Delhi High Court Holds that Competition Authority Lacks Jurisdiction to Determine Reasonable Patent Royalties

As reported by Vicente Zafrilla on the IPKat Blog, last month the High Court of Delhi at New Delhi issued a decision in five joined cases holding that the Competition Commission of India (CCI) lacks jurisdiction to consider whether patent holders Ericsson and Monsanto abused their dominant position by charging excessive royalties, in violation of sections 3 or 4 of India’s Competition Act.  According to the court, sections 83 et seq. of the Patents Act should be read as conferring exclusive jurisdiction on the Controller of Patents to determine when and under what conditions a compulsory license should be granted.  I am no expert on India’s rules regarding statutory interpretation, so I won’t criticize the decision on doctrinal grounds.  Like Mr. Zafrilla, however, I am concerned about the implications of the decision, some of the language of which seems pretty broad:

11. In our opinion, WP(C) 464/2014, 1006/2014, 1776/2016 and 8379/2015 should be allowed on a finding in law that the CCI cannot exercise jurisdiction over actions of an enterprise that are in exercise of their rights as a patentee. This is being discussed below.

 

*                                                               *                                                              *

 

50. In our view, the Competition Act is a general legislation pertaining to anti-competitive agreements and abuse of dominant position generally. The inclusion of Section 84(6)(iv)¹¹ in the Patents Act by way of an amendment after the Competition Act was passed with Section 3(5)(i)(b)¹² is particularly instructive of the above legislative intent as regards anti-competitive agreements.

 

51. For deciding an application for compulsory licensing, the Controller is empowered by the Patents Act to consider the reasonability of conditions imposed in a license agreement. The CCI is empowered under the Competition Act to examine anti-competitive agreements and abuse of dominant position. However, the Competition Act makes provision for reasonable conditions being imposed in an agreement concerning exercise of rights under the Patents Act. Since such reasonable conditions are exempted from examination under section 3(5)(i)(b) of the Competition Act, it is indicative of the legislature‘s intendment as to the exclusive domain of the Patents Act regarding reasonable conditions. Similar, in our view, is the situation with the language of Section 83(f) of the Patents Act as compared with that of Section 4 of the Competition Act.

 

52. In our opinion, Chapter XVI of the Patents Act is a complete code in itself on all issues pertaining to unreasonable conditions in agreements of licensing of patents, abuse of status as a patentee, inquiry in respect thereof and relief that is to be granted therefor.

 

¹¹ 84. ***

 

(6) In considering the application filed under this section, the Controller shall take into account,—

 

***

 

(iv) as to whether the applicant has made efforts to obtain a licence from the patentee on reasonable terms and conditions and such efforts have not been successful within a reasonable period as the Controller may deem fit:

Provided that this clause shall not be applicable in case of national emergency or other circumstances of extreme urgency or in case of public non-commercial use or on establishment of a ground of anticompetitive practices adopted by the patentee, but shall not be required to take into account matters subsequent to the making of the application.

 

¹² 3. ***

 

(5) Nothing contained in this section shall restrict—

 

(i) the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under—

 

***

 

(b) the Patents Act, 1970 (39 of 1970)

 

***

I agree with Mr. Zafrilla that the decision's consequences could be significant, particularly in relation to FRAND-committed SEPs (as in the Ericsson matters, though I assume not the Monsanto matter) which he notes “are inherently relevant to for competition law because” of their tendency toward dominance; moreover, as he notes, “not all the anticompetitive concerns are connected to excessive pricing.”  He also sees a possibility of bifurcation, with the Controller of Patents deciding all cases involving allegations of excessive pricing (which he thinks may increase, as a result of this ruling, contrary to the interests of the patent owners), and CCI retaining jurisdiction over others.   

Federal Circuit Affirms Decision Awarding $228,000 in Damages, No Enhanced Damages, Fees, or Injunction

This morning, the Federal Circuit issued a nonprecedential, per curiam opinion in Fleet Engineers, Inc. v. Mudguard Technologies, LLC and Tarun Surti, affirming the district court’s judgment in every respect.   According to the court, “Surti and Fleet have been locked in acrimonious litigation over mudflaps and Surti’s ’755 patent for over a decade” (p.3).  “Fleet, a manufacturer of products for the trucking industry, brought an action seeking a declaratory judgment that its mudflaps do not infringe the ’755 patent, and that the patent was invalid. . . . Surti counterclaimed, asserting claims of patent infringement, breach of contract, and misappropriation of trade secrets” (p.4).  “The jury ultimately found that although Fleet’s Group B products did not infringe the asserted claims of the ’755 patent, the Group A products did. . . . That infringement, however, was not found to be willful. . . . The jury declined to award lost profits and instead awarded damages based on 4% of the gross sales of the Group A products, amounting to an award of $228,000” (p.5).  Both parties raise various issues on appeal, but for present purposes I will focus only on remedies.  Long story short, the patentee argues that he was entitled to lost profits instead of a royalty, enhanced damages, fees, and a permanent injunction.  The Federal Circuit rejects all of these arguments.

First, as for lost profits and enhanced damages:

Surti . . . asserts that the jury verdict that he was not entitled to lost profits was not supported by substantial evidence. . . . According to Fleet, however, the jury should not have even been presented with the question of lost profits because Surti was a non-practicing entity who had no lost profits. . . .  We agree with Fleet.

 

Surti never assigned his patent to any company, including Mudguard, where he served as president. . . . Nor is there any evidence to suggest that Surti entered into any licensing agreement that could have provided the right to recover lost profits at trial. Moreover, Surti has made no attempt to satisfy the Panduit factors, which require a showing of (1) a demand for the patented product, (2) the absence of acceptable non-infringing substitutes, (3) its manufacturing and marketing capability to exploit the demand, and (4) the amount of profit it would have made. . . .

