Conference on Standards Settings Organizations (SSO) and FRAND, NLSIU

Programme Schedule

Significant Takeaways

It is anti-competitive to seek to exclude competitors from the market by seeking injunctions on the basis of SEPs, if the licensee is willing to take a license on FRAND terms. In these circumstances, the seeking of injunctions can distort licensing negotiations and lead to unfair licensing terms, with a negative impact on consumer choice and prices. -- EU Competition Policy Brief, Issue 8, June 2014. This is a very important issue for India as it thinks about how it can attract foreign investments. India has a unique opportunity to learn from these lessons from around the globe and craft India-specific solutions. India has the intellectual capability and the institutions capable of crafting these solutions, and in doing that we can support Make In India. India needs to be mindful about what is happening in the [South Asian] region. China has moved aggressively to try to curb FRAND abuse. The People's Court in China ruled in Huawei vs. InterDigital that for 2G, 3G, and 4G patents, the license fees of royalties should not exceed 0.019% of the actual sale price. Apple also stated that Ericsson was calculating royalties on the sale price of the iPhone or iPad, whereas the royalty should be calculated on the value of the baseband chip that runs this technology in the mobile device. If such litigation occurs in India, what would be India's position? If a building block contains the technology pertaining to a patent, then royalty should be calculated on the smallest possible patent practising unit and not the entire product. The government of India has adopted a royalty free (RF) approach to licensing open standards. Non-essential claims are excluded from disclosure. Pending patent applications are not. Only 16% patents declared as SEPs are actually SEPs, according to a study. The Delhi High Court has passed interim orders restraining the CCI from deciding these cases. Our appeal to the courts is that these patent infringement lawsuits should not be viewed in isolation. They should not be viewed as merely contractual issues between the licensor and the licensee. They should be seen in the context of their economic effects and their adverse effect on competition. The CCI should be enabled to deal with such cases. Matheson: The phrase "compulsory license" sends a shiver down every corporate's spine every time it is used. International experience is that the judicial system has been the only forum where we have been able to have due process to enable us to construct cases properly in order to explain to the judge or to the jurors how the system works. That has produced very sensible solutions to this problem. Handing it off to the government to institute a compulsory license wouldn't be fair to the SEP holders.

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SSOs and FRAND: Licensing issues

John Matheson, Director of Legal Policy (Asia Pacific), Intel

The role of licensing policy

• Ensuring market access
• Standards often depend on patented technology, which is accessed through the Promise to License on FRAND terms.
• It is equally critical to ensure that standards can be implemented without unfair legal games.
• It is essential to prevent patent hold-up.
• Reasonable compensation

Patent holders remain entitled to fair compensation and benefit from the proliferation of their technologies via standardisation.

Why FRAND?

A FRAND commitment embodies certain fundamental principles that have been recognised widely by the courts and regulators.

The fundamental purpose of a FRAND commitment is widespread adoption of the standard.

Because of the peculiar nature of SEPs, the process is open to abuse.

A FRAND commitment is aimed at preventing patent holders from exploiting a hold-up value and extracting unreasonable royalties and concessions that could otherwise follow from being in a very unique position. Often, the holders of the IP have a single solution to an interoperability or connectivity conundrum that technology is facing.

Why are SEP license negotiations different from Non-SEP ones?

In the context of non-SEPs, one may be negotiating to obtain a license to a patent for a particular feature. If the licensor is being difficult, one can discard the feature to include something else. In a competitive market, this negotiation is focused on the value of the invention to be licensed. Thus one can redesign to avoid a particular claim and, in turn, avoid injunction.

On the other hand, it is necessary to either obtain a license for or infringe an SEP to manufacture the mobile device. There is no workable alternative or workaround to obtaining a license for the desired technology. With the threat of an injunction looming over the negotiations, the prospective licensee is under pressure to obtain a license. So the market negotiations for SEPs and non-SEPs are very different. One-way negotiations raise the possibility of a patent hold-up, and abuse of the standard implementer.

