Introduction
A 5 year long dispute between Ericsson, a multinational Swedish telecom company, and Micromax, an Indian electronics company, came to an amicable end when both parties reached an agreement, wherein Micromax would pay Ericsson royalties for each phone that it sells, which uses 2G or 3G technology. The subject matter of the dispute was Ericsson’s claim that Micromax infringed upon its Standard Essential Patent (SEP) and to this effect demanded a compensation of INR 100 crore, in addition to a royalty of 1.25-2% on each phone sold. Thereafter, Micromax filed a complaint with the Competition Commission of India (‘CCI’) against Ericsson for abuse of dominant position.
The dispute in question brought to light a new perspective, that of the relationship between patent law and competition law, which, prima facie protects contradicting interests in the market. While the former grants exclusive right over (in this case) a technology to one entity, the latter protects competitors from being affected by an unfair advantage that lies with another competitor. Ultimately, the question of whether the two are actually contradictory was addressed in this matter.
Facts
In 2013, after Ericsson filed a patent infringement case against it,, Micromax, alleged abuse of dominant position by Ericsson. The CCI found a prima facie case against Ericsson, and directed the Director General (DG) to investigate the claim. In response, Ericsson filed a writ petition in the Delhi High Court, challenging the authority of the CCI.[i] Meanwhile, the court set royalty rates by way of an interim agreement between the parties.[ii] But Ericsson was allegedly charging royalty arbitrarily, and believed that it had the right to do so, as it presumed that technology in question was unique. The trial regarding this matter finally took place in May 2015, wherein the DG was allowed to investigate the matter, without the power of passing a final order. Later, the summons issued to Ericsson by the CCI was set aside by the court, and there was no coercive action taken up against the company. This was later viewed as the final order.[iii] On 30th March 2016, the Delhi High Court while dealing with the patent infringement case discussed the issue of CCI’s jurisdiction in this matter.[iv]
Issues contended
The primary issue herein is that of safeguarding fair competition in the market, while simultaneously ensuring availability of low-cost mobile devices for consumers. Ericsson has been fending off competitors such as Micromax, Intex and iBall, which are relatively smaller, both in terms of their market share in the global perspective, as well as their financial resources. Due to a paucity of financial resources, companies such as Micromax cannot reduce the price of their final product significantly due to the following reasons:
The margin between their cost of production and selling price will reduce significantly, which will result in a drastic fall in their profits.
These companies operate in a significantly smaller market, which makes their volume of sale much lesser than that of a multinational corporation.
Therefore, the advantage here lies with Ericsson, as they can compete with these companies with a substantial financial backing. This allows them to shift to a model that relies on the volume of sale, rather than a higher-price oriented model to generate profits. The competing companies in question cannot operate as per the given model, due to the resources and market share that they lack in comparison. It gives them a “dominant position”, as they have the power to affect the selling price in the relevant market (a market wherein the products are homogenous and interchangeable).
To ensure the accomplishment of the dual goal that lies herein- condemn practices that are not in the spirit of competition, and also ensure the maximum utility that a consumer may derive from such a product, thereby not curbing their right to choose, or curtailing the option of a company selling the product in the first place, the aforementioned interim agreement was prescribed by the CCI. Micromax alleged that Ericsson was abusing this dominant position, and dictated the terms of the agreement and charged royalty arbitrarily. However, Ericsson challenged CCI’s order on the grounds that it was arbitrary in nature, and that it did not have the jurisdiction over this dispute. The jurisdiction was challenged on the grounds that the dispute was already a subject matter of pending suits, and was related to patent infringement, and not competition law. This conflict thus turned into a three-way tightrope walk: the conflict between the statutes, the dispute between the parties, and the consumer’s welfare is paramount.
