DHC rules that Ericsson concealed relevant information in Xiaomi matter – vacates injunction in part

On December 9, 2014 we had informed our readers that the Delhi High Court (DHC) had granted an interim injunction against Xiaomi.  The injunction was later modified by an order of the Division Bench of the DHC, and Xiaomi allowed to sell its devices subject to certain conditions.  The first post started with an editor’s note, which I find it useful to reproduce (just replace probably with almost certainly: “Due to the large number of queries around this – I would like to point readers to this other post here which explains why orders such as this present one are problematic and probably bad in law] ”  On Friday, April 22, 2016, the DHC agreed in part with Xiaomi that Ericsson had concealed relevant information pertaining to two of its 3G patents (IN229632 and IN240471), and vacated the first order as it related to these two patents.

“The ground of concealment as urged by the applicants needs to be accepted to the extent of the two patents relating to CDMA applications. Accordingly, the interim order dated December 8, 2014 in so far as it relates to two patents IN229632, IN240471 (3G patents) is vacated.”

Disclaimer: I represent several clients in matters related to SEPs / FRAND and against Ericsson.

I found it useful to highlight the editor’s note because of its prophetic nature.  Patent matters are complex, and injunctions should not be the norm.  In the normal course of collecting compensation for patents that are not encumbered by a FRAND promise, patent owners must prove infringement on a claim by claim basis for each patent, and in the course of such an assertion withstand challenges such as validity and enforceability.  Once this threshold is met, i.e. the patent is proved to be valid and infringed, only then is the inquiry conducted for damages.  This is once again done on a patent-by-patent basis. However, in some interim matters, patent have been presumed to be valid, and infringed, and essentiality is presumed because the patentee claims that other entities have taken a license to the SEPs.

SEP owners should not be given any special status and placed along with normal patent owners.   Traditional legal rules and burdens of proof should apply to them equally.  Just because the patent owner participated in the standard setting process and self-declared hundreds of patents to be essential does not mean that (i) burden of proof requirements are waived for them, or (ii) they can stake a special claim to royalties on an end product when their patents (alleged SEPs) may at most be implicated in a miniscule component of the end product, both according to price and size parameters. In short, SEP owners are not entitled to a higher legal pedestal.

Before the DB, Xiaomi had argued that Ericsson was not entitled to an injunction, because Xiaomi already had a license from Qualcomm which in turn had a license with Ericsson, i.e. Xiaomi was paying Qualcomm some royalty (lets call it X), and Qualcomm by virtue of its licensing arrangement with Ericsson, was paying Ericsson a royalty (not the same as X). Ericsson had concealed this information before the single judge, and hence the injunction issued.  The DB ordered that this was a matter of trial, and allowed Xiaomi to sell subject to certain conditions, etc.

After trial, the single judge came to the conclusion that Ericsson had indeed concealed information pertaining to two patents and appropriately vacated the order of December 8, 2014.  

In my view, because an injunction is an equitable relief, the entire order of December 8, 2014 should have been vacated, as Ericsson concealed information that was relevant.  In all probability, the judge would not have granted the injunction, if made aware of this issue.

There is also the aspect of double dipping – If Xiaomi paid Qualcomm, Qualcomm paid Ericsson – Ericsson cannot claim again from Xiaomi.  This is a very serious issue – it reflects the possible misuse of NDAs to obfuscate information, and in particular a money claim.  Also because Qualcomm is a chipset provider, it punches a big hole into several theories.

Options available to Xiaomi:  In my view, they should immediately appeal the judgment – the impact of concealment can’t be limited to two patents.  Will the Court now bifurcate and return payments received for the 3G patents?  Importantly, how will the court return the Defendant to the same position it was before the injunction issues – even assuming it was for 2 patents only?  To add to the confusion, Xiaomi’s claim regarding AMR patents being used for 3G is also plausible. Hence the tally becomes 7 (5 AMR + 2 3G patents), i.e 7/8 patents are out of reckoning.

Regardless of the outcome, this case highlights the very important issue of not issuing an injunction in patent matters, and  making patent owners prove infringement on a claim by claim basis for each patent, and in the course of such an assertion withstand challenges such as validity and enforceability.

Note: CDMA in the judgement is a typo – it should be WCDMA or more technically UMTS, both of which are 3G.


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