In an interesting development for SEP watchers, the Delhi High Court (DHC) passed a common judgement (Philips v. Maj. (Retd) Sukesh Behl) in three cases concerning allegations of infringement of a Standard Essential Patent relating to Philip’s DVD player technology. Filed in 2012, the decision comes after 13 years with the litigation having outlived not only the suit patent, and the DVD industry, but also the institution that declared it essential!! Interestingly this becomes the second full judgement on a Philips SEP concerning DVDs after Koninklijke Philips Electronics N.V. vs. Rajesh Bansal And Ors. While some are saying this contributes towards India being favourable for SEP holders, it is difficult to share the same belief, given the sheer timeline.
The suit patent, a “Method of Converting Information Words to a Modulated Signal” concerns EFM+ technology, which as explained in the judgement, enables the encoding of 8-bit information words into a 16-bit code, providing an efficient system of transmission. It is one of the nine essential patents on DVD replication in India by the DVD Forum, the relevant consortium here. In ruling against the defendants, the Court largely focused on their behaviour, and went on to institute damages, costs and a retrospective royalty rate of $0.03 (and an interest of 12%) on the value of the end product i.e. DVDs. The judgement seems to be a mostly well-reasoned one regarding the questions of infringements and one that patent holders are likely to appreciate. However, we do see some questionable findings on the imposition of litigation costs on the defendants. Another thing that has largely gone unnoticed by many commentators is that this dispute highlights yet another instance where a Patent Agent missed filing crucial documents and the applicant almost had to face the music because of that.
Barrage of Charges
After Philips had taken them to court for infringement, the three defendants- Pearl Industries, Siddharth Opticals, and Powercube Infotech argued that they do not use Philip’s process in their activities and instead, had outsourced its performance to a third party. They further challenged the validity of patents on multiple grounds- non filing of information about foreign applications, suit patent being barred under Sections 3(m) (as it performs a mere mental act), and 3(k) (as it is merely a computer programme), that the suit patent is not novel, and that it does not sufficiently and fairly describes the invention.
Finding on Infringement and Damages
The Court found inconsistencies in the defendant’s pleadings and arguments. The Court noted that during the final arguments, the defendants tried to deflect the liability by arguing that the patented process was outsourced to Moser Baer who was an authorized licensee of Philips. This was contrary to their pleading where the Defendants had specifically denied that Moser Baer had a valid license to undertake replication. The Court dismissed the defendants’ allegations on invalidity of the patent and held that regardless of whoever carries the protected process, the end product i.e. the replicated DVD, falls under the patented claims, rendering the defendants liable for infringement.
The Court also took note of the Defendants’ behavior before and during the trial. They held them liable for not taking necessary licenses from Philips initially and then for dilly-dallying and eventually not producing material information about the scale of their infringing activities. This led Philips to reach out to a third party- Moser Baer, to share the information supplied to the defendants by them. The Court took all of this into account while imposing damages and costs on the defendants.
Costs and Damages
The Court took a heavy handed approach towards the defendants and imposed- damages for the royalties lost along with the interest, aggravated damages for misconduct, and also directed the defendants to bear litigation costs for Philips.
Damages on Royalties Lost– This is a fairly common practice in SEP disputes where we have seen Courts calculate damages based on royalties lost to the SEP owner. (for instance in cases such as Unwired Planet, and Lava International). In the present case due to the non-availability of information on the number of DVDs produced by the defendants, the Court principle of adverse inference and relied on the available information providing definitive figures-
- like Moserbaer’s submission on the number of samplers sold to the defendants, the submissions made by the Defendants before the Registrar of Companies, and the information given on their promotional material.
- On the number of DVDs that can be replicated from a sampler, the Court assumed 10000 DVDs, considering no evidence on this could be produced.
- For the period of calculation of damages, the Court decided to calculate the damages for three years before filing the suit till the expiry of the suit patent (12th February 2025).
For royalty rates, it accepted the ones in the Standard DVD License Agreement (USD 0.03).
