Shaping Standard Essential Patents policy

By: | Published: August 8, 2016 6:18 AM

The government must ensure that standard essential technologies are accessible on FRAND terms.

The new NIP supports the necessity of the CCI’s intervention in case of anti-competitive licensing terms resulting in distortion of competition in the market.The new NIP supports the necessity of the CCI’s intervention in case of anti-competitive licensing terms resulting in distortion of competition in the market.

Standard Essential Patents (SEPs) have become a rather essential and standard debate for courts and anti-trust regulators across continents including India. Needless to say that, interactions between intellectual property rights (IPRs), especially those concerning SEPs, and competition law have led to a large number of judicial decisions around the world.

Realising its importance, the department of industrial policy and promotion (DIPP) published a discussion paper titled “Standard Essential Patents and their availability on FRAND terms” to sensitise stakeholders on the need and importance of SEPs and inviting suggestions to develop a suitable policy framework to define the obligations of SEP holders and their licensees. The government move was questioned, rather opposed, by Broadband India Forum (BIF) consisting of SEP holders such as Intel, Qualcomm, Ericsson and the industry body, Assocham. The primary opposition is that SEPs, like any other patent, are protected under Indian Patent Act and issues like fixation of royalty rates, availability of injunction, etc, being raised in discussion paper have already been discussed and incorporated in the 2014 draft National IPR Policy (NIP) issued by DIPP and hence, no re-consultation is required.
The question is whether SEP holds a distinct position when compared with other patents which require a special supervision from government agencies and courts including the Competition Commission of India (CCI).

Interoperability is paramount in a world driven by technology. To achieve interoperability between devices it is essential that market players agree on common standards. Once an already-patented technology becomes essential to a standard, it becomes near impossible to manufacture standard-compliant products without using that technology. Such patents are called standard essential patent (SEP) and cannot be exploited like any other patent. Once a standard is selected, licensees/manufacturers go a long way in ensuring that their production processes are in line with the selected standard which means huge investments. This gives SEP holders significant market power and potential to behave in unfair ways, including charging exorbitant royalties and imposing unfair/ discriminatory conditions on licensees. One way to regulate the behaviour of SEP-holders is to make them commit to availability of SEPs on Fair, Reasonable and Non-Discriminatory (FRAND) terms. No particular rules determine FRAND terms and, hence, the intervention of courts, competition authorities and government agencies is inevitable, let alone crucial.

Established principles of competition law demand that an IPR-holder’s rights be respected while dealing with competitors or potential licensees. However, when it comes to SEPs, the said respect for IPR-holders usually accorded by competition authorities results in active intervention. The CCI, at present, is investigating three cases against Ericsson for alleged violation of FRAND commitments by imposing discriminatory and excessive royalty rates on licensees. Ericsson challenged the jurisdiction of the CCI before Delhi High Court, with no relief as the court ruled in favour of the CCI while making crucial observations regarding SEPs. The court observed that the position of an SEP-holder cannot be equated with a non-SEP patent-holder. While in the former case, a non-infringing patent is not available to a dealer/manufacturer, in the latter case, the dealer/manufacturer may have other non-infringing options. Further, under certain circumstances seeking an injunctive relief by an SEP-holder may amount to abuse of dominance as seeking SEP-based injunctions risks excluding products from the market. It is a threat that puts the manufacturer to a disadvantageous bargaining position and may pressurise then to accept non-FRAND terms.

The DIPP’s discussion paper may prove to be the saving grace. It extensively covers issues surrounding SEPs, including the role of standards setting organizations, patent hold-up, patent pooling, judicial approach towards SEPs in various jurisdictions including India and the role of competition law in dealing with SEP-related issues, including SEP-based injunctions. The paper aims to feed the on-going debate by identifying some of the key issues and parameters that may need to be considered when assessing the interplay between an SEP-holder and a licensee/ manufacturer. However, the new NIP aims at augmentation of IP awareness, creation, administration, commercialisation, fine-tuning of the legislative framework and strengthening of human resources, institutions and capacities for skill-building in IP; however, it offers no guidance on SEPs to stakeholders. Interestingly, the new NIP supports the necessity of the CCI’s intervention in case of anti-competitive licensing terms resulting in distortion of competition in the market. Further, it highlights the need of study and research of key IPR issues, including SEPs, for future policy development.

Given the essentiality of SEP for companies to manufacturer products, especially smartphones, tablets etc, and the government’s initiative to make India a global manufacturing hub, any move to increase public consultation and academic input into policy-making is a welcome step. The government has to play a key role in ensuring that technology is accessible on FRAND terms to all the stakeholders in the market.

The author is principal associate (competition law) J Sagar Associates

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