Introduction:
In the era, where everyone is using mobiles and tablets and laptops and there are so many different organizations and companies trying to increase their consumer base then the Standard Essential Patents become a necessity. Every other company and organization are inventing different technologies and different interfaces so as to increase their customers. When anyone invents a technology, they put a lot of thought and effort into it. Therefore, it seems about right that there is some kind of protection against the usage of these technologies by other organizations or companies.
A patent is a piece of document or a certificate by a sovereign authority to an inventor. This patent gives the sole right of ownership of the particular intellectual property to the inventor for a specified period of time and forbids anyone else to utilize it without the permission of the inventor. The application of it without the inventor’s knowledge is said to be the infringement of the inventor’s incorporeal right and is a punishable offense. [1]
Standard essential patents are patents that are assigned to the inventor or a particular organization assigning sole right of a particular technology or user interface to the inventor or the organization. The use of the same without the knowledge and allowance of the inventor or organization is an infringement of their incorporeal right and also punishable by law.
A Standard is a piece of document that specifies and sets out requirements for a specific item, material, object, technology, interface, system, or service, or it describes in detail a particular method of procedure.[2]
The standards are developed by standard development organizations (SDOs) by adopting policies that require participants to either disclose or license their patents that are essential to the implementation of the SDOs standards.[3]
There are many organizations that set standards i.e. Standard-Setting Organizations (SSOs), to name a few we have, European Telecommunications Standard Institute (ETSI), or the International Telecommunication Union (ITU).[4]
Importance
In a technology-friendly world, standard essential patents are a must. They play a very essential role in many industries, especially those which are related to technology. The standard-essential patents are essential because of the fact that to invent a new technology there goes lots of effort and thought and it is only fair that the inventor or his organization receives special rights to it. These rights are given to the inventor and his organization with the help of Standard Essential Patents.
Whenever any person wants to use the technology that is protected by the standard-essential patent then he has to pay a certain amount as royalty to the inventor so as to secure the right to use the same in his products.[5]
Standard Essential Patents are also essential as they differentiate one organization from another. This means that, when a certain technology is patented to a particular organization then it separates it from the others. This gives each organization its own portfolio and identity. Also, it gives consumers the option to choose from a variety.
How are Standards determined?
For the Standard essential patents, the standards are determined by an organization known as the Standards Setting Organization (SSO). One of the most significant and essential function of SSO is the development of standards as well as coordinating them, also promulgating or otherwise producing technical standards that are intended to tackle the requirements of a group of affected adopters.
The most essential requirement in determining standards that is also one of the primary requirements of SSO is that the issuing of the license of SEPs should be done through Fair, Reasonable and Non-Discriminatory i.e. FRAND terms so that there are no patent holdups.
A patent holdup is a very common hindrance in the issuing of license of SEPs. It occurs when the organizations and companies that own the particular SEP for adopted standard block other companies or organizations from using the standard through various means including an injunction or imposing high royalties that are enough to act as a hindrance or obstruction for the use of the specified standard. Though the FRAND terms were developed to reduce the obstruction that is patent holdup but it usually ends up adding to it.[6]
Cross-Licensing Portfolios and Net Balancing Royalties
Let us understand this, by a simpler concept of buying a car. Suppose a person wants to exchange his Renault Duster for a smaller car, then the exchange price of Duster would depend on its wear and tear largely, this means that if any part of the Duster is rusted then the exchange price would be lowered. But if Duster is in great condition than the exchange price would be better.
An analogous transaction takes place when two Standard Essential Patent holders want to cross-license their respective patent portfolios. Each patent portfolio demands a certain royalty payment from the other party. The royalty is the price that the counterparty pays to secure the rights to the aforementioned patent. In cross-license there is net balancing royalty that is when the patent portfolios are traded then there is one party in this transaction that has an upper hand and one party that has a slightly lower hand. In this case, the party that has a lower hand would be giving rights to its patented technology, also, the aforesaid party would be paying some surplus amount so as to secure the rights to the other party’s patented technology. This surplus amount that has been paid is known as net balancing royalty.
To explain net balancing royalty in an elementary language, I would be using the concept of exchange of cars that were mentioned above as well.
If Duster was in a very good condition then the buyer would not have to pay any surplus amount to buy the smaller car, i.e. the exchange price for Duster would be equal to the Buyout money for the smaller car.
Let us consider a less favorable condition here as well, if Duster was not in a great condition and showed signs of wear and tear then clearly the buyer would have to pay a surplus amount for buying the car as the exchange price of duster would be less than the buyout money for the car.[7]
Cross Licensing is very important as it increases the ambit of technology that can be used and also it allows other parties to use the patented technology without attracting a patent infringement lawsuit.
