The Indian Cellular Association (ICA) views the debate between patent owners and implementers as a non-issue. This distinction is created to divide public opinion. The ICA advocates that patent battles should not occur at the expense of consumers. It is in the public interest that potentially-invalid and non-infringed patents are weeded out through a transparent processes in courts and that companies, and ultimately consumers, are not obliged to pay for patents that are not infringed. Potential licensees of standard essential patents (SEPs) should remain free to challenge the validity, essentiality or infringement of SEPs.

Current licensing practices of some patent owners are highly questionable, as they approach a licence at the end of the value chain. The absurdity of such a practice can be seen by noting that the end-price of a product includes taxes, duties, shipping, insurance, accessory costs, packaging, etc. These costs have no relationship with the patent. Second, this approach includes patents and technology created by others. There are, however, several patent owners in the market who license their patents on terms that are actually Fair, Reasonable and Non-Discriminatory (FRAND).

Some patent owners, in recent times, have provided their comments in the public against the IPR policy of bodies like the IEEE. They claim that such IPR policies do not provide enough of an incentive for innovation. To be fair to them, they are entitled to claim what they claim. However, the reality is that, when seen historically, the contribution of all these innovators, taken together, constitutes less than 10% of the total contribution made to the IEEE standards.

Standards create incentives and opportunities for firms, including, in particular, new entrants, to compete and differentiate their products on top of the common platform so established. However, if the process of standard setting (as is being claimed by these so-called SEP owners) gives rise to restrictive effects on competition by potentially restricting price competition and limiting or even controlling production and markets—if a company is either completely prevented from obtaining access to the result of the standard, or is only granted access on prohibitive or discriminatory terms—then there is the risk of anti-competitive effect.

Now, to ensure that the benefits of standardisation reach consumers, FRAND licensing must be implemented in its true spirit—licensors gain the broadest market and are able to leverage high volumes because FRAND licensing of the standard itself promotes wider adoption.

These patent owners claim certain rights without having to prove them in a court of law. For example, issues that are usually decided in a court (for other patent owners) are tried to be proven by statements that there are hundreds of licensees. However, this claim does not give them the right to assert infringement without proving it, and collect royalties not accruable to them in any manner, and also not available to any other patent holders.

For other patent owners, the usual recourse is to prove patent validity and infringement in a court of law. This is done on a claim-by-claim basis, and the patent must withstand challenges such as validity and enforceability. Once this threshold is met—i.e. the patent is proved to be valid and infringed—only then is the enquiry conducted for damages. This is once again done on a patent-by-patent basis. Hence, traditional legal rules and burdens of proof should apply to them equally.

Just because the patent owner participated in the standard-setting process and self-declared hundreds of patents to be essential does not mean that (1) burden of proof requirements are waived for them, or (2) they can stake a special claim to royalties on an end-product when their patents (alleged SEPs) may at most be implicated in a minuscule component of the end-product, both according to price and size parameters.

The view of the ICA is in national interest. Parties having contrary views may term it as cartel conduct—but no amount of Fear, Uncertainty, Doubt (FUD)-based marketing technique can hide the illogical demand being raised by some patent holders. Competition law proscribes conduct that has a harmful effect on competition, not those that promote competition and a healthy marketplace.

The author is national president, Indian Cellular Association

Telecom transformation in India empowered the less fortunate by putting a phone in their hands. The transition from a bulky non-data feature phone priced at over R50,000 in the mid-1990s, to now when smartphones are available for less than R5,000 is astonishing. In this amazing happening, involving the setting-up of world-class digital communication networks and concomitant developments in cellphone design, the Indian government did not have to invest a single rupee. Rather, it benefited by inflows of thousands of crores annually through taxes, duties and levies on the sector, including on millions of handsets sold every year.

How did it all happen? One, companies invested heavily in technologies which reduced the cost structure of delivering services. Two, standard development organisations (SDOs) defined standards that facilitated interworking of products between vendors. While defining these specifications, SDOs used technologies contributed by member companies. To encourage innovation, the government granted legal rights called patents to technology developers. A company holding a patent can legally exclude others from selling products embedded with that patent.

A mobile phone has thousands of patents from different companies. Some are called standard essential patents (SEP) and the other non-SEP. For SEPs, there are no alternatives, but for non-SEPs alternatives are available. This unique nature of SEPs requires the holder to agree to license them to others at FRAND terms. Companies holding SEPs have to relinquish their legal rights (of excluding others) to ensure seamless access to technologies to manufacturers. Money offered in exchange for the right to use patents is called royalty, which is negotiated in good faith. Disputes, if any, are effectively resolved by courts.

The royalty is paid once and generally collected at the point of first sale of handsets by primary manufacturers. If the primary manufacturer in China pays, its Indian counterpart does not pay. It is a small percentage of the handset price netted of duties, taxes, freight costs incurred in the delivery from factory to the port of sale. Charging royalty at a percentage of handset price is in consumer interest; it helps reduce prices of low-end handsets. The price increases if royalties are charged at the smallest saleable unit—SSU (chips and components)—level. The reason: royalty cost in absolute terms will be same across SSUs of similar kind, a majority of which will be used in manufacturing low-end handsets.

All companies holding patents may not choose to license them and seek royalties. Some will like to use patents to increase their contributions (in percentage value) in the handset, and as a defensive strategy to mitigate royalty outflows (cross-licensing). Hence, it is in the manufacturer’s interest to invest in R&D and develop patents. Indian manufacturers lag here. They deploy SKD kits and ‘screwdriver technology’, with a low value-add of 1-2%, and reap arbitrage benefit through 10% excise concession. This doesn’t help Make-in-India, which aims to conserve foreign exchange and create high-quality sustainable jobs. Foreign exchange outflows will continue, and jobs will fly out unless the situation is corrected.

The government should correct the inverted customs duty structure between the finished handsets (12.5%) and printed circuit board (2%), which is the heart of a phone where most opportunities for R&D and design exist and is not currently manufactured in India. Why would anyone invest in R&D in India when the circuit board is imported from China? Why would one invest in component manufacturing in India, when all these components have to be exported to China? Also, the government should not dilute the current IPR regime as it will significantly reduce the value of patents, preventing Indian manufacturers—currently without patents—to invest in R&D and design. This will make India perpetually dependent on foreign companies for technology and know-how.

Companies advocating changing the existing IPR framework are behaving strangely, as the same IPR regime enabled them to grow as global brands. This proves the current IPR system has worked well. Royalty cost (bundled in the price of imported handsets) has never been a barrier to Indian consumer’s ability to enjoy the fruits of the latest and the best technologies at affordable rates, and will not be in future.

The author is president, Broadband India Forum, and chairman, Telecom Sector Committee of the European Business Group Federation

Pankaj Mohindroo

If the standard-setting process leads to restrictive effects on competition by curbing price competition and limiting production and markets, there is risk of anti-competitive effect

TV Ramachandran

Royalty cost has never been a barrier to Indian consumer’s ability to enjoy the fruits of the latest and the best technologies at affordable rates, and will not be in the future