In an interim order passed by the Delhi High Court, mobile handset company Micromax has to pay a royalty that amounts up to 1% of the selling price of its devices to Ericsson for using the Swedish equipment maker's patents on technologies that are essential to manufacture the products. The interim order holds until December 31, 2015, the deadline set by the court to conclude the trial. As a result of this order, the company might have to shell about Rs 10 crore monthly to Ericsson.
If the final verdict upholds the interim order, that could even dent the low-cost business strategy of domestic handset and tablet companies by significantly undermining their cost advantage.
Last year, Ericsson sued Micromax claiming about Rs 100 crore in damages stating that it had to take legal recourse after three years of negotiations failed to yield a license agreement on standard-essential patents, or patents on technologies that are standards for certain equipment such as mobile phones.
Ericsson had alleged that India's largest domestic handset maker has refused to enter into a licensing agreement covering its patented innovations across several wireless technology standards such as GSM, EDGE and third generation (3G). This is the first high-profile case in an intensifying mesh of litigation in the technology space around essential patents. Subsequently, Ericsson also entered into litigation with other handset makers including Intex and Gionee over the same issue.
Despite exiting the handset space, Ericsson continues to be among the biggest patent holders in the mobile industry along with Nokia, Qualcomm and Samsung. Ericsson has 33,000 patents to its credit, with 400 of these granted in India. The company was the largest holder of SEPs (Standard Essential Patents) for mobile communications technologies like 2G as well as 3G and 4G, used mainly used for smart phones and tablets.
Ericsson has argued that it has similar payment arrangements with many handset makers globally and to support the claim, it furnished at least 26 licence agreements. The court, after perusing the royalty rates contained in those agreements, arrived on this rate, which both parties agreed upon, according to the order.
The patents in question are a part of what are called “standards-essential” patents and holders are expected to license them on Free Reasonable and Non-Discriminatory (FRAND) terms. Though Micromax was said to have keen on negotiating a FRAND license with Ericsson, the companies could not come to a suitable conclusion. One of the primary reasons for not signing the agreement was that Micromax wanted to link the payment to the value of the chipset while the latter insisted that it be a share of the handset value as is the case globally.
Last year Micromax had filed a complaint against Ericsson at the Competition Commission of India for alleged abuse of its dominant position in charging higher royalty on GSM technology patents.
The Competition Commission had ordered investigation into the matter after finding prima-facie evidence of Ericsson indulging in unfair trade practices.
In its order, CCI has said that it is a "fit case for through investigation by it’s Director General Mr. Rajeshekar L IRS, into the allegations made by the informant (Micromax), and violations, if any, of the provisions of the Competition Act".