Net balancing royalty is a concept that is as important as cross-licensing. This is because of the fact that the patented technology should not lose its value and also so that nobody incurs any losses in the cross-licensing transaction. It becomes very essential that if the patents traded are not of the same value then the difference in their value should be paid by either party.
A cross-licensing transaction that can be specified here is the transaction between Microsoft and JVC. This transaction gave freedom to both the organizations to use the other’s patented technology without the fear of attracting infringement of patent lawsuits. Also, in this case, there was no difference between the values of patented technology and therefore there are no net balancing royalties as well.[8]
The Emergence of Standard Essential Patents in India
India is one of the most promising developing nations of the world in each aspect of development. But the field of technology is one such field where the development has been remarkable. India is slowly and steadily emerging as a land of opportunity for investors, businessmen as well as entrepreneurs. But this development is not possible without a definite focus on developing and improving a strong machinery for legal as well as Intellectual Property needs. Especially there is a notable desire to improve and make the proceedings for IP speedy and efficient as well. Including this, the creation of commercial courts for IP proceedings is one of the most essential steps for the speedy and efficient disposal of IP related matters.[9]
The concept of SEPs came into emergence in India when Ericson in 2011 raised objections to the incorporation of handsets by an Indian Organization called Kingtech Electronics. Ericsson claimed that the Handsets infringed several of their SEPs in AMR Codec (Adaptive Multi-Rate) technology.[10]
India has been a key legatee of standardization and has formally showed its devotion and dedication to follow global standards by setting up the Telecom Standards Development Institute of India (TSDSI) in 2013.
Diverse companies are intensively involved in the development of standardized technologies and regular participation in working of Standard Development Organizations (SDOs) where technology is selected purely on ‘technical merit’ and ‘Consensus’.[11]
The Standard Essential Patents (SEPs) have played a vital role in the tremendous growth of Indian origin mobile companies such as Micromax, Intex, Lava, iBall etc. The patents give an assurance to the companies i.e., it ensures a return on investment (ROI).[12]
Landmark Judgments
Ericsson vs. Micromax[13]
This particular case is of Delhi High Court. It is about SEP infringement or challenges to CCI orders. In this case, the Court after hearing both the parties and thoroughly analyzing the patent license agreement, reached a conclusion that FRAND terms were complied with and it was opted to calculate the royalties based on a percentage price of the phone. The Court mandated Micromax to pay an interim royalty fee and similar orders were passed by the Court against Gionee, Xiaomi, and other such manufacturers and assemblers of mobile phones that were using the patented technology in question.
However, there was another turn in the case when Xiaomi’s appeal was successful in Delhi High Court as Xiaomi claimed that even though the license from Ericsson was not possessed but their chipset provider Qualcomm Inc. had a license from Ericsson, which permitted Xiaomi the use of patented technology in question.[14]
Koninklijke Philips N.V. and another vs. Rajesh Bansal (Mangalam Technology)[15] and Koninklijke Philips N.V. and another vs. Bhagirathi Electronics and Others[16]
Philips was the first-ever organization to enforce its Standard Essential Patents (SEPs) in India as early as 2009. The matter was finally decided in Delhi High Court after a long wait, in 2018. It was India’s first judgment on SEP and FRAND litigation. Both the suits were consolidated and proceeded together with common evidence.
The Delhi High Court after thorough analysis and study concluded that the “DVD Forum Standard (formulated in 1996) was acquired by the independent standard-setting body, ECMA, in April 2001 for 120 mm DVD-Read Only Disk. Both the standards i.e., ECMA and ISO are in the public domain and can be easily accessed and can be read in evidence.”
This particular judgment can be considered as a landmark judgment and an important milestone in history as it encouraged companies to practice innovative activities in India, and further R&D activities over the years.
The decision rendered by the Court in the combined cases against Bhagirathi Electronics and Mangalam Technology created more clarity for Philips and other innovative organizations.[17]
Vringo Infrastructure Inc. vs. Indiamart Intermesh Ltd.[18]
In this case, Vringo Infrastructure instituted a suit against ZTE and its subsidiaries for patent infringement. The Delhi High Court in this case granted annex parte Interim Injunction i.e. the Court granted an injunction until its next hearing against all the operations such as import, sale, advertisement, and also the operation of the devices with infringing components. ZTE has also filed a petition for the revocation of the patent in question because it is not innovative, and it violates Section 64 Of the Patents Act, 1970. The aforementioned section states that the following persons can file the petition in the High Court; any person interested; the Central Government; the person making the claim in a countersuit for the infringement of the patent.[19]
Microsoft vs. Motorola[20]
In October 2010, Motorola sent letters to Microsoft and offered to license its standard-essential patents for the 802.11 Standard and H.264 Standard. The offer specified that for 2.25% royalty rate on the price of all end products that Motorola sold utilizing the technologies that are protected by the patent license agreements. Microsoft regarded these terms as completely unreasonable and took an action by filing a breach of contract case against Motorola in the Western District Court of Washington, claiming that Motorola has violated the agreement between them.
