Standard Essential Patents and Technology Transfer in view of India’s Digital Technology Initiative

Manufacturing of various high and intermediate products in telecommunications, computer and microelectronics, among others are India’s major economic initiatives to give a leap in the remarkable position attained by India. Telecommunication requires network interoperability, compatibility of services and applications, interworking modules and ability to host multi-operator environments. Intellectual property (IP) stands at the epicenter of these initiatives. Further, on a global scale, businesses and all international operations require interoperable telecommunication systems that must be a bridge over various national protocols and regulations; compelling telecommunication technologies and products to comply with standards and protocols for interoperability with each other and associated technologies. Setting these standards either de facto or de jure has been the responsibility of Standard Setting Organisations (SSOs). These SSOs set up a fair, reasonable and non-discriminatory (Frand) terms for the licensing of Standard essential patents (SEPs) to users or licensees. SSOs have played an important role by promoting and facilitating standards and licences between IPR holders and implementers. Ideally an SSO platform tries to strike a balance between the rights of the holder of a SEP and implementers. Generally, SSOs function as facilitators for a certain industry by bringing together SEP-holders and members in their industry network. In this role, SSOs are neutral intermediaries between SEP-holders and implementers by setting standards, policies and procedures which are acceptable to all the participants. Since SSOs are a business, they compete in recruiting innovators with SEPs and try to build influence across the industry they serve.

Indirectly, SSOs enable standardisation to be implemented in an industry by facilitating innovations which are selected to be standards. While there are no uniform processes and standards governing SSOs, there is, however, a common objective for SSOs to support market efficiency by connecting SEP owners and implementers. Therefore, SSOs are an important agency to enhance technology transfer and licensing terms. This in turn enables a faster route to market and benefits consumers. SSOs have adapted Frand terms as guidelines for licensing of SEPs to implementers or licensees. The Frand terms are non-specific and allow a range of bargaining positions to both parties. This has made the Frand terms a target for academic and legal scrutiny.

India has launched significant initiatives to enhance indigenous innovation by revamping its patent and trade mark office, sponsoring startups. It is here that the technology transfer pitches in to give the required boost for promoting “Make in India” and “Digital India”. However, Indian case law is at a very nascent stage regarding IPR infringement and Frand licensing practices for SEPs. The Ericsson v. Micromax[1] litigation is perhaps the most significant case to date that has been adjudicated in India. For example, if the Frand terms are interpreted in an unduly restrictive manner, it may prove a deterrent to current or prospective IPR holders from participating in SSOs which may impact innovation and economic development.

Further, court decisions need to reconcile with the Indian competition law which may view Frand terms to be quasi-monopolistic implemented to suppress access to technology and inhibit competition. The litigation between Ericsson and Micromax highlighted the growing intersection of competition law and intellectual property rights law in India. Since SEPs are sine qua non to the implementation of technologies, it is only but natural that the risk of abuse of dominance exists by SEP-holders. The SSOs were formed to enhance and promote competition by developing standards. Everyone competes, but not at the expense of access to technology by the general public.[2] This is particularly important if the licensed technology relates to communication systems and operations which are vital in the economy and the daily lives of a large segment of the public. The licensing fees incurred by non-patent owners will naturally be slightly higher due to the lack of negotiable patents as a trade-off. However, the current SEP system enables both contributors and non-contributors to make, sell, use and import products compliant with the set standards. Specifically, the availability of certain technology may also enhance innovation both by the owners as well as the licensees. The Competition Commission of India (CCI) did not appear to appreciate this fact. Therefore, CCI’s decision in Ericsson case[3] undermined the jurisdiction of the courts because SEP-holders thrive on the contractual negotiating powers of the parties. Ignoring the contractual nature of SEP agreements disincentivise the SEP-holders and is an indirect deterrent to innovation itself. On a parallel dimension, a global market in a hyperconnected world requires that Indian court decisions on Frand terms weigh and reconcile their decisions with other national courts.

Trends in SEPs Litigation Globally

Case Details Summary Country
Microsoft Corpn. v. Motorola Inc. (2013)4

 

(i) First-ever judicial determination of a “reasonable and non-discriminatory” (RAND) royalty rate for patents essential to industry standards.

(ii) Applied a methodology for computing a RAND royalty on a conventional Georgia-Pacific patent royalty analysis, as modified to give substantial weight to royalty stacking, relative value and public interest considerations.

(iii) Four basic principles:

Widespread adoption.—The RAND royalty should be set at a level consistent with promoting widespread adoption.

Mitigate “hold ups”.—The methodology employed should mitigate the risk of patent “hold ups” where the owner of an SEP demands both the value of the patented technology and the considerable value of the standard.

Address “stacking” risk.—The methodology should address the risk of royalty stacking by considering aggregate royalties if other SEP- holders make royalty demands.

This marks the first time that a US Court has made a determination of RAND licensing terms for a standard-essential patent portfolio licence between two parties by applying Georgia-Pacific patent analysis.

