Delhi’s landmark ruling on SEPs in Lava v Ericsson

The High Court found Lava to be an ‘unwilling licensee’ and ordered it to pay almost $30m in damages in this case that dealt with FRAND terms, unfair conduct and SEP principles, say Sonal Madan and Nanki Arneja of Chadha & Chadha.

The Delhi High Court resolved a lengthy patent infringement dispute between Lava and Ericsson revolving around eight standard-essential patents (SEPs) for 2G, EDGE, and 3G technology specifications. Issues such as damages, patent validity, unfair conduct, fair, reasonable and non-discriminatory (FRAND) terms, limitation period, and SEP principles were scrutinised. Ultimately, the court held Lava liable for infringement of seven SEPs, granting Ericsson exemplary damages of approximately US $29.9 million.

Background

In 2011, Ericsson first noticed that Lava had been manufacturing devices that used the 2G/3G technology SEPs owned by Ericsson and accordingly, in November 2011 Ericsson communicated to Lava about its SEP portfolio and expressed its willingness to grant a license on FRAND terms. Lava in turn responded claiming it was only involved in handset trading, not manufacturing.

Negotiations between the two parties continued up until 2015 when Lava filed a suit against Ericsson before a district court asking the court to decide the FRAND royalty rates on which it should grant a license for its 2G/3G SEPs, among other prayers.

In March 2015, Ericsson filed an infringement suit against Lava at the Delhi High Court. Lava in return filed a counterclaim for revocation of Ericsson’s suit patents.

Issues before the court

The court identified the following main issues:

1. Whether the SEPs owned by Ericsson are valid patents?

2. Whether Lava was infringing the suit patents?

3. Whether Ericsson is entitled to damages or accounts for profits? If so, on what terms and for what period?

The Court’s analysis

Validity of the patents:

1. Novelty and inventive step: To adjudge the novelty and inventive step of suit patents, the court developed upon the tests laid down by UK courts for the same, focusing on not just explicit but also implicit novelty within a text, and the obviousness tests for inventive step.

2. Non-patentability: The court’s stance aligns with India’s evolving perspective on patenting computer-related inventions. It affirmed that an invention that integrates a computer program to transform the functionality of a system or device, can be patentable provided it satisfies other patentability criteria. Moreover, if the invention generates an additional technical effect that enhances a general-purpose computer’s functionality and effectiveness, it shouldn’t be dismissed as merely a ‘computer program per se’.

Conclusively, the court found that seven out of eight of Ericsson’s SEPs were valid.

On the issue of infringement by Lava:

1.Validity of ETSI declarations: Lava challenged the validity of Ericsson’s declarations before the ETSI. This contention was rejected by the Court and it was held that the nature and timeline of declarations to ETSI is the subject matter of the contractual relationship between Ericsson and ETSI and Lava has no locus to question it.

2. Doctrine of exhaustion: Lava contended that the Chinese chipset supplier from which it procured its chipsets held a valid license from Ericsson. However, the Court concluded that Lava neither conducted due diligence nor obtained indemnity from the supplier, leading to the rejection of Lava’s defence.

3. The two-step test: While dealing with the issue of infringement, the court applied the two-step test derived from Ericsson v Intex [No. 1405/2014]. Firstly, it established the patent’s status as an SEP by aligning it with the standard, followed by confirming alignment between the implementer’s device and said standard. Upon conducting the examination, the Court determined that Lava’s devices adhered to the standards imposed by Ericsson.

Hence, the court dismissed Lava’s claims and found it liable for infringement. It was concluded that the rates offered by Ericsson fall within the FRAND-approved range and Lava was held to be an ‘unwilling licensee’ for failing to engage in good-faith negotiations with Ericsson. Moreover, the licensing of the entire portfolio of Ericsson’s SEPs was found to be essential.

On the issue of calculation of damages:

1. Limitation period: Lava argued damages should only be calculated from May 2013 onward, when it first learned of Ericsson’s patents, excluding any infringement prior to said date. On the other hand, Ericsson argued that a patentee’s right to claim damages commences from the date of publication of the patent (in this case it dates back to 1998), and hence it should be accordingly compensated. In view of the above facts, the court noted that Ericsson only asserted its rights in respect of its SEPs for the first time in November 2011 when it informed Lava that it had been infringing its patents. Therefore, the court ordered that the damages ought to be calculated from the date of said communication by Ericsson.

2. Adoption of the ‘comparable licensing’ approach: During the proceedings, Ericsson submitted 52 licensing agreements, arguing that Lava was offered rates similar to other Indian entities. The court assessed these agreements, finding them comparable, and thus deemed Ericsson’s rates relevant for determining FRAND rates for Lava.

3. Calculation of damages: The court acknowledged that in an end-device or downstream product, various components with their own functionality work in consonance with each other to implement the standardised technology. Accordingly, the court rejected Lava’s submission that the damages should be calculated on the value of only the chipset, and reiterated as per earlier precedents that the calculation of royalties should be done at the end-product level which is the appropriate industry practice. On account of revocation of one of the suit patents, the court adjusted the royalty rates of the portfolio and determined that the FRAND royalty rate applicable to Lava is 1.05% of the net selling price of the devices sold by Lava during the above-mentioned period.

The court’s decision and conclusion

In view of the above analysis, the court ordered Lava to pay approximately $29.9 million as recovery of damages. In conclusion, the present decision by the Delhi High Court marks a milestone in making India a patentee-friendly jurisdiction, specifically for SEP owners.

Sonal Madan is a partner at Chadha & Chadha. She can be contacted at: sonal.madan@iprattorneys.com

Nanki Arneja is a managing associate at Chadha & Chadha. She can be contacted at: nanki@iprattorneys.com