Dolby v. GDN Enterprises & Oppo

On 23rd November, a Single Judge Bench of the Delhi HC passed orders in Dolby International v. GDN Enterprises[1] altering its earlier order dated 27th October, 2016 on the rate of royalties payable by Oppo. The Delhi HC order in the instant case is significant because it reduced the earlier rate fixed by the Court on the ground that the earlier rate was being charged on Dolby’s entire portfolio of patents, many of which were not the subject-matter of the present dispute.

Background of the case:

Dolby (US company specialising in audio technology) recently filed a patent infringement suit in India for unauthorised use of Dolby’s patents by Chinese smartphone manufacturers, Oppo & Vivo (defendants).[2] In 20th October 2016, the Court passed an ex-parte interim injunction against the defendants restraining them from manufacturing/selling/importing devices which infringed Dolby’s SEPs. On 27th October, the Court ordered Oppo & Vivo to deposit interim royalties to the Court at the rate of INR 34 per handset sold/manufactured/imported in India by the defendants[3]; the amount for each month was to be deposited by the 8th of the succeeding month by the defendants. Indian entities, GDN Enterprises & Das Telecom (through which Oppo & Vivo did business in India) were impleaded as defendants in the suit; the order also stated that the defendants would enter into negotiations with the plaintiff, Dolby, over FRAND licensing terms. Subsequently, GDN filed an interim application (IA No.14417/2016) in the Court challenging the Court’s order for payment of interim royalties on the ground that GDN was no longer manufacturing for Oppo.[4] The other defendants (collectively ‘Oppo’) also filed an interim application (IA No.14492/2016) against the Delhi HC order challenging the royalty rate fixed by the Court. The Court heard arguments in both the interim applications on 23rd November.

Parties’ arguments & Court’s order in the instant case:

IA No.14417/2016-

The applicant/defendant, GDN inter alia argued that it was not liable to make payments to Dolby because Dolby in its suit had pleaded cause of action only against Oppo and not GDN. Therefore, GDN argued that finding cause of action against it would be wrong on the part of the Court since this was an adversarial proceeding as opposed to an ‘inquisitorial proceeding’.[5] The Court refused to hear the matter in the instant proceedings because GDN had failed to file the requisite affidavit.

IA No.14492/2016-

Oppo argued that Dolby had brought a case against the makers of Blackberry in the US involving the same patents/inventions that were the subject matter of the present suit. In the US case, Dolby in its pleadings had admitted that its patents were algorithms. Based on this, GDN argued that Dolby could not hold patents over those inventions in India since section 3(k) of the Patents Act, 1970 prohibits patentability of inventions which are algorithms. The Court was of the opinion that the section 3(k) argument could not be decided without allowing Dolby to file a reply as to whether Dolby had patented the algorithm in India or Dolby’s patent was in fact over the technology which incorporated the algorithm (permissible under Indian law).

Oppo next argued that the patent infringement suit filed by Dolby involved only 4 of Dolby’s patents whereas the royalty rates fixed by the Courts in its October order related to some 600 patents owned by Dolby. Oppo further stated that Dolby held only 8 registered patents in India and therefore, Oppo could not be made to pay royalty rates on Dolby’s entire portfolio of 600 patents. In response to this, Dolby argued that it was charging “similar FRAND rates from other manufacturers similarly placed” as Oppo; therefore, Dolby contended that this was an international practice and cited a judgment of the District Court of Germany to support its contention. Dolby further relied on the Ericsson case where interim royalties had been ordered on the entire portfolio of patents. Dolby also stated that in Ericsson the Court had (prior to its order) determined whether for use of a patent, the rates prescribed for the entire family can be directed to be paid” and decided in the affirmative.[6]

The Court agreed with Oppo’s arguments that royalties should be payable on the patents involved in the case and not on the entire portfolio of Dolby’s patents. The Court stated, “It indeed troubles me that the defendants, even by way of an interim arrangement, should be made to pay the rates which the plaintiffs have prescribed for a family of as many as 600 patents when this suit has admittedly been filed for enforcing rights in four patents only”. Accordingly, the Court modified its earlier order and directed that royalties be payable at INR 20 per unit instead of INR 34 per unit by Oppo; the Court clarified that the order would not apply retrospectively and would be subject to the filing of an affidavit of undertaking by Oppo.[7]

[1] CS (COMM) 1425 of 2016. http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=229348&yr=2016

[2] It is not clear when exactly the suit was filed in the Delhi HC. The first order relating to the dispute available on the court website is dated 27.10.2016. http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=208102&yr=2016

[3] The amount offered by the defendants was INR 32 per unit and that proposed by Dolby was INR 38 per unit.

