All You Want to Know About the Ericsson-Micromax Patent Dispute

Did Ericsson abuse its dominant position by demanding royalties from local phone makers, Nehaa Chaudhari explains.

(Photo: The Quint)

In March 2013, the Swedish multinational Ericsson sued Micromax for patent infringement, setting in motion a series of events, with the potential to disturb India’s mobile phone dream. Then last month the Delhi High Court recognised the authority of the regulator – the Competition Commission of India (CCI) – to probe Ericsson for its allegedly anti-competitive conduct.

Why did Ericsson sue Micromax?

Ericsson claims that Micromax’s mobile phones infringe its standard essential patents (SEPs) on mobile phone technologies, including 3G and EDGE.

How are some patents identified as SEPs?

International Standard Setting Organisations (SSOs) – such as ETSI or IEEE – recognise international standards. 3G and Wi-Fi are examples of such internationally-recognised standards.

According to the SSOs, the determination of standards depends on consensus, driven by their members. After a standard is determined, SEP owners (including Ericsson) voluntarily disclose which of their patents are essential to the determined standard, and, undertake to licence these on fair, reasonable and non-discriminatory (FRAND) terms, to any willing licensee.

Does this give rise to legal issues?

This process results in a variety of (well-documented) legal questions, many of which have been raised in India’s SEP litigation, and have been alluded to by the court in the present judgement. The court has recognised the potential for SEPs to create dominant positions for their owners, noting that “any technology accepted as a standard would have to be mandatorily followed [emphasis, mine] by all enterprises in the particular industry.”

Some other legal issues around SEPs include the enforceability of FRAND commitments; determining what would constitute ‘fair’, ‘reasonable’ and, ‘non-discriminatory’; the possibility of non/incomplete disclosure by patent owners; and, a refusal by licensees to negotiate FRAND terms in good faith.

Have there been other SEP infringement suits filed in India?

Yes. Besides Micromax, Ericsson has also sued other low-cost mobile phone sellers/manufacturers, homegrown and otherwise, for patent infringement. These include Intex, Lava, Gionee, Xia and iBall. In addition, Vringo has also sued ZTE and Asus, separately.

Micromax logo. (File Photo: IANS)

What did Micromax and Intex do after being sued by Ericsson?

Ericsson’s suits were followed by deliberations between the parties (Ericsson and Micromax, and Ericsson and Intex, independently) and some interim orders by the court. This litigation is ongoing, and final orders are awaited.

Meanwhile, both Micromax and Intex have pursued a series of other remedies. Intex has filed applications for the revocation of Ericsson’s patents. In addition, Micromax and Intex have each filed separate complaints under India’s Competition Act, 2002 before the CCI, alleging that Ericsson had abused its dominant position. This is a punishable offence under Indian competition law.

Micromax and Intex have both claimed that Ericsson’s royalty rates were excessive. In addition, Micromax has objected to Ericsson’s use of the threat of injunctions and custom seizures, and has also claimed that Ericsson’s conduct results in a denial of market access for Indian handset manufacturers. Intex has alleged, inter alia, that it was forced into signing an onerous non-disclosure agreement by Ericsson; and, that it was forced to negotiate licences without a complete disclosure of its patents by Ericsson.

The CCI, finding there to be a prima facie case in each of the above complaints, ordered the Director General to undertake an investigation into the allegations made by both – Micromax and Intex. These orders were challenged by Ericsson in the court.

On what grounds did Ericsson challenge the CCI’s orders?

Briefly, Ericsson argued:

• The issue was one of patent law, which barred the applicability of competition law.
  
• It was not an ‘enterprise’ under the Competition Act, 2002 and that the CCI was empowered to check anti-competitive conduct only of ‘enterprises’.
  
• Its conduct was not anti-competitive since it was only exercising its rights to enforce its patents.
  
• Since the disputes between the parties were already being heard in other proceedings before the court, the CCI could not adjudicate them; and,
  
• that Intex and Micromax were barred from making such allegations.  Ericsson opined that since they had challenged its ownership of the SEPs, through revocation of petition applications (filed by Intex), and a denial of infringement claims (by Micromax), they could not now present a complaint premised on it being the owner of the same SEPs.
  

What did the court hold?

Rejecting Ericsson’s arguments, the court held that the CCI did [emphasis, mine] have the jurisdiction to examine if Ericsson’s conduct was anticompetitive, finding it to be an ‘enterprise’ under the Competition Act, 2002. However, the court was clear that the CCI’s actions could be subject to judicial review by the high court.

Interestingly, while not adjudicating the issue of Ericsson’s abuse of dominance in this particular case, Justice Bakhru, citing its conduct as presented by the other parties said that in some cases, “such conduct, if it is found, was directed in pressuring an implementer to accept non-FRAND terms, would amount to an abuse of dominance.”

Delhi High Court’s order in Ericsson patent case is a boost for India’s home grown manufacturers in their battle against global patent holders. (Photo: iStock)

What does the judgement mean for India’s homegrown brands?

The judgement is a boost for India’s home grown manufacturers in their battle against global patent holders. However, while it certainly validates the role and powers of India’s young market regulator, it will no doubt be appealed.

What does the government have to say?

The Department of Industrial Policy and Promotion has recently released a discussion paper on these issues, inviting comments from stakeholders. It would be unsurprising if the government intends to regulate this space, given the strong implications for not just its flagship ‘Make in India’ and ‘Digital India’ programs, but also its foreign policy narrative on protecting IPRs and fostering innovation.

Immediate welcome steps from the government would be a final word on the National IPR Policy and the adoption of the National Competition Policy awaited since 2014 and 2011 respectively.

(Nehaa Chaudhari is a lawyer and policy analyst based in New Delhi. She works with the Centre for Internet and Society India (“CIS”), and tweets at @nehaachaudhari.)

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