DAMODARAM SANJIVAYYA NATIONAL LAW

UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

INTELLECTUAL PROPERTY RIGHTS

Case Study on Best IT World (India) Pvt. Ltd. (iBall) vs. Telefonaktiebolaget
LM Ericsson (Publ) and Ericsson India Pvt. Ltd.

NAME OF THE FACULTY

DR. P. SREE SUDHA

G. ARTHI

19LLB102 & Semester V

 TABLE OF CONTENTS

Acknowledgement………………………………………………………………….2

Introduction………………………………………………………………………...3

Competition Commission of India’s Prima Facie Opinion…………………………

5

 Allegations By iBall
 CCI’s Observations
 Relevant Market
 Dominant Position
 Abuse Of Dominance

Analysis By Consumer Unity & Trust Society (Cuts)………………………………

8

 Ericsson vs. iBall and the Global Patent Wars

 Possible Inconsistency between Patents Act and Competition Act
 CCI’s Jurisdiction
 Dominant Position of Ericsson
 Ericsson’s Possible Abuse of Dominant Position

Tying Of Patents……………………………………………………………….….10

Conclusion………………………………………………………………………...14

1
 ACKNOWLEDGEMENT

The project consumed huge amount of work, research and dedication. Still, implementation
would not have been possible without support of my lecturer. I take this opportunity to express
my profound gratitude and deep regards to my lecturer for his exemplary support, monitoring
and constant encouragement throughout the course of thesis.

2
 INTRODUCTION

Presently, one of the most legally contested issues globally lies at the interface of Competition
Law and Intellectual Property Rights (IPR), especially in the Information and Communications
Technology (ICT) sector1.

The developed world has transitioned from manufacturing‐based economies, to knowledge-based

ones, thereby increasing the importance of standard setting. Most modern-day technology
products, comprise of complicated combinations of components developed by multiple firms
across the world, which must work at tandem to create a workable end product, i.e.,
interoperability standards form the core of the product design2.

A standard can be defined as a set of technical specifications that seeks to provide a common
design for a product or process3, which are generally established by Standard Setting
Organisations (SSOs) or through an industry consortium, in a collaborative and participative
manner.

However, the process of standard setting involves patented technologies, which sometimes
widens the scope for anti-competitive actions4. As per European Telecommunications Standards
Institute (ETSI), an ‘essential’ IPR is an IPR, which has been included within a standard, and
where it would be impossible to implement the standard without making use of this IPR. The
only way to avoid the violation of this IPR in respect of the implementation of the standard is
therefore to request a licence from the owner5.

This often leads to confrontational negotiations, thereby raising the probability of abuse of
dominant position on the part of the Standard Essential Patent (SEP) holder, or IP-infringement
behaviour on part of the technology implementer. Although the SSO IPR policies generally
mandates that the SEPs are licensed on Fair, Reasonable and Non-Discriminatory (FRAND)
terms, but the diverse interpretation of FRAND in many instances leads to disagreement on
patent licensing terms.
1
Competition Policy and Intellectual Property Rights, (1997)
2
Anne Layne-Farrar, 'Business Models and The Standard Setting Process'
3
Damien Geradin and Anne Layne Farrar, 'The Logic and Limits of Ex Ante Competition in A Standard-Setting
Environment'
4
Mark. A. Lemley, Antitrust, Intellectual Property Rights and Standard Setting Organizations, 90 California Law
Review 6, 1889 (2002).
5
'ETSI Guide on Intellectual Property Rights'

3
Such circumstances have led to several legal disputes in the global smartphone industry. Thus,
this edition seeks to specifically analyse one such major dispute in India where an SEP holder
was accused of engaging in anti-competitive behaviour. In 2015, iBall (entered the Indian mobile
handset market as an importer and supplier in 2010) filed information with the Competition
Commission of India (CCI) against Ericsson (collective of both the opposite parties), under
Section 19(1)(a)6 of the Competition Act alleging abuse of dominance vis-à-vis licensing of
SEPs7. In the complaint, iBall raised allegations against Ericsson based on the possible
anticompetitive effects caused by its licensing practices with regard to SEPs held by Ericsson in
the ICT sector.

The Commission was of the opinion that considering the non-substitutability of the relevant
product (SEPs), Ericsson is prima facie dominant in the relevant market of “Standard Essential
Patents for 2G, 3G and 4G technologies in Global System for Mobile Communication (GSM)
standard compliant mobile communication devices in India”. Furthermore, keeping in mind
Ericsson’s licensing practices (described in later sections), the Commission thought this to be a
case worth investigating into, and accordingly ordered the Director General (DG) to investigate
Ericsson under Section 4 of the Competition Act, 2002 (Act).

