Injunctions Sought By 'Sep' Holders - Abuse Of Dominance Or Protection Of IPRs?

It is clear from the decisions adopted by major competition law jurisdictions that SEP holders would be regarded as abusing their market power if they 'held up' willing licensees with injunctions. While IP rights are important for innovation, they are not allowed to be abused to the detriment of competition

A 'standard' refers to a document which lays down the requirements for a specific item, material, component, system or service, or describes in detail a particular method or procedure. A standard may incorporate a large number of patents that protect technology essential to a standard, and are referred to as Standard Essential Patent ("SEP"). SEPs have become a part of the present day technology scene. From complex computers and wireless technologies to a simple mobile charger and A4 paper sheets, standards are found everywhere. It is impossible to manufacture standard-compliant products without using technologies covered by one or more SEPs.

Competition law recognises the value of intellectual property rights ("IPR") as these incentivise innovation and lead to technological development and economic growth. For consumers, standards reduce the cost of switching between products of different manufacturers as there is a wide array of inter-operable products to choose from. Further, for manufacturers, common standards reduce the threat of obsolescence and investments being rendered infructuous.

While, the standard setting process has immense benefits, it is vulnerable to abuse of the market power that it confers on a SEP holder. The holder of even a single, relatively less important SEP has the market power to hold up every manufacturer of standard compliant products and extract excessive royalties. Hence, Standard Setting Organisations ("SSO") require that every holder of a SEP must commit to license its technology to a willing manufacturer of the standard compliant product on Fair, Reasonable and Non-Discriminatory ("FRAND") terms.

Some abuses which the SEP holder can indulge in, thereby causing harm to competition and consumers include:

a) Selectively refusing to license to a willing licensee;

b) Demanding excessive royalties from licensees;

c) Linking royalty demand for an SEP used only in a component to the price of a complete system that incorporates that component;

d) Seeking injunctions or threatening to seek injunctions against willing licensees;

e) Compelling a licensee to take also licenses that are not SEPs; and

f) Transferring the FRAND encumbered SEP to another party without binding that party to abide by the FRAND commitment.

Precedents from major competition law jurisdictions

In a case against Motorola1, the European Commission ("EC") found that Motorola had abused its dominance by seeking an injunction on FRAND encumbered SEPs against Apple, which was a willing licensee. Specifically, when the parties could not agree on a royalty rate after many negotiation sessions that began in 2007, Motorola sought an injunction on one of its SEPs. The EC explained that seeking an injunction with respect to a FRAND-encumbered SEP enables the SEP holder to hold up standard implementers. The EC further explained that while a SEP holder is entitled to protect its commercial interests, it must also "refrain from behaviour the specific purpose of which is to strengthen its dominant position and abuse it." Thus, the EC held that SEP holders that have voluntarily made a FRAND commitment may only seek an injunction against a potential licensee where:

"(a) the potential licensee is in financial distress and unable to pay its debts;

"(b) the potential licensee's assets are located in jurisdictions that do not provide for adequate means of enforcement of damages; or

"(c) the potential licensee is unwilling to enter into a licence agreement on FRAND terms and conditions, with the result that the SEP holder will not be appropriately remunerated for the use of its SEPs."

The EC and the Federal Trade Commission while taking similar positions in Samsung/Apple2, and Google/Motorola Mobility3, agreed to accept commitments from SEP holders which allowed them to enter into negotiations in advance of legal proceedings. However, both authorities in those settlements also fully protected the right of potential licensees to seek a judicial determination of FRAND terms before any injunctive relief may be sought. For example, the key terms of the commitments that the EC accepted from Samsung are a negotiation period of up to 12 months which, if no agreement is reached, may be followed by a third party determination of FRAND terms by a court if either party chooses or by an arbitrator, if both parties agree on this. No injunction may be sought before the conclusion of this entire process.

In a recent case, Apple sued Motorola for infringement of three patents and Motorola countersued, alleging infringement of six patents and sought both monetary and injunctive relief. On April 25, 2014, the Federal Circuit in USA barred Motorola from seeking an injunction4. However, the court also stated that there is no per se rule barring injunctive relief for a FRAND-encumbered patent and that the test laid down in eBay, Inc. v. MercExchange, LLC should be used in making a determination. Under this test, a plaintiff must demonstrate that:

a) It has suffered an irreparable injury;

b) Remedies available at law (e.g., monetary damages) are inadequate to compensate for the injury;

c) Considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and

d) The public interest would not be disserved by a permanent injunction.

