Comparative Analysis of Policy Developments

Abstract

The regulatory mechanisms and public policies governing licensing of Standard Essential Patents (SEPs) are constantly adapting to the needs of the high-tech industry and evolving jurisprudence. This chapter focuses on policy changes in five jurisdictions—the United States of America (USA), the European Union, China, Japan and India. We outline areas of policy convergence and divergence in global standard setting and SEP licensing among them. Policymakers and technology specialists in each jurisdiction have a certain vision of improving the current framework governing standardization and SEP licensing in the interest of multiple stakeholders.

1 Introduction

Intellectual property protection has enabled several economies to develop their high-tech industries rapidly and usher in new technologies. These developments have enabled countries to create valuable technology-intensive exports in the globalized and interconnected world.¹ Innovation and technological progress have played a vital role in the economic development of such countries. To this end, domestic policy framework, legal context, and the regulatory architecture governing high-tech standard development process, patenting, and commercialisation of high-tech innovation has played an incredibly important role.

With the increasing need for seamless interconnectivity between products and necessity of interoperability, jurisdictions across the globe have developed regulatory mechanisms to govern the licensing agreements for licensing of SEPs. These regulatory mechanisms and policies are undergoing constant change with the frequent challenges that arise in the domain of patent licensing. In this chapter, the focus shall be on the legal and policy developments in five jurisdictions—United States of America, European Union, China, Japan, and India. The policy development in each of these jurisdictions varies from each other, and a comparative study of these five jurisdictions allows us to have a complete understanding of global patent licensing. The following sections shall discuss the relevant policy changes in each of these jurisdictions.

2 India

2.1 Overview of the Indian Patent System

The Indian Patent system is currently governed by the Patents Act, 1970 which succeeds the Indian Patents and Designs Act, 1911. The 1970 Act brought about multiple amendments as per the recommendations of the Justice N. Rajagopala Ayyangar Committee. The Patents Act, 1970 disallowed product patents on medicines and chemical fertilizers, reduced the process patents on chemicals, and empowered the Patent Controller to grant compulsory license.²

As a part of the larger WTO commitments, India agreed to comply with the TRIPS Agreement, which came into force from January 1, 1995. India amended its patent laws to comply with the TRIPS Agreement in 1999, 2002, and again in 2005. Through these amendments incremental changes were made to the Patents Act to comply with the TRIPS mandate.³

The Central Government is empowered under the Patents Act to make relevant rules to implement the Act.⁴ Patent Rules were amended in 2003 and 2016 in order to keep up with the changes to the Patents Act.⁵

2.2 Indian Law and Licensing

For a discussion on Standard Essential Patents and licensing, it is essential to analyze Chapter XVI of the Patent Act, 1970 with a special focus on Section 84, and Chapter XXIII with a special focus on Section 140. Chapter XVI contains the following sections:

• Section 84 deals with compulsory license. Any person may apply for the grant of a compulsory license of a patent provided the patent is not reasonably accessible in India, or not worked in in India, or not available at a reasonable price.

• Section 85 provides for revocation of patents by the Controller for non-working of the patents in India. If the patented product is not reasonably available in India or is not available at an affordable price, then the Controller can grant compulsory license.

• Section 86 deals with the power of the Controller to adjourn applications for compulsory licenses. Section 87 deals with the procedure for dealing with applications under Section 84 and Section 85.

• Section 87 deals with the procedure for dealing with applications under Section 84 and Section 85.

• Section 88 deals “with the powers of the Controller in granting compulsory licenses. Section 89 covers the General purposes for granting compulsory licenses and provides that Section 84 be exercised ‘with a view to securing general purposes’, which means that patented inventions are worked commercially in India ‘without undue delay and to the fullest extent that is reasonably practicable’; or that the interests of any person who is working or developing an invention India are not unfairly prejudiced”.⁶

• Section 90 enables the Patent Controller to lay down the ‘terms and conditions’ on which the compulsory license should be issued.

• Section 92 enables the Central Government to issue compulsory license.

• Section 92A enables the government to issue compulsory license to export pharmaceutical products to meet the public health emergency faced by another country.

• Section 93 states that grant of any compulsory license shall operate as a deed executed by the patentee under certain terms and conditions as settled by the Patent Controller.

• Section 94 deals with the termination of compulsory license.

Chapter XXIII deals with ‘Miscellaneous,’ and Section 140 provides for ‘Avoidance’ of certain restrictive conditions.

It is also essential to briefly discuss the Competition Act 2002 since the provisions of this Act impact Standard Essential Patents as well. Section 3 of the Competition Act, 2002 deals with anticompetitive agreements, and abuse of dominance is dealt by Section 4. Under the existing Act, Section 3(5) specifically protects the rights under IP or Copyright regime subject to reasonable conditions in cases of anticompetitive agreements. However, a similar protection is not available under Section 4.

The Competition Law Review Committee published its report in 2019 in which it was recommended that in cases of:

abuse of dominance, a defense allowing reasonable conditions and restrictions for protecting IPR may be provided. The Committee stated that since the Competition Act, 2002 explicitly mentions this defense in Section 3(5)(i) for anti-competitive agreements, a specific defense should also be provided in relation to Section 4 to avoid any uncertainty.⁷

The Committee stated that this defense should be narrowly construed, in line with international jurisprudence. In line with this recommendation, a defense was included in Section 4A of the Draft Competition (Amendment) Bill, 2020.

2.3 National IPR Policy

The National Intellectual Property Rights (IPR) Policy 2016⁸ was adopted on 12th May 2016.⁹ In the National IPR Policy, the Union Cabinet stressed upon enhancing the marketability of Indian IPRs and called for greater investments, private sector intervention, research and development efforts, academic insights as well as human capital development by building specific skill sets that are required in all creative and technology-oriented sector. The IPR Policy suggests regulatory amendments such that maximum protection of IPRs can be ensured. The amendments also included administrative restructuring to can reduce compliance cost and make compliance procedure more efficient.

The policy covered seven objectives namely—IPR Awareness: Outreach and Promotion, Generation of IPRs, Legal and Legislative Framework, Administration and Management, Commercialization of IPRs, Enforcement and Adjudication and Human Capital Development.¹⁰ The examination of availability of Standard Essential Patents (SEPs) on fair, reasonable, and non-discriminatory (FRAND) terms is among one of the goals of the National IPR policy.¹¹

While the National IPR Policy includes some positive measures to streamline IP-related administrative processes and talks about introducing new measures to bolster IP enforcement, the policy has not been able to offer predictability, clarity and transparency for improved investment and business decisions around IPRs.¹²

2.4 India’s Digital Initiatives

2.4.1 Digital India

Digital India is “an umbrella program that covers multiple Government Ministries and Departments. It weaves together many ideas and thoughts into a single, comprehensive vision so that each of them can be implemented as part of a larger goal”.¹³ The program focuses on “Digital Infrastructure as a Core Utility to Every Citizen; Governance & Services on Demand and Digital Empowerment of Citizen”.¹⁴

Digital India “aims to provide the much-needed thrust to the nine pillars of growth areas, namely Broadband Highways, Universal Access to Mobile Connectivity, Public Internet Access Program, e-Governance: Reforming Government through Technology, e-Kranti - Electronic Delivery of Services, Information for All, Electronics Manufacturing, IT for Jobs and Early Harvest Program. Each of these areas is a complex program and cuts across multiple Ministries and Departments.”¹⁵

2.4.2 Make in India

As part of the national building initiative, the ‘The Make in India’ initiative was started in September 2014. With the motto of “Minimum Government, Maximum Governance” the initiative aimed to overhaul the cumbersome processes so that India can tap into its potential and become a global hub for manufacturing and design.

The Make in India is built on collaborative efforts between various departments of the government and business enterprises. This was initiated through the DIPP which coordinated with the various government agencies at the Union and State level and also brought together Union Ministries, industry leaders, and various knowledge partners.

The initiative is designed to “facilitate investment, foster innovation, enhance skill development, protect intellectual property, and build best in class manufacturing infrastructure in the country. The primary objective of this initiative is to attract investments from across the globe and strengthen India’s manufacturing sector”.¹⁶

2.5 DIPP Consultation Paper

The Department of Industrial Policy and Promotion issued a consultation paper¹⁷ on Standard Essential Patents and their availability on FRAND terms in March 2016, and sought views and comments of stakeholders. The paper gave an overview and of the concepts of Standards, Standard Essential Patent, patent hold-up, FRAND, patent pooling, and cross-licensing. The Paper also gives an overview of Competition Law issues vis-à-vis Standard Essential Patents and the roles different SSOs play in the standardization process. The judicial approach toward Standard Essential Patents in United States of America, Europe, Japan, and China are also discussed along with an overview of the existing framework for SEP in India. In the most intriguing final section, the Paper offers a lists of issues for resolution. Several responses were received by DIPP, but no final report was released for this consultation paper. The DIPP raised 13 questions around SEPs, which are listed below:

• (a) Whether the existing provisions in the various IPR-related legislations, especially the Patents Act, 1970 and Anti-Trust legislations, are adequate to address the issues related to SEPs and their availability on FRAND terms? If not, then can these issues be addressed through appropriate amendments to such IPR related legislations? If so, what changes should be affected.

• (b) What should be the IPR policy of Indian Standard Setting Organizations in developing Standards for Telecommunication sector and other sectors in India where Standard Essential Patents are used?

• (c) Whether there is a need for prescribing guidelines on working and operation of Standard Setting Organizations by Government of India? If so, what all areas of working of SSOs should they cover?

• (d) Whether there is a need for prescribing guidelines on setting or fixing the royalties in respect of Standard Essential Patents and defining FRAND terms by Government of India? If not, which would be appropriate authority to issue the guidelines and what could be the possible FRAND terms?

• (e) On what basis should the royalty rates in SEPs be decided? Should it be based on Smallest Saleable Patent Practicing Component (SSPPC), or on the net price of the Downstream Product, or some other criterion?

• (f) Whether total payment of royalty in case of various SEPs used in one product should be capped? If so, then should this limit be fixed by Government of India or some other statutory body or left to be decided among the parties?

• (g) Whether the practice of Non-Disclosure Agreements (NDA) leads to misuse of dominant position and is against the FRAND terms?

• (h) What should be the appropriate mode and remedy for settlement of disputes in matters related to SEPs, especially while deciding FRAND terms? Whether injunctions are a suitable remedy in cases pertaining to SEPs and their availability on FRAND terms?

• (i) What steps can be taken to make the practice of crosslicensing transparent so that royalty rates are fair and reasonable?

• (j) What steps can be taken to make the practice of patent pooling transparent so that royalty rates are fair and reasonable?

• (k) How should it be determined whether a patent declared as SEP is an essential patent, particularly when bouquets of patents are used in one device?

• (l) Whether there is a need of setting up of an independent expert body to determine FRAND terms for SEPs and devising methodology for such purpose?

• (m) If certain standards can be met without infringing any SEP, for instance by use of some alternative technology or because the patent is no longer in force, what should be the process to declassify such a SEP?¹⁸

2.6 The TRAI Consultation Paper and the Recommendation Papers

The TRAI Consultation Paper and the Recommendation Papers (January and February 2018, respectively)¹⁹ set the foundations for the National Digital Communications Policy (NDCP) 2018 by identifying the goals, scope, and stakeholders for the policy. The two papers are important for they set the foundational tone for the policy by (1) identifying the goals and the stakeholders of the policy, (2) redefining the scope of the policy to keep it in line with its goals, and (3) suggesting the focus areas for the policy accordingly. Post liberalization, the Indian Telecom sector witnessed the influence of four major policies with the following focus areas.

