Dolby v. GDN Enterprises & Oppo

On 23rd November, a Single Judge Bench of the Delhi HC passed orders in Dolby International v. GDN Enterprises[1] altering its earlier order dated 27th October, 2016 on the rate of royalties payable by Oppo. The Delhi HC order in the instant case is significant because it reduced the earlier rate fixed by the Court on the ground that the earlier rate was being charged on Dolby’s entire portfolio of patents, many of which were not the subject-matter of the present dispute.

Background of the case:

Dolby (US company specialising in audio technology) recently filed a patent infringement suit in India for unauthorised use of Dolby’s patents by Chinese smartphone manufacturers, Oppo & Vivo (defendants).[2] In 20th October 2016, the Court passed an ex-parte interim injunction against the defendants restraining them from manufacturing/selling/importing devices which infringed Dolby’s SEPs. On 27th October, the Court ordered Oppo & Vivo to deposit interim royalties to the Court at the rate of INR 34 per handset sold/manufactured/imported in India by the defendants[3]; the amount for each month was to be deposited by the 8th of the succeeding month by the defendants. Indian entities, GDN Enterprises & Das Telecom (through which Oppo & Vivo did business in India) were impleaded as defendants in the suit; the order also stated that the defendants would enter into negotiations with the plaintiff, Dolby, over FRAND licensing terms. Subsequently, GDN filed an interim application (IA No.14417/2016) in the Court challenging the Court’s order for payment of interim royalties on the ground that GDN was no longer manufacturing for Oppo.[4] The other defendants (collectively ‘Oppo’) also filed an interim application (IA No.14492/2016) against the Delhi HC order challenging the royalty rate fixed by the Court. The Court heard arguments in both the interim applications on 23rd November.

Parties’ arguments & Court’s order in the instant case:

IA No.14417/2016-

The applicant/defendant, GDN inter alia argued that it was not liable to make payments to Dolby because Dolby in its suit had pleaded cause of action only against Oppo and not GDN. Therefore, GDN argued that finding cause of action against it would be wrong on the part of the Court since this was an adversarial proceeding as opposed to an ‘inquisitorial proceeding’.[5] The Court refused to hear the matter in the instant proceedings because GDN had failed to file the requisite affidavit.

IA No.14492/2016-

Oppo argued that Dolby had brought a case against the makers of Blackberry in the US involving the same patents/inventions that were the subject matter of the present suit. In the US case, Dolby in its pleadings had admitted that its patents were algorithms. Based on this, GDN argued that Dolby could not hold patents over those inventions in India since section 3(k) of the Patents Act, 1970 prohibits patentability of inventions which are algorithms. The Court was of the opinion that the section 3(k) argument could not be decided without allowing Dolby to file a reply as to whether Dolby had patented the algorithm in India or Dolby’s patent was in fact over the technology which incorporated the algorithm (permissible under Indian law).

Oppo next argued that the patent infringement suit filed by Dolby involved only 4 of Dolby’s patents whereas the royalty rates fixed by the Courts in its October order related to some 600 patents owned by Dolby. Oppo further stated that Dolby held only 8 registered patents in India and therefore, Oppo could not be made to pay royalty rates on Dolby’s entire portfolio of 600 patents. In response to this, Dolby argued that it was charging “similar FRAND rates from other manufacturers similarly placed” as Oppo; therefore, Dolby contended that this was an international practice and cited a judgment of the District Court of Germany to support its contention. Dolby further relied on the Ericsson case where interim royalties had been ordered on the entire portfolio of patents. Dolby also stated that in Ericsson the Court had (prior to its order) determined whether for use of a patent, the rates prescribed for the entire family can be directed to be paid” and decided in the affirmative.[6]

The Court agreed with Oppo’s arguments that royalties should be payable on the patents involved in the case and not on the entire portfolio of Dolby’s patents. The Court stated, “It indeed troubles me that the defendants, even by way of an interim arrangement, should be made to pay the rates which the plaintiffs have prescribed for a family of as many as 600 patents when this suit has admittedly been filed for enforcing rights in four patents only”. Accordingly, the Court modified its earlier order and directed that royalties be payable at INR 20 per unit instead of INR 34 per unit by Oppo; the Court clarified that the order would not apply retrospectively and would be subject to the filing of an affidavit of undertaking by Oppo.[7]

[1] CS (COMM) 1425 of 2016. http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=229348&yr=2016

[2] It is not clear when exactly the suit was filed in the Delhi HC. The first order relating to the dispute available on the court website is dated 27.10.2016. http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=208102&yr=2016

[3] The amount offered by the defendants was INR 32 per unit and that proposed by Dolby was INR 38 per unit.

