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In a move that is surely going to open a hornet’s nest soon in the future, Ericsson, the Swedish giant in mobile network infrastructure manufacturing, has recently filed a patent infringement suit against Micromax, one of India’s largest domestic mobile handset manufacturers (producing approximately 5.5% of the 200 million mobile handsets sold annually in India). The suit, filed at the Delhi High Court, involves a huge claim of Rs. 100 crores made by Ericsson by way of damages, which makes it perhaps the foremost in rank in terms of damages sought in a patent suit in the Indian IT and Telecommunications sector.
According to Ericsson, this legal action on its part was inevitable after more than three years’ negotiation with Micromax refused to yield a solution in the form of a license agreement on certain standard-essential patents (SEP) relating to wireless technology standards such as GSM, EDGE and 3G. The Micromax handsets and tablets using the disputed technology include models from its popular series like Ninja, Canvas 2 and Funbook Talk.
The dispute in itself is of considerable significance because of the subject-matter under consideration and the fact that it marks Ericsson’s entry into the Indian patent litigation scenario through the latest in a series of SEP litigations filed by it across the world against other players like Samsung and Acer. However, what makes it even more noteworthy is that the Delhi High Court, in the form of an interim order by Justice Manmohan, has issued an order to Micromax to deposit a certain amount of money, apparently in a bid to protect Ericsson’s monetary interests while the negotiations are continuing. The deposit prescribed consists of category-specific royalties, such as 1.25% of the sale price for phones/devices capable of GSM, 1.75% of sale price for phones/devices capable of GPRS + GSM, 2% of sale price for phones/devices capable of EDGE + GPRS + GSM and for WCDMA/HSPA [UMTS] phones/devices, calling tablets and finally, USD 2.50 for Dongles and data cards.
At a first glance, the royalties prescribed appear to be considerably high in amount. More than using any determining yardstick of its own by way of evaluating FRAND terms, the court seems to have given such an order solely based on Ericsson’s claims. The court has also permitted officials from Ericsson to work with customs officers in the inspection of Micromax's consignments to check for devices infringing Ericsson’s patents. The deposit is to be made by Micromax if it wishes to keep importing and selling its products and avoid getting them impounded by the customs department as its current consignment has been after Ericsson had alleged patent violation.
Micromax has been quick to reject all the allegations by Ericsson and made the counter-allegation of non-compliance by the latter of its previous global commitments on providing its SEP to handset makers under fair, reasonable and non-discriminatory (FRAND) terms. Claims have also been made that Ericsson, following its exit from the handset market after termination of its JV with Sony, was seeking to extort unrealistic amount of licensing fees, as is evident from its ongoing battles with not only Micromax, but also other players like Samsung.
In case the court decides in Ericsson’s favour, the impact of the decision is likely to undermine the low-cost business strategy of several domestic handset and tablet companies, as well as open a floodgate of litigation in the Indian telecommunications sector in the days to come. This possibility gains further currency by reports of Ericsson evaluating feasibility of similar legal action against a few other local low-cost handset manufacturers like Lava, Spice, Karbonn and Intex Technologies.
Interestingly enough, the US Department of Justice and the USPTO have in the beginning of this year issued a joined statement on SEPs, encouraging voluntary technology licensing on FRAND terms and discouraging injunctions or exclusionary orders that block infringing products from the market. One can argue that the impounding of Micromax’s consignment on the basis of Ericsson’s allegation in the present case amounts to exactly an injunction that the US government spoke out against. The dangers of a trend of granting ex-parte injunction in patent infringement suits have especially been highlighted time and again in this blog (see here and here). Even the high amount of deposit that Micromax needs to pay to continue its business is likely to attract considerable criticism, given the context.
There have been several SEP battles all across the globe till date, including those between Apple and Samsung or between HTC and Nokia, but the present dispute differs from them in the matter that one of the parties is not technically the owner of technology, which makes it difficult for that party to countersue Ericsson.
The Spicy IP team hopes to keep the readers informed as various facets of this drama unravels before the Delhi High Court in the days to come.
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