Standards come in countless forms and objects. To us, the users, they seem to go unnoticed when manufacturers incorporate them, but any change or inconsistency, leaves us annoyed. For instance, it’s convenient to use the same phone charger all across India as most, if not all, of our electrical sockets are of the same circular 3-pin combination. Travelling abroad however, becomes a task as one has to invest in different types of adapters or just buy another charger that fits your destinations’ sockets. If a phone or laptop manufacturer decided to change from the QWERTY keyboard layout for example, or decided to remove the 3.5 millimetre headphone port, consumers may have the promise of innovation but they are left inconvenienced with the burden and cost of accepting that change.[1] Thus, compliance to standards is the preferred norm in society.
Patents allow inventors the sole right (for limited periods) of making, using or selling their innovation in the market.[2] A patent on a technology which is necessary to meet a standard is called a Standard Essential Patent (“SEP”).[3] Apple needs to comply with SEPs owned by more than 50 companies just to provide Long Term Evolution (“LTE”), the established 4G standard for its iPhones.[4]
SEP holders like Qualcomm, Ericsson and Huawei make large portions of their revenues by developing technologies which form parts of these global standards which are then licensed to various market players. These royalties have been approximated to average about 4-5% of global mobile handset revenues.[5] To provide all stakeholders the benefits of standardization, the international practice of licensing agreement between SEP holder and manufacturer / seller / assemblers is that the agreement must be on fair, reasonable and non-discriminatory (“FRAND”) terms.[6] Challenges arise when there are disputes regarding the patent infringement or abuse of dominance by SEP holders or claims against validity of the patent granted.[7] With the advent of 5G and more than 80,000 identified patent declarations on it[8], the discourse on SEPs has gained traction, and off late, concerns of competition law and international relations have also been tied to it. This blogpost aims to provide readers familiarity on the subject along with recent developments around SEPs in India.
Standard Setting Organizations (“SSOs”)[9]
SSOs are engaged in constant conversations with members / stakeholders, to analyze and construct the standards which are accepted within a defined region.[10] SSOs may be government organizations which gain legitimacy through law, private where stakeholders become members and follow the established standard, quasi-governmental, regional, national or international.[11] For example, the European Telecommunications Standard Institute (“ETSI”) which establishes standards within the telecom industry, has more than 800 members from over 66 countries.[12] Apart from setting standards such as Global System for Mobile Communication (“GSM”) or newer market offerings like Voice Over Internet Protocol (“VoIP”) or even Augmented Reality (“AR”), it constantly works towards establishing global unity in standards. Indian SSOs and the Government have taken a similar approach to harmonize standards with those set internationally. [13] This has been done to simplify paths of foreign investment and also drive technology towards India specific solutions like the ‘Make in India’ initiative. The Global ICT Standardization Forum of India (“GISFI”) has worked to establish the meaning and standard of 5G. While accepting the International Telecommunications Union’s (“ITU’s”) vision for 5G, GISFI aims to incorporate it in India while accounting for hurdles like technological illiteracy and infrastructure limitations.[14]
Competition Commission of India (“CCI”)
Cases before the CCI have revolved around allegations of abuse of dominance by SEP holders in their licensing terms which triggers the Competition Act 2002. In Micromax v. Ericsson[15], Intex v. Ericsson[16] and iBall v. Ericsson[17], the informants (i.e. complainants) challenged Ericsson’s discriminatory rates and high royalty charges on 2G, 3G and 4G SEPs. The informants argued that calculating royalties as a percentage of the price of the finished phone was significantly higher than calculating it based on the specific component (like a chip or antenna) which the SEP protected. The CCI sided with the informants and stated that the higher royalty model would raise prices of end-products and thus, be against consumer interest. In all three cases, CCI found a prima facie case of abuse of dominance and ordered investigations into the dispute. However these orders, along with CCI’s jurisdiction over a patent issue, were challenged by Ericsson through writ petitions in the Delhi High Court (“DHC”). The Court after studying the Indian Patent Act, 1970 and the Competition Act, 2002 concluded that ‘patent laws define the contours of certain rights, and the anti-trust laws are essentially to prevent abuse of rights’. It stated that these two legislations could be considered harmoniously and that the CCI in assessing a wider issue of abuse of dominance was not going beyond it’s jurisdiction.[18] These cases have been appealed and are pending before the Supreme Court.
Delhi High Court
Most SEP cases in the DHC pertain to SEP infringement or challenges to CCI orders. In Ericsson v. Micromax[19], the Court after hearing the parties and analyzing the licensing agreement, held that FRAND terms were complied with and opted to calculate royalties based on a percentage price of the phone. Micromax was mandated to pay an interim royalty fee and similar orders were passed by the court for Ericsson against Gionee[20], Xiaomi[21] and other such manufacturers and assemblers of mobile phones. However, Xiaomi’s appeal in the DHC[22] was successful as even though it did not possess the license from Ericsson, their chipset provider Qualcomm Inc. had a license from Ericsson, which permitted Xiaomi such use of the standardized technology.
