Last week, India’s High Court of Delhi issued a 64-page decision in the standard essential patent (SEP) dispute between mobile phone importer Intex Technologies and Ericsson who owns telecommunication patents subject to commitments to license on fair, reasonable and non-discriminatory (FRAND) terms under intellectual property rights (IPR) policies of standard development organizations (SDOs), such as the European Telecommunication Standards Institute (ETSI). The High Court affirmed an interim (or preliminary) injunction by a lower court (referred to in the decision as the challenged or “impugned order”) entered over eight years ago in March 2015 that required Intex to pay 50% of the expected royalty while the case was pending because Ericsson had shown it was likely to prevail in the case: e.g., Ericsson established “prima facie” that Ericsson will prevail at end of case on the issues of whether the eight patents in suit were valid and infringed and that Ericsson complied with FRAND commitment. The Court here ruled that Ericsson had made a prima facie case it will prevail, and further ordered that Intex must pay 100% of the royalty while the case was pending (not just 50%).
This is an important decision to review in understanding licensing and litigation of international SEP portfolios. This decision “endeavour[ed]” to “achieve harmonisation of basic principles of law” with other international standards and foreign decisions while taking into account differences among the national laws of different countries. The decision generally may be viewed as favorable to SEP owners. For example, the Court ruled that an injunction may be entered against an standard-compliant product if even a single SEP is found to infringe.
This decision addresses many hot topics in licensing SEPs and attempts to harmonize existing decisions in reaching its rulings here.The Court here, for example, discussed the following topics:
- There is some dispute about whether a FRAND commitment imposes obligations on someone wanting to license an SEP. This decision indicates that a FRAND commitment is not a one-way street, but imposes obligations on both the SEP owner and someone seeking to license the SEP.
- There is some dispute about whether an SEP owner must provide details of its licensing agreement with others to a prospective licensee (often termed “transparency”). This decision indicates that an SEP owner sometimes might need to provide information to a prospective licensee (under a confidentiality agreement), although that may not be necessary for an experienced licensee who can consult existing patent licenses they have entered with others.
- There is some dispute about whether an implementer must make any royalty payments while negotiating to license an SEP. This decision indicates they should.
- There is some dispute about whether an injunction may be entered on an SEP with a FRAND commitment. This decision indicates that injunctive relief, including preliminary injunctive relief, should be granted against unwilling licensees (e.g., those who stall licensing negotiations). A reasonable expectation of injunctive relief must be maintained in order to spur implementers to negotiate a license.
- There is some dispute whether an SEP owner is required to negotiate license to individual patents, rather than licensing an entire SEP portfolio. This decision indicates that licensing an entire SEP portfolio may be permissible.
Finally, we provide our usual caveat that you should read the decision for yourself and understand that we are not familiar with the nuances of India law and procedure that can impact the decision.
For example, this decision’s background discussion of SEPs and IPR policies indicates that an SEP owner must grant a license on FRAND terms to anyone who asks for a license. This touches on the issue of whether an SEP owner must offer a license to a component supplier if asked, rather than licensing the end product (e.g., license the manufacture of a chip used in a phone, rather than the phone manufacturer). This case, however, concerned an implementer who imported and sold end product devices (mobile phones) and did not involve someone in the supply chain–e.g., chip manufacturer–requesting a license. This case did involve a dispute of whether the royalty base should be the chip or end product (the lower court ruled the end product can be the royalty base), but this case did not present the issue of whether to license the chip manufacturer. So this case may not be relevant to the issue of to whom in a supply chain licenses must be granted.
We saw a similar problem in U.S. jurisprudence where the Ninth Circuit had a single sentence statement in the background section of its Microsoft v. Motorola decision indicating that a FRAND commitment requires licensing anyone who seeks a license. ut licensing anyone (e.g., chip manufacturers) was not an issue in that case and therefore that background statement was not an actual, binding ruling under U.S. common law. Nonetheless, some argued that the background statement in the Ninth Circuit’s decision was a binding ruling that SEP owners with a FRAND commitment must license anyone who asks, including chip manufacturers. In a later decision in which whether to license a chip manufacturer actually was at issue, however, the Ninth Circuit in FTC v. Qualcomm ruled that an SEP owner reasonably could refuse to license chip manufacturers and, instead, decide to license manufacturers of the end product mobile phones that use the chips (which would covering the chips used therein).