IP policies inevitably involve compromise.

Common areas of misunderstanding include:

• Valuations or meaning of "reasonable". Valuations of IP under consideration.

• Injunctive relief or exclusion orders

• Discrimination or refusal to license

• Patent transfer (It requires a continuation of the FRAND commitment, and shouldn't get differential treatment in the IP policy.)

Competition authorities in the US and EU have asked SSOs to reconsider policies to reduce ambiguity in the context of these areas of misunderstanding.

The ex-ante or the incremental value of the SEPs before the standard is set needs to be understood. The SSOs look at several different ways to solve a connectivity problem. The patent owners bring their patents into the standards body and claim that theirs is the best way to solve that problem. The market and consumers want an uncomplicated solution which works and is as cheap as possible. In many cases, there is one single winner, simply because we need one solution. In exchange for being the winner, the FRAND discipline is quid pro quo.

European Commission's response to two different patent lawsuits:

In the Samsung and Motorola cases, the Commission clarifies that in the standardisation context where the SEP holders have committed to:

1. License their SEPs
2. Do so on FRAND terms

It is anti-competitive to seek to exclude competitors from the market by seeking injunctions on the basis of SEPs, if the licensee is willing to take a license on FRAND terms.

In other words, if there is a bona fide commitment on the part of the licensee to agree to that test, then it is anti-competitive to seek an injunction.

In these circumstances, the seeking of injunctions can distort licensing negotiations and lead to unfair licensing terms, with a negative impact on consumer choice and prices. -- EU Competition Policy Brief, Issue 8, June 2014.

Anyone who needs access to connectivity or needs interoperability requires to get a SEP license, and if that license is required to be obtained within a time limit, it almost -- by definition -- is not going to work. Patent licenses take years to negotiate, and they're incredibly complex. For example, a patent policy may offer up to 12 months to agree on a license, but that is not the way the market works. So we cannot expect policies that put forth time limits to work in the SEP arena. What we can expect is that the implementers make a bona fide commitment to seek a license.

Motorola vs. Microsoft, Germany:

Motorola sought injunctive relief against Microsoft in Germany. Microsoft moved its distribution centre from Germany to the Netherlands. This resulted in loss of jobs, relocation costs ($11.6 million), and annual increased operating costs of $5 million for Microsoft.

Samsung vs. Apple, Germany

Similarly, on the basis of one patent, a temporary injunction was granted on the sale of the Apple iPad and iPhone. Apple was forced to agree to terms it didn't want to agree to, so that the sale of its products would resume.

This is a very important issue for India as it thinks about how it can attract foreign investments. India has a unique opportunity to learn from these lessons from around the globe and craft India-specific solutions. India has the intellectual capability and the institutions capable of crafting these solutions, and in doing that we can support Make In India.

SEP holders that make FRAND commitments should not be allowed to obtain injunctions against alleged infringers, except in limited circumstances. This formula has been adopted by the IEEE, which has solved this problem. India has the opportunity to leapfrog a lot of patent litigation by adopting the IEEE test.

Learn from what happened with Microsoft in Germany. What kind of message do you want to send to the foreign community about investing in India? Do you want to use the scare tactics of injunctions or do you want to adopt a policy that will avoid litigation?

India needs to be mindful about what is happening in the [South Asian] region. China has moved aggressively to try to curb FRAND abuse. The People's Court in China ruled in Huawei vs. InterDigital that for 2G, 3G, and 4G patents, the license fees of royalties should not exceed 0.019% of the actual sale price.

Reasonable Compensation Considerations

• Royalty based on the smallest unit that practices the standard.
• Technical value of patented technologies vs. alternatives.
• Overall royalty that could reasonably charged for all SEPs.

Non-discrimination

A commitment to license every implementer of the relevant standard.

