Ericsson vs. CCI (Micromax & Intex SEP Row): Delhi High Court Refuses Stay Against Investigation by CCI
The Delhi High Court, yesterday, refused to stay an on-going investigation by the Competition Commission of India (CCI) into alleged anti-competitive practices by Ericsson. The decision is an outcome of a writ petition (Ericsson vs CCI) filed by Ericsson challenging an order of the CCI directing the Director-General (DG) to investigate complaints filed by Micromax Informatics Ltd. (Micromax) and Intex Technologies Ltd. (Intex) regarding abuse of dominant position by Ericsson. A summary of the 160 page judgment is as follows:
Ericsson holds several patents in respect of 2G, 3G and 4G network technology as well as mobile phones, most of which are Standard Essential Patents (SEP’s).
SEP’s are standard technologies accepted across various countries to ensure uniformity and compatibility across the world. In order to accept and lay down standards, various Standard Setting Organizations’ (SSOs) have been established, European Telecommunication Standard Institute (ETSI) being one such body. Ericsson, a member of ETSI, undertaken to offer its SEPs on Fair, Reasonable and Non- Discriminatory (FRAND) terms as a matter of policy.
The dispute pertains to Ericssons’ SEP‘s for which Ericsson had tried to negotiate a Patent Licencing Agreement (PLA) with Micromax and Intex on FRAND terms but its efforts were unsuccessful. Subsequently, Ericsson initiated infringement proceedings alleging that the products manufactured and dealt with by Micromax and Intex violate its patents and that Ericsson was entitled to royalties in respect of the SEPs held by it.
The Single Judge had passed an ad-interim order directing the Custom Authorities to inform Ericsson as and when the consignments of mobile phones were imported by Micromax and deal with any objections under the Intellectual Property Rights (Imported Goods), Enforcement Rules, 2007. Later, the Single Judge had passed interim directions to Micromax to pay an interim royalty till the pendency of the suit. The suit is still pending final adjudication.
Complaint before Competition Commission
In response to the infringement suits, both Micromax and Intex filed complaints(information) before CCI alleging abuse of dominant position by Ericsson on account of it demanding an unfair royalty from Micromax and Intex. The CCI noted that the practices adopted by Ericsson were discriminatory and contrary to FRAND terms; and consequently, directed the DG to investigate any violation of the provisions of the Competition Act.
Aggrieved by the said order, Ericsson filed the present writ.
Contentions of Ericsson
- Patents Act being a special act, anti-competitive practices by a patentee in relation to patents would be outside the scope of the Competition Act;
- Section 4 of the Competition Act, 2002 (abuse of dominant position) would not apply to Ericsson as it was not an enterprise within the meaning of Section 2(h) of the Act;
- Abuse of dominance by a patentee in respect of patent licensing should be addressed under the Patents Act and not under the Competition Act;
- CCI had no jurisdiction to determine the reasonableness of the royalties for patented technologies or to entertain any complaint in that regard particularly when a suit on the same subject matter was pending before this Court;
Rebuttal by CCI, Micromax & Intex
- Based upon a Supreme Court decision in Competition Commission of India vs. Steel Authority of India Ltd., an order under Section 26(1) of the Competition Act was in the nature of a show cause notice (administrative, not judicial) against which a writ petition was not maintainable;
- The provisions of the Competition Act were in addition to and not in derogation of any other law and Section 60 of the Competition Act expressly provided that the provisions of the Competition Act to have effect notwithstanding anything inconsistent contained in any other law. Thus Competition Act to prevail over Patents Act;
- There was nothing in the Patents Act which would either impliedly or expressly oust the jurisdiction of CCI;
1. Whether the petition is maintainable – Scope of judicial review
The Court held that a direction passed under Section 26(1) of the Competition Act to the DG is not outside the scope of judicial scrutiny under Article 226 of the Constitution of India.
The Court reasoned that an order under Section 26(1) of the Act, after forming aprima facie opinion, has the effect of subjecting a party to an inquisitorial process. There may be a scenario where an order is ex-facie perverse or without application of mind. Additionally, in a scenario where such an order is not passed, remedy by way of appeal is only available to the informant and not to the party under investigation. Thus, an order with such wide implications has to be amenable to the writ jurisdiction of a High Court.
However, the Court also added that the scope of judicial review of the directions issued under Section 26(1) of the Competition Act is limited and does not extend to examining the merits of the allegations.
2. Jurisdiction of CCI to entertain the complaints of Micromax and Intex under the Competition Act, 2002
The Court observed that impugned orders passed by CCI were not perverse or without jurisdiction. This issue was decided by the Court after answering a series of questions. The Court observed that –
a. Ericsson would fall within the definition of an ‘enterprise’ under Section 2(h) of the Competition Act as patents were akin to goods under the Sale of Goods Act. On the question of whether licences for patents are goods – the Court observed that it would be unfair to answer the same in the present proceedings owing to CCI being the sole authority who could decide the issue;
b. The Patents Act is a special act vis-à-vis the Competition Act. However, since there is no irreconcilable repugnancy or conflict between the Competition Act and the Patents Act. And, in absence of any irreconcilable conflict between the two legislations, the jurisdiction of CCI to entertain complaints for abuse of dominance in respect of Patent rights cannot be ousted;
c. Seeking injunctive relief by an SEP holder in certain circumstances may amount to abuse of its dominant position;
d. The question whether there is any abuse of dominance is solely within the scope of the Competition Act and a civil court cannot decide whether an enterprise has abused its dominant position and pass orders as are contemplated under Section 27 of the Competition Act;
e. A potential licensee cannot be precluded from challenging the validity of the patents in question. Thus, a licensee could always reserve its right to challenge the validity of a patent and cannot be precluded from doing so.
Disclaimer: This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice.
Guest Post by Sanuj Das. Sanuj Das is an Associate with Subramaniam & Associates (SNA), a leading full service Intellectual Property Rights firm in India.
Disclaimer: Then above post is only for general information and do not constitute legal advice. Any part of this post should not be interpreted as soliciting or advertising nor should any reader act (or refraining from making) any decision on the basis of any statement contained herein without seeking professional advice.
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