Standard-Essential Patents: A Study- Exploring the Regime and the Legal Battle

Introduction

With modern advancements, the standards for several industries are bound to increase and so are the average consumer’s requirements. To meet the needs of the customers and for the betterment of the industry as a whole, it is imperative for corporations to innovate and develop cutting-edge technology. However, in the field of innovation, it is common knowledge that once such technology is developed, a patent application for the same will be processed expeditiously. Most inventors would like to tenaciously cling on to the benefits of their inventions for as long as possible and this would mostly be achieved through the granting of a patent. In a scenario where a patent is granted for a very essential commodity that has revolutionised the industry, one might wonder: how are the rest of the competitors going to compete and if they fail to compete, how are they going to achieve the current standards of technology?

The answer to these questions lies in the exploration of a standard-essential patent. In simple terms, a standard-essential patent is a patent so essential that it sets a certain standard for the industry and is thereby likely to be a requirement in all the future commodities of such industry. An official definition for a ‘standard’ has been provided by the International Organisation of Standardisation which is as follows – ‘a document, established by consensus and approved by a recognized body, that provides, for common and repeated use, aimed at the achievement of the optimum degree of order in a given context.’[i]

To put forth a short illustration, an average consumer of the smartphone industry would have heard of the concept of LTE (Long Term Evolution), which is the current standard for 4G. To fulfill such a standard, a lot of famous corporations, have been required to comply with the Standard Essential Patents (hereinafter “SEP”) that have been awarded to the innovator of such technology and are bound to do so due to the essentiality of the invention.[ii] Similarly, the next step forward in the same industry is the development of 5G technology which has resulted in the issuance of over 80,000 patent declarations.[iii] Now if the technology itself is so essential, why would a developer provide it without driving a high bargain? After all, the developer is the sole proprietor of an innovation that could possibly disrupt a whole industry. This leads us to the concept of Fair, Reasonable and Non-Discriminatory (FRAND) terms wherein parties come to a consensus on the licensing of technology in a calculated manner.[iv]

The possibility of being awarded a Standard Essential Patent seems as lucrative to me as it would seem to an innovator. However, not all technology can be deemed to be Standard Essential Patent material, and to regulate the same, certain organisations known as Standard Setting Organisations (SSOs) come into play. These organisations may comprise governmental institutions or private organisations that agree to follow regional, national, or international standards for a particular industry.[v] Technology in itself is not utopian, so regulation and compliance regarding the same cannot be either and this leads to issues such as legal disputes, unfair means of competition, or disagreements over the essentiality of patents. The legal regime proves to be worthy in such battles and must be made known to all for the enhancement of technology and its regulation. This article seeks to delve into the interplay of Standard Essential Patents and the law by analysing its litigation, competition authorities, and economic development.

SEP Litigation in India – A Battle Worth Fighting?

Indian jurisprudence witnessed the birth of SEP Litigation in the year 2009 when Koninklijke Philips Electronic N.V. filed two suits in the Delhi High Court (DHC) alleging patent infringement of its SEP for a DVD Video Player.[vi] The case of Koninklijke Philips Electronics N.V. v. Rajesh Bansal[vii] proved to be the first of its kind when the DHC chose to award an interim relief through which the defendant was ordered to deposit Rs. 45 per DVD player.[viii] Since its inception, SEP litigation has predominantly been initiated due to smartphone patent issues and more specifically has been initiated by the well-renowned company, Ericsson.[ix]

Ericsson v. Micromax[x] was a case registered in the year 2011 wherein Ericsson asserted SEP infringement claims against Micromax because of unauthorised usage of their 2G, 3G, and Autonomous Mobile Robots (AMR) technology. Looking to avoid paying a hefty sum, Micromax contended that FRAND terms had not been offered by the plaintiff and thereby filed a formal complaint with the Competition Commission of India.[xi] The authority granted an interim injunction to Ericsson after which the parties formed a licensing agreement. However, the true concern regarding the battle was raised by the Competition Commission of India (CCI) when they filed a prima facie case against the plaintiff through which the Director-General was directed to investigate their claims. A counter was filed in the form of a writ petition in the DHC which then upheld the order of the CCI and directed that the investigation be continued into dominance allegations and royalty stacking. Subsequently, the DHC ordered Micromax to pay royalty amounts to Ericsson which were not based on Ericsson’s FRAND terms as it was merely an interim arrangement.  Several pronouncements later, the parties settled after Micromax obtained a global FRAND license from Ericsson in 2018. However, even though the case went through different authorities, it proved to be ambiguous in nature if one were to analyse the impact of SEP Litigation as there was no fixed decision regarding the FRAND terms and royalty stacking occurred which was extremely unfair.[xii] Furthermore, the Non-Disclosure Agreements signed by Micromax barred any form of inquiry into the FRAND terms. While the judgments may have been fruitful in the long run for Ericsson, the case cannot hold its ground to support SEP Litigation battles if they were to be fought at the same frequency as regular litigation. Thereafter, Ericsson also sued Gionee for violation of the same SEPs mentioned in the previous case.[xiii] Yet again the DHC ordered for interim royalties to be paid. The Hon’ble Court also directed the parties to negotiate on FRAND terms and the same was agreed upon. History repeated itself when the FRAND terms negotiated were not disclosed by the parties and thereby adds to the concern of whether SEP Litigation is a battle worth fighting at all.[xiv]

