Delhi High Court Rules on the CCI’s Jurisdiction over Patent-related Market Abuse

This is my first post of the year and I am happy that I get to start on a positive note. Yesterday i.e. March 30, 2016, Justice Vibhu Bakhru of the Delhi High Court delivered a 161-page decision in a batch of Writ Petitions wherein the central issue before the Court was the jurisdiction of the Competition Commission of India (CCI) on abuse of dominant position flowing from ownership and exercise of patent rights. Since I was part of the team which worked on the matter, I will not comment on the facts of the case. That said, one wouldn’t be wrong in saying that the Court’s findings on certain questions of law are significant milestones in the evolution of Indian Intellectual Property and anti-trust jurisprudence.

On a personal note, I can safely say that the Court’s findings on the interplay between (a) the jurisdictions of a civil court seized of a suit for patent infringement, (b) the Controller of Patents under the compulsory licensing mechanism (Section 84 of the Patents Act) and (c) the Competition Commission of India, resonate with my analysis in several posts in this blog, which were subsequently discussed by the Centre for Internet and Society. In fact, I had undertaken a comprehensive analysis of the statutory allocation of responsibilities between civil courts, Controller of patents and Competition Commission in my paper “Patents and Competition Law: Identifying Jurisdictional Metes and Bounds in the Indian Context” which was submitted last year for publication in the National Law School of India Review (NLSIR) and will hopefully be published in the next few days. This paper is based on my talk delivered last May in the 8^th National Symposium on Competition Law at the National Law School, Bangalore.

Extracted below are a few excerpts from the paper:

“Abstract

The primary object of this article is to understand the relationship between patent rights and competition law under the existing Indian legal framework. It has become imperative to elucidate the legal position on the interplay between the two, in light of growing antitrust concerns arising out of the exercise of patent rights. The Author has employed conventional principles of statutory interpretation to the relevant provisions of the Patents Act, 1970 and the Competition Act, 2002 to arrive at his conclusions, with Expert Committee Reports playing a corroborative role, primarily because the nature of enquiry undertaken in this article is predominantly legal and not policy-related. Additionally, this is due to the fact that there is a lack of guidance on the issue from Indian Courts.

1. INTRODUCTION

Intellectual Property Rights (IPRs) and Competition law are usually perceived as sharing an uneasy relationship given their seemingly contrasting goals. However, to pit one against the other without qualifications and riders may not do justice to the nuances of their respective natures, roles and goals. The system of IPRs is premised on the assumption that grant of exclusive rights for a limited term is desirable to promote dynamic competition, which pushes the envelope of innovation and thereby contributes to enlarging the basket of choices available to consumers. In other words, in theory, incentivising innovation through IPRs elevates the level of competition from static to dynamic, which is in contrast to the adversarial perception of IPRs and competition law. That being said, in practice, even the most stringently regulated right is susceptible to abuse at the hands of a determined and motivated right owner to the detriment of healthy competition. This necessitates the existence of a safety valve in the form of competition law.

Simply put, the goal of competition law with respect to IPRs is to ensure that the said species of rights are exercised within the limits prescribed by law and in a manner which is beneficial to consumers and which promotes competition. Therefore, an IP owner runs into conflict with competition law only in the event of a transgression in his capacity as an IP owner if such transgression distorts competition. The validity of this general proposition in the Indian context will be examined and tested in specific relation to patent rights in the ensuing portions of this article. The aim is to ascertain if the Competition Act, 2002 (hereinafter referred to as “the Competition Act”) has indeed been vested with the power to check restrictive and abusive trade practices resorted to by a patentee, and if so, to what extent.

6. CONCLUSION

IP statutes, without a doubt, provide for internal corrective mechanisms to address inequities arising out of non-use or abuse of IP rights. However, the scope of analysis undertaken under these mechanisms is limited to verification/examination of achievement of the specific objectives of IP statutes. In other words, these mechanisms lack the sweep and depth of a market-based assessment of the actions of an IP owner under the Competition Act. No single IP regulator, be it the Controller of Patents or the Copyright Board, is charged with the duties of the Commission as reflected in Section 18 of the Competition Act, or is vested with the vast powers of the Commission to deal with market mischief. Therefore, given that the specific object of the Competition Act is to foster sustainable competition in the market, protect the interest of consumers and to ensure freedom of trade, the Competition Commission must be allowed to fulfil its mandate unhindered.”

Standard Essential Patents: Reviewing the IEEE’s IPR Policy- Part II

In the last post, I reviewed portions of the IEEE’s updated IPR policy for Standard Essential Patents. I continue with the review in this post.