Intex Arguments On Appeal
Intex challenged the preliminary injunction order that required Intex to deposit 50% of Ericsson’s requested royalty during pendency of the case.
Intex argued that an SEP owner is not entitled to injunctive relief (even against an unwilling licensee) and an implementer could not be ordered to pay any royalty until the end of the case where infringement, etc. are finally de4termined. Intex relied on a decision by another lower court in India, Nokia vs. Oppo, that ruled a court could not require payment of a royalty unless the following four factors have been shown: (i) the asserted patent is an SEP, (ii) the defendant infringes the patent (iii) the patent owner’s requested royalty rate is FRAND and (iv) the infringer is not willing to take a license at that FRAND rate.
While negotiating with Ericsson, Intex had filed a complaint with the Competition Commission of India (CCI) and also had challenged patent validity in the Intellectual Property Appellate Board (IPAB). Intex argued that, contrary to the lower court’s decision, Intex’s CCI complaint did not admit that the patents were essential or valid.
Intex argued that only eight India patents were at issue in the lower court, which should not impact the entire portfolio. Even if those eight patents were essential, Ericsson’s entire portfolio of over 33,000 patents (including foreign patents) should not be presumed essential. Nor should Intex pay a royalty on the entire portfolio based on the handful of eight patents at issue.
Intex argued that the patents should not be presumed valid; rather, Ericsson must prove their validity. Intex pointed to U.S. Patent Office proceedings on U.S. patents, for example, as indicating that a related India patent was vulnerable to being revoked.
Ericsson’s Arguments On Cross-Appeal
Ericsson filed a cross-appeal seeking to have Intex pay 100% of the royalty during the pendency of the case, not just 50%.
Ericsson argued that Intex admitted in its CCI complaint that it was required to take a license to Ericsson’s alleged SEPs because there were no non-infringing alternatives. Intex’s CCI complaint did not challenge the validity or essentiality of Ericsson’s patents. Further, during five years of negotiation between the parties before Intex filed the CCI complaint, Ericsson had provided to Intex claim charts showing essentiality and a test report showing infringement.
Ericsson argued that, under the 2015 EU decision in Huawei v. ZTE, an alleged infringer should enter a license if they are selling the accused product even though an SEPs essentiality and validity has not been litigated, but they could still reserve the right to later challenge essentiality or validity. Ericsson argued that the Nokia v. Oppo decision relied on by Intext to argue essentiality/validity must be conclusively established is contrary to the UK Unwired Planet v. Huawei decision in which an injunction may be entered based on only some of the patents in an SEP portfolio. Unwired Planet permits injunctive relief without fully adjudicating essentiality and validity of all patents because it is impossible to await adjudicating over 33,000 patents in a patent portfolio, and an implementer will benefit from certainty when taking a license to a large number of “untested” patents.
Ericsson indicated that the parallel US patent proceedings cited by Intex involved non-final actions that did not indicate a problem with the India patents at issue. Further, Ericsson provided claim charts showing that issued claims of U.S. and European patents were materially the same as the India patents, thus indicating the India patents covered patentable innovations.
Ericsson argued that it was not fair to other manufacturers who were paying royalties if Intext was not also required to pay a full royalty while this case is pending.
Developing Technology and SEP Law
The Court observed that technology was becoming more global, blurring national boundaries. Many standard development organizations (SDOs) have international stature, such as IEEE (Institute of Electrical and Electronics Engineers) and ETSI (one of the most widely recognized SDOs in the world). The Court reviewed the benefits of standardization, such as providing early adoption of technology, making products less costly and providing more value to consumers through interoperability “network effects” where products are more valuable as more people use them. Thus, although intellectual property laws are territorial (i.e., governed by the law of each country), it is helpful for courts to consider international harmonization in their rulings to the extent possible without running contrary to a countries’ national laws.
