Often the discussion around SEPs and FRAND is muffled because of the surrounding technicalities, and accompanying jargon and only rarely does one come across a work that is able to explain the nitty gritty of SEP and FRAND in a simple manner. We recently came across one such short paper on “SEP Litigations & Issues in Determining the FRAND License” published in the September 2023 issue of the Journal of Intellectual Property Rights (see here) and extended a guest post invitation to its authors to discuss their key arguments. With this background, we are pleased to bring to you a guest post by Dr. Victor Vaibhav Tandon and Dr. Ashwini Siwal. Dr. Tandon is an academician-turned-lawyer at Saikrishna & Associates. Dr. Siwal is a faculty at the University of Delhi. Views expressed here are those of the authors’ alone.

SEPs & FRAND: Misnomers & Maladies

Dr. Victor Vaibhav Tandon and Dr. Ashwini Siwal

In the September 2023 issue of JIPR, we wrote on “SEP Litigations & Issues in Determining the FRAND License” (accessible at https://or.niscpr.res.in/index.php/JIPR/article/view/4196/1922). We highlighted the following problems, (i) Over-Declaration and Supra-FRAND rates by SEP holders, (ii) Patent Hold-Out by Implementers, (iii) Difficulties in setting Global FRAND rates by national courts, (iv) Informational imbalances between negotiating parties, and (v) lack of awareness about nuances of SEP/ FRAND. The issues, as we noted there, were by no means exhaustive, nor do they have any easy answers.

This short piece attempts to add to the above. We hope it provides more context for IP enthusiasts, especially the younger ones, and for those interested in the acronym-heavy world of SEPs.

A Different Jurisprudence

Determination of FRAND (Fair, Reasonable and Non-Discriminatory) license terms for a claimed Standard Essential Patent (SEP) portfolio lies at the core of disputes involving SEPs. A user/ implementer of SEP(s) who is willing to take a FRAND license, even where terms thereof are determined by Court/arbitrators, can avoid an injunction. Indeed, an injunction might not be the end-goal of the SEP holder, more so when such holder is a non-practicing entity (NPE) and is interested in licensing revenue. This sets SEP litigations apart from other patent litigations wherein the patentee could be more interested in securing an injunction and keeping the monopoly for itself or for its chosen licensees. In the SEP space, the FRAND duty is designed to encourage competition and diffusion of the standardized technology by ensuring that FRAND licenses are granted to all comers- a feature that is absent in other patent litigations.

Further, the main issues involved in a patent litigation generally are- (i) whether the asserted patent is valid and (ii) whether the asserted patent is infringed. An injunction will ensue if both are decided in patentee’s favour. However, SEP litigations generally involve the following issues- (i) whether the asserted patents (from the global portfolio of claimed SEPs) are valid, (ii) whether such patents are essential to the standard, (iii) whether the said patents are infringed by the implementer, and (iv) whether the conduct and offer/counter-offer of the parties has been FRAND. Even where all these issues are decided in favour of the SEP holder, the Court will still not injunct the implementer but would let the implementer choose if it wishes to take the license on Court determined/ declared FRAND terms (for instance see Optis Cellular Technologies v. Apple Retail UK Ltd. and Unwired Planet v. Huawei).

Global FRAND Rates by National Courts

While determining FRAND terms/ rates in a given fact situation, a Court needs to factor in at least one jurisprudential dilemma: Can a national court determine a global FRAND rate for a multi-jurisdictional portfolio of self-declared SEPs, even when only a set of national patents are asserted before such national court? Further, a global FRAND rate must account for, inter-alia, the following (i) market presence of the implementer will vary in different jurisdictions and (ii) patent portfolio of the SEP holder might be stronger in some jurisdictions; else the determined rate will not reflect the true worth of SEP holder’s portfolio.

And, importantly, if national courts become the final arbiter of FRAND license terms, can they compel either party to give or take a global portfolio license covering patents in other jurisdictions, even when national courts cannot grant injunctions for the infringement of foreign patents? If different national courts do undertake determination of global FRAND terms, there is a possibility that such courts may determine different set of rates/ terms as FRAND, thus leading to a conflict of judgements/ FRAND rates. What rate should the parties choose in such cases? Perhaps the recent insistence of UK courts in Nokia v. Oppo and Unwired Planet v. Huawei  to determine global FRAND rates, even where some of the parties did not agree to its jurisdiction or had initiated FRAND rate determination proceedings in Chinese courts, appears to challenge the territorial and statutory nature of patent law. In fact, in the Nokia order Justice Meade took somewhat of a stern approach and insisted on Oppo agreeing to a UK court determined FRAND rate else face an injunction notwithstanding Oppo’s commitment to be bound by the FRAND rate setting by the Chongqing Court, China.

SEP- A Misnomer?

Standards are all pervasive- from standards for measurement (example, the meter- which remains the same everywhere and for everyone) to quality standards (example, FSSAI standards), and technology standards (like WiFi6, 5G, etc.). The technology standards like USB-C, telecom standards, WiFi6 etc. ensure, inter-alia, interoperability and compatibility.

