The two-faced FRAND: Licensing and injunctive relief in ICTs

For the schedule, and more information, visit: http://www.ict-ipr.in/sipeit/conference

Ericsson’s position on patenting

-- Companies file numerous patent applications every year but 95% of all granted patents are never commercialised.

-- Ericsson manages to commercialise less than 5 percent of its patents.

-- A patent application could be rejected because it is not inventive or novel enough. Sometimes, a competitor manages to file for or obtain a patent for the same or similar technology a few days before Ericsson. Hence, it becomes prior art and Ericsson is unable to apply for a patent.

-- Monetising patents is a challenge because the technology they pertain to may not be good enough to be implemented. Either that, or nobody in the market wants the technology. There is no business aspect to it. Thus, patenting is expensive but but filing patents is a trial-and-error activity, which makes patenting financially cumbersome.

-- Ericsson feels the need to file a lot of patents, so that some of those patents could be useful from a business perspective. The rest are not commercialised.

-- The number of patents filed are rising in certain countries, but the numbers are misleading. Some patents are of poor quality and/ or unusable for commercialisation.

-- Ericsson gets approximately 5,000 inventions per year but files patent applications for only around 1,500 to 1,600, as the rest of the inventions do not have a business aspect to it. That is, Ericsson does not believe that the invention has good business potential or that there is little way for the market to adapt to it.

-- When companies invest heavily on research and development, and when they try to get (what will later become a) standardised technology released into the market, they should get fair returns on investment.

-- Indian companies need to invest in IPR. They need to do trial-and-error with respect to patenting. Only then, perhaps, some returns will accrue to them from owning patents.

-- Monetisation is besides selling products. It's a side effect of investment in research and development.

Ericsson’s position on FRAND licensing

-- No company apart from non-practising entities (NPEs) make all or most of its money from licensing. Ericsson makes most of its money from its products and not patents.

-- A large number of companies such as Ericsson have inventors based in India but the patents get registered abroad, [that is, the patents are not filed by the Indian subsidiary of Ericsson].

-- The percentage fee charged for a FRAND license is a low, single-digit number.

-- It's a wrong conception that FRAND licensing is very expensive and will shut down Indian companies. If there were no FRAND agreements, no Indian company would be able to put out a phone in the market.

-- It’s a wrong notion that FRAND agreements are prohibiting any company from the market. Indian companies will not be thrown out of the market by FRAND companies or companies that possess a lot of patents. No Indian company would be able to make and sell a phone if FRAND terms didn’t exist.

-- Ericsson is called a patent troll because it doesn’t make mobile phones anymore, but Ericsson built the technology it patented [unlike other patent trolls who buy and gather patents].

-- Ericsson has entered into more than licensing 100 agreements worldwide. Many of its licensees are repeat licensees.

-- The average selling price (ASP) of China-made phones sold in India is USD 50. This money goes to China. The ASP of high-end phones elsewhere is USD 250. Thus, a royalty of USD 15, calculated on the sale price of the end product, is not high.

Ericsson’s position on SEP litigation in India and injunctions

-- Nobody starts litigation in order to render an injunction in the end. The idea is to get the other party to the table and negotiate reasonable terms.

-- Litigation without injunction is a toothless tiger. The 'licensee' has the financial upper hand of not paying the licensor. So the former can keep prolonging negotiations.

-- When hold-out happens during licensing negotiations, litigation is used as a last resort. Injunctions are one of the possible outcomes of litigation.

-- India should play the SEP game. 5G development starts in January 2016 and India should try to get a stake in the development. Indian companies should try to get high quality patents.

[This suggestion seems to be for homegrown Indian companies as Ericsson also stated during the conference that, “A large number of companies such as Ericsson have inventors based in India but the patents get registered abroad”, that is, the patents are not filed by the Indian subsidiary of Ericsson.]

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Indian Cellular Association on injunctive relief,  SEPs and FRAND licensing rates

-- When the standard setting process is collaborative, it is not logical to apply injunctive relief. It is against the ethos of the community.

--Telecommunication was the first industry to create monopolies, that is, standardisation in order to serve the customer better.

-- [With reference to SEP infringement litigation happening in India], the so-called infringer is not in league/ not competing with anything the patent holder is making and/ or selling.

-- The Competition Act in India is a wide-ranging law. It is not a restrictive trade practices act or a monopolies act. Patents are out of the purview of competition.

-- If a rights holder has acquired dominance as a part of the standard setting process, it is undoubtedly dominant. But if the rights holder's market practices are fair, then it is not violating any provisions of the Competition Act.

-- India has a “demographic dividend”. Legacy patent holders should look at India differently, and consider our purchasing power. If technology has to proliferate, then consumers in India cannot be burdened with the same royalties as the developed world.

-- We are trying to strengthen the TSDSI, India's indigenous standards development body [so that India can have a stake in international standards development].

-- The size of the global smartphone market today [2015] is USD 500 billion; India's mobile phone market is worth USD 16 billion. The mobile phone market share of China is pegged at USD 110 billion.