Cases before the DHC on SEPs were also instituted by Vringo Infrastructure Inc. against ZTE Corporation[23] for violating patents on mobile computing. Despite an ex-parte injunction against ZTE, the respondent company was able to convince the Court on ‘balance of convenience’, stating that though Vringo was aware of the infringement, no action was taken by it earlier. The matter was settled out of court where ZTE paid for a non-exclusive license fee. In another case by Vringo against AsusTek Computer Inc.[24] for the alleged infringement of patents on message compression technologies, the parties withdrew the case and settled the matter outside of court. Soon after, Dolby filed cases against Vivo and Oppo[25] for infringing SEPs on audio technologies. Though the Court via an interim order fixed the royalty at Rs 34 per phone for both respondents, the parties opted for mediation and deliberated over future licensing assignments.
Major developments were brought through the case of Philips v Rajesh Bansal & Bhagirathi Electronics,[26] the first post-trial case on SEPs in India. Here the respondents were importers and assemblers of DVD players in India who didn’t possess the petitioner’s license. The DHC analyzed whether the petitioner’s technology was essential to achieve the standard established by the DVD Forum and whether it was a standard valid under Indian laws. Using the ‘essentiality certificates’[27] from the US and EU patents, the Court, without performing its own analysis, concluded that the patented technology was essential for DVD standards. To confirm infringement, the Court opined that (i) creating such a complicated device without the SEP license would prima facie suggest infringement and (ii) through witness examination it was proven that a specific modulation-demodulation technique for DVD players could not have been achieved without infringement. The Court on the subject of alleged anti-competitive behaviour of Philips demarcated the issues to the jurisdiction of the CCI. The DHC did not apply any tests for calculating the interim royalties, but instead used informal negotiations to arrive at the amount. As the respondents did not object to the royalty proposed by the petitioners, the Court held that the proposed royalty was compliant to FRAND terms.[28] While key issues like FRAND terms and ‘essentiality’ in India were left unanswered by the Court, Indian businesses and other stakeholders supported the verdict as it would strengthen the IP regime in the country. [29]
Policy Developments on SEPs
The Department of Industrial Policy and Promotion (“DIPP”) in March 2016 published a discussion paper seeking stakeholder inputs on SEPs and FRAND terms.[30] The paper aimed to push the need and importance of SEPs and FRAND terms to the public so that feedback could help generate appropriate policy. Responses to the discussion paper opposed new legislations, as there was no need and stakeholders could do without more confusion.[31] Additionally, the use of non-disclosure agreements during licensing could impact SEP holders, manufacturers or customers, based on policy implementation. Critics also recommend[32] the need to develop Intellectual Property Rights (“IPR”) policies and felt that the government should offer suggestions for the working of SSOs to avoid a future chaos of disputes. Recommendations[33] for fixing royalties and FRAND terms on a component and not device level were also made, considering that mobile phones in India can average around 4,000 patents. Subsequently, DIPP launched the Centre for IRP Promotion and Management (“CIPAM”) to publish content and generate awareness. This was targeted to assist the public, as well as, promote commercialization to benefit Indian businesses.
Telecom Regulatory Authority of India (“TRAI”) published a discussion paper on the promotion of local telecom equipment manufacturing which covered SEPs.[34] The paper was published citing the need for develop infrastructure to incorporate future technologies, kick-start ventures like smart cities, and also action on the growing trend the service sector contributing to the India’s gross domestic product. Responses from stakeholders highlighted[35] the advent of 5G and the ‘internet of things’ era containing more intricate technologies, for which a strong policy framework is necessary[36]. The Telecom Equipment Manufacturer’s Association supported[37] the recommendations globally, stating that it would be an ideal boost for Indian manufacturing however, they stated that the recommended SEP self-declaration portal, would be a measure requiring government backing. SEP holders are cautious about disclosing information prior to licensing agreements being drawn up. Foreign players however were hesitant[38] to support the paper as more than 90% of the infrastructure has been provided by them. Reportedly, they opposed[39] such a recommendation to localize telecom infrastructure, stating that it would be unrealistic and also unviable[40] for them to continue business in an increasingly consolidated sector.[41]
The Competition Law Review Committee also published its report[42] in July 2019 following which the Draft (Competition) Amendment Bill 2020[43], was introduced. The proposed amendment inserts Section 4A[44] which extends[45] the protection to IP holders against to abuse of dominance (“AoD”) litigation, as already provided earlier by Section 3(5) on anti-competitive agreements. This protection isn’t absolute but is a declaration that IPR does have an important role in the intersect of IPR and competition law. However, some argue[46] that the implementation of such a provision under AoD could be challenging as dominant market players could disguise their action and position of dominance using IP protection. In the context of SEPs, this concern is much greater as the proposed section gives SEP holders a greater leverage over SEP implementers.