The National Telecom Policy, 1994 was brought about with the vision of providing universal service that connected all villages by year 1997.²⁰ The New Telecom Policy, 1999 repeated a similar vision of provision of Universal Service that extended to unconnected rural areas with a new deadline of 2002.²¹ It envisioned all district-headquarters having Internet access by year 2000. Then in 2004, the Broadband Policy came about recognizing the role of broadband services in multidimensional development of the country and need to lay down the infrastructure facilitating the same. It estimated the number of Internet subscriptions to reach 40 million and that of broadband to reach 20 million by year 2010.²²

The next major policy that offered radical changes was the National Telecom Policy, 2012 It came after a substantial gap, but it put forward a vision of bringing about some major transformations in the country. With the primary aim of accelerating economic growth and enhancing the contribution of the telecommunications sector, the Department of Telecommunications (DoT) selected the areas of policy, licensing, and coordination among various forms of communication. It sought for international cooperation in telecommunication matters; promoting standardization and R&D and funding for the same; and aimed at calling in more private investment.²³ Thus, when asked to give suggestions for the 2018 policy, the TRAI began with analyzing thoroughly the 2012 policy first to derive at a concrete, far-reaching strategy for the 2018 Policy. Accordingly, the Consultation Paper, sought suggestions from various stakeholders clearly establishing that the focus shall be on enabling ease of doing business, achieving infrastructural coherence with advances in the fourth Industrial Revolution, and building a strong domestic IPR market that attracts global attention for investment.

One of the early realizations of the stakeholders was that since the policy is bound to affect the entire ICT sector, it was imperative to widen the scope of the policy and the same should be reflected in the title of the Policy too. Thus, propositions were made to change the title from the traditional “National Telecom Policy, 2018” to “National Information and Communication Technology Policy-2018”. Another focal point of discussion was the subscription rate in the rural areas, an aim unfulfilled from the previous policy and carried forward to the current one after modifications.

Widening the scope of the policy automatically brought to attention the inevitable need to converge the networks, which would be necessary for efficient utilization of resources. This would require extensive research and development to bring about innovative changes in technology—an issue that was discussed in the consultation meetings. The stakeholders also realized that this kind of digital transformation of country’s economy and industry necessitated recognizing telecommunication networks as essential infrastructure in addition to the physical ones. The discussions also emphasized on making telecom services more reliable, prompt, and cost-effective to support other related missions of the Government such as ‘Digital India’.

The TRAI consultation meetings also focused on the national vision of having a knowledge-based economy in the country. The discussions drew attention toward the decades old framework for calculating licensing fee and spectrum usage charges, and the danger of “cascading of levies” due to converging nature of the Internet-ways. Suggestions were also made to streamline multiple pending litigations in matters related to Adjusted Gross Revenue (AGR) in telecom.

To prepare for the fourth Industrial Revolution ahead in time, the TRAI Consultation Paper suggested that the Right of Ways permissions should be granted expeditiously and in a transparent manner. From the revenue perspective, logical suggestions of freeing the infrastructure for non-government use were welcomed. Keeping the consumer interest and data literacy paramount, the Consultation Paper suggests development of data centers for the government telecom schemes to reach the rural and uncovered areas. It emphasized on the potential of the ‘Propel India’ mission to the possibility of becoming a pioneer in the upcoming Industrial Revolution in consonance with the similarly floated policies of the Government of India like Digital India,²⁴ Smart Cities Mission,²⁵ Start-up India²⁶ and Make in India.²⁷ The government has aided these objectives by providing for incubation centers, expert guidance, encouraging research and development, and financial aid. To support these plans, the policies also realize the need for developing globally comparable standards and design uniformization and effectuating easy and transparent licensing of the same.

The emphasis on widening the scope of the policy and building a strong, sustainable, coherent, and flexible telecommunications infrastructure comes into an even better perspective when viewed through the lens of the Industrial Policy released by the Department of Industrial Policy and Promotion in 2017. Since liberalization, India’s industrial policy focused on certain key elements including abolishing industrial licensing, attracting foreign investment, improving Indian access to advanced technology (mostly foreign technology with limited technology transfer), improving innovative capacity, and to nurture healthy competition among the Indian industries.

While over the years India has made consistent progress in industrial controls and FDI, the industry continues to face challenges in the other areas. These challenges include the problems of inadequate infrastructure the quality of which can match global standards, convoluted and tedious business environment with high compliance costs, slow shift in technology, low levels of productivity, reduced global demand for domestically manufactured products and services, unattended research and development and innovation sector.

2.7 The National Digital Communications Policy

The National Digital Communications Policy (NDCP)²⁸ was rolled out by the Department of Telecom in May 2018 with the agenda of preparing a digitally connected India for the future. The Policy, while acknowledging the global shift to 5G, aims at achieving widespread, grassroot-level broadband connectivity and suggests laying down the requisite infrastructure. Some of its strategic objectives include—broadband for all, creation of numerous jobs in the Digital Communications sector, enhancing the productivity of the Digital Communications sector by harnessing most efficient and affordable innovation and technology, encouraging Research and Development (R&D), and attracting investment.

The mission strategizes the accomplishment of the objectives through easing the infrastructural limitations in digital communications by according the telecom infrastructure a status of ‘Critical and Essential Infrastructure’ similar to the railways and roadways. The measures include replacing the existing infrastructure with a more advanced, efficient, and durable systems and equipment; by relaxing the taxes, levies, spectrum usage charges (SUCs), service cost and simplifying compliance obligations to harness investment and innovation; and by creating a roadmap for synergizing emerging technologies in the telecom sector. Being mindful of the ever-changing nature of technology, the Policy takes cognizance of developing such networks, devices and systems that can easily be ported to or can adapt to such advancements, promising a more judicious use of resources. The Policy aims to leverage Artificial Intelligence and Big Data to enhance the quality of service to attract global attention and interest as well as serve domestic needs. It also stresses upon the need for enhancing domestic manufacturing and creating a Preferential Market Access to domestic products and services.

The NDCP 2018, most importantly, places a heavy reliance on an IPR regime that not only incentivises innovation, but is in congruence with the objectives of the National IPR Policy, 2016. This is imperative for this forms the backbone to strengthening domestic participation in international and collaboration standard development processes that are the bedrock of the high-tech digital communication sector. In this context, an ideal IPR regime must be able to bring the Indian IP standards at par with the global standards by facilitating access of essential background IPR to domestic manufacturers and innovators on fair, reasonable, and non-discriminatory (FRAND) terms.

The NDCP 2018 echoes similar objectives as the National IPR Policy 2016 whose vision is to make India scientifically and technologically efficient such that creativity and innovation can prosper.²⁹ Interestingly, there are more than just these many similarities between the objectives of the National IPR Policy and the NDCP. The National IPR Policy emphatically mentions the need to create awareness about the nature of IPR regime that the country needs to adopt, the need to reverse the concerns of right holders toward IPR as well as public’s faith in the Intellectual Property for their betterment in the fields of health, food, and environment. Covering the rural and remote areas specifically in this regard is also likely spirited in the policies. Just like the NDCP, the National IPR Policy also stresses upon enhancing the marketability of Indian IPRs and calling for investments, private sector intervention, research and development, academic insight as well as human capital development by building specific skill set required in the sector.

The vision and implementation plan of NDCP 2018 is multi-dimensional and includes three missions—Connect India, Propel India, and Secure India, which are explained below.

2.7.1 Connect India

The Connect India mission fulfills the DoT’s vision to meet the Internet-based communication and information needs of all the citizens of the country through a well-laid infrastructure for digital communication. The factors that are emphasized upon in pursuit of this mission are socio-economic imperatives of citizens, quality of service and sustainability of the environment. The aim is to accomplish several goals by year 2022, including providing universal broadband coverage at a minimal desired speed to (a) every user covering all villages, (b) key development institutions, and (c) educational institutions; a fixed line broadband reaching all households; an increased ‘unique mobile subscriber density’; widespread deployment of public Wi-Fi Hotspots; and connectivity to all hitherto uncovered areas.

2.7.2 Secure India

The vision delivered by the Secure India mission is to establish a data protection regime that is aligned with the legal framework governing data privacy, autonomy, and choice of individuals. The mission emphasizes safety and standardized security of digital communication where the standards are set in consonance with the global standards arrived at after paying due consideration to our indigenous needs. The mission ensures data sovereignty and principles of net neutrality, while ensuring institutional accountability. The mission also ensures that there is an efficient registry that is fully functional for addressing security, theft, and other data-related issues. One of the most promising goals of the mission is to develop a Public Protection Disaster Relief (PPDR) plan for better preparedness in times of natural disasters.

2.7.3 Propel India

The Propel India mission comes across as the most ambitious but challenging mission of the policy. The primary goals of the mission include calling for a substantial increase in investment by private and foreign entities in the digital communications sector in India. Accordingly, the policy makes plans for making some ambitious legislative and administrative amends to enable the sector to attract investments worth 100 billion USD. The mission elaborates on the need to review the existing regulatory and licensing frameworks and make them friendlier for investment, innovation, start-ups, and research. It also emphasizes on the need to encourage more start-ups in this sector to embrace the IPR regime and contribute towards strengthening it. To prepare India for Industrial Revolution 4.0, the policy aims at creating more skilled manpower, and expanding Internet of Things (IoT) to its wider horizons. It also aims at developing Standard Essential Patents (SEPs) in digital communications technologies to harness the best available technology at affordable rates for maximum digital, social, and economic development.

3 European Union

3.1 Overview of European Patent System

The European Patent Office (EPO) follows a harmonized procedure to accept, examine and grant patents in the European Economic Area. Patents in EU can either be protected through the patents granted by national IP offices of member states or through those granted by the EPO directly. The European Patent Convention (EPC) provides a robust uniform procedure for the grant of European patents. The interface between the national IP offices and the centralised operations of the EPO is based on smooth interaction between European laws and national laws—a technically and procedurally sophisticated system that has been working without concerns or disruptions for several years now.³⁰

3.2 EU and Standardization

Standardization process enables patent holders to submit their relevant protected technologies to become a part of technical standards. These standards enable innovative technologies to be more readily adopted by all stakeholders and at the same time ensure licensing of these technologies on fair, reasonable, and non-discriminatory basis.³¹ Standards are developed by SSOs and the formal SSOs in Europe are the European Committee for Standardization (CEN), the European Committee for Electrochemical Standardization (CENELEC), and the European Telecommunication Standards Institute (ETSI). These SSOs are mandated by the European Commission (EC) to produce standards which are known as European Norms (ENs). Owing to the importance of innovation and standardization, there have been extensive debates on patents and standards in the EU. The following sections cover the important developments relating to standardization in the EU.