Subsequently, Ericsson chose to file another SEP infringement suit against Intex, an Indian computer peripheral and handset manufacturing company, for unauthorised usage of its 2G and 3G technology.[xv] The plaintiff pleaded for damages and permanent injunction after having initially offered a FRAND license to the respondent. The respondent argued against the validity of the SEPs possessed by the plaintiff because the latter had allegedly failed to disclose all relevant information of its foreign patents while filing for the same in India. Furthermore, the respondent claimed that it could not be viewed as an unwilling licensee due to the lack of FRAND terms offered by the plaintiff. The Court ruled against the respondent claiming that the party had been aware of the SEP for years and only chose to contend it after the assertion of the SEP infringement claim. Interim Relief was granted and the Micromax case was referred to for calculation of royalties. Intex followed in the footsteps of Micromax and filed a suit before the CCI wherein Ericsson was yet again found to have abused their dominance.[xvi] The issues that are evident from this case are the lack of regulations or guidelines on deciding the royalty amount and the negligent reliance on the precedent. Additionally, the large player in both cases were found to have abused its dominance but no clarity could be provided regarding the settlement or the so-called FRAND terms that were agreed upon. The lack of legislation over SEPs, be it in the Patents Act or the Competition Act, has led to ambiguity in deciding SEP litigation cases.

Ericsson continued to exercise its rights as the Original Proprietor by suing Xiaomi, a Chinese manufacturer, alleging that there was a violation of 8 of its SEPs.[xvii] An ex parte injunction was imposed on the sale, manufacture, and import of the respondent’s devices. However, the decision was partly reversed, subject to restrictions, when the respondent challenged the previous order before a division bench of the DHC. The sale of products was resumed. This case highlights that there is a possibility of the reversal of a decision, but this could have been avoided if there were a set of regulations that were to be followed by authorities prior to deciding on such cases.

The case laws mentioned above have shed light on the current issues faced in SEP Litigation. There are a few other cases, namely, Vringo Infrastructure v. ZTE[xviii] and Dolby International AB & Anr. v. GDN Enterprises[xix] that could be delved into for deeper analysis of SEP Litigation. However, it is evident from the surface that legislation or a legal framework in the form of guidelines is required to govern the issues pertaining to SEPs. This brings us to the next section of the article wherein Intellectual Property Law and Competition Law provide us with differing insights regarding SEPs and hence cause disagreements among authorities that derive their competence from entirely different statutes pertaining to their respective fields of law.

Intersection between IP Law and Competition Law

The essence of a patent-based system is to reconcile the interaction between private and exclusive patents as against public and non-exclusive standards. This interaction has derived its purpose from Intellectual Property Law and Competition Law respectively. They further the cause of contrary purposes as Patent law seeks to provide an innovator with certain monopolistic rights whereas Competition law seeks to reduce the amount of market power vested in an individual entity. The Competition Commission of India was created with the sole objective of achieving fair competition in the economy that thereby ensures a fair and level playing field for all competitors in said industry. The Competition Act of 2002 functions on the principle of desirable competition that furthers technological advancements but at the same time seeks to prevent abuse of dominance and anti-competitive agreements.[xx] Patent Law through the Patent Act is based on the principle of providing innovators with their well-deserved monopolistic rights. The clash among the two in recent SEP Litigation cases signifies a dire need for legislation governing SEP regulation so as to prevent an overlap of authority between IP Law and Competition Law.

