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SEPs and FRAND Status in India

India is one of the fastest growing economies of the world and is expected to become the 5th largest economies in the world. Contrary to other major economies of the world, the IPR commercialization and enforcement activities in India are not that widespread at present. There are not many entities which hold SEPs in India. However, with constant efforts by Indian Government, the situation has gradually started to change. In November 2013, SDO - Telecommunications Standards Development Society, India (TSDSI) was formed to enable Indian technology companies to contribute in development of global telecom standards. TSDSI is recognized by Govt. of India. TSDSI is a partner of ETSI and represents Indian stakeholders in international telecom standardization organizations [1].

Telecom sector is one of the largest markets of India and it has also witnessed the most number of SEP and FRAND disputes in past few years. Ericsson is one of the top SEP holders in India and has been involved in most SEP and FRAND cases. In India, matters related to SEP infringement are heard by courts whereas Competition Commission of India (CCI) mainly hears disputes related to FRAND terms in SEP agreements. Thus, there is an overlap between the jurisdictions of the courts and the CCI. This may lead to conflicting decisions by the two institutions and may delay the litigation process. Therefore, there have been occasions when the court has ordered the CCI to not pass orders on matters pending in the court. One thing of interest is that almost every SEP related litigation in India has been filed in Delhi High Court.

In several cases, the court has referred to decisions in other jurisdictions, such as US and EU, which have much more experience in dealing with such SEP litigations. The Delhi High Court has mainly relied on comparable license to determine FRAND royalty rate. The court has tried to balance the interests of both SEP holders and technology implementors. In cases where the implementer was prima facie found to be an unwilling licensee, the court has not refrained from granting an interim injunction. However, the court has also been ready to lift the injunction if the implementer is ready to deposit interim royalty payments determined by the court for the duration of the litigation. In such cases, the SEP holder is also required to submit a bank guarantee. However, these are still early days for SEP & FRAND related disputes in India. In July 2018, Delhi High Court delivered India’s first ever post-trial judgement in an SEP litigation case filed by Philips [2]. The decision left a lot of questions unanswered such as, failure to (i) independently assess essentiality of SEPs, (ii) analyse claim construction in detail, and (iii) assess FRAND terms in detail. It can be said that, with time, the SEP and FRAND dispute resolution procedures in India are gradually maturing. However, there is still a long way to go before the Indian legal system becomes a preferred destination for SEP related matters.

China’s increasing dominance in SEP market:

In Early 2000s most declared SEPs were filed in the United States, Europe and Japan. Recently, there has been a shift in this trend as the Chinese (including Taiwanese) and Korean markets have been expanding in size, and the proportion of declared SEPs in Germany, Japan and the United States has been falling. The USPTO's share for SEPs has radically declined from around 90 percent in 1992 to under 30 percent in 2015. On the other hand, in China, SEPs share have gained momentum to somewhere in the range of 10 to 20 percent since 2011 [3].

Therefore, there is no uncertainty that we are witnessing a progress away from US predominance to a multipolar push for SEPs. The growth of SEPs from the China can be attributed to Large Telecom Chinese companies, such as Huawei & ZTE. The Chinese companies have brought the country on the world map in terms of SEPs. In recent years, China has become a big player in SEP market. For 4G LTE and LTE Advanced standards, Huawei and ZTE are among the top 10 SEP holders in the world. Further, Huawei has one of the strongest SEPs portfolio in the world of the upcoming 5G technology. As China has developed into a major market for the overall communication technology business, its public policy, court decisions, and private business techniques concerning SEPs and FRAND are probably going to have a worldwide effect in the high-technology sector.

China’s High People’s Court of Guangdong had issued SEP guidelines [4] (Note: all appeal cases concerning patents have been heard by Intellectual property court of the Supreme People's court since Jan.1 2019 due to the establishment of a national-level appellate trial mechanism for IP cases in China). The Court details how local courts resolve SEP-related disputes, including how they determine FRAND royalty rates when certain conduct violates China’s anti-monopoly law, and, importantly, the circumstances that will result in an injunction. Similar to the European Union’s approach, China’s guidelines emphasize the balance of interests among SEP holders, licensees and the public in making these determinations. To determine the royalties, China guidelines favour a top-down approach by which royalties are computed on the basis of the number of SEP patents an owner has relative to the total number of SEP patents, adjusted by comparable licenses. While the guidelines leave it open for courts to use other methods, the prescribed approach will likely dominate.

In the landmark case of Huawei v. IDC concerning the disputes on SEP license royalties, IDC held patents essential for the telecom 3G standards. IDC had participated in the relevant standard-setting organization and provided a FRAND commitment. The two parties held a long-term negotiation, but they did not reach an agreement on the amount of licensing fees. Therefore, Huawei initiated an action and requested the court to determine the license royalties in accordance with FRAND principles. Based on Chinese law, the Guangdong High People’s Court comprehensively considered the quantity, quality, and value of the relevant SEPs, the share of patents in the standard, and the relevant licensing conditions. The court found that IDC had violated the Anti-monopoly Law by requesting excessive rates and seeking an injunction at the US ITC. The court finally determined that the licensing rate should not exceed 0.019%. The royalties decided by the Court was that Huawei needed to pay IDC for Chinese SEPs in China. The Court’s decision was limited in scope to royalties in China, instead of globally [5].

To climb up the ladder, the Chinese companies are not just developing patents which are standard essential but are also acquiring the same to stay ahead in the race of SEP holders. Following are some of the major Patent Acquisitions by Chinese Companies:

Xiaomi: In October 2015, Xiaomi bought a large portfolio of patents from Broadcom. In June 2016, Xiaomi also bought 1,500 patents from Microsoft [3].

Huawei: In September 2012, the company bought seven US patents relating to telecommunications from Siemens. In May 2013, Huawei bought 84 US patents covering telecommunications from Sharp. In June 2013, Huawei bought 14 US patents relating to software and wireless networking from NCR [3].

Lenovo: In March 2014, the company acquired 21 patent families covering 3G, LTE and other mobile communications technologies from Unwired Planet (NPE) for USD 100M. In April 2014, Lenovo bought more than 3,800 patent families covering 3G, LTE and various wireless device features from NEC [3].

All these developments and activities in China give a clear indication that there is major focus of Chinese Govt. as well as Chinese companies to not just stay in the race of SEPs but also win it. It seems like a conscience effort of China to lead the way as they are doing in all other technology fronts.

References: [1] [2] [3] [4] [5]

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