Patently Justified?

The high octane growth of Indian mobile handset makers has caught the attention of global technology patent holders in the telecom industry. So far local manufacturers had mostly been using patented technologies without paying royalties, but the good times seem about to end .

Though the patent infringement lawsuit by telecom major Ericsson in the Delhi High Court against the largest Indian handset maker, Micromax, is still pending, the latter has agreed to an interim licence arrangement with Ericsson under terms known in the industry as FRAND (Fair, Reasonable and Non-Discriminatory). Ericsson is the largest holder of standard-essential patents for mobile communication, with some 33,000 of them.

In a statement, Micromax said it is “committed to negotiating a FRAND licence with Ericsson as Ericsson has undertaken to providing a FRAND licence to Micromax”. D. Calab Gabriel, Senior Partner at intellectual property attorney firm K&S Partners, explains that while this cannot be taken as a precedent as it has not been imposed by the court, similar arrangements could be proposed by other parties in future actions of this kind. Gabriel adds that there are three possibilities in the Ericsson-Micromax case. The court could issue a final order saying there had been no infringement of Ericsson’s patents. It could also uphold Ericsson’s claim and propose a new royalty rate agreed upon by the parties or imposed on them. “The third possibility is that the court will ask both parties to continue with the interim rate,” he says.

For Indian handset makers, this could be just the beginning. There are around 60 of them, their combined market share around 20 per cent. Amit Goel, CEO of research firm Knowledgefaber, notes that Ericsson and Motorola were the pioneers in the mobile phone industry. Hence they hold most of the patents in the field – Ericsson for network and Motorola for hardware. “Ericsson put in place most of the standards for using GSM, EDGE and GPRS investing millions of dollars, so it is only natural for it to seek royalties,” says Goel.

While most Indian handset makers refused to comment, Intex Technologies (India) Ltd responded with a statement which suggested it was already negotiating with Ericsson. “Formal communication between Intex Technologies and Ericsson with respect to the patent claimed by Ericsson is under discussion,” says the statement from Sanjay Kumar Kalirona, General Manager, Mobile Business, Intex Technologies.

Goel adds it is not possible to avoid Ericsson or Motorola’s technologies unless companies invest heavily in research and development and go about re-inventing the wheel. But it is unlikely, in the current competitive environment that Indian firms will pass on the burden of the royalties to customers.

“Pricing usually can’t be reversed. They will have to cut down on margins or explore cheaper production practices,” says Goel.blurb}