Standard Essential Patenting and Frand Terms
What is an SEP?
A standard-compliance-related innovation is the subject of a Standard Essential Patent, which is a type of patent. These standards commonly make reference to technology that is shielded by the patent system. The term "standard essential patent" refers to a patent that covers a technology that establishes standards that other technologies in the same sector must adhere to.
In the case of Microsoft Corporation v. Motorola Mobility Inc. the US courts described a Standard Essential Patent (hereinafter referred to as an SEP) as “A given patent is 'essential' to a standard if the use of the standard requires infringement of the patent, even if acceptable alternatives of that patent could have been written into the standard".
If a patent just reads onto an optional section of the standard, it is still necessary. As a result, it is difficult to produce goods that comply with standards without requiring technologies that are covered by one or more SEPs. Standards and patents both work to promote technological innovation and dissemination. Members of standard groups must disclose and give licences to their existing and pending patents that cover the standards the organisation is producing. Owners of unlicensed patents may demand or sue businesses that adopt the standard for fees if a standard group fails to get licences for all patents required to comply with the standard.
What are FRAND Terms?
FRAND terms, which stand for fair, reasonable, and non-discriminatory, serve as the foundation for licencing in the standard-setting process. The goal of FRAND is to ensure that the market as a whole benefits from these patent conditions while preventing the owner of such SEPs from abusing his dominant position.
SEP and FRAND
The Standard Setting Organisations (SSO's) agreement has FRAND policy in its bylaws. To eliminate the competitive advantage of SEPs and "added incentive of protection from punitive action," SEP holders are only allowed to licence their patents on FRAND terms. Additional advantages of FRAND licencing include licensing and branding for items that adhere to standards, which may also lead to shared expenses and earlier access to knowledge about an associated but developing standard. The promise to provide compensation, which is assessed on the foundation of merit, forms the basis of all royalties arising from patent licencing.
Many organisations that set standards demand that its members make a commitment to give legally binding licences to businesses who want to utilise the standard. The standard cannot be accepted if a party does not offer such an undertaking. Such licences must be made accessible under Fair, Reasonable and Non-Discriminatory (FRAND) conditions in order to encourage the use of the standard and allay any worries about competition. Thus, unlike the other patent rights, this one is not unalienable. In this case, the owner of the SEP is required to issue a licence on FRAND terms for the patented technology that defines the industry.
Telefonaktiebolaget LM Ericsson v. Competition Commission of India
Micromax Informatics Ltd. 2013, Intex Technologies (India) Ltd. 2014, and Best IT World (India) (P) Ltd. 2015 were three cases that were filed concurrently. The CCI noted that Ericsson possessed a dominating position in the relevant market for SEPs in the GSM (3G) and CDMA compliant mobile communication devices in India as it was the largest holder of 8 SEPs and there was no competing technology. The CCI also held that the royalties demanded by Ericsson holds no rational connection with the patented technology and amounted to discriminatory pricing given that different royalties might be billed from different license holders for the same technology due to the difference in prices of the mobile devices, observing that the violation of FRAND terms threatened the very integrity of standard-setting activities handset in which the technology was used. The CCI noted that the patentee must apply FRAND conditions consistently and equally to players in comparable positions. As a result, it was determined that this discriminatory/excessive pricing was, at the very least, in violation of the FRAND provisions and Section 4 of the Act.
The Delhi High Court said that as patents met the criteria for "goods" under the Competition Act, the SEP holders qualified as "enterprises," making them subject to review under Section 4 of the Act. It was also noted that practises like patent hold-up, royalty stacking, and requesting injunctive relief against manufacturers that are prepared to engage into licence agreements on FRAND conditions may lead to an anti-competitive market.
This observation of the Delhi High Court is in consonance with the ruling of the German Federal Court of Justice in Huawei Technologies Co. Ltd. where it held that while injunction was a legitimate remedy available to an SEP holder, seeking the same against a willing licensee would amount to abuse of dominance. The suggested mechanism of royalties for SEPs was suggested from Commonwealth Scientific and Industrial Research Organisation (CSIRO) v. CISCO using the SSPPU method. This is a Landmark judgment and on the path to create an SEP- FRAND legal basis for innovation.
Interdigital v. Xiaomi
A Chinese multinational electronics business called Xiaomi has been sued by InterDigital, a mobile and video R&D company, for infringing on an Indian patent. In one of the complaints, five InterDigital cellular 3G and 4G Indian patents are allegedly violated, while in the other, three InterDigital H.265/HEVC Indian patents are allegedly violated. The allegations were filed after years of arbitration. According to InterDigital, FRAND licencing conditions can be resolved by binding arbitration. InterDigital was forbidden by the Chinese court, the Wuhan Intermediate People's Court, from challenging the anti-suit injunction. After fruitless licence discussions between Xiaomi and InterDigital, the anti-suit injunction conflict arose. Xiaomi then filed a lawsuit in Wuhan seeking a worldwide FRAND licence. The ASI and AAASI were published by the Wuhan court in September 2020. A month later, in September, Interdigital countered with an AASI and AAASI from the Delhi High Court.
This case had the precedence of Koninklijke Philips v. Bhagirathi Electronics and Koninklijke Philips v. Rajesh Bansal from 2018. The defendants in both cases were Indian importers and assemblers of DVD players. Philips, the plaintiff, sued both of them for patent infringement on the grounds their having imported DVD player parts made with its copyrighted technology and put them together in India without acquiring the necessary permits. The Delhi High Court made a decision in Philips' favour. Accepting the admet certifications for the company's US and European patents, it concluded that the plaintiff's invention was necessary for the DVD standard. Regarding the violation, the court decided that the defendants had not shown that the parts were imported from legitimate licensees of Philips. Furthermore, the court decided that even while the defendants' products conformed with the standard, the lack of the defendants to secure a licence from Philips to utilise its SEP was prima facie evidence of infringement. The respondents were unable to demonstrate that the appropriate licence fee Philips levied wasn't in accordance with FRAND terms. As a result, the court set the requested royalties charged by Philips. Due to the lack of international verdicts, Xiaomi was straightforward in comparison to InterDigital.
Against the Wuhaan Court’s order of InterDigital being against FRAND terms they filed a case in the Delhi High Court as an Anti-Anti Suit injunction against the Wuhaan Court’s Anti-Suit Injunction in favour of Xiaomi. The Delhi High Court favoured InterDigital due to being able to abide with FRAND terms and as they were willing to provide Xiaomi with the licence but not at the rate proposed by them. The judgement of the Delhi High Court was reiterated by the Munich Court on the same matter against Xiaomi and also stated the bias that seemed to exist in the Wuhaan Court Judgement.
The CCI will have to be cautious by setting boundaries as to areas which it is not competent to resolve and will also have to steer away from acting as a price regulator in its determination of unfairness of royalty rates. In my opinion the setting of SSPPU (Smallest Saleable Patent Practicing Unit in this case the chipset) in the Ericson Case as a suggestion even by the Delhi HC is incredibly unfair due to the amount of time and resources in innovation find a compatible device for the patentable aspect first. With the IP protection on works by AI the question of SEP will be even more relevant and this aspect will require globally set standards. Further a more secure system for the licencing of SEP is necessary due to contradicting judgements.
Author: Arushi Guha - a student of University: Symbiosis Law School, Pune, in case of any query, contact us at Global Patent Filing, or write back us via email at firstname.lastname@example.org.