The Court focused on ETSI’s IPR policy, such as what makes a patent “essential”:
6. “ESSENTIAL” as applied to IPR [intellectual property rights, like patents] means that it is not possible on technical (but not commercial) grounds, taking into account normal technical practice and the state of the art generally available at the time of standardization, to make, sell, lease, otherwise dispose of, repair, use or operate EQUIPMENT or METHODS which comply with a STANDARD without infringing that IPR. For the avoidance of doubt in exceptional cases where a STANDARD can only be implemented by technical solutions, all of which are infringements of IPRs, all such IPRs shall be considered ESSENTIAL.
The Court ruled that, in this case, “the term ‘Essential’ means that a patent is essential to a standard i.e., it is not possible on technical grounds to comply with the standard without infringing the patent.” Thus in this (and other similar cases) a “Standard Essential Patent is a patent claiming technology that is essential to an industry standard’s use.” The Court explained that FRAND commitments were developed to address “concerns regarding standards being held to ransom by an individual patent owner.” As an example, the Court referred to ETSI’s voluntary FRAND commitment and stated that the objective of ETSI’s IPR Policy is “to ensure that a patent owner is adequately rewarded at FRAND rates for its contribution/innovation while ensuring that the latest state of the art technology is available to the implementers world over irrespective of the fact that such implementers are not involved in research and development at all.”
The Court stated that SDO IPR policies usually impose obligations not present with other patents, such as (i) duty to disclose SEPs, (ii) duty not to withhold access but make SEPs available to all willing to use it and (iii) duty to offer licenses to all willing licensees on FRAND terms.” A FRAND commitment thus limits rights SEP holders otherwise would have, such as (a) freedom to decide to whom to give a license; (b) freedom to decide the terms of a license as it has to be on FRAND terms and (c) freedom to seek an injunction without prior negotiations.
The Court stated that the FRAND commitment involves obligations by both the SEP owner and implementers. The Court discussed “hold up” and “hold out” as two “evils” to be avoided:
- Hold Up: “In simple terms, ‘hold up’ occurs if a patentee is able to ensure that a Standard Essential Patent is incorporated into a standard and implemented by implementers in circumstances which enable the patentee to use the threat of an injunction to restrain infringement to extract license terms, and in particular royalty rates, which exceed the reasonable market value of a licence of the patented invention (i.e. treating the Standard Essential Patent as akin to a ‘ransom strip’ of land).”
- Hold Out: “‘Hold out’ occurs if an implementer is able to implement a technical solution covered by a Standard Essential Patent without paying the reasonable market value for a licence (or perhaps anything at all). It needs to be appreciated that the FRAND undertaking is designed to prevent ‘hold up’ by giving the implementer a defence to a claim for infringement and hance to an injunction, while the patentee’s ability to obtain an injunction to restrain infringement of an unlicenced Standard Essential Patent should prevent hold out’. [citing Optis v. Apple (2022), EWCA Civ 1411]
The Court reviewed the EU’s Huawei v. ZTE SEP negotiation process, reflected in the Court’s flow chart below:
The Court stated that a FRAND commitment places mutual obligations on both the SEP owner and standard implementer: “It is not a ‘one way street’ where obligations are cast on the Essential Patent holder alone.” The Court considered the parties’ negotiation conduct to be a key factor. The Court described a willing licensor and licensee as follows:
- Willing Licensor (SEP Owner): “A licensor will be considered a willing licensor only if it gives a FRAND offer and in certain situations provides information necessary, subject to confidentiality agreement, for a licensee to evaluate an offer (relevant to ‘ND’ [i.e., non-discriminatory] part of FRAND). If the licensor offers a supra-FRAND offer i.e. exorbitant royalty rates, it will not be considered a willing licensor.”
