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Standard Essential Patents - The Philips judgement & unanswered questions


By Sutapa Jana

Koninklijke Philips Electronics N.V. (Philips), being one of the first Standard Essential Patent holders to initiate SEP litigation in India, has secured a major victory in what is believed to be the first ever ‘post-trial’ judgment in an SEP litigation. Though the judgment has been embraced with enthusiasm by many, some important questions still remain unanswered.
 
On July 12, 2018, Hon’ble Delhi High Court delivered a judgment in favour of Philips in the consolidated matters namely Koninklijke Philips Electronics N.V. vs. Rajesh Bansal & Ors., [see End Note 1] and Koninklijke Philips Electronics N.V. vs. Bhagirathi Electronics & Ors. [see End Note 2] After a long trial, the defendants were found liable for infringement of Standard Essential Patent (SEP) of Philips. The Defendants were directed to pay damages, and one of the Defendants was directed to pay punitive damages as well.
 
Facts

Phillips had filed two suits against the defendants, K.S. Negi, Manglam Technology in one suit; and Bhagirathi Electronics, Big Bazar and Home Solutions Retail (India) Limited in another suit, for the infringement of its essential patent i.e. Indian Patent No. 184753, on DVD Video Player, seeking the reliefs of permanent injunction, directions to the defendants to provide complete details, delivery, rendition of accounts, damages, etc. However, during the interim stage, there was a reshuffling of defendants whereby the remaining contesting defendants in the two suits were Rajesh Bansal and KK Bansal who were running the manufacturing proprietorship concerns namely Mangalam Technology and Bhagirathi Technology, which manufactured the infringing DVD players under various bands such as “Soyer”.

The patent i.e. Indian Patent No. 184753, titled as, “Decoding Device for converting a Modulated Signal to a series of M-Bit Information Words”, was on Channel (De)coding technology used for DVD Video Playback function in a DVD Video Player. The invention concerned ‘channel modulation’ technology which involved a coding step that is performed directly before the storage of the data in a DVD Video Player. This coding ensures that the data to be stored on the disk has a particularly suitable structure for storage. The decoding of 16-bit code words to 8-bit information words is performed by “looking ahead” to the next code words. It was claimed that the impugned patent was an essential patent of the plaintiff corresponding to US 5696505 and EP 745254B1, which had been already declared as essential.

Since the suit patent was an essential patent, any party interested in manufacture of DVD Video players ought to have sought licenses for all essential patents of the patent pool. In this regard, Phillips offered two types of patent licenses to DVD Video players manufacturers, in one type of licensing, i.e., the PHILIPS ONLY type, only patents of Philips were offered and, in another type, i.e., the JOINT version, under which patents of Philips, Sony, Pioneer and LG were offered.

Phillips alleged that the defendants were engaged in manufacture, assembly and sale of DVD Video players under various brands which essentially employ Decoders especially meant for decoding contents stored on optical storage media in accordance with the methods described in IN-184753, thus infringing the suit patent.

Contentions of the parties & observations of the court:

To prove proprietorship of suit patent no. 184753, Phillips exhibited the certified copy of the certificate of patent registration along with a certified copy of the complete specification of the patent suit. The contention of the defendants was that the suit patent pertained to an algorithm and thus not an invention under Section 3(k) of the Act. However, the argument raised by the defendants was not considered by the Court as there were neither any pleadings, nor any evidence presented by the defendants in the written statement.  Hence, issues related to proprietorship of the suit patent and also validity of the patent were decided in  favour of the plaintiff.

On the issue of essentiality of the impugned patent, the Court relied primarily on the essentiality certificates of the US and EP Patents. It was observed that claims in the US and EP standard essential patents were similar to that of suit patent. Also, the Court considered that DVD Forum Standard (formulated in 1996) was adopted by the independent standard setting body ECMA in April 2001 and was termed as ECMA Standard No. 267, 3rd Edition – April 2001 for 120 mm DVD – Read Only Disc. In 2002, this said standard was also adopted by the International Standard Organization as ISO/IEC 16448:2002– Information Technology – 120 mm DVD – Read Only Disc. Defendants argued that the ‘standards’ were internal documents of the plaintiff. This was rejected because both the standards i.e. ECMA and ISO were present in public domain and could be easily accessed by any one. The Court considered the said documents to be relevant evidence. Further, one of the defendants had previously taken a license in respect of suit patent from Philips and another had applied for such license. This also strengthened the ‘essentiality’ argument of Philips. Court finally upheld that the suit patent was a SEP.

