What is a Standard Essential Patent?

An Essential Patent or Standard Essential Patent is a patent that claims an invention that must be used to comply with a standard. Standards frequently refer to technologies that are protected by patents. A patent that protects technology that is essential to comply with a standard is called a Standard Essential Patent. Washington District Court in Microsoft Corp. v. Motorola Mobility, Inc.[1]defined SEP, 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. A patent is also essential if the patent only reads onto an optional portion of the standard. Thus, it is impossible to manufacture standard-compliant products without using technologies covered by one or more SEPs

How are Standards Determined?

For a standard essential patent, Standards Setting Organisation (SSO) determines the standard. The significant function of SSO is developing; coordinating, promulgating or otherwise producing technical standards that are intended to tackle the requirements of a group of affected adopters. The primary requirement of SSO is that the licensing of SEPS should be done through Fair, Reasonable and Non- Discriminatory (FRAND) terms[2]as an effort at preventing patent holdups. A patent holdup usually occurs when organizations and companies that own the SEPs for adopted standard block the other companies from using the standard through various means including obtaining injunctive relief or imposing royalties high enough[3]to act as an obstruction to the use of standard in question.Ironically, the very same practices that the development of FRAND licensing sought to prevent.

Mobile Phone SEP Litigation in India

SEP Litigation came to India many years after United States and Europe. It begun with the Ericsson’s complaint against Micromax. In this case[4], Ericssion filed a patent infringement suit against Micromax claiming an amount of Rs 100 crore in damages for the infringement of 8 SEPs (3G, AMR, and Edge) registered in India. The Delhi HC at the beginning granted an ex parte injunction restraining Micromax from selling, importing or manufacturing devices that were allegedly infringing the standard. Meanwhile the decision was pending, Ericsson and Micromax reached a settlement where the latter agreed to pay Rs 100 crore as royalties and agreed to negotiate FRAND global rates if its operations expanded outside India. On the other side, Micromax filed a complaint before CCI against Ericssion for abuse of dominance, violating. the CompetitionActon the grounds of imposingdiscriminatory royalty rates- a FRANDviolation and using Non- Disclosure Agreements. The Commission found[5]both these allegations constitute prima facie abuse of dominance and ordered further investigation. However Ericssion fileda writ petition challenging the jurisdiction of the commission on a matter that was pending before Delhi HC,in response to which Delhi HC ordered CCI not to issuea final order in the matter pending the date of next litigation.

On a jurisdictional test to the CCI's investigation by Ericsson, the Delhi High Court in its ordervigilantly noted that though the patentsAct was a special statute insofar as patentswere concerned and would overrule the Competition Act in case of inconsistency, the legislations could operate harmoniously given that the remedies offered by the two legislations were not mutually exclusive and both legislations contemplated the exercise of jurisdiction by different regulators.

Additionally, the Delhi High Court noted that since patentsqualified as goods within the meaning of the Competition Act, the SEP holders were enterprises, thereby being amenable to scrutiny under Section 4 of the Act. Further, it was analyzed that activities such as patent hold-up, royalty stacking or seeking injunctive relief against manufacturers willing to enter into licensing agreements on FRAND terms, may result in foreclosure of competition in the market. Interestingly, this observation of the Delhi High Court is in consonance with the ruling of the German Federal Court of Justice inHuawei Technologies Co. Ltd.[6]where it held that whereas injunction was a justifiable remedy available to an SEP holder, seeking the same against a willing licensee would amount to abuse of dominance. In this context, the European Commission has also opined that a willing/potential licensee does not become unwilling merely by challenging the validity or essentiality of the SEP under question. The Delhi High Court also affirmed this proposition.

In the subsequent years, Ericssion sued Gionee, Intex and Xiaomi for same and similar patents and all these three tackled the situation following the footsteps of Micromax.Visibly, whileEricsson is seen as the most active participant in SEP litigation in India, at the moment,Vringohas fled two suits in the Delhi High Court for the infringement of its SEPs. InVringov.ZTE[7], Vringo fled a suit for the alleged infringement of its patent. The patent was argued to be an SEP. The Delhi High Court granted anex parteinterim injunction against the manufacture, import, sale, use, or advertisement of the infringing products. This injunction was lifted in 2013 on the condition that ZTE paid Rs. 5 crores and fled an affidavit disclosing the number of CDMA devices sold in India, along with revenue obtained from them.

