SCOPE OF STANDARD ESSENTIAL PATENTS AND THER RELATION WITH FRAND (FAIR , REASONABLE AND NON DISCRIMINATORY TERMS)

SUBMITTED BY : ALIFAH AHMAD

TABLE OF CONTENT Topic | Page No. | 1. Introduction | 3 | 2. Litigation relating to SEP | 5 | 3. Standard Essential Patent and their relevance to FRAND | 9 | 4. USA’s and EU’s approach to Standard Essential Patents | 11 | 5. India’s approach to Standard Essential Patents | 12 | 6. Conclusion | 12 |

INTRODUCTION
Indian jurisprudence on fair, reasonable, and nondiscriminatory (FRAND) licensing practices for standard-essential patents (SEPs) is at a relatively nascent stage. Unlike U.S. and EU courts, which have dealt with cases concerning calculating a FRAND royalty for a considerable time, Indian courts and the Indian antitrust authority—the Competition Commission of India (CCI)—have only just begun to decide such cases. In its initial orders in the first two antitrust complaints concerning SEPs, the CCI seemed to favor using the smallest salable patent-practicing component (SSPPC) as the royalty base to determine a FRAND royalty.
However, in the short time since the CCI’s orders, the Delhi High Court has rendered contrary decisions in two SEP infringement suits. The Delhi High Court’s decisions use the value of the downstream product as a royalty base and rely on comparable licenses to determine a FRAND royalty. The Delhi High Court’s decisions are not only consistent with sound economic principles, but also indicate that the court is responding to the judicial and industry trends in the rest of the world. Because the CCI is still investigating the antitrust complaints with respect to the same SEPs, the CCI could benefit from considering the legal and economic arguments in the Delhi High Court’s decisions. It would be counterproductive for the emerging FRAND jurisprudence in India if the judiciary and the competition authority take opposing views toward the rights of SEP holders and SEP implementers.
Most of our daily lives are governed by technological devices — smartphones operating over 3G/4G networks, computers using Wi-Fi, or even the now ubiquitous ear buds playing music from MP3 devices. That means the devices typically need to comply with standards, i.e., protocols by which devices communicate with each other and other technology to achieve their functionality. These standards, in turn, may implicate hundreds or even thousands of patents that claim (i.e., cover) parts of the technology that combine to make the devices work.
Standards are part of our everyday lives. Computers, smartphones and tablets connect to the internet via standardised wireless technologies such as wifi. Mobile phones made by different companies would not be compatible without standardised technologies. Standards enable products to communicate with each other and frequently give rise to substantial consumer benefits. However, standards can also be misused.
In the background of these cases are the so-called "smartphone patent wars", where holders of standard-essential patent (SEPs) sought to ban competitors' products from the market on the basis of their SEPs. The principles established in these two cases may apply even beyond the smartphone industry to other standards which are widely used.
A standard to be internationally recognized has to conform to an standard setting organisation that is internationally recognized or which is recognized by an international standard setting organisation. A patent that controls any part of the technology used in a standard is called a standard-essential patent (SEP). A standard essential patent is a patent that should comply with technical standards and it aims at providing all the competitors equal opportunity of accessing the essential patent in question.
When standard setting organisations grant licenses to the companies who want to use the standard then to promote application and avoid any anti competitive spirit they make use of FRAND or RAND terms. They are Fair , Reasonable and Non- Discriminatory terms which allow other people to use the patent in question. A patent owner who patents his work on frand terms waives his right to exclude others from such practicing the same.
Standards frequently make reference to technologies that are protected by patents. A patent that protects technology essential to a standard is called a standard-essential patent. It is impossible to manufacture standard-compliant products such as smartphones or tablets without using technologies covered by one or more SEPs. SEPs are different from patents that are not essential to a standard (non-SEPs), such as design patents, for example, which protect the design features of an invention. This is because, generally, companies can invent alternative solutions that do not infringe a non-SEP (whereas they cannot design around a SEP). For example the "slide to unlock" technology is covered by a non-SEP. Most smartphone manufacturers were able to develop different technologies for unlocking a smartphone screen which do not infringe the "slide to unlock" patent. This would not have been possible in the case of a SEP.
