Department of Industrial
Policy and Promotion (DIPP), Govt. of India recently published a discussion
paper on Standard Essential Patents (SEPs) and their availability under FRAND terms, inviting view and suggestion of public. This is my personal view/submission on the matter.
As one of the prime objects of
IP laws is to promote/establish a fair balance between IP protection and Public
interest, it is becoming essential for the governing bodies to have a closure
look on the way SEPs are being commercialized.
In absence of any clear frameworks or guidelines by the government and
standard making organizations, a lot of concerns have been raised recently with
regards to working of standard essential patents. It has
been observed across the globe that there is no standard for terming any patent
as Standard Essential Patent and there certainly are no standard /clear
enforceable guideline under which the SEPs should be licensed to interested parties.
In view of the issues raised
during recent litigations and foreseen issues related to SEPs and the ways they
are licensed, the DIPP has taken a welcome step to develop a suitable policy
framework to define obligations of the essential patent holders and their
licensees. Though, the discussion paper
under heading of “issues for resolution” attempts to explore a verity of
issues, the objective appears to be conservatively defined. We think that the
objective should be to develop a suitable framework /guideline for (a) Standard
Setting Organizations (SSOs), (b) Government Bodies that approve or mandate any
standard, (c) Right holder of SEPs and
(d) Potential Licensee; and to evaluate need for change in domestic laws,
if required.
Through this paper, we
intent to submit our opinion on different issues listed for resolution and some
other inputs to be evaluated further. We have also made an attempt to propose
some obligations for each of the above listed entities
2.
Legislative
measure
Let’s start with the first
issue listed for resolution.
a) Whether the existing provisions in the
various IPR related legislations, especially the Patents Act, 1970 and
Anti-Trust legislations, are adequate to address the issues related to SEPs and
their availability on FRAND terms? If not, then can these issues be addressed
through appropriate amendments to such IPR related legislations? If so, what
changes should be affected.
Though the Patent Act, 1970 incorporates
several provisions (like compulsory license) to strike a balance between the
interest of IP owners and public interest, the issues related to SEPs were
never explored to be addressed by the law.
As the issues related to SEPs have potential to directly impact public
interest, its right time for the legislators to explore possibility of suitable
changes in the law or clarification of law to address the issues related to
SEPs.
The
patent act 1970 through section 66 has also provided tool for revocation of
patent in public interest that reads as “Where
the Central Government is of opinion that a patent or the mode in which it is
exercised is mischievous to the State or generally prejudicial to the public,
it may, after giving the patentee an opportunity to be heard, make a
declaration to that effect in the Official Gazette and thereupon the patent
shall be deemed to be revoked”. Though
the provision has rarely, in fact has never been invoked (at-least in my
knowledge), there should be some clarify on the term “generally prejudicial to
the public”, and whether the section 66 can be a potential tool to revoke the
SEP, if the public interest is undermined due to abuse of dominance by the SEP
holders. Here are some of the proposal
that can be incorporated through appropriate amendments after careful
evaluation.
Proposed
Legislative Measures:
(i)
Addition of grounds of revocation: A addition
group of revocation under section 64 can be added to enable revocation of
patent in case of failure of timely disclosure of essential patents related to
a standard by a member or non-member of the associated standard, especially
when the patent makes a claim of it being a SEP, to avoid any potential patent
hold-up issues.
(ii)
Requirement under section 146 rules 131
requiring disclosure on working on patents in form-27 to clearly state if the
patent is a SEP and associated standard, if any, for which the patent has
potential of becoming SEP. Though, most
of the SSOs require disclosure of the IP by member of the SSOs, the obligation
is mostly contractual and may not have binding effect in the law of land, and
hence a suitable legislative measure in this regard is required to avoid
practice of patent hold-up.
(iii)
Avoid injunction by the court if bona-fide
intent is shown by the potential licensee: Courts should refrain itself from
granting injunction in suits initiated by the SEP holders without giving
reasonable opportunity to the potential licensee to prove a bona-fide intent to
take a license from the SEP holder.
(iv)
Limiting the right conferred by a patent in
case the patent is an SEP.
(v)
Provision for “license of right” should be
explored in order to ensure license of the patent to a potential licensee at
RAND terms. Section 46 of the UK Patent Act 1977 (as amended) provides a patent
proprietor with the possibility of having an entry made on the register that
licences are available as of right under a patent. By having a patent endorsed “licences of
right”, a patent proprietor effectively offers any third party the opportunity
to have a licence under the patent, on reasonable terms. If terms of a licence
cannot be agreed between the parties then the UK Patent Office sets the licence
terms[1].
