Resolving patent wars through competition law

Financial Express, March 31, 2014

By Pradeep S Mehta

The order also raises the issue of third-party access on fair and reasonable terms, which our judiciary is yet to comprehend

The recent orders of the Competition Commission of India (CCI) asking its director general to investigate Ericsson’s alleged anticompetitive conduct raises issues lying at the crossroads of IP rights (IPR) and competition. The order also raises the issue of third-party access on fair and reasonable terms, which our judiciary is yet to comprehend.

Indian companies Micromax and Intex are the respective complainants in the two CCI orders directing investigation. One issue specific to the Micromax case relates to the overlapping jurisdiction of various agencies. As reported, Ericsson and Micromax had engaged in negotiations and litigation before the complaint was filed before the CCI. Earlier parleys included Ericsson’s requested royalty rate, an interim royalty agreement and mediation between the parties. Such mediation did not succeed, partly because of Ericsson’s refusal to reveal licensing agreement terms with similarly situated parties. Another off-putting development on this is the order by the Delhi High Court directing CCI director general and CCI not to issue report and final orders on the Micromax case.

The central concern in these two cases is the demand of unreasonable and unfair royalty. Standards based on patents have been predicated as engines of growth. Standard-setting also enhances competition by ensuring that products from multiple manufacturers are compatible and interoperable. However, there are risks to such collaborative standard-setting—patent hold-up, royalty stacking and chilling innovation by ‘locking in’ industry to a standard. In such a situation, a standard can acquire market power as there can be no alternate technology.

It needs to be ensured that market power coming from the patents essential to a standard—called standard essential patents (SEPs)—is not exploited by anticompetitive practices. One way to ensure this is by eliciting ‘fair, reasonable and non-discriminatory’ (FRAND) licensing commitments by the owner of the SEP. Ericsson is a member of the European Telecommunications Standards Institute (ETSI), an international non-profit standard-setting organisation, and is required to grant licence on FRAND terms.

During a standard-setting process, patent owners holding SEP-related patents commit to licence their patents under FRAND terms to all would-be users of that standard. Two key objectives of FRAND can be discerned: First, such licensing ensures that the patent owner gets a reasonable royalty. Second, it ensure that the patent owner does not abuse his dominant position.

The Competition Act in India provides that there will be abuse of dominant position if an enterprise or group imposes unfair or discriminatory price in purchase or sale of goods or service.

In the Micromax case, the royalties prescribed by the Delhi High Court in its interim order appear to be considerably high. Further, if Ericsson succeeds in this litigation, there can be a typical case of ‘royalty stacking’ as there is high probability that Micromax will be sued by every other owner of an essential patent. It is required that royalties be based not on the entire product but instead on the ‘smallest saleable patent practising unit’. The other important point is that reasonable royalty will also help to promote respect for IP.

Recently, a Dutch court affirmed that Samsung cannot pursue injunctive relief as long as Apple appears willing to negotiate a licence agreement on FRAND terms. It is important to ensure that the FRAND commitment by patent owner in lieu of market leverage gained through standard needs to be respected.

Borderless technology requires matching preparedness at the global levels. The need is to create platforms for discourse between institutions dealing with these emerging issues. FRAND commitments help in technology transfer, voluntary IP licensing and also aim at curbing patent wars. Competition law, as a second-tier of regulating the IP, has an important role to play in realising FRAND licensing’s benefits in India.

The author is secretary general of CUTS International. Saket Sharma of CUTS Institute for Regulation & Competition contributed to the article

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