The US Court granted damages for attempted enforcement of standard essential patents.[21]
Conclusion
Standard essential patents are one of the most important types of patents required today and are basically essential for protecting the intellectual property of the innovators. It is basically an assurance that ensures the innovators and their organizations that they would get a Return on Investment (ROI).
References:
[1] Will Kenton, (April 22, 2020), Patent, Retrieved from https://www.investopedia.com/terms/p/patent.asp
[2] Mirko Berganadano , (May 6, 2018),Standard Essential Patents, Retrieved from https://www.studiotorta.com/en/editorials/standard-essential-patents/
[3] Jorge L. Contreas, (Spring 2017), Essentiality and Standard-Essential Patents, https://dc.law.utah.edu/cgi/viewcontent.cgi?article=1020&context=scholarship
[4] Mirko Berganadano , (May 6, 2018),Standard Essential Patents, Retrieved from https://www.studiotorta.com/en/editorials/standard-essential-patents/
[5] Dipak Rao and Nishi Shabana, (April 22, 2016), India: Standard Essential Patents, Retrieved from https://www.mondaq.com/india/patent/484412/standard-essential-patents.
[6] Aditi_3105, (April 2019), The Scenario of Standard Essential Patents In India, Retrieved from http://www.legalserviceindia.com/legal/article-638-the-scenario-of-standard-essential-patents-in-india.html
[7] Gregory Sidak, (June 2015), How Licensing Standard Essential Patents is like Buying a Car, Retrieved from https://www.wipo.int/wipo_magazine/en/2015/03/article_0003.html
[8] Gregory Sidak, (June 2015), How Licensing Standard Essential Patents is like Buying a Car, Retrieved by 7 https://www.wipo.int/wipo_magazine/en/2015/03/article_0003.html
[9] Chitra Iyer, (21 May 2019), Protecting the Innovators, Retrieved by https://www.vantageasia.com/standard-essential-patents-to-protect-innovators/
[10] Dipak Rao and Nishi Shabana, (April 22, 2016), India: Standard Essential Patents, Retrieved by https://www.mondaq.com/india/patent/484412/standard-essential-patents
[11] Sheetal Chopra and Ankita Tyagi, (January 22,2017), Standard essential patents- Issues and Challenges in Developing Economics, Retrieved by https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3037327
[12] Sheetal Chopra and Ankita Tyagi, (January 22,2017), Standard essential patents- Issues and Challenges in Developing Economics, Retrieved by https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3037327
[13] Ericsson vs. Micromax (Re, 2013 CCI 77) (Delhi High Court, 2013)
[14] Ikgai Law, (April 8, 2020), Standard Essential Patents-A Refresher, Retrieved by https://www.ikigailaw.com/standard-essential-patents-a-refresher/
[15] Koninklijke Philips N.V. and another vs. Rajesh Bansal (Mangalam Technology), (CS (COMM) 24 of 2016) (Delhi High Court, 2016)
[16] Koninklijke Philips N.V. and another vs. Bhagirathi Electronics and others(CS (COMM) 436 of 2017) (Delhi High Court, 2017)
[17] Chitra Iyer, (21 May 2019), Protecting the Innovators, Retrieved by https://www.vantageasia.com/standard-essential-patents-to-protect-innovators/
[18] Vringo Infrastructure Inc. vs. Indiamart Intermesh Ltd, (2014 SCC Online Del 3970) (Supreme Court, 2014)
[19] Aditi_3105, (April 2019), The Scenario of Standard Essential Patents In India, Retrieved by http://www.legalserviceindia.com/legal/article-638-the-scenario-of-standard-essential-patents-in-india.html
[20] Microsoft vs. Motorola, (104 U.S.P.Q. 2D 200) (Virginia District Court, 2010)
[21] Mark Schweizer, (August 4, 2015), Microsoft v Motorola: US court grants damages for attempted enforcement of standard essential patents in Germany, Retrieved by http://ipkitten.blogspot.com/2015/08/microsoft-vs-motorola-us-court-grants.html
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