Protect intellectual property, for starters

Business Line, January 22, 2016

By Pradeep S Mehta

Digital India and Startup India will be affected in the absence of a regulatory set-up that encourages innovators.

The government is on a high gear to induce growth and create new jobs through wider entrepreneurship, the latest endeavour being the grand launch of the Start Up India campaign last week. Technology will play a critical role in this effort.

Enabling the poor through JanDhan-Aadhaar-Mobile (JAM) framework or augmenting the nation’s entrepreneurial energy, the triangle of technology, innovation and intellectual property protection has to be borne in mind by the government, courts and regulators.

Realising the hallowed objectives of initiatives such as Digital India, Make in India and Startup India depends on the facilitating framework of the economy to reap the fruits of technological innovation.

Think global

Thus it is time to rejig the thinking across industry, judicial and regulatory framework so as to enable formation of global startups in India.

Impetus to technology innovation is through R&D and enabling an intellectual property (IP) framework aimed at nurturing innovation. The draft National IPR Policy which we hope to adopt soon has the main objective to ensure a secure culture for fully realising the IP potential.

Let’s take example of the telecom sector, one of the fastest growing sectors in India. One stated mission of the National Telecom Policy 2012 has been to promote R&D, design in cutting edge ICT technologies and IP creation to promote entrepreneurship and manufacturing. Predominantly seen as a service sector, the time has come to take concrete steps to boost manufacturing in the telecom sector and cutting net imports of electronics to zero by 2020.

We also need to get into the global supply chains which would mean necessary imports, as that will be the future of international trade. Nearly sixty per cent of international trade is now through global supply chains, and India is a minor player.

Chinese companies are also active in global supply chains. China has steadily built up a culture of innovation and IP protection and has become a patent powerhouse.

Their companies are playing a major role in development of new mobile communication platforms. For instance Huwaei is having about 25 per cent of the world’s patents in 4G. Such a strong portfolio developed over time due to high R&D shows the strategy of the company to become a global leader.

Such notion of respect for the IP by promoting R&D will be beneficial for businesses in the long run as they seek to become global players.

Fair practices

In the global supply chains, technology standards are common platforms allowing products to work together. Standards are pervasive, interoperable, and are the drivers of innovation and dynamic competition. Complementary innovation implies that a product is made possible by the combination of patents.

Proprietary technology that has been declared essential to the implementation of a standard is referred to as a standard-essential patent (SEP). Multitude of patents and standards involved in consumer products such as cellphones increases the complexity of SEP licensing negotiations.

Within and across standards, patents go through a fierce competition phase to achieve the SEP status. Further, SEP holder has to forego the exclusivity of patent by agreeing with Standard Setting Organisations (SSOs) that the technology will be made available to all under FRAND (Fair, Reasonable and Non-Discriminatory) obligations.

Disclosure rules of the SSOs like European Telecommunications Standards Institute (ETSI) typically require participants to disclose patents or patent applications during the standard setting process before a standard is chosen. Licensing rules require that participants agree to license disclosed patents on FRAND terms.

Although agreed by the innovator to share IP on FRAND terms in case of SEPs, it does not imply that such technology and the related patents can be used without paying the royalties.

Over the last two years, the Delhi High Court and the Competition Commission of India have wrestled over the matters related to the SEPs. There have been interim orders in these cases indicating diverging views on the balance of interests between the SEPs holders and the users. Globally a norm has emerged that the SEP holder cannot pursue injunctive relief as long as the alleged infringer is willing to negotiate a license agreement on FRAND terms.

The assurance of FRAND licensing for the SEPs plays a crucial role in decreasing the possibility of injunctions that would remove products from the market. With disruptive innovation and constant improvements in a fierce price sensitive market, the product life cycle is short and injunctions can distress the manufacturer using SEPs encumbered technology in mobiles.

There have been earlier instances of ex parte injunctions in case of SEPs in India which it seems the courts have abstained later on, which is a good development.

Delaying and shrouding tactics will not work as has been established by the Delhi High Court order of December, 2015. Piercing corporate veil, the Delhi High Court found a leading Indian mobile company in contempt of Court’s earlier order for interim arrangement between parties to pay royalties for use of IP.

Curbing patent wars

This act of the parent company to incorporate a subsidiary to violate the court order of paying royalties for using the IP of the patent holder was not the correct approach as noted by the High Court. This case also points to a basic void amongst Indian companies of not respecting IP, and thereby not keen on R&D to develop their own IP portfolio.

FRAND commitments help in technology transfer through voluntary IP licensing thereby helping in curbing the patent wars. An interpretation of FRAND must discern the context in which such commitment is made.

It can be counterproductive to take recourse to intellectual property law or competition law to deal with SEP issue without first understanding the underlying voluntary contractual process which is aimed at development of innovative technology standards.

While the avowed goals such as Digital India and Startup India hinge on the dissemination, absorption and proliferation of technology, the time has come for a nuanced look at this complex motley of FRAND encumbered SEPs seen as the drivers of technological innovation.

Generally, regulators tend to activate their regulatory turf and jump into the fray disrupting the healthy sector. It needs to be borne in mind that sometimes regulating disruptive innovation can have chilling effects.

The writer is the secretary general of CUTS International. With inputs from Saket Sharma of CUTS Institute of Regulation & Competition.

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