LITIGATION RELATNG TO STANDARD ESSENTIAL PATENT:
There have been a number of litigations involving Standard Essential Patents which have been brought by Ericsson against Micromax, Gionee, Intex and recently against Xiaomi and in some cases Ericsson was able to obtain injunction order against some of these parties.
The jurisprudence related to SEPs and related injunction is still in evolutionary stage, it would be worth noting the decision in the pending cases that will ultimately shape India’s FRAND jurisprudence and also would help in determining important issues namely whether competition commission has jurisdiction to decide the royalty rates in Standard Essential Patent licensing agreement, injunctive relief and whether there would be any guideline which could maintain a balance between the exclusive rights of patentee along with the public interest.
The first dispute involved Ericsson and Micromax as the parties . The suit arose when Ericsson required Micromax to pay royalties to use its technologies. Micromax refused to accept the FRAND terms offered by Ericsson. Ericsson claimed Rs. 1 billion (approx US $ 17 million) against Micromax in a civil suit filed against Delhi High Court alleging the infringement of its eight SEP’s and the single judge passed an ad interim ex-parte order in favour of Ericsson. The parties then entered into an meanwhile arrangement under which Micromax started paying royalties to Ericsson at the demanded rate while the infringement suit was still pending . Micromax thereafter filed a complaint before competition commission alleging that Ericsson has abused its dominant position by imposing exorbitant royalty rates which is contrary to FRAND terms.
This judgement was a first of its kind as CCI had never adjudicated on SEP earlier and hence Ericsson challenged CCI’s jurisdiction in the Delhi High Court as the dispute was of a civil nature but the competition commission asserted that it could decide the issue of abuse of dominant position without interfering with Ericson’s IP rights and mentioned that royalty calculation based on the entire value of a product using SEP is a prima facie case of anti-competitive behaviour.
The most interesting aspect about this case is that it is one of the instances of interfaces between intellectual property and competition laws and it brings to the forefront the issue of grant of injunction in case of infringement of SEPs.
Another dispute relating to royalty rates and Standard essential patents is the dispute between Ericsson and Intex which arose in 2013 wherein Intex, an Indian mobile handset manufacturer filed a complaint against Ericsson , a Swedish mobile manufacturer, alleging abuse of dominant position and while negotiating standard essential patent agreement .The CCI made a prima facie determination of abuse of dominant position and Ericsson filed a petition in the Delhi High Court questioning CCI’s jurisdiction to try the dispute .Ericsson contended that the matter is outside CCI’s jurisdiction as it is contractual in nature and no rate of royalty was concluded .This matter is still pending in the court and will largely determine India’s FRAND jurisprudence .
The main questions in both the disputes was that whether Ericsson is really in a dominant position in the market and if it is then is it really abusing its dominant position. It was contended by CCI that since Ericsson is the largest holder of Standard Essential Patents for mobile communication covering 2G,3G and 4G technologies . It also held that an SEP is one for which there are no non infringing alternatives . SEP holders are under an obligation to license the SEPs to every party under fair reasonable and non discriminatory terms , in terms of the irrevocable commitment made to standard setting organisation such as the European Telecommunications Standard Institute (ETSI). It also held that Ericsson was in a dominant position in the relevant market of GSM and CDMA Technologies as it owned a large number of patents with around 400 patents in India itself. Also it held SEPs in India and since there was no other alternate technology it enjoyed a complete dominant position . CCI in the instant case decided in favour of Intex .
As regards the abuse of dominant position also Ericsson abused its dominant because the royalty rates charged by Ericsson were discriminatory and contrary to FRAND terms and were not in consonance with the patented product .The Jurisdiction agreement mentioned that the place of adjudication would be Sweden or Singapore and not India which is again contrary to FRAND principles .
