Author: Harsh Kashyap, School of Law, Forensic Justice and Policy Studies, National Forensic Sciences University, Gandhinagar
TO THE POINT
Standard Essential Patents (SEPs) are patents that protect technologies that industry standards designate as required, and it is vital to license SEPs on Fair, Reasonable, and Non-Discriminatory (FRAND) terms to balance innovation and competition. In India, the dialectic of SEPs and FRAND has influenced the jurisprudence involving the Patents Act, 1970, and the Competition Act, 2002. Several public disputes between patent owners and domestic manufacturers have raised the contentious issue of the balance between intellectual property rights and market access. The Indian courts, and increasingly, the Competition Commission of India (CCI), continue to influence the evolving jurisprudence at the intersection of law, technology, and market economics.
ABSTRACT
The theory for FRAND licensing was developed to limit monopolistic exploitation of Standard Essential Patents while promoting fair access to foundational technologies. The recent growth in Information and Communication Technologies (ICT) standards and standard essential patents (SEPs) litigation has come to the forefront with multinational corporations invoking SEPs against home-grown producers. The challenge before the Indian legal system in dealing with competing concerns with respect to the rights of Patent holders while balancing Competition with consumer welfare is indeed complex. The intersection between judicial interpretations and competition law has helped to some degree, but many overlapping jurisdictional issues still remain. This paper reviews the terrain, case law and the emergent
Indian position for SEPs and FRAND obligations.
LEGAL JARGON
Standard Essential Patent (SEP): A patent that safeguard a technology that is necessary to a standard established by Standard-Setting Organisations (SSOs) – meaning the products cannot meet the standard without using the patented technology.
FRAND Terms: The obligations in a license that require patent holders to license SEPs on Fair, Reasonable, and Non-Discriminatory (FRAND) terms so as not to abuse a monopoly.
Royalty Stacking: The situation where more than one SEP holder cumulatively demands royalties, increasing the cost on the implementers.
Patent Hold-Up: When a SEP owner uses the hold system to demand a high licensing fee after it has been adopted as a standard.
Patent Hold-Out: When an implementer deliberately [or intentionally] waits or avoids taking the license, thereby diminishing the MONETARY value of the patent.
Ex-ante vs Ex-post Licensing: The licensing terms negotiated either before (ex-ante) or after (ex-post) a standard is adopted are a key determinant of whether licensing is fair and equitable in terms of royalties.
Competition Law Interface: The Patents Act has an overlap with the Competition Act when addressing the potential abuse of dominance in licensing SEPs.
Injunctions in SEP Litigation: prohibit using the technology until FRAND licensing is accepted, which inevitably has an anti-competitive dimension.
Patent Pools: Agreements among Multiple SEP holders to collectively license patents under FRAND terms to lower transaction costs.
Smallest Saleable Patent Practising Unit (SSPPU)- It is a system of calculating patent royalties that argues that it should be based on the value of the smallest component that uses the patent, not on the entire price of the finished product.
These terms represent the crux of the SEP-FRAND debate and direct courts and regulators in India when determining if patent exclusivity is justifiable in comparison to the competitiveness of the market and consumer welfare.
THE PROOF
The rise of Standard Essential Patents (SEPs) in India presents a difficult legal problem: how do you reconcile a patent holder’s monopoly rights with society’s concerns about access to technology? Internationally, FRAND (Fair, Reasonable, and Non-Discriminatory) licensing obligations were developed to do just this. In India, the problem is adopting these obligations into the framework of both the Patents Act, 1970 and the Competition Act, 2002, while remaining in step with international trends. The proof of SEP-FRAND’s relevance in India rests on statutory interpretation, market reality, and judicial expansion.
The Patents Act, 1970, does not directly recognise SEPs or FRAND obligations, but it does provide licensing sections, compulsory licensing (s 84-92) and abuse of rights that could allow the courts to interpret section 83 of the Patents Act, 1970, makes it clear that patenting must operate for the public’s benefit and not obstruct the working of technology. This has been used to reach conclusions on the duties of SEP holders.