As seen in the aforementioned case laws, the Delhi High Court and CCI have often had differing views on a variety of issues. Jurisdiction-wise, the two gain their authority from differing statutes, namely, the Patents Act of 1970[xxi] and the Competition Act of 2002[xxii] respectively. Furthermore, the two authorities have different ideals while trying to achieve justice which leads to their differing opinions. The CCI uses the Smallest Saleable Patent Practicing Component (SSPPC) whereas the DHC resorts to the usage of the net price of the Downstream Product and comparison of licenses.[xxiii] This difference results in no fixed standard for deciding interim royalty rates. It is essential for both authorities to consider the necessities of the domestic market while coming up with solutions as most litigants are licensees and not patent holders. If interim injunctions are provided with every complaint filed, then the prices of products are merely going to increase, and that in turn serves as a deterrent for consumers.[xxiv] The overlapping of the two jurisdictions is all the more reason for the introduction of separate legislation governing the issues of SEP Litigation.

SEP: Addressing the Concerns

As previously mentioned, the next technological race for SEPs has already begun in the realm of 5G technology. Some reports claim that China is in the lead with several 5G SEPs that have been filed by the country already.[xxv] However, ‘twobirds Pattern’ of Bird & Bird LLP has published reports, according to which, mobile technology-giant Ericsson is in the lead with 16.1% of the 5G SEPs owned worldwide.[xxvi] With the advent of 5G, a lot of litigation will be undertaken to protects their SEPs. India must be prepared at the time to tackle currently existing issues such as patent hold-ups, royalty stacking, abuse of dominance, and overlapping of authorities, to name a few.[xxvii] India could take a look at other countries with regards to regulations or legislation that could be implemented. Japan has established its own ‘Guidelines for the Use of Intellectual Property under the Antimonopoly Act’ which could prove to work in India’s current scenario as the Competition Act could be considered as a counterpart to the Japanese Antimonopoly Act. Furthermore, China has introduced the Working Guidelines on the Trial of Standard Essential Patent Disputes (Trial Implementation) which can also be studied for further reference.[xxviii] With the clarity of legislation, the issue of authority no longer clouds the judgments. With respect to abuse of dominance or royalty stacking, a fixed standard prescribed by the guidelines or legislation would eradicate this issue and would no longer force the courts to rely on precedent.

Conclusion

There is an awareness that by holding negotiations with potential licensees, SEP holders can exploit their dominant position. They can ostensibly exercise their IP rights by obtaining injunctions for patent infringements. This is in breach of their FRAND-based license commitment and could also have an anti-competitive impact on the market. Given the public interest of SEP holders in preventing abuse of dominance, the Courts around the world have opted to impose SEP holders’ FRAND obligations and issue injunctions very sparingly. However, in granting injunctions to SEP holders, Indian courts have not shown such caution. This is surprising, particularly because India is a country that imports technology. Indeed, such injunctions should not be issued by Indian courts until a strong determination of the licensee’s unwillingness has been made. This is likely to help Indian farmers to produce standard-compliant goods, which is a prerequisite for a developing country like India that seeks to be a hub for global manufacturing and technology. In addition, obstacles to the exercise of jurisdiction by the Competition Commission are unnecessary and hinder the process of establishing a competitive atmosphere for patent licensing.[xxix]

Countries around the world seem to be in the race for new SEPs and India will certainly face the consequences as a developing nation. Several corporations will repeat Ericsson’s go-to-court strategy after issuing SEPs and India must be prepared to face such issues so as to allow for a fair market while ensuring that the quality of the product meets the required standard.

This article can be cited as:

Vivek Basanagoudar, STANDARD-ESSENTIAL PATENTS: A STUDY- EXPLORING THE REGIME AND THE LEGAL BATTLE, accessible at https://metacept.com/standard-essential-patents:-a-study–exploring-the-regime-and-the-legal-battle.

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References

[i] ISO/IEC Guide 2:2004(en) Standardization and related activities – General Vocabulary, International Organisation for Standardization (Nov. 1, 2004), https://www.iso.org/obp/ui/#iso:std:iso-iec:guide:2:ed-8:v1:en.

[ii] J. Gregory Sidak, What Aggregate Royalty Do Manufacturers of Mobile Phones Pay to License Standard-Essential Patents?, 1 The Criterion J. on Innovation 701, 710 (2016).

[iii] Tim Pohlmann, Who is leading the 5G patent race? A patent landscape analysis on declared 5G patents and 5G standards contributions 3 (2019).

