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This is an informal case summary prepared for the purposes of facilitating exchange during the 2024 WIPO IP Judges Forum.

Session 2: Standard Essential Patents

High Court of Delhi, India [2024]: Telefonaktiebolaget LM Ericsson v Lava International Ltd., 2024:DHC:2698

Date of judgment: March 28, 2024

Issuing authority: High Court of Delhi

Level of the issuing authority: First Instance

Type of procedure: Judicial (Civil)

Subject matter: Enforcement of IP and Related Laws; Patents (Inventions)

Plaintiff: Telefonaktiebolaget LM Ericsson

Defendant: Lava International Ltd.

Keywords: Damages, FRAND, Invalidity, Essentiality, Standard Essential Patent (SEP)

Basic facts: This was a cross-suit between Lava International Ltd (Lava) and Telefonaktiebolaget LM Ericsson (Ericsson).  Ericsson is a telecom equipment manufacturer and the assignee of a portfolio of SEPs covering various standards.  The portfolio of SEPs covering AMR, EDGE and 3G standards were asserted by Ericsson in the present suits.  Lava International, an Indian company, is engaged in the business of selling mobile phones and related devices.

In November 2011, Ericsson approached Lava claiming infringement of its SEPs by Lava by implementing the said SEPs in its mobile phones and other devices.  Ericsson offered to grant a global portfolio license to Lava.  Thereafter, negotiations took place between the parties from 2011 to 2015, which were not successful.

Lava filed a suit against Ericsson before the District Judge, Gautam Buddha Nagar, seeking a direction that Ericsson grants license to Lava on FRAND rates and, further, determination of FRAND rates.  Subsequently, Ericsson filed a suit against Lava before the High Court of Delhi, seeking to restrain Lava from infringing its SEPs and seeking damages on account of loss of royalty/license fee.  In the said suit, Lava filed a counterclaim, challenging the validity of the SEPs that were asserted by Ericsson in its suit.

An interim injunction order was thereafter issued by the High Court of Delhi restraining Lava from importing and selling its devices infringing the suit patents.  However, Lava appealed against the said injunction, and it was subsequently vacated, subject to Lava depositing an amount of INR 30,00,00,000/- (approx. USD 4.46 million) with the Court.  Lava was also directed to file its statement of accounts on a periodic basis.  Additionally, a confidentiality club was constituted for sharing of license agreements (names of the licensees redacted) and other confidential documents between the parties.  Issues relating to ownership, invalidity, infringement of SEPs, determination of FRAND rates and damages were framed by the Court.  Extensive evidence from various witnesses including technical and economic experts was recorded.

Held: The Court passed a decree in favor of Ericsson for the recovery of damages amounting to INR 244,07,63,990/- (approx. USD 29.235 million), along with interest at 5% per annum from the date of judgment until full realization of the amount.  ‘Actual costs’ were also awarded in favor of Ericsson.  Directions were given to issue ‘certificates of validity’ for the seven suit patents found valid, and the office of the CGPDTM was instructed to comply with the revocation of IN 203034.

On the aspect of ‘non-patentability’ under Section 3(k) of the Patents Act, it was held by the Court that the inventions focusing 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 programme per se’.

Regarding the ground of revocation due to ‘lack of novelty’, a 'Seven Stambhas Approach' (Seven Pillar Approach) was formulated, acknowledging that novelty encompasses not just explicit novelty but also implicit novelty within a text.  In evaluating the ‘inventive step’, various established tests recognized in both Indian and UK legal precedents were considered, including the ‘Obvious to try’ approach, the ‘Problem/solution’ approach, the ‘Could-Would’ approach, and the ‘Teaching Suggestion Motivation’ (TSM) test.

With regard to the ground of ‘sufficiency of disclosure’, the Court concluded that the suit patents, when read with the complete specifications, sufficiently describe the inventions from the standpoint of a person skilled in the art.  On the aspect of fraud alleged by Lava, the Court recognized 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, which Lava failed to prove.

