred by the court is to temporarily shut down the business of the defendants, the gravity of which was woefully misjudged by the Honourable Court in comparison to awarding damages to compensate the plaintiffs.

Is this order symptomatic of a larger issue? The privity problem

The question as to whether this order is symptomatic of a larger issue can only be answered in the affirmative. SEP infringement suits are beset by a problem arising out of Indian Contract Law. The Indian Contract Act, 1872 does not allow (in most cases, save in a few limited exceptions, which are not applicable in this case) third parties to enforce contractual obligations between the parties to a contract. This is called the doctrine of privity. This poses a problem in SEP suits in India as most obligations that Ericsson has are purely contractual with an SSO and iBall is a third party to this contract. There is precious little that iBall can do to enforce these obligations in India. Considering that the essentiality of these patents in India comes both from the SSO and the DoT, parties are often left at the mercy of the patent holder. Other jurisdictions that do not enforce the doctrine of privity allow the alleged infringer to counter sue for breach of the standard setting contract.

The point of the discussion on privity is to demonstrate that the source of an SEP patent holder’s obligations to enter into FRAND terms might not be based on sound legal footing that an alleged infringer may enforce, while the essentiality of the patent has been adopted into Indian “law” by the DoT. The law in India therefore needs to adapt to this reality and provide an effective remedy to the alleged infringer by also adopting the FRAND requirements into a coherent obligation that arises out of law, rather than out of contract. This grants an effective remedy to an alleged infringer who has no option but to implement the standards in question in order to legally import products to India. The law as it stands today merely empowers courts to address this requirement and contains no checks to prevent the patent holder from acting in bad faith, but for the good graces of the judge in question. If the law were to adapt, it also allows courts to clearly take notice of the fact that SEP patent portfolios are significantly different from conventional patents in terms of enforceability and as to how the licensing and damages analysis must be accorded a greater weight in the injunction analysis.

In the absence of this law however, perhaps one of the parties may do well to take an arbitrariness challenge to the DoT requirement of essentiality to a constitutional court in order to create a better climate to enforce their rights or to obtain effective remedies. Just a thought.

Thomas J. Vallianeth

Thomas is a final year law student at the National Law University, Jodhpur pursuing a B.Sc. LL.B. (IP Hons.) course. His first exposure to IP law was at a workshop that he attended in High School and ever since then, he has pursued a keen interest in the field. However, his real interests lie in the interfaces between Technology Law and IP, with an active interest in the Open Source movement.

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