Competition Law Asynchronous Activity-09.11.

2021
Examine how the Ericsson-Micromax case is a study of two seemingly divergent legal
regimes.
Background
Micromax, the informant, is a mobile manufacturing company registered in India. The
Opposite party, Ericsson is a Swedish Company holding several Standard essential Patents
(SEPs) (33,000 in all and 400 in India) in global mobile communications.
In order to ensure compliance of the standards set by the Standard Setting Organizations
(SSOs), the manufactures of the products to which these standards (held by some as patents,
in this case, Ericsson) are required to obtain compulsory licenses from the patent holders.
Facts of the case
- Ericsson sent a notice to Micromax that it was infringing their patents in GSM and
demanded the informant to obtain licenses from the OP on FRAND Terms.
- The OP also sent another notice to the informant informing that it was intimating the
SEBI of its infringing activities which may be relevant to secure the interests of the
future investors in the informant’s upcoming public issue.
- Following this, the informant and the OP entered into an NDA and thereafter availed
the terms of license from the OP.
- The OP imposed royalty rates on the net selling products of the information rather
than the chipset (SSPPU unit) to which the patent pertained.
- In this light, the informant file information under Section 19(1)(a) of the Competition
Act, 2000 alleging abuse of dominance vis-à-vis licensing of SEPs by the OP. The
information submitted that this would have an anti-competitive effect on the ICT
sector.
The informant alleged abuse of dominant position on the following grounds:
- The OP demanded excessive royalties from Micromax for the SEPs with regard to the
GSM standard set by the European Telecommunications Standardization Institute
(ETSI).
- Further, the OP charged different royalties from different licensees and this was based
on the Net Selling Price (NSP) of the end product, i.e., the mobile handset.
- The royalty was charged on a product not connected to the patent.
The informant also alleged that the OP breached the FRAND terms by licensing SEPs at
an unreasonable royalty.
What is the interface between competition law and patent law in this matter?
The inclusion of patents in standards leads to a unique situation where technological
patents become essential to the manufacturing and product of a product, in this case, a
smartphone. The exercise of patent rights with respect to SEPs in not exclusive and is
subject to the FRAND commitments. This is done in order to protect competition and
innovation in the market.
 In the case of Micromax and Ericsson, the OP, that is, Ericsson challenged the
jurisdiction of the CCI and argued that patent abuse must be contented under the Patents
Act. The question that arises for consideration is whether an abuse of patent rights in a
manner that would have an anti-competitive effect on the market, must recourse be taken
through the Patents Act or the Competition Act.
This challenge reflects the interface between competition law and patent law in the field
of SEPs in GSM.
However, this challenge did not survive before the CCI.
The determination of abuse of dominant position in this case depends on whether the
royalties must be charged on NSP or the SSPPU, i.e., the chipset unit.
 In case the SEP holders in GSM are permitted to affix royalty on NSP (as affixed
by the DHC in the case of Ericsson v Intex), then the practices adopted by
Ericsson will not be anti-competitive. This is keeping in mind the value added by
the patent, that is, the chipset, to the end product itself. It is contended under one
regime that the value of the patent cannot be restricted to the unit itself as the
application of the patented technology in the unit adds important functionalities to
the product as a whole. On this ground, Ericsson cannot be held liable for
collecting royalties on products unrelated to the patent and not even for
discriminatory pricing based on the prices of the handsets.
 In case the SEP holder cannot charge royalty based on NSP as it might seem
unrelated to the patent, Ericsson could possibly be investigated for anti-
competitive practices on the grounds of discriminatory pricing and abuse of
dominance.
Findings of the CCI in the Micromax v Ericsson case:
- The relevant product market is “SEP(s) in GSM compliant mobile communication
devices”. The relevant geographical market is India. Hence the relevant market in this
case is "SEP(s) in GSM compliant mobile communication devices in India".
- Owing to the non-substitutability of the relevant product, the CCI found that the OP
held a dominant position in the relevant market.
- The order indicates that conceptually, CCI was against the methodology of
determining royalties according to the final selling price of the product and was in
favour of the fixing royalty based on the Smallest Saleable Patent Practicing Unit
(SSPPU), i.e., the chipset. Based on this reasoning, an order was passed under Section
26(1) directing the Director General to investigate the matter and report back to the
Commission with its findings.
CCI order challenged before the Delhi High Court
Ericsson went on to challenge this order of the CCI by filing a writ petition with the Delhi
High Court based on the argument that the Patents Act being a special law, deals with matters
relating to abuse of patent rights, and should override the Competition Act which is a general
law.
It was alleged that the grant of patent rights by the owner and any abuse during the process is
covered specifically by the Patents Act and on the other hand, the Competition Act is a
general statute for maintenance of freedom of trade and to ensure competition in the market.
The Court discussed both the Acts in detail in order to address whether there was an inherent
inconsistency between the acts and whether the Patent’s Act being a special act would prevail
over the general Competition Act (in case inconsistency is proven). After a detailed analysis
and comparison of the relevant provisions of the acts, the scope and remedies of both acts
were held to be completely different and it was held that there was no inherent inconsistency
between the same.
The Court put forward the principle of harmonious construction and upheld the jurisdiction of
the Commission in the present case and established an important precedent in the evolution of
Indian jurisprudence on SEP and Competition law matters.
Conclusion
The Ericsson-Micromax case is a study of two seemingly divergent legal regimes as it
pertains to the dispute on whether an abuse of patent rights in a manner that would have an
anti-competitive effect on the market, must recourse be taken through the Patents Act or the
Competition Act. By holding that the CCI has jurisdiction to entertain the matter when the
abuse of patent rights has a potential anti-competitive effect, the Delhi Court has ruled that it
only seems to diverge into two different legal regimes, that is, the patent law on one hand and
competition law on the other. But in reality, a harmonious construction of the two legal
regimes removes the divergence.