A detailed analysis was conducted on the validity of the eight suit patents.  The first patent asserted by Ericsson (IN 203034) was found invalid and liable to be revoked on grounds of non-patentable subject matter and ‘lack of novelty’.  The remaining seven suit patents (IN 203036, IN 234157, IN 203686, IN 213723, IN 229632, IN 240471, and IN 241747) were upheld as valid after examination on merits in respect of subject matter eligibility, novelty, and inventive step.

Regarding the challenge to the ‘declarations’ filed before the European Telecommunications Standards Institute (ETSI), the Court held that Ericsson’s declarations at the project/standard level were compliant with the ETSI IPR policy and Lava had no locus to question them.  The Court also recognized that the purpose of filing declarations before Standard Setting Organizations (SSOs) is to bind patent owners to the FRAND commitment, ensuring essential technology is not withheld.

In respect of the ‘essentiality’ of the suit patents, the Court noted that once a patent is granted for a specific function or implementation method, another patent cannot be granted for the identical function or method.  Ericsson established the essentiality of its suit patents through claim charts demonstrating alignment with the relevant standard, against which Lava did not lead sufficient evidence.

On the aspect of ‘Doctrine of Exhaustion’, the Court observed that a person claiming the benefit of this doctrine must provide clear 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.  Lava’s reliance on this doctrine was found untenable due to the lack of agreements or indemnities from component suppliers and lack of due diligence.

The Court highlighted the necessity of negotiating ‘FRAND rates’ in ‘good faith’.  At the same time, the Court recognized that since SSOs do not assess patent validity or essentiality, the alleged infringers have a right to challenge patents during or even after negotiations.  Patent owners can also seek legal remedies, including ‘damages for past use’, if infringers fail to respond in good faith to a FRAND offer.

Lava was held to be an ‘unwilling licensee’ due to its failure to negotiate in good faith, consistently delaying licensing negotiations, and failing to respond to Ericsson’s offers or make counter offers.  Additionally, Lava’s lack of response to the Court’s specific query on willingness to accept the same royalty rates as were paid by another similarly placed entity further demonstrated its unwillingness to engage constructively in the licensing process.

In respect of ‘damages’, the Court recognized that Ericsson is entitled to damages based on the loss of royalties or 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.

The Court determined that royalties should be calculated at the ‘end-product level’ in mobile devices where telecommunication network connectivity is the core functionality.  Further, it was held that licensing the entire ‘portfolio of SEPs’ is essential for ensuring interoperability.  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.

In assessing damages, the Court recognized the ‘Comparable Licensing approach’ as the preferred method for determining FRAND royalty rates, rejecting Lava’s proposed ‘top-down approach’ due to insufficient evidence or calculations to justify adopting such an approach.

Lava’s allegations of ‘royalty stacking’ and ‘hold-up’ were not proven, as no evidence was provided by Lava in relation to the licensor demanding higher royalty rates post-adoption of the standard.  In fact, it was observed that the negotiation history indicated Lava’s strategy of ‘hold-out’, whereby the implementer delays or avoids reaching an agreement.  

The licensing agreements filed by Ericsson were adjudged to be ‘comparable license agreements’, as they were entered into with entities similarly placed to Lava.  These comparisons, combined with the fact that the rates offered to Lava were consistent with those accepted by other similarly situated entities, led to the conclusion that the rates offered by Ericsson to Lava fall within the ‘FRAND range’.

On the aspect of limitation, the Court held that, as per the scheme of the Patents Act, the damages can be claimed from the date of publication of the patent application.  However, a suit for infringement can only be filed after the grant of the patent. Consequently, the period of limitation prescribed by the Limitation Act, 1963, is not applicable, on account of ‘generalia specialibus non derogant’, i.e., special law prevails over general law.

On account of revocation of one out of the eight suit patents, the royalty rates for the portfolio of patents for which license is required was adjusted to reflect the actual strength of the portfolio.

Relevant holdings in relation to standard essential patents:

1. Role of the court in SEP disputes

Guidance and framework development:

For establishing infringement, the Court applied the ‘two-step test’, which involves mapping the suit patent(s) to the standards and showing that the implementer’s device also maps to the standard.  On account of compliance of Lava’s devices with the standards, infringement of the suit patents was held to be an inevitable outcome.