[4] http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=226461&yr=2016

[5] India has an adversarial legal system where the judge plays the role of an “impartial referee” rather than playing an active role in seeking out the truth (a feature of the civil law system).

[6] Oppo opposed the Ericsson argument made by Dolby (further details of this are not provided in the HC order).

[7] The Court also clarified that since the other defendants were not present during the proceedings, the earlier order (dated 20th October) would continue to operate against all defendants except Oppo.

Can Game Theory Resolve Smartphone Wars in India? (Part II)

In this two-part post, I argue that SEP-holders should voluntarily agree not to file for injunctive relief against standard-implementers, in cases where the SEP-holders have agreed to license their SEP on FRAND terms; this is because injunctions in SEP infringement cases can be anti-competitive.

Part I of the post shed some light on voluntary commitments by IPR-holders to not enforce their IP claims in the context of the recent Paramount v. Sky TV case. I then also discussed the ECJ ruling in Huawei v. ZTE wherein the main issue before the Court was to determine the circumstances in which injunctions in SEP cases are anti-competitive.

In the 2nd part, I will describe how Courts in India award injunctions in SEP cases and also suggest an alternative approach to resolve SEP disputes which can serve the interests of both the SEP-holders and the standard-implementers.

SEPs are a weapon of potential IP abuse leading to competition harm. Standards in telecommunications industries are set by standard-setting organizations (SSOs) which are voluntary coalitions of mobile phone companies and may include other interested stake-holders. The members of SSOs adopt certain technologies as standards which must then be incorporated into the products manufactured by all SSO members. Often, the technologies adopted as standards by SSOs are patented, and these patents are known as ‘standard essential patents’, since use of these patents is essential for conforming to a set standard. Mobile phone companies, other than the SEP-holder, need to obtain licences to use the technologies covered by SEPs. Since there is one ‘supplier’ of this particular technology (namely, the SEP-holder), it creates a natural monopoly of the SEP-holder in the market of SEPs. It is understood that patents are anyway monopoly rights since they give exclusive rights to the patent-holder to make commercial use of their invention; however, SEPs lead to a special problem of lock-in because when a particular standard is adopted, all other mobile phone-companies (i.e. standard-implementers), must necessarily obtain licences from the SEP-holder so that their products can conform to that standard (standard-implementers do not have the option to use alternate technology since they risk non-adherence to the adopted standard by doing so).

In order to prevent abuse of dominant position by the SEP-holder, the understanding between SSO members is that when a particular member’s technology is adopted as a standard, that member (SEP-holder) must license the SEP to other SSO members (i.e. standard-implementers) on fair, reasonable and non-discriminatory (FRAND) terms; FRAND, though not defined anywhere, is a commitment to license on good-faith terms. One way of determining FRAND terms is to understand the terms on which the SEP would have been licensed to standard-implementers before it attained the status of an SEP; this is also known as the ex-ante method of determining FRAND terms.

Disagreements over use of SEPs are common in cases where the SEP-holder and the standard-implementers do not come to terms over the amount of royalties which the SEP-implementers should pay for using the SEP. SEP-holders commonly file patent infringement suits against SEP-implementers for using the SEP without royalty payment and successfully obtain interim injunctions to prevent further use of the SEP by the SEP-implementers. The business of SEP-implementers comes to a veritable standstill since the injunction prevents SEP-implementers from selling their infringing devices in the market. The SEP-implementers are left with no choice but to negotiate with the SEP-holder and often end up paying royalties which are not FRAND. In this manner, injunctions can be used by SEP-holders to bait standard-implementers into accepting non-FRAND terms which harms competition in the market, because a single player (i.e. the SEP-holder) dictates the terms of the SEP licensing contract.

In India, SEP disputes in the past have been filed in the Delhi High Court which has readily granted ex-parte interim injunctions against standard-implementers. As of now, none of the SEP disputes in India have reached final decision and in all the cases, the standard-implementers have readily paid interim royalties and engaged into negotiations with the SEP-holders to agree on the royalty amount. A parallel trend in SEP cases is also witnessed in India wherein standard-implementers retaliate by filing complaints before the Competition Commission of India (CCI) to investigate SEP-holders; the complaints are filed on the ground that the licensing agreements are anti-competitive because the method used by SEP-holders to calculate the royalty amount (i.e. using the value of the downstream product as a base) is erroneous. The CCI in all cases found a prima facie abuse of dominant position by Ericsson and has ordered further investigation into the matter.

