Intersection between Intellectual Property (IP) and Competition Law

With a growing buzz around how IP and Competition law interface with each other, instances when they can be coupled by Defendants to raise concerns/defense arguments, as to how and when investigations can be initiated through the Competition Commission of India (CCI), are becoming critical and hence need clarity at all ends. This piece is a small step towards the same.

Introduction

Covered under the Competition Act, 2002, a key objective of the CCI is to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. As its key areas of focus, the CCI aims to prohibit a) anti-competitive agreements, b) abuse of dominant position, along with c) regulating combination of enterprises (such as mergers and/or acquisitions) at large.

In order to initiate an inquiry, the CCI can either inquire into any alleged contravention of Section 3(1) or 4(1) on own its own or on receipt of relevant information from a person/consumer/trade association or based on receipt of information from Central Govt. Following step-wise flowchart helps explain, at a high level, the process followed by the CCI post receipt of potential anti-competitive activity information:

Step 1: Receive Potential Anti-Competitive Activity Information (Complaint)

Step 2: Understand Market Parameters Relating to Activity (Section 19(3))

Step 3: Understand Attributes of Enterprise under Scanner (Section 19(4))

Step 4: Understand Relevant Geographic Market and Product Market Factors (Section 19(6) and 19(7))

Step 5: Undertake Inquiry to determine whether the Activity Information causes adverse effect on competition in India

Step 6: Issue order directing discontinuance of agreement/imposition of penalty/modification of agreement/other appropriate orders

Intersection of IP and Competition law is observed when there is an imbalance between the exclusivity rights accorded by IP law and anti-competitive practices that the Competition law tries to protect, and therefore cases such as Ericsson vs. Micromax, where on one hand, Ericsson attempted to enforce its Standard Essential Patents (SEPs), and Micromax, on the other hand, contended anti-competitive practice by Ericsson based on the nature of royalty practices that Ericsson tried to impose on the Defendant (along with other issues of patent bundling, coaxing informant to enter into one-sided NDA), is just one among the growing number of examples where the interface between the two laws is strengthening.

But before coming to know of all that, as a background, in the Competition Act, 2002, as amended by the Competition Amendment Act, 2007, section 3, sub section 5, clause (i) in chapter II relating to Prohibition of certain agreements, states: -“Nothing contained in this section shall restrict -(i) the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under: – (a) the Copyright Act, 1957 (14 of 1957); (b) the Patents Act, 1970 (39 of 1970); (c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999); (d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999); (e) the Designs Act, 2000 (16 of 2000); (f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000).’

In context of IPR’s, Section 4 of the Competition Act would be considered to be abused when an IPR holder is involved in:

(i) directly or indirectly, imposing unfair or discriminatory condition or price;

(ii) limiting or restricting production of goods or provision of services or market;

(iii) limiting or restricting technical or scientific development to the prejudice of consumers;

(iv) denies market access in any manner;

(v) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts;

(vi) uses its dominant position in one relevant market to enter into, or protect, other relevant market.

As can be seen, relevance of points (i), (ii), and (iv) are compulsory licensing (CL) provisions of the Indian Patent Act, 1970, wherein among the three grounds for filing of the CL, one ground is non-commercialization/working of the patent in India, and another one being on restrictive pricing.

Understanding the Intersection

Standards being technical requirements or specifications aiming to provide a common design for a product or process, are adopted by Standard Setting Organizations (SSOs) (which can be governmental, quasi-governmental or private). These set up, develop, coordinate, interpret and maintain standards. The Bureau of Indian Standards (BIS) is India’s SSO. SSOs play a vital role in the interaction between standards and intellectual property rights and most of the times, the technology required to achieve a standard is protected by Patents. And the patents without which a standard cannot be achieved (in any way), are termed as “Standard Essential Patents” (SEPs). So in these cases, the patentees, already enjoying the usual exclusionary rights over the patented technologies, have an extra-added benefit by virtue of their technologies becoming essential to standards or SEPs. Thus, SSOs are seen implementing IPR Policies that require members to disclose all their IP related matters and to license their SEPs under FRAND Terms (Fair, Reasonable and Non-Discriminatory). However, the varied interpretation of “FRAND Terms” along various jurisdictions has led to expensive litigations world over. India too, has seen a recent rush of SEP litigations, with over ten lawsuits being filed over a span of two years.