Similarly, the Competition Act, 2002 provides the provision for the Competition Commission of India (CCI), the authority to curtail abuses of dominant position (s 4). Since SEP holders invariably have unavoidable monopoly power, their licensing practices will fall within the competition tenant. This statutory overlap—patent rights vs. competition law—has been the core battlefield in Indian SEP disputes.
The interaction between patent law and competition law generates an institutional conundrum. Patent owners suggest that license conditions are purely within the ambit of patent law, while implementers are allowed to use anti-competitive conduct and exploit competition law. The Ericsson matters exemplify this confusion: the High Court of Delhi was deciding patent infringement cases, at the same time, CCI was initiating investigations for abuse of dominance. The Delhi High Court has noted that while the courts can resolve contractual and patent law disputes, the CCI can regulate competition. This duality highlights India’s attempt to balance the exclusivity of patents with fair competition. India, as a manufacturing location of inexpensive telecommunications devices, also has an interest in FRAND licensing. Without FRAND safeguards, the SEP owner may engage in “patent hold-up” by charging excessive royalties to effectively monopolise a patent, thereby increasing the pricing of consumers. If enforcement mechanisms are weak, SEP owners can effectively “patent hold out” and discourage investment in standard-compliant innovation that is easier to hold out for. FRAND obligations are a balance: they allow the patent holder to receive a fair profit, while preventing excessive costs on manufacturers like Micromax, Intex, and Lava and their effective price-sensitive products. In this respect, FRAND is not only a legal concept in India, but it is also an economic requirement.
Indian courts are very much aware of global developments. The European Union, by way of Article 102 TFEU, and the United States, through their antitrust statutes, have dealt extensively with abuses related to SEPs. The Huawei v ZTE judgement of the EU court specified the negotiation protocols for SEP licensing agreements and, thus, Indian courts are increasingly looking to this case when referring to SEP licensing. Likewise, U.S. jurisprudence looks at balancing patent exclusivity against antitrust concerns. India does not have any statutory codification of FRAND, but utilises the principles and frameworks that have been developed in the global marketplace while applying them to its own socio-economic realities.
The CCI has been instrumental in the development of the SEP-FRAND conversation. In the cases of Micromax and Intex’s complaints against Ericsson, CCI found a prima facie case of abuse of dominance on the basis of their claims, which included discriminatory royalty requests and refusal to disclose the royalty terms prior to signing the licensing agreement. The CCI also stated that any upfront royalty demands should be based on the smallest saleable patent-practising component of the entire product.
This is an important intervention as the CCI must take into consideration its consumer protection mandate. However, the SEP holders see this as a judicial overreach by the CCI and argue that it has undermined their patent rights. This debate continues as courts and CCI work out the boundaries of which entity has jurisdiction.
Indian courts have tried alternative remedies. In the Ericsson vs. Micromax and Intex cases, the Delhi High Court required interim royalty based on comparable worldwide licensing arrangements. The interim royalty prevented implementers from delaying a royalty payment while litigation was pending. The court was able find an interim royalty that balanced patent enforcement with access to technology. By imposing interim royalty requirements, courts were able to protect an SEP holder from being denied compensation while allowing the ultimate royalty rate to be determined by the courts. The developing penetration of smartphones in India highlights the importance of SEPs. Without FRAND licensing, access to global ICT standards, such as 3G, 4G, and 5G, would be severely limited. The disputes brought about by Ericsson against Indian manufacturers relate to both the possibility of monopolistic abuse and the risk of compliance.
In addition, India’s digitalisation strategy, coupled with the “Make in India” initiative, relies on affordable access to technology. Thus, enforcing SEP-FRAND is in the corporate interest and the national development interest.
