Addressing challenges to the Indian mobile handset industry’s Make in India dream
The Indian mobile handset industry, which until recently relied almost solely on importing mobile devices from China, has naturally seen the Make in India policy as a key component of growth and has started to shift their assembly lines to India. This trend towards manufacturing in India will boost employment, eventually reduce
India’s huge import bill for mobile handsets and generate employment in India. However, the government should take note of considerable challenges which potentially could adversely affect the expected growth trajectory of the Indian mobile handset industry, one of which is related to intellectual property rights.
Mobile handsets rely on multiple patents to achieve complementary functionality, which were developed along defined technology ‘standards’ developed by Standard Setting Organisations or SSOs. These patents are referred to as ‘Standard Essential Patents’ or SEP since the only way to comply with the technology standards would include use of the relevant SEP(s), given the lack of alternative technology. Along with benefits such as interoperability, lower costs by increased manufacturing volumes, standards also ‘lock-in’ users of the standard/technology. SSOs such as ETSI (European Technology Standards Institute) and 3GPP have developed the standards for GSM technology including GPRS, EDGE, WCDMA, HSPA & LTE employed and recognised worldwide in the telecommunications sector, including the department of telecommunications (DoT). Companies such as Ericsson, Qualcomm, Nokia, etc, claim a number of such patents as essential for practising the GSM technology standards.
SSOs adopt IPR policies/rules requiring SEP holders to license patents on fair, reasonable and non-discriminatory (FRAND) terms. However, the absence of defined and transparent FRAND terms, basis for royalties has caused disagreements between SEP owners and mobile companies which use the SEPs, resulting in license refusals or law suits, customs seizures referred to as ‘patent hold-up’. Mobile companies complain of excessive royalties on the basis of the net selling price of mobile devices, even though patented technology may relate to a component in the handset and does not contribute to all functional and aesthetic features of devices which also contribute to the net selling price of the handset. Coupled with this is the issue of ‘royalty stacking’, where multiple royalty claims from different SEP owners further burden mobile companies.
These claims virtually kill margins available to mobile manufacturers adversely affecting the viability of companies, already burdened by heavy capital expenditure in setting up manufacturing in India. Unreasonable IPR licensing costs also logically means that such costs would have to be passed on to consumers impacting prices thereby hobbling manufacturing before it kicks off in India.
For the Make in India plan to be viable for the mobile handset industry, the Indian government should mandate that while IPR is respected, licensing costs do not result in manufacturing becoming unviable basis excessive and multiple royalty burdens. As a solution, the government could mandate that the IPR Policy of the new Indian SSO, ‘The Telecom Standards Development Society, India’, (set up under the public private partnership model with participation of government bodies such as C-DOT) takes industry concerns into account.
Precedence can be found in the revised policy of another SSO, IEEE or the Institute of Electrical and Electronics Engineers which was endorsed worldwide including by US Department of Justice. IEEE amended its patent policy in February 2015 requiring that IEEE members holding patents covering IEEE standards:
* not seek, or threaten to seek, injunctions against potential licensees who are willing to negotiate for licenses,
* may arbitrate disputes over FRAND terms,
* may charge a reasonable royalty that is based, among other things, on the value that the patented technology contributes to the smallest salable component of the overall product, and
* The US, DOJ also concluded in a “Business Review Letter” that the IEEE policy amendments have “the potential to benefit competition and consumers by facilitating licensing negotiations, mitigating hold up and royalty stacking, and promoting competition among technologies for inclusion in standards.”
A component based patent license regime mandated by TSDSI would provide a transparent criteria for SEP
licensing in India. A second more immediate goal must be for the government to ensure that the TSDSI membership is more inclusive by representation and active participation by Indian handset players for meaningful and balanced outcomes. Since no Indian mobile handset company was a participating member when the current policy was framed by the TSDSI, such a policy cannot be in the interest of an industry eager to return manufacturing home to India.
The writer is an IP lawyer and partner with law firm Saikrishna & Associates, which advises mobile handset companies