In an aspect, Section 3 sub section (5) of the Competition Act declares that “reasonable conditions as may be necessary for protecting” any IPR will not attract Section 3, wherein the expression “reasonable conditions” has not been defined or explained in the Act per se. However, common sense may prevail in most circumstances to determine whether an act of a Licensor/Patentee is reasonable, wherein, for instance, if the royalty/upfront demanded is more than industry standards or is not based on rational logic, or is varied by the Licensor considerably across different geographies without any territory-based rational, or for that matter, if the Licensor removes any IP infringement liability falling on him/itself, among other like conditions, unreasonability of the agreement can be substantiated. Comparative assessment and difference in stands taken by a patentee/licensor across different jurisdictions can always be incorporated while making a complaint against the patentee for unreasonable terms.

Some exemplary IP (Patent) interfacing cases that have been handled by CCI and other courts of jurisdiction have been highlighted below for better appreciate of the current position.

Ericsson vs. Kingtech

In 2011, Ericsson, a Swedish multinational corporation, filed an application before the Commissioner of Customs, complaining about the import of goods by one Kingtech Electronics (India), claiming that the goods infringed several of their SEPs in AMR Codec (Adaptive Multi-Rate) technology. This was the beginning of all the SEP litigations in India. Subsequently, when consignments belonging to Kingtech were detained by the Customs Authorities, Kingtech approached the Delhi High Court challenging that the Commissioner had detained the goods with no appropriate reason to ascertain that the goods actually infringed the patents as claimed by Ericsson. It was also alleged that the Commissioner of Customs was not competent to make such determinations. In answer, the Delhi High Court ruled that while the Commissioner’s order did not show any application of mind with regard to the claims he made (regarding infringement), Ericsson had also failed to follow due procedure, which was to approach a court of law to assert claim to its patents. Thus the Commissioner’s order was set aside and the court ordered the release of Kingtech’s goods. Ericsson consequently filed an appeal challenging the order before the High Court, which on July 2012, directed the Commissioner of Customers to pass fresh orders in the case, containing adequate reason to believe that Kingtech’s goods infringed Ericsson’s patents. This was followed by Ericsson taking a patent infringement suit before the Delhi High Court asking for an injunction against Kingtech, preventing the use, sale of any mobile phone that incorporated their patented AMR Technology. Consequently, by an order dated August 2013, the High Court directed Kingtech to refrain from importing any devices incorporating Ericsson’s AMR technology patents.

Ericsson vs. Micromax

The second instance of SEP litigation in India involved a suit filed in March 2013, by Ericsson against Micromax Informatics Limited, one of India’s largest phone makers. Ericsson claimed that Micromax had infringed eight of it’s SEPs on AMR, 3G and EDGE technologies, by selling mobile devices compliant with standards issued by the European Telecommunications Standards Institute (ETSI) and recognized by the Department of Telecommunications (DoT) in India. It was said that Micromax had not obtained licenses for said technologies from Ericsson under FRAND terms. Ericsson wanted permanent injunction, damages up to Rs. 100 crores and that Micromax render its sales accounts of mobile devices for years 2008-2012. By its order dated March 2013, the Delhi High Court granted interim relief to Ericsson and directed Micromax to make interim royalty payments. The Court also in addition allowed Ericsson to inspect every consignment for Micromax that arrived at Customs. The parties were then directed to negotiate on FRAND licensing terms for the technologies in question on and an arbitrator was appointed for the same matter. Later in November 2013, Micromax filed a complaint before the Competition Commission of India (CCI) claiming that Ericsson had abused its dominant position in the market by imposing exorbitant royalty rates for licensing its GSM technology under FRAND terms. The CCI found the claim made by Micromax to be valid and ordered an investigation on November 2013, which was subsequently challenged by Ericsson before the Delhi High Court. The jurisdiction of the CCI to investigate the actions of Ercisson was asked in question. The court, in furtherance, in its interim order dated January 2014, ruled that the CCI had indeed entered into an adjudicatory and determinative role by recording a detailed and substantial reasoning at the very initial stage, which was to order the Director General to conduct investigation. The court disallowed the Director General from contacting Ericsson officials stationed abroad, but the officials in India could be contacted for the purpose of investigation, and also restrained the CCI and Director General from passing any final orders till the proceedings of the Court is completed. The Court also directed that CCI’s order should not interfere with Ericsson’s negotiations with other third parties. Thereafter, the Delhi High Court in the judgment dated November 2014, fixed new royalty rates as interim arrangements till the time the trial of the suit was pending. The court also set December 31 2015 as the deadline for a decision in the suit. However, recently Ericsson had approached the court stating that Micromax was not paying, and it was dodging the orders by selling the handsets through a separate company floated by it, and Micromax was arguing that the order pertained to Micromax and not the entity through which the devices were being sold. This contention of Micromax was rejected by the court, also issuing bailable warrants against the chief owners. Lawyers for Ericsson debated in detail in the court inDecember 2015 that Micromax was trying to defeat the orders through a new venture and the new firm was just a tool to keep infringing the patents. Micromax opposed the allegations, contending that YU Televentures was a separate legal entity and was not bound to pay royalty. However, as the situation stands now, Micromax will have to pay royalty on sale of phones through YU Televentures also (of which Micromax owns 99.98% stakes). Micromax co-founder Vikas Jain told that the company is going to pay in dissent, meaning it would pay, pending the final judgment on the dispute, which will be delivered by the court. The Delhi High Court will resume hearing on the case on January 11, 2016.

