In a comprehensive and extensive judgment, the Delhi High Court has recently adjudicated in favor of Ericsson in a patent infringement lawsuit concerning Standard Essential Patents (SEPs). The dispute was initiated by Ericsson against Lava over eight patents integral to the standards for 2G, Edge, and 3G technology implementations. Throughout its deliberation, the Court examined numerous facets including patentability, inequitable conduct, patent validity, exhaustion, the concept of standard essential patents, Fair, Reasonable, and Non-Discriminatory (FRAND) terms, alongside considerations of damages and legal costs. Through a sequence of blog posts, we at BananaIP will bring to you various patent practice dimensions of this significant judgment.
Brief Note
The litigation between Ericsson and Lava primarily encompassed claims of patent infringement and counterclaims concerning the invalidity and non-infringement of patents. Regarding the validity of the patents in question, the Court found one of the eight patents to be invalid while affirming the validity of the remaining seven. Consequently, a certificate of validity was issued for these seven patents. Ericsson’s evidentiary claim charts and declarations substantiated that these seven patents were integral to the implemented standards, leading to the Court’s determination of patent infringement by Lava.
With respect to royalty determination, the Court observed that Lava did not engage with Ericsson’s offer to license under FRAND terms in a manner deemed to be in good faith. Therefore, the Court determined the royalty rate based on the royalty rates applicable in existing licensing transactions. After due analysis, the Court set the royalty rate at 1.05 percent of the net sales value of the devices sold by Lava, applicable from the 1st of November, 2011, to the 8th of May, 2020. The Court calculated the damages payable by Lava to be INR 244,07,63,990 (Two hundred forty-four crore, seven lakh, sixty-three thousand, nine hundred and ninety), along with an interest rate of 5% per annum until the complete settlement of the aforementioned amount. Additionally, Ericsson was awarded the actual costs of the lawsuit.
Summary of the Judgment
The summary of the Judgment as stated by the Court reads as follows:
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In light of the extensive nature of the judgment, in this section, I am including a summary of the judgement.
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In the Introductory Section, I acknowledge the transformative impact of the evolution of mobile telecommunications in India, which has opened up access to information and digital services, leading to a more connected and digitally empowered society. This progress, has been supported by implementation of standards by Standard Setting Organisations (SSOs), which have facilitated the seamless integration of new technologies and the universal adoption of new technology in mobile technology.
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In respect of the issues of ownership of suit patents and admissibility of the counter claim, I concluded that Ericsson established patent ownership and Lava’s counter claim was admissible in light of the scheme of the Patents Act. Further, the prayer for a permanent injunction was not pressed due to the expiration of the term of all the suit patents asserted and existing interim orders.
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On the aspect of Invalidity under Section 3(k), I have re-emphasised that those inventions focused solely on algorithms, mathematical methods, business methods, or computer programs per se are not patentable. However, an invention that integrates these elements to transform the functionality of a system or device, can be patentable if it meets all other requirements for patentability. If the invention results in a further technical effect that transforms or enhances the functionality and effectiveness of a general-purpose computer, the invention should not be rejected as a ‘computer program per se.
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As regards the ground of revocation on account of lack of novelty under Section 64(1)(e), taking into consideration various decisions, a ‘Seven Stambhas Approach’ has been formulated, as a guidance for determination of novelty. The said approach acknowledges that novelty encompasses not just explicit novelty but also implicit novelty within a text. This approach aims to provide a structured framework for assessing novelty, ensuring a clear distinction between novelty and non-obviousness.
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In the evaluation of the inventive step, the various established tests that have been recognised in both Indian and UK legal precedents have been considered. These tests include the ‘Obvious to try’ approach, ‘Problem/solution’ approach, the ‘Could-Would’ Approach, and the ‘Teaching Suggestion Motivation’ (TSM) test.
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Both Lava and Ericsson presented arguments about the qualifications, independence and expertise of expert witnesses. However, I have rejected the contentions of both the parties, in which the credibility of witnesses has been challenged and considered the evidence presented by all the witnesses on merits.
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With regards to ground of sufficiency of disclosure in respect of invalidity under Section 64(1)(f), expert evidence was presented by both parties, in respect of the question of sufficiency of the suit patents. I concluded that the suit patents when read with the complete specifications, sufficiently describe the inventions, when viewed from the standpoint of a person skilled in the art.
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Lava raised an objection of fraud being played on the Indian Patents Office in their counterclaim, however, Lava failed to provide requisite evidence of fraud or misrepresentation. I have recognised that to revoke a patent on the ground of fraud or misrepresentation, it is essential to conclusively prove deliberate or intentional misrepresentation to the Indian Patents Office.