3.3 Public Consultation on Patent and Standards

The EC held a ‘Public Consultation on Patent and Standards’ between October 2014 and February 2015 to discover ways for effective SEP licensing to make the process appealing for both the SEP holder and the standard implementer.³² The objective of this consultation was “to gather information and views on the interplay between standardization and intellectual property rights (IPR) such as patents.”³³ The purpose was to also ensure that the stakeholders who are interested in standardization should take into consideration how the current framework governing standardization involving patents performs how it should evolve to ensure that standardization remains efficient and adapted to the fast-changing economic and technological environment?³⁴

The task at hand was to ensure that the working of EU Single Market is efficient, and the standardization system was effective fulfilling EU’s objectives of “industry policy, innovation, services and technological development.”³⁵

3.4 Setting Out the EU Approach to SEPs

The European Commission published a communication on November 2017 (“EC Communication”).³⁶ The EC Communication facilitates a policy framework that enables wider access and better connectivity to key technological innovations. Smart cities, smart homes, and other such interconnected products have the estimated economic potential of up to €9 trillion by 2025, which is why the EC is determined to drive economic growth through technology advancement. This economic potential was seen as the next force that is going to drive the economic growth in Europe as IoT will drive homes, offices, factories, automobiles, and cities in most parts of the world. The EC aims to position Europe as a leading global player for making such devices provided the patent holders continue to develop technologies that can be declared as standards by SSOs. This is essential from the point of interoperability and wide dissemination, and also from the perspective of committing to giving out licenses that are based on FRAND terms.

Some concerns around SEPs that were identified by the EC necessitated an urgent response so that growth and development of the ICT sector would not stall.³⁷ The EC Communication identified that implementers who intend to utilize SEPs for integrating their products (vehicles, medical equipment, home appliances, etc.) are not necessarily from the ICT sector, which is predominantly contributing existing and new technologies to the hyper connected world. This is a problem as most of these players may not be fully aware of the licensing practices that existed and matured within the global ICT sector. Existing licensing practices within the ICT sector might be incommensurate with the business interest and practices of the other industrial sectors who will primarily be seeking licenses from SEP holders in the ICT sector.

The EC Communication had already identified that SEP holders in the ICT sectors had pending issues to be discussed and settled with implementers citing delaying tactics during negotiating of licenses. The ‘unwillingness’ of certain licensees have also compounded the problem of SEP holders by using the underlying technology without seeking licenses. The implementers, on the other hand, complain that SEP holders in the ICT sector tend to lay down conditions and demand royalties that are not based on FRAND terms. Further, the threat of injunctive relief sought by SEP holders forces implementers to accept non-FRAND terms to ensure that they are not stopped from manufacturing and marketing their products. Therefore, the EC Communication was determined to address three major issues:

• lack of transparency in terms of essentiality of SEPs

• lack of clarity in the valuation of patents and understanding as to what constitutes FRAND

• the risk of uncertainty in the enforcement of SEPs.

While it is given that standardizing technologies increases interoperability and allows adopting such technologies by telecommunication and mobile manufacturers, it has always been a matter of grave concern as to what exactly has been subject to standardization. Lack of such information tends to delay negotiations of SEPs. Barring the declaration databases made available by SSOs, there is lack of transparency in terms of relevant patents that are subject to standards. This essentially raises the risks for small and medium enterprises (SMEs) and start-ups, companies having limited market reach and entities that have limited or no experience in dealing with SEPs.

Such entities may not be able to anticipate the extent to which royalties have to be negotiated and to understand the need to separate or not separate essential with non-essential patents. This results in instances where implementers are ignorant of patents that they are infringing. It can also result in mistrust between negotiating parties, which may ultimately frustrate the interests of both parties. Such an environment is neither conducive for the SEP holder nor for the implementers. The EC Communication seeks to address the problem of transparency by outlining a set of measures that could reduce information asymmetry and as such enable faster negotiation of licenses between the parties.

The EC Communication particularly identified that the SSO declarations of standards are not user-friendly especially with start-ups and businesses that are not necessarily associated with the telecommunication sector but are primarily integrating such technologies in other devices or technologies. Another key concern is related to how declarations lack any information as to which of those patents are essential to the declared standard. Improving information about the essential patents to a standard and providing user friendly and accessible information about patented technology that has been declared as a standard, would facilitate faster negotiations, and will increase confidence and trust among implementers. Access to such information could be further enhanced by linking patent information to patent office databases, adding updates about the status of the patents, giving information about transfer of patents and strict scrutiny of the declarations made by patent holders.

Enhanced information about the patents that are essential to a standard would reduce the burden on willing licensees as the current practice requires them to identify essential patents from other patents that are usually associated with a standard. The EC Communication suggested that burden on the implementer can be reduced if an independent party with technical know-how can scrutinize the patents declared as part of a standard and identify essential ones. Further, the EC Communication insisted for the need to updated declarations. This is vital as at the time of declaring standards many patents may not have been granted and might be at the stage of being examined in the patent office or merely a patent application might have been filed.

Updated information can contain grant of patent and any change in the scope of the claims made in the patent applications. This can have significant implications especially if the scope of the claim has been reduced at the time of grant of the patent. Additionally, linking the patents declared in the standard process to patent families can also aid the prospective licensees in scrutinizing the patents. The patents that are part of standards have also been subject to litigations. However, it is important to note that only a few patents associated with a standard are the subject matter of litigation. Any update on the progress of such litigation, and the verdict in such cases that can be easily traced and linked to a particular standard, is especially useful to implementers who may not necessarily be equipped with such information at the time of negotiating licenses.

The EC Communication considers the jurisprudence developed in Unwired Planet v Huawei wherein the UK High Court concluded that global licenses may not be anticompetitive or abusive. This is primarily based on the rationale of convenience and efficiency. It would be expensive and time consuming for parties to enter licenses based on each jurisdiction. SEP holder having a large portfolio of licenses would also be similarly inconvenienced if it were to formalize a license based on each SEP. It would be rather practical to enter a global portfolio license unless it amounts to an anticompetitive behavior. The EC Communication further recommended patent pools and cross licensing where possible and if it is within feasible competition norms.

While the EC Communication has undeniably emphasized on the need to increase transparency, it has also acknowledged that the burden should not be disproportionately placed on any one stakeholder. Instead, it has suggested a gradual approach to increase transparency which should begin with new standards declared by SSOs. It has advocated a system wherein SSOs could seek a modest fee from the members and create a system of issuing transparency rating or certification for each newly declared standard.

The Commission paper referred to the intention of setting up an expert group to gather expertise on FRAND licensing. The Expert Group had the mandate to give suggestions related to “licensing and valuation of SEPs”.³⁸ The tasks includes:

• a. to facilitate an exchange of experience and good practice in the field of licensing and valuation of SEPs;

• b. to provide the Commission with the necessary economic, legal, and technical expertise regarding evolving industry practices related to the licensing of SEPs, the sound valuation of intellectual property, and the determination of FRAND licensing terms;

• c. to assist the Commission in the monitoring of SEP licensing markets to inform any policy measures that may be required for ensuring a balanced framework for smooth, efficient, and effective licensing of SEPs; and

• d. to assist the Commission in obtaining information on licensing and valuation practices in accordance with the Communication from the Commission on Setting out the EU approach to SEPs.³⁹

The EC Communication has been received very positively by the stakeholders for one reason that it emphasizes the need to strike a balance between various interests instead of holding one over the other. In this effort, it leaves a scope for flexibility in understanding FRAND terms across jurisdictions where parties are negotiating in good faith. It factors in situations where one of parties might be unwilling to license—instances where the party’s behavior flouts the guidelines laid down by the CJEU (the ‘behavioral criteria’ laid down in the Huawei judgment⁴⁰). Two concerns that remain paramount while negotiating licenses are efficiency and diffusion of technology. To expedite the negotiations, the EC Communication also highlights the looming uncertainty in SEP dispute resolution. Therefore, a predictable framework fostering time-adhering dispute resolution can create confidence among investors, reduce risks and benefit all stakeholders. Providing sufficient and relevant information, a concrete and specific counteroffer from the implementer, proportional injunctive relief, fixed security to deter hold-out strategies are a few ways that the EC recognizes as behavior showing willingness to license.⁴¹ The Communication also makes it a point to address the involvement of Patent Assertion Entities (PAEs) and the possibility of anticompetitive behavior thereof and, thus, treats them at par with SEP holders on applicability of rules.

3.5 Standard Essential Patents and the Internet of Things: In-Depth Analysis, European Union

The European Parliament’s Committee on Legal Affairs (JURI) commissioned a report titled “EU approach to Standard Essential Patents” which examined the issue of transparency, valuation of SEPs, and enforcement of FRAND encumbered SEPs. The report also examined how FRAND disputes are resolved through various approaches like negotiation, mediation, pools, litigation, etc.⁴²

3.6 Guidelines on the Handling of the Antitrust Compulsory License Objection According to Huawei v. ZTE Within the Munich Procedure of Handling Patent Infringement Cases

On February 4, 2020, the Regional Court Munich I published “Guidelines on the handling of the antitrust compulsory license objection according to Huawei v. ZTE within the Munich Procedure of Handling Patent Infringement Cases”. The Guidelines are not binding, but if the parties to a dispute agree, then the courts can conduct speedy proceeding as contentious issues would have been already dealt with.⁴³

3.7 EU Communication Making the Most of the EU’s Innovative Potential an Intellectual Property Action Plan to Support the EU’s Recovery and Resilience

The “Action Plan on Intellectual Property” aims to enable small and medium-sized companies (SMEs), to benefit from their innovations. The Action Plan seeks to “increase protection for intellectual property, boost the uptake of IP by SMEs, facilitate the sharing of IP, fight counterfeiting and improve enforcement of IP rights, promote a global level playing field”.⁴⁴

The Action Plan notes that:

the licensing of standard-essential patents (SEPs) is often a cumbersome and costly exercise for both patent holders and technology implementers and that there is a need for a much clearer and more predictable framework, incentivizing good faith negotiations rather than recourse to litigation.⁴⁵

In the absence of any guidance from the SEP Communication of 2017, the Plan stated that organizations operating in this industry are facing challenges around licensing of SEPs that are leading to legal disputes between prospective licensors and licensees. The former section of the industry was claiming infringement of their patents, while the latter section was claiming imposition of unfair conditions in licensing.

The Plan provides that in the short term the EC would ‘facilitate industry-led initiatives to reduce frictions and litigations among players in specific sectors, and consider reforms to further clarify and improve the framework governing SEPs’. Finally, the EC expressed interest in exploring the idea of ‘an independent system of third-party essentiality checks in view of improving legal certainty and reducing litigation costs’.⁴⁶

3.8 EU Studies

Over the past decade, several studies have been conducted in the EU in relation to SEPs, standardization and licensing. These studies cover different aspects ranging from FRAND licensing terms, Patent assertion entities to various Landscaping studies. This section will give a brief overview of these studies.

3.8.1 Study on the Interplay Between Standards and Intellectual Property Rights (IPRs)

One of the initial studies conducted in the EU was the study on the Interplay between Standards and Intellectual Property Rights (IPRs), and the report of this study was published in April 2011.⁴⁷ The study emphasized that the most important issue that needed to be addressed during the development of standards is the patent in standardized technology. The aim of the study was to conduct quantitative study of the interplay between IPRs and standards and provide updates.

