Decoding SEPs: A Comprehensive Exploration of Standard Essential Patents and Fair, Reasonable, and Non-Discriminatory (FRAND) Licensing
Aman Rawat
LL.B (Hons. in Intellectual Property Rights) at IIT Kharagpur | Indian Patent Agent IN/PA 5578 | Senior Patent Engineer
Introduction
The human fascination with innovation has been the driving force behind the creation of many of the inventions that surround us today. Amidst this myriad of inventions, there exists a category of inventions known as Standards. When we refer to standards, we're talking about widely accepted protocols and specifications that have become fundamental in a particular industry. Examples of such standards include USB (Universal Serial Bus), Bluetooth, WIFI, 5G (fifth-generation cellular network technology), PDF (Portable Document Format), MPEG (Moving Picture Experts Group), and others. What makes these technologies stand out is their ubiquity across various devices, regardless of the manufacturer. Whether you own a smartphone, tablet, laptop, or any other electronic device, it is almost certain to be equipped with these standard technologies. This universality ensures that devices from different brands can seamlessly communicate and interact with each other. For instance, a USB port on one device will work with a USB cable from any other device, and a Bluetooth-enabled device can connect to other Bluetooth devices, regardless of their brand.
The incorporation of these standard technologies into diverse devices is not merely a convenience but a necessity for fostering interoperability in the modern technological landscape. It allows users to share data, transfer files, and connect devices without the need for proprietary interfaces, thereby enhancing the overall user experience and promoting a more interconnected digital ecosystem. Incorporating these standards into your device is crucial, as it enables seamless communication with other devices that adhere to the same standards.
This article delves into the processes of setting standards, declaring Standard Essential Patents (SEPs), discussing FRAND, and investigating recent legal developments in India related to SEPs.?
What are standards?
Standard technologies are established technologies, protocols, or specifications that have been accepted and adopted as the benchmark or norm within a particular industry or field. These standards are typically developed and agreed upon by standard-setting organizations or bodies to ensure interoperability, compatibility, and uniformity among different products or systems.
Diverse Standard-Setting Organizations (SSOs)
Technical standards are typically established and maintained by various standard-setting organizations (SSOs), industry associations, or international bodies. These entities play a crucial role in developing and maintaining standards to ensure compatibility, interoperability, and quality across products in a particular industry or field. Several Standard Setting Organizations (SSOs) exist across various industries and sectors. Some of the prominent SSOs across different industries include:
IEEE (Institute of Electrical and Electronics Engineers): IEEE develops standards across a wide range of technology areas, including electrical engineering, electronics, telecommunications, and information technology. Example IEEE 802.11 (Wi-Fi): Defines specifications for wireless local area networking (WLAN) and wireless internet connections.
IEC (International Electrotechnical Commission): IEC focuses on international standards for electrical, electronic, and related technologies. Example, Electronic Device Standards: IEC 60950: Safety of Information Technology Equipment. It covers the safety requirements for various information technology equipment.
W3C (World Wide Web Consortium): W3C sets standards for the World Wide Web, including HTML, CSS, and other web technologies. Examples, HTML5: The latest version of HTML that provides new features for structuring content on the web, including multimedia support, improved form handling, and enhanced accessibility.
3GPP (3rd Generation Partnership Project): The 3rd Generation Partnership Project (3GPP) is a collaboration between seven telecommunications standards development organizations aiming to create global standards for mobile telecommunications. The 3rd Generation Partnership Project (3GPP) unites seven telecommunications standard development organizations (ARIB, ATIS, CCSA, ETSI, TSDSI, TTA, TTC), known as “Organizational Partners” providing their members with a stable environment to produce the Reports and Specifications that define 3GPP technologies.
TIA (Telecommunications Industry Association): TIA sets standards in the telecommunications industry, covering areas like networking, cables, and other communication technologies. Examples, TIA-568-C: This standard series specifies the commercial building telecommunications cabling for various systems such as voice, data, and video.
