The Indian Philips Case

On Friday I mentioned Divij Joshi's Spicy IP post on Koninklijke Philips Electronics N.V. vs. Rajesh Bansal And Ors., a case decided by the Delhi High Court last Thursday.  The court awarded Philips actual and punitive damages for the infringement of a patent that the court finds to be essential to the DVD Forum Standard, and that is one of many patents included in a patent pool.  Focusing exclusively on the damages issues, here are the principal takeaways as I see them:

1.  If I understand correctly, it doesn't appear that there is a FRAND commitment as such, but the court says that according to plaintiff's counsel the pool royalty is determined on FRAND principles (para. 12.1).  Further, according to para. 13.1:

Case of the plaintiff is that the license rates offered by the plaintiff vary according to the cooperation and conduct of the licensee. In case an entity procures the license of the plaintiff’s essential patent then it is required to pay as per the FRAND rate also referred to as compliant rate. However, if a party has chosen to infringe the patent of the other party then such licensees are required to pay a slightly higher royalty rate for the period  which it had not secured license for the plaintiff’s concerned essential patent which is referred to as standard rate. According to the plaintiff despite defendants having infringed the plaintiff’s patent, the plaintiff claims license fee only on FRAND terms i.e. at compliant rate. As per the evidence of PW-1 the running royalty rates upto 27th May, 2010 were 4.58 and 3.175 USD for standard rate and compliant rate respectively whereas after 28th May, 2010 it was 2.50 and 1.90 USD for standard rate and compliant rate respectively.

The defendant, however, argues that these proposed rates are not FRAND:

The main challenge of the defendants is that royalty rates are not in compliance with the FRAND terms. As noted in the options given by the plaintiff to the defendants vide its letter Ex.PW-1/7A the defendants had the option of either taking joint licenses or the PHILIPS ONLY licenses and despite infringement the plaintiff has sought royalty only at FRAND rates, that is, USD 3.175 upto 27th May, 2010 and thereafter USD 1.90 and for the PHILIPS ONLY option. Thus it is not a case where patents of the all other patentees were pooled with that of Philips which were used in DVD Video player (para. 13.7).

If I'm understanding this correctly, then, the plaintiff proposed global royalty rates based on what it charges for the entirety of its pooled patents (rather than royalties just for the patent in suit), and the court adopts these proposed rates.  Whether the pool itself amounts to an abuse of dominant position would be an issue for, if anyone, the Competition Commission of India.  See para. 12.5 (". . . whether creating of a patent pool by the bigwigs of the industry getting together amounts to an anticompetitive practice being misuse of the dominant position cannot be decided in the present suit.").  The court also provides an extended excerpt from the U.S. Court of Appeals for the Federal Circuit's opinion in CSIRO v. Cisco (see previous write-up on this blog here), I believe to show that it is permissible to use the entire market value of the end product as the base where this is consistent (as here) with the parties' own prior negotiations.  (Use of the entire market value as the base is common with patent pools, to my knowledge.)  See paras. 13.9-13.10.

On balance, I concur with Mr. Joshi's assessment that this leaves a number of issues unresolved (though as he notes, the defendant offered no countervailing methodology).

2.  On punitive damages, the court (para. 13.11) quotes at length from 207 (2014) DLT 713 Hindustan Unilever Ltd. vs. Reckitt Benckiser India Limited, as setting forth the principles to follow in deciding whether to award punitive damages.  (Neither Hindustran Unilever  nor the cited cases are themselves patent cases, however).  Here is a portion of the quoted material:

"66. Rookes v. Barnard, [1964] 1 All ER 367, is the seminal authority of the House of Lords, on the issue of when punitive or exemplary (or sometimes alluded to as "aggravated") damages can be granted. The House defined three categories of case in which such damages might be awarded. These are: 

a. Oppressive, arbitrary or unconstitutional action any the servants of the government;

b. Wrongful conduct by the defendant which has been calculated by him for himself which may well exceed the compensation payable to the claimant; and

c. Any case where exemplary damages are authorised by the statute.

The later decision in Cassell & Co. Ltd. v. Broome, 1972 AC 1027, upheld the categories for which exemplary damages could be awarded, but made important clarificatory observations. Those relevant for the present purpose are reproduced below:

"A judge should first rule whether evidence exists which entitles a jury to find facts bringing a case within the relevant categories, and, if it does not, the question of exemplary damages should be withdrawn from the jury's consideration. Even if it is not withdrawn from the jury, the judge's task is not complete. He should remind the jury: (i) that the burden of proof rests on the plaintiff to establish the facts necessary to bring the case within the categories, (ii) That the mere fact that the case falls within the categories does not of itself entitle the jury to award damages purely exemplary in character. They can and should award nothing unless (iii) they are satisfied that the punitive or exemplary element is not sufficiently met within the figure which they have arrived at for the plaintiff's solatium in the sense I have explained and (iv) that, in assessing the total sum which the defendant should pay, the total figure awarded should be in substitution for and not in addition to the smaller figure which would have been treated as adequate solatium, that is to say, should be a round sum larger than the latter and satisfying the jury's idea of what the defendant ought to pay. (v) I would also deprecate, as did Lord Atkin in Ley v. Hamilton, 153 L.T 384 the use of the word "fine" in connection with the punitive or exemplary element in damages, where it is appropriate. Damages remain a civil, not a criminal, remedy, even where an exemplary award is appropriate, and juries should not be encouraged to lose sight of the fact that in making such an award they are putting money into a plaintiff's pocket, and not contributing to the rates, or to the revenues of central government" (emphasis supplied) . . . .

68. . . .  To award punitive damages, the courts should follow the categorization indicated in Rookes (supra) and further grant such damages only after being satisfied that the damages  awarded for the wrongdoing is inadequate in the circumstances, having regard to the three categories in Rookes and also following the five principles in Cassel. . . .

The court then concludes, without further discussion, that an appropriate punitive damages award is ₹5 lakhs (para. 13.13), which as I mentioned on Friday comes to a little over $US 7,000.  I think Mr. Joshi may be right when he asserts in his post that "the Court reproduced at length the law on punitive damages, as established in Hindustan Unilever, and expounded on the importance of not being arbitrary in the award of damages, then immediately proceeded to award an arbitrary Rs. 5 Lakh in punitive damages without taking into account any of the principles reproduced by it."

3.  Finally, no injunction is granted because the patent has now expired.