FRAND Licensing: Bridging the gap between Competition Act and Patent Act

Telefonaktiebolaget LM Ericsson (Public) (in short “Ericsson”) is a company having around 33,000 patents, and 400 of these patents have been granted in India. Most of these are Standard Essential Patents in the field of Mobile Communications like 2G, 3G and 4G which are used in the smartphones and such other devices, which are used for communication.[1]

Ericsson versus Micromax & Others

Lately, Ericsson filed a civil suit against many companies for infringements of its patents relating to the mobile communications, some of them were Mercury Electronics (Micromax),[2] Intex Technologies (India) Limited (Intex),[3] M/s. Best IT World (India) Private Limited (Iball),[4] Lava International Ltd (Lava),[5] Xiaomi Technology (Xiaomi)[6]. These companies in their defence asserted that Ericsson violated its FRAND commitment, made by Ericsson to the European Telecommunications Standards Institute (ETSI). ETSI made the patents of the Ericsson in the field of the mobile telecommunication as the Standard patents, and thus made them essential in nature. These patents are also recognised as standards within India by the Department of the Telecommunication, which recognises the standards adopted by ETSI.[7]

Most of the companies sell smartphones in India at a very reasonable price and common people who cannot afford the luxury of the Apple’s iPhone tend to buy such smartphones. Some of these companies being Intex,[8] Iball[9], and Micromax[10]and charged back on Ericsson by filing information under the Competition Act, 2002 against it, in which the investigations are pending.

Standard Essential Patents (SEPs) and FRAND Licensing

These disputes are becoming prevalent in the today’s market due to the lack of legal recognition of the FRAND Licensing in India. FRAND Licensing stands for Fair, Reasonable and Non-Discriminatory Licensing. They are sine qua non for widespread use of the Standard Essential Patents and hence, following the standards which are set by the Standard Setting Organizations (SSO).

The Jurisprudence of FRAND Licensing came to India with the filing of the civil suit by the Ericsson against Mercury and Micromax[11]. FRAND Licensing is a type of voluntary Licensing of the Intellectual Property, by the owner. The FRAND Licensing is done on the terms which are Fair, Reasonable and Non-Discriminatory. The Royalty set by such Licensing should be proportionate to the patented product and not exorbitant, it must be a reasonable one.[12]

The owner agree upon such terms to license the rights to the other persons, as the patent owned by the owner is a Standard Essential Patent (SEP) i.e. a patent which conforms to the standards set by the SSO, and without their compliance the products could not be sold in the market, because there are no non-infringing alternatives. Hence, SEPs are essential, to make a product conforming to the industry standards, and they face no competition unless and until that patent becomes obsolete.

These standards are set by a mutual agreement and consensus between the market players to reach upon compatibility between the services or products particular market under the aegis of the SSO.[13] These standards can also be fixed by statutory SSOs.

FRAND Licensing and Patents Act, 1970

FRAND Licensing tends to promote the objective for which patents are granted status of SEPS, as it allows the dissemination of the patent to the public, and fetches the appropriate amount of royalty to the companies who own SEPs. Section 83 of the Patent Act, which lays down the general principles which must be applicable to the working of the patented inventions, in its clause (a),(c),(f), and (g), includes within them certain objectives which are incorporates in the FRAND Commitment, which are as follows:

  1. that the inventions are worked on a commercial scale and to the fullest extent that is reasonably practicable without undue delay;
  2. that the protection and enforcement of patent rights contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations;
  3. that the patent right is not abused by the owner, and he does not resort to practices which unreasonably restrain trade;
  4. that patents are granted to make the benefit of the patented invention available at reasonably affordable prices to the public;

Further Section 84 which incorporates the provisions regarding the compulsory licensing, makes it a clear ground, that if the patented invention is not available to the public at a reasonably affordable price, one may apply for the Compulsory Licensing, after ascertaining, whether the applicant has made efforts to obtain a license from the patentee on reasonable terms and conditions and such efforts have not been successful within a reasonable period. Section 84 also provides for the Proviso to the above-mentioned condition that if any anticompetitive practices adopted by the patentee and same are established, then this condition shall not be applicable. Therefore, this section provides for the intersection with Competition Law, which is inevitable.

Competition Law Aspect of the FRAND Licensing

Section 3, of the Competition Act, 2002 which prohibits anti-competitive agreement, in its clause (5) clearly recognises “Reasonable” restriction which can be put on a party by the owner when a patent is being infringed or any of the rights which are conferred under the Patent Act, 1970. If the same is read with the Section 83 and 84 Compulsory License would be granted to the prospective Licensee if he is not getting License on FRAND terms.