Latest, in the series of law suit filed by Ericsson is against Xiaomi. It alleged that Xiaomi failed to agree to license terms and continue to expand its business in India. Xiaomi had recently set up an Indian subsidiary to sell its handsets and entered into an exclusive agreement with Flipkart (an ecommerce portal) to sell and market its devices/handsets in India that use Ericsson's Patents. The court was satisfied that Ericsson had made out a prima facie case for grant of ad interim injunction in its favour and the balance of convenience also lies in its favour as in the absence of an injunction order, it will suffer irreparable loss and injury. The interim order was modified in Appeal as Xiaomi brought to the court attention that it used Qualcomm based chipsets in some of its models which were licensed by Ericsson.
The interim order passed by the court in Xiaomi has set the debate on the need to grant interim injunction in cases concerning essential patents where the main issue involved is the royalty terms. Those against the court order argue how can an injunction be granted without even hearing the defendant in a patent dispute involving standard or essential Patents? In such cases the dispute is on royalties therefore can the injury be said to be “irreparable" which is one of the pre-requisites for the grant of an injunction. On the other hand Patent holders argue that they are willing to grant license on FRAND terms therefore the handset manufacturers need to be open and willing to negotiate. It cannot be that handset manufacturers exploit their Patents to sell their products, earn revenue but not pay the royalties. Thus, the patentee has the right to seek a restraint order if the handset manufacturer without license is using the Patents. The counter argument being made is that the patented technology is a “standard” here, and cannot be treated as a purely monopoly right and therefore the regular injunction rules that apply to other Patents cannot apply here. Thus, in case of Standard Essential Patents the courts should not grant injunctions and rather order expedited trial to determine appropriate royalty rates. In theory this seems like a sound argument but in practice the Indian courts have huge backlog of cases and trial takes 5-7 years. Thus, interim arrangements are as important as the final outcome. Further, in practice interim injunction orders help both parties to mediate the dispute and reach settlement.
In a series of fast moving litigations and disputes the plaintiffs is a patent infringing dispute can claim compensation or injunctive relief but many people argue that when a patent is a standard essential patent along with a FRAND license then the patent holder should be prevented from obtaining injunctive relief. If this is not the case then these patent holders can obtain very high royalties.
One of the most important litigation case in relation to standard essential patent is the war going on between Huawei and ZTE . This is one of the most recent fight centered around Standard Essential Patents and will largely determine the future and scope of standard essential patents. The dispute arose in 2011 when Huawei sued Shenzhen based ZTE for their alleged infringement of a SEP covering technology which was used to implement 4G LTE standard.ZTE claimed that Huawei abused its dominant position since ZTE was willing to negotiate a licensing agreement to use the patent By relying on Article 102 of European directive “The Treaty on the Functioning of the European Union”. The case is still in its early stages and is awaiting judgement .
The fight between Samsung and apple also brought the issue of SEPs and FRAND to light The precedent set by the two antitrust decisions in the Motorola and Samsung cases provides a path to “patent peace” in the telecommunications industry. Moreover, these two cases bring legal certainty in all industries where standards and FRAND-encumbered standard-essential patents (SEPs) play a role. This case clarified that when an SEP holder decides to license their patents on fair, reasonable and non discriminatory terms then they cannot seek an injunction when the licensee is willing to take a license on FRAND terms.
In another fight between Moorola and Apple the situation was same as both the parties i.e. Samsung and Motorola were seeking injunctions based on SEPs for which they had previously given voluntary commitments to license on FRAND terms. In this case also the commission noted that seeking injunctions before courts is - generally - a legitimate remedy for patent holders in the event of patent infringement, but stresses that seeking injunctions in the case of FRAND-encumbered SEPs can be anti-competitive.
A key element of the Commission’s application of Article 102 TFEU to the assertion of FRAND-encumbered SEPs is the fact that the patent holder has sought an injunction against a prospective licensee that has previously indicated its “willingness to enter into a licence agreement on FRAND terms.”.
STANDARD ESSENTIAL PATENTS AND THEIR RELEVANCE WITH RELATION TO FRAND
Because standards and the SEPs that cover them can have the effect of creating substantial barriers to entry in a particular industry, the licensing of SEPs is subject to different rules than traditional patent licensing. In particular, owners of SEPs are ordinarily subject to an obligation to offer non-exclusive licenses to prospective licensees on fair, reasonable, and nondiscriminatory (FRAND, or often simply RAND) terms. This obligation is coupled with some related limitations. SEP licensors, for example, may not be entitled to injunctive relief to prevent infringers from selling products covered by those SEPs. Another limitation comes with licensing SEPs as part of a portfolio that includes some patents that are not SEPs, an approach which can substantially complicate license negotiations and litigation strategies for asserting the portfolio.
