Ericsson Micromax

Quite an interesting twist to the Micromax-Ericsson lawsuit: The Competition Commission of India (CCI) has ordered an antitrust probe against the telecom network equipment maker Ericsson for allegedly charging a higher royalty for its GSM technology patents, reports PTI (via NDTV Profit). Read the CCI order here.

CCI said this probe was ordered after it found prima facie evidence of Ericsson indulging in discriminatory trade practices. It mentioned that Ericsson was acting contrary to the FRAND (Fair, Reasonable and Non-Discriminatory) terms by charging patent royalties based on the cost of the user product (mobile phone, tablets and others) rather than the product being licensed (chipset), which is discriminatory.

For instance, if the GSM chip is used in a Rs 100 phone, the royalty charged is Rs 1.25 whereas if the same GSM chip is used in a Rs 1000 phone, the royalty would shoot up to Rs 12.5, without adding any value to the product of the licensee.

The probe follows a complaint from the Indian handset maker Micromax which had claimed that Ericsson was demanding an exorbitant, unfair and discriminatory royalty for its patents. Micromax claimed that the royalty demanded by Ericsson was excessive in comparison to royalties demanded from other patentees for similar or comparable patents held by Ericsson.

Micromax-Ericsson lawsuit: Ericsson had earlier filed a patent infringement lawsuit worth Rs 100 crore against Micromax in March 2013, alleging that Micromax had infringed on eight Standard Essential Patents (SEPs) used in its 2G, 3G and 4G devices. This was after Micromax had reportedly refused to sign a FRAND license agreement and a three-year negotiation with the company had failed.

The order however notes that Ericsson had provided terms of these FRAND licenses about 16 months after Micromax’s request in July 2011 and demanded Micromax to accept these licenses within 25 days, failing which it will be assumed as a refusal to sign the license.

Micromax and Ericsson had later agreed upon an interim arrangement as per which Micromax had to deposit a specific interim payment with the Delhi High Court (More on the arrangement and payment details). CCI said Micromax had deposited Rs 29.45 crore as royalty payment as of May 31, 2013.

Micromax’s complaint: After the court ordered mediation talks between both the companies failed, due to Ericsson not being able to provide similar agreements to Micromax, the latter had pointed out to the commission that Ericsson was abusing its dominant position by charging an exorbitant royalty, since it is the sole licensor for those patents and there was no alternate technology available.

It also pointed out that Ericsson was charging the royalty based on the mobile phone’s sale price rather than the cost of product being licensed, due to which royalty of using the same chipset in a smartphone was 10 times higher than using it on an ordinary phone while providing no additional value to the smart phone.

Ericsson is the largest patent holder in mobile communications: The Commission noted that Ericsson currently has 33,000 patents, of which 400 patents were granted in India, making it largest holder of mobile communication SEPs like 2G, 3G and 4G patents which are used for smart phones and tablets. With no alternate technology, Ericsson has “complete dominance over its present and prospective licensees in the relevant product market”.

What Next? CCI has now referred the case to the director general, who will investigate for any violation of the provisions of the Competition Act and submit his report in the next 60 days. Meanwhile Ericsson has said in a statement that “it will fully cooperate with the authority in this investigation to reach a fair and reasonable conclusion.”