Recently, the Government of India’s Department of Industrial Policy and Promotion (DIPP) issued a request for comment on its “Discussion Paper on Standard Essential Patents and Their Availability on FRAND Terms”. In inviting comments, DIPP noted its goal of “develop[ing] a suitable policy framework to define the obligations of [Standard] Essential Patent [SEP] holders and their licensees.” On April 22, 2016, ACT | The App Association submitted detailed comments to DIPP. This blog post provides context on the importance of DIPP’s efforts to clarify the meaning of a commitment to license SEPs on Fair, Reasonable and Non-Discriminatory (FRAND) terms in India, and summarizes our comments on its discussion paper.

As we have discussed in previous blog posts on All Things FRAND, a cornerstone of the rise of the Internet of Things (IoT) is industry-led standards that preserve competition, promote innovation, and ensure interoperability among billions of sensors and other devices that are internet-enabled and share data almost instantaneously.  These standards are often built on contributions that include patented technologies and for which the contributor promises to license the patents covering those technologies on FRAND terms. Without the balance between patent licensor and licensee interests that the FRAND commitment ensures, many businesses who do not have the resources to pay exorbitant licensing fees or to “lawyer up” for years of litigation may be locked out from using these patented technologies essential to the implementation of key standards. This risk is particularly grave for small technology firms in India (like many of the U.S. and European firms that ACT | The App Association represents).

Where the risk materializes, consumers may also be deprived of important innovations that could have been developed by these firms.  Or where larger standard implementers are able to pay excessive royalties, those costs will be passed on to Indian consumers; unfortunately, higher priced technology products reduce their demand, thus impeding the government’s dreams of a digital economy that benefits all in India.  At the encouragement of competition agencies aware of these problems, a few leading standard development organizations (SDOs), such as the Institute of Electrical and Electronics Engineers (IEEE) – that we recently discussed in a separate blog post – have refined their patent policies to provide needed clarity around FRAND.  Most SDOs have not, however, so government guidance related to SEPs and FRAND obligations will also be essential to an IoT future that will improve lives across the planet in countless aspects, from health to finance to industrial control and beyond.

But it’s not just the future of IoT that relies on clarity around the FRAND commitment.  The telecom and computing industries, for example, are heavily dependent on standards, and enforcement of FRAND commitments is key to their continued success.  It is estimated that there are 250 standards in a notebook computer and 250,000 patents in a smartphone.  If allowed to flourish, patent abuses could undermine the Indian government’s ambitious initiatives such as “Make In India” and “Start Up-Stand Up”, and adversely affect domestic innovation and employment.

DIPP’s discussion paper has been released at an important time for several reasons.

First, the negative impact created by some patent owners abusing their FRAND obligations is now widely acknowledged as evidenced at least in part by the number and diversity of regulatory bodies that have recently taken steps to provide greater certainty around  the meaning of FRAND (for example, we recently blogged about a number of these developments in the Far East).

Second, key markets such as India will have a central role in creating digital economies that encompass every citizen and realizing an IoT-enabled future.

Third, DIPP, potentially in conjunction with the Competition Commission of India (CCI), stands well-positioned to unify the Government of India’s approach to FRAND obligations for SEPs, which could provide much-needed legal certainty among countless stakeholders.

In our comments to DIPP, ACT | The App Association:

  • Discusses how India’s 2002 Competition Act and its 1970 Patents Act establish a sufficient legislative framework to ensure that SEP licenses are made available on FRAND terms to all implementers. However, we also encourage DIPP to work with the CCI to provide further public guidance on the meaning of FRAND commitments and the working of SDOs, which would provide much-needed legal certainty to countless public and private stakeholders. A number of other jurisdictions have taken similar steps to fill in their respective legislative frameworks with formal and informal guidance, including the United States, the European Union, and others.
  • Urges that the establishment of an independent expert body to determine FRAND royalties and other terms is unnecessary, as the Indian courts, informed by our recommended DIPP-CCI guidelines, are best positioned to adjudicate infringement, validity, and enforceability of patents.
  • Explains how the Government of India can help ensure that SDOs are procompetitive and encourage innovation by promoting approaches consistent with the All Things FRAND principles, while at the same time avoiding overly-detailed or prescriptive mandates on SDO patent policies. For instance, consistent with many other jurisdictions, in India, SEP holders that have made FRAND commitments should only be entitled to seek injunctive relief in the very limited circumstances laid out in our comments.  Additionally, FRAND royalties should be proportional to the value of the patented invention without consideration of any uplift provided by standardization.
  • Notes that clear and timely guidance from government authorities helps private parties negotiating licenses for SEPs to better understand how disputes will be resolved, and provides extensive examples of other leading jurisdictions which have already done so.
  • Stresses that strict and consistent enforcement of FRAND commitments – using procedures that respect traditional burdens of proof and focus on the patent merits – is needed to protect potential licensees against abusive SEP licensing. Claimed SEPs are declared essential by their owners, with no involvement by SDOs to make sure the claimed SEPs are in fact essential.  SEPs asserted in litigation have fared extremely poorly.  Given those facts, there is no reason for DIPP to provide a shortcut for declared SEP holders to pressure potential licensees into paying exploitative or discriminatory royalties.

We are encouraged to see DIPP step forward to lead the Government of India in tackling these important issues before they result in extensive and expensive litigation, and look forward to further collaboration with the Department and others to develop an ecosystem that rewards innovation, investment and competition.