A Standard Essential Patent (SEP) is a patent over a technology that qualifies as a ‘standard’ to which all others must be at par with. In Microsoft Corp. v Motorola Mobility, Inc, the Courts defined 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 could have been included in the standard.” When technology must comply with specific standards, it is essential to obtain permission from patent holders to use these standards.
This paper discusses in detail the key steps an individual must take to acquire an SEP, considering the legal considerations that accompany the process. The concept and implementation of SEPs are analyzed through a critical legal lens, with a focus on the Indian legal scenario. It also explores how the law can be strengthened to achieve a better-managed system of SEPs, concluding with recommendations.
Standard Essential Patent: Key Steps for Acquirement
After patenting a technology, the owner can apply to Standard Setting Organizations to show it qualifies as a standard for other technologies. If the SSO deems the technology essential and finds no viable alternatives, it may declare the patent as an SEP. If there is an alternative available, the SSO will choose it and not grant the SEP.
The SSOs provide certain standards that must be complied with for a product to be released in the market. Such makers must ask for permission by owners of SEPs regarding usage. To encourage compliance with standards and prevent anti-competitive practices, SSOs require their members with SEPs to offer the patent at a reasonable price. Such licensing of SEPs is done under Fair, Reasonable and Non-Discriminatory (FRAND) terms. When a patented technology becomes a standard for other technologies or products, the patent owners are obligated to license it to others. FRAND terms benefit consumers and the market by preventing the patent owner from establishing a monopoly. SSOs require SEP holders to sign an undertaking to distribute the patented technology at a reasonable price in accordance with FRAND terms.
Legal Considerations that must be kept in mind
To address several legal concerns, individuals applying for SEPs must keep some legal considerations in mind. Firstly, there must be full disclosure regarding the patent technology and other necessary and relevant facts regarding it. They must disclose other IP rights that are essential for proper implementation of their standards. This would allow for more transparency while avoiding the risk of patent ambushes and other issues that might arise.
Secondly, SEP holders must submit a signed undertaking to the SSO, committing to license their patent under FRAND terms. This voluntary agreement between the SSO and SEP holder is vital for promoting the adoption of standards at fair rates. It acts as a balance to safeguard the interests of licensors and licensees.
Thirdly, this submission helps prevent patent hold-up, reducing opportunism and monopoly pricing by the SEP holder. Patent hold-up happens when a patent holder demands a higher royalty after the fact, rather than agreeing to terms in advance. To avoid such a situation and to make SEPs available at a fair price, such a step is necessary. In addressing monopolistic tendencies, it also levels the playing field and keeps competition healthy.
Standard Essential Patent: Critical Analysis through a Legal Lens
With a growing international trade circle, it becomes essential for better regulation and governance to be made mandatory for products. Such a necessity is being recognised by multiple organisations. The 13th study report of World Intellectual Property Organisation (WIPO) observed the importance of developing international standards and complying with them.[Although SEPs provide a fair deal for the parties involved, several legal issues can arise.
The first issue is a lack of transparency. Insufficient data makes it challenging for SEP holders to assess their SEPs’ value accurately. This lack of transparency in ownership and applicability leads to time-consuming and costly negotiations. Licensing agreements often experience delays and incorrect pricing. Additionally, over-declaration of SEPs can occur, where patents are deemed essential to a standard even when they are not.
A patent is considered locked-in when it gains market acceptance as a standard, becoming essential for others to use. This gives the patent holder significant bargaining power, which they often misuse. With such power, a licensor might bind the licensee with a confidentiality agreement, preventing the disclosure of royalty rates. Although SSO and FRAND agreements aim to prevent these situations, they often fall short due to vague terms and weak enforcement.
The third issue might arise due to unclear regulations on amount of royalty that can be charged. Although guidelines are available, they are vague in nature and differ from case-to-case. Some licensors might exploit the situation by charging royalty fees for components that are not covered by the SEP.
The fourth issue stems from the litigation process being time and cost consuming. Few licensees will be coerced to buy exorbitant prices as royalty fee to make their product/ technology standard compliant than engage in litigation for infringement.