Conclusion
Today, there is ambiguity in the law in India with respect to the specifics of SEPs. As we enter the digitization era with technology in all spheres of life, the use and the regulation of SEPs is of utmost importance. Therefore, the Ericsson appeals before the Supreme Court could potentially lay down regulation and arrive at a balance between protection from infringement to SEP holders and protection from exorbitant costs for manufacturers and consumers.
Standardization just in the area of mobile
phones would positively impact[47]
over 8 billion users globally and approximately[48]
300 million users in India alone. As the Moore’s law continues in application,
a larger number of standards, patentable-components and market players
continually join the tech eco-system. A notable takeaway from Ericsson, a large
player in today’s 5G discourse, is that there should be greater focus globally
on the quality of patents and not the quantity of patent.[49]
Some argue that Huawei may own the most number of 5G patents but placing them
on an index of growth, impact, generality and originality in patent with other
patent-holders would greatly diminish the company’s influence on the sector.[50]
As international politics is still split over the 5G debate on Huawei and
China, India’s political, legislative, judicial and policy endeavors must align
to allow smooth passage into this digitization era.
This post is authored by Vishwanathan Subramaniam, Intern with inputs from Aman Taneja, Senior Associate. Reach out to us at contact@ikigailaw.com.
[1] Joe Hindy, Why Having No Headphone Jack Is A Bad Idea, October 7, 2017.
[2] The Indian Patents Act, 1970.
[3] Definition of Standard Essential Patent, Concurrences Antitrust Publications & Events, Glossary of Competition Law Terms.
[4] J. Gregory Sidak, What Aggregate Royalty Do Manufacturer of Mobile Phones Pay to License Standard-Essential Patents?, The Criterion Journal on Innovation, Vol. 1, 2016.
[5] ibid.
[6] Niharika Sanadhya, India: Paving The ‘FRAND’ Way Ahead For SEP Licensing, February 20, 2019.
[7] Ankita Tyagi & Sheetal Chopra, Standard Essential Patents (SEP’s) – Issues & Challenges in Developing Economies, Journal of Intellectual Property Rights, Vol. 22, May 2017.
[8] Who Is Leading The 5G Patent Race?, IPlytics Platform – The IP Intelligence Tool, November 2019.
[9]SSOs In India: Telecom Standards Development Society of India (“TSDSI”) is a public-private partnership which establishes standards for telecommunications; Bureau of Indian Standards (“BIS”), India’s national SSO, via the BIS Act 2016, determines standards and certification for goods, articles, processes, systems and services; Telecommunication Engineering Center (“TEC”) under the Ministry of Communications develops standards for telecom equipment, services and interoperability among them; The Global ICT Standardization Forum of India (“GISFI”) is a private SSO for information and communication technologies (“ICTs”) in energy, telemedicine, wireless robotics and biotechnology; and Development Organization of Standards for Telecommunications in India (“DOSTI”) is another private SSO which develops telecom standards suitable for India.
[10] Definition of Standard Setting Organization, US Legal.
[11] Standard Essential Patents-Potential Competition Concerns, IP Issues, NALSAR University of Law.
[12] List of All ETSI Full Members.
[13] Conference on Standards Settings Organizations (SSO) and FRAND, NLSIU, April 05, 2015.
[14] Krishna Sirohi, India 5G Standardization: WISDOM GISFI Workshop, September 01, 2014.
[15] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [Competition Commission of India, Case No. 50 / 2013]
[16] Intex Technologies (India) Limited v. Telefonaktiebolaget LM Ericsson (Publ), [Competition Commission of India, Case No. 76 / 2013]
[17] M/s Best IT World (India) Private Limited (iBall) v. M/s Telefonaktiebolaget L M Ericsson (Publ) & M/s Ericsson India Private Limited, [Competition Commission of India, Case No. 04 / 2015]
[18] Telefonaktiebolaget lm Ericsson v Competition Commission of India [Delhi High Court, W.P.(C) 464/2014 & CM Nos.911/2014 & 915/2014]
[19] Micromax Informatics Limited v Telefonaktiebolaget LM Ericsson (PUBL) & Ors. [(2016) DHC, FAO (OS) 75/2016].
[20] Telefonaktiebolaget LM Ericsson (Publ.) and Ors. v. Gionee Communication Equipment Co. Ltd & Anr. [(2016) DHC, CS (COMM.) No. 1533 / 2016].
