Positives and negatives in major Indian FRAND decision

Licensing views
April 9, 2024

The Delhi High Court recognised concepts such as hold-out and unwilling licensee in its recent Ericsson v Lava decision but did little to deter such behaviour. However, there are reasons why the ruling may turn out to be highly significant

By David Muus

At the end of March, the Delhi High Court handed down a decision in the closely watched FRAND litigation involving Ericsson and Indian mobile vendor Lava.

The dispute between the two companies has a long history. As far back as 2011, Ericsson had contacted Lava about taking licences to various SEPs it claimed were being used in smartphones, tablets and other devices sold by Lava on the domestic market.

Things escalated in 2015, when Lava took legal action to challenge Ericsson’s right to demand licensing royalties; and they escalated again a year later when Ericsson filed suit alleging infringement of eight SEPs. The Swedish company also obtained a preliminary injunction against Lava in the same year. However, this was suspended following payment of a bond worth the equivalent of $6 million.

Eight years later – and with the two cases now consolidated – the court issued its judgment. And it is a monster, running close to 500 pages. Law firm Singh & Singh, which acted for Ericsson in the dispute, has put together a helpful rundown of Judge Amit Bansal’s main findings. The ones of particular interest are:

  • Lava was found to be an unwilling licensee that engaged in deliberate hold-out.

  • The court rejected arguments it should conduct a top-down FRAND analysis, opting for one based on comparable licences instead.

  • Having done this, its assessment was that Lava should pay Ericsson a royalty of 1.05% per device, dating back to first use of the seven SEPs that were found to be valid.

  • This came to a total equivalent to approximately $30 million.

  • An interest charge of 5% per annum dating from the award will be levied until the sum is paid.

  • Lava will have to meet Ericsson’s costs.

On the face of it, this all looks like very encouraging news for technology companies involved in developing standards that seek to enforce their SEP rights in India. However, while there are positive aspects to the judgment – in particular the explicit findings of Lava’s hold-out and it being an unwilling licensee – the news is not all good.

Running from reality is bad business

First, it took 13 years from Ericsson first contacting Lava to the Delhi High Court handing down its decision. The litigation began nine years ago, back in 2015. Only a year later, Ericsson successfully secured a preliminary injunction. However, Lava managed to get another eight years of hold-out time with the payment of $6 million. This is a sum representing a fraction of the revenue the company would have generated from its infringing products over that period.

Second, while the judge did undertake a very thorough FRAND assessment, the figure he came to in the end merely reflected what he calculated to be the royalties that Ericsson missed out on because of Lava’s hold-out.

In fact, the 1.05% per device is very similar to the number the Swedish company suggested back in 2015. There were no additional damages awarded, despite the judge’s finding that Lava had not negotiated in good faith and had consistently indulged in delaying tactics by failing to respond to offers or present counteroffers.

If the “punishment” for being an unwilling licensee and indulging in long-term hold-out is the payment of a relatively low value bond so you can carry on doing it for many more years, with only the prospect of handing over the requested royalty at the end, many implementers may not be particularly worried.

As a well-financed business, Ericsson can probably live with the time it all took and, because of its strong reputation, may not need to rely on any future deterrent effect. What’s more, it will be pleased the royalty rate it offered Lava was judged to be FRAND.

Unfortunately, though, smaller SEP holders with far fewer resources will always find it much harder to cope with Lava-style extended hold-out. For them, the options are much more likely to be accepting a lower royalty rate to settle or just dropping legal action altogether.

There appears to be a persistent belief among certain implementers that if you use the right words and hire the right lawyers, you can persist with hold-out indefinitely and never pay royalties. Plenty of such strategies may just be the result of a toxic mix of fear about an honest discussion with senior management and sticking one’s head in the sand, fuelled by pitches from outside counsel that are, in effect, about turning licensing fees into lawyers' fees.

This is what makes deterrence so crucial. It is not only about punishing bad behaviour but also about sending a signal to everyone else – SEP holders and implementers – that taking a bad faith approach to licensing negotiation is ultimately a poor business decision.

But it’s important not to overstate the negatives. Importantly, the Delhi decision does signal that you can’t run forever. In the end there is a bill to pay. Putting off doing this for 13 years and having to find the cash in one go, while meeting your own and Ericsson’s legal costs, looks like a bad business decision. Put it this way, it’s not something I would like to take responsibility for in front of my CFO.

The China angle

There has been some talk of India emerging as a major FRAND litigation hub in future. However, that looks premature. This is just one case, so it is hard to draw any general conclusions, but my guess is that there will be more wait and see as opposed to a rush to the country’s courts.

There are unquestionably positive signs but too much uncertainty around time to trial and remedies remains for India to leapfrog over more established jurisdictions as a venue of choice.

That said, there may be exceptions. One obvious one is that the only place to enforce SEPs against Indian manufacturers servicing the domestic Indian market is India. What the Delhi High Court has shown is that it is worthwhile doing this if you have the resources and patience. It may take time but with strong patents and a good case, you will get there in the end.

This point does not apply only to Indian companies. In fact, there may be an even more important cohort to think about. While Chinese device manufacturers are either – by compulsion or choice – not active in a number of countries, India is an exception.

For example, the Economic Times reported in June 2023 that Chinese vendors account for over 50% of smartphone sales in the country. “For Chinese mobile players, India is a huge market. And with half of the population yet to be connected by the internet, the potential going forward is enormous,” it stated.

While no two cases are the same, one notable aspect of the Delhi High Court's decision is the contrast between the 1.05% per device damages award/royalty the judge calculated Lava should pay Ericsson and the determination reached by the Chongqing court in the Nokia v Oppo dispute that my colleague Donald Chan analysed at the start of this year.

Of course, the patents Ericsson and Nokia hold are different, while the Delhi case dealt with 2G and 3G SEPs and the Chinese one covered 4G and 5G. However, that 1.05% per unit for SEPs reading on relatively old technology is substantially higher than the $0.477 per unit and $0.707 per unit that the Chongqing court ruled Oppo should pay Nokia for the use of its 4G and 5G SEPs respectively.

On the face of it - and despite the seeming lack of an additional hold-out/unwilling licensee "punishment" within the Delhi award – this indicates there are circumstances under which India may be a jurisdiction of serious interest for SEP holders. Considering the size of the country’s market, growth opportunities and its importance to so many of the top 15 smartphone manufacturers, that could be highly significant.

David Muus is head of licensing programmes at Sisvel

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