Standard Essential Patents (SEPs) – Detailed Study

Introduction

Patents which are important for maintaining industry standard and without these standards it is impossible to manufacture standard-compliant products in the industry as directed by a Standard Setting Organization (SSO) are known as Standard Essential Patents (SEPs). For example, if a patent relates to 5G technology which can be properly mapped onto a mandatory 5G protocol of telecom industry standards, such that a product which conforms to that standard will infringes the said patent.

Standard Setting Organization

The SSOs are either governmental, quasi-governmental or independent industry associations that create international/national standards in the industry. It promotes economic progress, transparency, due process, and fairness in the industry.

The few standards making bodies of India are as follows:

• Telecommunications Standards Development Society of India (TSDSI).
• Research Designs and Standards organization (RDSO)
• Bureau of Indian Standards (BIS)
• Automotive Research Association of India
• Telecom Engineering Centre (TEC)

The few international standards making bodies that create international standards are as follows:

• Codex Alimentarius in field of food,
• International Electrotechnical Commission (IEC)
• World Health Organization (WHO) in field of health/medicine,
• International Telecommunication Union (ITU) in field of Information and communication technology
• International Organization for Standardization (ISO),

Types of Standards

• De-Facto Standard: Most standards are voluntary and without being legally binding in nature as they are imposed by people or industry. In practice, de-facto standard refers to a protocol or technology that has achieved widespread use and acceptance, usually without being approved by any standards organization or at least not approved until after they were in widespread use. For example, Apple's TrueType font design, the Hayes command set developed by Hayes, and the PCL protocol used by Hewlett-Packard in the computer printers they produced.
• De-Jure Standard: Some standards become mandatory when regulatory agencies adopt them as legal requirements in an industry/domain, generally for safety purposes or protect consumers from fraud. A de-jure standard refers to a protocol or technology that has been approved by a standard setting body. In other words, these standards are accepted and enforced to fulfill the legal requirements. Therefore, it is also known as formal or legal standards.

FRAND licensing (Fair, Reasonable and Non-Discriminatory)

The development of a technology and patented it often requires a large investment in research, i.e., both in time and money. Therefore, patent holders must recoup their investment and generate profits from their efforts. For example, the owner of the invention may have to monetize his invention through exclusive use or exclusive license. Therefore, a strict provision is needed to prevent any misuse of injunctions by the patent holder to disadvantage the patent licensee.

FRAND is a voluntary license/agreement between a regulatory body and a patent holder for standard patents that are necessary or essential for the implementation of technical standards in industry. It is also known as rational and non-discriminatory (RAND). The FRAND agreements balance the private interests of patent owners with the public interest of organizations/licensors.

Landmark Cases Study - Micromax vs Ericsson and Intex Technologies vs Ericsson

(a) Background

In 2013, Micromax and Intex Technologies (India), both had filed a complaint against Ericsson at the Competition Commission of India (CCI), alleging that Ericsson was offering high royalty rates and unfair license terms for Standard Essential Patent (SEP) licenses.

(b) CCI Decision

In both cases, CCI identified relevant product markets in the first orders and, based on the size of Ericsson's SEP portfolio related to 2G, 3G and 4G technologies, determined that Ericsson had a dominant position in the relevant mobile equipment markets. Since there was no alternative to Ericsson's SEP, the GSM standard was implemented. Thus, in both cases, the CCI concluded that Ericsson's royalty offer was prima facie "inconsistent and discriminatory with the FRAND principles" and hence ordered more investigation of the matter.

(c) Ericsson’s challenge against CCI Decision

Ericsson appealed to the two previous CCI orders in 2014 before the Delhi High Court, stating that the Patents Act, 1970 provides an adequate mechanism to balance the rights of patent holders and other stakeholders and that the CCI has no jurisdiction to adjudicate or investigate Ericsson’s Patents i.e., to evaluate the Ericsson's SEP license terms.

The Appellate Division of the Delhi High Court, in its July 2023 judgment, ruled that the CCI has no jurisdiction to examine such SEP licensing activities. The court ruled that the provisions of the Patent Act of 1970 to regulate the anti-competitive practices of patent holders, such as the provisions relating to compulsory licensing, are a valid means of inquiry and remaining to determine the issuance of the most important standard license. Further the court ruled that the Patent Act 1970 is a special law and therefore has more priority over the Competition Act 2002 which is a general law, when deciding the rights of patentee under the Patents Act.

(d) Right to Injunction

Ericsson filed lawsuits against Micromax in 2013 and Intex in 2014, respectively, alleging that eight of its patents were infringed to comply with the 2G and 3G communications standards. The lawsuits sought damages as well as a permanent injunction against the offending parties.

The Delhi High Court noted that Ericsson had successfully argued the same eight SEPs in earlier court cases, which met the requirements for Ericsson to prove both balance of convenience and a prima facie allegation of patent infringement. In addition, the Court noted that Ericsson would likewise experience irreversible loss in the event that the injunction was denied; as a result, the Court granted an injunction in Ericsson's favor.

In the case of Ericsson v. Intex, Ericsson maintained that they had made a fair and reasonable offer to Intex to license its entire portfolio of patents, which included the eight suit patents. Nevertheless, Intex declined the portfolio license, so Ericsson was forced to file a lawsuit. However, Intex contested the validity of Ericsson's suit patents, arguing that as no Indian patent has presumptive validity, Ericsson was not entitled to any remedy until the suit patents' validity was established. The Court held, however, that Intex had implicitly acknowledged that Ericsson's suit patents were SEPs and violated Intex's rights since the basis of Intex's complaint against Ericsson before the CCI was that Ericsson possesses SEPs that are necessary for the application of 2G and 3G standards.

However, the Court then overturned these temporary injunctions and ordered Micromax and Intex to pay interim royalties while continuing to use the SEPs while the lawsuit was pending.

Conclusion

Economic progress requires standardization in the industry. Standards based on agreement, transparency, due process, and fairness are required. India must collaborate with the government, business community, SSOs, consortiums, consumer advocacy organizations, and academic institutions to create comprehensive standards plan. For standards to be successful, the federal and state governments must actively participate. As we previously noted, anti-competitive practices in standard setting can include patent holdups, the failure to disclose crucial intellectual property, the refusal to comply with the FRAND commitment once it has been made, and fraud within the standard making procedure. The role of SSOs' and national agencies' IP policies are essential for curbing above-mentioned anti-competitive behaviour.