FIRST JUDGEMENT ON SEP AND FRAND IN INDIA

The Delhi High Court delivered India’s first ever judgement on standard essential patents.

Plaintiff, Koninklije Philips N.V.,  filed two suits being CS(OS) No. 1034/2009 and CS (OS) No.1082/2009 alleging infringement of its essential DVD Video Player patent, seeking the reliefs of permanent injunction, directions to the defendants to provide complete details, delivery, rendition of accounts, damages, etc.

The invention of Indian Patent No. 184753 relates to Channel (De) coding technology used for DVD Video Playback function in a DVD Video Player. It 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.

Philips claimed that IN-184753 is an essential patent corresponding to US 5696505 and EP 745254B1 registered in USA and Europe respectively.

CS (COMM) 24/2016 was filed against the defendant Mr. Rajesh Bansal who is the sole proprietor of Manglam Technology (in short ‘Manglam’) which is an entity engaged in manufacture, assembly and sale of DVD Video players under various brands. Philips argued that the defendant’s DVD Video 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.

In the second suit, CS(COMM) 436/2017, Philips impleaded Bhagirathi Electronics (in short ‘Bhagirathi’) whose sole proprietor is K.K. Bansal, father of Rajesh Bansal. In the same suit, the third Defendant is the owner of the second defendant, Big Bazar which is an outlet which offers for sale inter-alia DVD Video players manufactured/ assembled by Bhagirathi.

In the written statement the Defendants argued primarily that the major components of the DVD players in question were procured by the defendants from authorized licensees like Sony, MediaTek, Sanyo, ST Micro etc. from China after due payment of all the taxes and custom duties. Hence the defendants were not indulging in infringement of the plaintiff’s suit patent having purchased the products from the duly authorized licensees of the plaintiff.

Both the suits were consolidated and common evidence was led. Plaintiff in support of its case examined two witnesses i.e. Farokh Bhiwandiwala as PW-1 and Ben Liempd as PW-2. Defendants also examined two witnesses i.e. S. Chandra Sekaran as DW-1 and Rajesh Bansal as DW-2.

On the basis of the pleadings of the parties 6 issues were settled. The issue and Courts finding in respect of them are as follows:-

(i) Whether the plaintiff No.1 is the proprietor of Indian Patent registered under No. 184753?

 (ii) Whether the suit patent of the plaintiff is invalid

  •  To prove that the plaintiff is the proprietor of the suit patent, plaintiff’s witnesses 2 exhibited the certified copy of the certificate of registration.
  • Patent validity was challenged by the Defendants on grounds of the claims being software and algorithm related. Therefore, a section 3 (k) argument was taken up during trial and final arguments.
  • However, as there was neither any pleadings nor any evidence led on this count by the defendants, challenge to the validity of the suit patent under Section 3(k) of the Patents Act based on no pleadings in the written statement was not considered.
  • Issue Nos. (i) and (ii) have therefore been decided in favour of the plaintiff and against the defendants.

 Next Court decided the issue of Essentiality (Issue (vi)) before other issues

(vi) Whether the suit patent is an essential patent in respect of DVD player technology?

  • The suit patent relates to “Decoding Device for converting a Modulated Signal to a series of M-Bit Information Words”. A perusal of the claim in the suit patent reveals that the same is equivalent to the claims 33 to 37 of the US No.5696505 and EP 0745254B1.
  • Defendant’s witness DW-1 in fact in his evidence by way of affidavit admitted that out of the claims in EP-0745254B1 claims 32 to 38 have been included in the Indian patent application,
  • Philips also filed reports which proved that the US and EP patents were found to be essential to the given DVD standards.
  • In view of essentiality reports and corresponding claims of patents, the Court held that Philips proved that the patent in India is also an essential patent

 (iii) Whether the defendants have infringed the plaintiffs’ Indian Patent No. 184753? OPP

