Moving Along the Established Curve: CCI’s Capability in Ascertaining the Validity of FRAND Assurances

[By Shubhankar Sharan & Soumyabrata Chakraborty]

The authors are students of Gujarat National Law University, Gandhinagar.

 

Introduction

Over the latter half of the previous decade, reasonable disputes have arisen concerning the jurisdictional overlap between the Patents Act 1970 (Patents Act) and the Competition Act 2002 (Competition Act). The instant ambiguity centers around the recent judgement of a Division Bench of the Delhi High Court in Tekefonaktiebolaget LM Ericsson v. Competition Commission of India (Ericsson-II), holding the Patents Act to have an edge over the Competition Act. Precisely, the judgement recorded questions about the Competition Commission of India’s (CCI) capacity to ascertain the validity or legality of Fair, Reasonable, and Non-Discriminatory (FRAND) terms in Patent Licensing Agreements (PLAs), however, left it unanswered. Even though the judgement has attempted to clear the jurisdictional overlap, it is fraught with unclear reasoning and has failed to consider several decisive factors. Given the same, this piece would try to outline how FRAND assurances come under the definition of “agreement” stated in the Competition Act. That moment forward, it aims to delineate the powers of the CCI to inquire into such agreements. The piece establishes how CCI needs to hold its ground in adjudicating matters related to FRAND agreements in the likely event of an appeal against Ericsson-II.

What has changed?

Delhi High Court’s Ericsson-II judgement is diametrically opposite to its single-judge decisions of 2016 and 2020 in similar matters. The Court has now ruled that the Patents Act would prevail over the Competition Act in issues involving a patentee’s abuse of a dominant position in exercising its rights under the Patents Act. The Judgement empowers the Controller of Patents (Controller) to have overriding jurisdiction over CCI in matters of anti-competitive agreements and abuse of dominant position in the domain of exercise of rights by a patentee. The Court adopted a method of examining the legislative intent behind the two statutes (and their amendments) to resolve the jurisdictional conflict. The Court’s reasoning can best be described as restrictive as it relied merely on legislative intent and the precedence of special law over general law or subsequent law over prior law and not a thorough examination of the scope of the two statutes to remedy or prevent anti-competitive practices. The Ericsson-II judgement lacks a thorough comparative analysis of the CCI’s and Controller’s powers to inquire into FRAND terms and their powers to remedy anti-competitive practices. Notably, FRAND assurances in PLAs and the question of them being anti-competitive formed a significant part of the factual matrix before the Court. The Judgement is marked by a lack of reasoning regarding examining and remedying anti-competitive practices in FRAND terms. Instead, it focuses merely on the conflict of jurisdiction. A reading of the two statutes clearly shows that the CCI is better equipped than the Controller to inquire into, remedy, and penalize for abuse of dominant position and anti-competitive agreements concerning FRAND terms.

FRAND assurances are agreements by nature

FRAND assurances are voluntary agreements that are enforceable in a court of law. Though it is unclear in the Indian jurisprudence, foreign jurisdictions have matured to recognise it. Such reliance on foreign jurisprudence is not detrimental but facilitator of the development of jurisprudence. The same was pointed out by the Delhi High Court in Intex Technologies (India) Ltd. v. Telefonaktiebolaget LM Ericsson (Intex judgement) in paragraph number 38. In the USA, for instance, several courts have observed that Standard Essential Patents (SEP)  implementers or licensees are third-party beneficiaries of agreements between SEP holders and the Standard Setting Organisations (SSOs) and have a right to enforce the SEP holders’ obligations in the Court of Law. Generally, SEPs are granted by the SSOs on specific conditions carried through voluntary agreements requiring the SEP Holder to grant licenses on FRAND terms to the prospective licensees.

For instance, Article 6 of the European Telecommunications Standards Institute’s (ETSI) Intellectual Property Rights policy (Article 6 of the IPR Policy) requires the IPR holder or the Declarant to give an irrevocable written undertaking that it would be granting licenses on FRAND terms. Moreover, the Court of Justice of the European Union (CJEU) in Huawei Technologies Co. Ltd. v. ZTE Corp. held that the declaration given by Huawei to ETSI under Article 6 of the IPR Policy for negotiating FRAND terms is binding.