In SEP disputes, we witness two instances of abuse of dominant position by the SEP-holder:

  1. At the stage of licensing when the SEP-holder uses the SEP status of his IP to extract ex-post royalties (instead of ex-ante).
  2. At the stage of enforcement of his IPR by filing for injunctive relief to pressurize standard-implementers into paying the royalty at rates demanded by the SEP-holder

Royalties lie at the heart of any SEP dispute and the SEP policy in India must be devised to overcome the impasse over calculation of royalty rates. The final offer arbitration model proposed by Mark A. Lemley and Carl Shapiro  can be particularly helpful in this regard. I explain the model below (rather crudely):

Under this model, SSOs should provide that members agree not to file infringement claims in courts and instead participate in binding arbitration to settle royalty rates. Where the standard-implementer does not agree to enter into arbitration, SEP-holder would be free to pursue their claim in court.

Under this arbitration model, both the SEP-holder and SEP-implementer submit to the arbitrator the royalty amount which they consider to be FRAND. The arbitrator has to pick either of the two numbers; note that the arbitrator cannot pick a number in between the two. The number picked by the arbitrator is the final royalty amount for licensing the SEP. Note that in this case it would be in the interests of both the parties to submit a reasonable royalty amount because the arbitrator would pick the more reasonable of the two (a classic  ‘prisoner’s dilemma’).

Such a model would preclude the abuse of dominance by the SEP-holder through injunctions because the agreement to enter into arbitration would act as waiver of the right to bring infringement claims against standard-implementers.

[The MHRD IPR Chair at IIT Madras, in response to DIPP’s Discussion Paper on SEP and FRAND, has suggested that SSOs in India adopt such a model. Those interested in reading the Chair’s response can email me directly on devikaagarwal100@gmail.com]

Can Game Theory Resolve Smartphone Wars in India? (Part I)

Earlier this week, the European Commission (EC) in an ongoing antitrust investigation accepted binding commitments from Paramount Pictures Corporation (Paramount) to not enforce restrictive copyright licensing conditions against Sky TV. In this two-part series, I will analyze how similar agreements to not enforce IP are useful in preventing competition harm caused due to injunctions in SEP cases.

A short background on Paramount v. Sky (or Pay-TV case) is in order:

Paramount, a Hollywood film studio, entered into an agreement with Sky UK to license the right to broadcast Paramount’s content in UK & Ireland. Sky UK is a subsidiary of Sky Plc( a European satellite and internet TV broadcasting company) which offers subscription-based television content to consumers in Europe.  One of the conditions in the agreements related to geo-blocking whereby Sky was prohibited from letting consumers in other EU countries access the content either through satellite TV or internet.

In 2015, the EC initiated an anti-trust investigation against Paramount and five other Hollywood film studios on the ground that the geo-blocking condition is restrictive because it limits Sky’s ability to broadcast the content outside the UK, and consequently affects cross-border competition among TV broadcasters in Europe. The investigation was in line with Europe’s Single Digital Market strategy which envisions doing away with the 28 different EU-member state laws currently prevalent in Europe. One of the benefits of the Single Digital Market strategy (which is still in its blueprint form) is that it will harmonize copyright laws across the EU; this means that if I, as a German resident, can legally download a French movie (under German copyright laws), I need not worry whether I am infringing the copyright laws of France. In other words, the same copyright law would apply across all EU-member states.

Under the geo-blocking condition in Paramount’s licensing agreement, a user would not be able to subscribe to the content which Sky broadcasts in the UK if they are a resident of any EU state other than the UK and Ireland. The reason why Hollywood film studios or other video content-providers would introduce such licensing conditions is to charge different rates from users in different countries (This is probably why Netflix has geo-blocked its content in India).

While the investigation was on-going, Paramount agreed not to bring IP infringement claims against Sky UK in the event that Sky UK accepts unsolicited subscription requests from users outside of UK & Ireland. While the Pay-TV case is settled as far as Paramount is concerned, the investigation is on-going with respect to the five other Hollywood movie studios.

