Huawei v ZTE: SEPs, Injunctions and the Points of Interface between the ECJ Case and Indian Jurisprudence : Part II

[Ed Note: This post is the second part of a two part series authored by Vaibhav Laddha, a student of NALSAR University of Law. The first part can be found here.]

The Indian telecommunications market is one of the largest in the world, and therefore becomes an important market for the key participants in the telecommunications industry. Indian jurisprudence on FRAND practices for SEPs is underdeveloped at this stage, with a handful of decisions by the Delhi High Court and the Competition Commission of India. The rules that govern SEP have not been clearly defined, and the positions adopted by the Delhi High Court and the Competition Commission of India have differed greatly.

The Delhi High Court has refused to acknowledge the anti-trust elements in the action of seeking injunctions of a proprietor which holds SEPs that are key for every single downstream manufacturer. This is demonstrated by the fact that they grant injunctions freely, even going to the extent of granting ex-parte injunctions in multiple cases.

The jurisprudence of injunctions in India for SEPs, unlike the European jurisprudence on the same, flows from “equity”, which is contingent upon:

  1. Existence of a prima facie case in favour of the plaintiff.
  2. Possibility of an irreparable injury if the defendant is not restrained.
  3. The balance of convenience is in the favour of the plaintiff.
  4. The injunction does not negatively affect the public interest.

This approach followed by the Delhi High Court ignores the peculiar nature of SEPs and the monopolistic power it grants. It also fails understand the nature of a FRAND commitment. Some commentators (and European Courts, as seen in Huawei) believe that SEP holders must never be allowed to seek an injunction, or must only be allowed to seek injunctions only in exceptional cases. Lemley and Shapiro are leading proponents of this view and they believe a mere threat of injunction can threaten to unfairly exclude an implementer’s products from the market, and thus the patent holder can expropriate fees that exceed their economic value.

In March 2013, in the case of Ericsson v Micromax, the Court granted an interim injunction to Ericsson as it had fulfilled the three conditions for the same. The Court observed that since Ericsson had successfully asserted its SEPs (the same eight contested to be infringed) in previous disputes, it had successfully established a prima facie case of patent infringement. The Court also observed that Ericsson would suffer irreparable harm if no interim injunction was granted, without alluding reasons for the same. It does not take into considerations the fact if Micromax made an offer to conclude a licencing agreement, or if the parties could not agree on royalty rates and thus this motion was brought about by Ericsson.

In November 2013, the Delhi High Court in the case of Vringo v ZTE granted an ex-parte injunction to Vringo (which was lifted in December 2013), which prohibited ZTE from selling any of its devices which made use of CDMA2000 technology.

In 2014 in Ericsson v Xiaomi, the Delhi High Court again granted an ex-parte injunction against Xiaomi in a decision similar to the Micromax where the considerations for granting an injunction had nothing to do with the negotiations between the parties, nor with any regard to FRAND terms nor the anti-competitive effects of granting injunctions in the context of SEPs. Once again, the Delhi High Court asserted that the plaintiff would suffer from irreparable harm without delving into reasons for the same.

The basis of temporary injunctions rests on the assumption that if the patentee were to win at the trial ultimately, its rights would be impacted in the interim upon the non-grant of the injunction. This is especially true of developing countries and patent litigation spans over a number of years and a lack of interim relief would undermine the basic principles of intellectual property, i.e. the monopoly over the patent. However, in the context of SEPs, no irreparable harm is caused as the dispute hinges on royalty payments and like in the judgment of Motorola/Google v Apple case (Karlsruhe Court), the licensee can be made to accept liability for past damages. Critics of this approach adopted by the Delhi High Court have suggested that the Courts move directly to the interim stage. The Supreme Court in the case of Shree Vardhman Rice & Gen Mills vs. Amar Singh Chawalwala that in the cases of patents, trademarks and copyrights, the trial must be decided expeditiously instead of merely granting or refusing to grant injunction as there exists additional litigation on the temporary injunctions that go on for years. The Supreme Court here does not talk specifically in the context of SEPs and its peculiar anti-trust effects, but it discourages the grant of interim injunctions nonetheless.

In 2015 in Ericsson v Intex, the Court granted the Swedish giant an injunction against Intex on the grounds that it violated its patents for 2G/3G standards. The Court had termed Intex an unwilling licencee for not entering into an agreement and negotiating in “bad faith” because it did not accept Ericsson’s “FRAND” terms, and instituted proceedings against the CCI while “giving the impression to the plaintiff that it is still bonafidely interested in taking a license from plaintiff.” The Court ignores the possibility that Ericsson might have abused its dominating position while negotiating supposedly FRAND royalty rates. In Huawei, it was laid down that if the counter-offer is rejected, the parties may, by common agreement, allow a third-party to determine the rates. This approach is preferable over the Delhi High Court’s approach as it adjusts for the lack of balance in the bargaining power when a company such as Ericsson, which holds the crucial patents for the 2G/3G standard that every downstream manufacturer necessarily requires, dictates terms to a weaker Intex. The Delhi High Court favoured the proprietor excessively, believing that it would only dictate FRAND terms, and in doing so, leaned towards over-protecting IP, as Indian Courts have been criticised to do.

In Ericsson v iBall, the Delhi High Court granted an interim injunction against iBall on the grounds that irreparable injury would be caused to the plaintiff upon the non-grant of the same. The defendant was not informed by Ericsson about what SEPs were infringed and how. The ECJ in Huawei held that a motion for infringement cannot be brought about in the absence of a prior notice to the infringer, alerting the infringer about the nature of infringement. The Court here observes that the plaintiff cannot claim ignorance about the plaintiff’s portfolio as it had “already asserted the same claims previously against third parties.”

Thus, it is seen that the Indian jurisprudence differs from the EU jurisprudence in the sense that it fails to recognize the peculiar anti-trust elements involved in SEPs that are not present in ordinary patents. It leans towards over-protecting the patent-holder, despite the fact that they possess massive bargaining power and it is the licence-seeker that requires protection from the abuse of the proprietor’s dominant position. It also fails to consider the effect of injunctions on downstream manufacturers and the negative effects caused by the same in determining the royalty rates during negotiations. Thus, the Indian Courts must consider the EU jurisprudence, particularly in the case of Huawei v ZTE if it is indeed intending to supplement India’s vision of a Digital India and create a fairer market for downstream manufacturers.

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