[4] http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=226461&yr=2016

[5] India has an adversarial legal system where the judge plays the role of an “impartial referee” rather than playing an active role in seeking out the truth (a feature of the civil law system).

[6] Oppo opposed the Ericsson argument made by Dolby (further details of this are not provided in the HC order).

[7] The Court also clarified that since the other defendants were not present during the proceedings, the earlier order (dated 20th October) would continue to operate against all defendants except Oppo.

Can Game Theory Resolve Smartphone Wars in India? (Part II)

In this two-part post, I argue that SEP-holders should voluntarily agree not to file for injunctive relief against standard-implementers, in cases where the SEP-holders have agreed to license their SEP on FRAND terms; this is because injunctions in SEP infringement cases can be anti-competitive.

Part I of the post shed some light on voluntary commitments by IPR-holders to not enforce their IP claims in the context of the recent Paramount v. Sky TV case. I then also discussed the ECJ ruling in Huawei v. ZTE wherein the main issue before the Court was to determine the circumstances in which injunctions in SEP cases are anti-competitive.

In the 2nd part, I will describe how Courts in India award injunctions in SEP cases and also suggest an alternative approach to resolve SEP disputes which can serve the interests of both the SEP-holders and the standard-implementers.

SEPs are a weapon of potential IP abuse leading to competition harm. Standards in telecommunications industries are set by standard-setting organizations (SSOs) which are voluntary coalitions of mobile phone companies and may include other interested stake-holders. The members of SSOs adopt certain technologies as standards which must then be incorporated into the products manufactured by all SSO members. Often, the technologies adopted as standards by SSOs are patented, and these patents are known as ‘standard essential patents’, since use of these patents is essential for conforming to a set standard. Mobile phone companies, other than the SEP-holder, need to obtain licences to use the technologies covered by SEPs. Since there is one ‘supplier’ of this particular technology (namely, the SEP-holder), it creates a natural monopoly of the SEP-holder in the market of SEPs. It is understood that patents are anyway monopoly rights since they give exclusive rights to the patent-holder to make commercial use of their invention; however, SEPs lead to a special problem of lock-in because when a particular standard is adopted, all other mobile phone-companies (i.e. standard-implementers), must necessarily obtain licences from the SEP-holder so that their products can conform to that standard (standard-implementers do not have the option to use alternate technology since they risk non-adherence to the adopted standard by doing so).

In order to prevent abuse of dominant position by the SEP-holder, the understanding between SSO members is that when a particular member’s technology is adopted as a standard, that member (SEP-holder) must license the SEP to other SSO members (i.e. standard-implementers) on fair, reasonable and non-discriminatory (FRAND) terms; FRAND, though not defined anywhere, is a commitment to license on good-faith terms. One way of determining FRAND terms is to understand the terms on which the SEP would have been licensed to standard-implementers before it attained the status of an SEP; this is also known as the ex-ante method of determining FRAND terms.

Disagreements over use of SEPs are common in cases where the SEP-holder and the standard-implementers do not come to terms over the amount of royalties which the SEP-implementers should pay for using the SEP. SEP-holders commonly file patent infringement suits against SEP-implementers for using the SEP without royalty payment and successfully obtain interim injunctions to prevent further use of the SEP by the SEP-implementers. The business of SEP-implementers comes to a veritable standstill since the injunction prevents SEP-implementers from selling their infringing devices in the market. The SEP-implementers are left with no choice but to negotiate with the SEP-holder and often end up paying royalties which are not FRAND. In this manner, injunctions can be used by SEP-holders to bait standard-implementers into accepting non-FRAND terms which harms competition in the market, because a single player (i.e. the SEP-holder) dictates the terms of the SEP licensing contract.

