Standard Essential Patents (SEPs) And Frand Licensing in India

India is one of the countries that is expanding and growing in the telecommunications sector, with the expansion comes the issues of infringement and various other issues in hand. Thus it is required to investigate if there is an abuse of power by the SEP and if FRAND commitments are being followed to. This blog focuses on SEP and FRANDs in India,

What is SEP?

SEP stands for Standard Essential Patent. It is a patent that is granted for the invention which is technological and is considered important for the implementation and working of a standard. The standards are important in order to ensure the safety, interoperability, and compatibility of various different products and services that are made available through various companies. The SEP are those patents that are considered important to a standard and as well as have been adopted by the Standard Setting Organisation (SSO). 

The SSO can be governmental or quasi-governmental. It can also be an association of a private group of independently owned industries. It helps in setting the standards as well as developing them, and coordinating the standards. It also helps in interpreting and maintenance of the standards as well.

If the SSO acknowledges a patent as a SEP then only the manufacturer is allowed to produce the goods only after acquiring a license under SEP and then the goods are put up in the market. The SEP holder is granted a monopolistic right because of a lack of competing technology. This makes it impossible for the production of products that conform to all the standards and without the use of the technologies covered by one or more SEPs. Technological Innovation and diffusion are prompted through standards and patents.

Importance of SEP

SEP has great importance linked to it. It helps ensure that the technologies are put to work together easily, promotes innovation, and protects the interests of the patent holders. It in turn ensures fair access to all the essential technologies for all the other industry players.

These are widely used in the telecommunication sector because this sector is a highly standardized industry which is generally driven by the requirement for the interoperability of the various communication devices. The operation of 3G, 4G, 5G, and WIFI networks in the country is dependent upon the various patented technologies. Communication standards are considered essential to the growth of a hyperconnected society. The SEPs are considered as possessions that are powerful in nature as a patent. 

SEP provides assurance to the companies that the innovations are given protection thus encouraging them to invest in the research and development. It is considered important for raising technological advancements and maintaining the competitive edge. It also provides for driving industry growth. The companies can have the assurance that the intellectual property is safeguarded and thus can likely invest in the development of new technologies.

What is Frand Licensing?

The Setting Standard Organisations have commanded that the licensing of patents is to be based on FRAND principles. It is the commitment made by the holders of SEPs that the patents are based on fair, reasonable, and non-discriminatory terms. The components of FRAND are:

1. Fair: 

The licensing terms should be fair and equitable to all. No one should take undue advantage of anyone.

2. Reasonable:

The licensing conditions should be in the interests of both the parties and all the costs should be justified in all manners.

3. Non-Discriminatory:

There should not be any form of discrimination with any potential licensee. It helps in ensuring that no company faces disadvantages in any form.

These terms have encouraged the adoption of the standards and helped in alleviating concerns about unfair competition. A SEP owner is required to grant a license on the FRAND terms to anyone who is seeking a license. This is basically done so as not to allow the SEP owners to exploit other persons in the market.

It helps in promoting access to technology to all the players in the market which in turn helps in the promotion of innovation and competition as well.  It provides for the prevention of abuse of the market power as per FRAND one can’t create monopolistic conditions or even charge any excessive royalty. It facilitates standards and their implementation, which requires access.

The term FRAND doesnot have any proper definition as per any legislation, SEO has also not provided any proper definition, leaving the scope of interpretation open. The basic idea behind FRAND is that the license terms under SEP are fair provide a reasonable royalty rate and are also non-discriminatory. It also has to be kept in mind that the SEP owners are compensated for all the research and development done for the patent and also work as an incentive.

In India, the courts have not given any decision in relation to what determines as FRAND or not, but they have discussed various terms and conditions in relation to FRAND. In 2023 a recent judgment from the Delhi High Court also discussed various FRAND issues in detail and how to determine the royalty base in case of non-disclosure agreements.

Royalty base

The determination of the royalty base acts as an important factor in determining the FRAND royalty. Generally, SEP imposes royalties on the basis of the price of the product that is the sale price of the product. The basic idea is to ensure that the SEP license is based on fair terms provides a reasonable royalty rate and is nondiscriminatory in nature. The royalty is different based on various different situations.

There can be issues in royalty in the case of multi-component products as enforcing royalty on the various components of one multi-component product the result can be a massive royalty amount that can even surpass the product’s actual net sale price.

The CCI has also faced various concerns in relation to the determination of the royalty on the price of product. However, the Delhi High Court in recent orders has upheld that royalty should be calculated on the basis of the price of downstream products in line with globally accepted prices.

Non-Disclosure Agreements

The non-disclosure agreements are considered essential by the SEP owners even before one enters into negotiating the terms and conditions of the license. These agreements also generally include redressal mechanisms and jurisdictions and the restrictions in relation to them which in turn require the licensees who are prospective in nature to submit to unfamiliar jurisdictions outside the country in which both the parties have their businesses. The NDAs help SEP owners to get royalty rates that are not discriminatory in nature and also help in the prevention of the exchange of information and also to asses if the terms are fair or not.

