Article by Suchi Rai Singh and Gyanendra Kumar1
One of the boons of liberalized economy was closure of monopolistic market and development of a competitive regime globally which gave birth to antitrust jurisprudence. Consumer is made the king and any enterprise hampering the free competitive market environment is staunchly dealt at the hand of strong anti-trust laws which never permitted any monopolistic arrangement in any form. However, when Intellectual Property laws have been tested on antitrust jurisprudence, a huge lacuna's and paradoxes appeared globally.2
Intellectual Property rights are exclusionary in nature and any holder of any Intellectual Property acquires a monopolistic right over his Intellectual properties which can extent to absolute restrain on use of his Intellectual Property from any other person. Any violation to such can cost huge amount of compensations. However the parallel policy of antitrust laws and Intellectual Property right intersect at a point which invoke public interest and is called "Standard Essential Patents" known as SEPs. Generally when Intellectual Property Rights are concern Competition Laws keep themselves aloof them indulging in the counter law however both authorizes intersect on this point and absolute rights over the Intellectual Property is restrained. Licensing of Standards Essential Patents (SEPs) on reasonable and non-discriminatory (RAND) terms is a foundation of the standards development process.
The rationale behind RAND is that it benefits are the inclusion of patented technology in technical standards, while also ensuring that the holder of a Standard Essential Patent cannot abuse the dominant market position it gains from widespread adoption of a voluntary technical standard.3
Standards and Standard essential Patents
A standard can be defined as 'a set of technical specifications that seeks to provide a common design for a product or process'. In other words, standards are norms that apply to a category of technology. Standards can be adopted at a worldwide scale, or only at a regional scale. It is usually the interest of industrial players on the market to create products that comply with standards. Products that use non-standardized technologies are generally commercial failures, because consumers want their devices to interact with those of other people.4
Thus those technologies which are required to establish the standards are more important. Such technologies are core technologies without any alternatives hence every product which is based on a standard requires a mandatory access over these technologies. Patent rights granted over such standard establishing technologies are called Standard Essential Patent.
This patent right is not absolute like rest of the patent rights, Owner is restricted on its use on the ground of RAND (reasonable and nondiscriminatory) hence the owner of SEP is under an obligation to grant license to use the technology which sets a standard for the industry. He may be allowed to charge a nominal fee but that should be reasonable and justified otherwise Competition law shall intervene to avoid the monopoly. In the case of Microsoft v. Motorola, the Court defined SEP in this case as "A given patent is "essential" to a standard if use of the standard requires infringement of the patent, even if acceptable alternatives of that patent could have been written into the standard."5
Thus the base requirement for SEPs to be constructive is licensing under FRAND conditions. Without FRAND, SEPs can cause costly conflicts. FRAND is the acronym for fair, reasonable, and non-discriminatory. It's also known as RAND—reasonable and non-discriminatory. According to the principles of FRAND licensing, the patent owner must allow to take a license, the license terms must not be illegal or anti-competitive, and the cost of the license must not be too high.6
SEP vis a vis Competition Laws
In general, it is well established that Anti-trust regime does not intervene with the exclusionary Intellectual Property rights. The rationale behind such abstention is that Competition laws realize that, this interplay between innovation and exclusive rights of exploitation on IPR protected products. Beside innovation is important for amplified competition, once an enterprise secures IPR protection over certain products/ technology, competition laws do not generally cast a 'duty to deal'.
However, when it comes to essential patents, the distant respect for IPR protected technology usually in compliances with competition authorities, leads to active intervention. Patents that are considered essential to implement a chosen industry standard cannot be exploited like any other patent, and certainly not to the exclusion of other market participants.
In order to ensure that standard-setting remains beneficial, it is necessary to ensure that in cases where adopting a standard necessarily involves the incorporation of a patent into the industry standard, the relevant patent holder is not in a position to unjustly exploit its market power newly accrued to it (for example, by extracting exorbitant royalty rates) to the detriment of the entire industry.