6
Competition Act 2002
7
Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), Case No. 50/2013.

4
 COMPETITION COMMISSION OF INDIA’S PRIMA FACIE OPINION

Allegations By iBall

The information filed by iBall against Ericsson contained allegations of abuse of dominant
position, which is prohibited under Section 48 of the Act, on the following grounds;

 Ericsson is one of the world’s largest telecommunication companies with a global market
share of 38 percent. It is also one of the largest holders of SEPs in the mobile phone and
wireless industries with approximately 33,000 granted patents as of 2012, out of which
400 were granted in India.
 Ericsson demanded excessive royalties from iBall, which was alleged to be a
contravention of its FRAND commitment, as they were based on the Net Selling Price
(NSP) of the end product i.e., the mobile handset, instead of the cost of actual patented
technology used, i.e., the Smallest Salvable Patent Practicing Unit (SSPPU).
 Ericsson requested iBall to execute a Global Patent Licensing Arrangement (GPLA),
though it refused to specify/identify any patents, which were being infringed by the
Informant’s products, unless a Non-Disclosure Agreement (NDA) was executed between
them, which would have enforced confidentiality for ten years. In addition, this GPLA
was to cover not only future sales of iBall, but also its previous sales.
 Another area of concern for iBall was the tying and bundling of the patents, which were
irrelevant to their range of products.
 A dispute resolution clause was also being insisted by Ericsson, which mandated any
dispute between the parties be settled through arbitration in Stockholm, Sweden.
 Ericsson was using a threat of initiating patent infringement proceedings against iBall as
a tactic to coax it to enter into a one-sided and onerous NDA.

CCI’s Observations

Before delving into the observations of CCI, it is important to note that the DG investigation
report is still awaited. The observation mentioned below are preliminary in nature, which formed
the basis of directing a DG enquiry into the merits of the case.

8
Supra 6

5
Relevant Market

First and foremost, the CCI had to identify the relevant market in the present case. Considering
the product in question, the Commission held the relevant product market to be “Standard
Essential Patents for 2G, 3G and 4G technologies in GSM standard compliant mobile
communication device”. Further, considering the pan India presence of Ericsson, the relevant
geographic market was held to be India. Accordingly, the relevant market was held to be
“Standard Essential Patents for 2G, 3G and 4G technologies in GSM standard compliant
mobile communication devices in India”

Dominant Position

Furthermore, the Commission was to assess the dominant position of Ericsson in the defined
relevant market. Considering the facts brought forth by the informant with regard to the global
presence and large patent portfolio of Ericsson, CCI concluded that the lack of substitutability of
the relevant product makes Ericsson dominant in the relevant market (prima facie). Other factors
noted by the Commission comprise;

 Ericsson is a member of a Standard Setting Organisation namely, European

Telecommunications Standards Institute (ETSI), which produces globally applicable
standards for ICTs, some of which are covered by patents held by ETSI or ETSI members
like Ericsson.
 Once a patent is declared as SEP, it faces no competition from other patents until that
patent becomes obsolete due to new technology/inventions.
 Attention was also given to Clause 6 of ETSI’s IPR policy, and to Ericsson’s
undertaking/declaration, which required it to offer and conclude licenses with patent
seekers on FRAND terms.
 Ericsson’s patents have also been accepted by the Department of Telecommunication,
India (DoT) and every telecom service provider in India is required to enter into a
Unified Access Service Licence (UASL) Agreement with DoT. Further, DoT had
directed that all GSM/Code Division Multiple Access (CDMA) network equipment
imported into India, should meet the standards of international telecommunication
technology as defined by International Standardisation bodies, such as ETSI.

6
 Abuse of Dominance

In its investigation order, the CCI stated, “forcing a party to execute an NDA and imposing
excessive and unfair royalty rates” indicates prima facie abuse of dominance and violation
of Section 4 of the Indian Competition Act. It accordingly directed the DG to conduct an
investigation through an order under Section 26(1) of the Act. The rationale behind such an
opinion has been mentioned below:

 The practices adopted by Ericsson concerning the royalty rates, appear to be

discriminatory as well as contrary to FRAND terms, since the royalty rate being charged
has no linkage to the functionality of the patented product. Rather, it has linkage to the
final price of the manufactured product in which the patent is being used. Further,
charging of two different licence fees per phone for use of the same technology, prima
facie, appears to be discriminatory. The CCI seemed to be in favour of the fixing royalty
based on the SSPPU, i.e. the chipset.
 The terms of the NDA are contrary to the spirit of applying FRAND terms fairly and
uniformly to similarly placed players. Forcing a party to execute an NDA, prima facie,
amounts to Abuse of Dominant position. The scope and timing of the NDA needs to be
fair, and not onerous.
 In addition, imposing a jurisdiction clause debarring the Informant from getting the
disputes adjudicated in the country where both the parties are engaged in doing business
and vesting the jurisdiction in a foreign land, prima facie, appears to be unfair.
 The CCI also noted that, similar allegations were also brought forward in previous cases
i.e., Micromax Informatics Limited vs. Telefonaktiebolaget LM Ericsson (Publ) 9 and
Intex Technologies (India) Limited vs. Telefonaktiebolaget LM Ericsson (Publ)10.

9
CCI Case No. 50 of 2013
10
CCI Case No. 76 of 2013

7
 ANALYSIS BY CONSUMER UNITY & TRUST SOCIETY (CUTS)

Ericsson vs. iBall and the Global Patent Wars

This Indian dispute between a cell phone manufacturer (iBall) and a SEP holder (Ericsson) is a
mere battle in the larger patent war being fought in the ICT sector between SEP implementers
and SEP holders across the globe. This had already been described in detail in our previous
analysis of the case filed by Micromax against Ericsson on similar grounds11.

The underlying dispute in such cases apparently lies at the unique interface of two laws i.e.
patent law and competition law. Evidently, the inclusion of patents in standards leads to a unique
situation where technological patents become essential to the manufacturing and production of a
product, especially in the ICT sector.

Possible Inconsistency between Patents Act and Competition Act

Earlier, competition and IP laws were believed to be like poles of a magnet, which repel each
other. However, in the long run, both aim at increasing efficiency in the market, and consumer
welfare, as they complement each other. In the case of IP goods, the marginal cost of production
is very low, and the main cost incurred by the innovators, is on research and development of the
invention added with the expenditure incurred in introducing that product in the market.

Absence of monopoly, will prevent the inventor to fully recover the cost of its R&D, resulting in
a discouragement for investors, to invest in newer inventions in future. Therefore, the IP regime
is considered to be pro-competitive and pro-innovation, whereas competition law is primarily
concerned with increasing and protecting competition in the product markets, which again
promotes innovation. Hence, both are divergent paths to the same goal12.

The dispute where the CCI adjudicated on issues relating to SEPs goes to the very heart of the
apparent conflict between patent law and competition law. Both offer their own set of remedies
to resolve the issues raised through SEP litigation 13. This leads to the question of examining
CCI’s jurisdiction in addressing SEP related disputes.

CCI’s Jurisdiction
11
http://www.cuts-ccier.org/pdf/Edition-4-Analysis_of_Competition_Cases_in_India.pdf
12
http://www.legalservicesindia.com/article/article/competition-law-vis-a-vis-ipr-rights-889-1.html
13
Anne Layne-Farrar, 'Business Models and The Standard Setting Process'

8
As opposed to SEP litigation in other jurisdictions, the Indian SEP litigation is characterised with
large SEP holders litigating against small manufacturers/implementers. Considering such a
market dynamic, it has been argued that CCI’s intervention and competition law is essential for
the survival of the low-cost mobile device market in India 14. However, a counter argument
divergent from the friction between IP and competition laws has also emerged. Since FRAND
commitments are essentially a contract, failure to perform such a contract may provide remedies
under contract law as well. Therefore, the competition authorities may not have jurisdiction here.
Questions arise regarding the relationship between the High Court and the CCI.

To answer this, recently, the Delhi High Court ruled in a 161-page decision that the CCI had the
jurisdiction to review the FRAND cases. Justice Bakhru found no conflict between competition
and IP laws. Since Ericsson appeared dominant, Justice Bakhru found CCI’s investigation
justified15. The judgement has been previously analysed in previous analysis of the case filed by
Micromax against Ericsson on similar grounds16.

Dominant Position of Ericsson

Considering Ericsson’s portfolio of SEPs and iBall’s allegation against Ericsson of abuse of
dominance in the Indian market, the Commission rightly opined, that owing to the non-
substitutability of the large number of SEPs owned by Ericsson, the company was prima facie
dominant in the relevant market.

Ericsson’s Possible Abuse of Dominant Position

Since the issue of identifying the appropriate royalty base for calculating FRAND licensing rates
has already been discussed in the previous analysis of the case filed by Micromax against
Ericsson on similar grounds17, the current issue will focus on tying of patents and Non-disclosure
Agreements (NDAs).