It bears noting that Paramount committed to not enforce its IP right because otherwise it risked an ‘abuse of dominant position’ finding by the EC. In this case, Paramount has voluntary undertaken not to file injunctions/restrain Sky if Sky breaches the licensing conditions; if Paramount were to file a case against Sky for breaching the restrictive licensing conditions, Paramount’s commitment to the EC would act as an estoppel against Paramount. The Pay-TV case is important in the context of FRAND licensing of SEPs because (as Chilling Competition notes) enforcing intellectual property claims in SEP licensing cases can amount to competition harm. The relevant case law on this point is Huawei v. ZTE wherein the main issue referred to the European Court of Justice was:

‘When is seeking of injunctions by SEP-holders when they have agreed to license their SEPs to third parties on FRAND terms amount to abuse of dominant position?’

The Court was of the opinion that while enforcement of IPR by itself is not an abuse of dominant position, an abuse will occur only when the following exceptional circumstances are met:

  • The patent in question is indispensable
  • The patent achieved an SEP status only when the SEP-holder agreed to license the patent on FRAND terms

The Court held that the undertaking by the SEP-holder creates legitimate expectations on the part of licensees (standard -implementers) that the SEP-holder would license the SEP on FRAND terms, and if the SEP-holder subsequently refuses to license their IP, this would amount to abuse of dominance.

While the ECJ was clear that FRAND licensing commitments do not bar SEP-holders from enforcing their IP claims (including by filing for injunctions), the SEP-holder must meet a greater burden to justify injunctions against the standard-implementers in infringement cases.  The specific requirements for grant of injunctions in SEP infringement cases identified by the ECJ were as follows:

  1. Prior notice must be given by the SEP-holder to the licensee identifying the SEP and the manner in which it is being infringed
  2. Where the alleged infringer agrees to obtain a license for the SEP, the SEP-holder must communicate to the willing licensee a “specific written offer” which states the amount of royalty payable by the licensee and the method of calculation of such royalty.
  3. The alleged infringer is then free to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics”.
  4. Where there is no agreement between the SEP-holder and the alleged infringer, “the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party“.
  5. Finally, an alleged infringer cannot be criticised either for challenging, in parallel to the negotiations relating to the grant of licences, the validity of those patents and/or the essential nature of those patents to the standard in which they are included and/or their actual use, or for reserving the right to do so in the future”.
    In other words, in licensing the SEP to the alleged infringer, the licensing agreement shall not contain any clause to preclude the licensee from challenging the validity of the patent or its status as an SEP either at the time of licensing or in the future.

[For an analysis of the ECJ ruling in the Huawei case, please refer to Chilling Competition’s post]

In Part II, I analyse how injunctions in SEP cases amount to abuse of dominant position by the SEP-holder; the trend of Indian courts in granting injunctions in SEP cases; and alternate ways to fix the competition harm created by injunctions (for instance, by introducing final offer arbitration to determine FRAND royalties in SEP disputes).

Licensing of GM Technology on FRAND terms

In May 2016, the Government released draft guidelines for GM technology licensing agreements; the draft Guidelines propose that GM technology providers (such as Monsanto) shall license their technology on fair, reasonable, and non-discriminatory (FRAND) terms.

Using the concept of FRAND as it applies in the telecommunications industry, I would be assessing whether the same can be applied to the licensing of GM technology.

The concept of FRAND is taken from telecommunications industry which adopts standards to promote inter-operability of telecommunication devices. The patents which are covered by standards are known as standards-essential patents (SEPs) and once a particular technology is adopted as a standard, the SEP-holder agrees to license their technology on FRAND terms to standard-implementers. This facilitates the availability of the standard technology to other telecom players who can then incorporate it to conform to the adopted standards.

Although FRAND is not defined, it implies a good-faith basis of licensing (usually understood as the terms on which the technology would have been licenced before it was adopted as a standard).[1] Licensing of technology on FRAND terms is important in cases where a particular technology has no competing technology (leading to a dominant position of the SEP-holder in a particular market). This is true in case of SEPs in telecom because the adoption of a particular standard precludes all other technology which does not conform to that standard. If the SEP is not licensed on FRAND terms, the SEP-holder can compel standard-implementers to pay excessively high royalties in order to continue using the technology.