The most obvious requirement of SEPs is the meaning of the FRAND obligation imposed on SEP licensors. Ordinarily, this obligation is expressly assumed as a result of a SEP owner's voluntary agreement to be bound by FRAND obligations imposed by an applicable SSO or standard setting organisation. The crux of the issue is that an SSO only agrees to establish a standard that may be covered by a particular SEP if the owner of that SEP agrees to be bound by the FRAND obligations imposed by the SSO.
Participants in an industry that is dependent on SEPs generally have an interest in developing their own portfolio of SEPs for strategic purposes. In other words, these participants want to have their own bargaining chip when sitting down with other SEP owners, thereby giving both parties an incentive to consider cross-licensing arrangementsRegardless of how a portfolio of SEPs is assembled, once it is pieced together it can put the new owner in a position to offset licensing costs through a cross-licensing approach, or to assert those patents against others who are active in that particular industry but who, for whatever reason, do not have their own portfolio of SEPs to assert.
Each SSO has its own particular rules for nominating SEPs and the licensing obligations that are imposed upon owners of SEPs. Knowing how any previous owners have interacted with relevant SSOs, and the extent, if at all, they have complied with SSO requirements applicable to particular SEPs (or prospective SEPs) is absolutely critical to ensuring a buyer gets what it is paying for.
UNITED STATES AND EUROPEAN UNION’S APPROACH TO STANDARD ESSENTIAL PATENTS
In the United States, courts that have addressed the issue of failure to adhere to a commitment to license on FRAND terms have done so under contract law principles. Specifically, courts have held that:
(1) a commitment to a standard-setting organization (SSO) to license on FRAND terms constitutes a binding contract between the SEP holder, the SSO, and its members
(2) potential users of the standard are third-party beneficiaries of the agreements with standing to sue
(3) seeking injunctive relief on a FRAND-encumbered SEP may violate the duty of good faith and fair dealing where a SEP holder has made a contractual commitment to license on FRAND terms9 ; and (4) FRAND licensing “includes an obligation to negotiate in good faith,” and that obligation is “a two-way street.”
The U.S. antitrust agencies have taken the position that injunctive relief on FRAND-encumbered SEPs should be granted only in rare circumstances, and that the Supreme Court’s decision in eBay v. MercExchange LLC provides a framework that courts can use to mitigate the risk of patent holdup. On April 25, 2014, the U.S. Court of Appeals for the Federal Circuit, in Apple Inc. and Next Software, Inc. v. Motorola, Inc., rejected a per se rule that injunctions are unavailable for SEPs, stating that the Supreme Court’s decision in eBay “provides ample strength and flexibility for addressing the unique aspects of FRAND committed patents and industry standards in general.”
While the European courts have yet to address the issue,23 on April 29, 2014, the EC confirmed that it adopted two decisions, one in Samsung and the other in MMI, establishing a framework for determining whether and under what circumstances patent owners seeking to enforce SEPs in the EEA may violate EU abuse of dominance law. The EC has explicitly stated that it takes no position on what a reasonable royalty rate is, stating that national courts or arbitrators are generally well equipped to do this.
INDIA’S APPROACH INVOLVING STANDARD ESSENTIAL PATENTS
India is still at a nascent stage as far as FRAND commitments and Standard Essential Patents are concerned . With the two judgements, one in November 2013 and the other in January 2014 , both against Ericsson that it violated its FRAND commitments by enforcing discriminatory royalty rates and also putting up non disclosure agreements . According to the CCI, “forcing a party to execute NDAs” 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.”
