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Delhi High Court validates the use of injunctions in SEP cases

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Pankaj Soni and Sanhita Chatterjee of Remfry & Sagar report on a landmark judgment in a long-running dispute between Intex and Ericsson

Back in 2014, Ericsson sued Intex for infringing eight of its standard essential patents (SEPs) related to 2G and 3G device technology. The Single Judge of the Delhi High Court ruled in favour of Ericsson, calculated a fair, reasonable and non-discriminatory (FRAND) royalty rate, and directed Intex to pay 50% of the royalty upfront, and 50% as a bank guarantee.

The judge had found Ericsson’s suit patents to be prima facie valid, essential, and infringed by Intex. In reaching the royalty rate, the court had considered that Ericsson demonstrated compliance with its FRAND obligations, while Intex was the unwilling licensee.

Subsequently, two cross-appeals were filed in 2018. Intex disagreed with the FRAND ruling against it, and Ericsson’s appeal asserted that Intex should be required to pay the entire royalty amount instead of the 50-50 split the judge had ordered. The Division Bench of the Delhi High Court has now rendered its decision on the appeals through a landmark judgement discussed below.

The arguments of Intex and Ericsson

During oral arguments, Intex questioned the essentiality of Ericsson’s patents, asserting that there was no admission of essentiality (Intex had filed a Competition Commission of India (CCI) complaint against Ericsson) and, therefore, the onus lay on Ericsson to establish the essentiality and validity of its patents, which it had not. Intex also submitted that in SEP matters, if an implementer is an unwilling licensee, that cannot be used to grant an injunction to the SEP holder.

Ericsson’s arguments with respect to Intex’s contentions and its own submissions were that Intex’s complaint before the CCI was filed only after years of prolonged negotiations, during which a list of SEPs, claim mapping charts and test reports, all showing infringement, were provided to Intex. Ericsson also supported its position by placing reliance on the European Court of Justice’s opinion in Huawei Technologies Co. Ltd. v ZTE Corp., which states that FRAND protocol requires an ‘alleged infringer’ to take a licence first and, thereafter, reserve its right to challenge the validity and essentiality of the SEP at a subsequent stage.

Ericsson also submitted that Intex’s allegations regarding invalidity of the suit patents, which was a belated effort, had already been addressed by the Single Judge in the challenged order, who stated that “[a]fter having gone through the objections raised by the defendant and reply given by the plaintiff, prima facie the suit patents appear to be valid and Court does not find any plausible case of a credible defence raised by the defendant”.

Hence, Intex’s challenge to validity and essentiality at this stage lacked merit. Ericsson noted for the Division Bench that it only wanted to be reasonably compensated for all its R&D efforts, but Intex was an unwilling licensee and the noncompliance on its part was totally intentional.

The ruling

After hearing the submissions of the parties, the court acknowledged the persuasiveness of certain foreign judgments, and its willingness to apply the learnings where necessary. The court delved into the meaning of SEPs, their role in the modern economy, types of standards, standard development organisations, the role of law, licensing, FRAND terms, obligations of SEP holders, FRAND protocols, etc.

After a detailed analysis of the existing regime and careful consideration of judgments around the world, the court disagreed with Intex and held that “either an injunction or a direction to pay royalty in the interim is likely to be a more effective remedy, as it does not merely result in a small increment to the cost of products which infringe the patents, but prohibits infringement altogether”.

The court also observed that “if SEP owners are flatly precluded from seeking injunctions, then infringers would have little reason ever to agree to, or negotiate in good faith, a licence with an SEP owner”, which also puts an unnecessary burden on an SEP holder at an interim stage and robs an SEP holder of any incentive to innovate.

With respect to infringement, the court utilised the ‘indirect’ test of infringement, noting that if a patent maps on to a standard, and the defendant’s device implements the standard, it becomes apparent that the patent is infringed by the device. This test, according to the court, is a “sure shot and better method” of proving SEP infringement and essentiality, and an injunction can be granted even if infringement of one patent is prima facie established.

Finally, the court held that Intex, in its complaint to the CCI, admitted Ericsson’s suit patents as being industry standard and declared them as essential to the European Telecommunications Standards Institute, and that invoking the jurisdiction of the CCI by itself shows that Intex was aware that it was infringing the suit patents.

Ultimately, the Division Bench of the Delhi High Court found the suit patents to be prima facie essential and infringed, and that the royalty determination by the Single Judge conformed to FRAND terms. It also allowed Ericsson’s appeal by directing Intex to pay the entire royalty amount.

Implications of the judgment

This judgment came as a relief for SEP holders vis-à-vis SEP jurisprudence in India regarding enforcements. The judgment also took cognisance of landmark judgments of the UK, the USA, the EU, Germany, Netherlands, etc. and discussed at length various aspects of SEPs, licensing, and FRAND terms, restoring faith in the Indian legal framework and encouraging innovation.

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