Standard Essential Patents (SEPs)

A standard-essential patent (hereinafter referred to as SEP) is one that can be properly mapped onto a mandated industry standard, so that a product that meets that standard infringes on the patent. SEPs are widely used in the mobile telephony and telecommunications business, which is highly standardized due to the need for mobile device compatibility.

SEPs are difficult to avoid and are particularly potent patents if they are actually "essential" to the standard. As a result, they are subject to special licencing restrictions known as FRAND rules, but they are nevertheless the subject of numerous patent battles, also known as "patent wars." SEPs can be registered ("declared") with ETSI (European Telecommunications Standard Institute) or other organizations, if needed.

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In simple terms, a patent is said to be "important" to a standard when it is impossible to create a product that complies with industry standards issued by SSOs without infringing on the patent.

"A given patent is essential to a standard if use of the standard requires infringement of the patent, even if acceptable alternatives to that patent could have been written into the standard," the Washington District Court held in Microsoft Corp. V. Motorola, Inc., Motorola Mobility, Inc., and Gen. Instrument Corp. (2015)

FRAND licensing (Fair, Reasonable and Non-Discriminatory)

When a patent is designated essential to a standard (i.e., as a SEP), the owner agrees to the FRAND declaration, which means that licences to the SEP will be provided on a Fair, Reasonable, and Non-Discriminatory basis. License offers, in general, are made to a portfolio of SEPs and include a fee for using the patents in the portfolio.

There is no universal definition of FRAND or what constitutes fair, reasonable, and nondiscriminatory, which can lead to disputes between patent owners and potential licensees over whether licence proposals made by the patent owner are truly FRAND. Disputes usually centre on whether the patents are truly SEPs (i.e., whether they correctly map on to the applicable standard) or whether the licence costs were calculated correctly.

SEPs and FRAND are cross-jurisdictional concerns, and case law comes from a variety of places, including the CJEU, US federal courts, UK courts, and German courts.

FRAND and SEP: Interrelation

As previously stated, a Standard Essential Patent (SEP) is any patented technology that must be used in order to make a standard-compliant product.And, while these standards are critical for many modern industries, they may raise patent licencing concerns.

If the industry has a'standard,' the owner of a SEP will have a greater bargaining position, which he might abuse during licencing to reap disproportionate revenues because the technology is an industry standard.

Similarly, if the owner of the SEP is hesitant to licence the patent in advance, any standard setting organization (hereinafter referred to as SSO) may resist adopting the standard, as the level of adoption by the SSO is a determining component of the SEP's value.

Patent licencing "blockades" are what these circumstances are known as. The introduction of FRAND terms – Fair, Reasonable, and Non-Discriminatory terms – is likely the only option. SSOs make these provisions a requirement in order to ensure that SSO members licence patents to other SSO members and occasionally non-members in a fair, reasonable, and non-discriminatory manner. The FRAND terms strike a balance between all manufacturers in the industry using the standard and the SEP owner reaping reasonable advantages.

FRAND litigation v. regular patent infringement case

A FRAND litigation occurs when the parties have reached a FRAND agreement. A FRAND agreement, on the other hand, is a contractual obligation. In a FRAND lawsuit, the case is focused on recovering an exact type of relief that was promised in the contract.

In the Microsoft vs Motorola case[2015], , the parties fought over the various viewpoints that must be considered when determining a "fair" royalty fee. Patent infringement occurs when a party creates, uses, or sells a patented item without the patent holder's consent. The patent owners may sue the infringing party in court to halt its activities and recover damages for the patent's unauthorized and illegal usage.

As a result, a patent infringement case emerges when a third party takes away the patent holder's exclusive right. An FRAND lawsuit, on the other hand, is based on a violation of contract.

Indian scenario

In comparison to the European Union and the United States, India's position on the FRAND case is relatively fresh. The Indian Supreme Court is yet to make a final verdict in this case. At the moment, the Indian Competition Commission (which has only recently began hearing cases on subjects such as determining FRAND loyalty) and the courts are spinning circles around one other.