14
Anne Layne-Farrar, 'Business Models and The Standard Setting Process'
15
Ericsson versus CCI, Delhi High Court Case
16
http://www.cuts-ccier.org/pdf/Edition-4-Analysis_of_Competition_Cases_in_India.pdf
17
http://www.cuts-ccier.org/pdf/Edition-4-Analysis_of_Competition_Cases_in_India.pdf

9
 TYING OF PATENTS

Tying refers to an act, in which a firm makes the sale of one product, only on the condition of the
sale of another product. Typically, a tying arrangement occurs when, through a contractual or
technological requirement, a seller conditions the sale or lease of a product or service on the
customer’s agreement to acquire a second product or service18.

Multiple IPRs might be collectively licensed as bundles or packages. Such licensing occurs when
a patent-owner refuses to license a particular single patent, unless the licencee accepts an entire
portfolio/package of patents (can be SEPs or include non SEPs also), or where the patent
holder’s royalty scale has such effect19.

The issue of tying and bundling becomes, especially important high-end technology industries
(like the ICT sector), since the norm in these industries is for patent holders to license their
patents at a technology portfolio level, i.e., patent holders tend to license all their patents, on a
given technology (3G in this case) through a single bundled licensing agreement. An arm’s
length licence agreement covering SEPs only, without the inclusion of at least some non-SEPs
are a rarity20.

The question to be answered is whether a FRAND commitment creates an obligation on the SEP
holder to license its SEPs on a stand-alone basis, i.e., without including any other non-SEP or
Non-FRAND committed patents, if the licencee desires so. Moreover, in case FRAND
commitments do allow for tied/bundled licensing, what licensing royalty fees might be charged
for the entire portfolio?

Bundling non-SEPs with FRAND obligated patents, and adding their value in the overall value
of the bundle, for determining FRAND terms/rates for the portfolio, indicates that bundling has
been used to circumvent the FRAND commitment. A FRAND rate is not a single magical
number. However, it is a value which must be fair and reasonable to both the licensor and the
licensee. However, a FRAND commitment does not boulder the patent holder’s right to claim a
stand-alone licence fee for a non-SEP, if it is being licensed separately.

18
'Chapter 5: Antitrust Issues in The Tying and Bundling of Intellectual Property Rights | ATR | Department of
Justice' (Justice.gov, 2017)
19
Id ib
20
The Policy Implications of Licensing Standard Essential FRAND committed Patents in Bundles'

10
However, it cannot force the implementer to pay such a licence fee, just to get access to a SEP,
as it would amount to a violation of the FRAND commitment for not imposing an opportunistic
license fee. In case the patent holder wishes to offer its entire patent portfolio in a bundled form
only, then the price of the licence should be as if, it encompassed the FRAND-committed SEPs
only, i.e., a patent holder has the right to include non-SEPs in its bundled patent licence, but for
free, if it does not choose to offer a separate FRAND committed only licence for its SEP.

Therefore, offering FRAND-committed patents in bundles only is not a problem per se, rather,
the analysis should focus on the terms of such a bundled licence is offered. However,
determining a FRAND rate is not a simple issue.

From the lens of competition law, the concern has been towards the distortion of a competitive
market for a good when a seller with market power in the sale of that particular good mandates
its customers to buy another good in conjunction with it21.

Although the requisite elements of per se tying violation have been expressed differently, courts
generally require:

 “Two separate products or services are involved;

 the sale or agreement to sell one is conditioned on the purchase of the other;
 the seller has sufficient economic power in the market for the tying product to enable it
to restrain trade in the market for the tied product;
 a not insubstantial amount of commerce in the tied product is affected; and
 efficiency justifications for the arrangement do not outweigh the anti-competitive
effects”22.

The Competition Act has held tie-in arrangements to be in contravention of Section 3(1) of the
Act, in case such an arrangement results in an Appreciable Adverse Effect on Competition
(AAEC) in India, which can be determined by looking into the factors, as laid down in Section
19(3). Also, tying may be in contravention of Section 4(2)(d) read along with Section 4(2)(c)33
of the Act, or Section 4(2)(e) read along with Section 4(2)(d) and 4(2)(c).

21
Anne Layne-Farrar and Michael A. Salinger, 'The Policy Implications of Licensing Standard Essential FRAND
committed Patents in Bundles'
22
'Chapter 5: Antitrust Issues in The Tying and Bundling of Intellectual Property Rights | ATR | Department of
Justice'

11
Non-Disclosure Agreements

A Non-Disclosure Agreement is a legal contract between two or more parties that signifies a
confidential relationship exists between the parties involved. The confidential relationship often
refers to information that is to be shared between the parties, but should not be made available to
the general public. NDAs are also commonly referred to as a confidentiality agreement. As per
the NDA used by the Centre for Development of Telematics (CDOT) , “in collaborative
Research and Development arrangements and technology transfer deals, confidential
information includes any information on design, fabrication and assembly drawings,
knowhow, processes, product specifications, raw materials, trade secrets, market
opportunities, or business or financial affairs or their customers, product samples, inventions,
concepts and any other technical and/or commercial information”.