A similar provision can be made in India, as it benefits both the right holder
and the potential licensee. Through this
provision, the patent holder can get rebate on the annuity fee as well.
Though, it is well perceived
notion that the interference of Govt. in IP commercialization can undermine
interest of the right holders, the same cannot be said for SEPs, as unregulated
SEPs create opportunity for abuse of dominant position of right holders. Legislative
measure to address issues related to SEPs has also been discussed and explored
during thirteenth session by the WIPO standing committee on the law of patents[2]. The legislative measures are also required in
absence of any on strong enforceability within India for contractual violation
by members of SSOs with respect to agreement of the members with the SSOs.
Requirement of legislative measures have also been left in recent cases which show
uneven negotiating power of IP owner and potential licensor, especially in case
of SEPs, where mutual contracts, especially with unreasonable terms of NDA, may
not be right tool for executing the licensing agreement. The advantages of these solutions are that
they are universal, and also apply to non-participants in the standard-setting
process.
3.
Guidelines
for Standard Setting Organizations (SSOs)
The proposed policy
framework should also define the guideline/obligation for standard setting
organization, especially with respect to adaptation of technology for setting
the standard and terming any patent essential for standard. The rationale behind FRAND is that it
benefits the inclusion of patented technology in technical standards while
ensuring that the holder of SEPs should not abuse the dominant market position
it gains from widespread adoption of a voluntary technical standard. It has clearly been observed by the
communities over the world that Patents are essential to implement a chosen
industry standards, and those patents (SEPs) cannot be exploited like any other
patent, and certainly not to the exclusion of other market participants.
SSOs
should also ask members to identify their most restrictive licensing terms and
conditions, including the maximum royalty rate, basis of royalty (whether
smallest tradable unit or the end product etc.), that they would demand if
access to their patents becomes necessary to implement the standard. Such
disclosures, made in advance of a standard being selected, provide SSO members
important information that allows them to choose a standard based not only on
technical merit, but also on the cost of accessing the IP needed to implement
that standard.
Selection of SEPs should be
one of the essential part during standard making. Members should must disclose all granted and
pending applications, which should be examined by a team of SSO with respect to
their essentiality and should be termed as SEP only if their essentiality is
established at a broad level. Members
should also disclose in future any granted and pending application in order to
allow SSOs to evaluate essentiality and terming those patents as SEPs. Members should essentially disclose the IPR
which might be essential if that proposal is adopted and the law should be
amended accordingly to ensure invalidation/revocation of IPRs in absence of
such disclosure.
The SSOs should have a
transparent system in which technology standards are adopted, and should have
clear IP policy requiring binding obligation on the members to disclose their
IP.
3.1
Representation
of Government
To
make the system more transparent, wherever possible or for standard having
potential to impact public at large, there should be representation of the
Govt. during standard making process.
3.2
Onus
of SSOs to monitor SEP
Having
technical experts in its panel, the SSOs should have an onus to monitor SEPs
and evaluate IP declared by its members to determine whether the disclosed
patent is essential for the standard or not.
There should be guideline on what becomes an essential patent and what
should be reasonable terms and conditions for licensing the SEPs.
Washington District Court in Microsoft Corp. v. Motorola Mobility, Inc. 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.
The
judgement very broadly defines the term SEPs and has never been examined by any
other court in other jurisdiction, which leaves a question mark on the merit of
the definition itself. With this very broad definition of SEP, the SSOs have to
have obligation to define a transparent way in which any patent become SEPs and
how they should be licensed. As some of the standards set by the SSOs are
directly impacting the public interest, the SSOs can’t be an elite club of
influential corporate houses and a tool for the elites to secure dominant
position. SSOs should take onus to
getting the license from the IP owners and make them available at FRAND
terms.
3.3
IP
Policy of the SSOs
IP
policy of the SSOs should have some mandatory provisions to create binding
obligation on the members. Some of the essential provisions are listed as
below
-
Disclosure
requirement: IP policy should have a building clause for
disclosure of patent or pending applications by the members on timely manner
(may be within 6 month of claim being grated or application being filed). The
ANSI Patent Policy Guidelines suggest that, in order to encourage early
disclosure of essential patents, one or more requests be made to participants
during the development of standards for the disclosure of essential patents.