- Willing Licensee (Implementer): “Similarly, an implementer has no right of silence or inaction at this stage. It is not correct to suggest that without access to other agreements executed by the Patentee no counter-offers can be made. Normally an implementer can take recourse to its own license agreements executed with other Standard Essential Patent proprietors/licensors, to determine an appropriate FRAND rate that it would be willing to pay or to determine if the rate offered by an Standard Essential Patent proprietor is FRAND or not. … Thus it is not true that the implementer, who is often a large commercial entity itself having a global business presence, enters into any kind of negotiation with a Patentee ‘blindly’.”
The Court stated that an implementor who does not accept an SEP owner’s offer must make a counteroffer and provide security in order to freely sell its devices in the interim so that the implementor does not benefit “to the disadvantage of other willing licensees, and get an unfair competitive edge in the market.”
SEP Owner Can Seek Injunction Against Unwilling Licensee
The Court rejected as “untenable in law” Intex’s argument that an SEP owner can only get damages at the end of trial and cannot obtain an injunction or direction to pay as the lower court ordered here. The Court cited to the UK Supreme Court’s Unwired Planet decision that prohibiting injunctive relief removes an implementor’s incentive to voluntarily enter a license. The Court stated 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 stated that decisions from other countries have rejected the argument that a FRAND commitment precludes injunctive relief, citing the EU Huawei v. ZTE decision, the UK Supreme Court Unwired Planet decision, the German court decisions in Koninklijke Philips N.V. v. Asus Tek and Tagivan (MPEG LA) v. Huawei, and the U.S. Federal Circuit decision in Apple v. Motorola.
The Court acknowledged that courts in different countries may take different approaches given differences in their national laws. For example, although the UK Unwired Planet court did not enter an injunction until after liability for patent infringement was found by trial, “this Court is of the view that the Courts can and should do so before the trial.” The Court also distinguished a recent UK Interdigital v. Lenovo decision that did not issue an injunction after an implementer had a “change of heart” and agreed to accept a Court-determined FRAND rate. In that case, the implementor furnished security by bank guarantees.
The Court raised a “common sense” concern that, “if Standard Essential Patent 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 a Standard Essential Patent owner, ” explaining:
A well-resourced infringer would rationally reject any licence offer and compel the Standard Essential Patent owner to enter into litigation that typically requires millions of dollars in legal expenses in multiple venues around the world. In the worst-case scenario, the infringer would be compelled to pay monetary damages that are typically calculated using a methodology designed to mimic the rate in a negotiated licensing transaction. Even under the current legal regime, in which injunctive relief may be reasonably available but only after a delayed and costly litigation process, well-resourced implementers regularly decline to take licences at the outset of negotiations with Standard Essential Patent owners, compelling both parties to spend millions of dollars and thousands of personnel hours on litigations in multiple jurisdictions. Those resources could be directed more productively towards research and development to advance technologies.
[L]egal regimes that do not preserve a reasonable expectation of injunctive relief against infringers in Standard Essential Patent litigations will have a counterproductive “domino effect” that shifts bargaining leverage to implementers in all Standard Essential Patent licensing negotiations, devaluing existing patent-protected technologies and disincentivizing firms from developing new technologies. Absent any realistic prospect of an injunction within a reasonable period of time, the implementer enjoys acess to the innovator’s technology, deriving revenues from the products and services that embody that technology, while during the negotiations and litigation, the innovator earns nothing from the same technology that it developed at great cost and risk. This asymmetry is likely to lead to settlement amounts or, absent litigation, negotiated royalties that undervalue the innovator’s technology. This effectively transfers wealth from firms that specialize in developing technologies to firms (including some of the world’s most valuable companies) that specialize in using and integrating those technologies in branded devices/products sold to consumers.
The Court thus ruled that, based on the foregoing review of international law and the fact that India law does not bar injunctive relief, SEP owners may seek “interim and final injunctive relief if an infringer is deemed by a Court to be an ‘unwilling licensee,’ often as indicated by the use of ‘stalling’ and other opportunistic bargaining and litigation tactics.”
