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16 July 2018Patents

Delhi High Court backs Philips in SEP case

The Delhi High Court sided with electronics company Philips late last week in finding that its standard-essential patent (SEP) had been infringed by India manufacturers.

On Thursday, July 12, Justice Mukta Gupta ordered local manufacturers who had imported DVD player components and assembled them in India to pay a royalty rate and damages.

The patent (Indian number 184,753) was registered in 1995 and relates to a “Decoding device for converting a modulated signal to a series of M-Bit information words”.

The technology is used for the DVD video playback function and concerns “channel modulation” which involves a coding step that is performed before the storage of data.

Philips relied on essentiality certificates granted to its US and EU patents in order to prove that its Indian patent was standard-essential.

“In reasoning based almost entirely on the ‘essentiality certificates’ of the US and EU patents, and without independent analysis, the court held that the suit patent is an essential patent for the fulfilment of the DVD standard,” said a blog post for  SpicyIP, written by lawyer Divij Joshi.

Philips argued that defendants who manufacture or assemble standard-compliant DVD players must necessarily be infringing the SEP. Alternatively, the electronics company claimed that infringement was independently proven.

The defendants claimed that Philips had not proved infringement and that, “taking into account the prevalent technical practices and the state of the art in usage, making, selling, leasing of the DVD player without infringing the plaintiff’s patent is not possible”.

Siding with Philips, the court found that the defendants had infringed the patent on two counts—factual infringement as well as infringement based on the compliance of a standard without taking the required licences from the SEP owner.

The defendants also claimed that, under the doctrine of exhaustion, Philips couldn’t exercise its patent rights, as the defendants had bought chips from another company and these chips embodied the patent.

This argument was dismissed, with the court finding that the defendants had failed to prove that they had purchased the chips from authorised licensees.

The court also addressed the issues of whether Philips and other stakeholders in the DVD industry are misusing their position to “create a monopoly and earn exorbitant profits by creating patent pools”.

While the defendants argued that Philips demonstrated “clear abuse of its dominant position”, the court concluded that it could not explore issues of anti-competitive behaviour.

On royalties, Philips argued that they must be based on the entirety of the patent pool, not just the value of the patent in the suit, while the defendants argued that this would amount to a breach of fair, reasonable and non-discriminatory (FRAND) licensing terms.

The court allowed the royalty rate to be fixed at $3.175 per DVD player from the date the suits were instituted until May 27, 2010 and at $1.90 from May 28, 2010 until February 12, 2015 (when the patent expired).

The court awarded damages of Rs5 lakhs ($7,282).

SpicyIP said that while the decision is an important landmark in SEP litigation in the country, the “lack of analysis by the court on crucial areas like assessing essentiality, forgoing a claim construction, disregarding exhaustion principles and assessing FRAND terms means that it is more likely to have a notorious legacy, and possibly [be] subject to challenge in appeal on any of the above grounds”.

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