  •  Plaintiff’s proved that the suit patent is a standard essential patent and the mere fact that the defendant uses a standard proves infringement.
  • However the plaintiff also proved infringement independently by the evidence of witness and the cross-examination of defendants’ witnesses.
  • Plaintiff witness deposed that he independently examined the defendants’ products using tests devised specifically for the purpose of determining the presence of EFM (eight to fourteen modulation) + demodulation technique and confirms that defendants’ DVD Video players were using the EFM+ demodulation technique, thus infringing the suit patent.
  • The defendants argued on the basis of doctrine of exhaustion that they were purchasing the chip from Shuntak (HK) trading Company and Sheenland Corporation who were the authorized venders.The Court however rejected the argument and stated that the defendants failed to discharge the onus to prove that both Shuntak and Sheenland were the licensees of the plaintiff and thus the plea that there is no infringement by virtue of doctrine of exhaustion was rejected.
  • The Court held that the Plaintiff’s has been able to prove that it is the owner of a standard essential patent, and thus the defendant’s products if manufactured, sold without license necessarily infringes the suit patent. The Court further noted the evidence of plaintiff’s witness who has explained the claim in the suit patent and compared the same with the products of the defendants to come to the conclusion that the defendants are infringing the suit patent by using the plaintiff’s patent IN 184753 in the DVD player sold by them.
  • The issue was therefore also decided in favour of the plaintiff and against the defendants

(iv) Whether the defendants had knowledge of the plaintiffs’ patents in respect of DVDs and the plaintiffs’ licensing programs?

 The court held that because it has been held that the plaintiff is the holder of a standard essential programme and also that the defendants have infringed the suit patent even if the defendants had no knowledge of the licensing programme they were in law bound to take the license from the plaintiff.

 (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 Court after an extensive discussion of the various provisions of the Patents Act and the Competition Act held that the remedies as provided under Section 27 of the Competition Act for abuse of dominant position are materially different from the remedy as available under Section 84 of the Patents Act, thus the remedies under the two enactments are not mutually exclusive, in other words grant of one is not destructive to the other.
  • The Court held that there was no irreconcilable repugnancy or conflict between the Competition Act and the Patents Act, and, in absence of any irreconcilable conflict between the two legislations, jurisdiction of CCI to entertain complaints for abuse of dominance in respect of Patent rights could not be ousted
  • Thus whether creating of a patent pool by the bigwigs of the industry getting together amounts to an anti-competitive practice being misuse of the dominant position cannot be decided in the present suit. Hence this issue was held to be beyond the scope of the decision in the present suit.

 (viii) Whether the plaintiffs are entitled to a decree of damages or any other relief? OPP”

  • The Court held that the plaintiff is seeking royalty at FRAND terms and no evidence has been led by the defendants to rebut that these are rate were not FRAND terms.
  • The Court ordered the Defendants to pay royalty to the plaintiff @USD 3.175 from the date of institution of the suits till 27th May, 2010 and from 28th May, 2010 @USD 1.90 till 12th February, 2015. Royalty rates are further subject to interest of 10% per annum.
  • Considering the conduct of the Defendant and he being an ex-employee of the plaintiff knowing fully well with impunity infringed the suit patent was held also to be liable to pay punitive damages of ₹5 lakhs.

In view of the above, the Court decreed the suits in favour of the plaintiff and against the defendants holding that the said defendants have been infringing the suit patent IN-184753 which is an essential standard patent in respect of DVD video player, however, no injunction was granted to the plaintiff for the reason the plaintiff’s suit patent expired on 12th February, 2015.

A decree of actual cost incurred by the plaintiff including lawyer’s fee, the amount spent on court fee and the Local Commissioner’s fee is also passed in favour of the plaintiff and against the Defendants.

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Constitution of confidentiality club for Telecom Patent dispute resolution

The Delhi High Court in a recent decision has allowed an application of the plaintiff, Ericsson to constitute a Confidentiality club (See decision  here- )Ericsson v Xiaomi- Confidentiality Club Order (2). Ericsson had filed a suit for permanent injunction against the defendants, XIAOMI seeking a restrain from violation and infringement of its rights in its patents being as (i) IN 203034; (ii) IN; (iii) IN 234157; (iv) IN 203686; (v) IN 213723; (vi) IN 229632; (vii) IN 240471; (viii) IN 241747. The said suit is pending adjudication before Delhi High Court and is currently at the initial stages of trial.