Transfer

FRAND commitments follow the transfer of a patent to subsequent proprietors.

Dr. Krishna Sirohi, Impact Innovator, GISFI, President, I2TB

As per the Make in India programme, we have to achieve zero imports by 2020. Product development in India by Indian companies will happen with collaborative research and development and IPR sharing through licenses. We are looking at national capacity building through product development and patent uses.

Global Information and Communication Technology Forum for India (GISFI) is a standards setting body involved with standardisation and research. It is a telecommunications standards development body (TSDO) set up with the approval of the DoT. It has peer relationships with ITU, OMA, TTC and a bunch of other SDOs. Internet of Things (IoT), mobility and security are its three major research programmes.

GISFI is working towards defining 5G in India. The 5G standardisation theme in India is called WISDOM (Wireless Innovative System for Dynamic Operating Mega Communications). GISFI is considering the perspective of the Indian user, the network capability, the network architecture, network development and the Indian revenue model, strategic and special purpose networks, inclusive growth, and network security.

However, some India-specific aspects such as illiteracy and lack of basic civic infrastructure need to be considered in the standardisation process.

GISFI plans and stages for 5G definition and adoption

Stage 1 (2014-2018): National agenda for strategic research, innovation and experimentation

Focus on Digital India and Make in India programmes.

Stage 2 (2016-2019): Standardisation

Stage 3 (2017-2021): Product Development

Stage 4 (2019-2023): Early Development

Technical understanding required for IPR issues

• Enhancement applicable to general scenarios

  • Traffic capacity

  • Cell coverage

  • Edge cell performance

  • Intercell interference

  • Network congestion

  • Mobility

  • Energy consumption

• Enhancements targeting new use cases

  • machine-type communication

  • national security

  • public safety services

• Carrier aggregation

  • Higher throughput owing to intra and inter-band transmission bandwidth of more than 20 MHz.

  • Reduced network congestion owing to load-balancing across multiple carriers.

  • Improvement in mobility and reduction in inter-cell interference.

• Enhanced MIMO

  • Improved spatial diversity and multiplexing

  • Improved beam-forming

  • Multiple access with multi-antenna transmission

• Coordinated Multi-Point Operation (CoMP)

  • Reduction in intercell interference owing to coordinated scheduling or beamforming (CS/CB)

  • Transmission from multiple distribution points (base stations, RRH) in a coordinated way (Dynamic point selection, and Joint transmission)

What do SSOs handle IPR in different parts of the world and what are the issues they face?

GISFI has adopted ITU's IPR policy.

In SSOs, the FRAND principle works well only when participating entities have equal or almost equal IPR clout, and can reciprocate with their own patents every time other entities share their patents. It is difficult to create a balance between entities that only own IPR and those that only consume IPR.

Most of the members of SSOs are IPR owners. The entities that develop [technological] solutions without owning the IPRs are usually not a part of SSOs. However, additional strategies need to be implemented for realising the "Make in India" goal. The goal of zero imports by 2020 can only be achieved if a large number of small companies use these standards to develop products locally. So small manufacturers should be represented even at the highest levels of the standards development body. An IPR policy should be defined/ modified to factor in these needs.

Evaluation of LTE essential patents declared by ETSI

Cyber Creative Institute, June 2013: http://www.cybersoken.com/research/pdf/lte03EN.pdf

A large number of LTE patents are held by a handful of companies. There is no Indian owner of any LTE SEP.

Ericsson sued Apple in the US over infringement of its LTE patents. As of January 2015, Apple countersued Ericsson in a federal court in California and claimed that it did not owe any royalties to the latter.

Apple also stated that Ericsson was calculating royalties on the sale price of the iPhone or iPad, whereas the royalty should be calculated on the value of the baseband chip that runs this technology in the mobile device. If such litigation occurs in India, what would be India's position? If a building block contains the technology pertaining to a patent, then royalty should be calculated on the smallest possible patent practising unit and not the entire product.

