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This post is co-authored with Swaraj Paul Barooah.
After the Delhi High Court dictated its decision in the long standing SEP dispute between Ericsson and Lava on March 28, 2024, the Court finally published the judgement on April 3, 2024. Penned by Justice Amit Bansal, this mammoth judgement runs for 476 pages (!) and deals with numerous issues like determining validity of the eight suit patents (revoking one), and infringement analysis in SEP cases. Unfortunately, despite the numerous pages, it still falls short on providing its reasoning on some crucial holdings in this precedential case. This two part post will focus on perhaps the most important aspect of this finding i.e. FRAND-liness of the rates offered and calculation of the damages in SEP cases, with Part I dealing with the former and Part II dealing with the latter. We will also soon be carrying a post from Malobika on expert evidence and confidentiality clubs in the backdrop of Lava’s decision to exclude its “external economics expert” witness from the Confidentiality Club in the present case.
For the uninitiated, in cases of Standard Essential Patents (SEPs) i.e. the indispensable patents for implementation of standardised technology, the licensing is determined on what is referred to as FRAND terms (Fair, Reasonable, and Non-discriminatory terms). These terms, as explained by the Court – “should be fair in its treatment of both parties, reasonable in its economic demands and non-discriminatory in its application across different licensees” and emits from the declarations made by the SEP owner to the Standard Setting Organization (SSOs) at the time of the development of the concerned standard.
In the present case, Ericsson alleged that Lava was unauthorizedly utilizing 8 of their patents in 2G and 3G technologies and thus tried to negotiate a license with them. After engaging in negotiations with Ericsson for a few years, Lava filed a case before a district court in Noida alleging that Ericsson was not making the suit patents available on FRAND basis. Consequently, Ericsson instituted this suit before the Delhi High Court alleging infringement by Lava and seeking a declaration that the rates offered are FRAND in nature. Interested readers can refer to our previous posts here and here for the relevant background.
Whether the Rates Offered by Ericsson to Lava Were Non Discriminatory and Comparable to Rates Offered by Ericsson to Other Parties?
To determine whether the rates offered by Ericsson to Lava were on FRAND terms or not, the Delhi High Court relied on the European Court of Justice’s decision in Huawei v. ZTE, UK Supreme Court’s decision in Unwired Planet International Ltd. v. Huawei Technologies, and the Delhi High Court’s Division Bench order in Ericsson v. Intex. The Court noted that since the commencement of negotiations in 2011, Ericsson had made multiple offers to Lava. The Court compared these rates with the rates offered to other Indian enterprises as well as the global rates fixed in the Global Patent Licensing Agreement which Ericsson entered with a confidential party, and held that the rates offered to Lava were within the FRAND range.
It is pertinent to note that willingness of an implementer to negotiate in good faith is crucial in determining the relief which the SEP owner is entitled to. This can be seen by different decisions by courts in the EU (Huawei v. ZTE), China (Huawei v. IDC). Unsurprisingly, the Delhi High Court also took a similar view regarding good faith. The Court held that Lava was an unwilling licensee who did not negotiate in good faith.
Here, the Court considered relevant correspondence between the parties, wherein Ericsson asserted its ownership on the suit patents and expressed its willingness to grant a license to Lava. The Court also relied on the cross examination of the Parties’ expert witnesses on the correspondence between the parties. From the above, the Court was able to establish that after the initial rounds of communications, Lava delayed in signing a non-disclosure agreement with Ericsson. Subsequently Ericsson shared the term sheet of its bilateral patent agreement. In response Lava sought information on all patents covered by the proposed license, complete specifications of the SEPs, and the FRAND agreements entered into by Ericsson with other companies. On the above, Ericsson was hesitant in sharing information about its agreement with other parties owing to its non-disclosure agreements with these parties, but Lava continued asking for it. These negotiations went on for some more time after which parties agreed to have a meeting on technical issues and right before the proposed meeting, Lava informed Ericsson about the Noida case.
