Introduction
The Telefonaktiebolaget LM Ericsson (PUBL) v. Competition Commission of India case has emerged as a landmark legal battle at the intersection of patent law and competition law in India. On March 1, 2024, the Supreme Court, issued notices to Ericsson and Monsanto Holdings in response to CCI’s appeal against a Delhi High Court’s decision establishing the precedence of the Patents Act, 1970 over the Competition Act, 2002 due to the former’s status as a “special law”. However, while the primary contention is regarding jurisdiction, this case also brought Standard Essential Patents (hereinafter, referred to as SEPs) into the spotlight. These patents are granted for “protection of a technology that is essential to implementing a standard”. While SEPs play a critical role, they also present significant challenges pertaining to disputes over royalty rates and adherence to FRAND (Fair, Reasonable and Non-Discriminatory) licensing terms. Indian manufacturers, in particular, grapple with the absence of a well-defined regulatory framework governing SEPs, an oversight that is problematic given the country’s aspirations to establish itself as a major global player in technology. And let’s be honest, when patent disputes start resembling courtroom soap operas, it’s clear the system needs fixing!
The blog delves into the broader implications of these patents and examines the complexities surrounding them. Furthermore, it explores why India lags in addressing these issues and draws insights from global practices to propose actionable recommendations.
The challenges
SEPs are granted to protect functionality of technologies that adhere to established industry standards or simply put, protect inventions that are needed to make certain technologies work the same way everywhere. For instance, Wi-Fi or Bluetooth, operate uniformly across different devices, regardless of the manufacturer. As previously noted, they are integral to implementation of standardized technology, including 4G and 5G networks, facilitating compatibility on a wide scale. Generally, these standards are given by the Standard Setting Organization (SSOs), which are industry bodies responsible for developing and maintaining technical standards to ensure interoperability and compatibility across devices and technologies. While the importance of SEPs cannot be stressed enough, India faces notable challenges in regulating them due to a lack of SEP specific provisions in India’s patent law. Moreover, when a patent holder claims their patent as essential to a standard, they are generally required to offer licenses to other entities who need to implement that standard, on FRAND terms, as stipulated by the Standard-Setting Organization’s intellectual property policies. However, there is an absence of explicit thresholds on what constitutes “fair” or “reasonable”, leading to ambiguities in the interpretation of these obligations, which are currently judged on a case-to-case basis. While India attempts to align with international standards in adjudicating this matter, these standards are not legally binding within the country’s jurisdiction. Without enforceable FRAND terms, Indian companies could face unfair licensing practices that stifle both competition and innovation, thereby, potentially, increasing the cost of adopting essential technology.
The Ericsson Fiasco
One of India’s most contentious SEP disputes involved Ericsson, a global telecom leader and domestic mobile manufacturers Micromax, Intex and Lava. Ericsson, holding SEPs for 2G, 3G and 4G technologies, demanded royalties based on the entire market value of a device rather than just the patented technology. Indian manufacturers challenged these demands, arguing that they violated FRAND principles and suppressed competition.
The Competition Commission of India (CCI) intervened, investigating whether Ericsson’s licensing terms were anti-competitive. However, in the absence of a formal SEP regulatory framework, the case escalated to the Delhi High Court, which had to mediate royalty negotiations- a process that dragged on for six years (2013-2019).
This legal battle exposed major flaws in India’s approach to SEPs. The lack of clear FRAND guidelines has led to litigation overload, unfair market practices and barriers to startup entry due to high royalties and royalty stacking. Moreover, without a comprehensive SEP framework, India risks losing global competitiveness, discouraging foreign investment and stifling technological innovation.
Learning from Global Practises
Countries with clear SEP frameworks successfully balance patent protection and market competition, offering useful guidance for India.