Ericsson vs. Gionee

The third SEP litigation yet again involves the suit filed by Ericsson against Gionee and claiming infringement of the same SEPs over which Micromax was sued earlier. In October 2013, the Delhi High Court ordered Gionee to make interim royalty payments for its sales in India. The royalty rates were set on the basis of the interim royalty rates awarded to Ericsson in March 2013 in the patent infringement suit against Micromax.

Ericsson vs. Intex

The fourth in the series of litigations involving Ericsson began with a complaint filed against Ericsson before the CCI in September 2014 by an Indian phone maker, Intex Technologies. It alleged that Ericsson demanded exorbitant royalty rates (in comparison to the cost of the product to the user) and used unfair terms to license its SEPs (GSM technologies) to Intex. On January 2014, the CCI ordered for a clubbed investigation into Ericsson’s actions, based on allegations made by Intex as well as Micromax. And just like in Micromax’s case, this order was also challenged by Ericsson before the Delhi High Court, who on February 2014 ruled that the CCI had entered into a determinative process at the initial stage of investigation and imposed restrictions on the CCI and Director General similar to those that were imposed in the Micromax case. Thereafter Ericsson filed a patent infringement suit against Intex for infringement of the same SEPs. During the proceedings, Intex told the court about a similar case which happened before the Court of Rome, where all of Ericsson’s claims against mobile manufacturer ZTE had been rejected by the court who challenged the very presumption of essentiality of Ericsson’s patents. The Court of Rome had observed in that case that in order to assess the claim of essentiality, it would be necessary to examine the patents, which was too complex an analysis for the purpose of interim proceedings. Then the Roman Court held that even if it were to be assumed that the patents asserted were indeed “essential”, Ericsson would not suffer irreparable harm since the primary issue between the parties was pecuniary or money-related in nature. Thus Ericsson had to drop all the suits instituted against ZTE and settle the matter. But in contrary, the Delhi High Court refused to accept Intex’s challenge to the validity of the SEPs as a ground for rejecting Ericsson’s request for injunction. The court said that Intex in spite of being notified of the SEPs way back in December 2008, never questioned their validity over the years and this was enough evidence of validity of the SEPs (on grounds of Estoppel). Further based on contradicting statements made by Intex before the CCI and Court, regarding the validity of the SEPs, the court concluded that the SEPs were prima facie valid. The court took the view that Intex had initiated proceedings before the CCI just to prolong litigation by avoiding to pay the royalty. While granting royalty rates (in line with those granted in the infringement suit against Micromax on November 2014), the Court directed Intex to pay 50% of the royalty due from the date of the lawsuit till March 1 2015, directly to Ericsson. The remaining amount was to be paid by Intex with a bank guarantee within four weeks. These terms were to apply every six months until the disposal of the suit is complete. Intex was also restrained from importing goods that were infringing Ericsson’s SEPs.