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I have carried out a detailed analysis in respect of the question of validity of the eight suit patents. The first patent asserted by Ericsson, i.e. IN 203034, has been found to be invalid and liable to be revoked both on grounds of non-patentable subject matter and lack of novelty.
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The remaining seven suit patents, IN 203036, IN 234157, IN 203686, IN 213723, IN 229632, IN 240471 and IN 241747 have been held to be valid, after examination on merits in respect of subject matter eligibility, novelty and inventive step.
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On the aspect of declarations filed with the SSOs, I have recognised that the purpose of giving declarations of essentiality is to bind patent owners to the FRAND commitment, ensuring that essential technology for maintaining interoperability is not withheld.
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In respect of the challenge to the declarations filed before ETSI, I have held Ericsson’s declarations at the project/standard level are compliant with the ETSI IPR policy. Further, it has been recognised that the nature and timeline of declarations to ETSI is subject matter of the contractual relationship between Ericsson and ETSI and Lava has no locus to question the same.
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(This para does not exist in the judgment and is most likely a misnumbering made in the judgment)
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In respect of the issue of Essentiality of the suit patents, I have recognised that the fundamental principle of patent law dictates that once a patent is granted for a specific function or implementation method, another patent cannot be granted for the identical function or method. On the aspect of essentiality, I have held that Ericsson has established the essentiality of its suit patents through claim charts demonstrating alignment with the relevant standard, which have not been rebutted by Lava, thus proving the essentiality of the suit patents.
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Lava placed reliance on the Doctrine of Exhaustion, a principle in patent law, which limits the rights of patent holders after the first authorised sale/import of a patented product, to claim immunity from patent infringement. In the context of the Doctrine of Exhaustion, I have observed that a person claiming the benefit of the defence of exhaustion, must provide clear and convincing evidence that the product was purchased in a legitimate manner i.e., where the patented product was sold by or with the consent of the patent holder, thereby exhausting the patent holder’s rights to control the product’s further sale or use. Consequently, I have held that Lava’s reliance on the Doctrine of Exhaustion was untenable due to the admitted position that neither Lava possessed any agreements or indemnities from component suppliers nor did Lava carry out any due diligence.
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As regards the question of infringement of SEPs, I have recognised the application of the two-step test for establishing infringement of SEPs, which involves mapping the suit patent(s) to the standards and showing that the implementer’s device also maps to the standard. Consequently, on account of compliance of Lava’s devices with the standards, infringement of the suit patents has been held to be an inevitable outcome.
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On account of the Test Reports placed on record by Ericsson showing compliance of Lava’s devices with the optional standards, the onus fell on Lava to not just claim the use of alternate technology, but also demonstrate the same, which it has failed to do.
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In the section on FRAND, I have observed that it represents a voluntary commitment by an SEP owner to an SSO, in which the SEP owner agrees to adhere to the SSO’s IPR Policy and make standardised technologies available on FRAND terms to willing licensees. The essence of a FRAND license is that it should be fair in its treatment of both parties, reasonable in its economic demands and non-discriminatory in its application across different licensees. The FRAND protocol was established to balance equities and the legitimate interests of both the patent owner and the licensee, ensuring that neither party has unjust bargaining power in negotiations.
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I have highlighted the necessity of negotiating FRAND rates in Good Faith, while holding that since SSOs do not assess patent validity or essentiality, alleged infringers have a right to challenge patents during or even after negotiations. At the same time, patent owners can seek legal remedies, including damages for past use, if infringers fail to respond in good faith to a FRAND offer.
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Lava has been held to be an Unwilling Licensee due to its failure to negotiate with Ericsson in good faith, consistently delaying licensing negotiations, and failing to respond to offers or present any counteroffer. Additionally, Lava’s lack of response to the court’s specific query on willingness to accept the same royalty rates as Micromax further demonstrates its unwillingness to engage constructively in the licensing process.
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In respect of damages, it has been recognised that Ericsson is entitled to receive damages calculated based on the loss of royalty/license fees it would have received had Lava executed a FRAND license agreement at the commencement of its business operations. This approach aligns with legal precedents and ensures that the patent owner is compensated for the royalties they would have earned through licensing.
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It has been held that standard-compliant nature of the devices indicates that they implement the SEPs. Therefore, it has been determined that damages are payable for all devices that comply with the relevant standards, not just the tested devices.
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As regards the contention of Lava that royalty should be calculated on the value of the chipset, I have held that in mobile devices, where telecommunication network connectivity is the core functionality, the calculation of royalties at the end-product level is the most appropriate approach, aligning with industry practices, economic efficiency, and legal precedents.