InVringo Infrastructure Inc.v.Indiamart Intermesh Ltd.[8], Vringo Infrastructure instituted a suit against ZTE and its subsidiaries for patent infringement. The Delhi High Court granted anex parteinterim injunction against the import, sale, advertising, selling, and operating of the devices with infringing components. ZTE has also fled for the revocation of the patent in question because it is not innovative, and that it violates Section 64 of The PatentsAct, 1970.

Philips Standard Essential Patent Judgement: The Game Changer

Koninklijke Philips Electronics N.V.(Philips) achieved a major victory in the SEP suits filed against two different entities, namely Rajesh Bansal and Bhagirathi Electronics (the defendants). The HC delivered a single judgement for the two suits filed by Philips, which surely does come as a welcome relief for major players in the technology standard industries (for example telecom, audiovisual, etc.)

In the case at hand, Philips (the plaintiff) was granted an Indian patent 184753 on April 20, 2001, which was based on the application 1578/CAL/1998 (dated 13.02.1995). The patent in question was titled Decoding Device For Converting A Modulated Signal To A Series Of M-Bit Information Words and pertained to channel (de)coding technology used for DVD Video playback function in a DVD video player. The invention taught 'channel modulation' technology that elaborated a coding step performed directly before the storage of the data in a DVD Video Player. This coding ensured that the data to be stored on the disk has a particularly suitable structure for storage. The decoding of 16-bit code words to 8-bit information words was achieved by looking ahead to the next code words. The DVD Forum Standard formulated said DVD standards in contention, to be the ‘DVD Video Standard’ and the ‘DVD ROM Standard’ in 1996. Subsequently, European Computer Manufacturers Association in 2001 and International Standards Organization adopted said standards in 2002. The defendants, Indian DVD player manufacturers, who imported DVD player components, assembled them in India, and sold them in the names of 'Passion' and 'Soyer', were alleged to be infringing the plaintiff's patent184753, by engaging the Decoders (meant for decoding contents stored on an optical storage media) claimed in the suit patent in their final DVD players, without obtaining any licence from Philips. This eventually made the patentee, Philips, to file the concerned suits in the matter.

The HC framed eight issues to be decided in the court, and a brief of the outcome follows:

Validity

Even though the defendants argued that the suit patent is an algorithm and not an invention as per Section 3(k) of the Patents Act (thereby challenging the validity of patent), the HC decided in favour of Philips, noting that such contention was not addressed in the written statement of the defendants (a clear defence-strategy catastrophe by the defendants!).

Essentiality

The HC, devoid of separate (and in-depth) analysis of the suit patent claims, acknowledged the essentiality of the same solely based on the "essentiality certificates" issued to the corresponding EP and US patents. What is fascinating to note here is that the HC did not also examine the legitimacy of the issued certificates. Further, the HC corroborated their finding by noting that the claims granted in the suit patent is similar to the claims granted in the equivalent EP and US patents.

Infringement

This was relatively an easy conclusion for the HC to reach, as the essentiality of the suit patent was by now established. The HC then, using the product-claim analysis provided by the plaintiff, found that the defendants' products (unlicensed) were indeed using with the standard, thereby establishing infringement.

Knowledge

The HC was quick to conclude on this issue too, since they found that the defendants had applied for a license for the suit patent, which clearly makes the defendants aware of the suit patent licensing.

Misuse

The HC on the issue whether the plaintiff, along with various other members of the DVD forum, were creating patent pools to misuse their position in the market to form a monopoly and earn excessive returns from competitors, ricocheted and the HC found that said issue of misuse of market dominance was beyond the scope of the concerned suit, and opined that said issue could be best dealt by the Competition Commission of India (CCI) alone.

Exhaustion

Even though the defendants took the plea that they were not liable for infringement under the common law doctrine of exhaustion of rights (since MediaTek was an authorized licensee of Philips and they were using MediaTek chips in their players), the HC disagreed and concluded that the defendants were unable to establish said fact.

Royalty

The HC in this issue, based their conclusion on the concept of 'entire market value of the end product' as the royalty base to accept the Philip's rates (which were exchanged during an informal negotiation), and fixed the royalty rate at USD 3.175 per unit (from the date of institution of the suit, until May 27, 2010) and, the rates thereafter at USD 1.90. To confirm their concept, the HC relied on the 2015 U.S. Federal Circuit case, CSIRO v. CISCO [809 F.3d 1295 (Fed. Cir. 2015)]. An interesting thing to note here is that the HC did not analyse at all what the scope of a FRAND term is, and how anyone should determine the same in situations where someone decides upon a royalty rate. The actual amount of damages, however, was not specifically set out by the HC due to lack of sales data of the defendants' products. In this regard, the HC appointed a local commissioner to ascertain the exact quantum of damages.