While the Bt cotton technology is not in the nature of an SEP[2], Monsanto’s Bt cotton technology is akin to an SEP because it is used in more than 99% of the area under cotton cultivation in India[3]; this effectively eliminates all competing technologies for the production of cotton in India. Left unchecked, Monsanto can use its dominant position to command unfair and excessive trait fee from Indian seed companies who would have little option but to pay the exorbitant trait fee; a preliminary order by the CCI found that Monsanto has indeed been indulging in anti-competitive practices while licensing its GM technology.[4]

Licensing on FRAND terms has two implications; (a) that the technology would be licensed (b) that the licensing would take place on FRAND terms. Interestingly, the CCI had found that Monsanto had been using its dominant position as a provider of GM technology to leverage its position in the downstream market of Indian seed manufacturing companies.[5] If Monsanto is compelled to license on FRAND terms it cannot eliminate competition in the downstream market by refusing to license its technology, nor can it discriminate while licensing to its own subsidiaries and to the other Indian seed companies.

Critics of FRAND licensing of GM technology argue that the Government should not regulate the trait value because IP licensing agreements are private contracts between the parties, who enjoy the autonomy to decide the terms of the contract. A counter-argument to this can be found in competition law i.e. the ‘essential facilities’ doctrine. One may argue that the Bt cotton technology has acquired the status of an essential facility in India and that Monsanto therefore is under an obligation to provide access to its technology. It follows that this would have no meaning unless the technology is also made available on affordable terms to the licensees. Therefore, the technology should be licensed on FRAND terms.

A departure from the FRAND licensing norms in the telecom industry is witnessed in the draft Guidelines. Not only should the licensing be on FRAND terms, the trait value must also conform to the ceiling price of the trait value stipulated in the Cotton Seeds Price (Control) Order, 2015. In ICT, SSOs do not stipulate a cap on FRAND royalties[6]. It is desirable that the Government has capped the maximum trait fee because even where a technology is licensed on FRAND terms, disagreements can arise on the meaning of FRAND royalties; the patent-holder (in this case, Monsanto), if left to charge any sum as trait fee, can claim that it is FRAND and therefore permissible. It is likely that disputes on the calculation of FRAND trait fee would arise in India as has been the case in SEPs in telecommunications.[7] The trend of Indian courts has been to grant interim injunctions in favour of SEP-holders to prevent the use of the patented technology until the payment of FRAND royalties.[8] If such a dispute involving trait fee were brought before Indian courts, the Indian seed companies would be compelled to pay excessive trait fee (in the absence of a cap), to Monsanto so that cotton crop for a particular season does not suffer.

Given the importance of the cotton industry in India, it is important for the Government to permit the licensing of GM technology only on FRAND terms.

[1] This is referred to as an ‘ex-ante’ method of determining FRAND terms, as compared to ‘ex-post’. See Gregory J. Sidak, ‘The Meaning of FRAND, Part I: Royalties’, Jnl of Competition Law & Economics (2013) 9 (4): 931-1055.

[2] There is no formal recognition of the Bt cotton technology as a ‘standard’ unlike SEPs where a Standard Setting Organization adopts a particular technology as a standard.

[3] See Department of Agriculture, Cooperation & Farmers v. MAHYCO Monsanto Biotech (India) Limited (MMBL) & Nuziveedu Seeds Limited (NSL) v. MMBL- Reference Case No 02/2015 & Case No 107/2015 (Competition Commission of India), 10 February 2016

[4] Ibid

[5] Monsanto, through its Indian subsidiary, was also in the business of selling Bt cotton seeds.

[6] This is done to preserve party autonomy in deciding FRAND royalties and also to ensure the SSO’s own existence (if the SSO sets down stringent rules, it might not attract membership due to the ‘binding’ nature of the rules).

[7] For instance, Ericsson v. Mercury & Micromax [CS(OS) 442/2013]

[8] Ibid. The Delhi High Court ordered Micromax to deposit interim royalties.

DIPP’s Discussion Paper on Standard Essential Patents

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.

LEGAL CONTEXT

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.

FACTS

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?

ANALYSIS

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:

  1. the need for prescribing guidelines on the working and operation of SSOs by the Government of India;
  2. the need for prescribing guidelines on setting or fixing the royalties in respect of SEPs and defining FRAND terms by the Indian government;
  3. the need for capping the total payment of royalty in case of various SEPs used in one product by the Government;
  4. the need of setting up of an independent expert body to determine FRAND terms for SEPs and devising methodology for such purpose;

PRACTICAL SIGNIFICANCE

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.]