Dr. Kumar N. Shivarajan, CTO, Tejas Networks

TSDSI's (Telecommunications Standards Development Society of India) IPR policy states that a member's technology will become a part of a standard as long as the member licenses it on FRAND terms to other members.

• By 2017, 70% of the global equipment spend will be on LTE.
• TD-LTE subscriber base in India has been projected to reach 67 million by 2017.
• Most of the data connections in India are still on 2.5G.
• Smartphones have become affordable but 3G continues to languish in India; 4G yet to take off.
• The number of 3G connections in India grew from 30 million to 33 million from 2013 to 2014.

Is 5G the answer to India's access problems?

The mobile industry is aiming to go beyond traditional 4G LTE in 2015 and there is increasing focus on adding new bells and whistles to 4G and realise 4G+.

• LTE Licensed-assisted access (formerly LTE-Unlicensed)

• LTE Direct/ Peer-to-peer

• LTE-M for machine to machine communication

• CoMP

Countries forming 5G groups to take an early lead:

• China: IMT-2020 (5G) Promotion Group

• Korea: 5G Forum

• EU: 5G Public Private Partnership (5G-PPP)

5G in its current form is souped-up 4G.

Key India-specific requirements for 5G standard development

• 5G must factor in the Indian requirement for DSL-like connectivity: Always ON, low latency, affordable cost

• To minimise costs, 5G must minimise the use of BTS sites and focus on spectral efficiency.

• 5G should allow virtual network operations enabling multiple operators to use the same physical network infrastructure.

• 5G must work well in Indian propagation environments: concrete buildings blocking signals, dense barriers.

• 5G infrastructure should be green as electricity shortfall is a problem. India has 400,000 cell towers. 10% of them are not connected to the electricity grid. More than 70% experience power outages longer than 8 hours per day, and work on diesel-powered generators. As a result, 25% of the operational costs of telcos are their energy bills. India imports 3 billion litres of diesel annually to run these cell sites.

India can try to get a headstart in owning the IPR that would eventually go into the 5G standard.

Prof. Ramakrishna, MHRD Chair, NLSIU, Bengaluru

The attitude of an SSO towards patented technology determines the objective of its IPR policy. For example, an SSO may want to:

• Promote widespread implementation of a standard without unnecessary IPR implications.

• Ensure transparency and certainty about the declaration of patents and patents' claims as SEPs.

• Ensure that every patented technology is available at a reasonable fee, comparable to the value of the technology.

What happens when IP ownership is transferred to another owner? It continues to be a part of the SSO but things get complicated.

New owners, third parties, subsidiaries, and affiliates fall under the purview of the IPR policy, by extension.

IP and Disclosure policies of Indian SDOs

• BIS (Bureau of Indian Standards) and TEC (Telecommunication Engineering Centre) do not have IP policies of their own. TEC refers to the ISO/IEC IP policies wherever the technology is equivalent or the same.
• GISFI disclosure requirement: Each member is required to inform GISFI in a timely manner of essential IPRs. But members are not under any obligation to conduct IP searches. GISFI's IPR policy is based on that of ETSI.
• DOSTI (Development Organization of Standards for Telecommunications in India) is not functional.

 

IPR policy for open standards in e-governance

The government of India has adopted a royalty free (RF) approach to licensing open standards.

Mandatory Characteristics of Open Standards:

• The patent claims necessary to implement the standard should be made available royalty free for the lifetime of the standard.

• The standard shall be adapted and maintained by a not-for-profit organisation.

• The standard shall have a technology-neutral specification.

The RF approach and the maintenance by a non-profit may be a disincentive for IP owners.

IEEE patent policy:

IEEE invites participants to disclose patent claims essential to a standard under development. Upon disclosure, the patent holder needs to submit a letter of assurance that states:

• License(s) will be made available without compensation or at a RAND rate.