Ericsson vs. Xiaomi

In December 2014, Ericsson filed yet another suit against Xiaomi before the Delhi High Court, alleging infringement of the same 8 SEPs that Micromax and Gionee were sued over for. Ericsson contended before the Court that despite requesting Xiaomi to license the SEPs, Xiaomi launched their infringing devices in India in July 2014. Ericsson was granted an ex-parte injunction in December 2014 preventing the sale, manufacture, import and advertisement of Xiaomi’s devices. This injunction was subsequently challenged by Xiaomi before a Division Bench of the Delhi High Court, claiming that its latest devices sold in the Indian market used Qualcomm chips, which were in fact licensed by Ericsson. Accordingly, in a temporary order dated December 16 2014, the Court permitted Xiaomi to import and sell devices carrying Qualcomm chips, on the added condition that Xiaomi would deposit Rs. 100 as royalty for every device it imported to India from the date of the launch of the device in India to January 5 2015. The matter is still pending before the High Court of Delhi.

Ericsson vs. iBall

In November 2011, Ericsson issued a letter to iBall stating that the iBall mobile devices were infringing Ericsson’s patents, the same 8 SEPs (over which Micromax, Gionee, Intex, and Xiaomi were later sued). Ericsson also offered to discuss a FRAND licensing agreement with iBall. On Ericsson’s proposal of entering into a global patent license agreement (GPLA), iBall agreed, but on the condition that details of its alleged patent infringements be disclosed to it. Ericsson replied that it could reveal the details only after entering into a non-disclosure agreement (NDA) with iBall. In subsequent communication with Ericsson, iBall contended that it was only a vendor importing products from China and selling them in India, and thus an “innocent infringer”, if it was one. Upon receiving the terms of the NDA, iBall brought the matter before the CCI, claiming that Ericsson’s refusal to identify the allegedly infringed SEPs, the threat of infringement proceedings, the attempt to persuade iBall to enter into a “one-sided and burdensome NDA”, tying and bundling patents irrelevant to iBall’s products by way of a GPLA (known as Patent Stacking) and demanding unreasonably high royalties by way of a certain percentage value of handset as opposed to the cost of actual patented technology, used all constituted abuse of Ericsson’s dominant position under Section 4 of the Competition Act, 2002. In May 2015, the CCI found prima facie abuse of dominant position by Ericsson and asked the Director General to conduct an investigation within 60 days. In the month of May 2015, Ericsson challenged the CCI’s order before the Delhi High Court on the grounds that the order was “arbitrary in nature and without jurisdiction”. In September 2015, the court ordered that the Director General of the CCI shall not submit a report of the investigation or pass a final order in the case before the CCI. In the same order, the Delhi High Court observed that iBall had not entered into a licensing agreement under FRAND terms despite Ericsson’s willingness to do so. It also found that iBall was aware of Ericsson’s portfolio of standard essential patents pertaining to GSM, GPRS, and WCDMA standards. The court held that as the infringing technologies are “standards”, and there exists no substitute for them and thus these technologies are necessarily used by iBall’s telecommunication devices. Hence iBall’s plea of not being aware of the violations was dismissed. The court also passed an interim injunction against iBall in light of interim orders passed in the matters of Ericsson vs. Xiaomi (December 2014), Ericsson vs. Gionee (October 2013), and Ericsson vs. Micromax (March 2013). While the injunctions imposed on Xiaomi and Micromax were on the sale, manufacture, advertisement and import of their devices, iBall and its agents and affiliates have been restrained from only importing devices that are allegedly infringing in nature. The court also held that without an interim injunction, Ericsson would suffer irreparable losses. The injunction against iBall would last from September 9, 2015 to the date of the next hearing at the Delhi High Court. But as the recent developments are to be believed, iBall and Ericsson have settled the dispute outside the court, and the agreement directs iBall entering into a licensing agreement with Ericsson. “The parties have executed a Global Patent Licence Agreement (GPLA), which settled the disputes in the patent infringement lawsuit. Under the terms of the GPLA, the parties consented to dismissal of the patent infringement lawsuit by the Court, which finally occurred in November,”.

