The Internet of Things (IoT) has emerged as a transformative technology with widespread use, globally and in India. IoT is the connection of devices through software, sensors, and other new technologies for intercommunication and connection with the Internet with applicability in a wide variety of products and appliances. With the current and anticipated advancements in technology, IoT is no longer limited to smartphones, but it extends so far as to include smart-wearables, connected drones, cameras, smart home locking systems and even smart implantable medical devices and smart tattoos.
Cellular standards (ranging from 2G to 5G) are considered to be the pillar of IoT. They are the result of ground-breaking technologies often protected by patents known as standard essential patents (SEPs) and disseminated owing to the commitment to license them on fair, reasonable and non-discriminatory (FRAND) terms and conditions. In the IoT space, SEPs have emerged as essential to innovate in the market structure. SEPs are necessary for implementing a standard or technical specification, enabling IoT devices to communicate with each other and the Internet. Licensing of SEPs is crucial for the successful deployment and commercialisation of IoT devices and services, because technologies protected by SEPs are indispensable (‘essential’) for compliance with industry standards, and necessary for enabling interoperability and connectivity between devices.
India’s IoT market value reached USD 1 billion last year and is expected to exhibit a growth rate of around 14.23% between 2023-2028. More importantly, the number of IoT devices is expected to increase to 25 billion device connections by 2025. With the projected increase in the variety of devices using standards, licensing is no longer likely to be limited to technology companies in the telecommunications space. Furthermore, the traditional route of bilateral negotiations will not be the only one for licensing of SEPs and patents. Most of the new entrants in the SEP licensing world are likely to have limited to no experience in it. This could, in turn, result in bilateral negotiations being less efficient.
On the judicial front too, Indian courts, especially the Delhi High Court, has adopted globally accepted standards as part of their judgements, and agreed that several factors are considered in determining FRAND terms. For instance, in the matter of Intex Technologies v Ericsson, the Delhi High Court judgment observed that, “In the absence of any national laws on the same, the Courts across the world have attempted to apply uniform harmonising standards”. Further, the High Court stated that “prevalent conditions in the relevant market and actual financial implications” of the offer, constitute one such relevant factor while adjudging fairness. At the same time, in evaluating the ‘non-discriminatory’ prong of FRAND, the High Court has looked at third-party comparable licences. The High Court has also stressed upon good-faith negotiations and mutual consensus while arriving at FRAND terms.
In the IoT licensing sphere, an anticipated concern is a lack of precedence or sample agreements to guide both parties in understanding what FRAND means to them. However, courts globally have taken note of such issues on a case-by-case basis. Since IoT has extended into the automotive industry, courts around the world are deciding on the extent of disclosure of agreements in the telecommunication sector to the connected cars sector.
The Delhi High Court has also reviewed SEP licensing, especially the willingness to license, in a holistic manner, on the basis of the steps outlined by the Court of Justice of the European Union (CJEU) in the case of Huawei v. ZTE, wherein the Court followed a factual, step-by-step approach in analysing such willingness from both sides. The High Court has assessed and followed these global practices by granting injunctive relief in SEP litigations against ‘unwilling licensees’.Top of Form For instance, in 2022, the Delhi High Court released the Rules Governing Patent Suits, which discuss SEPs as well as provide for interim arrangements on the first date of hearing in prima facie cases. Recent judgments have also attempted to consolidate the jurisprudence on FRAND litigation and provide some guidance.
Recently, the Delhi High Court determined the jurisdiction of the two bodies on patent licensing agreements, viz CCI as the regulatory authority and Controller of Patents as the statutory authority for the Competition Act, 2002 and Patents Act, 1970 respectively. The dispute in question was whether the competition authority has the jurisdiction to adjudicate on the rights of the patentee and by extension regarding the fairness of the patent licensing terms. Through this judgment, the Controller’s power was extended to adjudicate on anticompetitive practices and abuse of dominant position. The judgment is sound in applying statutory interpretation principles and understanding the different rights under the broad scope of patent rights. Looking at the concept of harmonization of the two legislations, countries worldwide have been taking active steps to ensure the co-existence of the two regimes. For instance, the safe harbour provisions of the European Union grant protection to technology licensing with reasonable restrictions as do the Antitrust Guidelines for Licensing of Intellectual Property in the USA. The end goal of both legislations is towards consumer welfare.
The consistent intervention of courts on key issues, together with the alignment of Indian judiciary with global frameworks and judgements, underlines the proactiveness of courts in the IP space. Contrary to the assumption that regulators might need to relook at the scope of regulation, existing commercial and legal frameworks are likely to prove both necessary and sufficient for the growth of IoT, thereby negating the need for active government intervention and over-regulation.
In SEP licensing three important stakeholders are SEP Licensor, implementer and government authorities. The jurisprudential base of the IP system is development of science & technology and fostering innovation for the welfare of society with win-win situations for every stakeholder. It is observed, in the current situation, every stakeholder has a positive approach. However, in the process of royalty determination, the thin line between royalty and royalty stacking, when it is crossed, is not observed and controlled. Implementer is appreciating innovation investment, but sometimes in the process of negotiation, when the line between due credit royalty and the approach of expecting more in less, is crossed and is not observed and controlled. With reference to third stakeholder, the issue is limitation of exposure to such situations across the globe resulting in a “trial and error” methodology to provide the best solution on a case to case basis.
However, this approach is not the solution to the problem. The resolution cannot come in a few sudden meetings and discussions or time taking litigations. We all stakeholders and researchers need to look into the facts with unbiased mind, so that innovation will not be affected as well as licensor and implementer will not get harassed, in the process.
(Prof. Gouri Gargate is the Assistant Professor, IP Law and Management at IIT Kharagpur; and Sherin Priyan is a research scholar at IIT Kharagpur.)
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