Koninklijke Philips Electronics (“Philips”), a global electronic corporation, had filed two suits claiming infringement of its patent (Patent No. 184753) relating to channel (de)coding technology used for DVD video playback function in DVD players. Philips further claimed that the said patent is a Standard Essential Patent (SEP), initially adopted as a standard (DVD Video Standard and The DVD ROM standard) by the DVD Forum and subsequently adopted by the Standard Setting Organisations (SSOs) ISO/ IEC 16448 (2002) and ECMA (2001). As the suit patent is an SEP, any entity interested in manufacturing a DVD player has to seek license from Philips to use the invention protected by the patent.
In both suits, Philips alleged that the defendants, local Indian manufacturers of DVD players, utilised Philips’ SEP without obtaining a valid license, thereby infringing the said SEP. Philips claimed that the DVD players sold by the defendants’ employed decoders especially meant for decoding contents stored on optical storage media in accordance with the methods described in Philips’ Indian patent 184753. The two suits were consolidated and common evidence was led.
Points of contention in the suit and the corresponding analysis and judgement of the Court:
Validity of the patent IN-184753: The defendants challenged the validity of the suit patent, contending that the invention claimed is an algorithm, and therefore is not patentable as per section 3 (k) of The Indian Patents Act, 1970. However, as this was not pleaded by defendants in their written statement, the Hon’ble Court did not consider the argument. Also, Philips’ contended that the suit patent claimed a decoding device which is a physical object and not just an algorithm. During cross examination, the expert witness of Philips verified that the decoding device is a physical component, i.e. a chip, which works with an optical drive next to it, demonstrating that the patent claimed a circuit board comprising a chip and therefore valid within the meaning of section 3 (k) of the Act.
Essentiality of the patent IN-184753: The defendants challenged the essentiality of the suit patent by stating that there were no SSOs in India and also in the absence of an SSO, Philips’ invention was not recognised as an SEP by any Government Authority in India. The defendants further contended that DVD Forum is not an independent body and is largely influenced by Philips. However, to prove essentiality of the suit patent, Philips relied upon the ‘essentiality certificates’ granted to the suit patent’s corresponding US and European patents, the veracity of which was in turn questioned by the defendants. The Court, however, did not examine the validity of these ‘essentiality certificates’ holding that Philips had discharged its burden of proof by producing the evidence of essentiality. The Court further stated that the standard being adopted by ECMA and ISO, which are recognised SSOs, is sufficient to prove essentiality of the patent. With regard to the defendants’ contentions that there are no SSOs in India and that the patent was not recognised as an SEP by any Government Authority, the Court stated that the standards adopted by ECMA and ISO are available in public domain (their respective websites) and can be accessed easily even in India, and can therefore be read in evidence.
Infringement of the patent IN-184753: Philips proved infringement of its suit patent by the defendants’ DVD players through tests devised specifically for the purpose of determining the presence of EFM (eight to fourteen modulation) + demodulation technique and confirmed that the defendants’ DVDs were using the said technique, thereby infringing the suit patent. However, the defendants claimed that they assembled DVD players with parts, including the chip, purchased from legitimate sources and therefore, by the doctrine of exhaustion, did not cause infringement. The Court rejected the application of the doctrine of exhaustion in the present case as the defendants had failed to establish that the vendors they purchased the chips from are licensees of Philips.
Defendants’ knowledge of Philips’ patent and its licensing programs in respect of use of the SEP: The authorised representative of the defendants’ was an ex-employee of Philips and therefore the Court decided this issue in favour of Philips.
Anti-competition and Philips exercising monopoly to earn exorbitant profits by creating patent pools: The defendants contended that the manner of fixing royalty/ license fee by Philips is an anti-competitive practice and therefore could not be decide by the civil court as per Section 61 of the Competition Act, 2002. Philips disputed the same by stating that the royalty is determined on globally accepted FRAND (Fair, reasonable, and non discriminatory) principles. The Court rejected this argument, as it has already been settled in Telefornaktiebolaget Lm Ericsson (PUBL) vs. Competition Commission of India (CCI) and Ors. that the CCI and the civil court operate in different spheres and offer different remedies, therefore, an abuse of dominant position under Section 4 of the Competition Act is not a cause that can be made a subject matter of a suit or proceedings before a civil court.
Determining license fee and decree of damages and other reliefs: Philips argued that the value of royalty must be based on the entirety of the patent pool and not just based on the suit patent as the rate is not fixed based on the suit patent but on the basis of sale of the DVD player as a whole. Defendants stated that the royalty rates fixed by Philips was a breach of FRAND licensing terms as there is no evidence in respect of determination of the royalty. There was no analysis in the judgement about the scope of FRAND terms and how the court should determine royalty rates based on FRAND terms. The court relied on the US Federal Court’s decision in Commonwealth Scientific and Industrial Research Organization vs. Cisco Systems, Inc. to conclude that the royalty rates may be based on informal negotiations, and in the absence of a countervailing methodology by the defendants, allowed the royalty rate to be fixed at USD 3.75 from the date of institution of the suits till 27th May, 2010 and from 28th may, 2010 at USD 1.90 till 12th Feb, 2015.
Punitive damages: The Court, considering the conduct of the defendants as well as the fact that the authorised representative of the defendants was an ex-employee of Philips, held that he is liable to pay INR 5,00,000 as punitive damages. A decree of actual costs incurred by Philips including Court fee, the Local Commissioner’s fee and lawyer’s fee was also passed in favour of Philips. However, no injunction was granted considering that the suit patent’s validity expired in 2015.