Taking the FRAND-Ly Approach: a First Look at FRAND Battles in India

Remfry & Sagar IndiaX X

CountryIndia XTaking the FRAND-ly approach: a first look at FRAND battles in India

By Pankaj Soni and Satyoki Koundinya, Remfry & Sagar By X

AfterThe acronyms al ‘SSO’, ‘SEP’ and ‘FRAND’ are products to the consumer. To facilitate such common parlance in the information and collaboration, SSOs require SEP owners communications technology industry today, to license their patents on terms and as individuals and organisations must not conditions that are fair, reasonable and non- only compete with each other, but also work discriminatory (FRAND). together to achieve their goals – whether This is easier said than done, as the SSO- commercial or technological, domestic or SEP-FRAND framework requires patentees to international. Business strategy permitting, cross over and, as licensees, enter into licence working together requires collaboration agreements with other patentees that own via licensing of intellectual property so equally essential patents. Unfortunately, in that the market is not technologically today’s aggressive economy the result is often fragmented and consumers can access a to fight licensing wars in court – after all, the broader range of products implementing underlying force is a patent, protected by the the same technological standard. After all, law and created to grant a limited monopoly nobody wants a repetition of the VHS and to the patentee. Betamax wars. This quest for standardisation has led to the evolution of standards- The mobile phone FRAND wars setting organisations (SSOs) – voluntary Recent trends show that the mobile phone organisations whose primary objective is to industry is perhaps most affected by the develop, promulgate and administer formal vagaries of the SSO-SEP-FRAND framework. technical standards intended to address Between 2010 and 2012 every major player the needs of a wide base of adopters. An in the mobile phone space was at war with important aspect of an SSO’s objectives another party in the same domain. Although is the identification of patents that are the Apple v Samsung litigations caught essential to the adoption of a standard (a everyone’s eye – if only for the quantum of standards-essential patent (SEP)). In practice, damages awarded – the battles between the ownership of SEPs covering key aspects of a other players underscore both the enormity standard tends to be divided among multiple of the issue and its global reach. When last parties. For businesses, the implication is that reviewed, Sony, Google, Microsoft, Nokia, whenever a standard is adopted, the SEPs are Motorola, Kodak, BlackBerry, LG, Pantech automatically used (and hence infringed). and HTC were all battling it out somewhere, Thus, while businesses can look forward primarily in the Western world. to some uniformity in terms of the technical Until recently, India has remained standards to be followed in creating products, impervious to such licensing battles. People in the face of fragmented ownership of SEPs, are still focused on more fundamental patent businesses must collaborate with rivals, issues, such as Section 3 of the Patents Act through licensing, to bring their respective and compulsory licensing. However, in

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the telecoms industry the licensing battle lines are starting to be drawn. Based on Between 2010 and data released by the Telecom Regulatory Authority, India is the world’s second-largest 2012 every major mobile market by number of subscriptions. Its active user base is more than 770 million player in the mobile and there is still ample room for expansion, as this figure accounts for only 62% of the phone space was at country’s population. Thus, as domestic and international players seek to gain a foothold war with another party in this promising market, the mobile phone industry is beginning to engage in patent in the same domain skirmishes in relation to a thicket of SEPs relating to 2G, 3G and 4G technology. Simply put, India appears to be ready to take the were being charged based on the value of FRAND-ly plunge. the entire product, rather than on the cost of the particular component embodying FRAND-based litigation the SEP technology – an unfair and anti- The Ericsson disputes are laying the competitive position. Micromax also asserted groundwork for this approach. In 2013 that Ericsson was refusing to share the terms Ericsson filed a lawsuit against Micromax of FRAND licences given to similarly placed Informatics Ltd, India’s largest mobile licensees, which was contrary to the spirit phone manufacturer, in the Delhi High of FRAND licensing. Based on Micromax’s Court, seeking damages and an ex parte and allegations, the CCI ordered an independent permanent injunction against Micromax with investigation into the allegations. It also regard to any products infringing its SEPs expressed concern that the threat of relating to 2G, 3G and 4G technology. Ericsson injunctions in the patent battle (at the Delhi claimed nearly Rs1 billion (approximately High Court) could distort FRAND licensing $16 million) in compensatory damages – the negotiations and lead to licensing terms that largest sum ever sought in a patent suit in the licensees would normally have rejected in the Indian IT/telecoms sector. It initiated legal absence of this threat. action after three years of negotiations failed In reply, Ericsson petitioned the Delhi to yield a licence agreement on its SEPs. A High Court contending that the CCI had no single judge bench of the Delhi High Court jurisdiction to investigate the action as the granted an ex parte injunction, including Patent Act provides adequate mechanisms measures for the confiscation of Micromax to balance the rights of patentees and other consignments at the border by customs stakeholders. Observing that a substantial authorities. Further, to protect Ericsson’s question regarding the CCI’s jurisdiction had financial interests, the court also ordered been raised, the court directed the CCI and its that Micromax deposit money in the range of director general of investigations not to pass 1.25% to 2% of the sale prices of the affected any final order or report, and held that the products as a condition precedent to the CCI’s observations would not be considered release of such products by Customs. in respect of adjudication proceedings filed Micromax’s countermove also created by the parties in the Indian courts. a precedent. It filed a complaint at the Ericsson’s commitment to enforcing Competition Commission of India (CCI) its patents is reflected in the fact that it alleging that Ericsson, as the largest owner filed a second suit before the Delhi High of SEPs in the mobile phone industry, was Court against Intex Technologies, a smaller abusing its dominant position and was manufacturer of computer peripherals, therefore acting in an anti-competitive mobile phones and consumer electronics, manner. Micromax’s main contention was seeking Rs560 million (approximately $9 that the royalty rates sought by Ericsson million) in damages and an ex parte and