Adjudication of patent validity and essentiality:

The Court assessed the validity and essentiality of SEPs to determine whether they meet the criteria for patentability and are truly essential for implementing standards.  In consonance with the decision of the CJEU in Huawei v ZTE, Indian courts also allow implementers to challenge the validity and essentiality of asserted patents when injunctions are sought by the SEP holders.

Interpretation of the FRAND commitment:

Courts ensure that the FRAND commitment is interpreted so as to balance the interests of SEP owners and implementers.  Courts prevent anti-trust violations by SEP holders while also ensure that implementers negotiate in good faith.

2. Contract law versus competition law

Lava v Ericsson dealt with contractual issues involving a specific license agreement, thereby concerning with contract law.  However, even while dealing with such contractual issues in the adjudication of a contractual dispute, principles of competition law were used.

3. Patent validity, essentiality determination, patent infringement and FRAND defense

Patent validity: An analysis was carried out on the validity of the eight asserted suit patents. The first patent asserted by Ericsson (IN 203034) was found invalid and liable to be revoked on grounds of non-patentable subject matter and ‘lack of novelty’.  The remaining seven suit patents (IN 203036, IN 234157, IN 203686, IN 213723, IN 229632, IN 240471, and IN 241747) were upheld as valid after examination on merits in respect of subject matter eligibility, novelty, and inventive step.

Essentiality determination: Ericsson established the essentiality of its suit patents through claim charts demonstrating alignment with the relevant standard, which Lava did not rebut.  Lava failed to place on record any alternative claim chart to prove that any other patent was mapping onto the standard.

Patent infringement: On account of compliance of Lava’s devices with the standards, infringement of the suit patents was held to be an inevitable outcome.

FRAND defense: Lava’s defense of ‘royalty stacking’ and ‘hold-up’ was considered.  However, it was found to be devoid of merits as no evidence was provided by Lava in relation to the licensor demanding higher royalty rates post-adoption of the standard.  In fact, it was observed that the negotiation history indicated Lava’s strategy of ‘hold-out’, whereby the implementer delays or avoids reaching an agreement.

Hold out: Held that hold-out strategies by implementer results in the continuous use of patented technology without paying appropriate royalties, providing implementers with undue advantages and challenging the integrity of the FRAND system.

4. How to determine FRAND rates

Comparable licenses: The licensing agreements filed by Ericsson were adjudged to be ‘comparable license agreements’, as they were entered into with entities similarly placed 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’.

End products for royalty rate determination: The Court determined that royalties should be calculated at the ‘end-product level’ in mobile devices where telecommunication network connectivity is the core functionality.

Entire portfolio: It was held that licensing the entire ‘portfolio of SEPs’ is essential for ensuring interoperability.  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.

Apportionment for invalid patents: On account of revocation of one out of eight suit patents, the royalty rates for the portfolio of patents for which license is required was adjusted to reflect the actual strength of the portfolio.

5. Dealing with confidentiality

Third party licensing agreements, sales figures and correspondence between the parties were filed in a sealed cover.

Redacted agreements and confidentiality club: A confidentiality club was constituted and the names of the parties to the aforesaid agreements were redacted before the same were shared with the members of the confidentiality club.  Some of the extracted portions of the correspondence exchanged between the parties, along with the name of the similarly situated entities with whom Ericsson held licenses, were also redacted in the final judgment.  After delivery of the judgment, a confidentiality club of counsels, who argued the case, was formed to identify portions of the judgment to be redacted.

Court access: The Court had complete access to the unredacted licensing agreements placed on record by Ericsson in order to effectively determine the FRAND royalty rate.

Relevant legislation: Patents Act, 1970; High Court of Delhi Rules Governing Patent Suits, 2022; Code of Civil Procedure, 1908; Commercial Courts Act, 2015; Limitation Act, 1963; and Delhi High Court (Original Side) Rules, 2018.