On the question of infringement of the suit patent, the defendants submitted that they assemble DVD players with parts purchased from legitimate sources including the chip. Accordingly, by virtue of doctrine of exhaustion they were not liable for infringement. This plea of the defendants was rejected by the Court as they failed to prove by evidence whether said “legitimate sources” from which they had purchased the parts of the DVD Players were valid licensees of Philips.

In addition, the Court observed that a decoding device is an integral part of a DVD player and in the absence of a decoding device the information embedded by way of the codes cannot be read and transmitted/received. Accordingly, the plaintiff had proved use of patented technology by defendants independently by way of its evidence and cross-examination of the defendants’ witnesses wherein it was found that the defendants’ DVD video players used the EFM (eight to fourteen modulation) + Demodulation techniques.

Defendants argued that they were unaware of the DVDs sold by the plaintiff and the licensing programs of the plaintiff.  Court held that the plaintiff is the holder of a standard essential patent even if the defendants had no knowledge of the licensing programme they were bound by law to take the license from the plaintiff.

Therefore, in view of all the above facts and circumstances, Court had no hesitation in holding that defendants’ products necessarily infringe the suit patent of Philips.

Defendants also alleged abuse of dominance against Philips. However, the Court placed reliance on Telefonaktiebolaget LM Ericsson (PUBL) vs. Competition Commission of India and Ors. [see End Note 3] and held that the same is beyond the scope of present enquiry as abuse of dominance is solely within the purview of the Competition Act and a civil court cannot decide whether an enterprise has abused its dominant position. 

Strangely, on the issue of reasonable royalty rates (FRAND), there was no serious challenge to the rates proposed by Philips which is why the Court found the rates to be reasonable. According to the Court, claim of the plaintiff to the entire patent pool in the DVD player cannot be said to be unreasonable even if the claim in the suit patent IN-184753 is restricted to the decoding device, since the same is an integral part of the DVD player and without which the DVD player cannot function. The Court also relied on Commonwealth Scientific and Industrial Research Organization vs. CISCO Systems, Inc., [see End Note 4] and observed that generally, an entity that procures the license of the plaintiff’s essential patent,  is required to pay as per the FRAND/compliant rate. In the present case, the plaintiff demanded royalty on only FRAND rates. As the suit patent had expired on 12th February 2015, permanent injunction could not be awarded. However, the defendants were directed to pay royalty to the plaintiff @ USD 3.175 from the date of institution of the suits till mid-2010 and after that @USD 1.90 till patent expiry in 2015 with interest @10% annually. In light of the same, the Court appointed a Local Commissioner to inquire into the number of video players manufactured or sold by defendants during the relevant period.

Additionally, Court found that one of the defendants was an ex-employee of the Philips and was well aware of the suit patent and infringed the same with impunity. Thus, said defendant was directed to pay punitive damages of Rs.500,000 to the plaintiff.

Also, a decree of actual cost of litigation including lawyer’s fee, the amount spent on Court fee and the Local Commissioner’s fee was also awarded in favour of the plaintiff.

Conclusion:                

While this judgment on Standard Essential Patents is important because it is the first such judgement after a complete trial, the questions regarding the procedure for establishment of essentiality, determination of FRAND rates are yet to be answered. This is because the defendants did not raise any serious challenge to the essentiality or validity of Philips patent.  Similarly, the Court did not have to lay down the principles regarding determination of FRAND terms and royalties because the defendants failed to raise any defence on these issues.  Further, it also remains unanswered whether royalty can be paid on the basis of smallest saleable patent practicing unit i.e. whether the royalty is to be based on price of final product or the component containing the codec alone.  Thus, some critical issues pertaining to an SEP litigation are yet to be adjudicated by the Indian Courts.

[The author is a Senior Associate in IPR Practice Team, Lakshmikumaran & Sridharan, New Delhi] 
 
End notes:


1. CS (COMM.) 24/2016 initially filed as a ‘Civil Suit’ in 2009
2. CS (COMM.) 436/2017 initially filed as a ‘Civil Suit’ in 2009
3. W.P.(C) No. 464/2014 & W.P. No. 1006/2014                                      
4. Fed. Cir. Dec.3 (2015),

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