The findings also suggested that “the globalization of actors and the convergence of technologies call for a global perspective on the interplay between IPRs and standardization.” The study suggested that the EU policies should promote standardization which is voluntary and led by market and the SSOs should be responsible for the formulation of IPR policies. SSOs IPR policies should be provided with safe harbor from the competition agencies providing flexible business models without resulting into anticompetitive behavior. The study suggested specific solutions to the SSOs. It stated that “clear and binding IPR policies including irrevocable and worldwide licensing commitments; legal certainty in case of the transfer of essential patents to third parties; reasonable incentives for good faith IPR inquiries and disclosure; transparent, complete, and accessible IPR databases; co-operation with patent offices on identifying prior art”.⁴⁸

3.8.2 Patents and Standards: A Modern Framework for IPR-Based Standardisation, Commissioned by the European Commission (2014)

In another report titled ‘Patents and Standards: A Modern Framework for IPR-Based Standardization’ in 2014,⁴⁹ the issue of efficient licensing of IPR is discussed for the diffusion of innovation. The report suggests that this problem is more prevalent in the patents on technologies that are declared as standards and efficient licensing mechanism is essential for the success of the standard. The licensing of such SEPs is exposed to market failures such as “externalities (positive and negative), information problems, market power and free-riding”.⁵⁰ These market failures create barriers to the effective licensing of the SEPs. This study had an objective to “collect qualitative and quantitative data on IPR-based standardization, with a focus on identifying barriers for efficient licensing of SEPs and on possible solutions to these barriers.”⁵¹

The Report recognizes various issues relating to SEP licensing and their respective solutions without affecting the position of EU in the competitive market. This could be achieved by creating a balance between the incentives for investing in an innovation and the economy. There were various issues which arose in the licensing of SEPs such as “information problems, market power and free-riding.”⁵² Finding solutions to these problems would lead to an efficient licensing of SEPs. This study laid down following possibilities for bringing improvement to the current system:

• Improvements to the patent declaration system

• Promotion of patent pools

• Providing efficient dispute resolution mechanisms

• Clarifying FRAND royalty rate and royalty base

• Transfer of SEP ownership

• Improved guidance on inclusion of patented technologies.

3.8.3 Fair, Reasonable and Non-discriminatory (FRAND) Licensing Terms: Research Analysis of a Controversial Concept, JRC Study (2015)

The principles of licensing under FRAND terms dictate the balancing of interests of diverse stakeholders involved in the process of technical standardization. The primary issue of contention and flux is that the practices that govern licensing on FRAND terms were not systematic. The Joint Research Centre (JRC) is the European Commission's science and knowledge service that provides scientific evidence throughout the whole policy cycle. The purpose of this JRC Report⁵³ was “to provide a balanced account of the controversy relating to the FRAND licensing of standard essential patents and to explore future research topics in this area”.⁵⁴ The JRC Report presents the economic underpinnings of the technical standards in communication, role of the Standard Setting Organizations, and the contribution of FRAND licensing in enabling development and implementation of standards. The Report acknowledges the evolution of licensing practices and the “current controversies on the interpretation of the FRAND licensing principles”.⁵⁵

3.8.4 Patent Assertion Entities in Europe: Their Impact on Innovation and Knowledge Transfer in ICT Markets, JRC Study (2016)

‘Patent Assertion Entities in Europe’,⁵⁶ a study on Patent Assertion entities (PAEs) in the EU, examines the impact of their conduct on innovation in the ICT market in EU. The report focused on the business practices of PAEs and its impact on the technology transfer in the ICT sector.⁵⁷

3.8.5 Landscaping Study of Standard Essential Patents, Commissioned by the European Commission (2016)

Another study on publicly-available worldwide-declared SEPs titled Landscaping Study on Standard Essential Patents (SEPs) was conducted in the EU.⁵⁸ In this study the SEPs were analyzed “to provide a more transparent understanding on the technological concentration and the regional application of SEPs, an overview of global SEP owners as well as an analysis on activities connected to patent licensing, patent trade, patent litigation and patent essentiality.”⁵⁹ The results of this report were differentiated by SSPs, standards projects, or classification of technology. The report indicated that the SEPs from companies existing in China and Korea are increasing which highlighted the development of the markets in Asia and their importance in the global market.

The study also revealed that regional patent offices often exist in the technologically driven areas. By comparing the different SEP portfolios of different patent owners, the study found out varied characteristics in these portfolios. The variations are connected “to the age of the patent portfolio, the regional application as well as to the technological relevance of the patent families.”⁶⁰ The commitments during the licensing process depend on the respective SSOs and on the technological focus of the standard. License to an SEP is not necessarily required by the SSOs, either the members are not required to enter a license, or they are required to enter one based on default commitments.

3.8.6 Transparency, Predictability and Efficiency of SSO-Based Standardisation and SEP Licensing, CRA Study (2016)

“Transparency, Predictability, and Efficiency of SSO-based Standardization and SEP Licensing”, a study conducted to analyze issues that arise during the standardization process, proposed several options to minimize such issues.⁶¹ The issues considered in this study were “lack of clear rules and procedures on the inclusion of patented technologies; problems related to declaration systems; problems related to transfer rules; problems related to patent pools; problems related to FRAND definition; problems related to Dispute resolution”.⁶²

The objective was not to find a “one-size-fits-all” solution to the identified problems but to provide solutions depending on specific sectors. As a result, a new policy proposal was made that included new analysis-based principles.

3.8.7 Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases, JRC Study (2017)

“Licensing Terms of SEPs” focused on the issues involved in the interpretation of the term FRAND as well as the definition of FRAND royalties.⁶³ The study provides an analysis of all the cases to provide an understanding of the term FRAND and its varied interpretations.⁶⁴ After comparing the different relevant case studies, the study reached the following:

• 1. Idiosyncrasies of SEP litigation

• 2. Incentive compatibility and fair balance of interests

• 3. Converging practice on injunctions

• 4. Evaluation of conduct v. emphasis on royalty rates

• 5. Core principles of FRAND

• 6. Methodologies for calculating the FRAND royalty.

The study highlighted that there was no specific methodology to identify a fixed value under FRAND licensing commitment. Determining a FRAND value is very challenging, and it is difficult to give it a ‘one-size-fits-all’ definition. It varies with sectors, and there are several methods to identify a reasonable rate that follows the FRAND principles. Comparison between the determination of a FRAND rate in USA and Europe has also been drawn in this study which suggests that it is not necessary that methodologies adopted in USA would apply in the European context.

3.8.8 Landscape Study of Potentially Essential Patents Disclosed to ETSI, JRC Study (2020)

This study on potentially essential patents disclosed to the European Telecommunications Standards Institute (ETSI) is a companion to the pilot project on essentiality checks of SEPs. The primary objectives of this research report⁶⁵ are to present a landscape analysis of patents that were disclosed to the SDO, the implications for meeting the technical tests of essentiality, and determining differences in quality (technical and economic) of the disclosed patents vis-à-vis comparable but undisclosed patents. The study relied on self-reported data from patentees on patents that “may be or may become essential to an ETSI standard”.⁶⁶

The study claimed that “it is a non-trivial task to identify patents from an SDO disclosure database and clean/harmonize/select/de-duplicate/transform that data into information to be used for a given purpose, such as input for a process of essentiality assessment”.⁶⁷ It shed light on the reporting of patents at SDOs by companies on the belief that they “may be or may become essential”. It was observed that the patents disclosed to the ETSI can be considered as the first step in the process to assess the essentiality of patents. One of the findings of the analysis was a “strong upward trend in the number of new patent families being disclosed and that there is considerable fragmentation in the distribution of companies that disclosed these patents, and that the distribution is skewed”.⁶⁸ Another important finding was that given the current state of disclosures and the technicalities involved, though seemingly desirable, it is not practical to accurately break down the ETSI disclosures in cellular wireless standards. Finally, the study pointed to a higher quality in technical merit and economic value (as empirically determined by commonly used proxies) of disclosed essential patents compared to non-disclosed patents in the same patent classifications.

3.8.9 Pilot Study for Essentiality Assessment of Standard Essential Patents, Joint Research Centre (JRC) Study (2020)

This aim of this study was to investigate the “technical and institutional feasibility of a system that ensures better essentiality scrutiny for Standard Essential Patents (SEPs)”.⁶⁹ While making the following recommendations, the report broadly concluded that transparent data on essentiality is beneficial for all stakeholders.

• (a) For the purposes of defining procedures, designing the system, overseeing the process and harmonizing it with international systems, the EC should arrange for a supervisory body with the responsibility of assuring quality and performance.

• (b) A detailed assessment procedure developed in the pilot experiment be used as input when specifying and designing a system was recommended.

• (c) Training and validating AI systems for specific tasks was recommended in the report.

• (d) Patent owners and implementers must consider how a system for essentiality assessments can benefit them respectively, and how they can support such a system.

• (e) The European Patent Office, national patent offices and/or patent organizations must take into consideration the recommendation of carrying out essentiality assessments proactively.

• (f) It was recommended that patent pools along with their members investigate the ongoing and finished assessments as a precursor to the essentiality assessment system, and engage with the EC to discuss implementation of a fast-track procedure.

• (g) Patent pools along with their members must undertake investigation of whether “the essentiality assessments under the new system can play a role in their own patent inclusions procedures”.⁷⁰

• (h) SDOs must execute recommendations for improving the rules and processes governing disclosures and for enabling access to data on disclosure.

4 United States of America (USA)

Technology innovation has historically played a vital role in the economy of the United States America. Innovation has fueled the rapid pace of economic growth during the First Industrial Revolution and, in recent times, also benefitted consumers as new innovative products brought about significant enhancements in the lives of people. The U.S. government acknowledged that nearly 45 million are directly employed by the high-tech industry and the sector has generated more than $6 trillion dollars.⁷¹ While the country’s Courts and executive agencies agree on the importance of patent rights, they differ on the remedies that are available when patents are infringed.⁷² This section will discuss the views of the executive agencies and the various policies that have been introduced in the country and the views of the USA’s Courts shall be discussed in a later part of this book.

4.1 Overview of US Patent System

The US Constitution states that the Congress has the power to “… [t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”.⁷³

The US Congress promulgated the Patent Act, Title 35 of the United States Code (35 U.S.C. §101 et seq.). The Congress has established USPTO as an administrative agency that has evolved rules to implement and enforce the Patent Act.⁷⁴

4.2 USA—Competition Enforcers and Licensing

Licensing of patented technologies not only enables the patent holder to earn revenue but also serves as a means to diffuse innovations. However, restrictive licensing practices that imposes onerous obligations on the licensee or refusal to give licenses can impede fair competition.⁷⁵ While a free market is essential to enhance the welfare of the consumers, it is also widely accepted in US that there is a need to allow the patent ecosystem to thrive in order to disseminate new technologies. It is widely believed in US that patents and fair competition complement each other and as such federal agencies do not impose liability for mere refusal to license or to provide license at a certain royalty rate.⁷⁶

4.3 The 2017 Antitrust Guidelines for the Licensing of Intellectual Property

The Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) updated the “Antitrust Guidelines for the Licensing of Intellectual Property” (the Guidelines).⁷⁷ The guidelines require the Agencies to follow the three general principles;

the Agencies should apply the same analysis to conduct involving IP as to conduct involving other forms of property, considering the specific characteristics of a particular property right; the Agencies should not presume that intellectual property creates market power in antitrust context and; the Agencies recognize that the intellectual property licensing allows firms to combine complementary factors of production and is generally pro-competitive.⁷⁸

The Guidelines provide that the agencies analytical framework and enforcement policies with regards to licensing of IP are like the terms as in 1995, with moderate adjustments for developments in law and enforcement policy. The Guidelines did not provide much guidance on the controversial issues emerging out of intersection of IP and antitrust such as issues involving SEPs, Patent Assertion Entities (PAEs), and reverse payment settlements. The Guidelines, however, incorporated the Supreme Court rulings in the agency.