One of the ways in which this may be achieved is by extracting FRAND commitments, where owners of essential patents commit to make their essential patent available to third parties on FRAND terms. While this appears to be a mutually beneficial solution, with the patent owner benefitting from its patent being widely used by the industry, and the remaining stakeholders being protected from paying exorbitant royalty rates, ultimately, the efficacy of FRAND is determined by its enforceability.7
India's Emerging Approach to Conduct Involving SEPs
Since becoming fully functional in October of 2009, the CCI has brought two investigations involving SEPs, one in November 2013, and the other in January 2014, both against Ericsson based on allegations that it violated its FRAND commitments by imposing discriminatory and "excessive" royalty rates and using Non-Disclosure Agreements (NDAs). According to the CCI, "forcing a party to execute an NDA" and "imposing excessive and unfair royalty rates" constitutes "prima facie" abuse of dominance and violation of section 4 of the Indian Competition Act, as does "imposing a jurisdiction clause debarring complainants from getting disputes adjudicated in the country where both parties were in business."
In both matters, the CCI stated that "prima facie the relevant product market" is "'the provision of SEP(s) for 2G, 3G and 4G technologies in GSM standard compliant mobile communication devices,' in India, in which "prima facie it is apparent that Ericsson was dominant." The investigations allege that Ericsson "seems to be acting contrary to the FRAND terms by imposing royalties linked with cost of product of user for its patents." Thus, "for the use of GSM chip in a phone costing Rs 100, royalty would be Rs. 1.25 but if this GSM chip is used in a phone of Rs. 1000, royalty would be Rs. 12.5." According to the CCI, "charging of two different license fees per unit phone for use of the same technology prima facie is discriminatory and also reflects excessive pricing vis-ŕ-vis high cost phones." Furthermore, contends the CCI, "transparency is the hallmark of fairness, and" alleging that, Ericsson's use of NDAs "is contrary to the spirit of applying FRAND terms fairly and uniformly to similarly placed players."
The second investigation further alleges that, although Ericsson publicly claims that it offers a broadly uniform rate to all similarly placed potential licensees, its refusal to share commercial terms and royalty payments on the grounds of NDAs is "strongly suggestive of the fact that different royalty rates/commercial terms were being offered to the potential licensees belong to the same category."
The CCI has also expressed concern about hold-up and royalty stacking, stating that "FRAND licenses are primarily intended to prevent patent hold-up and royalty stacking. . . . from the perspective of the firm making the product, all the different claims for royalties must be added or 'stacked' together to determine the total burden of royalty to be borne by the manufacturer."8
1. Legal Intern, 5th year Symbiosis Law School, Noida.
3. Dore Antoine, "LIMITING THE ABUSE OF MARKET DOMINANCE BY STANDARDS-ESSENTIAL PATENTS" Retrieved from - http://itu4u.wordpress.com/2013/02/06/limiting-the-abuse-of-market-dominance-conferred-by-standards-essential-patents/
4. DUFEY GUILLAUME, "Patents and Standardisation: Competition Concerns in New Technology Markets" Retrieved from - http://www.icc.qmul.ac.uk/GAR/GAR2013/GAR%202013_1_Guillaume%20Duffey.pdf
5. Bartleson Karen, "Standard-Essential Patents: Innovation's Boon or Bane?" retrieved from http://electronicdesign.com/digital-ics/standard-essential-patents-innovation-s-boon-or-bane
6. "Patent and Antitrust Law" Retrieved form http://www.freshfields.com/en/global/Global_Antitrust_TKT/8_Patent_and_antitrust_law/
7. "India – Competition Law and FRAND Commitments." Retrieved from - http://www.conventuslaw.com/india-competition-law-and-frand-commitments/
8. Koren W. Wong-Ervin, "Standard-Essential Patents: The International Landscape" Retrieved from http://www.ftc.gov/system/files/attachments/key-speeches-presentations/standard-essential_patents_the_intl_landscape.pdf
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.