In the European Union (EU), for example, the Huawei v ZTE (2015) decision settled a structured approach to SEP licensing. It is a settled principle that SEP holders cannot seek an injunction against a willing licensee unless specific requirements are met under the established procedural framework. For instance, the Court of Justice of the European Union (CJEU) ruled that SEP holders must first make a FRAND-compliant licensing offer and engage in good-faith negotiations before pursuing an injunction. Similarly, in Samsung v. Apple, the European Commission mediated to prevent Samsung from seeking injunctions for SEPs, emphasizing that such actions could be anti-competitive if the licensee is willing to negotiate. Moreover, the European Commission actively intervenes in disputes and has provided detailed guidelines to prevent patent holders from exploiting their position to demand excessive royalties. Japan, too, has developed a robust mechanism in place via the Japan Patents Office (JPO), and follows the system of proportional royalty rates to ensure the licensees are not unfairly burdened. This method typically involves calculating royalties based on the relative contribution of a patent to the overall standard, preventing excessive fees by ensuring that no single patent holder can demand disproportionate compensation. Furthermore, the method of calculation, generally used, is the “top-down” approach which assesses the contribution of all SEPs to the standard, thereby, dividing the total royalty burden instead of stacking it up against one party. This comes in stark contrast with Indian practices where SEP holders can even demand an interim royalty.
South Korea has taken it a step further, by adopting a more assertive approach of penalizing SEP abuses. This is evident by the fact that the Korean Trade Commission imposed a fine of $873 million on Qualcomm in 2016 for its unfair licensing practices. Additionally, South Korea has integrated SEP regulation into the domain of its competition law. In India, however, there is an absence of proactive enforcement and compulsory licensing provisions.
Way Ahead
To regulate SEPs and address existing gaps, India must look at implementing structured reforms that also align with global practices
First, incorporating SEP-specific provisions into patent law is crucial. The Draft Patent Manual should establish clear criteria for determining fair royalties, considering India’s manufacturing ecosystem. The guidelines could adopt either the Smallest Saleable Patent-Practicing Unit (SSPPU) or the Entire Market Value Rule (EMVR), depending on factors such as market demand, industry practices and the patent’s contribution to the final product. SSPPU ensures royalties are based on the smallest unit incorporating the patented technology, preventing inflated royalty rates, particularly in multi-component devices. Conversely, EMVR applies when a patented innovation significantly drives consumer demand, justifying royalties based on the product’s total market value. While EMVR can lead to higher royalty fees, it is warranted when the patented feature is integral to the product’s commercial success. In India’s evolving SEP landscape, domestic manufacturers favour SSPPU to control costs, whereas major SEP holders advocate for EMVR, arguing that their innovations are central to product functionality. Striking a balance between these models is essential for fair licensing and market competitiveness.
Second, transparency in SEP licensing must be mandated. Unlike Japan’s JPO, which requires early disclosure of licensing terms, India has no framework ensuring transparency. A national SEP registry could require patent holders to disclose royalty rates and licensing agreements in real time, preventing disputes over retrospective FRAND commitments and ensuring fair negotiations.
Third, India should establish a dedicated tribunal to handle SEP disputes efficiently. Modelled after the European Commission’s proposal for a centralized competence court for SEP mediation, such a tribunal could streamline proceedings and ensure uniform interpretation of FRAND obligations. The current reliance on general courts and the Competition Commission of India (CCI) has led to delays and inconsistent rulings due to a lack of specialized technical expertise.
Lastly, India must actively engage with global SEP frameworks. Collaboration with the European Telecommunications Standards Institute (ETSI) and adherence to international standards, such as the IEEE’s (Institute of Electrical and Electronics Engineers) patent policy on reasonable licensing rates, will facilitate smoother technology adoption and strengthen India’s position in cross-border licensing negotiations.
Conclusion
The regulation of SEP’s in India remains an evolving challenge, with multiple cases serving as a reminder of the legal ambiguities that persist. Given that SEPs are central to the future of emerging technologies such as 5G, AI and IoT, India’s path to becoming a tech powerhouse must include a strong legal and regulatory foundation for these patents. Moreover, to solidify its position as a global tech leader, the absence of clear guidelines surrounding SEPs becomes a significant hurdle, not only for domestic manufacturers but also for international players looking to enter the Indian market. Therefore, the country can draw important insights from international best practices. The European Union’s structured SEP licensing approach, Japan’s transparency in royalty negotiations and South Korea’s integration of SEP regulation into competition law as opposed to India’s conflict between the two, all provide useful examples. By learning from these practices, India could develop a system that balances patent rights with market competition. After all, innovation should drive competition, not litigation. Otherwise, tech companies and startups might soon need a legal team larger than their R&D counterparts just to negotiate a license.
This blog is written by Samidha Jha- 1st Year, National Law Institute University, Bhopal