These NDAs are considered important to help protect the patentee and the rights that a patentee has even after licensing the patent to someone else. The concept of the NDAs is actually frowned upon by the CCI but the courts have actually accepted this concept. In a case, the Delhi High Court has held that the SEP owner will be considered that he is willing to give the license only in case it gives a FRAND offer and the information provided is under NDA.

Unwilling licensees and patent hold-outs

The SEP owners and prospective licensees have imposed obligations as per the FRAND commitments. As per the FRAND, the SEP owner has to offer an SEP license in accordance with FRAND terms which in turn works as a defense of sorts to work as a claim for infringement. In case one wants to avoid a patent hold-out it is important to get a license from the SEP owner.

The Delhi High Court has ruled that in the case of the unwilling licensees the SEP owners can be entitled to injunctive reliefs even though the FRAND obligations are agreed to.

Portfolio licensing as FRAND

Another issue that arises is whether portfolio licensing is FRAND compliant or not or whether the SEP owner is required to offer individual SEP licenses. This was discussed by the Delhi High Court in the Intex and Ericsson case. The Delhi High Court had ruled that “value is in the technology which forms a part of the standard” and that Ericsson was not obligated to provide individual or nation-specific patent licenses because the suit patents were merely a representative of that technology. The court further noted that “global portfolio licenses are capable of being FRAND.”

Background in India

In India, the concept of SEP was brought up in 2011 through the case filed by Ericson objecting to the importation of the handsets by King Tech Electronics as it infringed the SEP of Ericson. This case had brought focus upon the various complexities in relation to the SEP enforcement and the FRAND licensing in the Indian regulatory system.

In 2013 Ericson sued Micromax for infringement of SEP in relation to mobile communication technologies. The Micromax company was ordered by the Delhi High Court to pay royalties based on the FRAND terms. This was one of the significant judgments in the Indian regulatory systems in relation to SEP and FRAND licensing. The 2011 Ericson case did not provide a significant decision but laid down the groundwork for further cases in hand.

Ericson had filed a similar case against Intex in 2014 for SEP infringement. The court provided about the importance of adherence to the FRAND commitments and also laid upon the calculation of the royalties in relation. Intex was directed to pay 50% royalty at the interim stage and balance 50 % by way of a bank guarantee. After the decision was provided by the court both parties had filed an appeal against the decision of the court. Ericson had filed that INtex is required to pay full royalty as per Ericson’s licensing agreements. After taking into consideration all these the court had asked Intex to pay the entire royalty in 4 weeks to Ericson.

There is also the case of Oppo against Nokia in India which dealt with SEPs, both parties had come to an agreement. The court order established that SEP holders have the liberty to ask for a pro-term security deposit.  A SEP holder has the power to stop the sale of any item which is infringing by establishing that one or a small number of representative patents are infringed, rather than relying on the thousands of patents that it owns and uses in the product. SEP holders have acknowledged this step positively.

SEPs Infringement Litigations Under The Patent Law Regime

A right is given to the patentee to commence litigation in relation to infringement against all unauthorized users. There is also a provision for remedies like injunction and damages and other things. The court can grant the relief of injunction after establishing that there is a prima facie case of patent infringement, also a balance of convenience in favor of the patentee as well, and that the patentee would be suffering irreparable injury in case the injunction is not granted.

The FRAND obligations provide that the SEP owner has to give the commitment to the prospective licensees with negotiation as per their own comfort and provide the license on the FRAND terms only, these terms also provide that the SEP owner shall be given royalty in exchange that the patent is being used. It is considered necessary in the case of FRAND incumbent the SEP’s, the patentee should not be entitled to an injunction as any potential licensee shall not be able to produce or sell the products without the use of patented technology. In a case, the Delhi High Court had observed that the SEP owner can have the entitlement to issue an injunction against the infringer also even in the situation of an agreement of the license on FRAND terms.

Right to Injunction

The Delhi High Court had observed various contentions in relation to the right to injunction through the various legal suits filed by Ericsson against Micromax in 2013 and Intex in 2014. The court had granted an injunction in favor of Ericson and had given observation that Ericson would suffer irreparable harm in case the injunction was not granted. The court also stated that all the suits filed by Ericsson provide proof that there has been patent infringement.

In the case of Ericsson vs Intex Ericsson had provided that it had offered a complete license as per the FRAND terms to Intex. But Intex did not work as per the portfolio thus forcing Ericsson to approach the court. In response to that intex challenged the validity of the suits filed by Ericsson stating that no patent in India enjoys a presumptive validity and thus making Ericcson not entitled to any form of relief. It was later on proved and Intex had also admitted that the suit patents filed by Ericsson were SEPs and there was also infringement.

