Patent Rights Stand Exhausted Once Components Are Sourced From Authorized Market Dealers; Royalty Cannot Be Calculated On Entire Product: Delhi High Court

"Right to vend is exhausted by a single, unconditional sale, the article sold being thereby carried outside the monopoly of the patent law and rendered free of every restriction which the vendor may attempt to put upon it," Delhi High Court, in a landmark ruling dated 18 May 2026, quashed a decree in favor of Philips regarding the infringement of its DVD technology patent, holding that patent rights are exhausted once the patented components are sold in the open market by authorized dealers.

A Division Bench of Justice C. Hari Shankar and Justice Om Prakash Shukla observed that under Section 107A(b) of the Patents Act, the purchase of patented products from any person authorized under the law to sell them constitutes a complete defense against infringement claims.

The case arose from appeals filed by K.K. Bansal and Rajesh Bansal against a 2018 Single Judge judgment which held that their DVD players infringed Philips' Indian Patent No. 184753. The Single Judge had designated the patent as a Standard Essential Patent (SEP) and directed the Bansals to pay royalties at FRAND rates based on the sales of the entire DVD player. The appellants challenged this, contending that they had sourced the chips and printed circuit boards (PCBs) from authorized distributors of MediaTek in China.

The primary question before the court was whether the suit patent qualified as a Standard Essential Patent and whether its essentiality had been proven through claim-to-standard mapping. The court was also called upon to determine if the doctrine of international exhaustion under Section 107A(b) barred Philips from asserting infringement, and whether royalties could be calculated on the price of the entire DVD player rather than the specific patented component.

Court Explains Requirement Of Claim-To-Standard Mapping For SEPs

The court noted that for a patent to be regarded as an SEP, the plaintiff must demonstrate the existence of a standard set by a Standard Setting Organization (SSO) and prove that the patent maps completely onto that standard. The Bench emphasized that complete mapping between the elements of the standard and the features of the patent claims is necessary. It observed that Philips failed to provide "claim charts" or any attempt to establish that the claims in the suit patent mapped onto the technical features of the DVD standards.

Expert Evidence Must Meet Requirements Of Section 45 Evidence Act

The Bench rejected the Essentiality Certificates (ECs) produced by Philips, noting that they were issued by private foreign law firms and qualified only as expert evidence. Under Section 45 of the Indian Evidence Act, such reports do not go into evidence automatically and the authors must be examined in court to face cross-examination. The court held that since no one from the issuing firms was cited as a witness to vouchsafe the correctness of the ECs, they carried no credible evidentiary value.

"The report submitted by an expert does not go in evidence automatically. He is to be examined as a witness in court and has to face cross-examination."

Absence Of Product-To-Claim Mapping Fatally Flaws Infringement Claims

Regarding the allegation of direct infringement, the court found that Philips had not undertaken a product-to-claim mapping exercise as required by the precedent in Roche v. Cipla. The court criticized the reliance on an affidavit from a technical expert who never entered the witness box. It held that an affidavit is not evidence unless the deponent is available for cross-examination, and the failure of Philips’ witness (PW-2) to produce test logs warranted an adverse inference under Section 114 of the Evidence Act.

Court Interprets Section 107A(b) On International Exhaustion

A pivotal part of the judgment focused on Section 107A(b) of the Patents Act. The Bench highlighted that the 2003 amendment to the Act did away with the requirement that the dealer must be authorized by the patentee to sell the product. Currently, the law only requires that the person from whom the product is imported be "duly authorised under the law" to produce and sell it. The court found that the Bansals had purchased PCBs containing the patented technology from authorized dealers of MediaTek.

"It is not required, therefore, after the amendment of Section 107A(b) of the Patents Act in 2003, that the importation must be from a person who is duly authorised by the patentee."

Patent Rights Exhausted Once Product Enters The Stream Of Commerce

The court held that once Philips or its associates released the chips and PCBs into the open market, its patent rights stood exhausted. Applying the principles from the US Supreme Court decisions in Impression Products and Quanta Computer, the Bench noted that the sale of a patented item terminates all patent rights to that item. Since the invention resided in the chip/PCB which was sourced legitimately, Philips could not enforce patent rights against the downstream assemblers who used those components.

Royalty Cannot Be Levied On Non-Patented Features Of A Product

The Division Bench strongly disagreed with the Single Judge’s decision to calculate royalties on the entire DVD player. It noted that the suit patent was strictly for a "decoding device" which was merely one component of the player. The court held that charging a license fee on the sale of the DVD player as a whole amounts to obtaining royalty for items in respect of which the plaintiff holds no patent. It stressed that the lines must be clearly drawn between the patented component and the final product.

"There is no question of Philips having been entitled to any royalty, for any item, other than, or in excess of, the decoding device."

Failure To Produce Third-Party Agreements Prevents FRAND Determination

The court observed that Philips failed to produce any license agreements with third parties to prove that the rates offered to the Bansals were Fair, Reasonable, and Non-Discriminatory (FRAND). Despite admitting that such agreements were in their possession, Philips withheld them from the court. The Bench ruled that a final adjudication of royalty and damages must be based on an objective assessment of such agreements, rather than pre-suit informal negotiations or interim arrangements.

"The exercise of determining whether the rate offered by the plaintiff to the defendant is, or is not, FRAND is formidable... The entire exercise is so intimidating that it is doubtful whether any Court can arrive at a precise and accurate determination."

The court concluded that Philips failed to prove the SEP status of the patent, failed to establish infringement through mapping, and that its rights were in any case exhausted under Section 107A(b). The Bench quashed the Single Judge's judgment, set aside the award of royalties and punitive damages, and allowed the appeals filed by the Bansals. The ruling reinforces the protection available to manufacturers who source patented components from the legitimate global supply chain.

Date of Decision: 18 May 2026