Standard Essential Patent Landscape in India – Part 1

In a two part series, we aim to discuss the growing importance of Standard Essential Patents in the networked economy.

Standard Essential Patent Landscape in India – Part 1  

A ‘standard’ is a set of technical requirements or agreed technical descriptions which cover ideas, products or services and make sure that technologies interact and work together. A Standard Essential Patent (SEP) is a patent granted for technological invention which is essential for implementation and working of a standard. Patents which are essential to a standard and have been adopted by a Standard Setting Organization (SSO) are known as SEPs.

Standard-setting organizations (SSOs) are either governmental, quasigovernmental or private a group of independently governed industry associations. SSOs set, develop, coordinate, interpret, and maintain standards. Industry participants can collaborate on a single technical solution because of such standards.

When a patent is acknowledged by the SSO and designated as a SEP, manufacturers can only produce their goods in the market after first acquiring a license under the SEP. From an antitrust standpoint, the lack of any competing technology grants the SEP holder a monopolistic right over the SEP.

Consequently, it is impossible to produce products that comply with standards without using technologies that are covered by one or more SEPs. Standards and patents both work to promote technological innovation and diffusion.

SEPs-How is it relevant?

SEPs are widely used in the telecommunications sector as it is a highly standardized industry primarily driven by the requirement for interoperability between communication devices. The operation of 3G (UMTS), 4G (LTE), 5G, and WiFi networks is dependent upon numerous patented technologies. In industries like consumer electronics, the automotive industry, and the electricity grid industry, such communication standards are also essential for the growth of the hyperconnected society.

SEPs are frequently regarded as the prized possessions of a patent portfolio as they are difficult to avoid and are particularly powerful patents. A company's incentive to invest in standardisation activities, in addition to other motivations like directing the standard development towards technological solutions where the respective company is strong and can provide specific services or infrastructure, is greatly influenced by the prospect of licencing SEPs.

On the contrary, the goal of making standards accessible to everyone for public use may be defeated by the exclusive rights granted to inventors by patents. To address this issue, the majority of SSOs have established IPR policies that require SSO members to agree to licencing their SEPs under "Fair, Reasonable and Nondiscriminatory" (FRAND) terms and conditions. These commitments are intended to safeguard technology implementers while making sure that Patent holders are fairly compensated for their research and development expenditures.

Background in India

The concept of SEPs ushered in India first in 2011, when Ericson in 2011 objected to the importation of handsets by Kingtech Electronics (India)[1]. Ericson claimed that the handsets infringed several of their SEPs in AMR Codec (Adaptive Multi-Rate) technology. This was the initiation of SEP litigation in India.

Although, the Patent laws in India neither contain a special provision for SEPs nor lays down any specific criteria or terms and conditions to be complied with while licensing a patented technology, it does restrain a patentee (proprietor of the patent) from abusing its patent right and engaging in practices that unreasonably restrain trade. Moreover, the Indian judiciary has been framing laws through court cases for the regulation of the SEPs.

Through its National Telecom Policy (2012), India has aimed to increase standardization and intellectual property creation. India’s national SSO is the Bureau of Indian Standards. The Telecom Engineering Centre is the only officially recognised telecom standards, specification, and type approval body in India in the field of information and communications technologies. Private SSOs in the Indian ICT industry include the Global ICT Standardisation Forum, Telecommunications Standards Development Society, India (TSDSI), and Development Organisation of Standards for Telecommunications in India. Two well-known SSOs in the cellular and Wi-Fi sectors are the Institute of Electrical and Electronic Engineers and the International Telecommunication Union.[2]

Why SEPs are important and how to protect them?

Patents and standards share common goals; they both encourage or support innovation and the spread of technology. As a result, the proper operation of the patent system influences the proper operation of the standard system.

The widespread adoption of connectivity standards like 4G/5G, Wi-Fi 5/6, Bluetooth, HEVC/VVC, and others are crucial to the success of any technology-oriented business, be it healthcare, automotive, etc. SEPs apply to such standards, which means that any such company that implements connectivity standards will eventually have to pay royalties to obtain a licence for all SEPs. This increasing integration of information and communication technologies is creating new challenges for licensing patents in general, and for negotiating royalty payments for standard-essential patents in particular[3].