Test of SEP Infringement
The Court ruled that infringement of an SEP may be determined either (1) directly–i.e., reading patent claims onto an accused product directly as in a typical patent case–or (2) indirectly by reading the patent claims onto the standard and then mapping the accused device onto the standard (as in the U.S. Federal Circuit’s decision in Fujitsu v. Netgear, 620 F.3d 1321)). The Court further stated a preference for the indirect method of showing infringement of an SEP, stating it “is a sure shot and better method of proving Standard Essential Patent infringement and essentiality.”
Injunction May Be Granted For Prima Facie Showing That Only One SEP Is Infringed
The Court ruled that an injunction may be entered based on a showing that even a single patent is infringed. This ruling is supported by decisions in several other countries where only a few patents in a portfolio are used to represent and determine the value of an entire patent portfolio:
- Microsoft v. Motorola (U.S. W.D. Wash. 2013) — U.S. district court evaluated “handful of representative patents to determine reasonable royalties … for the entire” SEP portfolio.
- Iwncomm v. Sony (Beijing High Court 2015) — Chinese court upholds portfolio rate where sole asserted patent was key to larger portfolio.
The Court refers to a “study of decisions from various countries”, but we do not know if that refers to some unnamed study by others, or means the Court itself undertook a study of foreign decisions. The Court explains that the study indicates a “unanimous view” that (i) SEP holders assert only “a handful of representative patents”; (ii) injunctions are entered if even one patent is found infringed; (iii) FRAND royalty may be based on evaluating representative patents in suit; and (iv) “Licensing or evaluating FRAND rate on a patent-by-patent basis is impractical and is contrary to industry practice.”
The Court thus concluded that showing infringement of even a single SEP can be a “silver bullet” for an SEP owner, stating:
[T]his Court is of the view that if the patentee shows that even if one of the patents in a product has been infringed, then the implementer’s product cannot be sold and all the thousands of patent therein will be of no use to the implementer. Accordingly, if a case for infringement, even witht regard to one patent, is made out, it is like a ‘silver bullet’.
Consequently, to restrain an infringing device, a Standard Essential Patent holder does not have to sue based on each of the thousands of patents that it claims to own in the product; it can do so by showing that one, or a handful of representative patents are infringed.
SEP Owner Can Offer Portfolio License
The Court addressed the issue whether the owner of SEPs subject to a FRAND commitment was required to offer a license to an individual patent or could offer a license a portfolio or cluster license. The Court discussed the UK Unwired Planet decision that permitted portfolio licensing. Unwired Planet considered the ETSI IPR Policy that required licensing patent families (e.g., related patents in different countries) given the global implementation of ETSI standards. Further, many portfolios have patents from many countries. In practice, negotiated licenses are often global or at least cover several different countries. And negotiating licenses for each separate country may be impractical. Thus, the Unwired Planet Court ruled that licensing portfolios of SEPs may be FRAND.
The Court then ruled that Ericsson was not required to offer individual patent licenses, but could offer a portfolio license:
[A]s value is in the technology which forms a part of the standard and the suit patents is just representative of that technology, Ericsson is not required to offer individual patent licences or country specific licences and that global portfolio licences are capable of being FRAND.
A Preliminary Injunction May Be Entered Without Awaiting Final Ruling On Essentiality and Validity
The Court ruled that the four-factor test required by a lower India court decision in Nokia v. Oppos (relied on by Intex) before granting injunctive relief is “contrary to the law” and was based on a misreading of the UK Unwired Planet decision. The Court explained that the Nokia v. Oppos decision “set an impossibly high bar” in requiring “unequivocal admission on (i) essentiality and validity of the suit patents (ii) fact of utilization (iii) fact that such utilization … would amount to infringement (iv) that the royalty rate proposed by the Plaintiff was FRAND.” The Court held such a burden “is completely alien to the patent jurisdiction and does not apply even in normal patent suits.” The Court explained that having such a high burden for preliminary injunctive relief means “there will be no incentive to innovate and it will have a ‘Domino Effect’ as pointed out hereinabove” of giving undue leverage to implementers and devaluing SEPs.