[21] Telefonaktiebolaget LM Ericsson (Publ.) v. Xiaomi Technology and Others, [CS (OS) no. 3775 / 2014].
[22] Xiaomi Technology and Anr. v Telefonaktiebolaget LM Ericsson (Publ.) and Ors. [(2016) DHC, FAO (OS) 522 / 2014.]
[23] Vringo Infrastructure Inc. and Anr. v. ZTE Corporation and Ors, [(2014) DHC, FAO (OS) 369 / 2014]
[24] Vringo Infrastructure Inc. and Anr. v. ZTE Corporation and Ors. [(2014) DHC, CS (OS) 1050 / 2014]
[25] Dolby Internatonal Inc. and Anr. v. GDN Enterprise Pvt. Ltd. and Ors. [(2016) DHC, CS (COMM.) 1425 / 2016] [connected case against Vivo and Oppo]
[26] Koninklijke Philips Electronics N.V. v. Rajesh Bansal, [CS (COMM) 24/2016] and Koninklijke Philips N.V. v. Bhagirathi Electronics and Ors. [CS(COMM) 436/2017] [connected cases]
[27] Ibid. ‘Essentiality certificate is issued by an independent evaluator which is an expert body’. In this case, certificates were issued by “Proskauer Rose LLP” and “Cohausz and Florack“
[28] Ibid 12, Mukta Gupta J.“13.10…held that Manglam and Bhagirathi are required to pay royalty to the plaintiff @USD 3.175 from the date of institution of the suits till 27th May, 2010 and from 28th May, 2010 @USD 1.90 till 12th February, 2015.”
[29] Chitra Iyer, Protecting the Innovators, India Business Law Journal, May 21, 2019
[30] Discussion Paper on Standard Essential Patents and Their Availability on FRAND Terms, Government of India Department of Industrial Policy And Promotion Ministry of Commerce & Industry, March 01, 2016.
[31] Wong-Ervin et al, Comment of the Global Antitrust Institute, George Mason University School of Law, on the India Department of Industrial Policy and Promotion’s Discussion Paper on Standard Essential Patents
George Mason Law & Economics Research Paper No. 16-15, March 31, 2016.
[32] Ashish Bharadwaj and Tohru Yoshioka-Kobayashi, Regulating Standard Essential Patents in Implementer-Oriented Countries: Insights from India and Japan, 2018.
[33] Anubha Sinha, Nehaa Chaudhari & Rohini Lakshané, Comments on Department of Industrial Policy and Promotion Discussion Paper on Standard Essential Patents and their Availability on FRAND Terms, May 01, 2016.
[34] Consultation Paper on Promoting Local Telecom Equipment Manufacturing, No. 12/2017, Telecom Regulatory Authority of India, September 18, 2017.
[35] Microsoft’s Response to TRAI Consultation Paper No. 12/2017, October 15, 2017.
[36] Advocate Rajeev KR. Choudhry’s Response to TRAI Consultation Paper No. 12/2017, November 27, 2017.
[37] TRAI Pushes ‘Make In India’ In Recommendations On Telecom Gear, August 03, 2018.
[38] Mehul Pandya, Indian Telecom Equipment Industry – Will 5G Drive The Future Growth?, December 2018
[39] Muntazir Abbas, Make In India: Ericsson, Nokia, Huawei Fear Incorrect, Says Trai, February 18, 2020.
[40] Munish Sharma, India’s Tryst with 5G, March 20, 2019.
[41] Reference made to the consolidation in the Indian Mobile Network Operator sector as referenced here.
[42] Report of the Competition Law Review Committee, Government of India, Ministry of Corporate Affairs, July 2019.
[43] The Competition Amendment Bill, 2020.
[44] “Section 4A- Nothing contained in section 3 or section 4 shall restrict the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his (IP) rights.”
[45] Karan Chandhiok & Deeksha Manchanda, A Look At The Draft (Competition) Amendment Bill, 2020 – Clarity, Transparency, Robustness, And Bit More To Be Desired, March 01,2020.
[46] Draft Competition (Amendment) Bill Proposes Extension of Protection to IPR Holders in Abuse of Dominance Cases, March 03, 2020.
[47] Doris Johnson Hines & Min-Tao Yang, Worldwide Activities On Licensing Issues Relating To Standard Essential Patents, February 2019.
[48] Number of smartphone users in India from 2015 to 2022.
[49] Christina Petersson, Why You Shouldn’t Believe Everything You Read About 5G Patents, October 11, 2019.
[50] Patrick Moorhead, Why 5G Patent ‘Value’ Is More Important Than The ‘Number’ Of Patents, February 27, 2020.