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As regards Lava’s conation that royalty should only be payable only for the eight suits patents and not the portfolio of SEPs, it has been held that Licensing of the Entire Portfolio of SEPs is essential for ensuring interoperability in the telecommunications industry. It is justified and balanced to require implementers to license the entire SEP portfolio, as this approach facilitates smooth technological progression and upholds principles of fairness and proportionality. Further, the approach of licensing individual patents from a portfolio has been held to be impractical due to potential administrative burdens, increased transaction costs, and legal complexities.
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In assessing damages, the Comparable Licensing approach has been recognised as the preferred method for determining FRAND royalty rates. This approach relies on FRAND rates negotiated between parties in similar circumstances, making it a reliable benchmark for determining royalties for a prospective licensee.
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As regards the Top-Down approach advocated by Lava, it has not provided requisite evidence/calculations to justify adopting a top-down approach for licensing. Additionally, it has been admitted by Lava that it has not entered into any license agreements or paid any royalties in respect of the SEPs, further weakening its case for the adoption of the top-down methodology.
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After a detailed analysis, it has been held that the SIPROLAB Licensing Program for WCDMA SEPs is irrelevant for the present suits.
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Lava has been unable to prove its allegations of royalty stacking and hold-up in its licensing negotiations with Ericsson. The necessity to provide concrete evidence of the licensor demanding higher royalty rates post-adoption of the standard to support such allegations has been emphasised. No evidence of hold-up has been presented, and Ericsson has made multiple offers over four years without receiving a counter-offer from Lava, indicating no occurrence of hold-up.
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Based on the negotiation history, Lava’s approach to the licensing negotiations has been characterised as a deliberate strategy of Hold-Out, where the implementer delays or avoids reaching an agreement. Such hold-out strategies result in the continuous use of patented technology without paying appropriate royalties, providing implementers with undue advantages and challenging the integrity of the FRAND framework.
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The licensing agreements filed by Ericsson in sealed cover have been adjudged to be comparable license agreements. I have held that these agreements were made with entities similarly placed to Lava and nearly identical license rates were offered to Lava. These comparisons, combined with the fact that the rates offered to Lava, were consistent with those accepted by other similarly situated entities, have led to the conclusion that the rates offered by Ericsson to Lava fall within the FRAND range.
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On the aspect of Limitation, I have held that, as per the scheme of the Patents Act, damages can be claimed from the date of publication of the patent application as the rights of the patentee originate from the date of publication. However, a suit for infringement can only be filed after the grant of the patent. Consequently, it was held that the period of limitation prescribed as per the Limitation Act will not be applicable, on account of ‘generalia specialibus non derogant’, i.e., special law would prevail over general law. Lava’s attempt to benefit from Section 111 of the Patents Act, which limits damages if the defendant was unaware of the patent, is rejected since Ericsson had informed Lava of its infringing activities on 1st November 2011.
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For calculation of damages and determination of FRAND rate, Ericsson’s November 2015 offer to Lava, which was similar to that offered to another similarly situated entity has been held to be the appropriate comparable license.
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On account of revocation of one out of eight suit patents, the royalty rates for the portfolio of patents for which license is required has been adjusted to reflect the actual strength of the portfolio. As a result, the FRAND royalty rate applicable to Lava has been determined to be 05% of the net selling price of the devices sold by Lava. The period for which royalties are payable has been determined to be from 1st November 2011 to 8th May 2020.
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Decree is passed in favour of Ericsson for the recovery of damages amounting to Rs. 244,07,63,990/- (Two hundred forty-four crores seven lakhs sixty-three thousand nine hundred and ninety only), along with interest @ 5% per annum from the date of this judgment until the full realization of the said amount. In accordance with the legal provisions surrounding commercial litigation, actual costs are also awarded in favour of Ericsson.
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Directions have been given to issue Certificate(s) of Validity of the Complete Specifications of the seven suit patents found to be valid, i.e., IN 203036, IN 234157, IN 203686, IN 213723, IN 229632, IN 240471 and IN 241747, to the Registry of the Court. A copy of the judgement, to be sent to the office of the CGPDTM for compliance of the action of revocation of IN 203034.
Citation: Lava International Limited v. Telefonaktiebolaget LM Ericsson, High Court of Delhi, 28th March, 2024, CS(COMM) 65/2016, CS(COMM) 1148/2016 and CC(COMM) 14/2017.
Disclaimer
The case note/s in this blog post have been written by IP Attorneys at BananaIP Counsels based on their review and understanding of the Judgments. It may be noted that other IP attorneys and experts in the field may have different opinions about the cases or arrive at different conclusions therefrom. It is advisable to read the Judgments before making any decisions based on the case notes.
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