The curious case of Standard Essential Patents

The beauty of startups is the unpredictability of how it will turn out a few years down the line. A few years back, Micromax had decided to venture into the mobile handset business. But now they are the 10th largest smartphone vendor in the world. But they were sued by Ericsson and are still contesting the matter in the Delhi High Court. So if you are a tech startup, watch out for potential infringement claims, and more so if you are in the information and communications industry.

The rampant smartphone wars which have been going on in different jurisdictions are all over the news. The battle started out between Apple and Samsung as infringement suits, and spread to various jurisdictions. Apple got favourable rulings in certain jurisdictions and Samsung in others...

In the middle of who’s suing whom there has been an instance where Samsung sued Apple claiming that Apple was infringing on a certain number of Standard Essential Patents owned by Samsung. The situation is not so different closer home. Quite a few suits have been started by Ericsson against home grown and Chinese mobile handset makers, namely Micromax, Xiaomi, and Intex. Ericsson is claiming that these defendants have been infringing on certain standard essential patents of Ericsson.

What is this hue and cry about Standard Essential Patents? Well, in order to explain Standard Essential Patents one needs to understand what standards are and their technological relevance. Standard-setting is the setting of rules or standards in different fields of technology through collaborative ventures between private groups with diverse organisational structures. For instance, the 802.11 wi-fi standards allow consumers to connect any wi-fi-equipped device to any network. This standard was set up by the industrial organization, the Institute of Electrical and Electronics Engineers (IEEE). Standardization is inevitable in any field of technology, however the need for standardization for the information and communication industries is acute. Old technologies become obsolete,, so do old standards, therefore standard setting organizations set standards which invariably fall within the ambit of patents owned privately.

If one recollects the idea behind the patent system, it clearly depicts how difficult it is to reconcile the interaction between patents which are primarily ‘private’ and ‘exclusive’ as against standards which are meant to be ‘public’ and ‘non-exclusive’. Therefore, the problem with Standard Essential Patents is that patent-holders engage in delays and hold ups, and do not negotiate reasonable terms for licensing these patents with the other market players.

Perhaps now is the right time to introduce another terminology ‘FRAND’, which is used alongside Standard Essential Patents. FRAND stands for fair, reasonable and non discriminatory terms in licensing with respect to Standard Essential Patents by the Patent owners. The usefulness of complex products and services in the information and communications industries often depends upon the interoperability of the components and products of different firms. To enhance the value of these complex products, competing manufacturers, customers, and suppliers participate in the standard setting practices for technological standards designing products and services. Therefore a hold up can lead to the high cost of the licensing to be shifted to the consumer and undermining the efforts of the Standard setting organization as well. Therefore FRAND licenses aid in preventing Patent Hold up and Royalty Stacking.

On the face of things this practice seems to be anti-competitive. Isn’t it? Therefore, Micromax and Intex did institute a complaint under the competition laws (Antitrust laws) of the country with the Competition Commission of India. Though investigations have been opened up against Ericsson, they haven’t reached finality yet. This is one of the instances of interfaces between intellectual property and competition laws.

The aim is to maintain the delicate balance between the scheme of the Patent law and Standard setting, to consider the interests of the patent owner and the interest of the public at large, including the interests of the consumers and the other competitors. Some issues involved here are complex; from the determination of what are FRAND terms to whether third parties are to be restrained in cases where FRAND-encumbered Standard essential patents are involved. Thus, whether the courts, with the competition commission alongside the framework of international trade, will fundamentally change the way these issues are looked at in future, will be answered in the years to come.

About the authors:

This post is co-authored by Gaurav Singhal and Harini Niveda. Gaurav is the Director and Principal IP Attorney at Patracode Services Pvt Ltd. A B.Tech in Computer Science, LLB from IIT-Kharagpur and Masters in Business Laws from National Laws School of India University, Gaurav has been working in the IPR field since many years. Harini Niveda is working as an IP Analyst at Patracode Services Pvt. Ltd. She is a Patent Attorney with experience in IP Litigation. She is a B.Tech (Hons) in Biotechnology, A Graduate and LLB (Hons) in IP Law from the IIT Law School.

(image credit: ShutterStock)