Ericsson Prima Facie Established Essentiality and Infringement
The Court then reviewed whether Ericsson had made a prima facie showing that the patents were essential and infringed by Intex. The Court’s use of the term “prima facie” appears to mean that Ericsson made a sufficient showing at this interim stage, but the lower court below ultimately could make a contrary finding after trial based on the evidence, facts and arguments presented at trial–i.e., the Court is not deciding that Ericsson ultimately will prevail at trial, but that Ericsson has made a sufficient showing to obtain interim injunctive relief while awaiting trial.
The Court found Ericsson had made a prima facie showing based on Intex’s statements in its CCI Complaint, which included Intex stating: (i) Ericsson’s patents were accepted as Industry Standard and declared as essential to ETSI; (ii) the India telecom agency accepted the ETSI/3GPP GSM standards in India and the only way to comply with them was to obtain a licence from Ericsson; (iii) every player in India’s GSM market took an Ericsson license because there were no non-infringing alternatives; and (iv) Ericsson owned a large number of SEPs.
Further, during negotiations with Ericsson, Intex did not provide any claim charts disputing Ericsson’s claim charts or indicating that Intex used alternative technology. An August 2012 Intex email also indicated that Intex tried to disable technology raised in its discussions with Ericsson, but apparently could not. If Intex believed these were not SEPs or were not infringed, then Intex would have sought a declaration of noninfringement rather than seek relief from the India competition agency CCI alleging that Ericsson sought a dominant position from SEPs. And Intex did not file any counterclaim or evidence with claim charts disputing essentiality or infringement before the lower court entered its order below. Based on all the circumstances, including “[l]ack of any material to even raise a prima facie doubt,” the Court agreed with the lower court’s finding that essentiality was established.
Patent Validity Is Presumed
The Court held that “it is for the person challenging the validity of the registered [granted] patent to raise a credible challenge” to validity. To avoid a prelimary injunction, the validity challenge need not be conclusively shown; it is sufficient to show that the patents are “vulnerable to revocation.” But this must be a credible challenge that is not met “solely on the ground that a revocation petition [challenging the patent’s validity] has been filed and is pending.” A credible challenge “cannot be incredible, fanciful or moonshine,” and “the fact that an Inventor has been granted a patent by the Patent Office after scrutiny … has to be given due weightage.” The argument that “the onus to prove validity of the suit patents is on the plaintiff … is untenable in law.”
Further, the Court found the timing of the petition challenging validity was important where Intex waited years to file the petition after being on notice of Ericsson’s patents in December 2008. The Court also did not find error in the lower court’s determination that Intex had not made a prima facie showing of invalidity based on prior art.
Intex Did Not Meet Standard For Appeal Court To Overturn The Lower Court Decision
Based on the foregoing, the Court found that “prima facie the suit patents are essential, have been infringed and the royalty sought by Ericsson is on FRAND terms.” The Court further found that Intex “is prima facie an intentional unwilling licensed and it has failed to raise a credible challenge to the validity of the suit patents.” Intex thus failed to carry its burden on appeal to establish that the lower court “exercised its discretion in a manner which was arbitrary, perverse or capricious and not in conformance with the law.”
Ericsson Showed Intex Should Pay 100% Royalty
The Court found that Ericsson had shown in its cross-appeal that “the terms suggested by Ericsson are prima facie FRAND terms” and that “to ensure parity with other implementers, Intex must pay in full for the past use of the Standard Essential Patents.” The Court based its decision in part on fact that the “telecom industry has overwhelmingly accepted Ericsson’s Standard Essential Patents” and “more than one hundred licences have been executed by Ericsson for the same technology globally and similar implementers are paying royalty in accordance with the terms suggested by Ericsson.” The Court did not discuss those licensing terms beyond noting at the outset of its decision that the lower court rejected Intex’s argument that the royalty base should be the chipset, not the end product, where the lower court “held that chipset basis for calculation of royalty cannot be accepted and the practice of royalty calculations on the end-device is non-discriminatory.” The Court ultimately ordered that “Intex is directed to pay the entire royalty amount to Ericsson within four weeks.”
Finally, the Court emphasized the interim nature of this decision, which will not control the ultimate outcome in the case that is still pending in the lower court for trial and final judgment.