India currently does not have a codified policy framework to address SEP-FRAND licensing. In contrast, the EU has provided various detailed policy directives that provide some guidance for the use of SEPs. In contrast, Indian laws are dependent on the judgment of courts or regulators on a case-by-case basis. The Department of Industrial Policy and Promotion (DIPP) has published guidelines relating to FRAND licensing but has not taken substantive legislative steps. The absence of a formal policy framework adds confusion for SEP holders as well as implementers, as the courts or CCI may have to create a policy framework based on ad hoc principles.
The evidence for SEP-FRAND’s capacity to play a significant role in India lies in the intersection of statutory interpretation, judicial creativity, and economic imperatives in India. The provisions to serve the public interest in the Patents Act, the provisions to avoid consumer abuses in the Competition Act, and inventive interim measures adopted by the Judiciary all point to India developing a hybrid model. On the one hand, the principles could take persuasive authority from global jurisprudence, and on the other hand, Indian Courts ought to modify principles based on domestic realities. SEP-FRAND jurisprudence in India is evolving, and it is not an external transplant; rather, it is coming together based on the two pillars of innovation and accessibility.
CASE LAWS
India has seen a sharp spike in disputes in the last decade regarding Standard Essential Patents (SEPs) and the associated FRAND (Fair, Reasonable, and Non-Discriminatory) licensing requirements. As global telecommunication standards proliferate, like 2G, 3G and 4G, multinational patent holders have collided with local producers, which was inevitable. Leading the charge in litigation is Telefonaktiebolaget LM Ericsson, which is one of the largest holders of SEPs in the world. By suing Indian companies such as Micromax, Intex and Lava, Ericsson is helping to guide the development of SEP law in India and further testing courts and regulators whether patent exclusivity can be combined with state interest and competition law. The following are the landmark cases, which helped in the genesis of the judicial framework in India.
Ericsson v. Micromax
The dispute between Telefonaktiebolaget LM Ericsson and Micromax Informatics was the first significant SEP-FRAND case in India. Ericsson claimed that Micromax was infringing its SEPs in respect of GSM, EDGE and 3G technologies. Micromax counterclaimed before the CCI that Ericsson was abusing its dominant position by charging excessive royalties based on the price of the whole handset, rather than based on the Smallest saleable Patent-practising Unit (SSPPU)
The Delhi High Court granted an interim injunction, but there was a respite for Micromax. The Court permitted Micromax to continue selling the devices in question, while requiring it to deposit interim royalties set at global benchmarks. The CCI also commenced investigations based on evidence it found of prima facie abuse of dominance.
The important aspects of this case are:
It is the first documented recognition of FRAND obligations in India.
The Court adopted interim royalties to balance the interests of both parties.
It illustrated the jurisdictional overlap between patent enforcement (courts) and the Competition Commission of India (CCI).
Eventually, the litigation articulated the principle that SEP owners cannot impose arbitrarily high royalties that disregard the value of the component.
Ericsson v. Intex.
It began at roughly the same time, as Ericson sued Intex Technologies in relation to SEP infringement concerning similar telecom standards. Intex, like Micromax, lodged a complaint with the CCI against Ericsson, alleging royalty demands were discriminatory and non-transparent in accordance with Indian anti-trust law. The CCI once again found prima facie evidence for abuse of dominance and directed an investigation into Ericson’s actions.
The Delhi High Court took a much more unfavourable view of Intex’s actions, indicating that the refusal to pay royalties while continuing to sell products constituted an infringement of Ericson’s patent rights. The Court ordered interim royalty payments to be made.
The Intex ruling resulted in a few vital takeaway principles:
Indian courts are not going to allow implementers to delay licensing obligations under the precedent of FRAND negotiations.
The judiciary began emphasising that parties have bona fide contractual obligations, meaning that FRAND is mutual, and both patent holders and implementers should act in good faith,
Most importantly, courts began accepting the global nature of SEP licensing and relied on international royalty benchmarks.
Ericsson v. Lava
The litigation of Ericsson and Lava International added to the momentum surrounding the SEP-FRAND debate. Ericsson claimed that Lava would not take a license after lengthy negotiations. Lava claimed that Ericsson’s offers would violate FRAND obligations and were discriminatory.
