IPR strategy must be for greater public good

Recently, the Government announced the National Intellectual Property Rights Policy, with the major thrust being on incentivising IP holders through various measures. The Policy document also states that among various steps to be taken towards this objective would be to: “Examine availability of Standard Essential Patents (SEPs) on Fair, Reasonable and Non-Discriminatory (FRAND) terms.”

In the context of SEPs, it is imperative to point out that the success of the Policy, particularly vis-à-vis the IT and telecom sectors, will depend largely on whether implementation is done while simultaneously maintaining a proper balance in the larger interests of public good. Significantly, earlier in March, DIPP (Department of Industrial Policy and Promotion) had floated a Discussion Paper on “Standard Essential Patents and their Availability on FRAND Terms” with the goal of developing a suitable policy framework that defines the obligations of essential patent holders and their licensee.

As rapid developments keep occurring in diverse technologies, it’s important to understand how an SEP differs from a standalone patent. An SEP is a patent covering a technical standard set by a Standards Setting Organisation such as the IEEE (Institute of Electrical and Electronics Engineers), ETSI (European Telecommunications Standards Institute), et al. Such technical standards define specifications that companies comply with in producing products, thereby permitting uniformity in the marketplace. 

Considering the emphasis on connectivity and digitisation under the “Digital India” mission, there is tremendous demand for communication devices, mobile infrastructure products, M2M gadgets and other applications based on standards such as GSM, LTE, Wi-Fi, etc. 

Therefore, it is necessary to promote a fair and stable IPR regime that supports innovation along with checks and balances. This will ensure an SEP holder does not exploit its dominant position to extract royalty that’s not as per FRAND terms. It should be borne in mind that the success of a standard depends upon widespread adoption of underlying technologies.

Although the IPR Policy has ambitious goals of encouraging and incentivising IP creation, royalty generation and creating of values, it is crucial to appreciate ground realities. The moot point is: are Indian industry and research labs at an appropriate stage to capitalise upon these opportunities, with the wherewithal and investments to reach the next level? The past track record tells its own tale.

Given the ground scenario, it is necessary to adopt a combination of short-term and long-term strategies. For a patent strategy to yield positive returns in the long run, it is critical to recognise the immediate goal of product development based upon standards, where SEPs play a pivotal role.

In the Indian context, SEPs should be mindful of two key considerations – ensuring reasonable royalty rates and limiting the availability of injunctive relief Moreover, the “reasonable royalty rates” should only apply to the Smallest Saleable Patent Practicing Component. These two points are extremely significant.

Incidentally, IEEE – the global standards-setting organisation with many popular standards such as Wi-Fi, Bluetooth, etc. – adopted an amended patent policy for SEPs to bring better clarity on key terms of SEP negotiations. These included the definition of “reasonable rate” and the “availability of prohibitive orders” to limit the recourse to injunctive reliefs.

Prior policy framework left “reasonable rate” largely undefined, leaving the field open for patent holders to demand exorbitant royalties based upon a fixed percentage of the product price. This is totally unfair and goes against the letter and spirit of FRAND terms. In all fairness, royalty should be limited only to the specific SEP part, not the entire product. In today’s marketplace, many products use various functions based upon multiple standards. In such cases, a mechanism is required ensuring fair and reasonable royalty that is limited to SEP contributions only.

Limiting the availability of injunctive relief is necessary so that SEP owners are prevented from seeking injunctions while good-faith negotiations are underway between parties. The bar on injunctions should stand even if the SEP owner and product producer’s case is under adjudication or appeal regarding the SEP’s validity.

Even the Antitrust Division of the US Department of Justice has issued a  business review letter concluding that the proposed IPR Policy amendment by the IEEE has “potential to benefit” and , are pro-competitive.

Regulating SEPs and facilitating their availability as per FRAND terms is critical for India, especially to safeguard the larger public good as well as national interest, given the Government’s sustained thrust for “Make in India”, “Digital India”, and other development programs.

A nuanced approach to maintain the right balance between the exclusive rights of patentees and the interests of licensees is essential to enable the domestic telecom & IT manufacturing industry, amongst others, to succeed in meeting the ambitious agenda that the Government has set for them. Were this to happen, India could truly fancy its prospects of becoming a global manufacturing hub in the years ahead.