Licensee estoppel and patent validity: Rights, restrictions and remedies

Licensee patent challenges represent a critical intersection between contractual agreements and patent law. This concept, which addresses whether a licensee can dispute the validity of a patent they are licensing, is of immense importance in safeguarding public interest while maintaining the sanctity of private agreements.

Indian patent law, with its unique statutory framework and jurisprudence, presents a nuanced perspective on this issue. In this article, we delve into the doctrinal underpinnings of licensee estoppel, its evolution and its status in Indian law. Through a comprehensive analysis of international and Indian case laws, including their respective legal citations, we aim to provide a structured understanding of the legal and policy challenges surrounding licensee patent validity disputes.

The doctrine of licensee estoppel traditionally bars licensees from challenging the validity of the patents they are licensing. This principle was established under English and American common law to ensure contractual integrity and avoid contradictory positions. However, over time, courts have limited or outright rejected this doctrine to prioritise the public interest in invalidating unworthy patents.

MacGregor v. Westinghouse Electric & Manufacturing Co

This US Supreme Court case examined the enforceability of a patent licensing agreement containing a price-fixing provision. The licensor, Westinghouse, sued the licensee, MacGregor, for unpaid royalties under the agreement. MacGregor countered by challenging the validity of Westinghouse's patent, alleging misuse of monopoly power and violation of antitrust laws through the price-fixing provision.

The Court held that a licensee is not estopped from challenging the validity of the licensor's patent under federal law. If the patent is invalid, the price-fixing clause violates antitrust laws. Federal law governs disputes involving patent validity and alleged misuse, overriding state estoppel or contract severability rules.

Lear, Inc v. Adkins

Adkins, the inventor, licensed a gyroscope patent to Lear, who agreed to pay royalties. Lear later challenged the validity of the patent, arguing that it lacked novelty. 

The US Supreme Court rejected the doctrine of licensee estoppel, emphasising that public policy favours competition and the removal of invalid patents. This decision remains a beacon for jurisdictions like India that prioritise public interest in patent validity challenges.

MedImmune v. Genentech

MedImmune continued to pay royalties under protest while challenging Genentech’s patent validity. The dispute centered on whether a licensee in good standing could challenge the validity of a licensed patent. The US Supreme Court held that licensees could challenge patents without breaching their contracts, underscoring the importance of judicial scrutiny for invalid patents.

Section 140(1)(iii)(d) of the Patents Act, 1970: Indian patent law under Section 140(1)(iii)(d) of the Patents Act, 1970, allows licensees to challenge patent validity.

Section 64 of the Patents Act, 1970: This provision allows “any person interested” to challenge a patent’s validity. Unlike US law, Indian patent law does not explicitly recognise the doctrine of licensee estoppel, giving licensees statutory backing for such challenges.

Section 23 of the Indian Contract Act, 1872: Contracts that contravene public policy are void. Thus, no-contest clauses that restrict licensees from challenging patent validity may be deemed unenforceable if they undermine public interest.

Bajaj Auto Ltd v. TVS Motor Co Ltd, 2008

Bajaj Auto filed an infringement suit against TVS, alleging that the latter violated its patented DTS-i technology. TVS counterclaimed for patent invalidation, asserting lack of novelty and prior art.

The Madras High Court upheld the right to challenge patents, reinforcing the principle that public interest in eliminating invalid patents outweighs contractual constraints. This case underscores the legislative intent of Section 64, which permits “any person interested” to challenge a patent’s validity, including licensees. The decision aligns with global trends rejecting the doctrine of licensee estoppel when public interest is at stake.

Enercon (India) Ltd v. Enercon GmbH, 2014

Enercon GmbH, a German firm, claimed infringement against its Indian subsidiary, Enercon (India). The subsidiary countered by challenging the validity of the parent company’s patents. The issue was whether a subsidiary (licensee) can challenge the validity of its parent company’s patents? The Supreme Court of India allowed the challenge, emphasizing that Section 64 of the Patents Act does not bar licensees from questioning patent validity. 

The ruling emphasised the non-existence of licensee estoppel in Indian law. By allowing the subsidiary to challenge the patents, the Court highlighted the importance of preventing the misuse of patent rights, particularly in cases involving potential abuse of monopoly power.

Telefonaktiebolaget LM Ericsson v. Xiaomi Technology, 2016

Ericsson accused Xiaomi of infringing its Standard Essential Patents (SEPs). Xiaomi, despite being in discussions for licensing, sought to invalidate Ericsson’s patents, citing anti-competitive practices.