Licensing agreements between patent holders and implementers for using the patented
technology would ideally cover details relevant to underlying patents (granted or pending), along
with a variety of business related financial and market information. While the latter concerns
both parties, information regarding patents is crucial to the patent holder’s business 23.

Every company whether in the telecom industry or in any other industry, has its own trade
secrets, and it is imperative to keep it confidential to ensure the survival of the company. SEPs
fall in the same category. This is the reason most SEP holders, prefer an NDA in their License
Agreement, while licensing such patents to mobile manufacturers.

Another argument in support of a NDA, is that unlike a physical product (i.e., while negotiating
over a physical product, the owner of the product can threaten to take back the product at any
time in case of breach of contract), IP cannot be taken away, i.e., once an idea has been shared, it
cannot be unlearned.

However, IP protection does provide a mechanism to sue for unauthorised use of the idea, along
with offering a means to enforce the collection of licensing fees 24. Such mechanisms allow
knowledge/innovations to be freely ‘tradable’, and patents are particularly useful in this regard as
they offer protection against reverse engineering of innovations, if disclosed.

23
'Safeguarding Confidential Business Information Is Not Anti-Competitive - Tele-Talk by Dr Ashish Bharadwaj | ET
Telecom'
24
Supra 18

12
The key point to consider here is the timing, scope and extent of such NDA. Since Indian
companies are mostly licensees, there tends to be friction on this clause with the foreign
licensors.

It seems unlikely that a disclosure requirement could be anti-competitive. However, such a

requirement has an information-forcing effect, and might in some unusual circumstances
interfere with an IP owner's trade secret rights. Only the existence and scope of the patent or
patent application, not the technical know-how of the invention itself, must be disclosed to an
implementer/proposed licensee.

While the very existence of a patent application might sometimes be a valuable secret in the
context of a publicly adopted standard, the legitimate value of this secret does not seem to be
extremely high. Moreover, the implementer has a presumptively legitimate reason for requiring
the information: it wishes to ascertain for sure, the infringement of such a patent, validity of such
a patent in India and also the remedies for the same.

As per CCI, charging of two different license fees per unit phone for use of the same technology
prima facie is discriminatory and also reflects excessive pricing vis-a-vis high-cost phones.
Besides, CCI has noted transparency to be the hallmark of fairness, and Ericsson’s use of NDAs
“is contrary to the spirit of applying FRAND terms fairly and uniformly to similarly placed
players”25. The antitrust theory of harm relating to NDAs, is that their inclusion in licenses
undermines the non-discriminatory commitment in the FRAND licence.

25
Intex versus Ericsson CCI Case No. 76 of 2013

13
 CONCLUSION

On the one hand, claims for non‐FRAND licensing could be seen as negotiation posturing, with
buyers attempting to lower the royalty rates for SEPs. On the other hand, these claims could also
be indicative of patent holders attempting to exploit their dominant position to earn higher than
what their SEPs are worth. Jurisprudence in India regarding SEP and competition law issues is
still at a relatively nascent stage, compared to other jurisdictions like the European Union, the
US and China. This places Indian courts and competition authorities in an advantageous position
where they can learn from the experience of other jurisdictions.

Moreover, the final decision of the Commission will hold immense significance in promoting
competition and innovation in the Indian ICT sector, which notably consists more of SEP
implementers than SEP holders. In addition to this, several questions still remain unanswered
(which can be clarified as and when specific disputes arise) with respect to SEP licensing and
competition law.

For example, whether the threat of injunction made by the SEP holder and an arbitration clause
requiring a settlement in a foreign jurisdiction would amount to abuse of dominance; and
whether patent holdout and royalty stacking could be possibly addressed through application of
competition law in light of greater economic analysis. Besides, the jurisprudential clarity which
will come with time, the Commission can also explore the possibility of framing guidelines for
licensing of SEPs, and clarify the Indian approach towards application of competition law vis-à-
vis standardisation and licensing of SEPs.

Be that as it may, post investigation, the final order of the CCI will have significant impact on
the mobile handset industry in India and will also help in bringing in much needed certainty for
industry players vis-à-vis standardisation and SEP licensing procedures.

14