Section 4 on the other side restricts the abuse of the dominant position. Once a patent gets the status of SEP, it is granted a dominant position in the particular market as, it hardly faces any competition, and enjoy such position of strength until it becomes obsolete. Clause (2), sub-clause (a) clearly, states that there would be the abuse of the dominant position if the enterprise imposes unfair and discriminatory prices on the consumers of its products. In the present case of Ericsson, it clearly has the Dominant Position in the market of the SEPs pertaining to the mobile telecommunications, and it abused it by charging unfair prices.[14] Hence, it was liable to grant a license, as compulsory license would have been granted after its establishment of Ericsson’s abusive conduct in the market.

Hence, FRAND Licensing is the combined product of the two aspects of the CompetitionLaw i.e. prohibition of anti-competitive agreement and prohibition of the abuse of the Dominant Position.FRAND Licensing, is a pro-competitive commitment by the SEP holders, as it provides irrevocable licenses to the market players, and in return, they tend to get a reasonable reward for their work. The persons owning the SEPs make FRAND commitment to the SSOs to License them on FRAND terms. FRAND Licensing protects the market from being exploited by the dominant player who owns the patent. It promotes the Standards as decided by the SSOs and demotes the Patent Hold-up.

Patent Hold-up

Patent Hold-up is another name for the abuse of dominant position by the SEPs owners.[15] They hold their patent with them after they are declared as SEP, unless the licensee does not give up to their conditions which may involve unfair pricing i.e. supra-competitive pricing, or more burdensome terms (as compared to previous licensing when they were not SEPs).[16] It undermines the competition in the market, by creating entry barriers and also subverts the authority of the SSO by playing fraud upon them i.e. gaining a status of SEP and committing to FRAND Licensing and then playing harsh upon the market player dependent upon such SEPs.

Conclusion

FRAND Licensing is field where the jurisdiction of Patent Act and Competition Act, intersect. They both have to be read in addition to each other, though Delhi High Court lately has held that Competition Act, is a general Act and Patent Act is a special Act in relation to it.[17] Though, the both Acts have to be read in consonance, and if necessary Competition Act, should given preference over the Patent Act in terms of Licensing Agreements, as Competition Act, represents “Public Interest”, which has been reflected in some instances, in Patent Act. FRAND Licensing is a softer version of the Compulsory Licensing, as it has all features of it, but lacks a legal backing. It is like mediation process in the era of litigation in court, which helps parties to decide terms on Fair, Reasonable and Non-Discriminatory terms. It is better this way as the prospective Licensee does not have to resort to the Controller unnecessarily and, he can approach to the SSO. A law should be brought in by the Legislature in India, which considers such situations.

Overall, there needs to be a co-ordination between, the statutory authorities especially between, Controller of Patents and Competition Commission of India, so that they could work towards the promotion of the “Public Interest” hence, implement the main objective of the Legislations and the Constitution of India.

[1] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[2] Telefonaktiebolaget LM Ericsson (Publ) v. Mercury Electronics & Anr, (2014) 206 DLT 423.

[3] Telefonaktiebolaget LM Ericsson (Publ) v. Intex Technologies (India) Limited, 2015 SCC OnLine Del 8229.

[4] Telefonaktiebolaget LM Ericsson (Publ) v. M/s. Best IT World (India) Private Limited (Iball), 2015 SCC OnLine Del 11684

[5] Telefonaktiebolaget LM Ericsson (Publ) v. Lava International Ltd., 2016 SCC OnLine Del 1354

[6] Telefonaktiebolaget LM Ericsson (Publ) v. Xiaomi Technology & Ors., 2016 SCC OnLine Del 2404

[7] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[8] Intex Technologies (India) Limited v. Telefonaktiebolaget LM Ericsson (Publ.), [2014] CCI 10

[9] M/s Best it World (India) Private Limited (iBall) v. M/s Telefonaktiebolaget L.M Ericsson (Publ) & Anr., [2015] CCI 104

[10] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[11] Telefonaktiebolaget LM Ericsson (Publ) v. Mercury Electronics & Anr, (2014) 206 DLT 423.

[12] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[13] Telefonaktiebolaget LM Ericsson (Publ) v. Intex Technologies (India) Limited, 2015 SCC OnLine Del 8229.

[14] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[15] Rambus, Inc., No. 9302, at 4 (F.T.C Aug.2, 2006)

[16] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ), [2013] CCI 77.

[17] Telefonaktiebolaget LM Ericsson (PUBL) v. Competition Commission of India and Another, 2016 SCC OnLine Del 1951



ABOUT THE AUTHOR

dhruv-chandora

DHRUV CHANDORA

Dhruv Chandora is currently pursuing 4th year of BA LLB (Hons) course at Rajiv Gandhi National University of Law, Punjab. A voracious reader and a keen learner, Dhruv is also a moot court enthusiast.

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