Considering the above and the subsequent cross examination of Ericsson’s expert and other witnesses on correspondence shared between the parties during the negotiation phase, the Court held that Lava did not enter into these negotiations in good faith. The judgement does not state Lava’s expert witness’ testimonies and only makes a passing reference to it on the issue of August, 2014 meeting and Ericsson’s offer in March, 2015. The Court held that Lava purposefully delayed entering into negotiations by hesitating to sign an NDA with Ericsson, and that by insisting on access to Ericsson’s third party licensing agreements, Lava “blatantly” disregarded confidentiality attached to these agreements. Furthermore, the Court noted that Lava did not put forward any counter offer for the proposed royalty rates. Consequently, the Court held that Lava was an “unwilling licensee” here.
Some Pressing Questions on This Determination by the Court
It is pertinent to note that where the Court determined that Lava was an unwilling licensee on the basis of correspondence between the parties, almost every email has been redacted in the order. This redaction hinders in being able to assess or understand on the complete basis on which this determination was made. It is likely the case that the redactions were made for confidentiality reasons, however, given that nascent Indian jurisprudence on these questions, the order could’ve done better by explaining in some detail what it was in those emails that led to their conclusion, and what, if any metrics were used to determine the holding.
Secondly, playing the devil’s advocate here- how does one determine “non-discrimination” (from fraND) without having any sense of what rates others are being offered? To ask for similar third party agreements during negotiations to determine whether the rates offered are actually FRAND or not would normally make sense, right? Looking at the flow of events here- Ericsson offered their term sheet to Lava, then they proposed that Lava should accept the rates determined via an “interim” decision in another SEP litigation with Micromax, and then offered to have a split rate arrangement. But in all these proposals, it did not explain how its rates were FRAND in nature. That is to say, how it was Fair to both parties, Reasonable in its economic demands, and Non Discriminatory in its application across different licensees. Though later the rates in these comparable agreements were held as FRAND by the Court, for doing so Ericsson had to place these agreements on the record.
If the Court required those agreements to make this assessment, how does a party make this same assessment without those agreements? It may or may not be possible. And if Ericsson is bound by NDAs, it becomes a catch-22 situation. In our opinion, the decision fails to acknowledge and discuss these possible internal contradictions, which becomes especially significant considering the Court went on to choose a higher royalty rate for Lava, stating the reason as Lava being unwilling. .
Looking at the response of Ericsson’s witness to one of the questions (Q. 145) during the cross examination, they agreed that third party agreements can be shared, if these third parties consent to such sharings or if there is a court order mandating Ericsson to share these agreements. This makes us wonder whether this will lead to even more SEP litigation in the future and add on to the workload of courts?
Additionally, in the present case these agreements were put forth during the trial stage and were relied on for the final calculation of damages. But if these agreements are so crucial in terms of determining the global FRAND rates and decide on damages then shouldn’t these agreements be relied on earlier stages as well like while determining pro-tem rates? Also, these agreements were used to conclude that the rates offered by Ericsson were on FRAND terms, but a comparative assessment of the agreements only proves that they were non discriminatory. What about fairness? The decision uses the term FRAND colloquially but does not explain how or if these rates were fair. This makes us wonder if one can be a willing licensee with asymmetrical information? In contract law, incomplete or hidden material information accounts as misrepresentation which is a ground for voidability of the contract. How does this factor here?
On the issue of delay in signing the NDA, the decision simply states that Lava delayed in signing it but does not indicate what would be a reasonable time frame within which these agreements should generally be signed, or whether Ericsson’s refusal to share details that Lava requested should be considered as relevant factors or not – keeping in mind that this order as precedential value and future orders may look to these factors. In our opinion, the order could’ve benefited from discussion of what could be considered “justified refusals”, to lessen the scope for arbitrary usage of this as precedent, going forward.
At the same time, we also want to highlight that regardless of Ericsson’s justified or unjustified non-disclosure, Lava also failed to make a counter proposal, which is a key ingredient to determine the willingness of the parties. Our point here is not about the outcome, (which would likely have been the same) but the process.
In Part II of the post, we’ll discuss how the Court used the FRAND rate to compute the damages against Lava.
The authors would like to thank Dr. Victor Vaibhav Tandon for his inputs on the post. Please note that the inputs shared by Dr. Tandon were his alone. The views expressed in this post by the authors’ are theirs alone.