The relevant product market in both the cases is the market for SEPs for 2G, 3G and 4G in GSM standard compliant products in which evidently Ericsson was dominant . Competition Commission of India also contended that transparency is the foremost requirement and by making people sign Non Disclosure Agreements , Ericsson is definitely dealing in an unfair manner. The Non Disclosure Agreements also point out that Ericsson is charging different royalty rates . CONCLUSION
Investigations and litigation involving SEPs have begun to emerge across the globe. While recent investigations and litigation in the United States and Europe have focused primarily on the availability of injunctive relief on FRAND-encumbered SEPs and the meaning of a “willing licensee,” matters in China and in India have extended beyond these issues to address matters such as the charging of “excessive” or discriminatory royalties and the use of NDAs and forum selection clauses.
With the spate of technological convergence seen in the past decade or so, however, SEPs are becoming an issue for more and more sectors. This convergence is perhaps most readily understood in the context of wireless communications.
More and more industries are finding themselves governed by, or relying on, SEPs. As SEPs become relevant to a larger range of industries, more and more executives responsible for managing patent portfolios are being asked to confront the unique strategic and compliance implications of dealing with SEPs. These implications can in large part be managed with a well thought-out plan for acquiring, asserting, licensing and managing SEPS. The most critical first step is fully appreciating that SEPs are fundamentally different from patents that do not cover such standards.
Basically the difference between parties who deal in SEPs and those who deal in normal patents are ordinarily assuming obligations that are entirely different from those imposed upon owners of patents that are not SEPs. Parties to whom SEP licenses are granted may have rights that are materially different from those of licensees to patents that are not SEPs.
Most important, is the fact that the law governing the rights, duties, and obligations of the various participants in SEP-reliant industries is far from settled. Knowing how that law is changing, and how possible changes may affect your rights, duties, and obligations, is a responsibility being imposed upon more and more patent managers .

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[ 2 ]. Standard Essential Patents, http://www.lexology.com/library/detail.aspx?g=7206abc4-ea96-432f-b751-5ad36cbc59a8
[ 3 ]. ibid
[ 4 ]. Understanding patents, competition & standardization in an interconnected world, https://www.itu.int/en/ITU-T/Documents/Manual_Patents_Final_E.pdf
[ 5 ]. http://ec.europa.eu/competition/publications/cpb/2014/008_en.pdf
[ 6 ]. Essential Questions About Standard-Essential Patents in the U.S. and EU https://www.ftc.gov/system/files/attachments/key-speeches-presentations/wong-ervin_-_seps_july_2013.pdf
[ 7 ]. Jurisdiction of Competition commission of India to decide royalty rates in patent licensing agreements,
[ 8 ]. Standard-Essential Patents, Josh Lerner; Jean Tirole, https://www.rpxcorp.com/wp-content/uploads/2014/01/Standard-Essential-Patents-How-Do-They-Fare.pdf
[ 9 ]. Standard Essential Patents: How Do They Fare?,http://www.hbs.edu/faculty/Publication%20Files/14-038_c030ca39-5339-4447-b952-8132110260bf.pdf
[ 10 ]. The article says that an applied-for injunction based on the alleged infringement of a SEP where the accused company was “willing and able” to sign a licensing agreement would be an abuse of dominance.
[ 11 ]. http://ec.europa.eu/competition/publications/cpb/2014/008_en.pdf
[ 12 ]. European Commission closes Samsung and Motorola cases on alleged abuse of standard essential patents, http://www.twobirds.com/en/news/articles/2014/global/commission-closes-samsung-and-motorola-cases-on-alleged-abuse-of-standard-essential-patents
[ 13 ]. Standards-Essential Patents and FRAND Licensing, Jorge Contreras, http://www.pijip.org/standards-essential-patents-and-frand-licensing/ [ 14 ]. https://www.ftc.gov/system/files/attachments/key-speeches-presentations/standard-essential_patents_the_intl_landscape.pdf
[ 15 ]. ibid
[ 16 ]. https://www.ftc.gov/system/files/attachments/key-speeches-presentations/standard-essential_patents_the_intl_landscape.pdf
[ 17 ]. Essential Questions About Standard-Essential Patents in the U.S. and EU ,https://www.ftc.gov/system/files/attachments/key-speeches-presentations/wong-ervin_-_seps_july_2013.pdf
[ 18 ]. ibid