Chitra Iyer, head of intellectual property and standards at Philips India, argues that India’s first judgment on standard essential patents is for the greater good

India is slowly emerging as a land of opportunity for entrepreneurs and investors, with a definite focus on improving its legal and IP machinery. Notable is the desire to improve the speed and efficiency of IP prosecution, and the creation of commercial courts for handling IP matters in a timely manner.

In line with these developments, the Indian government came up with an ambitious national IPR (intellectual property rights) policy in 2016. In the past few years, India has also made positive efforts to position itself as an attractive market for investments with several new initiatives such as the “Make in India” initiative, from 2014, to transform India into a global design and manufacturing hub. The “Startup India” programme to incentivize the vibrant startup culture with support, efforts to improve the country’s ranking in the Global Innovation Index, and similar efforts with regard to the “ease of doing business” index have also reaped results. In the past two years, India’s position in the ease of doing business index has witnessed an impressive leap of 53 places. According to the World Bank’s 2019 report, India is now 77th out of 190 countries. The ambition is to break into the top 50 countries in the coming years.

As jurisprudence evolves in India and a supportive legal framework develops to better support IP commercialization and enforcement, India will create confidence for global investors. Investments in India will flourish in a balanced and welcoming IP environment.

Some of the greatest innovations of the modern era have been realized by companies collaborating to set standards. Standards define the specifications necessary to enable products developed by different companies to be compatible with one another. This interoperability between devices ensures safer, more reliable products, and more choices for consumers.

Companies that wish to work on the development of a standard often do so by participating in efforts organized by standards setting organizations (SSOs). Often, those companies will own patents covering inventions that are essential to the practice of the standard. One function of an SSO is to develop an IPR licensing policy for patents found to be essential to the practice of the standard.

These policies attempt to create a balanced framework that both incentivizes investment in R&D, while also making it possible for manufacturers to participate in the adoption of a standard without fear that a participant holding an essential patent will block others from practising the standard once it is adopted.

This IPR licensing policy usually includes asking participating companies to pledge to license their essential patents, if any, via fair, reasonable and non-discriminatory (FRAND) terms. Sometimes several organizations may contribute technologies, along with the underlying patents that may become the basis of certain technical standards.

The patents found to be essential cover different aspects of technologies that are essential for making devices function according to the standard. One of the main purposes of the FRAND commitment is to ensure access to standardized technology. While the FRAND royalty is determined by negotiations between individual patent owners and companies wishing to take a licence, it ideally is set at a rate that fairly compensates the owners of the contributed technology covered by the patent, and at the same time allows for the licensee – which can be either a contributor to the standard or a non-contributing implementer that wishes to develop products using the standard – to pay a fair price for its use.

Philips, via its Intellectual Property & Standards (IP&S) organization, has contributed to many breakthrough technological standards by keeping abreast of the latest developments, acting as a key contributor to many governing boards, and implementing policies that adhere to FRAND conditions across a variety of sectors.

Philips was the first organization to enforce its Standard Essential Patents (SEPs) in India, as early as 2009, represented by Indian law firm Anand & Anand. The matter was finally decided, after a long wait, in 2018 at the Delhi High Court, leading to India’s first judgment on SEP and FRAND litigation, on 12 July 2018.

The cases are Koninklijke Philips N.V. & Anr v Rajesh Bansal (Mangalam Technology) and Koninklije Philips N.V. & Anr v Bhagirathi Electronics and others. The suits were consolidated and common evidence was led.

The Delhi High Court held that the “DVD Forum Standard (formulated in 1996) was adopted by the independent standard setting body, ECMA, in April 2001 and was termed as ECMA Standard No. 267, 3rd Edition – April 2001 for 120 mm DVD – Read Only Disc. In 2002, this very standard was further adopted by the International Standard Organization as ISO/IEC 16448:2002 – Information Technology – 120 mm DVD – Read Only Disc. Both the standards, i.e. ECMA and ISO, are in the public domain and can be easily accessed and can be read in evidence.

It may be worth examining this case in some detail along with some background, and what it means to the evolving SEP jurisprudence in India. The matter related to an essential DVD video player patent with reference number IN184753, and specifically to channel (de)coding technology used for DVD video playback function in a DVD video player.

The aspects settled in this suit include the following:

    • The ownership and validity of this patent No. IN184753 was established in favour of Philips.
    • The question of Infringement of the patent by the defendants was settled, where infringement was established based on: (1) the fact that the defendants manufactured/assembled and sold the DVD players without seeking licences from Philips, while being unable to prove that the principles of exhaustion were applicable in this case; and (2) by way of independent conclusion upon analysis of the claims of the patent and the defendants’ product, it was proved that the technology used, and its functions, as performed by the DVD players manufactured by the defendants, in fact used the technology described in the patent of the plaintiff.
    • The defendants’ knowledge of the plaintiff’s patents was established on the basis that Rajesh Bansal was earlier working for the plaintiff, and that one of the defendants had applied for licence in the past.
    • Essentiality of the patent to applicable standards was established by comparing equivalent claims in US and EP patents (which were both standard essential). It was held that the patent was essential to the DVD standard in India with respect to a DVD technology player.
    • FRAND royalty was fixed for payment to Philips. The court fixed the royalty rate at US$3.175 per DVD player from the date the suits were instituted until 27 May 2010, and at US$1.90 from 28 May 2010 until 12 February 2015, when the patent expired. The court awarded damages of US$7,282).
    • The defendants’ allegations that Philips abused its dominance to force licences on the defendants were dismissed.
    • The court also held that 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, and, therefore, the Competition Commission of India is the appropriate authority to adjudicate such issues and claims.

The judgment had significant implications for companies like Philips that invest heavily in R&D and manufacturing in India. As a point of reference, Philips invested 1.8 billion (US$2 billion) in R&D in 2018, and is among the top 100 global innovators for the sixth year in a row, according to Clarivate Analytics. Philips also invests in a significant IP portfolio with several thousand patents filed globally.

Philips has been in India for almost 90 years, when its first factory was set up in the country. India is a nation that is developing at a rapid pace and has made tremendous progress in many important areas in the past decade, and Philips, as well as many other companies, have significant R&D and innovation activities in the country. For Philips, India is one of the company’s four innovation hubs for R&D, and the company aspires to continue to be a trusted and respected brand in India.

The Philips judgment in Delhi High Court can be considered a landmark judgment and an important milestone for companies to encourage innovation activities in India, and further investment in R&D activities over the years.

The decision rendered by the Delhi High Court in the combined cases against Bhagirathi Electronics and Mangalam Technology creates more clarity for Philips and other innovators. The judgment provides confidence that India recognizes and allows for a legal environment that protects investments in R&D. Philips respects IP rights of third parties, and believes that other companies should reciprocate by abiding by the same standards and expectations.

Chitra Iyer is head of intellectual property and standards at Philips India