Ericsson filed an application seeking constitution of confidential club. It was argued by Ericsson that the court has to determine as to whether Ericsson has offered to XIAOMI a licence on fair, reasonable and non-discriminatory (FRAND) terms and whether Ericsson is entitled to damages or payment of royalties from the Defendants for sales made by it devices infringing Ericsson’s patented technology and if so, for what period and on what terms. It was further argued that in order to assist Court, Ericsson would be producing various patent licensing agreements with similarly placed parties, including competitors of the Defendants. These agreements are highly confidential in nature and contain, apart from licensing rates, business sensitive information relating to such similarly placed parties, hence the plaintiff is seeking constitution of confidentiality club wherein all confidential licence agreements relating to similarly placed parties be permitted to be filed in sealed cover and be kept in the safe custody of the Registrar General and its access shall be to limited personnel from either side.

The defendants were not averse to the constitution of such confidentiality club but pressed the defendant/clients be allowed to be a party to such club or to have an access to the information.

The Court appreciated that in today’s world of globalization, where competition is at its peak, the organizations may not be inclined to disclose trade secrets/confidential agreements or its details, it had entered with different parties lest may cause serious prejudice to such parties. Hence the Court held that there is no impediment if the confidential club is created and its access is limited with procedure to be adopted as below :

  1. All confidential license agreements relating to similarly placed parties be permitted to be filed in a sealed cover and be kept in the safe custody of the Registrar General;
  2. Each party be directed to provide on an affidavit, a list of no more than five lawyers (who are not and have not been in-house lawyers of one of the parties) and no more than three external expert witnesses, who alone will be entitled to see the aforesaid confidential documents/patent license agreements;
  3. Said lawyers and expert witnesses will be bound by confidentiality orders passed by this Court and will not make copies or disclose the contents of the said aforesaid confidential documents/patent license agreements to anyone else or anywhere else, including in other legal proceedings, oral and written communications to the press, blog publications etc., so that the spirit of the confidentiality regime would be preserved;
  4. The parties i.e. the Plaintiff and the Defendant No.l and Defendant No. 2 will be allowed to inspect said patent license agreements only through the confidentiality club members and no copies will be made of such confidential documents/license agreements. After the inspection, the aforesaid confidential documents/patent license agreements be resealed and again deposited with the Registrar General of this Court;
  5. Direct that during recordal of evidence w.r.t aforesaid confidential documents/patent license agreements etc. only members of the confidentiality club shall be present;
  6. During proceedings of this Court, when the said documents are being looked at, would be in camera to the effect that only members of the confidentiality club be permitted to be present.
  7. The parties would give copies of the aforesaid confidential documents/patent license agreements to the members of the confidentiality club only after redacting the confidential information including the name of the parties. However, the rates/products will not be redacted.
  8. Any evidence by way of affidavit/witness statement which may contain aforesaid confidential information/terms of the agreement(s) shall be kept in a sealed cover and would only be accessible to the members of confidentiality club. However, a party filing such evidence by way of affidavit would give to the opposite party a copy of such affidavit after redacting the confidential information/ terms of the agreement(s);

 

Dolby sues Oppo and Vivo

Dolby has sued two Chinese phone manufacturers, Oppo and Vivo, at the Delhi High Court stating that the two companies are using Dolby’s SEPs without a license. The Hon’ble Delhi High Court has held the following: –

  1. That Oppo and Vivo shall deposit royalty with the Court @ INR 34 per unit manufactured/sold/imported by 8th of every succeeding month.
  2. That Oppo and Vivo shall furnish details of the units manufactured, sold and imported, to Dolby by 5th of every month.
  3. That Oppo and Vivo shall continue to manufacture, sell and import their units in the interim while licensing negotiations based on Fair, Reasonable and Non-Discriminatory (FRAND) terms between the parties is ongoing.

Ericsson on a spree of favourable orders

Delhi High Court passed an interim injunction order in the ongoing case of Telefonktiebolaget LM Ericsson v. Lava International Ltd that prevents Lava from importing, exporting, manufacturing, and selling any mobile phones that use Ericsson’s 8 SEP patents and technology.The defendant is also barred from exporting the impugned goods. The Custom Authorities have also been directed to not release the impugned mobile phones if received from overseas countries under technology of suit patents of the plaintiff. 

