If one must buy a mobile in today’s world, one always looks at specifications of the device, the software version, the latest features, etc. But did you know that there is an entire system that dictates the quality and features of technological devices, which everyone in the industry has to follow?
This is the world of Standard Essential Patents, where technological development and trade are slowly but surely getting choked by the whims and fancies of their inventors, who know how to throw their weight about especially without the sufficient restraints of law.
Law is definitely on the move but it’s just that they are again competing against speedy technology at a pace of a tortoise. So, here’s what you need to know.

SEP

Standard Essential Patent (SEP) are those patents that are unavoidable for the implementation of an industry standard. They are patents that take exceptional skill and innovation to achieve, as a standardized patent would represent the core, new innovation that entire industries will build upon.

These Standards are considered as the ‘basics’ that all must comply to in any industry, with regards to consistency and quality of the products they deal in; particularly in the technological industry. This means, in order to make products like phones, computers, laptops, etc., they need to meet the manufacture standard that has been set, which may require them to manufacture goods that have or use the standardized technology, which are patented and licensed based on the discretion of the inventors of the same.

SEPs differ from patents that are not essential to a standard (non-SEPs), as non-SEPs always have viable alternatives which do not infringe other patents, unlike SEPs. For example, the “slide to unlock” technology is a non-SEP, i.e. non-essential standard. Since smart phones need not open with only a “slide to unlock” feature, the proof of which is that most mobile phone manufactures were able to develop various non-infringing technologies to unlock a mobile phone. However, this is not possible in the case of a SEP. Eg. The use of QWERTY keyboard that is the most vastly used layout, and that has become a universal standard.

SSOs

Standard Setting Organisations (SSOs) or Standard-Development Organisations (SDOs), are those organisations that set a standard for the users of the SEPs, among others. An SSO may be federal, quasi-federal, or private, and their main function is to engage in activities such as developing, coordinating, promulgating, revising, amending, reissuing, interpreting, etc. and maintaining multiple standards applicable to a wide base of users inside and outside the standards developing organisation. It promotes industry use of the standard and also decreases the cost of developing products.

For this purpose, SSO’s obligate SEP holders to license their intellectual property on Fair, Reasonable and Non-Discriminatory (FRAND) terms. The Bureau of Indian Standards is India’s national SSO. In the Information and Communications Technologies sector, the Telecom Engineering Centre is the only formally recognized telecom standards/ specification/type approval body in India. Global ICT Standardization Forum for India, Telecommunications Standards Development Society, India (TSDSI), and Development Organization of Standards for Telecommunications in India are private SSOs in the Indian ICT sector.

The SSO-SEP framework gives a lot of power to a SEP holder, such that the discretion to license the SEP to any entity that wants or requires to use such technological standard, is solely with the SEP holder. Here, the FRAND declaration attempts to balance inequalities with the idea that an entity should have the right to obtain a license to desired technology on FRAND terms.

FRAND terms

Fair, Reasonable and Non-Discriminatory terms (FRAND) is basically a voluntary licensing commitment that is proposed to be used by SEP holders for the licensing of their SEPs. It proposes that the terms and conditions on which an SEP or a set of SEPs – that  is licensed to the users, are on terms that are fair and non-discriminatory. Since there are no authorities or monitoring bodies or strict guidelines for the same, the problem that arises is the lack of scrutiny and clarity on the context of such ‘fair and non-discriminatory’ terms, as well as the terms and conditions that are currently in use in various such agreements – added to that is the non-disclosure aspect of most of these agreements that has a negative impact on most small enterprises.

The FRAND terms do not have an expansive or even remotely detailed structure or system to give clarity on what the terms should signify in any of the various contexts that it is applicable in. Therefore, they are used in any manner of interpretation of ‘fair, reasonable and non-discriminatory’, which is as good as the negotiation that the user is able to do with the SEP holder.

