Why the Delhi High Court ordered LAVA to pay ₹244 crore to Ericsson

The Delhi High Court recently ordered Indian smartphone maker LAVA to pay more than ₹244 crore to Swedish firm Ericsson for infringing the latter's 2G and 3G patents [LAVA International Limited v. Telefonaktiebolaget LM Ericsson]. .In a 476-page order passed on March 28, Justice Amit Bansal held that seven out of the eight Standard Essential Patents (SEPs) over which Ericsson had claimed ownership were valid..The Court therefore, granted the following reliefs:.Recovery of sum of ₹244,07,63,990/- (Two hundred forty-four crores seven lakhs sixty-three thousand nine hundred and ninety only) towards damages, along with interest @ 5% per annum from the date of this judgment till the realization of the said amount.Ericsson shall pay the additional court fees on the differential amount awarded in favour of Ericsson within three weeks. The Registry is directed to release the amount deposited by Lava before this Court in Fixed Deposit along with the accrued interest, after deduction of TDS, in favour of Ericsson.The counter claim filed on behalf of Lava is allowed to the limited extent of revocation of the suit patent, being IN 203034 titled as ‘Linear Predictive Analysis by Synthesis Encoding Method and Encoder’.Ericsson shall also be entitled to taxed costs in respect of both the suits..Ericsson had alleged infringement of eight SEPs relating to the following technology areas:I. Adaptive Multi-Rate (AMR) speech codec – A codec that conserves use of bandwidth and enhances speech quality (AMR). AMR is used mandatorily in 3G enabled phones and at the option of an implementer/manufacturer in 2G enabled phones.II. Enhanced Data Rates for GSM Evolution (EDGE) – A transceiving unit to block automatic retransmission request (EDGE). EDGE is used in 2G standard compliant devices at the option of an implementer. III. Features in 3G – Multi service handling by a single mobile station and a mobile radio for use in a mobile radio communication system (3G)..It was Ericsson’s case that it offered to license its SEPs to Lava on fair, reasonable and non-discriminatory (FRAND) terms and requested Lava to enter into negotiations and discussions for obtaining licenses. However, Lava continued with its activities in India and failed to obtain any license from Ericsson on FRAND terms.LAVA argued that the patents claimed by Ericsson are neither valid in terms of the Patents Act, 1970 nor essential, rendering them unenforceable.Therefore, LAVA contended, there cannot be any claim of infringement and that Ericsson waived its rights to enforce any of its SEPs since Lava imports and distributes its mobile phones and other devices that incorporate chipsets, which alone can be said to implement Ericsson’s patents..After considering the case, the High Court held that while one of the patents asserted by Ericsson is invalid and liable to be revoked, seven remaining patents are valid.“Lava has been held to be an Unwilling Licensee due to its failure to negotiate with Ericsson in good faith, consistently delaying licensing negotiations, and failing to respond to offers or present any counteroffer. Additionally, Lava’s lack of response to the court’s specific query on willingness to accept the same royalty rates as Micromax further demonstrates its unwillingness to engage constructively in the licensing process,” the Bench ruled.It added,“In respect of damages, it has been recognised that Ericsson is entitled to receive damages calculated based on the loss of royalty/license fees it would have received had Lava executed a FRAND license agreement at the commencement of its business operations. This approach aligns with legal precedents and ensures that the patent owner is compensated for the royalties they would have earned through licensing.”.The Court rejected LAVA’s contention that royalty should be calculated on the value of the chipset. Rather, the Bench held that in mobile devices, where telecommunication network connectivity is the core functionality, the calculation of royalties at the end-product level is the most appropriate approach, aligning with industry practices, economic efficiency and legal precedents.“As regards Lava’s conation that royalty should only be payable only for the eight suits patents and not the portfolio of SEPs, it has been held that Licensing of the Entire Portfolio of SEPs is essential for ensuring interoperability in the telecommunications industry. It is justified and balanced to require implementers to license the entire SEP portfolio, as this approach facilitates smooth technological progression and upholds principles of fairness and proportionality. Further, the approach of licensing individual patents from a portfolio has been held to be impractical due to potential administrative burdens, increased transaction costs, and legal complexities.”Justice Bansal further said that the comparable licensing approach must be recognised as the preferred method for determining FRAND royalty rates, as this approach relies on FRAND rates negotiated between parties in similar circumstances..After passing the detailed judgment, Justice Bansal expressed his appreciation for the counsel who appeared for both Ericsson and LAVA.He appreciated the work done by Aman Sinha, the Law Researcher for the Intellectual Property Division of the High Court, in facilitating the understanding of complex patents involved in the case and FRAND licensing.Justice Bansal also acknowledged the contribution of his Law Researcher Palak Batra for her “research, assistance and insightful inputs in the course of this case”.In the end, the judge said that through his judgment, he has reaffirmed the principles of patent law as they have evolved in India to encourage innovation, while aiming to ensure requisite protection for the intrinsic worth of inventions.“In my considered view, this case has highlighted the importance of maintaining a balance between protecting fair access to standardised technologies and protecting intellectual property rights. Given the significant market for standardized products, it is hoped that in times to come India will become a leading neutral venue for global SEP resolution.”.Senior Advocate Arun Kumar Varma along with Advocates Abhay Raj Varma, Priyanka Ghosh and Arjun Rekhi appeared for LAVA.Ericsson was represented through Senior Advocate Sandeep Sethi as well as Advocates Saya Choudhary Kapur, Ashutosh Kumar, Devanshu Khanna, Vrinda Bagaria, Vinod Chauhan, Radhika Pareva, Vivek Ranjan, Vikram Singh Dalal and Tanvi Tewari..[Read Judgment]