Matter of jurisdiction
Delhi High Court’s decision, in this case, is a playmaker in the issue of jurisdiction in competition law cases, especially the ones that deal with patents. Micromax challenged Ericsson for demanding royalty on the sale value of the entire mobile, rather than only the patented technology, and for filing an injunction and threatening to report it to SEBI, as a consequence of failing to pay the royalty. Ericsson claims that it was entitled to do so, under the Fair, Reasonable and Non-Discriminatory (FRAND) terms, by virtue of it being a part of the European Telecommunications Standards Institute (ETSI), which granted licenses for the aforementioned technologies. Thus, Ericsson claimed that it was a case of patent dispute, in which, CCI could not exercise its jurisdiction. When the CCI still went ahead and ordered the DG to investigate the matter, the move was challenged in the Delhi High Court. Here, the CCI put forward two compelling arguments to reinstate its jurisdictional authority, by proving that these two laws were not contradictory in nature-
That the Patent Law in itself ensures that there is no abuse of patent by providing for compulsory licensing as a remedy in personam.
Levying fines, issuing cease and desist orders are some of the remedies provided as remedies in rem[v]
Section 27 of the Patents Act ensures that such a patent-holder does not abuse his or her position, and provides for the required remedies.[vi] Therefore, it is not contrary to the Competition Act, and thus does not oust the dispute from CCI’s jurisdiction. Secondly, it wanted to ensure that the price inflation due to the royalties does not affect the final consumer. Additionally, Section 27 of the Competition Act bestows upon CCI, the power to pass orders on cases of alleged abuse of dominant position in a relevant market.[vii]
Therefore, the Delhi High Court, taking into account these factors, while also recognising the fact that FRAND terms allowed a licensee (here, Micromax) to approach the civil court to protect their patent right, upheld the order passed by the CCI. The Court while dealing with the issue of jurisdiction harmoniously constructed the provisions of the two statutes.
Conclusion
The Delhi High Court recognised the jurisdiction of the CCI in this matter. The plaintiff and the defendant entered a Global Patent License Agreement, outside of the court, thereby putting an end to the long drawn dispute. Micromax also withdrew its complaint against Ericsson in the CCI, after signing a non-disclosure agreement, which prevents them from divulging the terms and nature of the settlement. It can be said with certainty from the court ’s perspective, that statutes cannot be dealt with in absolute isolation from one another. The spirit of any legislation is to protect the mutual interests recognised by the lawmakers. This can be reflected in the court’s insistence on maintaining a harmonious relationship between The Patents Act and The Competition Act.[viii], The two laws may seem contradictory to a layman’s eye, but in the core of their formulation, both of them seek to protect common interests, and therefore do not override or oppose each other.[ix]
[i] Telefonaktiebolaget Lm Ericsson v Mercury Electronics & Anr., (2013) CS(OS) No. 442 of 2013.
[ii] Neharika Nainta, Ericsson v Micromax: The fire that won’t die out easily, LexOrbis (Jul. 12, 2015),
[iii] Best IT World (India) Private Limited (iBall) v Telefonaktiebolaget L M Ericsson (Publ) & Anr., (2015) Case No. 4 of 2015.
[iv] Telefonaktiebolaget Lm Ericsson v Competition Commission of India & Anr., (2016) W.P(C) No. 464 of 2014
[v] Sahithya Muralidhraran, Ericsson v. Micromax – A Kick-Start to SEP-FRAND Antitrust Jurisprudence in India, Kluwer Competition Law Blog (Jul. 13, 2016), http://competitionlawblog.kluwercompetitionlaw.com/2016/07/13/ericsson-v-micromax-a-kick-start-to-the-sep-frand-antitrust-jurisprudence-in-india/.
[vi] The Patents Act, 1970, No. 39, Acts of Parliament, 1970 (India).
[vii] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India).
[viii] Supra note 5.
[ix] Deepak Patel, CCI and patent regulator can co-exist, Business Standard (Apr. 3, 2016, 10:24 AM), http://www.luthra.com/admin/article_images/Business-sandard-CCI-ptent.pdf.
This post has been authored by Darshana Paltanwale, a third-year student of the Symbiosis Law School, Pune.
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