Challenges

There are many challenges that are apparent when it comes to the use of SEPs and the licensing of the SEPs, some of which make the fair reasonable and non-discriminatory aspects of the terms sound sarcastic. To give a general understanding of the same, given below are a few examples-

a) No Proper Guidelines
There are no proper guidelines as to what constitutes as “fair, reasonable and non-discriminatory” terms apart from the implied meaning of the phrase itself. There is a blatant and dire need for guidelines, laws, and governing bodies for all such matters as there are possibilities for an unexpected turn towards g unfair trade practices, and impeding trade, based on desires of SEP holders.

b) Competition Law V. Intellectual Property Law
More often than not, there is a lot of involvement of Competition law in matters of Intellectual Property Rights matters, due to the nature of the SEP related cases. This is because the SEP holders at times, expect to license their invention at a steep fee for the effort that they have put into making such revolutionary technology, but the license holders of such SEP’s on the other hand, expect the fee to be as low as possible, probably owing to limited funds or for the reason that they also have to take other licenses that many a time, makes it impossible to adhere to the standards that are set by the SSOs.

Hence, when cases are filed by the users of such SEPs against the SEP holders, often the question of violation of competition law comes into the picture where a SEP holder does not grant license to the potential user or asks for a higher fee for such licensing, and a decision is then passed not on the aspect of intellectual property but on the aspects of monopoly.

c) Compulsion of SEPs
When a standard is set for essential patents and the different technologies and products that it relates to, there is no choice on the part of the businesses in that sector but to follow such standards, since the entire market adheres to such uniformity, and non-compliance of the same would result in the inability of being able to market such products. This leads to the compulsory need for such SEP users to obtain a license or set of licenses from SEP holder(s) who may or may not allow the same based on their discretion. And with no one to keep scrutiny on such practices, nor any proper authority to appeal to, this becomes a never-ending cycle of survival of enterprises based on their ability to spend.

d) Royalties
All factors equal, the royalty amount generally depends upon the product that is being licensed, and the extent of use of such product. However, the SEP holders tend to impose the royalty as a rate on the net sale price of the final product rather than only on the part of the manufactured product that has the use of the SEP. This means even if SEP is used in a single part of a multi component product, the SEP users would be liable to pay the royalty on the parts which do not even include the SEP. In such cases, the whole idea of FRAND diminishes. The royalty amount that is then charged by the SEP holder, would be so extensive to the point that there would be either negligible or negative or no profit margin for any user of the SEPs, for the manufacture of their products.

Cases

Koninklijke Philips Electronics N.V. vs. Rajesh Bansal And Ors

The earliest SEP case in India was the case of Philips v. Rajesh Bansal, where Ms. Justice Mukta Gupta gave the following judgement:
The Plaintiffs had filed a suit against the defendants on the grounds that their decoding device, a standard compliant essential patent that had been patented in India in 1995, , was being infringed by the Defendants who manufactured DVD players by importing DVD player component and putting them together.
It was held that the Defendants, local manufacturers, in manufacturing standard-compliant DVD players were infringing this patent.

FTC v. Qualcomm
In this landmark case, Qualcomm which is one of the world’s biggest providers of mobile chips, created technology that was essential for connecting phones to cellular networks and hence derived a significant portion of its revenue from licensing the same to hundreds of device makers, with fees based on the value of the whole phone. The company also owns several patents in relation to 3G, 4G and 5G networking technology, as well as other software. FTC alleged that Qualcomm had considerable market power in the premium LTE modem chip market and exercised that power in the form of excessive licensing fees on product manufacturers and its customers and also conditioning the licensing agreement of such SEPs such that the user is forced to have a subscription of other services that Qualcomm provides, hence violating the FRAND terms. They also accused Qualcomm of engaging in certain exclusive deals and foreclosing competition.
The Court issued an injunction forbidding Qualcomm (and (ii) from entering into exclusive dealing agreements for the supply of modem chips.  Additionally, Judge Koh ordered Qualcomm to negotiate license terms for its SEPs in good faith without the “threat of lack of access” or “discriminatory provisions.”

Conclusion

Viewing the current climate of rapid and incessant technological innovation and the ever-increasing capitalism of global economies, we are already witnessing the effect of the void caused by the union of insufficient laws and trade malpractices. The existence of SEPs have already started facilitating the future of trade and innovation, something that is the foundation and the subsequent steppingstone to the new era.

Summary