The IPR Policy of ETSI, an SSO, has also gained prominence in Indian jurisprudence.  Its reference dates back to 2013 when the CCI touched on Clause 6.1 of the IPR Policy. Additionally, it ascertained the IPR Policy as the overarching framework for companies making a declaration. In furtherance of it, the CCI considered such statements to be binding. Though not the same but similarly, the Delhi High Court (¶36) has rightly recognised the essentiality of FRAND declaration for ensuring access to standardised technologies for SEP Implementers on FRAND terms. However, legislative acts have not recognised or included FRAND agreements in the statutory framework.

FRAND agreements and the Competition Act

Despite underlining reasonability and fairness, FRAND agreements have often come across as discriminatory. The telecom giants have regularly been hauled to courts for unreasonable terms in FRAND agreements. It must be noted that the Indian position rests possibly on Sections 3 (Anti-competitive Agreements), 4 (Abuse of Dominant Position), and 19 (Inquiry into certain agreements and dominant position of enterprise) of the Competition Act for adjudication over FRAND agreements.

While the Competition Act is silent on FRAND Agreements, a cursory reading of the above-mentioned sections indicate their possible application on FRAND Agreements. Section 19(1) of the Competition Act empowers the CCI to inquire into any alleged contravention of Section 3(1) or Section 4(1). Section 3(1) of the Competition Act affirms restraint from entering into agreements causing an Appreciable Adverse Effect on Competition (AAEC). Section 3(2) in conjunction with Section 3(1) of the Competition Act renders such agreement void.

Similarly, Section 4(1) proscribes abuse of dominance by an enterprise in the competition landscape of India. In furtherance, Section 3(4) and Section 4(2) list various instances when an enterprise can be pigeonholed to be charged for entering into anti-competitive agreements and abuse of dominance, respectively. In light of the above, the elements of Section 2(b) of the Competition Act are evident in FRAND agreements, hence they can be deemed as an “agreement”.

Section 3(1), read with Section 19(1) of the Competition Act, empowers the CCI to inquire into agreements causing AAEC. In the previous decade, CCI has passed multiple orders, determining the validity of the FRAND agreements in due course. One of the noteworthy cases is Best IT World (India) Private Limited v. Telefonaktiebolaget L.M. Ericsson (iBall case), wherein iBall alleged Ericson of bundling irrelevant patents with regards to iBall’s products in the licensing agreement. The CCI approved the allegations by iBall and deemed the royalty rates discriminatory, thereby holding FRAND terms as unsustainable. On similar lines, the CCI in Intex Techs. (India) Limited v. Telefonaktiebolaget LM Ericsson considered the information provided to be alluding to discriminatory practices and violation of FRAND terms. The CCI also offered a detailed explanation about Ericson’s membership with ETSI and how the obligations under Clause 6.1 of the IPR Policy require Ericson to provide FRAND terms.

Broadening analysis: jurisprudence of foreign lands

Reliance on foreign jurisprudence is necessary to establish that FRAND assurances are agreements within the meaning envisaged in the Competition Act, especially Section 3(1). The Delhi High Court, in its Intex judgement, was dealing with a matter about FRAND agreements. It underlined the importance of appreciation of foreign judgements in the evolution of jurisprudence. It unequivocally affirmed that global doctrinal interdependence is an effective and efficient way of harmonising basic law principles when nothing contradicts it.

Some of the cases in the USA  have categorically entrusted their antitrust regulator with overseeing violation of FRAND commitments and regulating the abuse of the Standard Setting Process carried out by the SSOs. Notably, FRAND has primarily been construed as a contract in the case of Unwired Planet International Ltd. v. Huawei Technologies Co. Ltd., wherein Justice Birss described three “relevant legal contexts” for the consideration of FRAND: i. Compliance with the FRAND terms is a matter of contract, ii. Compliance with competition law, and iii. Refusal or grant of injunctions. Justice Birss’ ideation sheds enough light to assert FRAND assurances as “agreement.” Equally, the CCI has also moved along similar lines in establishing its purview over FRAND assurances by deeming its nature an “agreement” within the meaning envisaged in the Competition Act.

Conclusion

The Delhi High Court had the ripe opportunity to adjudge upon the CCI’s powers to inquire into FRAND assurances which are agreements by nature. However, even after recognizing it as an issue, Ericsson-II missed the mark. It must be noted that the effects of anti-competitive FRAND agreements are far-reaching and capable of affecting the entire competitive market of the country. Cognisant of the powers of the CCI to be in rem rather than in personam, the CCI must adjudicate over disputed FRAND agreements to prevent monopolisation and foster market competition, the primary purpose for which it was established.

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