Such a request could be made by including it in letter ballots or in requests
could be repeated at working group(s) or by a semi-annual notice given to each
participant. The Guidelines, however, clarify that participants in the
standards development process are not required to conduct a patent search of
their own or others’ patent portfolios. The Guidelines also suggest that the
ASD makes it clear that any participant in the process, and not only a patent
holder, is permitted to identify or disclose essential patents. They state that
it is desirable to encourage disclosure of as much information as possible
concerning the patent, such as the identity of the patent holder, patent
number, information regarding how it may relate to the standard being developed
and relevant unexpired foreign patents. Further, the Guidelines encourage
disclosure of existing pending US applications, although there may be an issue
of confidentiality regarding unpublished applications and uncertainty as to
whether the application would mature into a patent and what the scope of the
claims in the granted patent would be
-
Disclaimer
to offer license on FRAND terms: Written declaration by the
member to grand the license of SEPs on FRAND terms without any discrimination
between existing or potential licensees should be mandatory. Agreement to grant the SEPS on FRAND terms
should be the primary requirement when any technology is adopted by the SSOs
and they must ensure that the FRAND terms are used in essence. Deviation of
set-guideline of FRAND should be treated as violation of agreement and should
be linked with loss of IP rights.
-
Royalty
base: Declaration by the members that they will negotiate Royalty
for the SEPs based on smallest saleable component. The same view on royalty
base has been suggested by the CCI and even by the some SSOs for example
IEEE-SA. There can be an indicative price of royalty
set by the SSOs, and share/percentage of each member, which respect to
contribution of claim in the technology should be defined by the SSOs for each
member. For example the SSO can define that the highest royalty rate for a
compliant smallest saleable component would be “X” percentage of the cost of
that smallest component, and royalty share for company A be M percentage of X,
company B be N percentage of X and like that.
-
Injunction
Against potential Licensee:
Member can’t seek, or threaten to seek, injunction against potential
licensee who are willing to negotiate for license.
-
NDA:
Terms
of the NDA for execution of licensing agreement can’t hide the SEPs in question.
SSOs around the world have raised the issue of Patent Hold-up and Royalty
Stacking in view of non-conformity of FRAND practices by licensors which gets
complicated due to the discriminatory NDAs.
Hence, there is a need to frame an acceptable framework for NDAs, in
case both the licenser and licensees consider it as obvious in some cases. To supplement, SSOs should seek advanced
binding commitments from members before a standard is accepted.
-
Bundling
of SEP patent with other patents: The member should not
bundle SEPs with other patents of the members, as this create an unfair
practice and lead to abuse of dominance.
3.4
Patent
Pool
The
stacking up of royalty rates is a major issue, particularly in the IT industry
where thousands of patents are involved in a single product. In the instance of multiple royalty rates,
that too with jacked-up values, at times the viability of profit diminishes,
and thereafter, the burden shifts to the customer. A probable solution,
although somewhat hard, would be step-down royalty rate or total royalty
pool. For step-down royalty rate, the
share of each subsequent SEP holder will diminish as per a present declining
rate. This makes sure that the multiple SEPs bring in their patents and the
cost of the standard is disclosed to the SSO.
Patent
pool managed by the SSOs can be a suitable option that may benefit all the
members and potential licensees. SSOs or
any appropriate administrative body should facilitate patent pool for SEPs and
define portion of royalty to be made to each SEP holders. By doing so, chance of a single member getting
an unreasonable royalty, undermining the interest of other member can also be
avoided. SSOs/ administrative body can
work in coordination with Patent offices and should keep an eye on any
potential patent-hold up. An attempt should be made to include maximum patents,
those are essential for standard. A suitable royalty model for sharing of
royalty among members can be explored.
In order to bring more transparency and
predictability to the overall royalty price for the implementation of
standards, some propose a new model (“Industrial
Royalty Pie” model). In the telecom environment which is characterized by
complex and dynamic standards having broad technical scope and long evolution
cycles over many years, it is felt that a mere ex ante disclosure of licensing
terms at the SSO is not effective, since it is too early for prospective patent
owners to put a meaningful price tag on the technology. The Industrial Royalty
Pie model therefore combines the ex ante process with other measures so that
both individual royalty rates are FRAND-compliant and cumulative royalty rates
are reasonable.
3.5
Special IP policy for Standards
enforced/recommended by Govt. /Law
There
should be guideline from the Govt. for licensing of patents relating to technical
requirements that are imposed by law, referred as technical regulations based a
defined framework. There should be special guideline for licensing SEPs under
FRAND for SEPs related to standards that are enforced by Govt./ law (like
encryption Techniques, security features in automobile or medical devices etc.).
4.
Miscellaneous
Further question arises
about scope of claim and rights protected for possibly changed claim in
different countries. As IP rights are
territorial in nature, all family of a patent can’t be essential. For example,
a patent granted in US may be SEP, while the same patent granted in India may
not be, as its scope of protection may have varied during prosecution, and
again onus lies on the SSOs to compile the SEPs for different jurisdiction.
Special care should be taken
by Govt. agency before issuing any ruling on a standard to be followed, keeping
in view the potential IP licensing issues related to SEPs.