In India, SEP disputes in the past have been filed in the Delhi High Court which has readily granted ex-parte interim injunctions against standard-implementers. As of now, none of the SEP disputes in India have reached final decision and in all the cases, the standard-implementers have readily paid interim royalties and engaged into negotiations with the SEP-holders to agree on the royalty amount. A parallel trend in SEP cases is also witnessed in India wherein standard-implementers retaliate by filing complaints before the Competition Commission of India (CCI) to investigate SEP-holders; the complaints are filed on the ground that the licensing agreements are anti-competitive because the method used by SEP-holders to calculate the royalty amount (i.e. using the value of the downstream product as a base) is erroneous. The CCI in all cases found a prima facie abuse of dominant position by Ericsson and has ordered further investigation into the matter.

In SEP disputes, we witness two instances of abuse of dominant position by the SEP-holder:

  1. At the stage of licensing when the SEP-holder uses the SEP status of his IP to extract ex-post royalties (instead of ex-ante).
  2. At the stage of enforcement of his IPR by filing for injunctive relief to pressurize standard-implementers into paying the royalty at rates demanded by the SEP-holder

Royalties lie at the heart of any SEP dispute and the SEP policy in India must be devised to overcome the impasse over calculation of royalty rates. The final offer arbitration model proposed by Mark A. Lemley and Carl Shapiro  can be particularly helpful in this regard. I explain the model below (rather crudely):

Under this model, SSOs should provide that members agree not to file infringement claims in courts and instead participate in binding arbitration to settle royalty rates. Where the standard-implementer does not agree to enter into arbitration, SEP-holder would be free to pursue their claim in court.

Under this arbitration model, both the SEP-holder and SEP-implementer submit to the arbitrator the royalty amount which they consider to be FRAND. The arbitrator has to pick either of the two numbers; note that the arbitrator cannot pick a number in between the two. The number picked by the arbitrator is the final royalty amount for licensing the SEP. Note that in this case it would be in the interests of both the parties to submit a reasonable royalty amount because the arbitrator would pick the more reasonable of the two (a classic  ‘prisoner’s dilemma’).

Such a model would preclude the abuse of dominance by the SEP-holder through injunctions because the agreement to enter into arbitration would act as waiver of the right to bring infringement claims against standard-implementers.

[The MHRD IPR Chair at IIT Madras, in response to DIPP’s Discussion Paper on SEP and FRAND, has suggested that SSOs in India adopt such a model. Those interested in reading the Chair’s response can email me directly on devikaagarwal100@gmail.com]

24 (India) Season 2 & the Access to Medicines debate in India (*Contains Spoilers*)

24 season 2

I spent yesterday binge-watching Anil Kapoor’s 24. 24 (India) TV series is a crime-suspense thriller and based on the US show of the same name. The wait for Season 2 has been long and my excitement knew no bounds when Season 2 finally premiered this July.

Being an IP enthusiast, I was delighted to find that 24 contained a pop culture reference to the long-standing debate on access to medicines in India (Warning: Spoilers ahead!)

There is a scene in Episode 3 (13:53 to 19:23) where it is revealed to us that Aditya Singhania is dating Dr. Devyani whose father is a scientist/heads a pharmaceutical company in India. In a meeting with pharmaceutical companies, Aditya Singhania talks of a proposed health bill which aims to subsidize medicines and make them accessible to the poor and rich alike in the country. The pharma companies are critical of this bill; they argue that it would adversely affect their profits since they have invested heavily in marketing, R & D and in patents. Both sides spar, with pharmaceutical companies arguing that diseases like small pox were eradicated because their life-saving drugs drugs reached every person and that this was proof that the companies already price drugs at affordable costs; the Prime Minister offers that it was ‘because’ the government did not ‘allow’ such drugs to be priced highly that the medicines were accessible to every person leading to successful eradication of life-threatening diseases. While this debate can very well be a chicken-and-egg situation, it captures the essence of the debate on ‘access to medicines’.

