A Standard Essential Patent (SEP) is a patent that protects technology so crucial to an industry standard that it is impossible to follow the standard without using that patented technology. These standards are meant to ensure that devices and products from different manufacturers can work together smoothly and consistently.
Common disputes around SEPs typically involve disagreements over licensing terms, especially what constitutes Fair, Reasonable, and Non-Discriminatory (“FRAND”) conditions, issues of patent hold-up versus hold-out, and questions surrounding the grant of injunctive reliefs. These disputes often pit patent holders, who seek to enforce their rights under the guise of innovation protection, against implementers, who argue against exploitative licensing terms and anti-competitive practices.
The jurisprudence on the licensing of Standard Essential Patents (“SEPs”) in India is still in its early stages when compared to more mature foreign jurisdictions. A well-recognized truism that “law always lags behind technology” often rings true in this domain. Nevertheless, Indian courts—especially the Delhi High Court—have taken significant strides in shaping a coherent legal framework around SEP licensing. They have drawn from foreign jurisprudence while adapting principles to suit the distinctive realities of the Indian legal and technological landscape.
This article aims to examine the trajectory of Indian jurisprudence on SEP disputes, analyze whether Indian courts are equitably balancing the interests of SEP owners and implementers, and evaluate whether recent trends reflect a shift toward favouring one side disproportionately.
I. Established Legal Principles Governing SEP Licensing
- SEPs as New Species of Patents
In Nokia v. Oppo, the court asserted that SEPs differ from other patents as they are recognized as a distinct category. SEP owners hold a dominant market position because no alternative technologies meet the standard except their patented technology. Consequently, SEP owners have fewer rights compared to other patentees. Their rights are limited by their commitment to a Standard Setting Organization (“SSO”), such as the European Telecommunication Standards Institute (“ETSI”), which is recognized by the Department of Telecommunications in India. This commitment requires SEP owners to license their patents to “willing licensees” on Fair, Reasonable, and Non-Discriminatory (“FRAND”) terms. As a result, SEP owners cannot freely choose licensees, set license terms unilaterally, or seek injunctions against infringers without prior negotiation.
- FRAND
In Lava International vs Ericsson, all the individual elements of FRAND, i.e., “Fair,” “Reasonable,” and “Non-discriminatory, were explained:
- “Fair”: Licensing terms should be just and equitable, respecting both the patent holder’s contributions and the licensee’s rights.
- “Reasonable”: Royalty rates should reflect industry norms and the patent’s economic value, avoiding excessive or exploitative charges.
- “Non-discriminatory”: Licensing terms must be consistent across all licensees, irrespective of their market size or influence.
- Established Principles of Law
Following are the settled principles of law governing the licensing of SEP derived from landmark foreign case laws- Huawei v. ZTE, Unwired Planet v. Huawei; Indian case laws- Intex v. Ericsson, Lava International v. Ericsson, Oppo v. Interdigital; Delhi HC Rules:
- SEP owners must notify the alleged infringer of the infringement, detailing how the SEP is being violated.
- If the alleged infringer agrees to negotiate on FRAND terms, the SEP owner must provide a written offer specifying the royalty and its calculation.
- The alleged infringer must respond promptly and in good faith without delaying tactics.
- If the alleged infringer rejects the offer, they must make a counter-offer aligned with FRAND terms.
- If the counter-offer is refused, the alleged infringer must provide security, such as a bank guarantee or a deposit.
- If no mutual agreement is reached, an independent third party may determine the FRAND royalty rate.
- Industry practice often involves global licensing of patent portfolios without establishing the essentiality or validity of individual patents beforehand, which is a practical approach given inherent uncertainties.
- Standard-setting organizations do not verify patent essentiality or validity, so the implementer can challenge these aspects during negotiations, which strengthens the negotiation process. Implied acceptance of validity or essentiality will preclude this right of the SEP implementer.
- SEP owners must submit an infringement brief with claim charts mapping patent claims to the standards and detailing the infringement. Implementers may also file a non-infringement brief.
- To establish infringement, a two-step test (or indirect method) is applied: first, mapping the patent to the standard to confirm it is a SEP; second, demonstrating that the implementer’s device maps to the standard, similar to the Law of transitivity (A = B and B = C implies A = C).
II. Reliefs granted to SEP owners in Indian Courts
- Injunction
In foreign jurisdictions, injunctive relief in SEP licensing is rare due to anti-trust concerns. SEP holders often use the threat of an injunction to demand excessively high royalties, a situation also known as a “Hold-up.”
In contrast, Indian courts believe that restricting injunctive relief in SEP cases would shift bargaining power to implementers, devalue patented technologies, and discourage innovation. This could lead to a “Hold-out” situation, where infringers exploit the inability of SEP owners to seek injunctions, leading to protracted, expensive litigations and allowing the implementers to compel SEP holders to settle the licensing agreement below FRAND royalty rates.