• A commitment to enforce the essential patent claims against any entity complying with the standard.

• Or state its unwillingness or inability to license its essential patent claims.

Common patent policy for ITU-T/ ITU-R/ ISO/ IEC

Recommendations/ deliverables are non-binding -- ensure compatibility of technologies and systems on a worldwide basis.

The "code of practice":

It is desirable that the fullest available information should be disclosed although ITU, ISO or IEC are unable to verify the validity of any such information.

Major types of IPR policies:

• Participation-based IPR policies

• These are common in small, informal bodies such as consortia.

• Members are bound by the terms of membership to commit to licensing SEPs on RAND or RF terms.

• SEP holders notify the standards body in case RAND or RF licenses are not available after the draft standard has been published.

• Commitment-based IPR policies

  • These are commonly followed large, standards setting bodies.

  • These bodies identify SEPs to a draft standard through disclosure and submission of licensing commitment.

  • Parties may seek alternative solutions or work on a withdrawn standard is the the alternative solutions don't work out.

Basic building blocks of commitment-based IPR policies

Disclosure policies:

• Disclosure is important for

  • sending requests to SEP holders to make licensing commitments

  • ensuring that experts' groups make informed decisions on inclusion of patented technologies

  • providing information to prospective standards implementers about the SEP owners

Two forms of disclosure:

• A call for patents is made at the start of meetings. This is more informational than binding.

• Later, the member states its intentions regarding licensing the patent on RAND terms.

How disclosure obligations arise (and commitments are binding):

• IEEE has by-laws that are binding on members.

• ITU, IEC, and ISO: It is via a resolution or recommendation.

(Indicative list)

General disclosure procedure:

The nature of disclosure rules concerning self-owned patents depends on the status or the role of the entity.

• A "submitter" is a participant in the working group making a conscious decision to submit its technology to the SSO for a license or free of royalty.

• A participant in a working group may submit its technology to the SSO free of royalty, on RAND terms, on RAND terms with the right to charge a fee, or with a refusal to license it. (A working group participant who discloses technology is usually a technology expert. When someone who does not have adequate knowledge of patents discloses technology, it has complicated implications.)

• A non-working group participant (third-party) may also submit its technology.

ANSI has left it to the accredited SSO to decide the terms of disclosure for participants of working groups. It has not laid out a policy in this regard. Other organisations have laid out obligations on the submitter to disclose SEPs.

Nature of disclosure terms for patents owned by third-parties:

ETSI: It is obligatory.

ITU/ ISO: Obligatory only for participants of the working groups.

IEEE: Entirely voluntary

Non-essential claims are excluded from disclosure. Pending patent applications are not.

Working groups prefer early disclosure so that they may adopt or discard the claim as early as possible in the standard setting process.

ITU: Disclosure from the outset

IEEE: During meetings of the working group

ETSI: "Timely manner"

AFSI: At a sufficiently mature level

There is no mandate for updating the disclosure in case a standard evolves.

Most SSOs make disclosed patents public. Failure to disclose patents may result in accusations of abuse of monopoly or anti-trust/ anti-competitive activities.

It is difficult to identify all potentially essential patents due to the complexity of specifications.

Some SSOs don't require IP disclosure at all. The obligations to license on FRAND terms would be sufficient.

Only 16% patents declared as SEPs are actually SEPs, according to a study.

It makes sense for rightsholders to go for blanket disclosures instead of disclosure of specific patents.

Vinod Dhall, ex-chairperson of the Competition Commission of India (CCI):

Our competition law is new, so there aren't any cases pertaining to patent litigation and involving the competition law, which we can treat as precedents. In one of the mobile phone patent litigation cases in India, the implementer has approached the CCI claiming that the licensor has been abusing its dominant position in the market by charging unreasonable royalties.