Up until a year ago, I could never fully understand the hullabaloo over access to medicines since I lacked the understanding of the subtle issues involved in this debate. This changed when I had the opportunity to provide research assistance to Prof. Feroz Ali Khader for his book, ‘The Access Regime:Patent Law Reforms for Affordable Medicines’. For those who do not yet grasp the fine points of this debate, I present below the issues in a nutshell:

Until 2005, India did not provide for patent protection on pharmaceutical products (based on the recommendations of the Ayyangar Committee report which recognized that it was important for the Indian government to ensure that medicines remain accessible to the citizens). Since there were no patents on pharmaceutical products, generic drug companies in India could reverse-engineer the product and supply them at lost-cost in India in abroad, thereby earning India the title of the ‘pharmacy of the world’. It was only after signing the TRIPS Agreement that India had an international obligation to amend its patent laws to include patent protection for pharmaceutical products. While pharmaceutical products can now be patented in India, India has not shied away from using the “TRIPS flexibilities” (Article 1 of TRIPS states that WTO members are free to determine the manner of implementation of the provisions of the Agreement)  to ensure access to certain life-saving medicines in the country.

Some of these flexibilities are:

  1. Section 3(d) of the Patents Act, 1970 which increases the threshold of patentability of pharmaceutical products in order to prevent ever-greening of patents (the constitutionality of section 3(d) was at issue in the famous Novartis v. UOI).
  2. Section 84 of the Patents Act which provides for issuance of “market-initiated” compulsory licences ((section 84 compulsory licences are different from compulsory licences issued on the ground of national emergency (section 92))- Section 84 allows interested persons to apply for compulsory licences on patented products on the grounds of non-affordability, non-accessibility or non-working of the product in India. Section 84 was the bone of contention in Bayer v UOI.
  3. The process of pre-grant opposition (section 25(1)) which allows any person to oppose a patent application on certain specified grounds.

India has faced a lot of flak by pharmaceutical companies (known as the Big Pharma in the US) for using the TRIPS flexibilities. From the pharmaceutical companies’ perspective, this is detrimental to innovation because commercial exploitation of their inventions (e.g. through patent licensing) allows companies to re-coup their R&D costs and use the money in further R&D to further develop medicines. It is important to note that R&D costs in developing pharmaceuticals can be quite significant given that only few in the many drugs developed are effective and/or get marketing approval. Health advocates, on the other hand, feel that pharmaceutical companies inflate their R&D costs to make neat profits at the expense of public health. This encapsulates the debate on access to medicines.

Interestingly, 24 Season 2 is based on bio-warfare and it would be interesting to see whether this reference was merely incidental to the plot or is part of a bigger sub-plot. In any case, 24 is one of the better TV shows to come out of India in the recent past and definitely worth a watch.

[The show premieres every Saturday and Sunday on Viacom 18, and those without access to TV can stream it online (LEGALLY <yay>) for free on Voot (the digital arm of Viacom 18).]

 

Can Game Theory Resolve Smartphone Wars in India? (Part I)

Earlier this week, the European Commission (EC) in an ongoing antitrust investigation accepted binding commitments from Paramount Pictures Corporation (Paramount) to not enforce restrictive copyright licensing conditions against Sky TV. In this two-part series, I will analyze how similar agreements to not enforce IP are useful in preventing competition harm caused due to injunctions in SEP cases.

A short background on Paramount v. Sky (or Pay-TV case) is in order:

Paramount, a Hollywood film studio, entered into an agreement with Sky UK to license the right to broadcast Paramount’s content in UK & Ireland. Sky UK is a subsidiary of Sky Plc( a European satellite and internet TV broadcasting company) which offers subscription-based television content to consumers in Europe.  One of the conditions in the agreements related to geo-blocking whereby Sky was prohibited from letting consumers in other EU countries access the content either through satellite TV or internet.

In 2015, the EC initiated an anti-trust investigation against Paramount and five other Hollywood film studios on the ground that the geo-blocking condition is restrictive because it limits Sky’s ability to broadcast the content outside the UK, and consequently affects cross-border competition among TV broadcasters in Europe. The investigation was in line with Europe’s Single Digital Market strategy which envisions doing away with the 28 different EU-member state laws currently prevalent in Europe. One of the benefits of the Single Digital Market strategy (which is still in its blueprint form) is that it will harmonize copyright laws across the EU; this means that if I, as a German resident, can legally download a French movie (under German copyright laws), I need not worry whether I am infringing the copyright laws of France. In other words, the same copyright law would apply across all EU-member states.