The court had ordered Intex as well as Micromax to pay the royalties as they were still using the SEP during the period of pendency of the suits as the injunctions were discontinued at later stages even when they had been granted in the early stages of the suit. 

Role of the Competition Commission of India in SEP Cases

The Competition Commission Of India (CCI) is one of the regulatory authorities which had been established under the Competition Act, of 2002 whose role is basically to prevent practices that are anti-competitive in nature. The authority also helps in promoting and sustaining competition in the markets. It also helps in the protection of consumer rights and ensures freedom of trade.

It has a significant role in regulating the SEPs and FRAND licensing as well as overseeing all the activities in relation to it. It helps ensure that any practice of SEP holders does not amount to any form of anti-competitive behavior that can cause harm to the businesses or the consumers.

CCI helps the SEP holders prevent abuse of the dominant position that they enjoy in the market. The SEp holders generally have significant power in the market, CCI ensures that this power is not exploited in terms of royalties or any licensing terms imposed which are unfair in nature. It also plays a major role in ensuring fair competition in the market by making sure that SEP holders adhere to the FRAND. This helps in creating a market in which the competition is fair and multiple players can participate in the market.

CCI comes forward with the power to investigate any complaints that have been filed in relation to the dispute matters of SEP and FRAND. It has the authority to take action against those SEPs who are not complying with FRAND obligations and against those who are engaged in any form of anti-competitive practices.

The role of CCI in SEP was discussed in cases of Ericson with Micromax as well as Intex. Micromax and Intex had said that Ericosn is abusing its dominant position in the telecommunication sector. The court had ordered that the Patents Act should be invoked when one is dealing with anti-competitive agreements and abuse of a dominant position while exercising his rights under the Patents Act. 

Conclusion

With the country developing various sectors there is a tendency for various disputes to arise and one of these is in relation to SEP holders. Since India is a developing country it cannot afford to lose its global image in the IPR upfront. The disputes in relation to SEP should be judicious in all manner, both parties have to be heard and all the rates and royalties are to be decided without favoring any one party and protecting the interests of all the consumers.

Frequently Asked Questions

Q1. What is SSO?

Ans1. Standard Setting Organization is an entity that develops, coordinates, and promotes technical standards to ensure interoperability and compatibility across industries, facilitating innovation and efficiency. 

Q2. What is SEP?

Ans2. A Standard Essential Patent (SEP) is a patent that claims an invention essential for complying with a technical standard. To implement the standard, using the patented technology is necessary. SEPs ensure interoperability and compatibility in various industries, like telecommunications. SEP holders must license these patents on Fair, Reasonable, and Non-Discriminatory (FRAND) terms to prevent anti-competitive practices.

Q3. What is FRAND?

Ans3.  FRAND stands for Fair, Reasonable, and Non-Discriminatory. It refers to licensing terms that SEP holders must offer to ensure their essential patents are accessible to others. FRAND commitments prevent monopolistic practices, ensuring that licensing fees are fair and terms are equitable for all industry players.

Q4. What does FRAND comprise?

Ans4. The components of FRAND are:

1. Fair
2. Reasonable
3. Non-Discriminatory

Q5. How does SEP help in the Technology sector?

Ans5. It is widely used in the telecommunication sector because this sector is a highly standardized industry that is generally driven by the requirement for the interoperability of various communication devices. The operation of 3G, 4G, 5G, and WIFI networks in the country is dependent upon the various patented technologies.

Q6. Why is the SEP holder granted a monopolistic right?

Ans6. The SEP holder is granted a monopolistic right because of a lack of competing technology. This makes it impossible for the production of products that conform to all the standards and without the use of the technologies covered by one or more SEPs.

Q7. How does SEP promote development?

Ans7. SEP provides assurance to the companies that the innovations are given protection thus encouraging them to invest in the research and development. It is considered important for raising technological advancements and maintaining the competitive edge. It also provides for driving industry growth. The companies can have the assurance that the intellectual property is safeguarded and thus can likely invest in the development of new technologies.

Q8. Which case was the first to discuss SEP?

Ans8. The concept of SEP was brought up in 2011 through the case filed by Ericson objecting to the importation of the handsets by King Tech Electronics as it infringed the SEP of Ericson.

Q9. How does CCI help in SEP cases?

Ans9. It helps in SEP cases by investigating and preventing the abuse of dominance by SEP holders. It ensures FRAND licensing terms are followed, promotes fair competition, and prevents anti-competitive practices, protecting both implementers and consumers in the market.

Q10. How does FRAND help in the prevention of abuse?

Ans10.  It provides for the prevention of abuse of the market power as per FRAND one can’t create monopolistic conditions or even charge any excessive royalty. It provides for the facilitation of standards and their implementation that require access.