The Guidelines clarified that a “unilateral refusal to assist competitors generally does not result in antitrust liability and a resale price management agreement are not per se illegal and are evaluated under the result in antitrust liability”.⁷⁹

4.4 The New Madison Approach

The stricter patent eligibility standards upheld by both, the U.S. courts and the USPTO,⁸⁰ in addition to the cautious approach adopted by the SSOs in response to patent-holdups, have discouraged the tech companies, innovators, and investors from spending more on patents in the US and instead secure their product patents in other jurisdictions. As a result, the AAG of the US DoJ, Antitrust Division, Makan Delrahim, in his December 2017 remarks, “Telegraph Road”,⁸¹ decided to remedy the deteriorating patent regime in the US by withdrawing its support from the 2013 joint statement with the USPTO entitled “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments”.⁸² The new policy announced a pivot toward taking into account actions of all stakeholders including the holders of the SEPs, the SDOs and the implementers of the standards to examine anticompetitive practices that may or may warrant formal scrutiny by the DoJ. This policy promised to make available injunctive relief to the SEP holder by enforcing the right to exclude under the basic tenets of property law, and without the intervention of the SSO. Additionally, the policy also focuses on civil and contractual remedies rather than antitrust law.

The DoJ, under the new leadership, observed that involving antitrust agencies in disputes related to high-tech SEPs is rather unwarranted and other remedies should be sought to preserve interests of parties in the litigation. For this, emphasis is laid on the contractual nature of the relationship between the holder and the implementer of essential patents that require seeking remedies under contract law. Under common law, when contracts are reneged or contractual obligations are breached by any party, seeking damages and injunctive relief takes primacy over antitrust remedies. According to the new policy, this approach better serves the interests of the litigating parties without interference of the regulatory agencies, and is in sharp contrast to the earlier stand of the DoJ where antitrust investigation was deemed necessary in investigating FRAND commitment to judge the actions of SEP holders.⁸³ This approach is said to promote competition and innovation. In instances where collusion or any other anticompetitive activities or actions by prospective licensees are explicitly found, intervention by the antitrust agencies is called for.

The remarks of Makan Delrahim rekindled the theory that regulation of private contracts under public law induce distortions in the market such as less than optimal level of investments or, in some cases, ‘patent hold-out’. The intervention of enforcement agencies needs to be “exercised with humility” to minimize perverse outcomes in the market. The ambit of the antitrust law could be broadened to include “non-competition public interest factors that balance competition and non-competition factors with equity.”⁸⁴ It can also be inferred from the multiple speeches delivered by the AAG that the new policy proposal lends support for the self-regulation of SSOs under a dynamic free-market framework. A precautionary, self-regulating approach of the SSOs where internal rules governing patents are weighed alongside antitrust laws would facilitate the standard development process without intervention of the regulatory agencies.

This revitalized approach lays emphasis on the ‘symmetric nature of patent hold-up and patent hold-out’, which is a recurring issue in most of the AAGs speeches. Several thought-provoking issues arise. If implemented, it may expand the scope of the potential antitrust investigation and, at the same time, bring about a balance to an otherwise complicated yet evolving discourse on the subject. The policy proposed that certain actions of the standard implementers including delays in the licensing process that are not justified or caused due to lack of timely response to negotiation offers can also come under the scanner.

In a speech delivered in China, Delrahim drew attention to a strong belief that under the innovation ecosystem in the US, intellectual property rights belong to the inventor as much as they are for the public. A “new Madison approach” was quoted by the AAG after James Madison who is believed to be the founding father of patent law of the United States.⁸⁵

The premise of the new Madison approach, which forms the basis of Delrahim’s arguments, is that the innovation environment will thrive when the incentives to innovate are sufficiently preserved including the inalienable right of the patent holder (SEP holder) to legally exclude others.⁸⁶ In the context of patent licensing disputes, when private contracts go under scrutiny by the competition agencies, it may lead to an adverse impact on innovation and market competition.⁸⁷ According to the UD DoJ, this is why the use of antitrust law to address problem of patent hold-up is misplaced. In a speech delivered in February 2018 at the College of Europe in Brussels, the AAG articulated the following:

First, the application of antitrust laws to the issue of hold-up has, so far, remained devoid of empirical data, and therefore, an evidence-based enforcement of antitrust is called for. Second, the antitrust law enforcement bodies should ensure that their actions do not transform a private voluntary licensing regime for SEPs into a regime of compulsory licensing. Third, in line with the Madison approach, it is important to look at regulation of SSOs to deter any possibility of collusive behaviour.⁸⁸

The antitrust agencies note the productive role in promoting technology-led innovation that is played by the standard setting organizations despite the existence of a real risk of collusion and anticompetitive behavior in the process of collaborative standard setting. A vital role of the SSOs, therefore, is to balance the interests of different agents that have divergent interests and commercial stakes involved by formulating internal policies governing the use of intellectual property rights. Evolution of standards to keep pace with technological advances require revisiting and revising these IPR policies from time to time. Some of these changes have received a lot of necessary, and sometimes unnecessary, media attention with allegations that they will or may delay the pace of technological progress generally and hinder the time-tested process of technical standard development more specifically. Consensus on the last set of proposed revisions and the revision that were implemented is still lacking.

The views of the AAG Delrahim on the new policy on IPRs in November 2017 echoed the views on the need to preserve rights of innovators for non-stop technological innovation for the benefit of the society. In a speech in November 2017, he stated that the “competition authority must exercise greater humility in the application of antitrust laws to SEPs.”⁸⁹ After six months, he delivered another power-packed speech enunciating his ideas on antitrust enforcement in the digital era.⁹⁰ He said that:

the antitrust consensus, in my view, has two key components. The first component is the consumer welfare standard, which condemns practices as unlawful where they harm competition in such a way that consumers suffer. The consumer welfare standard is the lodestar of antitrust enforcement, and a humble recognition that antitrust law, if misapplied, can have harmful consequences for those it intends to protect. The second component—which is the focus of my remarks today—is what I and others call “evidence-based enforcement.”⁹¹

Soon after that he responded to a letter written by a group of antitrust and IP law experts supporting an evidence-based approach. He stated that:

though we are not able to comment on any pending investigations or evidence that we have reviewed, the policies of the United States reflect our observations and understanding of, among other things, actual standard setting activity, actions of participants in SSOs (including both patent holders and implementers), the current state of theoretical and empirical research into these matters, and, of course, the status of patent rights under the US Constitution.⁹²

4.5 Policy Statement of Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments

In 2019, the DoJ took a major step withdrawing from the 2013 Joint Policy Statement between DoJ and PTO concerning Remedies for Standard Essential Patents Subject to Voluntary FRAND Commitments listing out several problems in the FRAND licensing process that disincentives innovation.⁹³ In a continuing process of ‘promoting technological innovation, furthering consumer choice and enabling industry competitiveness’, the DoJ, the USPTO and the National Institute of Standards and Technology (NIST) released a joint statement on the 19th of December, 2019.⁹⁴ The policy statement clarifies the apparent misinterpretation of the 2013 Policy and says that while the inquiry into the F/RAND commitment of the patent holder is relevant, it does not necessarily bar its access to a particular remedy.

While extending the burden of good faith negotiations to both, SEP holders and the potential licensees, the Policy emphatically provides for all kinds of remedies against patent infringement including “reasonable royalties, lost profits, enhanced damages for willful infringement and exclusion orders issues by the U.S. International Trade Commission” as the case at hand may warrant. The Policy also clarifies that when it comes to issues like injunctions and damages, there need not be a special standard for SEPs and the courts can do with the eBay⁹⁵ standard itself, although given the circumstances of a case, additional factors may be taken into consideration. The Policy leaves the courts to their faculties for making this “balanced, fact-based analysis” to decide upon infringement remedies when the SEPs have been licensed as per the F/RAND commitment under the general laws.

4.6 Business Review Letters (BRL)

There is a ‘business review procedure’ under the DoJ that allows an organization to propose to the antitrust division acting against a decision or activity. Based on the information furnished, the organization may also request to receive a statement clarifying whether the division intends to legally challenge the action. To better understand this process, it is essential here to discuss a few of the Business Review Letters issued by the Antitrust Division of the US Department of Justice and the updates thereto in relation to SEPs. In this section we will be discussing the Business Letter Review (BLR) of the GSM Association (GSMA), Avanci LLC, and the Institute of Electrical and Electronics Engineers (IEEE).

4.6.1 The Global System for Mobile Communications Association (GSMA)

The GSM Association (GSMA)⁹⁶ consisting of mobile network operators issued a BLR in November 2019 which notified the changes to the aspects governing standard setting once the investigation is concluded by the DOJ. The Antitrust Division noted that GSMA had used industry influence in developing eSIMs technology standards.⁹⁷ In response, the GSMA developed a new set of standard setting procedures that would incorporate inputs from non-members. The BRL issued by GSMA intended to adopt the procedures to which the Antitrust Division expressed certain reservations. According to the DoJ;

those design limitations ran the risk of limiting the role that an innovative new technology—the embedded SIM (eSIM)—could play in encouraging disruptive competition in the market for mobile wireless service. And by adopting changes to its standard setting procedures before promulgating a new design standard for an interoperable eSIM, the GSMA reduced the risk of an anticompetitive outcome.⁹⁸

The Antitrust Division stated that it was in agreement with the proposed changes made by GSMA.

4.6.2 Avanci LLC

Avanci LLC’s new platform for licensing 5G telecommunication technology in the automotive industry resulted in the issuing of BLR by the Antitrust Division. The DOJ had conducted interviews of component supplier in the automotive industry and collected information about the patent pools operating in the sector. The BLR stated that:

“Avanci’s 5G Platform may make licensing standard essential patents related to vehicle connectivity more efficient by providing automakers with a one-stop-shop” for licensing 5G technology. The Division concluded that the platform also has the potential to reduce patent infringement and ensure that patent owners who have made significant contributions to the development of 5G specifications are compensated for their innovation. Avanci represented that the Platform will charge FRAND rates for the patented technologies, with input from both licensors and licensees.⁹⁹

The DoJ concluded that Avanci’s 5G platform licensing was in compliance with the competition norms.

