FRANDing your Competitors: The Indian Mobile and Telecommunications Industry

Authors: Manjri Singh & Vijayaditya Reddy

The authors are students at the National Academy of Legal Studies and Research (NALSAR) University of Law.

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I. Introduction

The mobile telecommunications industry began to flourish in the late 1980s with the entry of private players in the field which had been the exclusive domain for State operators. Unsurprisingly, innovative technology was sought to be protected by patents which subsequently became the cause for excessive litigation often called the smartphone war. Courts have tried to navigate the ideological deadlock between Competition Law and Intellectual Property Rights Law, and strike a balance between individual commercial interests and protection of competition. In this article, the competition law angle is considered in the trajectory of this phenomenon.

II. Standard Setting and Market Effects

To understand how the smartphone war implicates competition policy so deeply, it is necessary to emphasize that these cases do not just concern multiple infringements of various patents, rather than the patents being infringed are all held by a single corporate entity and that these patents are essential to the production of mobile phones (or more specifically related technology and chipsets) that adhere to the accepted technological standards. It is for this reason that they are termed standard essential patents (or SEPs). Standards may be set as mandatory or voluntary compliance by a regulatory authority,[1] or by agreement of a group of firms that choose to adhere to a standard. Standards have both positive and negative effects on competition. Standardization often results in improved health, safety, environmental, and/or quality standards. Further, in certain markets, they result in increased innovation interoperability.[2] However, standardization also may inadvertently lead to a decrease in price competition, foreclosure effect of innovative technologies, and prevention of access to the standard which in some cases may result in abuse of dominance.[3] In the European context, standardization agreements between competitors which include the provisions of unrestricted participation in standard-setting, voluntary nature of standards and access on fair, reasonable and non-discriminatory terms (FRAND) are largely permitted.[4]

III. Litigation

The litigation around patent infringement has been primarily led by Telefonaktiebolaget LM Ericsson (PUBL) (hereinafter referred to as Ericsson) against Indian and Chinese mobile manufacturers, starting from 2011. The firms litigated against have been (in order of suit instituted) Kingtech (March, 2011), iBall (November, 2011), Micromax (March, 2013), Gionee (October, 2013), Intex (April, 2014), Xiaomi (December, 2014), and finally Lava (March, 2015). Most of these suits surrounded the infringement of 8 Standard Essential Patents (hereinafter referred to SEPs). The case against iBall ended in favour of outside court settlement and the case was dismissed in 2015. The matter of Ericsson and Lava was referred to the Delhi High Court and Mediation and Conciliation Centre.

Many of the defendant companies approached the Competition Commission of India (hereinafter referred to as CCI) alleging abuse of dominant position by Ericsson. The CCI clubbed the different matters, found prima facie evidence of abuse of dominant position and directed the Director General to investigate the matter and submit a final report in order to pass judgment. This was appealed before the Delhi High Court by Ericsson, which questioned the authority of the CCI in an already ongoing patent infringement suit before the Court and ordered that the Director General, though free to conduct the investigation, was barred from submitting the report and CCI would not pass a verdict on the three cases before it (Micromax, Intex, and iBall). A final judgment in 2016, by the Delhi High Court, however, recognized the jurisdiction of the CCI pertaining to the matters referred to it by the defendant parties and CCI proceeded with its investigation undertaken by the Director General. However, iBall entered into a Global Patent License Agreement and settled the matter with Ericsson soon after. Subsequently, during the pendency of the trial, Micromax too entered a Global Patent License Agreement on 26th January 2018 with Ericsson.

IV. Competition Law Analysis

Micromax, Intel and iBall had approached the CCI alleging abuse of dominant position by Ericsson. The prohibition against abuse of dominant position is provided for in Section 4, Competition Act, 2002. The complaint would be made under Section 4 (2)(a)(ii) as it is the exorbitant pricing of the royalty rate of the patent that was the relevant behaviour of the enterprise. It could be further argued that the behaviour of the enterprise was also in violation of Section 4(2)(e) where the dominant position in one relevant market was used to protect its position in another relevant market, that is the downstream market of mobile handsets. The relevant product market was defined as the ‘patents in 2G, 3G and 4G technologies in GSM’, in which the enterprise holds all the relevant patents and the relevant geographical market was India.[5] The informants, Micromax, Intex and iBall alleged that Ericsson had sent communication that these companies had infringing certain undisclosed patents and offered a Global Patent Licensing Agreement at unfair royalty rates. Further, in the multiplicity of the cases stated above, it has been alleged by the respondents that there were non-disclosure agreements required by Ericsson with respect to the price and terms of use of the patents (effectively allowing opportunity for price discrimination) and the royalty rates were not reasonable and arguably the imposition of discriminatory conditions. The CCI found that Ericsson was dominant in the market (as defined in Section 4 Explanation (a)) and ordered the investigation. Ericsson has demonstrated its capacity to set prices independently, conduct itself in a way that is independent of its competitors and consumers and creating a barrier to new entrants, which is to be construed in the light of no alternatives to the patented technology. There was also a possibility that the effective restriction on mobile phone producers without the patented technology would have allowed Ericsson to charge higher prices for its own mobile handsets in the downstream market, directly affecting consumers. There is a definite argument to be made for foreclosing of competition in the downstream market and entry barriers for potential competitors. Had the complaints not been withdrawn, the violation of Section 4 was likely to be found, and it would be interesting to note the penalties and measures taken by the CCI.

V. Recent Cases and Trends

Even as the launch of 5G technology in India draws nearer, the CCI is yet to make a finding on abuse of dominant position in relation to IP licensing as a result of the withdrawal of complaints against Ericsson. However, on 12th July 2018, the Delhi High Court in Koninklijke Philips Electronics N.V. (Philips) v. Rajesh Bansal, did pass judgment in relation to standard essential patents, recognizing the essentiality of the patent, its infringement and determined royalty rates. It refused to deal with questions pertaining to misuse of position, observing it to be the domain of the CCI. On a judicial level, the determination of damages needs to be ascertained after deeper analysis. In other jurisdictions, not only are the judges familiar with Intellectual Property Law, but expert testimony and statements are weighed considerably. Indian civil courts may arguably, not be the appropriate authority for such a determination, especially as the interim royalty rates declared by the Court in the Ericsson cases, were charged as a percentage on the end product rather than on the proportion of the patents’ value in the end product. In the United States of America, in Federal Trade Commission v Qualcomm Inc, the district court of Northern California laid down requirements to be observed by SEP owners including exhaustive SEP licences to be made on FRAND terms and prohibition on exclusive dealing arrangements. This judgment, the first of its kind, will serve as a point of reference for all future litigation and maybe a possible approach that can be adopted by Indian Courts when dealing with patent infringement suits, independent of a competition law investigation. The best way forward, however, would be to harmonize the principles of Intellectual Property Law and Competition Law though a policy directive or issuance of guidelines.

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[1] For example, in India, the Bureau of Indian Standards established under the Bureau of Indian Standards Act, 1986 is authorised to formulate, recognise and promote of the Indian Standards.

[2] Illustratively, this is recognized in the European Commission’s Guidelines on Horizontal Cooperation Agreements, paras 325–332.

[3] Such as been recognized in the above guidelines, para 264.

[4] supra note 2, para 280-286.

[5] Section 2(t) of the Competition Act defines the expression ‘relevant product market’ to mean a market comprising of all those goods and services which are regarded interchangeable or substitutable by the consumer, by reason of characteristics, their prices or intended use.