Two Observations about the Delhi High Court Decision in Lava v. Ericsson

I now have had the opportunity to read the relevant portions of the Delhi High Court’s recent Lava v. Ericsson decision, which (as previously noted by Florian Mueller) ordered Lava to pay Ericsson a global FRAND royalty, covering a portfolio of FRAND-committed SEPs for the period 2011-20, plus costs, totaling approximately USD $30 million (specifically, "1.05% of the net selling price of devices sold by Lava" from November 1, 2011 through May 8, 2020, amounting to Rs. 244,07,63,990, with postjudgment interest at 5% and costs).  In summary, the court considered Lava to be an unwilling licensee, because of its holdout behavior; relied on Ericsson’s proposed comparable licenses to come up with a FRAND rate; rejected Lava’s proposed comparable, and also its proposed top-down approach for lack of evidence on (among other things) the aggregate royalty burden; found no evidence that Ericsson had engaged in holdup or royalty stacking; rejected Lava’s argument that the appropriate royalty base would be the SSPPU, rather than the end product (smartphones); and also concluded that a FRAND license would be global in scope, even though Lava primarily sells phones in India.  All of this may be well-grounded in the law and the evidence (there are a lot of redactions concerning the comparables), but there are two things that, at least initially, I’m finding a bit confusing.

The first is the doctrinal basis for granting a global portfolio license.  Lava initiated the litigation, asking the court to declare inter alia that Ericsson “is bound to grant an irrevocable license under its standard essential patents, including patents which are essential and/or claimed to be essential by the Defendant to 2G and/or 3G standards, on fair, reasonable and non-discriminatory (FRAND) terms, to the Plaintiff herein,” and to “[d]eclare the fair, reasonable and non-discriminatory (FRAND) terms, including royalty rates, on which the Defendant should grant a license under its Indian patents and patent applications which are enforceable and essential to 2G and/or 3G standards, to the Plaintiff herein” (p.15).  In turn, Ericsson sued Lava for the infringement of eight specific (assertedly standard-essential) patents.  If I am understanding this correctly, though, by the time the case was litigated on the merits, Lava no longer wanted the above declaration, and instead proposed that the court limit its attention to the eight patents in suit.  The court nevertheless set the terms of a global portfolio license, stating in paragraph 635 that “[t]he issue the Court is adjudicating . . .  is whether Ericsson can obtain a declaration that the royalty rates offered by them to Lava in respect of their portfolio of SEPs, are indeed FRAND.”  So maybe the court understood Ericsson to be seeking a declaratory judgment of some sort permitted under Indian law.  (At p.16, the court states that Ericsson sought inter alia a declaration "that the rates offered by [Ericsson] qua its portfolio of Standard Essential Patents are FRAND in nature.")  But the resolution of the case seems to me somewhat different from the way these types of cases have been litigated elsewhere.  In the U.K., for example, a decision that the FRAND-committed SEPs in suit are valid and infringed may result in the court offering the defendant a choice between being enjoined from practicing those patents in the U.K. or accepting the terms of a court-determined global license (the so-called FRAND injunction).  But here, by 2020 there was no threat of injunction, because all of the patents in suit had expired.  Another possibility in some countries might be for the defendant to allege that it is a third-party beneficiary of the patentee’s FRAND commitment, and to sue for breach of contract and/or a declaratory judgment; the end result may be for the court to declare what the terms of a FRAND license would be, as in Microsoft v. Motorola.  Or maybe the patentee can seek a declaration that its offer is FRAND (and therefore that the patentee is not in breach of its obligations), as indeed Ericsson was doing here.  What I’m not sure I’ve seen before, however, is a court adjudicating a patent infringement suit involving a discrete number of SEPs and awarding, as past damages for the infringement, a FRAND royalty covering the entire portfolio, including patents not in suit.  Of course, in this case, if the defendant doesn’t sell any products outside of India, it isn’t paying a royalty on any non-Indian patents, even if the non-Indian patents affect the global royalty rate Ericsson charges; but it's not clear to me that the patents in suit are the only Indian SEPs Ericsson owns (see para. 725, in which Lava asserts that Ericsson has "about 30 Indian patents," though not specifying whether any of the other 22 or so are SEPs).  This seems unusual to me; again, if I’m understanding correctly, this case was litigated as a patent infringement suit, and the court is awarding damages for patent infringement, not merely declaring what the terms of a global license would be.  If, however, Ericsson has only eight Indian SEPs (one of which the court found to be invalid, thus reducing the number to seven), then maybe the global rate (based on Ericsson's global portfolio) multiplied by the number of products Lava sold in India is the correct measure of damages for the infringement of the seven valid Indian SEPs.  But this is not entirely clear to me from the decision, though it's possible I'm overlooking something.  (I need to check to see if any of the Chinese FRAND cases have followed this fact pattern; off the top of my head, I'm not sure.)  Or maybe it's simpler than I am making it out to be; perhaps the court is saying that to determine the damages for the infringement of the seven patents in suit, you need to take into account that the patentee would have conditioned the use of those seven patents on the defendant's agreement to a global license.  In other words, but for the infringement, the defendant would have agreed to a global license, so the damages needed to compensate the patentee for the infringement of the seven patents equal the defendant's turnover multiplied by the global rate.  I'm not sure that argument would fly under U.S. patent damages law--it sounds almost like a convoyed goods argument, and the U.S. approach to damages for convoyed goods is somewhat more restrictive than in some countries (see my recent post here)--but maybe it works in India, and that might be the correct interpretation of paras. 680 et seq. of the decision.  

The other thing that seems odd to me is the statute of limitations issue.  Apparently the general statute of limitations under Indian law is three years, but the court concluded that certain provisions of the Patent Act trumped this general provision: §§ 11A(7) and 45(3), which allow the patentee to recover damages covering the period of time beginning from the date of publication of the patent application, as long as the patent subsequently issues (a common provision in many countries’ patents laws), and § 111, which states that the patentee can sue for damages once the defendant knows or has reason to know of the existence of the patent (a common provision in some Commonwealth countries).  The court reads these provisions as allowing Ericsson to sue for damages beginning in 2011, which is when it put Lava on notice, even though Ericsson did not file suit for infringement until 2015.  If I am understanding correctly, the logic of the decision would seem to eliminate the statute of limitations altogether for patent infringement suits, by allowing the patentee to sue for damages at any time once it puts the defendant on notice (though perhaps subject to the equitable doctrine of laches?).  Maybe that is correct as a matter of Indian law—it’s not a matter on which I claim any expertise—but it strikes me as a somewhat unusual practice.