How 3GPP Standards are set?
3GPP develops standards for mobile telecommunications, including 3G, 4G, and 5G technologies. 3GPP plays a significant role in shaping the mobile industry by establishing technical specifications that enable interoperability and compatibility among devices and networks. 3GPP members set technical standards. Members of the 3rd Generation Partnership Project (3GPP), including ZTE, Cisco, Nokia, Huawei, Samsung, etc, among others, within a Technical Specification Group (TSG), submit technical documents known as contributions. These contributions serve to propose solutions and technologies. The ensuing discussions on these contributions take place openly during 3GPP meetings. The finalized concepts and implementation details are the result of a collaborative process, marked by iteration and negotiation among the 3GPP members.
Typically, Technical Specifications and Technical Reports within a Technical Specification Group (TSG) are approved through consensus. In cases where consensus cannot be reached within the Technical Specification Group (TSG), a vote may be conducted.
What is a Standard Essential Patent (SEP)?
A Standard Essential Patent (SEP) is a patent that is essential to the implementation of a widely adopted standard or specification. ?“Essential” means that a patent is essential to a standard i.e. it is not possible on technical grounds to comply with the standard without infringing the patent. Consequently, a Standard Essential Patent is “a patent claiming technology that is essential to an industry standard’s use”.
Article 15(6) of ETSI’s IPR Policy defines “ESSENTIAL”.
“ESSENTIAL” as applied to IPR means that it is not possible on technical (but not commercial) grounds, taking into account normal technical practice and state of the art generally available at the time of standardization, to make, sell, lease, otherwise dispose of, repair, use or operate EQUIPMENT or METHODS which comply with a STANDARD without infringing that IPR. For the avoidance of doubt in exceptional cases where a STANDARD can only be implemented by technical solutions, all of which are infringements of IPRs, all such IPRs shall be considered ESSENTIAL.”
Standard Essential Patents are different from non-Standard Essential Patents, notably in one aspect—the rights of a patentee concerning Standard Essential Patents are constrained by the contractual commitment made to a Standard Setting Organization (SSO) to make the patent accessible to all willing licensees under Fair, Reasonable, and Non-Discriminatory (FRAND) terms.
The figure shows that the number of declared patents in 10 years has more than tripled (by a factor 3.5x).
How are SEPs declared?
A patent holder declares their patent as a Standard Essential Patent to the standard-setting organization (SSO). To make this declaration, the patent holder is required to submit specific information, with the essential details being the standard or specification number and the patent application or publication number. Completing the declaration involves providing additional pertinent information such as project names, releases, versions, and other relevant details. A single declaration can encompass multiple SEPs and their associated family members.
Once a patent is declared a Standard essential patent, Intellectual Property Rights Policies of SSOs commonly impose the following obligations on Standard Essential Patent holders:
(i) The obligation to disclose pertinent patents identified as Standard Essential Patents.
(ii) The obligation to grant access to Standard Essential Patents for all parties willing to utilize them, refraining from withholding access.
(iii) The obligation to offer licenses to all willing licensees under Fair, Reasonable, and Non-Discriminatory (FRAND) terms.
The figure illustrates the overwhelming majority (97%) of 5G patent declarations originate from just 22 companies distributed globally.
The Emergence of FRAND Licensing Obligations
As SEPs play a pivotal role in establishing technology standards, concerns have arisen regarding their potential impact on competition and innovation. Recognizing the need to strike a balance between protecting intellectual property rights and promoting fair competition, the concept of Fair, Reasonable, and Non-Discriminatory (FRAND) licensing emerged. FRAND licensing imposes specific obligations on the holders of SEPs when it comes to licensing their patented technologies to other market participants. It requires the patent holders to offer licenses to potential implementers or users of their SEPs under fair and reasonable terms, without discrimination, and in a non-exclusive manner.
