Philips SEP Judgement: India’s First Post-Trial SEP Judgement has Serious Flaws

Earlier, we covered Ms. Justice Mukta Gupta’s decision in Koninklijke Philips Electronics N.V. vs. Rajesh Bansal And Ors. where the Delhi High Court found certain local manufacturers of DVD players liable for infringing Philip’s patents, which it claimed were Standard Essential Patents. I pointed out that the judgement was flawed on several counts. Given the importance of the jurisprudence on SEPs, the Court’s judgement requires some deeper examination.

‘Essentiality’ and the (Absent) Claim Construction

In determining infringement, the plaintiff adopted two lines of argument, both of which were accepted by the Court. First, to determine the ‘essentiality’ of the suit patent the plaintiff argued that if the suit patent could be mapped to a standard, it would not be technically possible to manufacture the suit patent without infringing. The defendant countered that the standard relied upon by the plaintiff was not recognised in India. The Court found that the suit patent was essential, and therefore the defendants infringed the suit patent.

While the court also (somewhat) conducted a separate patent-to-patent infringement analysis, the judgement implies that it is legitimate for patentees to prove infringement by simply mapping the patent to a standard, instead of mapping the patent claims to the infringing product/process.

Unfortunately, the High Court makes glaring omissions in this regard. It accepts (at face value and despite the objections of the defendant) the plaintiff’s evidence led to prove that the suit patent is a Standard Essential Patent. These were two privately granted ‘essentiality report mapping the Plaintiff’s European and US Patents to certain relevant standards in those jurisdictions. The standards themselves (the ECMO and the ISO respectively) were not proven by the plaintiffs. Logically, this should have meant that any ‘essentiality report’ relying upon these standards would be disregarded. Instead, the Court goes on to first conduct a mapping of the Indian, EU and US patents, to arrive at a bare and unreasoned conclusion that they cover the same claims – despite the language of the claims being different in all three. Further, while disregarding the standards themselves for lack of proof, the Court accepts at face value the private reports of the plaintiff, which mapped unproven international standards to unexamined international claims, despite the defendant’s objections. The Court then sweepingly declares that the suit patent is a standard essential patent in a DVD Technology Player.

This is a concerning precedent to set in SEP litigation, particularly at the post-trial stage. It could imply that all other standard-compliant inventions are automatically infringing, without requiring an analysis of the standard or the allegedly infringing patent itself. This could have significant fallout effects on the development of new technologies as well as standardization and interoperability.

The problem arises because standards are often not sufficiently precise to imply that use of the standard can be claimed to be infringing. The standards themselves may be implementable in other, non-infringing ways. Even in the US, where this was recognised by the Federal Court, its use was sufficiently caveated and its application limited to the facts of this case. The Court recognised that

“in many instances, an industry standard does not provide the level of specificity required to establish that practicing that standard would always result in infringement. Or, as with the ’952 patent, the relevant section of the standard is optional, and standards compliance alone would not establish that the accused infringer chooses to implement the optional section. In these instances, it is not sufficient for the patent owner to establish infringement by arguing that the product admittedly practices the standard, therefore it infringes. In these cases, the patent owner must compare the claims to the accused products or, if appropriate, prove that the accused products implement any relevant optional sections of the standard.”

Presently, it turns out, the Court did not need to make this significant yet offhand contribution to SEP jurisprudence because it determined that the plaintiff had independently proven infringement. This analysis was also flawed.

Essentially, the suit patent is a chipset embodied in DVD devices. This device is claimed to perform specific functions for decoding. However, the plaintiff’s witness led evidence not on the claims of the suit patent and corresponding technology being used in the allegedly infringing devices, but rather by describing the process of EFM + Demodulation techniques, which were claimed to be utilized by the defendants. This infringement analysis is completely contrary to the Court’s own judgement in Cipla v Hoffman la Roche, in which the principles for claim construction by the Court were laid down. In fact, Ms. Justice Gupta extensively cites the judgement before ignoring it entirely by foregoing a claim construction and comparison. Instead of mapping the claims to the defendant’s products, the Court accepted the plaintiff’s expert witness stating that the particular technique could not be exhibited without the use of the suit patent, even though both the credibility of the witness and the lack of claim construction was challenged by the defendant.

Raising the Bar for International Exhaustion

The Court also rejected the defendants’ argument that there was no infringement as the devices had been imported from a valid licensee of the patentee. Citing the principle of international exhaustion, the principle, that the first sale of a patented product invalidates further rights to that specific product. Section 107 of the Patents Act incorporates this principles in favour of imports of patent products which have been first sold abroad. In the present case, the defendants argued that the purchase was from valid licensees. However, in the Court’s analysis, the defendant had the additional burden of proving that the entities from which it purchased the devices were duly licensed or sold by the plaintiffs. This restricts the scope of the principle of international exhaustion. It imposes a high burden on any downstream purchaser to ensure that the products lifecycle prior to import is compliant with patent laws in that country. Placing the burden on the plaintiffs to prove that the product does not fall under the scope of Section 107 is more logical and procedurally fair, given that it is their burden to prove that manufacture or sale is unauthorized in the first instance. The Court’s determination in this case does not undertake this analysis and assumes a high threshold for international exhaustion defence to prove authorization of the first sale.

FRAND Licensing and Damages

Finally, the Court also erred in its assessment of damages which should be payable to the plaintiff. Firstly, the Court’s assessment of FRAND rates for royalty are not in line with its own precedent or international precedent. Secondly, it prescribes punitive damages – a slightly absurd outcome in SEP litigation.

The Court once again placed the burden upon the Defendant to prove that the rates offered by the Plaintiff were not compliant with FRAND obligations. The Court firstly noted that the royalty determination could be based on the net sales price of the DVD players, similar to the interim arrangement based on per unit costs it had established for royalty in the Ericsson v. Micromax dispute. Secondly, the Court accepted the plaintiffs argument that the patent royalty rates should be as determined by evidence of prior negotiation between the suit parties, led by their expert witness. Unlike in the Ericsson dispute, the Court did not assess FRAND rates based on comparable licenses, but simply inferred them from the parties on conducts and the plaintiff’s bare assertion that its ‘Philips Only’ license was on FRAND terms.

Bizarrely, the Court also justified imposing punitive damages on the defendant. This is despite extensively citing its own judgement in Hindustan Level precautioning against the arbitrary imposition of punitive damages. Without any reference to the principles in Hindustan Lever, the Court went on to impose Rs. 5 lakhs as costs against the defendants.

The damages claims, both the royalty determination and the punitive damage assessment by the Court, are unfortunate developments for SEP jurisprudence. Damages for SEPs should stand on a different footing from regular damages assessments. The recognition of certain patents in standards implies that some of a patentee’s rights are given up in favour of standardization and to ensure that interoperable technologies or technologies for consumer welfare are adopted consistently. In such a context, imposing punitive damages is dificult to justify. Further, the standard setting process should not be allowed to be used to extract monopoly rents by SEP holders. Courts have recognised that the SEP holders are not entitled to the incremental value derived from merely being part of a standard. Even as many useful and innovative precedents have appeared on FRAND royalty determination in US Courts, this judgement does nothing to improve upon the confusing landscape left by a handful of interim judgements determining interim royalty rates. In fact, some of the interim judgements contain significantly more analysis of FRAND commitments and determination than this.

In all, the judgement is a setback for technologies relying upon standards and SEPs – the implementation of standards can be fraught with new risks of infringement and the determination of FRAND is left unclear and appears to be weighted towards the plaintiff’s claims. A chance to clarify Standard Essential Patent litigation and FRAND commitments in India seems to have transfigured into SEP-uku instead.


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