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permanent injunction relating to products interim injunction and issued a summons to incorporating its SEPs in the 2G, 3G and 4G AsusTEK for completion of pleadings. technology space. The court did not grant an In ZTE the court granted an ex parte ex parte injunction and is in the process of interim injunction against ZTE and hearing both parties on various issues raised appointed local commissioners to inspect its in the suit. books of accounts and obtain sales records Taking its cue from Micromax, Intex also of various infringing equipment. Further, instituted a complaint against Ericsson at the court granted the enforcement of border the CCI on similar grounds and secured an measures: ZTE consignments carrying order for an independent investigation by the alleged infringing device would not be the director general. Further, given the Delhi released by Customs at any port or airport High Court’s stay of the CCI’s final report, without giving written notice to Vringo, Intex filed a special leave petition before enabling inspection and assessment of the Supreme Court on the CCI’s jurisdiction whether the units were infringing. However, to address licensing and anti-competitive following appeal by ZTE, a two-judge bench issues. This led the Supreme Court to direct varied the injunction by allowing domestic the Delhi High Court to make an expeditious sales of affected products subject to ZTE determination of the CCI’s jurisdiction to furnishing a bank guarantee for Rs50 million conduct investigations into determining the (approximately $850,000). In contrast to royalty rate between parties, pursuant to the position taken by Micromax and Intex, which the Delhi High Court has appointed one of ZTE’s primary arguments is that the an amicus to aid the court in addressing the Vringo patents are not worked in India, and jurisdiction issues. therefore Vringo – an NPE – is merely seeking The outcomes of Micromax and Intex to enforce the right to exclude use through will provide clarification in respect of the the forceful negotiation of licences and CCI and its jurisdiction, as well as FRAND threats of litigation. licensing and royalty rates. These issues of The Vringo cases highlight how FRAND first impression will pave the way for others licensing discussions relating to SEPs owned and underscore the growing importance and by NPEs will be handled in India and their uncertainty of licensing negotiations in India. outcome is eagerly awaited. A different issue is under discussion in the Vringo litigation. Non-practising entity What does the future hold? (NPE) Vringo Infrastructure Inc filed two The SSO-SEP framework confers considerable lawsuits seeking ex parte and permanent power on the SEP holder. An entity that injunctions, the rendition of accounts and wishes to use a technological standard must damages against ZTE and AsusTEK for obtain permission from an SEP holder, which infringement of its SEPs in India. In AsusTEK the latter may choose to withhold by refusing the Delhi High Court denied an ex parte to license its patent. The FRAND declaration attempts to balance inequalities with the idea that an entity should have the right to obtain a licence to desired technology on FRAND The public good is terms. However, working out a FRAND- encumbered agreement and determining a legitimate tool what constitutes a FRAND practice is controversial. Also, in practice, it is almost available to an Indian impossible to determine what a FRAND royalty actually amounts to. licensee and will In India, the situation is more complex because of the predisposition to make likely be used in all everything public policy oriented. The public good is a legitimate tool available to an instances Indian licensee and will likely be used in all

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Contributing profiles

Pankaj Soni Satyoki Koundinya Partner Associate [email protected] [email protected]