The idea behind FRAND licensing is to ensure that essential technologies are accessible to all parties interested in implementing the standardized technology. This approach prevents patent holders from using their SEPs to gain monopolistic control over the market or impose exorbitant licensing fees that could stifle competition and hinder technological progress. FRAND licensing commitments often arise through voluntary agreements between patent holders and standardization organizations, which are responsible for developing and maintaining industry standards. These organizations may require participants to declare their patents as essential to a standard and commit to licensing those patents on FRAND terms as a condition for participating in the standard-setting process. By encouraging FRAND licensing, standardization organizations foster a collaborative environment where competitors can cooperate, share technologies, and contribute to the collective advancement of their industry. This approach supports healthy competition, reduces the risk of patent hold-up or hold-out, and ultimately benefits consumers by ensuring widespread adoption and compatibility of standardized technologies.
However, implementing FRAND licensing in practice is not without challenges. A precise definition of "fair" is not established, as what may be considered fair terms for a Standard Essential Patent (SEP) holder might not be perceived as fair by the implementer.
Hence, determining what constitutes fair and reasonable licensing terms is complex, and disputes may arise between patent holders and potential licensees, leading to legal battles and regulatory scrutiny. As technology continues to evolve, the importance of understanding SEPs and navigating the complexities of FRAND licensing becomes paramount for industry players, policy makers, and legal professionals.
The main objectives of FRAND licensing are as follows:
Fairness: FRAND licensing aims to strike a fair balance between the interests of patent holders and potential licensees. It ensures that patent holders receive reasonable compensation for the use of their patented technologies while preventing them from extracting excessive royalties or imposing unreasonable licensing conditions. Fair means an equitable set of terms which should be laid down so as to allow competition to thrive. Any agreements which are anti-competitive due to non-compliance of FRAND terms can be challenged before the court. Generally, the term “fair” relates to the underlying licensing terms and describes them as not being anti-competitive and not unlawful.
Reasonableness: FRAND licensing seeks to establish licensing terms that are economically reasonable and do not hinder the adoption of standardized technologies. The royalty rates and licensing terms should be proportionate to the value that the patented technology contributes to the standard and the overall market.
Non-Discrimination: FRAND licensing mandates that patent holders offer licenses to their SEPs on a non-discriminatory basis. This means that the licensing terms should be the same for all potential licensees, irrespective of their size, market position, or relationship with the patent holder. Non-discrimination ensures a level playing field and fosters fair competition among different market players.
By adhering to FRAND licensing obligations, patent holders help create an environment of cooperation and collaboration among competitors. This approach is particularly crucial in industries where multiple companies must work together to implement complex technological standards, such as telecommunications, where various manufacturers must ensure their devices can communicate effectively across networks. Disputes regarding FRAND commitments often arise when there are disagreements about what constitutes a fair and reasonable licensing fee or when negotiations between the patent holder and potential licensees break down. In such cases, legal actions may be pursued to resolve the conflict and determine a FRAND rate.
Courts and regulatory bodies in various countries have addressed the issue of SEP owners not abiding by FRAND commitments, and they often emphasize the importance of honouring these obligations to maintain fair competition and prevent anti-competitive behavior in the market.
FRAND Licensing Determination
Several approaches that can be considered to determine Fair, Reasonable, and Non-Discriminatory (FRAND) terms and royalties for licensing standard-essential patents (SEPs) involve:
·?????? Comparable Licenses: Reviewing existing licenses for similar patents or technologies provides a benchmark for FRAND rates. These agreements are used as a reference point for negotiations.
·?????? Cost-Based Approaches: Some methodologies consider the cost of production, research, and development involved in creating the technology to set a FRAND rate.
·?????? Value-Based Approaches: Assessing the economic value the technology brings to the market or the overall product can be a basis for determining FRAND rates.
·?????? Arbitration and Mediation: In certain cases, parties might resort to arbitration or mediation to settle disputes and determine FRAND rates.
