Almost a year after it was reserved by the Delhi High Court, the first post-trial judgement by an Indian Court in a Standard Essential Patent-related suit was issued on July 12, 2018. In Koninklijke Philips Electronics N.V. vs. Rajesh Bansal And Ors., Ms. Justice Mukta Gupta delivered a positive finding of the ‘essentiality’ of Philips’ patent, and held that the defendants, local manufacturers, in manufacturing standard-compliant DVD players were infringing this patent.
Plaintiff, in 1995, registered Patent No. 184753 in India (the suit patent), which relates to a “Decoding Device for converting a Modulated Signal to a series of M-Bit Information Words”. Defendants are Indian manufacturers who imported DVD player components and assembled them in India. Plaintiff claimed that the defendant’s DVD players employ ‘decoders’ especially meant for decoding contents stored on optical storage media in accordance with the methods described in IN-184753, thus infringing the suit patent. The DVD standards in question are the DVD Video Standard and the DVD ROM Standard created by the DVD Forum, and subsequently adopted by the ISO and ECMA.
The Court describes the functioning of the patent (even though no claim construction is done in the judgement) as follows – “The invention concerns ‘channel modulation’ which involves a coding step that is performed directly before the storage of the data. This coding ensures that the data to be stored on the disk has a particularly suitable structure for storage. The decoding of 16-bit code words to 8-bit information words is performed by “looking ahead” to the next code words.”
Arguments and Court’s Analysis
The Court framed eight issues to be decided in the suit:
“(i) Whether the plaintiff No.1 is the proprietor of Indian Patent registered under No. 184753?
(ii) Whether the plaintiffs are owners of a valid patent?”
These two issues were decided at the outset in favour of the plaintiffs. The defendants during argument had challenged the validity of the suit patent, contending that it is an algorithm and not an invention, and therefore is not patentable. However, as this was not pleaded by the defendant’s in their written statement, the argument was not considered.
The Court next considered issue (vi),
“Whether the impugned suit patent (#184753) is an essential patent in respect of DVD technology and whether the essentiality as claimed is valid under the Indian Law?”
The Plaintiff argued that the suit patent was an essential patent required to comply with the DVD Standard. The Plaintiff sought to rely upon ‘essentiality certificates’ granted to its corresponding US and European Patents, to prove that the patent was, in fact, essential. The Court did not examine the validity of these ‘essentiality certificates’, holding that the Plaintiff had discharged their burden of proof by producing evidence of ‘essentiality’, despite Defendant’s objections over the credit-worthiness of the reports. In reasoning based almost entirely on the ‘essentiality certificates’ of the US and EP Patents, and without independent analysis, the Court held that the suit patent is an essential patent for the fulfillment of the DVD Standard.
“(iii) Whether the defendants have infringed the plaintiffs’ Indian Patent No. 184753?”
The Court found that the defendant infringed the suit patent on two counts – because the suit patents were SEPs, the logical corollary of the defendant manufacturing a standard compliant device without a license for the SEP indicated infringement. In the alternative, the plaintiff argued that infringement was independently proven in its evidence. The defendant argued that the plaintiff had failed to prove infringement. Importantly, the defendant also argued that the plaintiff was unable to prove that taking into account the prevalent technical practices and the state of the art in usage, making, selling, leasing of the DVD player without infringing the plaintiff’s patent is not possible. Unfortunately, this was not accounted for by the High Court. The Court considered the evidence provided by the Plaintiff’s witness, holding that the plaintiff was able to prove (through EFM (eight to fourteen modulation)+ demodulation technique) that the suit patent was in fact infringed. While the court discusses the precedent on the construction of a claim, no such construction is done, and no comparison of the patent claims with the allegedly infringing product is made. It is unclear whether the EFM technique is in fact disclosed in the suit patent, therefore the suitability of this analysis is circumspect. However, this analysis seems to be sufficient for the court to hold that there is factual infringement as well as infringement based on the compliance of a standard without taking the required licenses from the SEP.
The defendant’s next leg of argument rested on the principle of exhaustion of rights, which holds that the patent right over a product cannot be enforced against that specific product once it has been sold by the manufacturer or licensee. The defendant argued that it purchased the relevant allegedly infringing device from third-party manufacturers who were duly licensed by the plaintiff. The Court dismissed this argument routinely, stating that the defendant had not managed to prove that the sellers from whom they had purchased were properly licensed by the plaintiffs. However, this does not address the full scope of the exhaustion argument, in terms of the protections it grants innocent downstream purchasers.
“(iv) Whether the defendants had knowledge of the plaintiffs’ patents in respect of DVDs and the plaintiffs’ licensing programs?”
The Court held that the defendants, in applying for a license from the plaintiff, must have had knowledge of the plaintiffs patent, and therefore held this issue against the defendants.
“(v) Whether the plaintiffs along with various other members of the DVD forum are misusing its position with a view to create a monopoly and earn exorbitant profits by creating patent pools?”
The defendant next argued that the issue of licensing of a standard essential patent was a competition law issue and could not be decided by a civil court as per the Competition Act, 2002. The Court, rightly, rejected this argument, one which has already been settled by Telefonaktiebolaget LM Ericsson (PUBL) vs. Competition Commission of India and Ors. In which the Court held that the CCI and the civil court operate in different spheres and offer different remedies, and the civil court cannot go into issues of anti-competitive behavior
“(vii) Whether the defendant No.2 is liable to pay any license fee to the plaintiffs and if so at what rate?
(viii) Whether the plaintiffs are entitled to a decree of damages or any other relief?”
The plaintiffs argue that the value of royalty must be based on the entirety of the patent pool, which is the basis on which its licensing occurs. Defendants stated that this would amount to a breach of Fair, Reasonable and Non-Discriminatory licensing terms, which are usually followed in cases of SEP. However, there was no analysis in the judgement on what the scope of FRAND is, particularly in how the court should determine what is FRAND in a situation where it sets royalty rates. The Court relied on the US Federal Court’s decision in Commonwealth Scientific and Industrial Research Organization vs. CISCO Systems, Inc. to conclude that the royalty rates may be based on informal negotiations, and in the absence of a countervailing methodology by the defendants, allowed the royalty rate to be fixed at USD 3.175 from the date of institution of the suits till 27th May, 2010 and from 28th May, 2010 at USD 1.90 till 12th February, 2015.
Finally, the Court reproduced at length the law on punitive damages, as established in Hindustan Unilever, and expounded on the importance of not being arbitrary in the award of damages, then immediately proceeded to award an arbitrary Rs. 5 Lakh in punitive damages without taking into account any of the principles reproduced by it.
The Delhi High Court’s decision is certainly an important landmark in SEP litigation in India. However, the lack of analysis by the Court on crucial areas like assessing essentiality, forgoing a claim construction, disregarding exhaustion principles and assessing FRAND terms means that it is more likely to have a notorious legacy, and possibly subject to challenge in appeal on any of the above grounds.