Indian Mobile Manufacturers Dragged over the Coals by Ericsson and the Delhi High Court with Little Regard for Procedural Fairness

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As many of our readers may be aware, there is long running litigation between Ericsson and Indian mobile phone manufacturers like Micromax, Intex, Lava and Gionee over the alleged infringement of 8 standard essential patents (SEPs) by the latter. We’ve written about it earlier over here, here and here.

The intersection of standards and intellectual property rights has for long been a contentious issue but more so in context of the telecom industry. The technological requirement for having standards is to ensure interoperability between the products of different manufacturers. Such standards are critical in the mobile phone industry where there are a large number of competing manufacturers. If two different manufacturers adopt entirely different technologies it could result in the technologies not being able to talk to each other resulting in market inefficiencies. By ensuring the adoption of similar standards through the industry it is possible to ensure that the different technologies speak to each other resulting in more efficiency and competition in the market for different products.

Some of the telecom standards that may be familiar to readers include EDGE, LTE and WIMAX. Whether a particular technology is deemed to be a standard or not depends on both Standard Setting Organisations (SSOs) and the market forces.

From an IP perspective, SEPs have been a hot potato because they hand over enormous market power to the entity that owns the SEPs. In effect the owners of the SEPs has the power to decide all downstream competition. To illustrate with an example, if Ericsson or Qualcomm decline to license their SEPs to only certain manufacturers while agreeing to licence it to others, they will in effect be controlling competition in a downstream market. Given this enormous power in the hands of those who own IP over standards, the generally accepted principle world over is that certain technologies should be declared as essential standards subject to the owners of such technologies agreeing to license their technologies on a FRAND basis i.e. fair, reasonable and non-discriminatory.

 Of course, nobody agrees on what constitutes fair, reasonable and non-discriminatory and world over, it is usually judges sitting in courtrooms who decide what is FRAND and this includes fixing the rate at which a patent can be licensed. World over such litigation over SEPs requires the court to conduct a trial where evidence is examined before the judge takes a call on the rate of royalty. We can bicker over the final rates that are fixed and whether courts should even be setting these rate but I think we can at least agree that courts should follow basic procedural norms of justice such as conducting a trial before deciding royalties and depriving defendants of their property. Unfortunately, the Delhi High Court does not appear to follow the same value system.

Rather than wait for the trials to be completed before deciding royalties, different judges of the Delhi High Court first ordered the Indian companies to start depositing royalties with the court at a rate that was summarily fixed under the threat of interim injunctions that would have completely shut down the Indian companies. Back in the olden days, English judges and sometimes Indian judges used to make the plaintiff deposit a bond to cover the possible damage resulting from a wrongly granted interim injunction. Indian judges have long done away with this requirement instead forcing the defendant instead to deposit a certain amount with the court. There is no legal provision in the Code of Civil Procedure or the Specific Relief Act which gives judges such powers to demand deposits of securities by the defendants. There is tax legislation which specifically vest such power in judges while admitting appeals where one level of adjudication has already been completed. So how then is the Delhi High Court passing such orders in civil litigation? Nobody really knows.

Patent cases are complex because the courts have to test the validity of the patents and in the facts of the present litigation there are serious questions about the validity of Ericsson’s patents because there are some allegations that the patents are nothing but software patents which are prohibited in India. When there is so much uncertainty at the interim stage, the court should never have ordered either interim injunctions or deposit orders for royalties because both events lead to depriving these Indian companies of working capital in a market where interest rates for working capital is amongst the highest in the world.

Not satisfied with demanding deposits of royalties, the Delhi High Court then ordered its registry to start paying out these deposits to Ericsson after the latter deposited a bank guarantee. In other words, even before completion of the trial and a decision on the validity of the patents, the Delhi High Court started paying out Ericsson damages for patent infringement. How does one decide damages when the validity of the patent is itself not resolved? There is absolutely no legal precedent or provision of law or principle of equity that allows the Delhi High Court to pass such orders.

So how much exactly has the Delhi High Court ordered the Indian companies to pay out to Ericsson before any of the trials have concluded?  From the figures given to me by people familiar with the litigation, a sum in excess of Rs. 300 crores (approx. $50 million) has been paid to Ericsson by the Indian companies even before the trial has concluded. Of this total amount, Rs. 231 crores was deposited with the court by Micromax before Ericsson decided to revise rates thereby resulting in Rs. 118 crores going to Ericsson and Rs. 113 crores going back to Micromax. Others like Gionee and Lava have also choked out substantial royalties although the exact figure is not available with me. There are other orders which direct the defendants to directly make payouts to Ericsson so the actual amount that Ericsson has earned in damages, even before the conclusion of the trial, is much likely higher.