Intersection of FRAND Licensing and Antitrust Laws
Antitrust laws prevent anticompetitive behavior, monopolies, and unfair market practices adopted by SEP owners. The intersection with FRAND occurs when essential patents are involved, as their misuse can lead to antitrust concerns. Antitrust laws gets triggered in the following cases:
·?????? Abuse of Dominance: When a SEP owner holds essential patents and deliberately refuses to license them under FRAND terms, it may be seen as an abuse of its dominant market position.
·?????? FRAND Commitments and Antitrust Compliance: SEP owners making FRAND commitments must adhere to these terms, as failure to do so might be seen as anticompetitive behavior.
·?????? Excessive Royalties: Demanding unreasonably high royalty rates or imposing unfair terms that hinder fair market competition could raise antitrust concerns.
·?????? Patent Hoarding and Injunctions: Holding back essential patents from the market or seeking injunctions to block competitors, instead of licensing them under FRAND terms, may be viewed as anticompetitive behavior.
·?????? Discriminatory Licensing: Granting licenses selectively or on discriminatory terms, favoring certain licensees over others, may also violate antitrust laws.
Standard Essential Patent Litigation in India
In order to uphold and foster fair and robust competition within the market, the Competition Commission of India (CCI) was established as a statutory body under the Competition Act, 2002. The CCI has actively addressed numerous cases related to standard essential patents (SEPs) and Fair, Reasonable, and Non-Discriminatory (FRAND) commitments since as early as 2013. It has scrutinized the licensing practices of SEP owners under both antitrust regulations and the Competition Act, 2002.
However, in a recent judgment in July 2023, where Ericsson challenged the jurisdiction of CCI in SEP licensing practices, the appellate division of the Delhi High Court concluded that the CCI does not possess the authority to investigate such SEP licensing practices. The Court based its decision on the provisions outlined in the Patent Act, 1970, which are specifically designed to regulate anti-competitive practices among patentees. The Court relied upon the inclusion of provisions in the Patent Act, 1970 aimed at controlling anti-competitive practices of patentees such as provisions related to compulsory licensing as sufficient check-and-balance mechanism to address SEPs licensing i.e., Sec 83, 84, 89, and 90 of the Patents Act. The court ruled that the specialized legislation of the Patent Act, 1970, should take precedence over the Competition Act, 2002, which is a general law, when adjudicating the rights of a patentee under the Patent Act, 1970.
Right to Interim relief
In 2013 and 2014, Ericsson filed lawsuits against Micromax and Intex, alleging the infringement of eight patents crucial for complying with 2G and 3G telecommunication standards. The legal actions sought damages and a permanent injunction to restrain the accused parties from further infringement.
In the legal dispute between Ericsson and Intex, Ericsson claimed that it had offered a license, in line with FRAND terms, covering its entire patent portfolio, including the eight patents in question. However, Intex declined the portfolio license, leading Ericsson to be constrained to approach the court. Conversely, Intex contested the validity of Ericsson's patents, asserting that no patent in India enjoys a presumptive validity. Intex argued that Ericsson should not be entitled to any relief until the validity of the patents is determined. Despite this, the Court observed that Intex's complaint to the CCI implied that Ericsson owned Standard Essential Patents (SEPs) essential for implementing 2G and 3G standards, thereby acknowledging the status of Ericsson's patents as SEPs and their infringement.
The Delhi High Court observed that Ericsson had previously asserted the identical eight Standard Essential Patents (SEPs) in prior legal proceedings, fulfilling the requirement for Ericsson to establish a prima facie case of patent infringement and balance of convenience. Additionally, the court acknowledged that Ericsson would endure irreparable harm if the injunction were not granted. Consequently, the court ruled in favor of Ericsson and issued an injunction. On March 13, 2015, the Delhi High Court directed Intex to make interim royalty payments, with 50% payable at the interim stage and the remaining 50% to be provided through a bank guarantee.
Ericsson and Intex filed cross-appeals challenging the judgment and order dated 13th March, 2015, passed by the learned Single Judge.