What is common between the IPR policies of IEEE and ETSI is that both disclaim any verification or certification of validity or essentiality or infringement of any patent claim declared as Essential by a patentee. The IEEE policy further disclaims any enquiry into the FRAND-compliance of a patentee’s licensing terms. Importantly, it states that “Nothing in this policy shall be interpreted as giving rise to a duty to conduct a patent search”. This could be interpreted to mean that the policy does not cast a burden on any third party to undertake a search for patents which it infringes or may potentially infringe, which is consistent with the extant practice of casting the obligation of establishing infringement on the right holder. Simply stated, a declaration of essentiality by a patentee remains a unilateral declaration by the patentee, with no formal imprimatur by the IEEE.

This is further corroborated by an express window in the Policy which permits a prospective licensee (“Applicant”) and the patentee (“Submitter”) to litigate over patent validity, enforceability, essentiality, or infringement; Reasonable Rates or other reasonable licensing terms and conditions; compensation for unpaid past royalties or a future royalty rate; any defenses or counterclaims; or any other related issues. This is a thumping endorsement of the position that a prospective licensee’s bonafide challenge to the assertions of the patentee cannot result in an adverse inference of unwillingness. As recognized last year by the England and Wales High Court in Vringo v. ZTE, a prospective licensee is well within its rights to challenge the validity and essentiality of the patents asserted without being branded an “unwilling licensee”. It must however be noted that if litigation is merely employed to delay an inevitable payment, which must be demonstrated by the patentee from the conduct of the prospective licensee and the lack of apparent merits in its challenge, the prospective licensee may not be entitled to be treated as a “willing licensee”.

As regards a patentee’s access to exclusionary remedies such as injunctions, the Policy firstly defines “Prohibitive Order” to mean an interim or permanent injunction, exclusion order, or similar adjudicative directive that limits or prevents making, having made, using, selling, offering to sell, or importing a Compliant Implementation. Further, except for circumstances envisaged by and in the Policy, a patentee who claims to own an Essential Patent Claim may not seek Prohibitive Orders against prospective licensees. 

That exceptional window is available when the implementer of an IEEE Standard fails to participate in, or to comply with the outcome of, an “adjudication”. Adjudication includes adjudication in a first appeal by any party from the decision of the forum of first instance on any issue. Importantly, the scope of the adjudication could relate to a host of issues such as license terms, patent validity, essentiality and the like. Therefore, an injunctive remedy is available to a patentee only when an implementer fails to abide by a Court’s finding, which includes the finding of an arbitral tribunal. Until then, no such remedy may be sought against the implementer of a standard.

As for what constitutes a “Reasonable Rate” of royalty, here’s the definition from the Policy which is best reproduced:

“Reasonable Rate” shall mean appropriate compensation to the patent holder for the practice of an Essential Patent Claim excluding the value, if any, resulting from the inclusion of that Essential Patent Claim’s technology in the IEEE Standard. In addition, determination of such Reasonable Rates should include, but need not be limited to, the consideration of:

• The value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim.

• The value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation.

• Existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license.

So not only is the patentee precluded from claiming royalty based on the ex post value of the patent i.e. post its inclusion in an IEEE standard, the royalty must also be based on parameters attributable to the overall contribution of the patent to the IEEE standard and must be a measure of the smallest saleable component which implements the standard. These factors appear to have been distilled from the Microsoft v. Motorola and Innovatio decisions.

Broadly speaking, although there could be room for further refinement (as is always the case), the Policy must be credited for clarifying quite a few issues which have festered to the detriment of all stakeholders, particularly prospective licensees. Importantly, the Policy is a reasonably good template for other SSOs to draw from and build on. Let’s hope the ETSI IPR Policy too is amended on similar lines given the room for exploitative abuse by patentees under the current ETSI Policy.

Standard Essential Patents: Reviewing the IEEE’s IPR Policy- Part I

Earlier this year in March, the Institute of Electrical and Electronics Engineers (IEEE) published the latest version of its bylaws which shall apply to the licensing practices of its members in so far as they relate to the technology standards prescribed by the IEEE. Given that a lot has already been written about the policy, I am not sure if I can add a new perspective to it. Therefore, these series of posts I intend to pen may be treated as my on-going attempts to make sense of the policy given its relevance to my current body of work.

Articles 6 and 7 of the policy deal with the patent and copyright policies respectively. In this post, I review certain aspects of the Patent policy, which I believe are significant developments in SEP jurisprudence. Article 6.1 which contains the definitions defines “Compliant Implementation” thus:

“Compliant Implementation” shall mean any product (e.g., component, sub-assembly, or end-product) or service that conforms to any mandatory or optional portion of a normative clause of an IEEE Standard.