[iv] Niharika Sanadhya, Paving The ‘FRAND’ Way Ahead For SEP Licensing, Mondaq (Feb. 20, 2019), https://www.mondaq.com/india/Intellectual-Property/782480/Paving-The-FRAND39-Way-Ahead-For-SEP-Licensing.

[v] Saumay Kapoor & Nanki Chopra, Standard Essential Patents, Injunctive Relief and India, 8 Indian J. Intell. Prop. L. 91, 96 (2017).

[vi] Meena Annamalai, Pressing Need To Clear The Muddy Waters: SEP Litigation In India, BananaIP Counsels (Jul. 2, 2020), https://www.bananaip.com/ip-news-center/pressing-need-to-clear-the-muddy-waters-sep-litigation-in-india/#:~:text=Pressing%20Need%20to%20Clear%20the%20Muddy%20Waters%3A%20SEP%20Litigation%20in%20India,-0%20Cmnts&text=Indian%20jurisprudence%20saw%20the%20birth,for%20a%20DVD%20Video%20Player.

[vii] Koninklijke Philips Electronics N.V. v. Rajesh Bansal, (2018) 251 DLT 602.

[viii] Ashish Bharadwaj et al., Multidimensional Approaches Towards New Technology 183-207 (2018).

[ix] Ashish Bharadwaj, A note on the neglected issue of reverse patent hold-up, 13 J. of Intell. Prop. L. & Prac. 555 (2018).

[x] Telefonaktiebolaget LM Ericsson (Publ) v. Mercury Electronics & Anr, (2014) 206 DLT 423.

[xi] In Re: Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), (2013) CCI 77.

[xii] Dipak Rao & Nishi Shabana, Standard Essential Patents, Singhania & Partners LLP (Aug. 22, 2017), https://singhania.in/blog/standard-essential-patents.

[xiii] Telefonaktiebolaget LM Ericsson (Publ) v. Gionee Communication Equipment Co. Ltd. and Anr,. CS (OS) 2010/2013.

[xiv] Nehaa Chaudhari, Standard Essential Patents on Low-Cost Mobile Phones in India: A Case to Strengthen Competition Regulation?, 11 Soc. Legal Rev. 41, 53 (2015).

[xv] Telefonaktiebolaget LM Ericsson (Publ) v. Intex Technologies, (2015) 62 PTC 90.  

[xvi] Intex Technologies v. Telefonaktiebolaget LM Ericsson (Publ), (2014) CCI 10.

[xvii] Telefonaktiebolaget LM Ericsson (Publ) v. Xiaomi Technology & Ors., (2016) 66 PTC 487.

[xviii] Vringo Infrastructure Inc, & Anr. v ZTE Corporation & Ors. (2014) Delhi High Court, FAO(OS) 369/2014.

[xix] Dolby International AB & Anr. v GDN Enterprises Private Limited & Ors. (2016) Delhi High Court, CS(COMM) 1425/2016.

[xx] Standard Essential Patents, RNA Intellectual Property Attorneys (Jul. 2015), http://rnaip.com/wp-content/uploads/2015/07/standard-essential-patents.pdf.

[xxi] Indian Patents Act, No. 39 of 1970, India Code (1993), available at http://indiacode.nic.in.

[xxii] Competition Act, No. 12 of 2003, India Code (1993), available at http://indiacode.nic.in.

[xxiii] Supra note viii.

[xxiv] Raghavi Viswanath, Demystifying the Indian FRAND Regime: The Interplay of Competition and Intellectual Property, 21 J. of Intell. Prop. Rts. 89 (2016).

[xxv] Christina Petersson, Why you shouldn’t believe everything you read about 5G patents, Ericsson (Oct. 11, 2019), https://www.ericsson.com/en/blog/2019/10/5g-patent-leadership.

[xxvi] Robert L. Stoll, 5G SEP leadership in 2020, Social Science Resource Network (2020).

[xxvii] Ankita Tyagi & Sheetal Chopra, Standard Essential Patents (SEP’s) – Issues & Challenges in Developing Economies, 22 J. of Intell. Prop. Rts. 121 (2017).

[xxviii] Adrian Emch, New SEP guidelines from Guangdong, Kluwer Competition Law Blog (Jun. 1, 2018), http://competitionlawblog.kluwercompetitionlaw.com/2018/06/01/new-sep-guidelines-guangdong/.

[xxix] Shreya Prakash, Injunctive Relief for Standard Essential Patent Holders: A Comparative Analysis, 11 NALSAR Stud. L. REV. 53 (2017).