Interest – As compensatory damages, the Court also imposed a 12% interest rate on the damages to be paid by the defendants, without specifying how it calculated this rate. Justifying this interest the Court asserted that this is “a recognition that money has a time value” and seemingly granted it owing to Philips’ time lost in litigation because of the defendants’ wilful and continued refusal to compensate it.
Aggravated Damages– In addition to the damages and the 12 percent interest rate, the Court imposed INR 1 Crore as aggravated damages on the defendants. These damages were imposed on the defendants for concealing material information about their activities during the trial and for wilfully infringing Philips’ patent.
Litigation Costs– Lastly, the Court ruled that the defendants should also bear the litigation costs for the defendants. These were imposed on the defendants for misleading the Court by changing their litigation strategy and defences throughout the trial, prolonging litigation, causing volumes of documents to be filed before the Court, delaying the litigation to deny the plaintiff the benefit of injunctive relief, the Court directed the defendants to bear litigation costs for the plaintiffs. The Court acknowledged that while a party is eligible to contest a claim, in the present case the defendants tried to obstruct the litigation rather than substantive engagement with the issues.
The assessment of engagement vs obstruction doesn’t sit right. For instance, the defendants raised an important argument about Philips’ non-filing of Section 8 information. So would it be fair to hold that the defendants were trying to obstruct the litigation or waste the Court’s time over this? Similarly, the Court held the defendants liable for Philips’ inability to obtain an interim relief. But if the Court believed that Philips had a prima facie case and it met the other criteria of interim injunction (balance of convenience and irreparable damages), it could have granted an interim injunction to it. Or the Court could have directed the defendants to furnish security bonds during the trial, an alternative that has been discussed previously on the blog here.
What about Disclosure Requirements under the Patent Act?
The case also showcases yet another instance where owing to a patent agent, an applicant failed to furnish crucial information. While challenging the patentability, the defendants argued that Philips failed to furnish information about its corresponding foreign applications filed in Malaysia, Turkey, Taiwan, the US, and Europe, and thus, the suit patent should be revoked. During the trial, Philips proved that the failure to submit this information was due to an oversight by its patent agent and that it had furnished all the information to him. The Court specifically noted Philips’ failure to disclose information about its foreign patent applications u/s 8 is a clerical error. Additionally, the Court held that the defendants failed to establish that Philips knowingly withheld any material information that would have altered the grant of the patent.
As a quick recap, Section 8 mandates that the applicant furnish information to the Controller about its foreign patent applications corresponding to its Indian patent application before the grant of a patent by the Indian Patent Office. This safeguard is necessary since it keeps the Indian Patent Office informed about the stances taken by the applicants in its foreign patent applications abroad and keeps a check on their activities. As noted by Prof. Basheer, this provision along with Section 3(d) has the potential to give sleepless nights to the patentees, because the failure to furnish this information can result in revocation of the patent under Section 64 (1)(m). However, over the years the effectiveness of the provision has been significantly diluted by judicial interpretations and executive amendments.
Coming back to the case, the Court regarded the oversight on the part of Philips as a clerical error and attributed the same to complexities arising out of the dynamic nature of patent portfolios across multiple jurisdictions. Co-incidentally, the lenient interpretation towards this provision was adopted by the Delhi High Court in previous orders passed in this case (see here for the single judge order and here for the division bench’s affirmation of the same) and the judgement adopted a similar reasoning, coming full circle. Interestingly, the Court noted that Philips filed the correct information as soon as it discovered the lapse on its part. However, the erring letter was dated 16th July 2004 and the complete information was shared on 14th September 2012 (more than 8 years after the submission, which was even after the date of filing the suit (24th July 2012!).
The judgement adds to the argument of India as a favorable jurisdiction for the SEP related disputes, after the heavy damages in the Ericsson v. Lava case. However, even as we ensure patentees rights are appropriately safeguarded (as they well should be), we have seen time and again institutions facing the issue of lapses on the part of the patent agents (see here, here, and more recently in Waterotor Energy v. Union of India). Though this has eventually led to the introduction of certain reforms within the system (see here and here), it is crucial to understand that these clerical errors should not dilute the importance of the Section 8 safeguard in light of the dynamic nature of patent portfolios across jurisdictions.