A sincere and open negotiation between a willing licensor and willing licensee is what the Standard Essential Patent (SEP) regime envisions. The regime includes reciprocal obligations that apply to both the implementer and the owner of an Essential Patent. It is important that both parties reach an agreement to prevent disputes and legal actions regarding royalties and other obligations. This agreement is not a "one-way street" where obligations are placed solely on the Essential Patent holder.

SEPs can be protected in India only by registering a patent in India. A SEP holder must agree to licence the SEP to willing licensees at Fair, Reasonable, and Non-Discriminatory (FRAND) rates. The courts in India have appreciated protection of SEPs and have also granted interim injunctions for protection of SEPs. In Oppo v Nokia case, where the Chinese smartphone brand was using Nokia’s technology without the requisite consent, the court held that the payment of interim/pro tem security is the implementer’s obligation even in the negotiation phase[5]. The courts in India have also appreciated protection of SEPs by granting interim injunctions as was the case of Ericsson v. Intex.

Failure to innovate and free riding on other’s technology were the key reasons for the decline of the Indian Smartphone market and closure of many indigenous firms, therefore, proper licensing on FRAND terms is quintessential.

What is FRAND licensing (Fair, Reasonable and Non-Discriminatory)?

If patents are essential patents for the functioning and implementation of the standard, the Courts and the Standard Setting Organisations have mandated licensing of the patents based on FAIR, RESONABLE and NON-DISCRIMINATORY (FRAND) principles.

FRAND terms encourage the adoption of the standard and mitigate any concerns about unfair competition. An SEP owner must grant a license on FRAND terms to anyone who asks for a license.[6]

The Indian judiciary through landmark caseshas carved out a four-fold test i.e., essentiality, infringement, FRAND nature of the offer, and unwillingness to determine if a user of a SEP is an infringer or not. Courts in India, in general, have appreciated protection of SEPs and have even granted interim injunctions for protection of SEPs, i.e., restraining orders can be secured against the infringer of an SEP, if infringement of even one patent is established.

There has been a long-standing tussle between rights of SEPs owners as against the prevailing competition laws in the country. However, the dispute was settled by the judiciary by observing that exercise of IP rights is exempted from being categorised as anti-competitive practices. As a result, anti-competitive allegations washed away against some big companies holding important SEPs. Thus, it is recommended that upcoming tech companies should enter into licensing agreements with SEP owners.

The challenges for SMEs

With sprouts of new innovation every moment all around the world, the space for new and unique inventions and patents is reducing rapidly. Market leaders, owing to their ability to spend for research and development are materialising themselves as SEP holders, and new entrants in the market have to negotiate a FRAND license deal with them.

Pointers:

·Budget for future patent expenses.

·Budget for license fees.

·Properly responding to a licence on FRAND terms is crucial in order to have leverage in negotiation. Consult a professional. 

·Budget for litigation costs if FRAND terms fail.

It is also true that this is a lucrative revenue generation opportunity for SMEs as well, to own SEPs and thus they must plan in advance to stay ahead of the game.

Pointers:

·Focus on technology that has not been previously worked on.

·Allocate funds for quality research and development team.

·Revise and redefine the patent strategy.

·Take advise from a professional patent attorney.

·Consider getting associated with a standard-setting organisation: It offers a chance to learn what's happening and in which direction things are headed and it provides a chance to persuade standard-setting organisations to use the technology you have patented and secured some SEPs for.

[1]https://singhania.in/blog/standard-essential-patents

[2]https://singhania.in/admin/blogimages/doc-4670179.pdf

[3]https://ipwatchdog.com/2021/09/27/role-standard-essential-patents-auto-industry/id=138080/

[4]https://ipwatchdog.com/2021/09/27/role-standard-essential-patents-auto-industry/id=138080/

[5]https://rnaip.com/how-and-why-of-standard-essential-patents-seps-licencing-in-india/?utm_source=rss&utm_medium=rss&utm_campaign=how-and-why-of-standard-essential-patents-seps-licencing-in-india#:~:text=The%20Courts%20in%20SEP%20cases,form%20of%20pro%2Dtem%20deposit.

[6] India’s High Court of Delhi issues guidance on SEP licensing that seeks to harmonize decisions in other countries (Intex v. Ericsson), by David Long, https://www.essentialpatentblog.com/2023/04/indias-high-court-of-delhi-issues-guidance-on-sep-licensing-that-seeks-to-harmonize-decisions-in-other-countries-intex-v-ericsson/