Philips Standard Essential Patent Judgement: Game-changer or Cliffhanger!

March 28, 2019

As it has done time and again in the past, the Delhi High Court once again became the beacon of progress of Intellectual Property jurisprudence in the country, when on July 12th, 2018 Justice Mukta Gupta delivered (what is now to be believed) India’s first ever post-trial judgement in a Standard Essential Patent (SEP) litigation.

Almost a year after the matter was reserved for orders by the Hon’ble Delhi High Court (HC), Koninklijke Philips Electronics N.V. (Philips) secured a major victory in the SEP suits filed against two different entities, namely Rajesh Bansal and Bhagirathi Electronics (the defendants). The HC delivered a single judgement for the two suits filed by Philips, which surely does come as a welcome relief for major players in the technology standard industries (for example telecom, audiovisual, etc.)

In the case at hand, Philips (the plaintiff) was granted an Indian patent 184753 on April 20, 2001, which was based on the application 1578/CAL/1998 (dated 13.02.1995). The patent in question was titled “DECODING DEVICE FOR CONVERTING A MODULATED SIGNAL TO A SERIES OF M-BIT INFORMATION WORDS” and pertained to channel (de)coding technology used for DVD Video playback function in a DVD video player. The invention taught ‘channel modulation’ technology that elaborated a coding step performed directly before the storage of the data in a DVD Video Player. This coding ensured that the data to be stored on the disk has a particularly suitable structure for storage. The decoding of 16-bit code words to 8-bit information words was achieved by looking ahead to the next code words. Said DVD standards in contention, were formulated to be the ‘DVD Video Standard’ and the ‘DVD ROM Standard’ by the DVD Forum Standard in 1996. Subsequently, said standards were adopted by European Computer Manufacturers Association in 2001 and International Standards Organization in 2002. The defendants, Indian DVD player manufacturers, who imported DVD player components, assembled them in India, and sold them in the names of ‘Passion’ and ‘Soyer’, were alleged to be infringing the plaintiff’s patent184753, by engaging the Decoders (meant for decoding contents stored on an optical storage media) claimed in the suit patent in their final DVD players, without obtaining any licence from Philips. This eventually made the patentee, Philips, to file the concerned suits in the matter.

The HC framed eight issues to be decided in the court, and a brief of the outcome follows:

  • Validity – Even though the defendants argued that the suit patent is an algorithm and not an invention as per Section 3(k) of the Patents Act (thereby challenging the validity of patent), the HC decided in favour of Philips, noting that such contention was not addressed in the written statement of the defendants (a clear defence-strategy catastrophe by the defendants!).
  • Essentiality – The HC, without separate (and in-depth) analysis of the suit patent claims, acknowledged the essentiality of the same solely on the basis of the “essentiality certificates” issued to the corresponding EP and US patents. What is interesting to note here is that the HC did not also examine the authenticity of the issued certificates. Further, the HC corroborated their finding by noting that the claims granted in the suit patent is similar to the claims granted in the corresponding EP and US patents.
  • Infringement – This was relatively an easy conclusion for the HC to reach, as the essentiality of the suit patent was already established. The HC then, using the product-claim analysis provided by the plaintiff, found that the defendants’ products (unlicenced) were indeed using with the standard, thereby establishing infringement.
  • Knowledge – The HC was quick to conclude on this issue too, since they found that the defendants had applied for a license for the suit patent, which clearly makes the defendants aware of the suit patent licencing.
  • Misuse – The HC on the issue whether the plaintiff, along with various other members of the DVD forum, were creating patent pools to misuse their position in the market to form a monopoly and earn exorbitant profits from competitors, ricocheted and the HC found that said issue of misuse of market dominance was beyond the scope of the concerned suit, and opined that said issue could be best dealt by the Competition Commission of India (CCI) alone.
  • Exhaustion – Even though the defendants took the plea that they were not liable for infringement under the common law doctrine of exhaustion of rights (since MediaTek was an authorized licensee of Philips and they were using MediaTek chips in their players), the HC disagreed and concluded that the defendants were unable to establish said fact.
  • Royalty – The HC in this issue, based their conclusion on the concept of ‘entire market value of the end product’ as the royalty base to accept the Philip’s rates (which were exchanged during an informal negotiation), and fixed the royalty rate at USD 3.175 per unit (from the date of institution of the suit, until May 27, 2010) and, the rates thereafter at USD 1.90. To corroborate their concept, the HC relied on the 2015 U.S. Federal Circuit case, CSIRO v. CISCO [809 F.3d 1295 (Fed. Cir. 2015)]. An interesting thing to note here is that the HC did not analyse at all what the scope of a FRAND term is, and how anyone should determine the same in situations where someone decides upon a royalty rate. The actual amount of damages, however, were not specifically set out by the HC due to lack of sales data of the defendants’ products. In this regard, the HC appointed a local commissioner to ascertain the exact quantum of damages.
  • Costs and Punitive Damages – In furtherance to the costs, the HC also awarded the plaintiff punitive damages in approximation of USD 7300.

All in all, there is absolutely no doubt that the Philips decision will indeed turn out to be a ‘bright’ torchbearer for the SEP scenario in India. However, it would not be long when this bright torch would eventually burn out, since it would not be wrong to contend that the judgement leaves a lot of essential questions unanswered. Some of them may be the failure of assessing the essentiality of suit patent independently, failure of a proper (and in-depth) claim de-construction and further analysis thereof, failure of considering the exhaustion principles, and failure of assessing the FRAND terms in detail. It would therefore, surely be an interesting space to watch out for in the coming days as to how this nascent jurisprudence on such a critical area evolves in our country!

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