Revisiting Anti-Trust Intervention in FRAND Encumbered Patents

Subhajeet Roy | January 2019

BACKGROUND

FRAND encumbered patents have always been the subject matter of a lot of legal battles, arising due to the ambiguities surrounding the current FRAND regime. There is an inherent tussle regarding the royalty rates between the Standard Essential Patent (“SEP”) holder and its implementers. The situation becomes more subjective since The Patents Act does not have any reference with respect to SEPs. Thus, in the present scenario, the SEP holder tends to approach the court for filing an infringement suit (seeking injunctive relief) against the licensee, who, in turn, approaches the Competition Commission of India (“CCI”) filing a complaint about the “abuse of dominant position” and “anti-competitive agreement” against the SEP holder. While there is no doubt that the High Court does have original jurisdiction with respect to a patent infringement suit, it is the CCI’s jurisdiction which is of interest. This article seeks to examine the jurisdiction of CCI with respect to SEPs and also tries to argue why antitrust intervention isn’t really needed.

STANDARD ESSENTIAL PATENTS AND ANTITRUST VIOLATION

The prima facie anti-competitive nature of SEPs cannot be ignored, and there is always the potential for abuse of dominant position by the SEP holder. In this respect, abuse of dominant position is slated to occur mainly in two ways-

Owing to the superior bargaining position of a SEP holder, he can compel the implements to accept onerous royalty rates, also possibly engaging in patent hold up and royalty stacking.
If the SEP holder’s terms are not met, he always has the option to threaten the implements with recourse to injunctive relief. Once a standard has been adopted by an SSO, it becomes impossible (or at the very least, quite difficult) to conform to the said standard without using the SEP. The injunction, being in nature of an exclusionary remedy, its pursuit can in cases like these, act as an abuse of dominant position.

SEPS & THE COMPETITION ACT, 2002

In the cases in which the CCI has investigated into, inter alia the contravention of FRAND terms by Ericsson, the complainants have submitted the following-

As it is well aware that there was no alternate technology available, Ericsson had abused its dominant position by imposing exorbitant royalty rates for SEPs, that was based on the value of the downstream product (value of the handset) instead of being based on the value of the patented technology, the chipset.
That, by tying and bundling the licensing of non-essential patents with the SEPs and by demanding the execution of Non-Disclosure Agreements (NDAs) by all prospective licenses, (which gave Ericsson the freedom to charge different royalty rates from different licensees) Ericsson has abused its dominant position. Also, the fact that Ericsson had subjected the licensee to dispute resolution in a jurisdiction where neither of them had any operations, was a further indication of such abuse.

The CCI observed that the relevant market is SEP(s) in GSM-compliant mobile communication devices in India and that Ericsson enjoys a dominant position in this market. As we all know, The Competition Act does not prohibit being in a dominant position, it prohibits abuse of such dominance. In this regard, the CCI held that Ericsson was guilty of abuse of dominant

DELHI HIGH COURT STEPS IN

The Delhi High Court judgment in Telefonaktiebolaget lm Ericsson v Competition Commission of India (Ericsson vs CCI) is an important one in the sense that it clarifies a lot of ambiguities surrounding the FRAND regime in India, and in particular, the jurisdiction of CCI in FRAND encumbered patents. To recap-

Insofar as to the question whether or not The Patents Act could exclude The Competition Act in its applicability, as far as infringement of patents was concerned, the court held that there was no inconsistency between The Patents Act and The Competition Act, because the remedies provided by S. 27 of the Competition Act are materially different from those under S. 84 of the Patents Act, and that the remedies provided under both the Acts are not mutually exclusive. The court went on to opine that the enactment of the Competition Act was not intended to reduce the scope of any other law, thus S. 60 and S. 62 should be read together, and therefore holding that patent laws define the contours of certain rights, and the antitrust laws are essentially to prevent abuse of rights.
As regards the contention that CCI would have no jurisdiction to hear the matter as the subject matter of dispute was already pending before the court, the court rejected this contention, holding those suit proceedings and the CCI proceedings can take place alongside each other. Further, CCI’s consideration of the dispute would be different in scope, with more focus on examining whether Ericsson has abused its dominant position, observing that merely because a set of facts pleaded in a suit may also be relevant for determination whether Section 4 of the Competition Act has been violated, does not mean that a civil court would be adjudicating that issue.
As regards the method of calculating FRAND royalty itself, the Hon’ble Delhi HC decided to use the value of the downstream product as a royalty base and rely on comparable licences to determine a FRAND royalty. This is interesting because it is in contrast to the method decided by CCI.

The judgment makes it clear that the CCI’s jurisdiction is not excluded in FRAND encumbered patents. However, is the involvement of CCI really necessary?

THE CONS OF ANTI-TRUST INTERVENTION

It is argued that it is the court that is best equipped to deal with questions that arise in cases involving SEPs. Firstly, there is a grey area with respect to how a FRAND royalty rate is to be determined, in case negotiations between the parties have failed. Since there is no universally acclaimed method to determine a FRAND royalty rate, a lot of emphasis is given to the parties’ negotiation history. Inherent in FRAND licensing requirements is the expectation that the parties will negotiate in good faith to determine appropriate royalties. The courts have more expertise than CCI in answering such questions. Since SEP-holders thrive on the contractual negotiating powers of the parties, the jurisdiction of the court cannot be undermined.

Secondly, as regards seeking injunctive relief being an abuse of a dominant position, in deciding whether or not an injunction should be granted, the courts usually follow the four-pronged test laid down in the eBay case. One of them is that public interest would not be disserved by a permanent injunction. The implementers being driven out of the market due to the grant of such injunction is a competition law issue and affects the public interest. While the courts will certainly not delve deep into the anti-competitive effect granting of such an injunction might entail, it is still something they would consider on a prima facie basis, at the very least. The injunction, in nature of an equitable remedy, the courts are capable to address the same and intervention by CCI is not needed.

While going into the economics of each of the two methods to determine FRAND royalty is beyond the scope of this article, it is important to note that the Delhi HC’s method of calculating FRAND royalty rate on the downstream product as opposed to the value of the chipset has been hailed by certain academicians to be in tune with “sound economic principles.”

CONCLUSION

While the Delhi HC judgment clarifies the jurisdictional aspect of CCI, it’ll be interesting to see how future cases involving SEPs will be decided by CCI, particularly after its (arguably) incorrect method of calculating FRAND royalty rate, which was overruled by the Delhi HC. Even should the CCI exercise its jurisdiction, it’ll have to take a cautious approach and make appropriate references with respect to questions it is not competent to answer. For now, however, the Delhi HC judgment, if anything, sufficiently demonstrates that the Indian courts are quite competent to decide such cases.

About Author

Subhajeet Roy

Subhajeet Roy currently working in the Legal Department of Wockhardt Ltd, graduated from Tamil Nadu National Law University, Trichy. He is passionate about Intellectual Property Rights and Competition Law.