Centre for Internet & Society

Earlier this year, the Centre for Internet & Society (CIS) had proposed that the Government of India (GoI) initiate the formation of a patent pool of critical mobile technologies and mandate a five percent compulsory license. The proposal was made in light of ongoing litigation in India over standard essential patents pertaining to mobile technology, and the government's own “Make in India” and “Digital India” programmes.

Read CIS' proposal to the Government of India regarding the formation of a patent pool here. To read about ongoing litigation in India over standard essential patents pertaining to mobile technology, click here.

1. How did CIS arrive upon the figure of 5 percent as the compulsory licensing fee for the patent pool?

As part of foreign technology agreements, the Department of Industrial Development (DID) introduced a ceiling of 5 percent on the royalty rates charged for domestic sale and 8 percent for export of goods pertaining to "high priority industries" in the year 1991. Royalties higher than 5 percent or 8 percent, as the case may be, required securing approval from the government[1]. While 1991 was too early for the mobile device manufacturing industry to be listed among high priority industries, the public announcement by the government covered computer software, consumer electronics, and electrical and electronic appliances for home use[2]. In 2009, another department under the Ministry of Commerce and Industry, the Department for Industrial Policy and Promotion, revoked the cap on royalty rates[3]. Sanjana Govil throws some light on why government regulation on intellectual property was introduced in the early 90s and how it succeeded in reducing the flow of money out of India: Putting a Lid on Royalty OutflowsHow the RBI can Help Reduce India's IP Costs.

The situation in 1991 is somewhat analogous to the current one where most of the patent holders in the mobile device technology domain are multinational corporations, which results in large royalty amounts leaving India. At the same time, litigation over patent infringement in India has thwarted the manufacture and sale of mobile devices of homegrown brands. Additionally, these developments are detrimental to the Modi government’s aim of encouraging local manufacturing as well as strengthening India’s intellectual property regime.

2. How would royalties be distributed among patent holders in a patent pool where a single fee of 5 percent is being charged?

A patent pool formed for the purpose of compulsorily licensing the patents contained in it can be managed by combining government intervention with the governance structure of a voluntary patent pool. Vikrant Narayan Vasudeva enumerates the different approaches to setting royalty rates in a patent pool once a “royalty base” has been established[4]:

● Rule of Thumb

● Numerical Proportionality

● Industry Standards / Market or Comparable Technology Method

● Discounted Cash Flow

● Ranking

● Cost-based Rate Setting

● Surrogate Measures

● Disaggregation Methods

● Option Methods

● Competitive Advantage Valuation (R)

3. The letter implicitly suggests that litigation intended to protect the interests of patent holders could potentially have a chilling effect on government initiatives, local innovation and the interests of consumers. Is there evidence to support this?

Though there is a thin line between legitimate application of legal remedies and chilling effects, the ramifications of the acitivies of non-practising entities (NPEs), of strategic lawsuits against public participation (SLAPP suits), and of frivolous lawsuits provide plenty of evidence to support making such a proposal.

Some indicative examples:

Patent trolling pays: Since 2010, trolls have made 3 times as much money in court as real companies

Kootol (India-based troll with US and European patent applications) sends notices to many companies regarding Twitter/Facebook-style feeds

Alleged troll that sued eBay over PTO reexamination dismisses lawsuit

Patent Troll Lodsys Settles for Nothing to Avoid Trial

Why I’m not paying the Troll Toll

[1] Press Note No. 12 (1991 Series), Procedures in respect of foreign technology agreement, http://eaindustry.nic.in/handbk/chap003.pdf, Last accessed September 16, 2015.

[2] Press Note No. 10 (1992 Series), Revised List of Annex-III items, http://eaindustry.nic.in/handbk/chap005.pdf, Last accessed September 16, 2015.

[3] Press Note No.8 of 2009, Liberalization of Foreign Technology Agreement policy, http://dipp.gov.in/English/acts_rules/Press_Notes/pn8_2009.pdf, Last accessed September 16, 2015.

[4] B. Setting Royalty Rates, Patent Valuation and License Fee Determination in Context of Patent Pools, Vikrant Narayan Vasudeva, http://cis-india.org/a2k/blogs/patent-valuation-and-license-fee-determination-in-context-of-patent-pools, Last accessed September 16, 2015.

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