Standard Essential Patent: A Look from the Indian Perspective
There has been significant development in India regarding intellectual property rights. SEPs are mostly used in the telecommunicating sector in India and its concept blew up from the case, Telefonaktiebolaget LM Ericsson v Kingtech Electronic. Ericsson sued Kingtech Electronics (India), claiming their headsets infringed on a technology covered by an SEP they owned. Since then, the law has developed significantly, and the country has seen several SEP-related cases.
Micromax Informatics Ltd v Telefonaktiebolaget LM Ericsson observed in great detail the implications of SEPs and the responsibilities that come with it post-acquirement. Micromax sued Ericsson for violating the Competition Act, 2002 by establishing monopoly over a standard. They argued that the SEP was being licensed at a high price due to Ericsson’s dominant market position. The Court held that such behaviour is discriminatory and violative of the FRAND terms.
In Intex Technologies (India) Ltd. v Telefonaktiebolaget LM Ericsson, the Court noted that legal frameworks often lag behind technological advancements. It emphasized the need to adapt foreign jurisprudence on SEPs to the Indian legal context for efficient justice and case resolution. Landmark judgments such as Koninklijke Philips v Rajesh Bansal,, Koninklijke Philips v Bhagirathi and InterDigital v Xiaomi are pivotal in advancing IP law in India and offer valuable insights into SEPs. Additionally, steps to enhance standardization include the establishment of the Bureau of Indian Standards as the national SSO and the development of the National Telecom Policy in 2012.
Conclusion
Stricter legislation regarding IP laws is required for efficient regulation of SEPs. Countries have taken steps to standardize their products and technologies according to international standards for uniformity and ease of trade. Such developments can be seen in various cases regarding SEPs and other regulations passed. In Panduit Corp. v Stahlin Bros. Fibre Works, the Court deliberated on what a reasonable royalty refers to. It is an amount that the licensee of a patent is willing and able to pay to ensure they can still make adequate profits after the payment. A licensor (patent-holder) must get enough money so the damages that they will suffer due to infringement must be covered. Further, for a better understanding, one can refer to Microsoft Corporation v Motorola Inc. to understand the procedure for calculation of the royalty amount.
In Federal Trade Commission v Qualcomm, the Court mandated for licensing of technology at a reasonable price and in accordance with FRAND terms to parties. In Unwired Planet v Huawei, the UK Court held that the licensing agreement needs to be a global license which Huawei should be willing to offer to interested parties according to prices under the FRAND agreement. Other notable judgements include Apple v Motorola[12] and Huawei v Samsung which talk about FRAND licenses in great detail.
The European Commission, Japan Patent Office, United States Department of Justice, and other offices have provided guidance on SEP laws and answered questions in this field. Although significant steps have been taken globally, local legislation needs to bridge the gap between SEPs and international IP law.
References
- Microsoft Corp. v Motorola Inc., 696 F.3d 872
- Standing Committee on the Law of Patents, Thirteenth Session Geneva, March 23 to 27, 2009, WORLD INTELLECTUAL PROPERTY ORGANISATION (February 18, 2009) https://www.wipo.int/edocs/mdocs/scp/en/scp_13/scp_13_2.pdf
- Telefonaktiebolaget LM Ericsson v Kingtech Electronics, 2015 SCC OnLine Del 8229 : (2015) 62 PTC 90
- Micromax Informatics Ltd v Telefonaktiebolaget LM Ericsson, (OS) (COMM) 169/2017 & CM No.40001/2017
- Intex Technologies (India) Ltd. v Telefonaktiebolaget LM Ericsson, (OS) No.1045/ 2014
- Koninklijke Philips v Rajesh Bansal, CS (COMM) 24/2016
- Koninklijke Philips v Bhagirathi, CS (COMM) 436/2017
- InterDigital v Xiaomi, CS (COMM) 295/2020
- Panduit Corp. v Stahlin Bros. Fibre Works, 575 F.2d 1152
- Federal Trade Commission v Qualcomm, 411 F. Supp. 3d 658
- Apple v Motorola, No. 12-1548 (Fed. Cir. 2014)
- Huawei v Samsung, Case No. 3:16-cv-02787-WHO
Submitted by Jhanvi Jain, a Law Student pursuing B.Com LL.B. from Jindal Law School.