While the Indian antitrust authority, CCI, appears to advocate using the smallest salable patent-practicing component as the basis for calculating FRAND royalty, the Delhi High Court has used the downstream product. If the judiciary and the competition authority continue to take opposite positions against SEP holders and SEP implementers, this is considered as a non-productive tendency in India's FRAND jurisprudence.

Case law:

The Delhi High Court lifted the temporary injunction granted against Xiaomi in December 2014 for patent infringement and refusing to enter into a licencing agreement with Ericsson for two 3G standard-essential patents on the grounds of Ericsson's concealment of information in Telefonaktiebolaget LM Ericsson v Xiaomi Technology & Others. (2017) Qualcomm Inc and Ericsson AG struck a global patent licence deal, allowing Qualcomm to use the patented technology in the production of chipsets that were supplied to a variety of device manufacturers throughout the world, including Xiaomi. Xiaomi has offered cell phones with Ericsson's proprietary technology since its entry into the Indian market in July 2014.Xiaomi was requested by Ericsson to secure the appropriate licences to use Ericsson's proprietary technologies before selling its phones in India. Instead, it chose to buy a licence to use Ericsson's patents from Qualcomm directly. The SEP holder sued Xiaomi in the Delhi High Court for patent infringement, alleging that Xiaomi began utilizing Ericsson's proprietary technology without a licence, despite Ericsson's offer to licence the suit patents on FRAND terms. Ericsson claimed that it sought Xiaomi for a patent licence to distribute products in India long before the business entered the Indian mobile phone market, but it failed to tell the trial judge that Xiaomi was already paying fees to Qualcomm for licencing the same patents. Furthermore, despite being aware of Ericsson's portfolio of SEPs and Ericsson's willingness to offer a licence, Xiaomi refused to acknowledge their position until the Court issued an ex parte interim order prohibiting Xiaomi from manufacturing, assembling, importing, selling, offering for sale, or advertising, including their and third-party websites, products that used Ericsson's patented technology.' The Court stated that Indian courts have the authority to issue injunctions and prohibit the importation or distribution of infringing products using patented innovations unless they are accompanied by the requisite licence. Xiaomi has filed an appeal against the order, alleging Ericsson's withholding of crucial facts.It claimed that Ericsson failed to inform the judge who issued the ex parte order that Xiaomi had legitimately obtained a Qualcomm licence and was hence not infringing on Ericsson's patents. To strike a "balance between the appellants' rights," the interim order allowed Xiaomi to distribute its products while also requiring the company to deposit three months' worth of sales with the Court, provide information about the presence of Qualcomm chipsets that incorporated Ericsson's patents, report all invoices to the Court, and add a further deposit based on sales for the month of January in 2015..Because Qualcomm was paying royalties to Ericsson, the usage of Qualcomm chipsets was seen to be a permitted use of the patents. The Court determined that Ericsson had purposefully disguised the licence arrangement, to the degree where they had done dishonestly and approached this Court with filial piety.

Conclusion

The goal of Digital India may only come true if the Indian government develops a strategy that encourages acceptable technological use. The issue of technology compatibility will always be a challenging one, and government policy must address it effectively. There is a lot of debate over guarantees that a patent holder will licence its SEPs on FRAND terms. It is often advantageous for both the patent holder and the market to adopt certain technology as standard. This decision in Telefonaktiebolaget LM Ericsson v Xiaomi Technology & Others.[ 2017]  is significant in terms of establishing, enforcing, and maintaining patent rights in India. It sheds light on the actions of both the licensor and the licensee in the context of a patent licencing agreement, in the midst of ongoing litigations over telecom SEPs.In light of other similar decisions in which courts appeared to regard the issuance of an injunction as the rule rather than the exception, the ruling is a welcome development. It also emphasizes the importance of conducting a thorough examination of the parties' actions on a case-by-case basis. This judgment will go a long way toward ensuring that the licenced parties' actions are examined and dealt with appropriately for the benefit of SEP holders, technology implementers/manufacturers, and end users.

Author: Anuja Saraswat - a student of NMIMS Kirit P. Mehta School of Law (Mumbai), in case of any queries please contact/write back us at support@globalpatentfiling.com or Global Patent Filing.