 

Finally, Surti asserts that the jury verdict finding that Fleet’s infringement was not willful was not supported by substantial evidence. . . . Fleet notes that the actions to which Surti points to make his assertions of willful conduct occurred two years before the asserted patent first issued. . . . Although, as the district court observed, the evidence establishes that Fleet was aware of Surti’s patent application . . . . , “[t]o willfully infringe a patent, the patent must exist and one must have knowledge of it. . . . [A]n application is no guarantee any patent will issue . . . . What the scope of claims in patents that do issue will be is something totally unforeseeable.”

 

The evidence adduced at trial, at best, may demonstrate Fleet’s knowledge of Surti’s patent issuing after Fleet was already selling its Group A products. Yet, even so, knowledge of the asserted patent and evidence of infringement, although necessary, is not sufficient for a finding of willfulness. . . .  Rather, willfulness requires deliberate or intentional infringement. . . . The jury was free to weigh the relevant evidence of record, which included evidence suggesting that Fleet intended to avoid patent infringement. Moreover, even if some evidence existed to draw the opposite conclusion, that does not mean that the jury’s finding of no willfulness was unsupported by substantial evidence. . . (pp. 15-17; citations omitted).

As for fees and injunctive relief:

. . . Surti has been proceeding pro se since 2015 and has provided no evidence of legal fees incurred before that date. . . . Surti also failed to demonstrate that Fleet litigated this case in an unreasonable manner, asserted any plainly frivolous claims, or made any frivolous legal arguments during the course of this litigation causing the case to be exceptional. We therefore conclude that the court did not abuse its discretion in determining not to award Surti attorney fees under § 285.

 

Regarding the requested permanent injunction, Surti asserts that the district court erred in its decision to deny issuing a cease-and-desist order against Fleet. . . . The district court held that Surti did not provide sufficient evidence to support the issuance of a permanent injunction. . . . A finding of infringement does not automatically entitle a patent holder to a permanent injunction. eBay, 547 U.S. at 391−93. Although Surti may have suffered an injury from the sale of an infringing product, that injury was not one of irreparable harm. See Robert Bosch LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1149 (Fed. Cir. 2011) (holding that, in the context of patent infringement cases, there is no presumption of irreparable harm when a party establishes liability for patent infringement). The district court did not err in determining that Surti’s injury was compensable through the reasonable royalty awarded by the jury.

 

In deciding Surti’s motion for injunctive relief, the district court did not expressly address two of the eBay factors: the balance of the hardships between the claimant and the infringer and whether or not an injunction would serve the public interest. . . . However, Surti did not independently argue those factors. . . . The court therefore did not abuse its discretion in declining to issue a permanent injunction based only on the first two eBay factors.

 

Moreover, the purpose of an injunction is to prevent future infringement. . . . There is no evidence in the record that Fleet continues to sell the infringing products. . . . It was therefore not an abuse of discretion for the district court to have held that, without evidence of future harm, Surti had not sufficiently established entitlement to injunctive relief. . .  (pp. 18-20).

Finally, the patentee “further raises arguments that were not presented at the district court level, such as that he is entitled to additional damages “based on the mental stress this litigation has caused” him” (p.19).  “Because Surti failed to raise the remainder of his arguments adequately in his opening brief or at the district court prior to this appeal, we consider those arguments forfeited” (p.20).

There's nothing here that seems incorrect to me--though it would have been interesting if the court had addressed this last issue, which I discuss briefly in my article on noneconomic damages in IP cases.

Blogging Break

 I will taking a short blogging break.  I plan to resume the week of August 14.

Nieder on the Effect on Customers of a Stay of Injunctive Relief Against a Manufacturing Infringer

Michael Nieder has published an article titled Eingeschränkter Unterlassungsanspruch im europäischen Patentrecht:  Folgen auf der Abnehmerseite (“Constrained Claims for Injunctive Relief in European Patent Law:  Consequences on the Buyer Side”), 14/2023 GRUR 995-97.  Here is the abstract, in my translation from the German:

If a claim for injunctive relief is brought against the maker of manufacturing equipment or of commercially useful goods before the UPC, the question arises, how an exceptional denial of injunctive relief under article 63(1) of the UPCA affects the defendant's customers.  This essay outlines the problem for customers, but also for the manufacturer, and seeks solutions whereby the exclusion of a claim for injunctive relief against the manufacturer is not thwarted at the level of its customers.    

The article proceeds from the premise, which other commentators share, that UPC article 63(1) (“Where a decision is taken finding an infringement of a patent, the Court may grant an injunction against the infringer aimed at prohibiting the continuation of the infringement. The Court may also grant such injunction against an intermediary whose services are being used by a third party to infringe a patent”; emphasis added) permits the UPC, in exceptional cases, to deny or stay injunctive relief.  If so, it would seem to follow, logically, that when the court denies or stays an injunctive against a manufacturer, the customers of that manufacturer also should be exempt from being enjoined—and also from having to pay damages for the use of infringing products the defendant is allowed to sell off during the period of the stay.  The issue the author addresses is the legal basis for such a result. If I understand correctly, the author’s preferred solution is for the defendant to offer to pay compensation that reflects the damages or profits the customers would be obligated to pay, if they were defendants themselves, in exchange for discharging them from liability.  The author concludes, however, by posing the question of what should happen if the plaintiff rejects the offer, and (again if I'm understanding correctly) doesn't see a clear solution to this problem