The Court further applied four basic principles that both patent owners and potential licensees may have to take into account when facing disputes over RAND licensing terms.

 

United States of America

(USA)

  Value patent only.—Importantly, the methodology has to limit the patent owner to the economic value of the patent, apart from significant value associated with the patent’s incorporation into the standard.

(iv) Useful to arbitrators, mediators and private parties seeking to adjudicate RAND dispute before litigation commences.

   
Huawei Tech- nology Co. Ltd. v. ZTE Corpn., ZTE Deutschland GmbH5

 

(i) Sets a procedural framework for balancing the interests of SEP-holders seeking injunctive relief and alleged infringers.

(ii) The decision limits the possibility of using the threat of an injunction against the user of a standardised technology if that user is prepared to take a licence under a valid patent which it actually uses.

(iii) The decision basically applies the European Commission’s safe harbour concept with further restrictions on the behaviour of the alleged infringer in responding to Frand offers from the SEP-holder.

The Court of Justice of European Union (hereinafter “CJEU”) has imposed restrictions that SEP- holders must follow to enforce their SEPs in certain circumstances.

More importantly, the CJEU has set out some limitations to the scope for the European Commission to open investigations under EU competition law rules.

European Union

(EU)

 

Iwncomm v. Sony6 (2018)

 

(i) First SEPs based injunction granted in China.

(ii) Essentially utilised a quasi-willing licensee/willing licensor framework to assess whether a SEP-based injunction should be granted.

(iii) By seeking to strike a balance between an implementer’s access to standardised technology and a patentee’s entitlement to injunctive relief, the Court recognised that Frand is a two-way street.

(iv) Affirmed that a permanent injunction is available against an unwilling licensee.

(v) The damages ruling is also seems novel, as reasonable royalty is a damages base that has been rarely chosen in patent infringement cases in China.

The Beijing Intellectual Property Court (hereinafter “the Court”) granted a permanent injunction against Sony on the grounds that it is Sony’s default that caused the parties failure to reach a licence agreement and calculated the damages by multiplying the quantity by a royalty rate 3 times the rate of the licence agreements the plaintiff submitted. People’s Republic of China

(PRC)

Apple v. Samsung7 (2014) (i) The Tokyo Court (hereinafter “the Court”) made the first decision on whether the enforcement of SEPs with the patentee’s Frand declaration would be limited.

(ii) The Court limited the right to seek damages equivalent to Frand licence fees.

(iii) The Court adopted the “abuse of right concept”, where SEP owner will not get any remedy in the event of an abuse of right, thus potentially encouraging the reverse patent hold up.

(iv) The Court allowed Apple to argue both Frand defence and non-infringement simultaneously.

The judgment made under this case is unique among foreign Frand decision. The Court gave decision in favour of Apple by providing damages equivalent to Frand licence fees by allowing Apple to argue both Frand defence and non-infringement simultaneously. This is different from “Orange-Book- Standard” wherein the defendant cannot assert Frand defence if they argue non-infringement. Japan
Ericsson v. Micromax 8

(2016)

(i) Ericsson challenged the Competition Commission of India’s (hereinafter “CCI”) jurisdiction stating that the dispute is of commercial/civil nature and the Commission should not play the role of a price setter.

(ii) CCI held that it could decide the issue of abuse of dominant position without interfering with Ericsson’s IP rights.

(iii) Ericsson challenged the order by filing a writ petition before Delhi High Court seeking stay of Commission’s order to probe anti-competitive licensing terms.

(iv) The Court further restrained CCI from passing any final order until the jurisdiction issue is resolved.

This case brings to the forefront the issue of grant of injunction in case of infringement of SEPs by challenging the CCI’s jurisdiction stating that the dispute is of commercial/civil nature and the Commission should not play the role of a price setter. India

Conclusion

Standardisation is essential for economic development. There is need of standards based on consensus, openness, due process and transparency. India needs to develop a comprehensive strategy on standards by coordination with Government, industry, SSOs, consortia, consumer groups and academia. International standards are must for international trade. The active involvement of Government in Central and State level is key to successful standards.

However, with government initiatives such as “Digital India” and “Make in India”, it is imperative that India aims at developing IP policies relating to standardisation and Frand licensing, and does that soon. This is important in order to keep up the position in the global market for telecommunications and keep lucrative, the idea of investments in local R&D as well as manufacturing.

Vaishali Singh is Research Associate, GNLU-Microsoft IPR Chair, Gujarat National Law University.

[1] 2016 SCC OnLine Del 1951.

[2] Shanker A. and Chauhan S., The patents and competition crossroads, World Intellectual Property Review, September 2014, available at <http://www.worldipreview.com/article/the-patents-and- competition-crossroads>.

[3] 2016 SCC OnLine Del 1951.

   4 696 F3d 872 (9th Cir 2012).

   5 [2015] Bus LR 1261.

   6 2017 Beijing Civil Final No. 454.

   7 2013 (Ra) 10008.

   8 2016 SCC OnLine Del 1951.

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