There could be, and indeed are, technologies which are essential to the performance of a given standard. When such technologies are covered by IPRs (for example, patents) the concerned IP is called standard essential. A SEP, therefore, is simply a patent which must necessarily, or essentially, be practiced in order to comply with some portion of a given technology standard, i.e., there is no alternative technology to a true SEP.

However, no organization tests/certifies whether a given IP/ patent is indeed standard essential or not- at least not until the IP/patent is litigated in a Court. For example, Standard Setting Organizations (SSOs) like ETSI merely require a self-declaration from IP holders that their patent/ patent application covers technology included or proposed to be included in a technology standard. Some of these applications may never get granted in national patent offices or the patents may later get invalidated (for instance see Unwired Planet International Ltd. v. Huawei where the court had observed that “declared SEPs within a portfolio are often invalid or non essential”. As a recognized judicial fact, SSOs do not test whether a patent is indeed standard essential (See para 20 of Huawei Technologies Co. Ltd. v. ZTE Corp. and Unwired Planet v. Huawei). In this sense, an untested SEP is necessarily a misnomer, giving a false suggestion that such a patent is essential to any standard.

Nevertheless, considering that incorporation/diffusion of standardized technology is increasingly important for ensuring interoperability and interchangeability, SSOs require self-declared SEP holders to give an irrevocable undertaking that licenses for use of the SEP will be granted to all comers on FRAND terms. The only problem being that SSOs (yet again!) neither determine nor provide any guidance regarding what is FRAND. It is left to the parties to negotiate terms which they consider to be FRAND in their specific fact situation, and if the parties fail to do so, well, the determination of FRAND conduct and FRAND terms falls on courts.

Real-world negotiations (generally strategized keeping in mind any potential litigations) often depend on strength, experience and awareness level of negotiating parties- the SEP/FRAND system being open to exploitation by whoever is better-financially and strategically- an issue we had explored more fully in our paper.

The FRAND Commitment- A Burden and a Disadvantage?

The ‘patents are an incentive to innovate’ paradigm often makes us forget that patents have an important socio-development function as well. To put it as Roscoe Pound would, patent law is about balancing two competing societal interests- to reward the innovators in society while ensuring that there is diffusion of new technologies and users have affordable access thereto; the essence being captured by Article 7 of TRIPS, when it says that IPR protection and enforcement should contribute “to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations”.

And therefore, should FRAND be labelled as an encumbrance? Or simply as a bargain or duty in return of the special non-statutory right that is SEP- not a burden but an exalted status over and above normal statutory patents. In this context, although an Indian court viewed SEP holders as having a disadvantage given their lack of freedoms/choices, but the EU considers that “the SEP owner wields a privileged market power over the implementer of standardized technology, as there is no alternative to using their SEPs”.

Pertinently, a patent is not a right to practice, but a right to exclude. Patent monopolies do not ensure that an invention will be successful or will necessarily be practiced widely (much like copyright does not ensure that a novel/film will be a blockbuster- just that others cannot copy the exact expression). SEP status changes this normal situation fundamentally in favour of the SEP holders- with entire industry locked into the technology standards and losing ability to choose alternative technologies- thus giving considerable market power to the SEP holders- even when the essentiality and FRANDness of their claims might be unverified.

Supra-FRAND Rates, Patent Hold-Outs & Other Maladies

Our paper had noted that the UK Supreme Court in Unwired Planet v. Huawei recognized over-declaration of SEPs when it stated that, “more patents are declared to be essential than in fact are essential. This problem of over-declaration…”. SEP holders demanding supra-FRAND rates, i.e., a fee/price above the actual worth of the SEP portfolio, and engaging in non-FRAND conduct is also recognized, for example, a UK court in Interdigital Technology Corporation v. Lenovo Group Limited noted that an SEP holder “consistently” sought “supra-FRAND rates” thus acting as an unwilling licensor.

Equally, we had noted that, experienced implementers can hold-out against SEP holders, especially when there is no threat of an injunction as long as they are willing licensees. While a FRAND license can take into account royalties for past un-licensed acts, there have been instances of implementers choosing injunctions over licenses. This had made us question- (i) what such injunctions mean for market competition and consumer choice, (ii) to what extent implementers will go on strategically exiting markets, (iii) what will a SEP holder do with an injunction that does not help in enhancing licensing revenue?

These problems had led us to opine that policy makers need to interfere and lay down some parameters for FRAND negotiations, and perhaps the role of SSOs should be questioned. A policy guidance can perhaps be immensely useful for all stakeholders, and would be imperative because while SEP/FRAND disputes are global but different jurisdictions have (i) different legal and procedural requirements for settling those disputes and (ii) different socio-economic realities. For now, it remains to be seen where Indian SEP jurisprudence is headed, and will we see a FRAND rate determination in India any time soon?

Authors are grateful to Aniruddh Bhatia, Senior Associate at Saikrishna and Associates for his inputs and edits.

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