In an order dated January 16, 2014, the Competition Commission of India (“CCI”) ordered another investigation into Ericsson’s licensing of cellular patents that are subject to FRAND obligations, which investigation will parallel a similar investigation of Ericsson that CCI ordered on November 12, 2013 (discussed in our prior post). The rationale for this new investigation, requested by Intex Technologies, is the same as that for the prior investigation requested by Micromax Informatics and we refer you to our prior post’s discussion thereof.
One difference concerns Ericsson’s refusal to disclose what licensing terms it gave to other licensee’s that the prospective licensee requested to assess whether the license offer to them is fair, reasonable and non-discriminatory. In the Micromax investigation, the parties were in litigation and Ericsson refused to produce the other comparable licenses in a mediation of that dispute, leading CCI to state that “Refusal of OP [Ericsson] to share commercial terms of FRAND licenses with licensees similarly placed to the informant [Micromax], fortified accusations of the Informant, regarding discriminatory commercial terms imposed by the OP.”
In this new investigation, the rub comes from an NDA required by Ericsson to negotiate a license with requester Intex. Intex asserts that Ericsonn’s NDA prevents them from consulting with vendors of components that implement the standard, allowed Ericsson to claim it could not produce license agreements with others given similar NDAs entered with them, and required adjudicating any disputes in another country. CCI found that the NDA was problematic for several reasons, including allowing Ericsson to hide whether its licensing terms were discriminatory as compared to other licenses it granted on the same FRAND-obligated standard essential patents:
Charging of two different license fees per unit phone for use of the same technology prima faci is discriminatory and also reflects excessive pricing vis-à-vis high cost phones. NDA thrust upon the consumers by OP [Ericsson] strengthens this doubt as after NDA, each of the user of SEPs is unable to know the terms of royalty of other users. This is contrary to the spirit of ‘applying FRAND terms fairly and uniformly to similarly placed players.’ Transparency is hallmark of fairness. Both forcing a party to execute NDA and imposing excessive and unfair royalty rates prima facie was abuse of dominance and violation of section 4 of the Act. Imposing a jurisdiction clause debarring Informant [Intex] from getting disputes adjudicated in the country where both parties were in business and vesting jurisdiction in a foreign land prima facie was also an abuse of dominance.
Concerns about improper NDA requirements are not unique to this CCI investigation. The recent cable operator lawsuit against Rockstar includes concerns about Rockstar requiring NDA terms in negotiating licenses under patents it acquired from Nortel, which patents include standard essential patents subject to standard-setting organization (SSO) obligations such as RAND, FRAND or royalty-free licensing obligations.
As with the prior Ericsson investigation, CCI’s order makes clear that these are just initial observations, not final expressions of opinion, and the investigation should proceed without being swayed by the initial observations.