Intex argued that the learned Single Judge could not have issued both a directive for immediate payment and a requirement to deposit royalties at the interim stage. According to Intex, the sole entitlement of Standard Essential Patent owners, as established by foreign courts, is to receive royalties at the end of the trial. Furthermore, Intex argued that in matters pertaining to Standard Essential Patents, no injunction can be granted, even in cases where an implementer is considered an unwilling licensee.
On the other hand, Ericsson prayed that Intex be directed to pay the entire royalty amount instead of 50% royalty at the interim stage and balance 50% by way of a bank guarantee, as mandated by the order passed by the learned Single Judge.
The court observed that a Standard Essential Patent holder is at a disadvantage during the term of the patent itself, as it is deprived of:
(a) freedom to decide whom to give a license to.
(b) freedom to decide the terms of a license as it has to be on FRAND terms.
(c) freedom to claim an injunction against an infringer, without prior negotiations.
The court observed that FRAND obligations have been interpreted to impose a burden not just on Standard Essential Patent holders, but on implementers as well. The Standard Essential Patents regime incorporates mutual reciprocal obligations on both the Essential Patent holder and the implementer. It is not a ‘one-way street’ where obligations are cast on the Essential Patent holder alone. Consequently, the Standard Essential Patents regime balances the equities between the Patentee and the implementer and ensures a level playing field. The Court also observed that the conduct of the parties during negotiations is one of the key factors to be kept in mind while assessing whether a potential licensor and licensee were a willing licensor or a willing licensee.
Further, the court rejected Intex's contention that it should abstain from granting an injunction or directing payment. The court refuted the argument that the exclusive interest of the Standard Essential Patent owner is in obtaining reasonable royalties, a goal that can be sufficiently addressed through a damages award at the trial's end. The court highlighted that either an injunction or a directive to pay royalties in the interim would likely serve as a more effective remedy. Unlike a nominal increase in the cost of products infringing the patents, these measures would outright prevent infringement.
The court also clarified that Indian law does not prohibit a Standard Essential Patentee from seeking an injunction. The court concluded that Standard Essential Patent owners, who file lawsuits, have the right to request both interim and final injunctive relief if the court determines that the infringer is an "unwilling licensee." Consequently, Intex's appeal is rejected, while Ericsson's appeal is granted.
Future Perspectives of SEPs
The trajectory of Standard Essential Patents (SEPs) holds immense significance in the ever-evolving landscape of emerging technologies, spanning from 5G to IoT and AI. These patents transcend traditional tech domains, influencing a diverse range of industries. As their numbers rise, the imperative for fair and reasonable licensing, guided by the principles of Fair, Reasonable, and Non-Discriminatory (FRAND) terms, becomes increasingly apparent. The future of SEPs hinges on collaborative efforts among stakeholders, involving industry players, regulatory bodies, and global harmonization initiatives. In shaping the future, the interplay of fair licensing practices, collaborative endeavors, global standardization, and ethical frameworks will not only foster innovation but also determine how these technologies resonate across societies and industries worldwide. The coming years promise a dynamic landscape where SEPs contribute not only to technological advancements but also to the broader goals of fairness, accessibility, and responsible innovation on a global scale.
References:
ETSI Intellectual Property Rights Policy, rules of procedure, 29-30 November 2022
Telefonaktiebolaget LM Ericsson (Publ) v. Competition Commission of India & Anr, LPA 247/2016 (July 13, 2023)
Telefonaktiebolaget Lm Ericsson ... vs Mercury Electronics & Anr CS (OS) No. 442 of 2013
Telefonaktiebolaget Lm Ericsson ... vs Intex Technologies (India) CS(OS) No.1045/ 2014
Intex Technologies (India) Ltd v. Telefonaktiebolaget LM Ericsson, FAO(OS) (COMM) 296/2018 & Telefonaktiebolaget LM Ericsson v. Intex Technologies (India) Ltd, FAO(OS)(COMM) 297/2018 (March 29, 2023)