The Delhi High Court has passed interim orders restraining the CCI from deciding these cases. Our appeal to the courts is that these patent infringement lawsuits should not be viewed in isolation. They should not be viewed as merely contractual issues between the licensor and the licensee. They should be seen in the context of their economic effects and their adverse effect on competition. The CCI should be enabled to deal with such cases.

Questions-answers round:

What are the criteria for declaring a patent an SEP?

T. Ramakrishnan: SSOs have no role in declaring that a patent is an SEP. The SEP holder declares that their patent is essential to a technical standard. Most of the time, the SEP may turn out to be a non-SEP at a later stage. Statistically, 16 out 100 claimed SEPs are actually SEPs. There is no way for SSOs to tell if a patent is an SEP. IP policies of most SSOs state that they don't search [if a patent is an SEP]. The members of SSOs are under no obligation to search.

The commitment to license an SEP on FRAND terms is more important to an SSO [than determining if the patent is indeed an SEP].

Can compulsory licensing be implemented with government intervention in India so that the Central Government can fix a royalty and put an end to patent litigation?

Matheson: The phrase "compulsory license" sends a shiver down every corporate's spine every time it is used. International experience is that the judicial system has been the only forum where we have been able to have due process to enable us to construct cases properly in order to explain to the judge or to the jurors how the system works. That has produced very sensible solutions to this problem. Handing it off to the government to institute a compulsory license wouldn't be fair to the SEP holders.

With respect to the "safe harbour" approach towards SEP-based injunctions, what does the licensee need to do to prove to the courts that it is a willing licensee, in the event that licensing negotiations fail or take a long time?

Matheson: It gets down to the licensee showing its willingness to negotiate. The licensee cannot make a half-hearted attempt and decline to negotiate or decline the licensor's offer and then disappear. They should physically engage in the negotiation. If and when it gets to a judicial environment, the judges know when people are telling stories and when parties are bona fide. They can tell a ruse when they see one, and I think it is one of the things you observe in practice.

Ramakrishnan: The licensee should be able to demonstrate that it is willing to pay the royalty and should deposit an amount towards royalty. One recommendation from AIPP states that instead of using the terms "willing licensee" and "willing licensor", use "good faith response". For "good faith" we have very well established criteria. The entire licensing process should end within 12 months of starting. If the negotiations fail or if the process takes longer, then they should agree upon an arbitrator to fix FRAND terms. These are indicators that demonstrate the licensee being a "willing licensee" or a "good faith" licensee.

Often technology changes before the legal action can be taken or the lawsuit completed, and the patent over which litigation has happened may no longer be relevant to the technology. How do patent holders deal with this situation?

S.K. Murthy, Research Scholar, NLSIU: Even if the technology becomes obsolete, damages can be claimed retrospectively.

Matheson: You have a commitment to a FRAND solution, so that when you enter the protracted negotiation, you know that at the end of it you will get a fair solution. That's not always the case when you are dealing outside the FRAND world. You're dealing with a FRAND incumbent, not with unlicensed patents.

Why is putting a time limit to negotiations not a good idea? Also, IEEE seems to have done well by taking the threat of negotiations out of its way. Is it practical in India, because injunction is still the most potent weapon to protect intellectual property rights in India currently?

Matheson: Licensing is incredibly complex. There can be claims to the validity of the patent, there are claim charts to be drawn, there is expert evidence to be put together. Litigation over patents can take 2 to 3 years. To say that there must be a solution [arrived at] within a smaller framework gives the licensor the opportunity to wait around till the end of that period and assert its patents through an injunction. If you're leaving injunction at the table, you will not have a fair solution. The licensee will always be at a major disadvantage. The IEEE solution is a good one because it has taken the time limit away, but at the same time the policies that would adopt that solution need to include the discipline to ensure that the negotiations are bona fide.

What percentage of the sale price should be provisioned by a product developer for royalties? Can a mechanism be drawn up for this purpose?

Justice Ratnakala: Definitely. Such a mechanism should be drawn up in the near future.