Last two years has seen essential Patents and royalty rates being subject of intense debate with Ericsson seeking royalty from local Indian mobile companies using its Patents. The first salvo was fired by Ericsson suing Micromax over their reluctance to pay royalty rates on what Ericsson described as Fair Reasonable and Non- discriminatory (FRAND) terms. The court fixed 1% of selling price as royalty in Micromax case until trial concludes for which court fixed 31st December, 2015 as the deadline.

The recent in the series of disputes concerning royalty rates in telecom Patents is the case brought by Ericsson against the Chinese company, Xiaomi that holds 1% of Indian smart phone market in less than one year of its launch in India. In the case brought by Ericsson the court recently passed a restraint order against Xiaomi to stop sales, advertising, manufacturing or importing of phones in India as the same violates Ericsson’s patent rights in AMR, 2G and 3G technologies. As Xiaomi was selling it's phones through Flipkart (an online B2C portal) the restraint order stopped Flipkart from selling the phones. The court while granting ex parte interim injunction also issued directions to the Customs to prevent import of any handsets by Xiaomi into India under the IPR rules, 2007 that would likely infringe Ericsson’s Patents. 


In the law suit filed by Ericsson (a Swedish telecom company) it alleged that Xiaomi failed to agree to license terms and continue to expand its business in India. Xiaomi had recently set up an Indian subsidiary to sell its handsets and entered into an exclusive agreement with Flipkart (an e-commerce portal) to sell and market its devices/handsets in India that use Ericsson's Patents.  The court was satisfied that Ericsson had made out a prima facie case for grant of ad interim injunction in its favour and the balance of convenience also lies in its favour as in the absence of an injunction order, it will suffer irreparable loss and injury. 

Our comment

The interim order passed by the court has set the debate on the need to grant interim injunction in cases concerning essential patents where the main issue involved is the royalty terms. Those against the court order argue how can an injunction be granted without even hearing the defendant in a patent dispute involving standard or essential Patents? In such cases the dispute is on royalties therefore can the injury be said to be “irreparable" which is one of the pre-requisites for the grant of an injunction. On the other hand Patent holders argue that they are willing to grant license on FRAND terms therefore the handset manufacturers need to be open and willing to negotiate. It cannot be that handset manufacturers exploit their Patents to sell their products, earn revenue but not pay the royalties. Thus, the patentee has the right to seek a restraint order if the handset manufacturer without license is using the Patents. The counter argument being made is that the patented technology is a “standard” here, and cannot be treated as a purely monopoly right and therefore the regular injunction rules that apply to other Patents cannot apply here. Thus, in case of Standard Essential Patents the courts should not grant injunctions and rather order expedited trial to determine appropriate royalty rates. In theory this seems like a sound argument but in practice the Indian courts have huge backlog of cases and  trial takes 5-7 years. Thus, interim arrangements are as important as the final outcome. Further, in practice interim injunction orders help both parties to mediate disputes and reach settlement.