India SEP Litigation Update – Warning to implementors

The Delhi High Court in July 2018 ruled in favour of the international electronics giant, Philips, in a case involving its patents relating to DVD video players (See decision passed by the Delhi High Court on 12 July 2018 in Koninklijke Philips NV vs Rajesh Bansal (CS(COMM) 24/2016), and Koninklijke Philips NV vs Bhagirathi Electronics (CS(COMM) 436/2017)). It is rare, though not uncommon, to have cases involving both patent and competition law come up in Indian courts. This was one of those chances, and it was set up to offer interesting and relevant jurisprudence on cutting edge patent and anti-trust issues such as essentiality, standard setting, and exhaustion. The outcome of the case, though, was less than satisfactory, for various reasons, some of which are discussed here.


Brief Facts

The suit was for patent infringement of Indian Patent Number IN 184753, owned by Philips, for channel modulation as used in DVD players. The defendants were selling assembled DVD players, which contained chipsets allegedly infringing the Philips patent. The suit was filed in 2009, and the patent expired in 2015. The court found infringement of the patent, but no injunction followed, as the patent had expired. Philips claimed that the patent was essential to the relevant standard set by the DVD Forum, and relied, indirectly, on corresponding US and European patents to make this claim.

Some fundamental issues emerged in the course of the proceedings in the case, which remain unresolved, or unsatisfactorily determined. An issue that has been repeatedly coming up in patent proceedings across India, of late, for example, is that of the overlap between the jurisdictions of the patent/IP authorities and competition authorities. The court, in this case, held that the legality of patent pools as such was not something that the court could get into. But the law remains fairly ambiguous in this regard, as to what is to be kept for judicial adjudication and what is to be retained for regulatory determination. There continues to be an overlap between IP and competition regulatory authorities and laws in India. Until that overlap is sorted out, these issues remain in crossover territory, and it may not be as black-and-white as the court believes it to be.

The court tried to address the issue of essentiality, but the method it used to arrive at its conclusions was very problematic. The question was whether the claims in the Indian patent were comparable with the relevant standard. Ideally, the court should have compared the claims itself. Instead, it relied on a mere opinion of US and European attorneys representing the plaintiff. The opinion stated that the US and EP patents to be standard essential. Based on this opinion of external law firms, the court decided that the Indian patent was also essential.  In doing so, it appears to set a dangerous precedent in accepting external law firms opinions as the basis of finding essentiality. The order does not so much as record the relevant sections of the standard that are apparently reading on the patent. Of most concern is that the claims in India are in fact not the same as the claims in US or Europe. There is an an additional limitation drafted into the Indian claim, which clearly identifies the novel and inventive contribution over the prior art. This changes the character of the Indian patent significantly from the US and EP patents. This should have been more carefully examined by the court, to determine whether the claims in India were essential.

Concerns also exist around the strategy used by the plaintiff. This was a one patent suit, but related to a multi patent license. Essentially, this is a practice of filing a suit for one patent but alleging infringement of entire portfolio. If the entire portfolio was alleged to have been infringed, then all the patents in that portfolio ought to have been made a part of the suit. This was not done, and was not questioned by the court either. As a precedent in patent practice, this is open to abuse to multi-patent holders, and most likely than not, those on the side of the implementers will be affected.

There was also a change in the counsel for the defendants halfway through the case. This led to some interruptions in the case, as well as a change in the strategy followed by the defence. For example, there was a reconsideration on the question of validity of the patent. Originally not in issue, the new defence counsel tried arguing that the patent was an algorithm (and thus barred from patentability as being excluded subject matter under Section 3(k) of the Indian Patents Act, 1970). But the court did not consider it as it was not initially pleaded by the defendants. Due to this, the case has limited precedent value for cases relating to standard essential patents, as in practically all such cases, the defence has argued that the patent in question is not valid subject matter to begin with.

The court eventually concluded that infringement was established, regardless of the essentiality issue. For this, it compared product outputs against each other, instead of comparing the claim with the infringing product.  The defendants also tried to argue for the application of the principle of exhaustion. They claimed to have bought the DVD chipset from an authorized licensee of Philips (i.e., Mediatek). The court, however, held that the defence had to prove whether or not the chipsets were purchased from an authorized licensee, effectively rejecting exhaustion.

On the questions around Fair, Reasonable, and Non-Discriminatory (FRAND) patent licensing terms, the court concluded that the defendants must prove that the rate offered was not FRAND. Eventually, the court relied on the negotiations between the parties to determine FRAND rates; these negotiations had treated the DVD player as a product as a whole, and not the smallest saleable unit. More than anything, this should be a red flag for manufacturers who rely on licenses for the entire device. This decision suggests that such negotiations can be used against the licensees for determining FRAND terms.

The court also, uncommonly, not only granted punitive damages of Rs. 5 lakhs against the defence, but also directed the defendants to pay up the actual costs incurred by the plaintiff in the litigation, amounting in sum to a fairly tidy amount.

Many of these issues are likely to reopened for redetermination by higher courts. So there is still no finality on these. But certainly, for both patent and competition practice, interesting times lie ahead.