At a time when there is little or no judicial guidance, much less clarity, on whether the policy of the European Telecommunications Standards Institute (ETSI) envisages an obligation on SEP owners to grant FRAND-encumbered licenses to component manufacturers such as chipset makers, the IEEE’s definition of “compliant implementation” must be welcomed for its expansive scope and clarity. The definition expressly treats a component or sub-assembly, and not just the end-product, as product for the purposes of standard compliant implementation.

Although Intel has advanced a similar position in its amicus brief before the United States Court of Appeals for the Federal Circuit in Apple v. Motorola, the brief does not undertake a systematic interpretation of terms such as “Manufacture”, “Equipment” and “Methods” which have been defined in the ETSI IPR policy. This is not to say that Intel’s argument is without basis, but the reasoning in the brief could have been more comprehensive so as to deal with and negate the position that only end-product manufacturers are entitled to a FRAND license under the ETSI IPR policy. Fortunately, the IEEE policy leaves very little to imagination in this regard giving the impression that the framers of this policy have drawn important lessons from the ongoing debate with respect to the ETSI policy.

The other important definition, perhaps a more critical one, is that of an “Essential Patent Claim” which is defined as follows:

““Essential Patent Claim” shall mean any Patent Claim the practice of which was necessary to implement either a mandatory or optional portion of a normative clause of the IEEE Standard when, at the time of the IEEE Standard’s approval, there was no commercially and technically feasible non-infringing alternative implementation method for such mandatory or optional portion of the normative clause. An Essential Patent Claim does not include any Patent Claim that was essential only for Enabling Technology or any claim other than that set forth above even if contained in the same patent as the Essential Patent Claim”

It is pertinent to note that the definition includes both mandatory and optional portions of an IEEE standard. In other words, even if a patent claim covers an optional portion of an IEEE standard, it shall be deemed to be an Essential Patent Claim. It would be interesting to see a Court interpret this definition in the future in light of Fujitsu v. Netgear, where the subject-matter of the dispute related to IEEE standards. In this decision, the United States Court of Appeals for the Federal Circuit held that where a portion of a standard is optional:

…standards compliance alone would not establish that the accused infringer chooses to implement the optional section. In these instances, it is not sufficient for the patent owner to establish infringement by arguing that the product admittedly practices the standard, therefore it infringes. In these cases, the patent owner must com-pare the claims to the accused products or, if appropriate, prove that the accused products implement any relevant optional sections of the standard. This should alleviate any concern about the use of standard compliance in assessing patent infringement. Only in the situation where a patent covers every possible implementation of a standard will it be enough to prove infringement by showing standard compliance.”

In view of this test, can the updated definition of an Essential Patent Claim prevail over the Federal Circuit Court’s ruling? Given that ruling of the Court, and not IEEE’s bylaws, has the force of law as to what constitutes "essential" and how essentiality may be established, the definition may not be of much use to patentees who claim ownership of IEEE standards in circumventing the test laid down by the Court.

The other interesting aspect of the definition of an Essential Patent Claim is its express exclusion of any enabling technology. “Enabling Technology” has been defined thus:

““Enabling Technology” shall mean any technology that may be necessary to make or use any product or portion thereof that complies with the IEEE Standard but is neither explicitly required by nor expressly set forth in the IEEE Standard (e.g., semiconductor manufacturing technology, compiler technology, object oriented technology, basic operating system technology, and the like)”

According to this definition, it appears that owners of essential patent claims cannot extend their claim of essentiality over or treat as essential those patent claims which are directed towards technologies/products that enable the implementation of an IEEE standard. In other words, since an IEEE standard could be silent on the actual manner of its enablement, a patentee which allegedly owns a Standard Essential Patent cannot claim that a specific enabling technology is essential for the implementation of the standard since there could be multiple ways of implementing the standard.

This does not mean that infringement cannot be alleged by the patentee. It only means that as opposed to using the claim of essentiality to establish infringement, the patentee would need to demonstrate a claim-based infringement using the conventional claim-to-product comparison. Therefore, only if the patent contains a claim which covers a particular manner of enablement of the standard or a product which facilitates enablement, it would be available for the patentee to allege infringement based on the claim since the essentiality of the patent cannot aid him in this regard. In this sense, the definitions of Essential Patent Claim and Enabling Technology strike a distinction between technology/product which enables the implementation of the Essential Patent Claim and technology/product which actually implements/uses the Essential Patent Claim. This is yet another interesting aspect of the definitions whose interpretation and application by Courts is bound to generate divergent views. 

In the next post, I shall continue with my review of the IEEE patent policy.