Wednesday, November 27, 2013

India's antitrust authority investigates Ericsson's royalty demands for standard-essential patents

I wasn't going to do any other post this week than a preview on next week's Oracle v. Google Android-Java appellate hearing (and something very brief on an Apple v. Samsung order), but I just found out about a development important enough to interrupt my week off for a moment. The Competition Commission of India, the country's antitrust authority, has launched formal investigations of Ericsson's royalty demands relating to FRAND-pledged standard-essential patents (SEPs) further to a complaint filed by Micromax, a major local Android device maker. Back in March I had already reported on the Ericsson v. Micromax dispute in India.

Here's the official order (this post continues below the document):

Competition Commission of India - Order Re. Ericsson by Florian Mueller

The final paragraph of the order clarifies that Ericsson still has every opportunity to convince the CCI during the course of the investigations that its behavior was not anticompetitive. But in the CCI's preliminary view it is "clear that the practices adopted by [Ericsson] were discriminatory as well as contrary to FRAND terms". In particular, the CCI raises the issue of the appropriate royalty base, a topic that antitrust regulators in the US and the EU have so far been reluctant to address but which is central to most SEP abuse schemes:

"The royalty rates being charged by [Ericsson] had no linkage to patented product, contrary to what is expected from a patent owner holding licences on FRAND terms. [Ericsson] seemed to be acting contrary to the FRAND terms by imposing royalties linked with cost of product of user for its patents. Refusal of OP to share commercial terms of FRAND licences with licensees similarly placed to [Micromax], fortified the accusations of [Micromax], regarding discriminatory commercial terms imposed by the OP. For the use of GSM chip in a phone costing Rs. 100, royalty would be Rs. 1.25 but if this GSM chip is used in a phone of Rs. 1000, royalty would be Rs. 12.5. Thus increase in the royalty for patent holder is without any contribution to the product of the licensee. Higher cost of a smartphone is due to various other softwares/technical facilities and applications provided by the manufacturer/licensee for which he had to pay royalties/charges to other patent holders/patent developers. Charging of two different license fees per unit phone for use of the same technology prima facie is discriminatory and also reflects excessive pricing vis-a-vis high cost phones."

It was time that an antitrust enforcement agency took a SEP holder to task over the issue of the appropriate royalty base.

The CCI's position is consistent with that of Judge Holderman in the Northern District of Illinois in an Innovatio WiFi patent case.

Ericsson is an increasingly aggressive enforcer of wireless SEPs (WiFi as well as cellular). Samsung also claims that Ericsson's demand are above FRAND levels, and Ericsson alleges that Samsung's demands are supra-FRAND. In February I reported on a Mannheim Ericsson v. Acer trial over WiFi SEPs.

Antitrust regulators have previously launched formal investigations of Samsung and Motorola Mobility's assertions of SEPs against Apple and (only by Google's Motorola) Microsoft. Most of these investigations are still ongoing.

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