The Delhi High Court permitted Xiaomi to challenge Ericsson’s patents, stressing that even potential licensees are entitled to question validity. The decision underscores that even potential licensees are entitled to question the validity of patents. This ruling reflects the judiciary’s recognition of the anti-competitive risks posed by SEPs and the need to balance the rights of patent holders with fair competition principles. It also demonstrates the Court’s willingness to ensure that SEP holders do not misuse their dominant position to stifle competition.

Nokia Technologies Oy v. Guangdong Oppo Mobile Telecommunications Corp Ltd, 2023

Nokia held a portfolio of SEPs related to 2G, 3G, 4G and 5G technologies. Oppo had a licensing agreement with Nokia from 2018 to 2021, during which Oppo paid royalties. The license expired in June 2021. After the expiration, Oppo continued selling devices using Nokia's SEP technology without securing a new license or making royalty payments. Nokia sued Oppo for patent infringement in India and sought interim relief, including security deposits based on estimated royalties.

The Court acknowledged that while Section 140(1)(iii)(d) of the Patents Act, 1970 allows licensees to challenge patent validity, Oppo’s conduct as an ex-licensee and its previous acknowledgment of the license suggested that its challenges might lack bona fides. Oppo's willingness to negotiate a new licensing agreement and its actions, such as filing a suit in China to determine Fair, Reasonable, and Non-Discriminatory (FRAND) rates, were treated as implied admissions of the patents’ validity and essentiality.

The Delhi High Court adopted a nuanced approach, acknowledging the statutory right of licensees to challenge patents while scrutinising the bona fides of Oppo’s actions. By considering Oppo’s prior acknowledgment of the patents and its conduct, the Court balanced the need to protect patent holders from bad-faith challenges with the broader public interest in patent scrutiny. This case reinforces judicial fairness and reflects the importance of contextualising licensee challenges within the broader framework of competition and public interest.

These cases highlight the evolving jurisprudence on licensee patent challenges in India. Together, they reflect a judicial commitment to balancing the interests of patent holders with public policy imperatives that prioritise competition, innovation and the invalidation of weak patents.

The intersection of patent law and contractual agreements, particularly concerning licensee patent estoppel challenges, highlights the delicate balance between upholding public interest and ensuring the sanctity of private contracts. The evolution of the doctrine of licensee estoppel across jurisdictions underscores a shift towards prioritising public policy over rigid adherence to contractual terms.

The patent holder enjoys an exclusive right over the patented invention against the world at large, as patent rights are classified as "rights in rem." This classification means that these rights are enforceable not only against a specific individual, but against everyone, thereby granting the patent holder the authority to exclusively use, exploit and commercialise the invention. Such exclusivity effectively prevents others from using, manufacturing, or distributing the patented invention without the patent holder's prior authorisation or license.

However, given the monopolistic nature of patent rights, the Patent Act, 1970, incorporates a robust framework to ensure that such rights are granted only after rigorous scrutiny and are not misused. The Act provides for a multi-layered opposition mechanism, including pre-grant and post-grant opposition, which allows third parties to challenge the grant of a patent on various grounds.

Additionally, the Act includes provisions for revocation and invalidation of patents, enabling interested parties to contest the validity of a granted patent even after its issuance. These mechanisms reflect the legislative intent to balance the rights of the patent holder with the public interest, ensuring that patent monopolies are not granted or upheld arbitrarily. The overarching scheme of the Patent Act, 1970, demonstrates a clear inclination against the unchecked grant of patent monopolies. In this context, the doctrine of licensee estoppel, which prevents a licensee from challenging the validity of a patent they have agreed to use, becomes inapplicable in patent cases. 

Public interest demands that any individual, including a licensee, should have the right to question the validity of a patent if it appears to be improperly granted or is detrimental to societal interests. This ensures that the patent system remains fair, transparent, and aligned with its primary objective of promoting innovation while safeguarding public welfare. This balanced framework enhances the integrity and credibility of the patent system. By fostering a culture of fairness and accountability, it encourages genuine innovation while deterring attempts to exploit the patent system for undue advantage. Patent holders are assured that their valid inventions will be protected, while licensees and competitors are empowered to challenge questionable patents, ensuring a level playing field.

Ultimately, this approach not only strengthens the patent ecosystem, but also aligns it with the broader goals of economic development and social welfare. By prioritising innovation and fair competition, the Indian legal framework creates a dynamic environment where businesses can thrive, consumers can benefit from improved access to technology and the public interest remains paramount.

Ajay Amitabh Suman is a Patent and Trademark attorney at the Delhi High Court.