- Damages
The court in Intex v. Ericsson held that awarding damages is different from determining terms of license. Also, damages can’t be equated with royalty. Indian courts are imposing excessively high damages in SEP disputes, as can be seen in Lava International v. Ericsson[HT1] , where damages worth Rs 244 crores were imposed on Lava (the implementer); this is the largest ever in the history of Indian patent litigation.
The court in this case, calculated damages on the entire SEP portfolio and not just asserted patents. Moreover, damages were calculated on the end product using the technology and not the Smallest Saleable Patent Practicing Unit (“SSPPU”), reasoning that the SSPPU-based approach considerably undervalues the patent’s contribution to the overall device, and royalties are calculated on end device[HT2] .
Also, the Court rejected Lava’s proposed “top-down approach” for calculating FRAND royalty rates, citing insufficient data and analysis to justify it. This method involves starting with the overall value of the standard and allocating a portion of that value to the patent in question. However, without a reliable data or analysis to support it, the approach was considered unworkable in this case.
Instead, the Court endorsed the “comparable licensing approach,” which relies on actual licensing agreements previously entered into by the SEP holder with similarly situated companies. Since Ericsson had signed licensing agreements with companies in positions comparable to Lava, these were treated as reliable benchmarks. Based on these comparisons, the rates offered to Lava were deemed to fall within the FRAND range.
- Pro-tem securities
The Delhi HC in Nokia v. Oppo held that payment of “pro-tem” security is the implementer’s obligation in the negotiation phase itself, relying on Huawei v. ZTE and the Delhi HC Rules governing patent suits, 2022. Moreover, the court held that such relief could be granted before dealing with the merits of the case where a prima facie case is made out in favour of the SEP owner.
Such a relief does not exist in foreign jurisdictions. The court said that, in India, the disposal of cases takes extensive time. While such suits undergo, infringers freely sell the devices and benefits to the disadvantage of SEP holders as well as other willing licensees; thus, assume an unfair competitive edge in the market. This peculiar Indian reality, different from foreign jurisdictions, was recognized by the court, and it held that the SEP holder can’t remain remediless till the final disposal of the suit.
As per the UK Supreme Court, SEP owners are entitled to be paid any royalty once the validity and essentiality of the patent are established. The Delhi HC held that such compliance is too onerous for SEP owners, and that too at the interim stage of the case. The court referred to para 151 of the UK Supreme Court’s case itself to assert that interim relief on SEPs has to be granted based on different legal regimes in different jurisdictions.
III. Conclusion
On the surface, it might appear that Indian jurisprudence favours SEP owners over implementers more than other jurisdictions. However, it is important to recognize that laws cannot be uniformly applied across different jurisdictions due to varying local realities. In India, patent owners are entitled to Intellectual Property Rights (“IPR”) for 20 years from the patent application date, as stipulated by Section 53 of the Patents Act, 2002. However, the patent grant process can take around 8-10 years, and patent rights are only enforceable once granted. If 4-5 years are spent in negotiations after the patent is granted, then only about five years are left for patent protection. If these 5 years are also exhausted due to frivolous lawsuits or hold-out strategies used by implementers, the patent protection will become otiose, and the value of the patent will be significantly undermined. In these circumstances, if the SEP owners’ rights are not strengthened, the purpose of FRAND licensing will be vitiated as implementers would get an asymmetric advantage over SEP owners.
The ‘F’ in FRAND stands for fairness, requiring that both SEP owners’ and implementers’ interests be considered in licensing agreements. Indian courts have appropriately upheld this fairness principle, ensuring that SEP licensing does not become a one-sided arrangement.
Indian Courts have not followed a blinkered approach, as they have stated that the application of their stance will depend on the facts and circumstances of the case. Also, an order of pro-tem deposit does not enrich the SEP owner’s account immediately, as the money is deposited in the court and is disbursed only when the outcome of the case is in favour of the SEP owner.
However, Indian courts need to be more vigilant while awarding such reliefs to SEP owners. At this point in time, they are balancing the interests of both parties. But, if granting pro-tem securities, injunctive reliefs, and hefty damages become a usual practice, then this balance will no longer remain equitable.
[HT1]Interesting post to read, https://spicyip.com/2024/04/some-thoughts-on-the-fairness-of-the-delhi-high-courts-ericsson-lava-frand-determination-part-ii.html
[HT2]The Court rejected Lava’s suggested “top-down approach” since there was not enough data or analysis to support it, and instead acknowledged the “Comparable Licensing approach” as the best way to determine FRAND royalty rates when awarding damages.
Authored by: Mr. Kartavya Rajput
A fourth-year B.A. LL.B. (Hons.) student at the West Bengal National University of Juridical Sciences, Kolkata.
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