At this point, I am simply amazed at how the Delhi High Court is proceeding with this SEP litigation. Instead of expending judicial time on supervising the completion of a trial, the judges of the Delhi High Court are deciding the modalities of paying out interim damages.

Since we now know how susceptible the Indian patent litigation system is to abuse by various stakeholders, it is incumbent on Parliament to insert more safeguards into the law to raise the threshold for patent enforcement in India. It is unacceptable to let companies like Ericsson take the Indian system for a ride in this manner.

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4 thoughts on “Indian Mobile Manufacturers Dragged over the Coals by Ericsson and the Delhi High Court with Little Regard for Procedural Fairness”

  1. Why are you so surprised by the issue of focusing on interim damages/ interim stage proceedings?
    Have you not seen a bigger mess (in terms of judicial time) in the Roche – biosimilar litigation – and the case is nowhere near finality even after 3.6 years?

    You know who

  2. Indian Mobile Manufactrers.. Thats a fancy tagline..

    I would love to know where are these IMFs are ‘Making in India’ !

  3. It appears the Indian courts are running away with themselves, all I can say is this a very corrupt situation and cannot be anything else, because it’s the courts duty surely to to prove a case before judgement can be made and passed. So who is on the make here it begs the question?

  4. The article, while being well written, does seem to miss the purpose of an interim injunction/arrangement while completely glossing over the rights of a patentee under the Patents Act. To this effect I would appreciate the author’s take on a few points:
    1. Interim arrangements are a fairly recognized concept in Indian jurisprudence (while I do admit interim deposits being made directly to the Plaintiff is a bit unusual) as an effective remedy is provided without having to expend judicial time on such applications, which I am sure is highly contested. Keeping this in mind, wouldn’t the Delhi High Court’s solution be the most effective in balancing convenience, especially since the Plaintiff provides security in the form of a Bank Guarantee. I say this keeping in mind certain other factors as well: (a) To the best of my knowledge, the Delhi High Court has found a prima facie case in favour of the Plaintiff in Ericsson v. Intex and Ericsson v. Best IT and therefore unless over-ruled in appeal the Plaintiff are entitled to an injunction (and no one likes an injunction) (b) like you have mentioned in your article and I quote “Back in the olden days, English judges and sometimes Indian judges used to make the plaintiff deposit a bond to cover the possible damage resulting from a wrongly granted interim injunction.” the fact that a Bank Guarantee is provided ensures that Ericsson would have to pay (with interest probably) for a wrongly granted injunction/arrangement (c) The effect on downstream competition. Also bear in mind that assuming if the Plaintiff eventually succeeds “in a market where interest rates for working capital is amongst the highest in the world.” I do not believe the Defendant would have the working capital to pay damages at one go.
    2. By stating that the Courts should neither have ordered an injunction nor any other form of interim arrangement, aren’t you defeating the very object of Intellectual Property Rights. The term of a patent is 20 years from its filing and, apart from the recent pleasantly surprising uptick in turnaround for grants/rejections, the patent office often takes over 5 years (if you are lucky) to grant a patent. That is roughly 1/4th of the term of the patent. Keeping this in mind, wouldn’t you say by the time the Court eventually decides the matter the patent would have in all probability expired. In this scenario (and assuming the Plaintiff wins) the Defendant would have had no consequences for infringing someones intellectual property. By ensuring no consequences for infringement I do not believe any half sensible company would ever seek a license from the patentee when you can simply ensure that the litigation drags on up until the expiry of the term of the patent.
    3. Wouldn’t the Courts be the most appropriate forum to decide the rates for licensing the patents in dispute. As far as I am aware the Competition Commission has no such powers (all it can do is impose penalties) and I can think of no other forum apart from maybe the Controller in the case of a compulsory license that can set rates for patent licenses.
    4. Wouldn’t patents be granted for 2G and 3G technology as they aren’t just algorithms or software (like everyones fav Facebook, Angry Birds, Microsoft, etc.). This is a particularly grey area with not a single judgement from a Court (that I know of) with extremely high ramifications considering the day and age we live in.

    Also, I do not believe simple supervision of the trial would suffice in the quandary you have so aptly conveyed above. From what I have been able to gauge, courts are often loathe to venture into giving final judgements in technical patent cases where the validity in challenged. Specialized benches would probably go a long way in this regard.
    That being said, simply criticizing the orders of the court without either proposing an alternate that balances equities (and not just “let the Defendants be, cause any interim relief in the favour of the Plaintiff is a bad decision when it comes to SEPs”) is extremely irresponsible writing. I say this with the greatest of respect to the author and recognizing what this blog has done for the understanding of Intellectual Property in India. An alarming example of the consequences is the comment right above mine.

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