Long-playing DVD case sets a patent precedent
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Accusations of cross-border intellectual property theft feature prominently in modern trade wars. Yet beyond the headlines of international corporate espionage and cyber security breaches, a tiny widget used in DVD players is a more tangible example of the kind of IP theft western companies face from manufacturers in developing markets.
A landmark case in the Delhi High Court not only helped Dutch multinational Philips protect its own licensing agreements in India, but may also provide a framework for all technology manufacturers that want to protect their IP in emerging markets.
In 2009, Philips claimed a number of companies in India were unlawfully using its patented ideas to make and sell DVD players. By then, Philips had been in India for 90 years and had sunk significant research and development funds into the market.
The company viewed the threat as profound. “India is one of the company’s four innovation hubs for R&D,” says Jako Eleveld, who heads Philips’s intellectual property licensing out of the company’s headquarters in the Netherlands. Philips invests around €1.8bn a year in research and development globally, he says. Because R&D leads to new ideas, inventions and intellectual property, it is important to have “a robust legal system” so that patent owners can reap the rewards of their R&D spending.
Some patents are relatively superficial, such as the design of a casing or placement of a circuit board. In this case, however, which until last year had been going on for more than a decade, some Indian companies were using core Philips technology and processes that were essential to the playback function in its DVD players, but without paying royalties for the privilege.
Some technology is so fundamental to a product that it simply does not work without it. Think of global transmission systems in mobile phones. Such technologies need to be standardised across all products, no matter the manufacturer, and are protected by so-called standard-essential patents (SEPs). In DVDs, Philips owns the rights to certain standards for playback functions.
Philips’s law firm in India, Anand and Anand, found itself in a curious position. In 2009, when it first started defending Philips’s SEPs, there was little precedent for it to use. Western courts had not yet begun to understand how to deal with SEPs, so the Indian courts found themselves making judgments that would ultimately inform courts around the world.
At the time of taking on the Philips case, lawyers at Anand and Anand had already recognised the importance of dealing with SEP infringement not only in India but globally. “Even in 2009 we anticipated that there would be an explosion of SEP issues,” says managing partner Pravin Anand. “Most of the companies that own these patents are large multinationals [that] want to manufacture in India, so the Indian courts become even more important because the decision extends to other jurisdictions.”
Vaishali Mittal, another lawyer at the firm, says the Philips case was the first time a plaintiff had tried to prove indirect infringement of such patents in India.
One of the big difficulties of the case was to “explain complex DVD technology to a judge who may not necessarily have a science or a technical background”.
Anand and Anand’s response was to design and present a video animation that helped describe the entire patented invention in a “straightforward but engaging manner”. Even the defence lawyers, says Ms Mittal, could not argue with the plaintiff’s descriptions of the technology, because it was so accurate and easy to understand.
At the same time, even if Philips won the case, its lawyers worried that the defendants would not be able to pay the royalty they owed. “In India, a common defence is financial constraints and the threat of bankruptcy,” says Mr Anand. “When litigation is drawn out over many years, it’s possible that the defendants won’t even be around to pay damages when a decision is finally made.”
To combat this risk, the firm suggested to the court that the defendants should deposit quarterly royalties into an account while the case progressed. In 2009, it was a little-known strategy that Mr Anand says has now become almost universal in SEP disputes around the world. “It practically nullified the possibility that the defendants could claim they were unable to pay any eventual damages,” he says.
After a protracted initial trial, a final judgment was handed down in July 2018, although an appeal is pending. Anand and Anand was able to prove Philips’s patents were “standard-essential” and had indeed been infringed. The court imposed royalty payments on the defendants.
“The final judgment provides what Indian law has lacked until now,” says Mr Anand, “a precedent [that] lays down essential principles of adjudication of SEP infringement.”
The judgment is largely based on the law firm’s legal reasoning. Moreover, Mr Anand believes the legal framework has established India as a preferred jurisdiction for SEP enforcement in the developing world.
He admits that India — where the latest version of the Patents Act became law in 1970 and has hitherto been associated with difficult-to-resolve patent infringements — is an unexpected jurisdiction for intellectual property innovation to emerge. “Between the 1970s and early 2000s, there were only a handful of cases,” he says. “Most patent litigation started after a 2005 amendment to the Patents Act, when pharma and agricultural patenting was enshrined in law.”
Mr Eleveld says Philips considers the win an “important milestone”. The decision creates more clarity for Philips and other innovators, and “provides confidence that the country recognises and allows for a legal environment that protects our investments in R&D”.
At the moment, says Mr Anand, more than 20 SEP infringement cases are still pending in Indian courts. In the meantime, he adds, intellectual property law students around the world are studying the Philips case as a benchmark for how to protect infringements.
Dechert: pioneer of third-party-funded arbitration
As asset classes go, it is hard to find one less correlated to markets than litigation financing. The windfall that investors receive from backing a successful plaintiff in a civil suit is dependent on the successful litigation of the case and typically not the swings of the equity or fixed income markets. Yet few law firms have so far been able to build a scalable model for attracting third-party funding.
Enter global firm Dechert. In 2017, hoping to become more of a centre for commercial arbitration, Singapore began allowing third parties to fund international arbitrations, reversing a centuries-old prohibition under the common law against such practices.
Singapore-based Dechert partner Mark Mangan had an innovative approach to funding, which he wanted to test. Rather than pitch to just one investor, he developed his case theory and then presented it to four prospects. He also rejected their requests for exclusivity, effectively creating a competitive market.
The case was against a well-funded Asian state-owned entity. Although it involved a high-value claim, it had been languishing for years because the eastern European claimant lacked sufficient resources to pursue it.
Mr Mangan ultimately picked Australia-based litigation funding company IMF Bentham as the funder. The choice, he says, depended only partly on the financial terms being offered. There was also the “intellectual capital the funder could bring to the case through its perspective on case theory and strategy”, which counsel could use to present the best case possible.
The development in Singapore “has encouraged other lawyers to pursue claims that would otherwise lie dormant, helped strengthen Singapore as a place for arbitration, and ultimately facilitated better access to justice”, he says.
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