4.6.3 The Institute of Electrical and Electronics Engineers (IEEE)

The year 2015 witnessed landmark developments that changed the discourse on IP and standard setting when the IEEE announced the adoption of new policy changes on patent licensing in IEEE including grounds to seek injunctive relief, commitments expected from patent holders, and decision regarding arbitration proceedings in licensing disputes. These IEEE rules were developed to ensure that the standard setting activity was guided by minimum procedural safeguard.¹⁰⁰ According to the Standards Board Bylaws of the IEEE-SA, “the standards development stage which included the proposal to standardize, approval of a standard, defining the technical conditions of the standard etc. are guided by openness, due process, balance and right of appeal.”¹⁰¹

The Division issued a BLR to the IEEE stating that:

the policy update had the potential to benefit competition and consumers by facilitating licensing negotiations, mitigating hold up and royalty stacking, and promoting competition among technologies for inclusion in standards. The BLR stated that per the Division, the Update’s potential pro-competitive benefits were likely to outweigh any anti-competitive harms arising from the policy.¹⁰²

In essence, the revised patent policy of the IEEE turned out to be the first set of regulations in the world by a standard body specifically for FRAND royalties. Since the landmark Rambus decision, courts in the US have almost strictly enforced commitments of paying royalties that are fair, reasonable, and non-discriminatory to counter opportunism by the licensing parties.¹⁰³ The policy changes had a foreseeable impact on the royalty rates being demanded, the ability to enforce essential patents, and the remedy that SEP holders can seek if patents are infringed. It has been argued elsewhere that “the antitrust division, applauding the efforts of the IEEE, entirely ignored the possible effects of these amendments that may potentially facilitate collusion among implementers.”¹⁰⁴

The Antitrust Division recently notified a supplement¹⁰⁵ to the 2015 letter to IEEE in response to the concerns about the misinterpretation of the 2015 letter that it endorsed patent policy of IEEE. Further, the 2015 letter was outdated in the wake of the new jurisprudence laid out by the courts and also new policy developments that were introduced after 2015. The Division stated that “the 2015 IEEE Letter had proven outdated and that the division feared that reliance on its analysis, both in the United States and abroad, could harm competition and chill innovation”.¹⁰⁶

5 China

5.1 Overview of Chinese IP System

The Patent Law of the People’s Republic of China 1984 was amended in 2020. The Patent Amendment sought to increase the patent damages that can be claimed, extended the duration of the design patent term, and introduced the patent term extension.¹⁰⁷ For the enhancement of the existing IP system and actively responding to the international challenges, a National Intellectual Property Strategy was formulated and implemented by the State Council of China. In 2005, National Intellectual Property Strategy Formulation Leading Group was established, and the work related to formulation of the strategy was launched. An outline of the strategy that was released in May 2007 received approval from the Standing Committee of the State Council in April 2008. This made way to the release of the Compendium of China National Intellectual Property Strategy. The State Intellectual Property Office (SIPO) of China explained the significance of the strategy by saying that “China’s goal is to become a country with a comparatively high level of intellectual property rights with regard to creation, utilization, protection, and administration by 2020.” The main elements of the strategy have been divided into four sections:

• 1. Strategic goals: the goal of making China an innovation-led economy with high level of IP creation, utilization, protection, and administration by 2020.

• 2. Guiding principles: the principles being “innovation encouragement, efficient utilization, lawful protection, and scientific administration”. “Innovation encouragement” aims at generating numerous independent IPRs in the country. “Efficient utilization” refers to the complete exploitation of the true market value of its IP. “Lawful protection” implies the need to regulate the abuse of IPR with the help of legal enforcement that is not only efficient but effective and rigorous. “Scientific administration” refers to the enhancement of the mechanisms to the upgrade the efficiency.

• 3. Strategic focuses: the main aim of the strategy is the improvement of the IP system. To fulfill this goal revisions of IP laws and regulations are required keeping in mind the national situation of the country. Another aim is to fulfill the international obligations of China, alongside strengthening enforcement of IP law, tightening systems of administration, and improving IP’s guiding role in drafting economic, social, and cultural policies.

In 2019, WIPO noted that China had surpassed US as the source of the highest patent applications filed with WIPO.¹⁰⁸ It was noted that the patent offices in China received more than 46% of the global patent applications filed.¹⁰⁹ Further, mobile manufacturing companies like Huawei, XTE, Vivo, Oppo, Xiaomi have their origin in China.

5.2 Standard Setting in China

China has been seeking to set their own standards instead of relying on the international standards as this will shift the focus of impact on international trade and corresponding legal framework from countries like US and EU to China.¹¹⁰ These domestic policies, court decisions related to SEPs and FRAND will have an impact on the global market in the high-technology sector.¹¹¹ China has adopted two standards program with strategic goals including Chinese prominence in international technology market by 2050.¹¹² With the development of standards, Chinese companies are taking measures to protect and monetize their IPRs like the other developed nations. More IP cases are being filed in China than before.

The increase in cases has led the courts and policymakers to analyze the various disputes which are related to SEPs. One such dispute is the availability of injunctive relief in the hands of SEP holder. This weapon of injunction is the most powerful one in the SEP licensing process. The decision on the grant of injunction should be taken cautiously as this might go against the implementers forcing them to enter license which is less than the FRAND rates. If grant of injunction in infringement cases becomes too regressive toward the SEP holder, the implementer may indulge in reverse hold-up and be able to receive royalties which is less than FRAND rates.

To strike a balance between SEP holders and implementers, China needed to develop policies and guidelines. To achieve this objective Beijing People’s High Court formulated guidelines that borrows principles discussed in cases like Huawei v ZTE. The decision that led to these guidelines is IWNComm v Sony which was the first case concerning the infringement of the SEP and injunction was granted to the SEP holder. Here, the court developed a fault-based approach, but the only drawback is that it is applicable to the cases only within the purview of Beijing’s High People’s Court of China. Further, in April 2018, the Guangdong High People’s Court issued another set of guidelines which is one of the most comprehensive guidelines related to SEP disputes.

5.3 Framework for Injunctions

Patent litigation was previously based on the norm that permanent injunction will be granted if the infringement on the part of the implementers of a particular technology is proved. However, in a 2013 case Huawei v IDC, IDC has abused its dominant position during the licensing process. The court held that the IDC seeking injunction against Huawei was unlawful as Huawei was a willing licensee and acted in good faith during the licensing process. This decision left an impression that injunction cannot be granted in all cases and this power should be used judiciously. After this, the court started analyzing FRAND obligations in the SEP licensing practices.

Article 24(2) of the SPC Interpretation of Issues of Application of Laws in the handling of Patent Infringement Disputes (II) (SPC (II)) provides a FRAND-based defense to injunction proceedings. The judicial interpretation provides that an injunction is not to be granted during an ongoing negotiation process where (i) an SEP holder intentionally violates the FRAND obligations and (ii) the accused implementer is clearly not at fault. The judicial interpretation provides a way for the courts to assess the behavior of parties during negotiations prior to granting of injunctions in SEP-related disputes.¹¹³

The jurisprudence on SEP and FRAND-related issues in China is rapidly developing and courts continue to use their powers to shape up the antitrust framework. Another reason for China in developing the jurisprudence on these disputes is the pressure of complying with the foreign judgments. The decisions in the last few years resolve some of the disputes related to SEPs, but the issue arises when an SEP holder seeks injunction against the infringing implementer. There were several cases pending in the IP courts of China that implied that a lot had to be done for the development of FRAND jurisprudence in China.

The first case being IWNComm where fault-based approach was followed, and injunction was granted to the SEP holder against the infringement by an implementer. Sony was the licensee who wanted to license the standard held by IWNComm and therefore, entered negotiations but did not reach any agreement. Later, SEP holder filed an infringement suit against Sony in 2015.

The Beijing IP Court took note of the substantive negotiation process that the SEP holder carried out since 2009. The negotiation process continued from March 2009 to March 2015 where the SEP holder and implementer both exchanged e-mails regarding the negotiations. The parties on 7 April 2009 signed a confidential contract after which the SEP holder submitted a list of patents that the SEP holder believes to be infringed. The implementer on 14 July 2009 requested the SEP holder to provide a detailed information and a detailed list of claims to which the SEP holder promptly replied, but the implementer continued to ask for more detailed information.

The SEP holder on 6 June 2012 stated that two other parties had signed a confidential agreement on the same information in 2009. The implementer on 8 August 2012 informed the SEP holder that they did not find that they need to obtain a patent license and requested SEP holder to provide a claim comparison table. The parties continued negotiations till 23 December 2014 where the communication included issues of confidentiality agreement and patent licensing issues. The SEP holder also expressed their willingness to “consider providing a claim comparison table” based on signing a confidentiality agreement to which the implementer again responded by requesting the claim charts. The SEP holder requested for signing of confidentiality agreement first.

The Beijing IP Court put forth their views on the availability of injunctions to the SEP holder in the disputes related to SEPs. The court held that the implementer has been involved in the infringement of the SEP and indulged in the delaying tactics by prolonging the discussion on claim charts. The court suggested that the implementer has a rational basis to use the SEPs as a prospective licensee of a FRAND license but such basis is grounded in good faith negotiations between the parties. The court ruled that if the parties have failed to reach an agreement and it is difficult to decide whether the implementer’s use of SEP overrides the SEP holder’s right to seek injunction, the court should look into the fault of both the parties during the negotiation process. To prevent the abuse of rights of injunction be an SEP holder, the court held that injunction would not be granted if both the parties are not at fault or if the SEP holder is at fault and not the implementer.

In a situation where both the parties are at fault then the court should calculate which party is more at fault. However, in this case a permanent injunction was granted to the SEP holder. After this decision, the Beijing High People’s Court came up with guidelines which borrow the structure from Huawei v ZTE. These guidelines added more to the jurisprudence of SEP and FRAND licensing in China.

5.4 Beijing Guidelines, 2017

The Beijing Higher People’s Court ‘Guide to Patent Infringement Judgment’ deals with judicial interpretations and guidelines related to injunctions in SEP disputes. The Guidelines under Articles 152–153 specifically provide the way injunctive relief will be applicable in situations where neither party has fault, or both parties are at fault during SEP licensing negotiations. The Guidelines are affirmative to the position of Beijing IP Court’s approach in IWNComm v Sony.¹¹⁴

These guidelines include 153 articles that are divided into six aspects that cover a broad range of topics including determination of scope of protection and infringement of invention patents, utility model patents and design patents, determination of acts of patent infringement, and defense in patent infringement cases. The guidelines also deal with judicial interpretation and injunction in SEP disputes under the category of Non-infringement Defense (Articles 149–153). The guidelines affirm the decision in IWNComm.¹¹⁵

The SPC (II) issued in 2016 only dealt with FRAND commitments made under optional national or local standard and did not address the FRAND commitment for international standards made before an international SSO. Article 149 provides that the FRAND commitments made before an international SSO should be addressed in the same way as the national or local standards contemplated under Article 24 of the SPC (II).¹¹⁶

Further, Article 150 provides that it is not only the SEP holder who needs to follow FRAND commitment but also the implementer also has the responsibility to negotiate on good faith and conclude a licensing agreement. The concept of good faith emerges from Article 7 of the General Principles of Civil Law in China¹¹⁷ and is an advisory norm and may help in judging the faults of parties in the process of negotiation. While adjudging fault in an ongoing litigation, the court shall take into consideration whether both parties negotiated in good faith.

