A case note on Telefonaktiebolaget LM Ericsson (PUBL) vs. Competition Commission of India

Co Authored by Omesh Puri, Managing Associate and  Divya Srinivasan, Associate

Ericsson holds several patents in respect of telecom infrastructure equipment including 2G, 3G and 4G network as well as mobile phones, tablets, data cards, etc. of which some are Standard Essential Patents (SEP’s). Essentially these are technologies which have been accepted as standards to be uniformly accepted and implemented across various countries in order to ensure uniformity and compatibility for a seamless transmission of voice and data across the world. In order to accept and lay down standards, various Standard Setting Organizations have been established. European Telecommunication Standard Institute (ETSI) is one such body, which has been set up to lay down the standards for telecommunication industry and particularly 2G (GSM, GPRS, EDGE), 3G (UTMS, WCDMA, HSPA) and 4G (LTE). ETSI Intellectual Property Right Policy provides that “when an Essential IPR relation to a particular Standard or Technical Specification is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner of the IPR to give an irrevocable undertaking that it is prepared to grant irrevocable licenses  on fair, reasonable and non-discriminatory (FRAND) terms and conditions. The dispute in the present case pertains to Ericssons’ SEP’s for which Ericsson had tried to negotiate a Patent Licencing Agreement (PLA) with Micromax and Intex on FRAND terms but its efforts were unsuccessful. Subsequently, Ericsson initiated infringement proceedings alleging that the products manufactured and dealt with by Micromax and Intex violate its patents and that Ericsson was entitled to royalties in respect of the SEPs held by it.

Infringement Proceedings

The Single Judge passed an ad-interim order directing the Custom Authorities to inform Ericsson as and when the consignments of mobile phones were imported by Micromax and deal with any objections under the Intellectual Property Rights (Imported Goods), Enforcement Rules, 2007. Later, the Single Judge passed interim directions to Micromax to pay an interim royalty till the pendency of the suit. Similar suit was also filed against Intex and the court has passed an interim order for payment of royalty at rates similar to that as directed against Micromax.

Complaint before the Competition Commission of India (CCI)

In response to the infringement suits, both Micromax and Intex filed complaints before the CCI alleging abuse of dominant position (Section 4, Competition Act, 2002) by Ericsson on account of it demanding an unfair royalty from Micromax and Intex. The CCI noted that the practices adopted by Ericsson were discriminatory and contrary to FRAND terms; and consequently, directed the DG to investigate any violation of the provisions of the Competition Act. Aggrieved by this order, Ericsson filed a writ.

 

Writ Proceedings

Contentions of Ericsson

  1. They contended that owing to the special nature of the Indian Patents Act, licensing practices including claim of royalty by a patentee in relation to patents is outside the scope of the Competition Act;
  2. Ericsson does not come under the purview of an ‘enterprise’ as defined under Section 2(h) of the Competition Act, in furtherance of which Section 4 of the Competition Act, 2002 would not apply to Ericsson;
  3. Matters pertaining to the abuse of dominance/dominant position, by a patentee in respect of patent licensing, should be addressed under the Patents Act and not under the Competition Act;
  4. CCI had no jurisdiction to determine the reasonableness of the royalties for patented technologies or to entertain any complaint in that regard particularly when a suit on the same subject matter was pending before this Court;

Confutation by CCI, Micromax & Intex

  1. The Writ is not maintainable pursuant to the decision of the Supreme Court in Competition Commission of India vs. Steel Authority of India Ltd., where it was held that an order under Section 26(1) of the Competition Act was in the nature of a show cause notice (administrative, not judicial) and hence no writ petition was maintainable;
  2. The provisions of the Competition Act were in addition to and not in derogation of any other law and Section 60 of the Competition Act expressly provided that the provisions of the Competition Act to have effect notwithstanding anything inconsistent contained in any other law. Thus Competition Act to prevail over Patents Act;
  3. There was nothing in the Patents Act which would either impliedly or expressly expel CCI’s jurisdiction;

Annotations

A. Scope of judicial review – whether petition maintainable?

The Court held that a direction passed under Section 26(1) of the Competition Act to the DG is not outside the scope of judicial scrutiny under Article 226 of the Constitution of India.

The Court reasoned that an order under Section 26(1) of the Act, after forming a prima facie opinion, has the effect of subjecting a party to an investigative process. There may be a scenario where an order is ex-facie tenacious or without the application of mind. Additionally, in a scenario where such an order is not passed, remedy by way of appeal is only available to the informant and not to the party under investigation. Thus, an order with such wide implications has to be amenable to the writ jurisdiction of a High Court.

However, the Court also added that the scope of judicial review of the directions issued under Section 26(1) of the Competition Act is limited and does not extend to examining the merits of the allegations.

B. Jurisdiction of CCI to entertain the complaints of Micromax and Intex under the Competition Act, 2002
 

  1. The Court observed that impugned orders passed by CCI were not obstinate or without jurisdiction. This issue was decided by the Court after answering a series of questions. The Court observed that –
  2.  

    1. Ericsson would fall within the definition of an ‘enterprise’ under Section 2(h) of the Competition Act as patents were akin to goods under the Sale of Goods Act. On the question of whether licences for patents are goods – the Court observed that it would be unfair to answer the same in the present proceedings owing to CCI being the sole authority who could decide the issue;
    2.  

    3. The Patents Act is a special act vis-à-vis the Competition Act. However, since there is no irreconcilable repugnancy or conflict between the Competition Act and the Patents Act. And, in absence of any irreconcilable conflict between the two legislations, the jurisdiction of CCI to entertain complaints for abuse of dominance in respect of Patent rights cannot be ousted;
    4. Seeking injunctive reliefs by an SEP holder in certain circumstances may amount to abuse of its dominant position;

     

  3. The question whether there is any abuse of dominance is solely within the scope of the Competition Act and a civil court cannot decide whether an enterprise has abused its dominant position and pass orders as envisaged under Section 27 of the Competition Act;
  4.  

  5. A budding licensee cannot be verboten from challenging the validity of patents in question. Thus, a licensee can always reserve its right to challenge the validity of a patent and cannot be barred from doing so.

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Comments: 1

  1. are there any cases which say that a company who has patents is not an enterprise under section 2(h) of the competition act?

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