Pankaj Soni is a partner in the patent group, Satyoki Koundinya is an associate at Remfry & with more than 17 years’ industry and legal Sagar. He holds a degree in law (honours in IP experience. He manages patent litigation and rights) from the Indian Institute of Technology, prosecution in relation to electrical/electronics, Kharagpur and a bachelor’s degree in computer and mechanical technologies. He electronics and communications engineering. has litigated matters in the Indian courts and His professional affiliations include membership the US federal courts for Fortune 500 clients. of the Delhi Bar Association and the Indian His expertise includes drafting applications, Patent Office. He has four years’ experience and setting litigation strategy, handling technical has worked extensively in all areas of intellectual aspects of claim construction and carrying property, particularly in the field of patents. His out infringement/invalidity analysis. Mr Soni practice includes handling prosecution and has also led client negotiations for litigation litigation matters for multinational companies in settlements and cross-licensing agreements. the electrical, electronics, telecommunications His qualifications include a JD from Fordham and mechanical engineering industries. He has University School of Law (New York), an MBA also authored several papers for national and and a master’s in computer science from Illinois international journals. State University. He is admitted to practise in India, New York and New Jersey.

instances. In addition, the fact that domestic to intimidate licensees into negotiating on manufacturers are showing up on the radar of allegedly unfavourable terms. Nor should the big global players – several suits are pending SEP holder be allowed to discriminate among against local Indian companies and Chinese its licensees by charging differential royalty manufacturers – indicates that the mobile rates among different players. Further, at the phone wars are now becoming local, as most basic level, licensees aver that FRAND opposed to a global war being fought in the disputes are about competition and therefore damages-friendly United States. Although it are better dealt with by the CCI because, with is still too early to know which way the tide the threat of injunctive relief from the high will turn, perspectives from both sides of the courts looming large, parties are in drastically battle can be considered. different bargaining positions, with the SEP From Indian licensees’ point of view, holder enjoying the upper hand. Overall, Western-style capitalism should not find licensees would be happier for the courts to its way into India, as that would result in set royalty rates and establish the parameters the SEP holder playing Goliath and trying surrounding FRAND.

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On the other hand, SEP holders do not against Micromax, as did Vringo against want the government to stop business taking ZTE, but so far they have not obtained its own course; they prefer each licensee to similar relief against Intex and AsusTEK, be bound by confidentiality, with licensing respectively. Further, the Competition terms dependent on the negotiating power Commission has become, and will continue (or prowess) of the parties. After all, a licensee to be, a parallel avenue that is asked to with a sizeable portfolio of its own should not determine any allegedly anti-competitive have to pay the same rate as a new player, conduct by patent holders. It will be even though they are targeting the same interesting to see how the interplay of patents market with similar products and using the and anti-competitive behaviour in relation same SEPs. In addition, from SEP holders’ to SEPs is interpreted by the Indian courts perspective, the threat of injunction or the and whether the courts are willing to engage injunction itself – which is arguably the in establishing royalty rates. It will also be best option available to a patentee in India interesting to see whether these battles go all – is a necessary tool, especially since the the way – FRAND wars rarely do – or whether classification of a patent as an SEP positively they are settled like most other FRAND reinforces the patent’s strength (patents are litigation around the world. not considered to be presumptively valid in India). Furthering their position, SEP holders argue that if SEP enforcement requires many additional steps before an injunction may be available, the prospective licensee has no incentive to license a portfolio of SEPs, as is typical in existing business practice. An unwilling licensee should not be able to hide behind competition or public good to force the SEP holder into a royalty rate – that would make it a compulsory licence. Remfry & Sagar Remfry House at the Millennium Conclusion Plaza Sector-27, Gurgaon-122 009 So what is the right FRAND framework for Haryana, India Tel +91 124 280 6100 India? A cookie-cutter approach will not Fax +91 124 280 6101 work. While unfair in certain situations, the Web www.remfry.com reality is that the threat of injunction will bring the licensee to the discussion table – an outcome that may not otherwise materialise in India. Based on the fact that mobile phones use hundreds of different patents, determining standard FRAND royalty for one (or several) SEPs is an uphill, if not impossible, task, and therefore impractical. If this is encouraged, the patentee may be incentivised to hold up patents and not submit them to the SSO, thereby increasing the anti-competitive aspect of the situation. On the other hand, SEP holders must realise that India is a high-volume/low-margin market (unlike the West), and the royalty numbers should reflect this difference. The current trend in India is that injunctions are available, but not assured. After all, Ericsson secured an injunction