Introduction
Oftentimes, it is observed how intellectual property laws, specifically; patent laws are contradictory to competition and antitrust laws. While one confers rights on inventors to encourage innovation, the other aims to eradicate monopolistic practices and encourages healthy competition in the market. When seen in isolation, these two laws may appear to be contrary to each other with different goals in mind, however, both are constantly trying to create a balance which ultimately serves public interest in the long run.
Patent laws acknowledge that patents play a crucial role in facilitating the exchange of goods and services. Furthermore, patent laws recognize that disclosing innovations as public information is vital for progress in both trade and the scientific community. An example of this is the concept of Standard Essential Patents (SEP), where the intersection of patent laws and competition laws occurs.
Rationale Behind SEPs
A patent that protects a technology that is an essential element of an industry and becomes part of a standard for that industry is a standard essential patent. A “standard” is a set of technical specifications that seeks to provide a common design for a product or process.
Consensus is achieved through repetitive use or endorsement by a recognized body, also known as a Standard Setting Organization.
An example of a standard is ‘Bluetooth’ or ‘mobile phone chargers’. These standards are established due to the level of effectiveness that the invention might have achieved. The patents behind such technologies and innovations are called standard essential patents as they are essential for manufacturers to incorporate into their products in order for the same to work efficiently. Therefore, the need to obtain information as well as the license to use such technology is innately high, and this is where the concept of FRAND licensing comes in.
Standard Setting Organizations such as the International Organization for Standardization (ISO) and the International Telecommunication Union (ITU) establish goal-directed networks for innovators to jointly shape technology and markets through standards. For this purpose, they require the patentees of SEPs to grant licenses to the industry players. Some of the outcomes of this process are maximizing compatibility, aiding in enhancing interoperability, safety, and quality, lowering the cost of innovating, and alleviating uncertainty in standardization, among other things. One of the biggest merits of the existence of such organizations is that they directly ensure healthy competition in the market. However, it is also crucial to consider the licensing terms from the perspective of the holders of Standard Essential Patents (SEPs).
FRAND LICENSING
When a standard-setting organization (SSO) develops a new technology standard, it may require that patents covering essential aspects of the standard be licensed. FRAND is an acronym that stands for Fair, Reasonable, and Non-Discriminatory Terms, which is a licensing framework used for SEPs. This means that the patent holder must offer a license of its SEPs to anyone who wants to use them, and the license must be offered on fair, reasonable, and non-discriminatory terms.
The FRAND commitment is intended to strike a balance between the interests of patent holders and potential licensees in the market. On one hand, patent holders need to be compensated for the use of their patents and their investment in research and development. On the other hand, implementers need to have access to essential technology on reasonable terms to ensure that the standard can be widely adopted and implemented.
In practice, determining what constitutes a FRAND royalty rate can be complex and challenging. Patent holders may seek to maximize their return on investment, while implementers may seek to minimize their licensing costs. Several factors may be taken into consideration in determining a FRAND royalty rate, including the importance of the patented technology to the standard, the size of the market for the technology, and the cost of alternative technologies.
When disputes arise between patent holders and implementers over FRAND licensing terms, they may be resolved through negotiation, mediation, arbitration, or litigation. Courts and regulatory bodies may become involved in determining what constitutes a FRAND royalty rate, while considering factors such as the parties’ respective bargaining positions, the availability of alternative technologies, and the level of compensation that is appropriate for the use of the patented technology.
Indian Judiciary’s Stance On SEPs & FRAD Licensing
India’s jurisprudence on SEPs and FRAND licensing is at a considerably nascent stage. However, in the past few years, India has produced significant case laws on this matter.
One of the earlier cases that touched upon the subject of SEPs is Erricson v Micromax. In 2013, Ericsson, a Sweden-based multinational telecommunication company, filed a complaint against Micromax, a mobile phone manufacturer in India, alleging infringement of 8 of their SEPs related to 2G, 3G, and 4G technologies. Ericsson sought an injunction and damages, while Micromax challenged the validity of Ericsson’s patents and disputed the royalty rates sought by Ericsson. The Competition Commission of India (CCI) stated that Ericsson has abused its dominance by charging excessive and unreasonable royalties for its GSM technology. The High Court of Delhi upheld the jurisdiction of the CCI and also upheld their decision on its merits. The present decision sets the stage for the jurisdiction of the CCI concerning anti-competitive actions of essential patent holders vis-a-vis implementers of the standard. In 2016, the two companies settled the dispute, with Micromax agreeing to pay mutually determined royalties to Ericsson for the use of its patents.
India’s first-ever judicial decision in this matter was issued in two identical disputes, Koninklijke Philips Electronics v Rajesh Bansal and Koninklijke Philips v Bhagirathi Electronics by the High Court of Delhi in 2018. The plaintiff in these matters filed patent infringement cases, claiming that the defendants had imported DVD player components that were manufactured using its patented technology and had then assembled them in India without obtaining licenses. The patent in question protects the Channel Decoding technology responsible for the video playback function in the appliance. The Defendants argued that they had not infringed the patent as they had acquired the components from authorized licensees of the Plaintiff. The High Court of Delhi ruled in favor of Philips and, fixed royalty charges based on comparable licenses.
To date, there has been no authoritative judicial precedence on FRAND terms in India. Even though there have been several SEP litigation in the country, the courts have not had the opportunity to decide on standard and ideal terms of licensing. While granting interim injunctions, the courts have fixed terms of the license based on similar agreements in the trade between the patentee and other manufacturers. This indicates that the courts rely on parallel arrangements to arrive at FRAND terms, although a definitive and conclusive judgment in this regard is outstanding.
Conclusion
Protecting intellectual property is essential for economic growth and global competitiveness. However, patent laws recognize that innovations need to be shared with the public to promote development in trade and the scientific community. Standard Essential Patents (SEPs) strike a balance between these principles. While this phenomenon is common in the industry, there are few examples of fair licensing terms for SEPs that reduce the cost to consumers and benefit the cycle of innovation.