INTRODUCTION
Indian Standard Essential Patent holders have increasingly faced the wrath of competition law watchdogs, often for exercising rights well within the patent law regime. Recently in FTC v Qualcomm[1] the United States Court of Appeals boldly observed that ‘FRAND’ or ‘Fair Reasonable and Non Discriminatory’ disputes are “better resolved by contract and patent law than antitrust law” while additionally putting it on record that “…the present unprecedented application of antitrust law risks a foundational abrogation of the U.S. patent system and its incentives to innovate”.
Although in agreement with the Court of Appeal’s view, making an entire piece on this line of action could be termed optimistic and unrealistic by competition law enthusiasts. The present piece, without prejudice to the alternative provided by the US Court of Appeals, attempts to find out whether there exist any and enough defences within antitrust law itself globally to safeguard SEP holders from antitrust liabilities.
This piece, vide part I, encapsulates the concepts in this area and the rationale behind them and vide part II it highlights the implications of insertion of Section 4A by the Competition Amendment Bill, 2020. Finally vide part III it first reproduces the Indian competition jurisprudence, which tilts towards findings of abuse against SEP holders, and then offers arguments from global antitrust jurisprudence, in consonance with what Section 4A proposes to do.
Part I. Understanding SEPs
SEPs form a specific class of patents which become essential to the making of a standard, thereby rendering the manufacturing of a product (say a handset) impossible without infringing upon the concerned SEP (say WiFi), resulting in a greater probability of exploitation by SEP holders of prospective licensees. Common SEPs in the past, in the telecom sector, have been 2G, 3G, 4G[2] and Wifi patents.
SEPs are usually directed to be licensed on terms which are Fair, Reasonable and Non- Discriminatory (FRAND) by Standard Setting Organisations (SSOs)[3] to prevent, inter alia, a SEP holder (licensor) from charging unfair and exorbitant royalty rates from licensees. This is done, considering the latter’s little bargaining power, to additionally prevent the resultant hiking of end price of the product, the burden of which is ultimately transferred by the manufacturer/licensee to the consumer.
Part II. Insertion of S.4A by the Competition Bill, 2020
The Draft Competition Amendment Bill, 2020[4] seeks to insert Section 4A, while simultaneously removing the erstwhile Section 3(5)[5], which exempted exercise of IP rights only from anti-competitive agreements. The proposed S.4A exempts exercise of IP rights, viz. seeking of an injunction for infringement or imposition of reasonable conditions by SEP holders from both anti-competitive allegations under S.3 and abuse of dominance allegations under S.4. Many have criticised the approach as being overly protective of intellectual property holders and resultantly troublesome for the competition regime. However, the following head would analyse how this proposed amendment is in accordance with various global antitrust precedents, and necessary to address the skewed position that was/ is being followed in India.
The below-mentioned precedents would also prove fruitful till the time or in the absence of Section 4A becoming operative.
PART III. SEPs, Infringement and Allegations of Abuse: The skewed Indian position and a global rebuttal
Indian competition jurisprudence regarding SEPs, particularly 26(1) orders of the CCI[6], have more often than not believed that an SEP holder when charging differing royalties, requiring the signing of an NDA and/or seeking an injunction for infringement of SEPs, undertakes prima facie abuse of dominance. A summary of these observations has been pointed out below, succeeded by a global rebuttal to each of these observations.
“Transparency is hallmark of fairness. Both forcing a party to execute NDA and imposing excessive and unfair royalty rates prima facie was abuse of dominance and violation of section 4 of the Act.” [7]
“Refusal of OP to share commercial terms of FRAND licences with licensees similarly placed to the informant, fortified the accusations of the Informant, regarding discriminatory commercial terms imposed by the OP.”[8]
“…there is good ground to hold that seeking injunctive reliefs by an SEP holder in certain circumstances may amount to abuse of its dominant position. The rationale for this is that the risk of suffering injunctions would in certain circumstances, clearly exert undue pressure on an implementer and thus, place him in a disadvantageous bargaining position vis-a-vis an SEP holder.” [9]
It would have been acceptable had the court directed replacement of such acts with other less restrictive alternatives, recognising that some of these are rights conferred by the Patent Act, but wholly another for it to impose antitrust liability u/s 4.
The aforementioned acts/allegations can be then addressed under the following sections of the Competition Act, which is purely a personal attempt to facilitate making out a case, if any, for their objective justifications from antitrust precedents globally.
Allegation of charging excessive and unreasonable royalties could be addressed under S.4(2)(a)(ii) which prohibits charging of unfair and discriminatory pricing. (Note: Fair and non-discriminatory, is a requirement common to both FRAND terms and this section)
Discriminatory- Offering different royalties has often been considered violative of S.4. However, a counter position is that not every license concluded previously by the patentee can serve as a reference for the next license offer[10], thus enabling different rates. Further, non-discriminatory has been interpreted not to mean uniformity of conditions.[11]
Unfair- The allegation of unfairness is subjective in the absence of any categories. We can thus zero down to two globally accepted parameters, looked into while ascertaining unfairness of royalties:
Percentage of royalties- A counter to the allegation of demand of a high percentage of royalty by a licensor could be the opinion rendered by Chief Judge Davis in Ericsson v. D-Link[12]: that an SEP holder “does not violate its RAND obligations by seeking a royalty greater than its potential licensee believes is reasonable.”.
