GS Paper III

News Excerpt:

India remains the only major economy to not yet investigate the potentially abusive licensing practices of technology companies that own SEPs.

About the news:

• There is a possible crisis brewing in India over how certain technology companies are wielding ‘standard essential patents’ (SEP) against the telecom manufacturing sector in India. 
• This directly affects India’s effort to build a domestic manufacturing industry for cellular phones. 
• So far, the issues of regulating SEPs have been left to the Indian judicial system.

What are SEPs?

• These are patents that cover technologies that are adopted by the industry as “standards”. For example, technologies such as CDMA, GSM, and LTE are all industry standards in the telecom sector. 
• Such technological standards are especially important to ensure the interoperability of different brands of cellular phones manufactured by different companies. 
• For example, once GSM was adopted as a standard, all manufacturers had to ensure that the handsets that they manufactured were compatible with GSM. Otherwise, there would be no demand for their phones.
• Theoretically, the companies which own the SEPs, gain enormously because every manufacturer of cellular phones has to licence the technological standards in question in order to survive in the market. 
• The lack of alternatives also means that owners of SEPs can demand extortionary royalties or licensing terms from manufacturers that block competition. In economics, this is called the “patent holdup” problem. 
• In theory, the SSOs are supposed to prevent such a scenario by requiring the owners of SEPs to licence their technologies at a fair, reasonable and non-discriminatory (FRAND) rate.

Associated Problems:

• Opaque Nature: 
• The process of setting standards in the technology sector is largely privatized  and is opaque.
• It is also dominated by “Standard-Setting Organizations” (SSOs) run largely by private technology companies. 
• Countries such as India with little innovation in the telecom sector, have very little influence over how standards are set or how SEPs are licensed.

• Self Regulation Model:
  • In practice, this model of self-regulation by the technology industry has been marked with opacity and has failed rather spectacularly, as evidenced by the record fines that some of these SEP owners have had to cough up across the world for engaging in anti-competitive practices. 
• The effect of Judicial Lethargy and Activism:

• The Indian response to the issue has been characterized by both judicial lethargy and judicial activism at the Delhi High Court. 
• Yet, such judicial activism has been justified by the Delhi High Court by invoking its “inherent powers to do justice”. 
• This judicial activism combined with judicial delays will hurt the government’s attempt to attract more investment in the manufacturing sector such as under the “Production Linked Incentives” scheme for manufacturing in India.

Case under study: 

• In 2013, the Competition Commission of India (CCI), acting on a complaint by Micromax began an investigation under the Competition Act into the issue of whether Ericsson abused its dominant position by demanding extortionate royalties for its SEPs. 
• Ericsson challenged the power of the CCI to do so, before the Delhi High Court, on the grounds that the Patents Act vested the power to remedy an abuse of patents only with the Patent Office.
• The first round of litigation was resolved in favour of the CCI by a single judge on March 30, 2016.
• Ericsson then challenged this decision before the Division Bench of the Delhi High Court, where it remained pending for an astounding seven years until a judgment was delivered against the CCI on July 13, 2023. 
• The CCI has appealed against this decision to the Supreme Court of India, where the matter remains pending. 
• These trials are complex and take time. Also, they are unprecedented in the history of commercial law for the simple reason that there is no provision in the law granting judges such powers.

Way Forward:

• It is time for the Indian government to intervene and put in place measures to regulate SEPs before the judiciary causes further damage to India’s manufacturing dreams. India will not be an outlier if it intervenes.
• The European Parliament has already enacted one such set of measures to regulate SEPs. India, arguably, has a much stronger case to push for similar, if not stronger regulatory measures, since it has no say in how SEPs are selected by SSOs, while also being compelled by international agreements to enforce patents of foreign technology companies.