The Delhi High Court initially provided interim relief in favour of Ericsson and ordered royalty deposits. Lava contested the orders and embarked on lengthy litigation. The High Court ultimately held that FRAND obligations could not provide a shield to avoid payment.
This case brought to light:
The importance of good faith negotiations involved in licencing disputes relating to SEPs.
The Court’s tendency to use comparables in licensing arrangements relating to SEPs to measure reasonableness.
The need for litigants to balance patent enforcement with the need for consumers to afford products, i.e. India is a price-sensitive market.
Telefonaktiebolaget LM Ericsson v. Competition Commission of India
Perhaps the most significant case on the overlap of jurisdiction was in Ericsson’s challenge of the CCI’s ability to investigate SEP licensing practice. Ericsson argued that the licensing was a contractual issue and that licensing disputes were a patent matter and only dealt with patent issues. The CCI was arguing in response that it had jurisdiction because the Competition Act gives the CCI jurisdiction to evaluate abuse of dominance.
The Delhi High Court found there was no basis for the CCI to proceed initially, but ruled that while contractual disputes were to be treated judicially, issues of competition were within the role of the CCI. This duality set the necessary precedent that patent law and competition law operate concurrently in SEP disputes in India.
This case thus represented a reaffirmation that:
SEP holders must comply with both applicable patent law and competition law standards.
The power of the CCI to restrain the terms of licensing in order to protect the market.
The harmony of jurisdiction to avoid any possible conflicting orders.
Broader Jurisprudential Implications
In sum, Indian jurisprudence on SEPs draws from some important principles:
FRAND recognition: Courts are recognising FRAND as an implied obligation, no matter that they are not yet defined legally.
Balance of Interests: The SEP holders and the implementers have to negotiate in good faith as part of their balance of interests;
Competition (national oversight): The CCI holds an important function in policing abusive practices in licensing;
Judicial Innovation: The use of interim orders of a royalty, and world-wide benchmarks are the waves of how Courts are using judicial activism to respond the challenge of SEPs; and
International Influences: While using some of the precedents from international jurisprudence (e.g., EU: Huawei v. ZTE) and the practices in the U.S., Indian jurisprudence is developing some distinctly mellifluous rules suited to local niceties.
CONCLUSION
The evolution of case law, from Micromax to Lava v. Ericsson, suggests that India is transitioning from a state of legal ambiguity to a more sophisticated, judicially established framework. Although there remains a legislative gap, Indian courts and regulators have formulated guiding principles concerning interim royalties, jurisdictional duality, and the essential nature of FRAND obligations. These precedents are crucial in influencing negotiations within India’s ICT sector, maintaining a delicate balance between patent exclusivity, competition law, and consumer welfare.
FAQS
What are SEPs and why are they important in India?
Standard Essential Patents (SEPs) protect technology that is essential to standards like 3G, 4G, and 5G. In India, with an inexpensive mobile device market, it is essential to have SEPs in place to enforce compliances with global communication standards.
What is FRAND licensing?
FRAND means Fair, Reasonable, and Non-Discriminatory and requires SEPs to license their patent rights under terms, which should prevent their abusers of monopoly position whilst providing fair compensation to innovators.
Why is Ericsson at the center of SEP-FRAND litigation in India?
Ericsson has filed a number of suits against Indian manufacturers, like Micromax, Intex, and Lava, which has lead to judicial and regulatory insights into Indian SEP jurisprudence. These suits also led to inaction against prejudice claims made by the Indian manufacturers.
How do Indian courts approach SEPs?
Generally, the Delhi High Court will order interim royalty payments as litigation is ongoing, which allows the SEP owner to receive compensation while providing a means for the manufacturer to continue manufacturing. Additionally, the CCI also considers the allegations of abuse of a dominant position through the lens of SEPs and manufacturers.