Ericsson vs. Lava

The most recent litigation involves a case against Lava International Limited, where Ericsson once again claimed its SEPs relating to AMR, GSM and EDGE technologies. At the first couple of hearings, Lava International claimed that Ericsson refused to reveal information about its agreements with other parties. While the suit is still at its initial stage, the parties have been directed to make efforts towards resolving their dispute but have failed to do so and thus the matter is now scheduled to be taken up on merits.

In addition to the Ericsson lawsuits, other SEP infringement lawsuits include those filed during 2013 and 2014 by Vringo Infrastructure, a wholly owned subsidiary of the Vringo Corporation in USA. These are summarized herein.

Vringo vs. ZTE

Vringo Infrastructure Inc. and Anr vs. Xu Dejun and Others

Vringo filed a suit against ZTE, its CEO Xu Dejun and its Indian subsidiary ZTE Telecom India in November 2013 over the alleged infringement of its patents, which is engaged in the development and monetisation of intellectual property and mobile technologies. ZTE manufactures products and provides services in the telecom infrastructure, equipment, systems, mobile phone and telecom software sphere. The Delhi High Court granted an ad-interim ex-parte injunction on the manufacture, import, sale, use, or advertisement of ZTE’s infringing products. ZTE challenged the injunction, which was lifted by the court on December 2013. ZTE was directed to pay a bank guarantee of Rs. 5 crores, along with an affidavit containing details of devices sold in India. The Delhi High Court agreed for appointment of a Scientific Advisor from the list drawn by the parties.

Vringo Infrastructure Inc. and Anr vs. Indiamart Intermesh Ltd. and Others

Vringo and Vringo Infrastructure filed another patent infringement suit in the Delhi High Court in January 2014, against ZTE, ZTE’s Indian subsidiary and Indiamart, a distributor of ZTE’s products. In February 2014, the court granted an ad-interim ex-parte injunction restraining ZTE from importing, selling, advertising, installing or operating devices that comprise the infringing components. It also appointed local commissioners to inspect ZTE’s premises and instructed customs authorities to detain ZTE’s shipments that may contain such devices and to notify Vringo about them. In March 2014, ZTE appealed against the injunction, which was lifted on August 2015 with ZTE being ordered to deposit Rs. 17.85 crore to the court. The affidavit of Expert submitted by Vringo was rejected by the Delhi High Court and a Committee of three Professors was appointed by the Court.

Vringo vs. Asus

In April 2014, Vringo filed a third patent infringement suit against AsusTek Computer Inc., one of its distributors in New Delhi, Nuage Techsol Pvt. Ltd. in the High Court of Delhi. In this suit Vringo claims infringement of a Non-SEP by AsusTek. No interim Order has been passed in the matter till date.

Concluding Remarks

The motivation theory for the protection of IPR rewards the inventor by giving him a monopoly right for a limited period of time. Competition law on the other hand acts against monopoly rights which are abusive in nature. Competition law seeks to enhance the market conditions by more choice and competition in the market. Intellectual property rights appear to go against this principle leading to possible conflicts between these two areas of law. Competition law can play a proactive role in arresting the abuse of monopoly rights granted by IPR. At the same time IPR monopolies are meant to facilitate further innovation and thereby boost further competition in the market. A dominant position in the market per se is not prohibited, but its abuse goes against competition provisions. India can use the compulsory licensing provision in case of excessive pricing of any products including patented softwares and technology. Tying arrangements between the producers and dealers should be dealt with using the competition provisions. The CCI should come up with specific guidelines in dealing with cases involving both competition and intellectual property. The interaction between intellectual property and competition policy is neither conflicting nor is it aimed at replacing the other. Rather the two streams of law are complementary and supplementary to each other. The courts have now settled the principle that the ‘interest of the consumer and competition in the market’ is of supreme importance and cannot be sacrificed at the cost of the right holder, and thus should come up with some balancing universal solution to the rising issue between IP and Competition.

References

1. K D Raju, The Inevitable Connection between Intellectual Property and Competition Law: Emerging Jurisprudence and Lessons for India, Vol 18, March 2013, pp 111-122.

Admin, An overview of Standard Essential Patent litigations in India, June 29, 2015.

About the Author: Mr. Tarun Khurana, Partner and Patent Attorney in IIPRD can be reached: [email protected] and Abin Sam, an intern at Khurana and Khurana, Advocates and IP Attorneys.