The guidelines under Articles 152–153 specifically provide the way injunctive relief will be allowed in situations where neither party is at fault, or both parties are at fault during the negotiation process of licensing SEPs. According to the guidelines, there are certain circumstances under which an SEP holder may violate its FRAND licensing commitments. While deciding on the injunction application of the SEP holder, these guidelines sought to provide a fault-based approach to the courts to determine the party at fault. The conditions are very similar to those established by the CJEU in Huawei.¹¹⁸

The Guidelines provide the specific circumstances under which it may be determined that the SEP holder has violated its FRAND licensing obligations. The first condition was that if the implementer was not informed in writing about the infringing patent and the scope of such infringement (Notice Stage).¹¹⁹ This is similar to the requirement of notice under Huawei where an SEP holder is required to send a notice containing details of the infringing activity of the implementer.¹²⁰ Secondly, the SEP holder will be at fault if he has not provided specific conditions under which the implementer can be permitted to use the patent after implementer has expressed his willingness to accept the negotiated patent license (Offer Stage). The guidelines also provide that the SEP holder should respond to the implementers response in due time corresponding to the business practices and trading habits. The Guidelines suggest that during the license process if the SEP holder hinders or interrupt the process without any reasonable reason, he shall be at fault.¹²¹

As the Guidelines took note of the Beijing Court’s ruling in IWNComm, they also provided a scenario where the implementer is also at fault during the negotiation along with the SEP holder. In such situation, the judge shall determine the degree of fault of both the parties. The implementer shall be at fault in the negotiation process if upon receipt of the written license conditions the implementer did not reply within a reasonable time (Response Stage).¹²² The response can be acceptance of the proposed offer, or the implementer shall propose new licensing conditions (Counteroffer). The implementer will be at fault in negotiation process if it blocks delays or refuses to participate in negotiation process without any reasonable ground or claim any clearly unreasonable condition resulting in inability to reach a conclusion during the licensing process. Further the Guidelines provided that in case neither party has fault, the implementer will deposit an amount of its proposed royalty in the court to avoid injunction.¹²³

The Guidelines provided by the Beijing Court are like the Court of Justice of the European Union (CJEU) guidelines in Huawei about framework of licensing negotiations. In addition, the ambiguities are of similar nature, for example, the Beijing Court’s guideline also do not provide about the nature or content of the offer that is to be made by the SEP holder to implementer. IWNComm has already established that claim charts need not be included in the infringement notice if it can be assumed that implementer will be able to self-evaluate the patents with the materials in hand. The Guidelines provide that there should not be any hindrance on unreasonable ground, but the discretion of determining those grounds has not been made clear and may require further clarification. The qualification of not providing any unreasonable condition leading to the termination of negotiation process is also subjective.

Interim payments are usually made by the implementer to secure the interest of SEP holder. However, the guidelines leave it up to the implementer to determine the amount of payment to be made¹²⁴ which could be problematic in situations where the implementer has also challenged the validity of the SEP in dispute. In China, an implementer can bring an invalidation proceeding before the Patent Re-examination Board. It is a common practice in several jurisdictions for an implementer to challenge the validity of the patent during SEP dispute, which would create problem for the determination of the interim payment.¹²⁵

The Chinese court would require both parties to propose reasonable conditions during negotiations without suggesting further guidelines explaining ‘reasonable conditions’. In another case of Huawei v Samsung¹²⁶ the court granted injunction to the SEP holder. The case concerns two 4G-related SEPs owned by Huawei. The negotiation process continued for six years to enter a cross licensing deal. Although a translated English copy of the judgment is still not available, a detailed summary of the judgment has been posted in several blogs and Chinese law firms.

The court in Huawei v Samsung¹²⁷ found the implementer to be engaged in delaying tactics by delaying the procedures with the insistence on bundling both SEPs and non-SEPs together. The implementer was also said to delay the technical discussion by not responding in a timely manner to the claim charts provided by the SEP holder.¹²⁸ The implementer also delayed submitting the license offer and counteroffer and also rejected the SEP holder’s offer to submit the dispute to binding arbitration three times.¹²⁹ The approach of Shenzhen Court, while determining that the implementer was at fault during the negotiation, was very close to the framework provided in Huawei and the Beijing high Court’s guideline on an SEP infringement case.

5.5 Guangdong Guidelines, 2018

The Guangdong Higher People’s Court issued “Guidelines on Trials of Standard Patent Dispute Cases” in 2018. The Guangdong Guidelines required courts in Guangzhou, Shenzhen, and Guangdong to apply the fault-based liability framework to resolve disputes related to the FRAND royalties.¹³⁰ The most important feature of these guidelines is that it includes the principles laid down in decisions in countries such as US, UK, CJEU and China.¹³¹ Apart from the issues related to injunction and fault-based framework, it also addresses issues related to the determination of FRAND royalty and antitrust issues related to the conduct of SEP holder.

The Guangdong guidelines lay down clear norms in relation to the injunctive relief. It will monitor the behavior of both the parties during the negotiation process to find out whether it is the fault of the SEP holder or implementer. The entire negotiation process is taken into consideration, the time taken in the negotiation of the license, communication between the parties, and reasons for failure in reaching an agreement.¹³² It affirms the principles laid down in Huawei v ZTE and Unwired Planet v Huawei. It requires the parties to negotiate in good faith. In all the SEP disputes, Guangdong High People’s Court will take note of the contribution of the SEP holder and protect his/her rights, but it will balance the interests of SEP holder, implementer, and the public.

The Guidelines requires courts to take into consideration the following factors to determine the FRAND rate—“comparable licensing agreements; ‘market value’ of the relevant SEPs in dispute; and licensing conditions of comparable patent pools”.¹³³

It has a similar approach to Beijing guidelines when the fault is of the implementer. The guidelines indicate that there is a need to negotiate licenses without getting involved in the delaying tactics as this could frustrate the SEP holder’s efforts to enter into an agreement of license with the implementer. Another fault of the implementer is when it refuses to sign an NDA without any reason and proposes an unreasonable licensing condition.¹³⁴ An NDA is one of the important elements of a license, and refusal to enter one indicates that implementer does not want to conclude the licensing agreement. The determination of fault of the SEP holder is like what is laid down in the Beijing Guidelines.

There are instances when it is either difficult to find the fault of either party or when the fault is of both the parties. In such situations, the court compares the degree of fault of both the parties, the impact of the fault on the negotiation process, the relation between the fault and the breakdown of the negotiation.¹³⁵

The Guidelines also allows the courts to set worldwide royalty rates if the parties to the dispute agree to it. In addition, the court could ask the SEP holder to provide evidence related to the determination of the royalty rates. In case the SEP holder fails to provide evidence related to the calculation of the royalty rate, then the court can determine the same relying on the evidence provided by the implementer.

According to the Guidelines, if both the parties are unable to decide a reasonable royalty rate, then either of the parties can apply to the court for the determination of a FRAND encumbered royalty rate. If such an issue arises, Guangdong High People’s Court will fix a global royalty rate, provided that the other party does not raise any objections to it.¹³⁶ The Guidelines did not elaborate on reasonable oppositions to a Chinese court, therefore, they determine the royalty rates beyond its jurisdictions. This means that implementers would approach domestic courts to determine reasonable royalty rates which as a result becomes inconvenient for the SEP holders of those countries especially those which do not believe in the Chinese courts.

Further, objections filed by the SEP holders that inconvenience is caused to them by the determination of the royalty rate by Chinses courts does not fulfill the reasonable criteria. However, the Guangdong courts in such situations have adopted the approach on Unwired Planet and TCL v Ericsson. Therefore, the SEP holders who claim such an inconvenience should include a clause that such disputes should be resolved through arbitration.¹³⁷

Guangdong guidelines also states that royalties should be set based on multiple factors. Royalty can be determined based on the assessment of comparable licenses. While examining the comparable license courts are required to take into consideration “factors such as, entities involved in the licensing transactions, relevance between the transacting subjects and genuine interests of the parties negotiating license agreement”.¹³⁸

The guidelines requires the courts to consider:

the differences in terms of licensing background, licensing content and the terms involved in the licensing agreements. To determine the market value of the SEPs involved in the transaction the court is required to take into consideration the ratio of the SEPs involved in the licensing process to all the SEPs involved in the standard and the total royalty rates of all the SEPs This information regarding the ratio has to be provided by either the SEP holder or implementer. For the determination of the total royalty rates, the court needs to consider the cumulative royalty relevant to the participants involved in the development of the standard.¹³⁹

The Guangdong guidance allows courts to stay proceedings when the parties to a dispute agree to continue their negotiations on the royalty rates. The court may resume the proceedings if one party feels that the negotiations cannot go any further. If either of the party is of the opinion that the opposing party has key evidence to determine royalty rates, then that party could request court to order the opposing party to reveal such evidence. If the opposing party refuses to reveal evidence without any reasonable cause, then the court would determine the royalty rate based on the evidence provided by the party that has requested the intervention of the court.¹⁴⁰ This approach by the Guangdong court suggests that it favors a consensual approach before they move to determine the royalty rates on their own.

For the determination of an anticompetitive effect, the Guangdong Guidelines requires the antitrust agencies to consider Anti-Monopoly Law of the People’s Republic of China. The Guidelines further provide that the courts should examine the anticompetitive effect of conduct of parties on a case-by-case basis.¹⁴¹ Seeking injunctive relief itself does not amount to abuse of dominant position by an SEP holder. The conduct of the negotiating parties is taken into consideration while deciding on the abuse of dominant position. It is also important to consider whether SEP holder is putting pressure on the implementer to agree to the unfair licensing terms or exorbitant royalty rates which is above the FRAND royalty rate and hence, all these instances leading to the restriction of competition in the market.¹⁴²

Although Beijing Guidelines and Guangdong Guidelines have a similar approach regarding the fault-based approach toward resolving SEP disputes, the Guangdong guidelines have elaborated on some issues which were not being addresses in the Beijing guidelines. These issues include the determination of FRAND royalty and determination of abuse of dominant position. It also develops on the fault-based approach taken up by Beijing guidelines. The drawback of Beijing guidelines was that it only applied to the Beijing High People’s Court but same is with the Guangdong guidelines which also apply only to Guangdong and Shenzhen region, but some of the leading telecommunications companies are headquartered in these regions. The Guangdong guidelines also stated that Chinese courts are so keen in solving the SEP disputes as they could decide the global royalty rate. It also aims in balancing the interests of the SEP holders and implementers.

5.6 The Chinese Antimonopoly Law and SEPs

On 29th December 2018, China’s State Administration for Market Regulation (SAMR) had announced 16 typical cases regarding the abuse of administrative power to exclude and restrict competition in 2018. In 2019, the SAMR has drafted a slew of provisions in its bid to boost the Anti-Monopoly Law enforcement and to prevent and restrain monopolistic agreements in the country. On 3rd January 2019, the SAMR published the draft of “Provisions on Prohibition of Monopolistic Agreements” for public comments. Also on 3rd January, the SAMR issued the “Notice on Antitrust Enforcement Authorization”, granting general authorization to provincial-level market regulators.

On 18th January 2019, the SAMR put on the public domain the draft “Provisions on Prohibition of Abusing Administrative Power to Eliminate and Restrict Competition” for comments. On 30th January 2019, the SAMR publicized the “Provisions on Prohibition of Abuse of Market Dominant Position” for public comments. SAMR promoted on 26th June 2019 and published the “Interim Rules on Prohibition against Monopoly Agreements (the MLA Rules)” and the “Interim Rules on Prohibition against Abuse of Dominant Market Position (the DMP Rules)” on 1 July 2019.

