Delhi High Court sets interesting precedent to still nascent domain of SEP & FRAND in India

The Plaintiff had filed two suits for infringement of their essential DVD video player patent. The component patent in the subject matter of both the suits is the Channel (De)-coding technology used for DVD Video Playback function in a DVD video player. It is claimed that the Plaintiff is the registered proprietor for “Decoding Device for converting a Modulated Signal to a series of M-Bit Information Words”. The invention concerns ‘channel modulation’ which involves a coding step that is performed directly before the storage of the data.

The Plaintiff claimed that the said patent is a Standard Essential Patent (SEP) and DVD player manufacturer need to seek license from them. Both the suits were clubbed together and a common judgment was passed by the High Court of Delhi (hereinafter referred as “Court”) against Defendants.

The Court divided the case into 8 issues that were settled on the basis of the pleadings of the parties as below:

  • Whether the Plaintiff is the proprietor of subject Indian Patent?
  • Whether the Plaintiff is the owner of a valid patent?

Both these issues were decided in favor of the Plaintiff. The Plaintiff submitted the copy of registration and certified copies of the complete specifications of the suit patent. The Defendants argued that the suit patent is an algorithm and therefor is not an invention under Section 3(k) of the Patents Act. But no pleadings and evidence were put forth in the court by the Defendants, therefore the argument was not considered by the court.

  • Whether the impugned suit patent is an essential patent in respect of DVD technology and whether the essentiality as claimed is valid under the Indian Law?

The Plaintiff argued that the essentiality of the patent necessarily implies that it is technically not possible to manufacture, sell, lease, etc. the equipment or technology which complies with such standard without making use of the patented technology in question. Further, it was contended that the concept of essentiality of a patent flows from the concept of standardization which standards have been set by the industry for which the role of Standard Setting Organization (SSO) is extremely important.

The Plaintiff relied on the essentiality certificates granted to its suit patent by the US and European Patent Office, thereby proving that the suit patent is essential. Thus, the Court relying on the validity of the essentiality certificates held “the suit patent is an essential patent for the fulfilment of the DVD standard”. The Court further observed that “the validity of the patent is proved beyond doubt that when it was admitted by Defendants that they had applied for license on the patent for commercially using the same. Plaintiff having discharged its onus of proving essentiality of the suit patent, burden shifts to the Defendants to disprove the same, which they have failed to discharge”. The Hon’ble High Court citing Hon’ble Supreme Court’s decision in Shafhi Mohd. vs. State of Himachal Pradesh held “that a party is not required to file a certificate under Section 65B of the Indian Evidence Act if the party is not in possession of the device from which the document is proved”, thereby accepting computer generated documents as evidence for establishing essentiality of present patent.

  • Whether the Defendants have infringed the Plaintiff’s suit patent?

The court found that the Defendants have infringed the Plaintiff’s patent on two counts:

  1. The suit patent being an SEP and the Defendants manufacturing a standard compliant device without a license for the SEP indicated infringement. The court held that, “since the Defendants were using EFM (eight to fourteen modulations) + demodulation technique which was also present in the suit patent was enough to prove that there has been an infringement by the Defendants.”
  2. The second argument of Defendants was based on principle of exhaustion, which holds that the patent right over a product cannot be enforced against that specific product once it has been sold by the manufacturer or the licensee. Therefore, the Defendants argued that there is no patent right of the Plaintiff since it had already put his product in the market and therefore, cannot pursue infringement proceedings against third parties. The Defendants further argued that they bought alleged infringing device from third-party manufacturer who were duly licensed by the Plaintiff. But the Defendants failed to discharge any evidence that proved the same and thus the plea of Defendants by the virtue of doctrine of exhaustion was rejected.
  • Whether the Defendants had knowledge of the Plaintiff’s patents in respect of DVDs and the Plaintiff’s licensing programs?

Since it has been held that the Plaintiff is the holder of a SEP 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. Therefore, this issue was also decided in the favor of Plaintiff and against the Defendants.

  • Whether the Plaintiff 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?

Defendants argued that the Plaintiff demonstrated clear abuse of its dominant position to create a monopoly and earn exorbitant profits and this issue of licensing of their standard essential patent was a competition law issue and should have been under the jurisdiction of the Competition Commission of India (CCI) and not under a civil court. The Court rejected this argument and relied upon Telefonaktiebolaget LM Ericsson (PUBL) v. Competition Commission of India and Ors., where it was held that “the Civil court and CCI are different from each other and it also says that an abuse of dominant power under Section 4 of the Competition Act is not a cause that can be made a subject matter of a suit before a civil court”. Therefore, the dominant position cannot be decided in the present suit. Hence this issue is held to be beyond the scope of the decision in the present suit.

  • Whether the Defendants are liable to pay any license fee to the Plaintiff and if so at what rate?
  • Whether the Plaintiff is entitled to a decree of damages or any other relief?

The Plaintiff contended that the royalty should be determined keeping in mind the patent pool, on the basis of which licensing occurs. However, the Defendants stated that the royalty asked for by the Plaintiff does not comply with Fair, Reasonable and Non-Discriminatory (FRAND) principles, which determines patent licensing terms that is usually followed in cases of SEP.  The court relied on the decision reported in Commonwealth Scientific and Industrial Research Organisations vs. CISCO Systems, Inc. that concluded that royalty rates may be decided on informal negotiations. Further reasonable royalties for standard essential patents are not only in terms of FRAND but also the incremental benefit derived from the invention. Considering that the Plaintiff is seeking royalty at FRAND terms and no evidence had been led by the Defendants to rebut the evidence of the Plaintiff despite the onus of Issue No. (vii) being on the Defendants, the Court held that, “the Manglam and Bhagirathi are required to pay to the Plaintiff royalty @USD 3.175 from date of institution of suit till 27th May, 2010 and from 28th May, 2010 @USD 1.90 till 12th February, 2015 from the date of institution of the suits with interest @10% p.a. from the end of the month for which royalty is due till the date of payment per video player manufactured/sold.”

Finally the court held that on, “considering the conduct of Defendants and that being an ex-employee of the Plaintiff knowing fully well with impunity infringed the suit patent, Defendants are liable to pay punitive damages of  INR 5 lakhs.”

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 favor of the Plaintiff and against Defendants.

Present decision has set interesting precedent particularly in respect of infringement for SEP’s.

Contributor

Contributors to present post are Ankush and Abhay.

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