Under the geo-blocking condition in Paramount’s licensing agreement, a user would not be able to subscribe to the content which Sky broadcasts in the UK if they are a resident of any EU state other than the UK and Ireland. The reason why Hollywood film studios or other video content-providers would introduce such licensing conditions is to charge different rates from users in different countries (This is probably why Netflix has geo-blocked its content in India).

While the investigation was on-going, Paramount agreed not to bring IP infringement claims against Sky UK in the event that Sky UK accepts unsolicited subscription requests from users outside of UK & Ireland. While the Pay-TV case is settled as far as Paramount is concerned, the investigation is on-going with respect to the five other Hollywood movie studios.

It bears noting that Paramount committed to not enforce its IP right because otherwise it risked an ‘abuse of dominant position’ finding by the EC. In this case, Paramount has voluntary undertaken not to file injunctions/restrain Sky if Sky breaches the licensing conditions; if Paramount were to file a case against Sky for breaching the restrictive licensing conditions, Paramount’s commitment to the EC would act as an estoppel against Paramount. The Pay-TV case is important in the context of FRAND licensing of SEPs because (as Chilling Competition notes) enforcing intellectual property claims in SEP licensing cases can amount to competition harm. The relevant case law on this point is Huawei v. ZTE wherein the main issue referred to the European Court of Justice was:

‘When is seeking of injunctions by SEP-holders when they have agreed to license their SEPs to third parties on FRAND terms amount to abuse of dominant position?’

The Court was of the opinion that while enforcement of IPR by itself is not an abuse of dominant position, an abuse will occur only when the following exceptional circumstances are met:

  • The patent in question is indispensable
  • The patent achieved an SEP status only when the SEP-holder agreed to license the patent on FRAND terms

The Court held that the undertaking by the SEP-holder creates legitimate expectations on the part of licensees (standard -implementers) that the SEP-holder would license the SEP on FRAND terms, and if the SEP-holder subsequently refuses to license their IP, this would amount to abuse of dominance.

While the ECJ was clear that FRAND licensing commitments do not bar SEP-holders from enforcing their IP claims (including by filing for injunctions), the SEP-holder must meet a greater burden to justify injunctions against the standard-implementers in infringement cases.  The specific requirements for grant of injunctions in SEP infringement cases identified by the ECJ were as follows:

  1. Prior notice must be given by the SEP-holder to the licensee identifying the SEP and the manner in which it is being infringed
  2. Where the alleged infringer agrees to obtain a license for the SEP, the SEP-holder must communicate to the willing licensee a “specific written offer” which states the amount of royalty payable by the licensee and the method of calculation of such royalty.
  3. The alleged infringer is then free to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics”.
  4. Where there is no agreement between the SEP-holder and the alleged infringer, “the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party“.
  5. Finally, an alleged infringer cannot be criticised either for challenging, in parallel to the negotiations relating to the grant of licences, the validity of those patents and/or the essential nature of those patents to the standard in which they are included and/or their actual use, or for reserving the right to do so in the future”.
    In other words, in licensing the SEP to the alleged infringer, the licensing agreement shall not contain any clause to preclude the licensee from challenging the validity of the patent or its status as an SEP either at the time of licensing or in the future.

[For an analysis of the ECJ ruling in the Huawei case, please refer to Chilling Competition’s post]

In Part II, I analyse how injunctions in SEP cases amount to abuse of dominant position by the SEP-holder; the trend of Indian courts in granting injunctions in SEP cases; and alternate ways to fix the competition harm created by injunctions (for instance, by introducing final offer arbitration to determine FRAND royalties in SEP disputes).

Indian Patent Office rejects Saxagliptin compulsory licence application

Another article which Radhika & I had written for the Oxford Journal of Intellectual Property Law & Practice on the Saxagliptin compulsory licence case was published online this month.

Please visit the following link to read the article:

http://jiplp.oxfordjournals.org/content/early/2016/06/27/jiplp.jpw064.full?keytype=ref&ijkey=x0dikp4o9GLzgL0

For those who want to make commercial use of the article, please contact the Oxford University Press:

http://www.oxfordjournals.org/en/access-purchase/rights-and-permissions.html