More recently, in August 2020, the Anti-Monopoly Bureau under SAMR released Anti-Monopoly Guidelines. The Anti-Monopoly Guidelines on Intellectual Property Rights (“IPR Guidelines”) was released with the objective of “seeking much needed clarity on several contentious issues at the crossroads of competition law and IP law”. The IPR Guidelines cover five topics, namely “general rules, Intellectual property (“IP”) related agreements which may eliminate or restrict competition, IP-related abuses by owners holding a dominant market position, IP-related merger filings and other situations involving IP-related issue”.¹⁴³

The SAMR will have to assess the market dominance of patent owners. The following factors will have to be taken into account to assess market dominance: “the market value and the scope and depth of application of the relevant standard; the level of compatibility of the relevant standard; existence of substitutable standards or technologies, and the accessibility and switching costs thereof; the nature of dependence on certain industry standards, and the possibility of replacing the SEPs for the relevant standard”.¹⁴⁴

An anticompetitive effect, according to these guidelines, is likely to be found when the owner of an essential patent seeking injunctive relief (with dominant position in the relevant market) against potential standard implementers for not fulfilling demand of paying royalties that are unfairly high. To assess competition effects of injunction applications, the SAMR would consider the following factors¹⁴⁵:

• How the parties behaved during the negotiation, and their true intention reflected by their behavior;

• Commitments attached to the relevant SEPs (e.g., the FRAND commitments);

• Terms of licensing proposed by the parties during negotiation;

• The impact of the motion for injunction on the licensing negotiation; and

• The impact of the motion for injunction on competition in the downstream market and the interest of consumers.

In practice, courts in China carefully scrutinize the entire process of negotiation along with the licensing conditions presented by the parties to make a decision on whether the patent owner is fulfilling the FRAND promise or not.¹⁴⁶

6 Japan

6.1 A Brief Overview of Japan’s Patent System

Japan has adopted the continental legal framework with three written codes—the Patent Law, which talks about the rights of the patent holders; the Anti-Monopoly Act to regulate the general principles against monopoly and unfair trades; and the Designation of Unfair Trade Practices (Designation), which includes detailed principles on unfair trades and various guidelines specifying the criteria for implementing Anti-Monopoly Act and the Designation.

The patent law does not talk about technological standard and there are only few provisions which deal with SEPs under Articles 92 and 93 which talks about compulsory licensing for the improvement of inventions and public interest, respectively. Article 93 does not work on any specific rules, but the lawyers and policymakers follow a report published under Foreign Capital Council in 1968 which states “that such license should be permitted only when it is directly connected to the lives of the citizens and the refusal of the license would result in crippling the development of the related industries.”¹⁴⁷ Article 92 got suspended as a result of the US-Japan Agreement in 1994. It is because of these restrictions; no compulsory license has been directed so far.

Some portion of the SEP issues has been regulated by the Anti-Monopoly Act. In 2007, the Japan Fair Trade Commission (JFTC) released guidelines titled “Guidelines for the Use of Intellectual Property under the Anti-Monopoly Act”. Despite being relevant and ahead of time in the global IP landscape, there were almost no substantive discussions on these guidelines until 2016.

6.2 Guidelines for the Use of Intellectual Property Under the Japanese Antimonopoly Act

The first significant policy change on SEPs in technologically agile Japan was introduced in 2015. It dawned on the Japan Fair Trade Commission (JFTC) that setting ground rules and providing clarity on the regulation of SEPs was paramount, and a draft of partial amendment of “Guidelines for the Use of Intellectual Property under the Antimonopoly Act” was released. It also sought views from a variety of national and international stakeholders, including the civil society, government departments, industry associations/societies working on IP, legal scholars and practitioners. Many Japanese companies—prolific innovators/standard contributors and early adopters/standard implementers—have close backward and forward linkages with tech and non-tech companies around the world, all of whom took a careful note of the guidelines and its potential impact. One swift and welcome result was that the JFTC modified its stance based on some of the reactions to publish a revised draft of the amendments in January 2016. The revision sufficiently clarified that seeking injunctive relief against licensees that were willing to get on board, and, in general, refusing to offer a license for patents essential to a standard would amount to unfair trade practices.

6.3 Recent Technical Studies on IP and SEPs in Japan

In 2015, an IP advisory board under the leadership of the then Prime Minister of Japan, initiated a series of discussions under an Intellectual Property Dispute Resolution System Review Committee with emphasis on some of the major IP issues in a dispute including procedural aspects of the investigation, quantitative assessment of damages, and restrictions on injunctive relief. In the Committee’s final report released in March 2016, a unified mechanism of restrictions on IP rights was not supported, and no legal changes were recommended. The report was rather unambiguous in its observation that any unified framework of restrictions may adversely affect the incentives for innovation resulting in second-order impact on standard setting and development.

Attention was given to understand the rapidly growing ‘Internet of Things’ (IoT) model of technological advancement globally and the ‘Fourth Industrial Revolution’ (4IR) in Japan where digital interconnectivity among industries, devices, and services may bring up issues concerning SEPs sooner than later. The experts felt that there is an urgent need to address SEP licensing issues that are now going beyond the wireless industry to involve other economy heavyweights including industries in the automobiles, electronic appliances, and industrial equipment.

Keeping this in mind, in 2016, the Japanese Ministry of Economy, Trade and Industry (METI) set up a working group on the IP system to study several issues of contemporary relevance such as data protection laws and regulations, protection of IP underlying innovation in artificial intelligence-enabled technologies, and creative resolutions to disputes in licensing of SEPs. In the following year, the working group published its report that specifically addressed some very important concerns around standard essential patents in Japan. This included the rising number of SEPs, limited scope of SEP pools that has implications on licensing negotiations, impact of these developments on the small and medium enterprises of Japan, the cost to society from these patent disputes, and the role of non-practicing patent entities in disrupting the licensing of SEPs in Japan.

Parallel to this study of the working group, a report from the IP Dispute Resolution Committee found a fair amount of skepticism regarding a uniform framework of restrictions on SEPs. In a surprising turn of events that caught many who were engaged with the topic globally, the Committee proposed a new and different system of resolution of disputes on SEPs. In this special ADR (alternate dispute resolution) system, the Japanese government would effectively determine the rate of royalties that were fair and reasonable. Their report stated that:

It will be necessary to take initiatives to deal with SEPs, which will become a part of public infrastructure in line with the popularization of IoT. We will need to find ways to reduce the costs of licensing negotiations and settling disputes that may hinder the smooth use of the SEPs. First, the government will consider introducing an ADR system (licensing award system for SEPs) designed to deal with disputes on licensing of SEPs, which have a significant influence on society. Under this system, government will work on disputes between patent holders and possible licensees based on request by the latter, when the parties cannot reach agreements on licensing, deciding appropriate licensing fees of SEPs with due care of not unfairly harm the interests of the patent holders.¹⁴⁸

With IoT becoming all pervasive, there was a need to evolve a framework that would enable the industry to develop standards more smoothly so that it can facilitate the development of the social infrastructure. A special ADR system was proposed¹⁴⁹ “for determining reasonable license fees for SEPs with significant social impact, while paying attention not to give undue impact on the right of patentees, with a view to submitting a bill to the National Diet (the Japanese house of representatives)”.¹⁵⁰ The JPO clarified that the two ADR systems would be used, wherein one would be used to resolve the FRAND royalties dispute and the other system would be used to resolve other general disputes.¹⁵¹

This too followed heated debates. While some members from the industry and industry association supported the idea of ‘SEP adjudication’,¹⁵² some industrial associations raised objection citing concerns regarding effectiveness, coverage, complexity, expertise, and the overall impact on the society.¹⁵³ The critics explained that first, the new adjudication system would cover only Japanese patents most of which, particularly in the high-tech industries, tend to have expansive international patent families; second, the complexity of the protracted legal process if dispute resolution would not costly in time and resources; third, the JPO suffered from lack of expertise in adjudicating matters pertaining to determining FRAND royalties and damages; and finally, constitution of a public ADR forum for matters that ought to be managed privately will affect businesses. The Japan Business Federation (“Keidanren”) went one step further in its warning that the proposed SEP adjudication process will be perceived as a process of compulsory licensing thereby distorting incentives to innovate and creating a negative perception of innovation and IP ecosystem of Japan in the international community.

In the face of intense objections, a complementary approach was sought by the JPO that promised to not keep the guideline legally binding.¹⁵⁴ Later that year, in November 2017, recognizing the inherent unfairness of the system for SEP holders and the difficulties in accurately determining FRAND royalties, the idea of introducing the SEP adjudication system was kept in abeyance.¹⁵⁵

Finally, the JPO suggested introducing guidelines for facilitating negotiations for licensing of SEPs and constituting an advisory system to determine essentiality of the patent claimed to be essential to a standard.¹⁵⁶ While clarifying that no new regulations were being put in place, efforts will be made to understand how these matters are being adjudicated in courts around the world to improve the understanding of the behavior and actions of prospective licensors and licensees. This process culminated in the ‘Guide to Licensing Negotiations involving Standard Essential Patents’ in March 2018.¹⁵⁷ We have written previously that the final version that was published within four months was “a reflection of the JPO’s attitude to be an objective information provider to support SMEs or large firms outside the telecommunication industry”.¹⁵⁸

6.4 Guide to Licensing Negotiations Involving SEPs

The draft Guide to Licensing Negotiations involving SEPs of the Japanese Patent Office¹⁵⁹ offered insights and instructions on issues that were at the core of the SEP litigations during the period of 2015–2018. The 2018 Guidelines were futuristic in their vision and drew attention toward a variety of methodologies that could be used to value patents in a digitally connected, automated IoT-enabled world. The drafters had the foresight to understand the reliance on technical interoperable standards by companies and organizations beyond the conventional ICT industry, and to contemplate the contentious issues that may emerge among these stakeholders. For Japan the challenges were more intense. While, historically, the innovative Japanese firms were the patent holders and standard contributors for large parts of the emerging world (including China and India), they were gradually becoming patent licensees and standard implementers for the tech-intensive European and American (even Chinese) firms in the twenty-first century. The implication of this dilemma in policymaking was that Japan had to carefully strike a balance between the rights of SEP holders and SEP implementers, while preserving the incentives to innovate. More specifically, the policymakers, regulators, and even the courts in Japan faced difficult questions. Do royalty rates and base should vary depending on the end-use of the technology? Are the resulting royalties FRAND complaint? What is the most robust technique to ensure and ascertain this compliance? Should the contributions of patents vary in a standard, will (and how) the royalties change? The JPO embraced the view that future technologies and their spectacularly diverse use necessitate charging different royalties without being discriminatory. The draft Guidelines state that “it is not discriminatory for a patent holder to apply different royalties for products that enjoy the capacity of the technology either wholly (e.g. self-driving car, remote surgery) or partially (e.g. smart meter) even if they use the same standard technology”.¹⁶⁰

The Guide to Licensing Negotiations involving Standard Essential Patents came into effect from 5th June 2018. The JPO noted:

The Guide aims to enhance transparency and predictability, facilitate negotiations between rights holders and implementers, and help prevent or quickly resolve disputes concerning the licensing of standard essential patents (SEPs) which are essential in implementing standards in the field of wireless communications and the like.¹⁶¹

6.5 Guidelines on the ‘Fair Value Calculation of SEP for Multi-component Products’

The “Fair Value Calculation of SEP for Multi-Component Products” Guidelines aims to facilitate the negotiation of FRAND licenses by providing a guidance on how to calculate SEP royalties for multi-component products.¹⁶² The guidelines relies on three principles to calculate the fair value—“first, the parties to a licensing agreement should be decided based on the concept of “license to all”. Second, the royalty should be calculated using a “top-down” approach. Third, the royalty should be calculated based on the portion to which the SEP technology contributes (contribution rate) in the value of the main product that implements the SEP technology”.¹⁶³