Thus, it is seen that in the traditional context, a patent holder, including a holder of SEPs, is generally entitled to seek injunctions as part of the exercise of protecting his IPR rights. However, where injunctions are used to 'hold up' patents, it constitutes an abuse of the dominant position of the SEP holder.

Position under the Competition Act, 2002

The Competition Act, 2002 ("Act") recognises the importance of IPRs. Section 3 of the Act prohibits certain agreements that are likely to cause an appreciable adverse effect on competition. However, Section 3(5) (i) of the Act carves out an exception in the case of IPRs and provides that the provisions of Section 3 will not restrict "the rights of any person to restrain any infringement of, or to impose reasonable conditions" as may be necessary for protecting his IPRs. It should be noted however that the exception provided in the case of IPRs applies only to "agreements" under Section 3 of the Act. Its application has not been extended by the Act to abuse of dominant position which is prohibited under a different section viz. Section 4 of the Act. Thus, if there is an instance of abuse of dominant position enjoyed by an IPR holder, the Competition Commission of India ("CCI") would have jurisdiction to inquire into such abuse.

In the matter of SEPs though, there is no clear precedent yet on the manner in which the CCI would deal with such cases. In the past, the CCI has relied heavily upon competition law jurisprudence in mature jurisdictions, especially the EU and USA. It is therefore likely that the approach of antitrust authorities in these jurisdictions (as described above) will have a persuasive value for the CCI while deciding cases against SEP holders.

It is pertinent to mention here that the CCI is presently investigating complaints filed by Intex Technologies India Limited ("Intex") and Micromax Informatics Limited ("Micromax") against Ericsson India Private Limited ("Ericsson") (holder of SEPs in the telecom industry)5. From the prima facie orders of the CCI in these cases, it can be gathered that the allegations relate to an abuse of dominance by the SEP holder by demanding "unfair, discriminatory and exorbitant royalty for its patents regarding the GSM technology". The CCI in its prima facie opinion found Ericsson to be dominant in the relevant market and ordered the Director General to investigate the matter further.

It is important to mention here that even though Ericsson has filed suits for patent infringement before the Delhi High Court against both Intex and Micromax, the CCI has not specifically addressed the issue of injunctions in its prima facie order. However, the CCI in another recent case6 (not relating to SEPs), has found that resorting to judicial processes with the motive to harass the Complainant is an abuse. It cannot be ruled out that the CCI may adopt the same approach while dealing with conduct of SEP holders.

It is interesting to note that Ericsson has challenged the prima facie order of the CCI before the Delhi High Court on the grounds that CCI does not have the jurisdiction to investigate the complaint in as much as the Patent Act, 1970 itself provides for adequate mechanism. The Delhi High Court in an order dated 21 January 2014 directed that no final report shall be passed by the CCI or the DG till the next hearing. In relation to this issue of jurisdiction of the CCI, it is pertinent to highlight that section 62 of the Act specifically states that, "the provisions of this Act shall be in addition to and not in derogation of, the provisions of any law for the time being in force". Further, section 60 of the Act states that, "the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force". This implies that the provisions of the Act shall apply, even if they are inconsistent with any other law in force (including the Patent Act, 1970). In fact, if there is a violation of the Act, then the CCI has jurisdiction and injured parties can approach it. To restrict the powers of the CCI would defeat the very objective of its creation.

Conclusion

It is clear from the decisions adopted by major competition law jurisdictions that SEP holders would be regarded as abusing their market power if they 'held up' willing licensees with injunctions. Whilst IP rights are important for innovation, they are not allowed to be abused to the detriment of competition. Such restrictive behaviour by a SEP holder, if not reined in, can cause serious adverse effects for consumers and for innovation generally.

Footnote:
1 Case 39985 Motorola (29 April 2004) 2 http://europa.eu/rapid/press-release_IP-14-490_en.htm?locale=FR 3See Motorola Mobility LLC, Analysis of Proposed Consent Order to Aid Public Comment, available at http://ftc.gov/os/caselist/1210120/130103googlemotorolaanalysis.pdf 4 Apple, Inc. v. Motorola, Inc, No. 1:11-cv-08540 2012 BL 157789 5 Case No. 50/2013; Case No. 76/2013 6 Case No. 105 of 2013

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.