Ericsson, world’s biggest telecom network equipment maker few months ago filed a patent infringement suit against Micromax, one of India’s largest domestic mobile handset manufacturers for allegedly infringing 8 of its telecom patents for a range of wireless technologies, including 3G, AMR and Edge
The suit, filed at the Delhi High Court, involves a huge claim of Rs. 100 crores made by Ericsson by way of damages, which made it so far one of the biggest cases of its kind in in terms of damages sought in a patent suit in the Indian IT and Telecommunications sector.
The Delhi High Court had granted an ex-parte interim injunction on the very first day even before Micromax could receive a legal notice that it had been sued.
The dispute in itself has been of considerable significance because it marked the arrival of patent wars on the Indian shores, with similar feuds between tech giants including Samsung, Apple, Google and Microsoft already going in courtrooms around the world.
It can be said that the Ericsson Vs Micromax case is the beginning of mobile patent wars in India. It is also speculated that it can be just a tip of the iceberg and other home-grown mobile manufacturers also have to fight it out with common essential patent holders like Ericsson.
This article throws a light on the development of this dispute which is of considerable significance and also talks about the first and only decision of a court actually fixing royalties for FRAND patents delivered recently by a U.S. District Court.
FRAND :WHAT IT IS EXACTLY
Reasonable and non-discriminatory terms (RAND), also known as fair, reasonable, and non-discriminatory terms (FRAND), are a licensing obligation that is often required by standard-setting organizations for members that participate in the standard-setting process.
Standard-setting organizations are the industry groups that set common standards for a particular industry in order to ensure compatibility and interoperability of devices manufactured by different companies.
Standard-setting organizations commonly have rules that govern the ownership of patent rights that apply to the standards they adopt. One of the most common rules is that a patent that applies to the standard must be adopted on “reasonable and non-discriminatory terms” (RAND) or on “fair, reasonable, and non-discriminatory terms” (FRAND). The two terms are generally interchangeable; FRAND seems to be preferred in Europe and RAND in the U.S.
Standard-setting organizations include this obligation in their bylaws as a means of enhancing the pro-competitive character of their industry. They are intended to prevent members from engaging in licensing abuse based on the monopolistic advantage generated as a result of having their intellectual property rights (IPR) included in the industry standards. Once an organization is offering a FRAND license they are required to offer that license to anyone, not necessarily members of the group.
Without such commitment, members could use monopoly power inherent in a standard to impose unfair, unreasonable and discriminatory licensing terms that would damage competition and inflate their own relative position.
Essential patents’ are basically declared as standards for the entire industry by standard-setting organizations on the premise that they will be licensed on fair, reasonable and non-discriminatory terms to anybody ready to seek such a license. Such an arrangement is a trade-off for the patentee because while it ensures that its patents are used by the entire industry, it will have to adhere to fair and reasonable terms
ERRICSON Vs MICROMAX :
ORDERS OF DELHI HIGH COURT :
On 19 TH March 2013 ,Delhi High Court, in the form of an interim order by Justice Manmohan, has issued an order to Micromax to deposit a certain amount of money, apparently in a bid to protect Ericsson’s monetary interests while the negotiations are continuing.
The deposit prescribed consists of category-specific royalties, such as 1.25% of the sale price for phones/devices capable of GSM, 1.75% of sale price for phones/devices capable of GPRS + GSM, 2% of sale price for phones/devices capable of EDGE + GPRS + GSM and for WCDMA/HSPA
[UMTS] phones/devices, calling tablets and finally, USD 2.50 for Dongles and data cards.The amount has to be deposited with the court. The decision to pay the said amount comes under the FRAND (fair, reasonable, and non-discriminatory terms) license agreement between the two companies.The court has also permitted officials from Ericsson to work with customs officers in the inspection of Micromax’s consignments to check for devices infringing Ericsson’s patents.The court had asked both the companies to negotiate a FRAND (fair, reasonable, and non-discriminatory) licence agreement which would be valid till the next hearing, and Micromax is said to have agreed to pay interim payment with the court.
AT PRESENT:
Micromax filed an appeal before a Division Benchof the Delhi High Court and the same was dismissed by the Bench the very same day with liberty to file a fresh appeal if the Single Judge did not hear Micromax’s defence within 30 days as required by the CPC. By the 19th of March, 2013 Micromax and Ericsson approached the Single Judge informing him that they had entered into an interim arrangement pending final disposal of the lawsuit. While both companies agreed on a long-term arrangement, they will sign a one-month fair, reasonable, and non-discriminatory license agreement” (FRAND) which stipulates between 1.25 percent and 2 percent of the sale price per device be paid as royalty.
The royalty rates for the technologies in question to be deposited are category-specific and set forth in the order as follows which is an an incredibly high rate
“A. For phones/devices capable of GSM : 1.25% of sale price.
B. For phones/devices capable of GPRS + GSM : 1.75% of sale price.
C. For phones/devices capable of EDGE + GPRS + GSM : 2% of sale price.
D. WCDMA/HSPA [UMTS] phones/devices, calling tablets : 2% of the sale price.
E. Dongles, data cards : USD 2.50″
The matter was then referred for meditation and Justice A.P. Shah (Retd.) was appointed as a mediator for proceedings where both parties were to make an endeavor to arrive a consensus royalty figure. On the date of the last hearing the matter was adjourned on joint request by both parties and posted for directions on 24th of May, 2013.
FIXING of FRAND ROYALTY RATE : A DIFFICULT DEAL
As an interim arrangement, Micromax agreed to pay Ericsson 1.25% to 2% on the sale price as royalty to Ericsson, an incredibly high rate . The fixing of FRAND (fair, reasonable and non-discriminatory) royalty rate has been most contentious in the telecom industry with numerous lawsuits and anti-trust complaints filed all over the world.
It has been seen over the last few years, that it is quite difficult for parties to agree on FRAND terms and the result is massive litigation, both from the perspective of patent law and competition law.
In the U.S. there has been considerable litigation on the ‘essential patent’, which are required to be licensed on FRAND terms – ‘Fair, reasonable and non-discriminatory’ terms (FRAND). ‘
The first and only decision of a court actually fixing royalties for FRAND patents was delivered by a U.S. District Court, on April 29th, 2013, in the context of the litigation between Motorola and Microsoft
Motorola was demanding around 2.25% which translated to between $3 to $5.13 per unit. These rates were deemed to be too high by the judge because of the royalty stacking problem and the final rate for the different technologies was fixed considerably lower than Motorola’s initial offer. For the wireless networking patents involved, the FRAND rate was fixed between 0.8 cents to 19.5 cents
The Microsoft v. Motorola decision of the US District Court for the Western District of Washington is the first authoritative guidance on fixing FRAND royalties.
