Competition Law Patent

Ericsson vs CCI- The Future of Indian SEP Disputes?-II


In this post, Swati continues her analysis of the recent decision of the Delhi High Court in Telefonaktiebolaget lm Ericsson v Competition Commission of India W.P.(C) 464/2014 & CM Nos.911/2014 & 915/2014.

Why_Cant_We_Be_FRANDS

  1. Can the allegations made by Micromax and Intex be construed as abuse of dominance?

Micromax and Intex, both claimed that exorbitant royalty rates and unfair licensing terms proposed by Ericsson amount to a patent holdup. Further, FRAND terms have been violated by Ericsson’s opaque licence negotiations and legal threats used to coerce licensees.  Intex further alleged that Ericsson ‘bundled’ their licences, offering unwanted licenses along with the requested ones in an anticompetitive manner.

Here the court discussed the issue of whether the refusal to grant a patent licence can amount to anticompetitive behaviour. The court discussed that since the only manner in which a patent can be exercised is through the right to prevent third parties from making use of the patent in any manner, it is difficult to reconcile the use of the only available right of the patent holder as amounting to an antitrust violation. However on the other hand, a refusal by a patentee to grant a license may result in adverse effect on competition.

In the light of comprehending this interface between exercise of IP rights and antitrust laws, important precedents in competition cases pertaining to SEPs from the United States and Germany were discussed, with special reference to Article 102 of the Treaty of the Functioning of the European Union (anti-abuse provision). The similarity in purport of the Article with S.4 of the Competition Act demonstrates that as per international precedent on SEPs, there is sufficient ground to seek relief before the CCI for abuse of dominance.

  1. Does the fact that the dispute is a subject matter of suits mean that it cannot be entertained by the CCI?

Ericsson had argued that the CCI could not consider the matter as the Ericsson and Micromax/Intex disputes were already the subject matter of pending suits. The court held that this contention held no merit, since CCI proceedings are not in the nature of private lis but have a wider object of preventing adverse competition in India. As a result, the suit proceedings and the CCI proceedings can take place alongside each other. Further, CCI’s consideration of the dispute would be in a different scope, with more focus on examining whether Ericsson has abused its dominant position.

The other contention which the court considered, was that since some issues before the civil court and the CCI were common and S. 61 bars the jurisdiction of the civil court where CCI or COMPAT is empowered, the subject matter is outside the scope of the Competition Act. The contention was rejected on the basis that only the CCI (and not the civil court) could decide the matter of abuse of dominance. While relevant facts pleaded before both forums may be similar, this does not amount to the civil court adjudicating the question of dominance abuse.

  1. Can Micromax/Intex maintain an abuse of dominance claim alongside contesting Ericsson’s the validity of the patents?

Ericsson argued that Micromax and Intex had acknowledged Ericsson as the proprietor of the SEPs in their complaint before the CCI. This varied from their stand in the suits filed by Ericsson, and must consequently be rejected.

The court evaluated the question of the right of a licensee to reserve its right to challenge the validity of the patents by considering foreign decisions on the subject. Particular attention was paid to Vringo Infrastructure v ZTE (2013) EWHC 1591 (Pat.), before the High Court of England and Wales. Here, the patent holder, Vringo had argued that ZTE was an unwilling licensee as they had refused to purchase the licence for the patents until the issue of validity of the patents had been determined. This contention was rejected on the basis that the question of validity and the willingness to purchase a licence were separate issues.

The High Court accepted this judgment and indicated that a ‘willing licensee’ would not amount to one willing to accept an invalid patent and waiving the right to challenge the patent’s validity. Even S. 140(1)(d) of the Patents Act states that no patent licence agreement can include conditions preventing the right to challenge a patent’s validity, and thus licensees can retain their right to do so at all times. This would no doubt apply to potential licensees as well. As a result, the court held that no waiver of the right to challenge the patent’s validity had taken place when Micromax and Intex entered into licence negotiations for the same.

  1. Are the CCI’s orders being made without jurisdiction in this case?

The court stated that from the facts discussed in the judgment, the complaints prima facie appear to disclose no abuse of dominance, as it appeared that, Ericsson had attempted to arrive at a negotiated settlement with both Micromax and Intex and Micromax and Intex had been manufacturing without a licence from Ericsson or obtaining a compulsory licence from the Controller of Patents. At the same time, this was not a case, “where no reasonable person could have formed a view that the complaints filed by Intex and Micromax, prima facie, disclosed abuse of dominance by Ericsson.”

The court made it clear that it was outside its purview to consider the merits of the matter when it would be discussed by the concerned authority (CCI).  The court clarified that, “nothing stated by it in this case, should be construed as an expression of opinion – prima facie or otherwise – on the merits of the allegations made by Micromax and Intex; all observations made or views expressed herein are in the context of the jurisdiction of CCI to pass the impugned orders.”

The court went on to urge the CCI not to discount the issues raised by Ericsson and to ensure appropriate measures to ensure confidentiality and secrecy during the investigation of sensitive material.

Observations

The clarification on the interface between patent law and competition law is of immense importance to the continuation of the SEP wars. It confirms the Indian legal position that questions of FRAND licensing and improper refusal of SEP licences may amount to abuse of dominance. This could potentially act as legal ammunition for SEP licence seekers when negotiations come to a halt and yet their use of the said patent is essential. As a result, avoidance of compliance with the FRAND terms would become significantly more risky for patent holders and they may find it safer to grant the licences in complete accordance with these terms. The fact that the court considered the FRAND obligations in a serious manner possibly demonstrates the fact that the legal system may not take too kindly to FRAND violations in future SEP disputes, but only time will tell.

Additionally, it has now been made clear that licence seekers may file complaints before the CCI at the same time as questioning the validity of the patent before the Patent Board. As a result, patent holders may be under a great deal of scrutiny to avoid exploitation of licence seekers through either unfair terms or incorrectly granted patents.

Update: As per a recent order, the CCI investigation is still under progress. The Delhi High Court has directed that, no final report shall be filed by the Director General until the next hearing May 12, 2016.

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