The judiciary’s shadow over standard essential patents

• There is a possible crisis brewing in India over the manner in which certain technology companies are wielding ‘standard essential patents’ (SEP) against the telecom manufacturing sector in India.

Key highlights

• This is a complex policy issue which has direct ramifications for India’s effort to build a domestic manufacturing industry for cellular phones.
• So far, the issues of regulating SEPs have been left to the judiciary, which, as an institution, has mostly missed the ball.

Importance of SEPs.

• These are patents that cover technologies which are adopted by the industry as “standards”.
• For example, technologies such as CDMA, GSM, LTE are all industry standards in the telecom sector.
• Such technological standards are especially important to ensure interoperability of different brands of cellular phones manufactured by different companies.
• For example, once GSM was adopted as a standard, all manufacturers had to ensure that the handsets that they manufactured were compatible with GSM.
• Otherwise there would be no demand for their phones.

Opaque model

• The process of setting standards in the technology sector is largely privatised and dominated by “standard setting organisations” (SSOs) run largely by private technology companies.
• Countries such as India with little innovation in the telecom sector, have very little influence over how standards are set or how SEPs are licensed.
• The lack of alternatives also means that owners of SEPs can demand extortionary royalties or licensing terms from manufacturers that block competition.
• In economics, this is called the “patent holdup” problem.
• In theory, the SSOs are supposed to prevent such a scenario by requiring the owners of SEPs to licence their technologies at a fair, reasonable and non-discriminatory (FRAND) rate.

Draft patent amendment rules undermine pre-grant opposition

• In practice, this model of self-regulation by the technology industry has been marked with opacity
  • And has failed rather spectacularly, as evidenced by the record fines that some of these SEP owners have had to cough up across the world for engaging in anti-competitive practices.

The effect of judicial lethargy and activism

• The Indian response to the issue has been characterised by both judicial lethargy and judicial activism at the Delhi High Court.

Prelims takeaway

• Judicial activism