The interim order, which is passed on merit, directed defendant to  deposit a sum of Rs.50 crores with the Registrar General of the Court by way of FDR as security amount on or before 20th June, 2016, the operation of interim order shall remain stayed till the final disposal of the main suit. In addition to that, the defendant was also asked to file the statement of accounts for the period of 2011 to 31st May, 2016 before Court by 10th July, 2016 and continue to file the same every quarterly till the final judgment is delivered in the main suit.

Section 3(k)

With regard to Section 3(k), the Court held that, the ultimate object of the invention is an efficient encoder rendering the synthesized speech quality in relation to radio resource needed for transmission is as high as possible. The Court noted that the speech quality is an effect perceptible by the humans and is not just as abstract entity. The judge pronounced that:

 “Prima facie, it appears that these inventions which have resulted in an improvement (technical advancement) in telecommunication technologies and have had a huge effect upon the manner in which these technologies function thereby resulting in practical implementation and actual physical representation Mere mention of an algorithm or a mathematical formula in a patent document should not be inferred to mean that the invention is nothing but an algorithm. The similar issue has already been dealt by this court in a suit filed against INTEX in great details wherein the arguments of doubtfulness were rejected. Thus, no different view is possible in the present case.”

The Court also held that product patents cannot be labelled as algorithm because they are not a set of instructions and are not theoretical in nature. The Court further held the defendant has failed to raise any credible challenge to the suit patents.

As regards the licence agreement, the Court held that the defendant has been consistently delayed execution of the agreement with the plaintiff and in such a case, unlike in trademark and copyright matters, the infringement ought to go in favour of the plaintiff. The Court also held that the plaintiff has been trying to correspond and negotiate with the defendant for the past 4 years and that itself is a huge factor that militates any grant of further time to the defendant , especially in cases of standard essential patents, where a patentee always endeavors to negotiate before filing for an injunction. Moreover, it was held that the fact that the defendant was aware of the plaintiff’s patents but did not challenge the validity goes in favour of injunction.

iBall restricted from importing handsets to India;Ericsson directed to negotiate FRAND license with iBall

The Delhi High Court restricts imports by iBall including mobile handsets and tablets in Ericsson vs. iBall interim order. This is similar to the case filed by Ericsson against Micromax, in which the court had ordered the Indian handset maker to pay royalty as an interim measure.

In the present case, it has been established in the court of law that iBall has failed to agree to sign a license agreement on standard-essential patents, required for making mobile phones and other devices. It was also established that iBall has not entered into a licensing agreement under the Fair, Reasonable, and Non-Discriminatory (FRAND) terms (covering patents on wireless technology standards such as GSM, EDGE and third generation).

Hence, on the day of the hearing on August 21, 2015, the lawyers for iBall sought time to take instructions from their client to decide if it was willing to sit with the  representatives of Ericsson and discuss the matter. However, no communication was received from iBall till September 2, 2015. iBall , in its defence also cited the recent Huawei vs ZTE decision to argue that Ericsson had not provided enough information and thus the suit could not proceed.Ericsson alleged that iBall had admitted the essentiality of Ericsson’s patents numerous times in its complaint to the CCI.

The Court, however pronounced that the suit filed by Ericsson is not premature and is maintainable. It further held that if the interim direction/order is not granted, Ericsson will suffer irreparable loss and injury for the reason that iBall will keep marketing mobile devices without the FRAND agreement and without paying royalty.It also restrained iBall from importing mobile handsets and other devices (including tablets) that infringe Swedish telecom equipment manufacturer Ericsson’s registered patents.The interim order was to become operative beginning 9th September.

However, an appeal was then filed by iBall against the interim order.The Appeal Court has directed the parties to try and reach a settlement in about 2 weeks.Ericsson has been directed to negotiate a FRAND license with iBall only for its Indian patents at this stage.The operation of the interim injunction has now been postponed till the next date of hearing as well.The appeal was re-notified to September 21, 2015.