Costs and Punitive Damages

In furtherance to the costs, the HC also awarded the plaintiff punitive compensation in approximation of USD 7300.

Overall, there is absolutely no doubt that the Philips decision will indeed turn out to be a clear torchbearer for the SEP situation in India. However, it would not be long when this bright torch would eventually burn out, since it would not be wrong to contend that the judgement leaves many essential questions unanswered. Some of them may be the failure of assessing the essentiality of suit patent independently, failure of a proper (and in-depth) claim de-construction and further analysis thereof, failure of considering the exhaustion principles, and failure of assessing the FRAND terms in detail. It would therefore, surely is an interesting space to watch out for in the coming days as to how this nascent jurisprudence on such a critical area evolves in our country!

The Clash between Competition law and IPR
The intervention of Competition law in IPR has raised a lot of jurisprudential issues. The primary question that came into picture was whether matters related to SEPs could be investigated under the provisions of Competition Act and whether Competition Commission of India has the jurisdiction to scrutinise the anti-competitive conduct of an SEP holder including the fairness of FRAND terms. Section 4(1) of The Competition act prohibits abuse of dominant position by an enterprise and group.

Dominance is usually measured by market share, but a number of other factors are also considered such as : the size of resources of the enterprise, influence of competitors, economic power of enterprise, dependence of consumers on the enterprises and many such factors.[9]

Patent law seeks to grant temporary and limited monopolies and the latter seeks to ensure fair competition and check abuse of dominance within the market In turn, each of these systems offers its own set of remedies to address the question posed by SEP litigation as well.

It has been argued that CCI is a relatively new body that has come into force only in 2009 whereas the patent act is as old as 1970 and are the causes of problems of harmonization. The CCI seemingly failed to appreciate the purpose behind the laws allowing for SSOs and SEPs, and has apparently relied on circumstantial evidence to an excessive degree. Therefore, the need of the hour is to synchronize competition law with patent law in India.[10]CCI is not as effective and efficient as it is portrayed to be, and needs further legislation.[11]

Conclusion
The ruling with respect to SEP is uncertain and judgements with respect to the same have differed from country to country. It has to be realised that SEPs are not used by the licensees due to a lack of preferences of alternatives, but the same is done in order to preserve operability and compatibility between the symbiotic technologies. It has to be realised that a country such as India cannot afford to lose its worldwide image based on lack of expansion of IPR jurisprudence. While companies must be mandated to pass their technology based on FRAND commitments, it is also significant to note that rights of the patent holder are also to be protected. Therefore, in the disputes related to SEP it would be reasonable if adequate trial is given to both the parties and rates are determined by the Court without injustice to any party and keeping in mind the welfare of the end consumers at large.

End-Notes
[1]MICROSOFT CORP. V. MOTOROLA, INC., MOTOROLA MOBILITY, INC., AND GEN. INSTRUMENT CORP. 104 U.S.P.Q.2D 200
[2]OECD, Competition, Intellectual Property and StandardSetting,http://www.oecd.org/daf/competition/competition-intellectual-property-standard-setting.htm.
[3]Mark A. Lemley & Carl Shapiro,A Simple Approach to Setting Reasonable Royalties for Standard Essential Patents28 Berkeley Tech. l. J. 1136-1137 (2013); Mark A. Lemley & Carl Shapiro,Patent Hold up and Royalty Stacking,85 Tex. L. Rev. 1991-2050 (2007)
[4]Micromax Informatics Ltd., In re, 2013 CCI 77
[5]SeeCCI Order under S. 26(1) of the Competition Act, 2002,Micromax Informatics Ltd., In re, 2013 CCI 77
[6]Huawei Technologies Co. Ltd.v.ZTE Corp., ZTE Deutschland GmbH, Case C-170/13.
[7]ZTE Corpn.v.Vringo Infrastructure Inc., FAO (OS) No. 143 of 2014 (Del).
[8]Vringo Infrastructure Inc.v.Indiamart Intermesh Ltd.,2014 SCC Online Del 3970.
[9]S. 19(4), Competition Act, 2002.
[10]Pratibha Jainet al.,Competition Law in India, A Report on Jurisprudential Trends,Nishit Desai & Associates, http://www.nishithdesai.com/fleadmin/user_upload/pdfs/ResearchPapers/Competition_Law_in_India.pdf.
[11]Competition Commission of India through the Eyes of the Media: Doing Well !, CUTS 13, (17-9-2012), http://www.cuts-ccier.org/pdf/Competition_Commission_of_India_through_the_eyes_of_the_media-Doing_well.pdf