Discussion Paper on Standard Essential Patents and their Availability on FRAND Terms (Department of Industrial Policy and Promotion, Ministry of Commerce and Industry), 1 March 2016
The Department of Industrial Policy and Promotion (Government of India Ministry of Commerce and Industry) had invited comments from the public on the recently published ‘Discussion Paper on Standard Essential Patents and their Availability on FRAND Terms’ with the objective of developing a suitable policy framework to define the obligations of Essential Patent holders and their licensees.
India presently lacks a policy on Standard Essential Patents (SEPs) and the licensing of SEP technology on Fair, Reasonable and Non-Discriminatory (FRAND) terms. Neither the Patents Act 1970 nor the Competition Act 2002 contains any provision on SEP and FRAND licensing. On 1 March 2016 the Indian Patent Office released the draft of ‘Discussion Paper on Standard Essential Patents and their Availability on FRAND Terms’ (the DIPP Paper) by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry. The paper invited comments from the public to develop a suitable policy framework to define the obligations of SEP holders and their licensees.
Sections IV to VII of the DIPP Paper give a broad overview of standards and SEPs and related concepts such as patent hold-up, FRAND, role of the competition law regime in SEPs, standards setting organisations (SSOs) such as the European Telecommunications Standards Institute (ETSI) and the Institute of Electrical and Electronics Engineers Standards Association (IEEE-SA), cross-licensing and patent pooling.
Section IX of the discussion paper notes important SEP litigation worldwide and the judicial trend in granting injunctions in such cases in the US, Germany, the Netherlands, France, UK, Japan and China.
Section X of the paper focuses on Indian SSOs in the telecommunication sector and the judicial approach towards SEPs and its availability on FRAND terms in India.
Section XI is the heart of the discussion paper- it formulates the issues for resolution in the field of SEPs and invites comments from the public on the same.
Section XI: Issues for Resolution
a) Whether the existing provisions in the various IPR related legislations, especially the Patents Act, 1970 and Anti-Trust legislations [sic], are adequate to address the issues related to SEPs and their availability on FRAND terms? If not, then can these issues be addressed through appropriate amendments to such IPR related legislations? If so, what changes should be affected?
b) What should be the IPR policy of Indian Standard Setting Organizations in developing Standards for Telecommunication sector and other sectors in India where Standard Essential Patents are used?
c) Whether there is a need for prescribing guidelines on working and operation of Standard Setting Organizations by Government of India? If so, what all areas of working of SSOs should they cover?
d) Whether there is a need for prescribing guidelines on setting or fixing the royalties in respect of Standard Essential Patents and defining FRAND terms by Government of India? If not, which would be appropriate authority to issue the guidelines and what could be the possible FRAND terms?
e) On what basis should the royalty rates in SEPs be decided? Should it be based on Smallest Saleable Patent Practicing Component (SSPPC), or on the net price of the Downstream Product, or some other criterion?
f) Whether total payment of royalty in case of various SEPs used in one product should be capped? If so, then should this limit be fixed by Government of India or some other statutory body or left to be decided among the parties?
g) Whether the practice of Non-Disclosure Agreements (NDA) leads to misuse of dominant position and is against the FRAND terms?
h) What should be the appropriate mode and remedy for settlement of disputes in matters related to SEPs, especially while deciding FRAND terms? Whether Injunctions are a suitable remedy in cases pertaining to SEPs and their availability on FRAND terms?
i) What steps can be taken to make the practice of Cross-Licensing transparent so that royalty rates are fair & reasonable?
j) What steps can be taken to make the practice of Patent Pooling transparent so that royalty rates are fair & reasonable?
k) How should it be determined whether a patent declared as SEP is actually an Essential Patent, particularly when bouquets of patents are used in one device?
l) Whether there is a need of setting up of an independent expert body to determine FRAND terms for SEPs and devising methodology for such purpose?
m) If certain Standards can be met without infringing any particular SEP, for instance by use of some alternative technology or because the patent is no longer in force, what should be the process to declassify such a SEP?
In the absence of any provision related to SEPs in the Indian patent law, the role of defining a policy on SEPs is increasingly falling to the Indian courts. To this end, the DIPP Paper addresses the need to make relevant amendments to the Patents Act.
The discussion paper lacks any draft provisions or a proposed model and merely identifies the contentious issues in SEP litigation.
While the discussion paper is fairly open-ended, some of the questions posed by the DIPP are worrisome to the extent that the Indian government is considering the possibility of actually determining the terms and conditions of FRAND licensing agreements; this may threaten the contractual independence of the parties concerned. This is evident from some of the issues that have been formulated in the DIPP Paper. In particular:
- the need for prescribing guidelines on the working and operation of SSOs by the Government of India;
- the need for prescribing guidelines on setting or fixing the royalties in respect of SEPs and defining FRAND terms by the Indian government;
- the need for capping the total payment of royalty in case of various SEPs used in one product by the Government;
- the need of setting up of an independent expert body to determine FRAND terms for SEPs and devising methodology for such purpose;
SEP litigation in India is on the rise. In 2013 Ericsson filed a number of patent infringement suits against Indian companies including Micromax Informatics & Intex Technologies over the infringement of Ericsson’s SEPs.
In response to Ericsson’s suits, the Indian companies approached the Competition Commission of India (CCI), alleging abuse of dominant position by Ericsson over the latter’s FRAND licensing terms. In all the complaints filed before the CCI against Ericsson, the CCI found that prima facie Ericsson had abused its dominant position and accordingly ordered investigation into the matter by the Director General (DG). However, the Delhi High Court ordered the CCI not to pass any final order in the matter in pursuance of the writ petitions filed by Ericsson.
On 30 March 2016 the Delhi High Court vacated its orders passed against the CCI and dismissed Ericsson’s writ petitions.
The CCI and the Indian courts have differed on the method to calculate FRAND royalty rates, with the former favouring the Smallest Saleable Patent Practicing Component (SSPPC) and the latter accepting Ericsson’s use of the net price of the Downstream Product. Invariably, the difference in the approach taken by the Courts and the competition authorities over FRAND royalties has led to differing outcomes in SEP disputes. A prospective policy on SEPs adopted by the Indian government (without undue government interference) would aid in clarifying the law related to SEPs in India.
[The Discussion Paper is available here.]