Base of percentage- The argument of basing royalty on the component technology and not the final sale value of entire product would be countered by the Delhi HC’s ruling in the Ericsson vs. Intex case where it had relied upon the American case of CSIRO vs. CISCO[13], and resultantly rejected the arguments that royalty should be based on chipset price and set it as 3.5% of the net selling price of devices.
Allegation of the imposition of an obligation to sign an NDA for patent licensing negotiations could be addressed under S.4(2)(a)(i) which prohibits imposition of unfair conditions. In Ericsson v Intex[14] on the contrary, the Delhi High Court has held that a Non-Disclosure Agreement is a sine qua non in every licensing deal, particularly in patent licensing negotiations which entails exchange of various confidential business and technical information between the parties
Seeking an injunction for an SEP infringement could be addressed under S.4(2)(c) for causing denial of market access. Section 48, Patent Act confers on a patentee the exclusive right to prevent third parties from using its patents without consent, while S.4(2)(c), Competition Act prohibits the act of causing denial of market access without making the former an exception. To address the above discrepancy, reliance may be placed by a licensor on the American Supreme Court’s Noerr-Pennington doctrine which established that a good-faith request for relief is immune from antitrust liability.[15] Wathelet says that an SEP holder should be able to request an injunction against an implementer that, although ostensibly negotiating licensing terms, does so in a manner that is “purely tactical and/or dilatory and/or not serious”.[16]
The European Commission reiterated this approach in the Google/ Motorola Mobility[17] case where it said that an SEP holder’s request for an injunction might be legitimate when applied “against a potential licensee which is not willing to negotiate in good faith on FRAND terms.[18]”
Commissioner Joshua Wright of the US Federal Trade Commission (FTC) has observed that[19] the “position that an SEP holder violates the antitrust laws simply by seeking an injunction … clearly departs from the symmetry principle as antitrust law does not generally prohibit the holder of any other property right from seeking an injunction to vindicate that right.”
Commissioner Wright has further noted that “there is no economic evidence available to support” that “seeking injunctive relief … is itself anti-competitive.” [20]
Conclusion
CCI’s investigation orders against SEP holders for prima facie findings of abuse has made it extremely easy for licensees to get away with infringement. Contrary to what the Patent Act stipulated vide section 106[21] viz., prevention of threats by a licensor to bring an infringement suit, the situation now is subverted, with an imminent threat of institution of an action for abuse of dominance, dangling like a sword on SEP licensors. This provides, to a certain extent, the rationale behind the proposed insertion of Section 4A.
What remains, however, to be seen is whether this would result in balancing the interests of stakeholders, or lead to a further clash between the two, with S.4A, Competition Bill providing legitimisation of seeking an injunction for IP infringement and S.106 Patent Act enabling court intervention for groundless threats of infringement proceedings, considering that none of these sections distinguish between willing and unwilling licensees.
This article has been authored by Kritika Narayan, Final year student, Amity Law School, Delhi (GGSIPU).
[1] FTC v Qualcomm Incorporated, 19-16122, 08/30/2019, ID: 11417451.
[2] TCL v. Ericsson United States District Court Central District Of California Case No: Sacv 14-341 Ns(Dfmx) 2017.
[3] European Telecommunications Standards Institute (ETSI) Intellectual Property Rights Policy, December 2019, Rule 6 found here https://www.etsi.org/images/files/IPR/etsi-ipr-policy.pdf.
[4] The Draft Competition (Amendment) Bill, 12th February 2020
[5] The Competition Act, 2002, § 3(5), No. 12, Acts of Parliament, 2003 (India).
[6] Micromax v Ericsson Case No. 50/2013 | 12-11-2013, Intex v Ericsson Case No. 76 Of 2013 | 16-01-2014.
[7] Intex Technologies (India) Limited v. Telefonaktiebolaget LM Ericsson (Publ) Case No. 76 Of 2013 | 16-01-2014.
[8] Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson (Publ) Case No. 50/2013 | 12-11-2013.
[9] Telefonaktiebolaget LM Ericsson v. Competition Commission of India, 2016 SCC OnLine Del 1951 para 199.
[10] Sisvel v Haier docket no. KZR 36/17 (German Federal Court decision dated May 2020).
[11] Case T-201/04, Microsoft Corp. v. Comm’n, 2007 E.C.R II-3601, at 811.
[12] Ericsson Inc. v. D-Link Sys., Inc., No. 6:10-CV-473, 2013 WL 4046225, at 25 (E.D. Tex. Aug. 6, 2013.
[13] CSIRO vs. CISCO judgment (United States District Court for the Eastern District of Texas Tyler Division).
[14] Telefonaktiebolaget LM Ericsson (PUBL) and Ors. v Intex Technologies (India) Ltd (2014) Delhi High Court, CS(OS) No. 1024/2014.
[15] 9 Pennington, 381 U.S. 657; Noerr, 365 U.S. 127; see also Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 56 (1993); City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 379–81 (1991).
[16] Opinion of Advocate General in Huawei Technologies Co. Ltd v. ZTE Corp., Case C‑170/13, ¶ 88.
[17] Google/Motorola Mobility, Case No. COMP/M.6381.
[18] Id. at ¶ 126.
[19] Joshua D. Wright, Comm’r, Fed. Trade Comm’n, Remarks at the 2014 Milton Handler Lecture: Antitrust in the 21st Century, Does the FTC Have a New IP Agenda? 20–21 (Mar. 11, 2014), http://www.ftc.gov/system/files/documents/public_statements/288861/140311ipagenda.pdf.
[20] Id. at 18.
[21] The Patent Act, 1970, S. 106.
Picture Source: Kyocera Global
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