-- The mobile phone market in India will be worth USD 100 billion as of the year 2022 or 2023. For SEP royalties that reward the innovation of all the SEP holders, what will be the amount of royalty outflow? If the outflow is USD 500 billion [in the year 2022 or 2023], then the FRAND percentage be 0.5, which is not a single-digit number, unlike what was stated by Ericsson's representative.

-- In the projected figure of USD 100 billion, USD 30 billion accounts for display, USD 5 billion accounts for Lithium-ion battery, USD 5 billion for communication protocol, and the complete chipset stack for around USD 10 billion. If the FRAND rate were to be determined as a percentage of the price of the smallest practising component of the [finished] device, then it would be, say, 2% of USD 10 billion. If the FRAND rate were to be determined as a percentage of the end product, it would be 0.5% of USD 100 billion. But, if the FRAND percentage were a single-digit number, which could also be 9, then all the manufacturers except the rights holders would be snuffed out. China's mobile market is at USD 110 billion now and is projected to be at USD 400 billion in 2022, will be paying around USD 1 billion in total royalty outflows.

-- We also need to evaluate macro costs of research and development globally. How many times, how much, and for how many years do we need to reward innovation? What is the right return amount for inventors? All this will come up for serious debate with the patent office, the Competition Commission of India, the companies, and with the ministries. To ensure equitable growth and a level playing field, all these entities need to get involved.

-- There is deep distrust of rights holders due to opaqueness in their operations. For example, injunctive relief was sought against a small importer in an Indian court. The royalty rate demanded happened to be half of that demanded from another Indian importer in the same court against an interim injunction. The rights holder then claimed that the email sent to the former importer was a mistake and it revised the rates so that it was equal for both importers.

[This seems to be a reference to Ericsson suing Saral Communications for patent infringement in the Delhi High Court around the same time that Micromax complained to the Competition Commission of India alleging abuse of its dominant positon by Ericsson. The interim royalty rates quoted to Saral were half of the rates that Micromax was ordered to pay, rendering Ericsson's conduct discriminatory and in violation of FRAND. Ericsson subsequently claimed that the rates conveyed to Saral via email were a mistake and asked for the same interim royalty rates as it from Micromax. For more details refer to, Court document reveals discriminatory royalty demands by Ericsson for its wireless patents.

This is also an indication that the market practices of certain rights holders are not consistent, which not only results in a trust deficit but prevents the implementation of a harmonised FRAND rate across the world.]

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Injunctive relief and FRAND licensing in Europe

-- According to the German Patent Act, there is automatic injunction as a consequence of patent infringement. No injunctive relief is granted for SEPs anymore in Germany, if certain conditions are fulfilled by the willing licensee.

-- Long-standing provisions exist in Germany for calculating royalties when multiple patents and multiple patent holders exist. FRAND licensing for one patent is useless. There should be FRAND for the whole complex.

-- As per the Huawei decision of the European Court of Justice, dated 16 July 2015, a willing licensee can make an offer for the price it wishes to pay to use a patent under the condition that it deposits an amount in the bank as a security for the licensor. Then the licensor cannot enforce the injunction anymore.

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Open data in patenting

If the data available with patent offices across the world is made publicly accessible by the respective governments in a way that it is possible to search, understand, and visualise it, then there could be an explosion in innovation.

The trade-off between access and innovation

Inexpensive phones of sub-standard quality break down or stop working sooner than good quality phones. This also destroys incentives for innovators who want to bring high quality phones into the market. So the inexpensive, low-quality phones is a trade-off between having access to mobile phones today and experiencing the fruits of innovation tomorrow. The Hatch Waxman Act in the US addresses this issue by allowing imitators to come into the economy through an authorised mechanism, which also restores some incentives for innovation.

The tradeoff is also addressed better by implementing an evidence-based approach instead of a one-size-fits-all solution. Some regions require an emphasis on access. In other places that do not lack access due to their geographical location and clusters of innovators, IPRs can be implemented more strictly. Such a segmented approach to regions and product-markets can be crafted into policy.

The challenge of harmonisation

Denmark does not have a dedicated intellectual property office. Work on IP is integrated in the government offices for trade, growth, economy, and so on. IPR is strongly interlaced with competition law in the country. Similarly, the Department of Telecom, Department of Health, the Indian Patent Office and the Competition Commission of India should work in tandem to avoid conflict in the way they address cases and issues.

Patenting for universities

Indian university do not carry out patenting as much as their counterparts in other countries. The DieTY has schemes for supporting patent filing by universities and academic institutions.

Number of patents granted annually to:

Xingua University, China: 1,000

MIT, United States: 4,000

IIT and IISC, India: Between 100 and 200

Technology areas and number of SEPs in Europe

Telecom via public network: 4,284

IT and Internet: 534

Audio/ video systems, coding, et cetera.: 221

Security, cryptography, biometrics: 182

(Source: Competition Policy Brief, June 2014, Issue 8, Standard Essential Patents, European Commission)

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All comments in square brackets and italics by the author.