“Ericsson Wins SEP Dispute Against Lava International: Delhi High Court Orders Lava to Pay 2.44 Billion Rupees in Damages”

In a landmark ruling, the Delhi High Court has ordered Lava International, the third largest Indian smartphone brand, to pay 2.44 billion rupees (US$29 million) in damages to Ericsson following a protracted Standard Essential Patents (SEP) dispute. The decision, delivered on 3 April 2024, marks the largest ever damages award in Indian patent litigation.

The dispute began in 2015 when Ericsson, a Swedish multinational networking and telecommunications company, filed a suit against Lava, alleging infringement of eight SEPs. These patents covered technologies such as the adaptive multi-rate speech codec, enhanced data rates for GSM evolution, and 3G features. Lava, in response, challenged the validity of these patents.

The court’s decision hinged on several key factors, including the essentiality of Ericsson’s patents, the doctrine of exhaustion, a two-step infringement test, the conduct of both parties during FRAND (Fair, Reasonable, and Non-Discriminatory) negotiations, and the calculation of damages.

The court concluded that Lava had admitted to the essentiality of Ericsson’s patents through its pleadings and correspondence. Ericsson further established this essentiality through its submission of claim charts.

Lava attempted to use the doctrine-of-exhaustion defence under Section 107A(b) of the Patents Act, arguing that it could not be held liable for infringement as it imported the mobile phone handsets from licensed entities. However, the court ruled that Lava had failed to provide convincing evidence that it had imported the handsets from entities holding licences from Ericsson.

The court applied the two-step infringement test, concluding that infringement could be established if the suit patents map onto a standard (the first step) and the implementer’s device is compliant with the standard (the second step). After examining the evidence, the court found that Lava had indeed infringed Ericsson’s patents.

The court also analysed the correspondence between Lava and Ericsson, concluding that Ericsson had engaged in good faith to negotiate licensing rates, while Lava had shown no intention of entering into a FRAND licensing agreement.

The court ruled in favour of using the entire SEP portfolio to calculate damages, not just the asserted patents. Ericsson successfully argued that the disputed patented technology was central to the primary function of the mobile devices, and that damages should be calculated based on the end product using the chipset, not the smallest saleable patent practicing unit (SSPPU), which was Lava’s position.

Using the comparable licences approach, the court held that the rates previously offered by Ericsson were almost identical to those it had offered other entities, and thus found these rates to be FRAND. The final royalty rate was calculated at 1.05% of the selling price of different devices that had infringed the patented technologies. The overall damages were approximately 2.4 billion rupees (US$29 million).

In addition to the damages, the court ruled that Ericsson would also be entitled to the actual costs of the litigation.

Despite the ruling, Lava has appealed the decision. The appeal was heard for the first time on 13 May 2024, but Lava failed to obtain a stay on the 3 April order. While Lava may not need to pay the entire damages amount before the appeal is adjudicated upon, it has agreed to make an interim deposit to safeguard Ericsson’s rights.

This ruling has clarified various issues related to SEP litigation and highlighted the importance of meaningful FRAND discussions. It also sets a precedent for future SEP disputes, potentially influencing the strategies of both patent holders and implementers in the Indian market.