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SEPs & Un-FRANDly Wars!

Published on Fri, May 30,2014 | 23:00, Updated at Mon, Jun 02 at 16:14Source : CNBC-TV18 |   Watch Video :

Motorola vs Apple in Germany
Apple vs Samsung in Korea
InterDigital vs Huawei in China
Micromax vs Ericsson in India

- a global war of sorts is playing out before courts and competition regulators on the issue of Standard Essential Patents or SEPs. SEPs are patents essential to implement a specific industry standard. Once these patents become industry standard, it becomes impossible for manufacturers to make gadgets like smart phones, tablets without using the patented technology. This gives immense power to the owners of such patents to restrain manufacturers from using the technology if their terms are not agreed to. Last week, while deciding on the Samsung and Motorola cases, the European Commission gave the much needed guidance in this area. Payaswini Upadhyay gets you the outcome in Europe and its impact in India.  

But before that, let’s look at what this battle really is about

At the heart of the issue are the terms of the agreement between patent or technology owners and those who seek to implement the technology. Once SEP owners agree that their technology be made an industry standard, Standard Setting Organisations or SSOs require them to license it on FRAND terms. But what those terms should be has become a contentious issue between the two sides.

Stefano Macchi di Cellere
Of Counsel, Jones Day
“The heart of the issue is the need to strike a balance between the patent holders who basically have a monopoly on the technology that they have developed and the licensees who are utilizing that technology and obviously have to pay some royalties on it. The question basically is the amount of the royalties- so there is dispute there. In the given instance, between Apple and Motorola and Samsung on the other side- on the amount of the royalties.”

Since Motorola and Apple could not agree to a mutually acceptable royalty rate, Motorola sought an injunction in Germany.

Last month, the European Commission found Motorola guilty of abuse of dominant position. The Commission concluded so on two grounds
-    One, Motorola attempted to seek and enforce an injunction against Apple regarding one of its SEPs even though Apple was a willing licensee.

James Flynn QC
Barrister, Brick Court Chambers
“I could make just one other point which is on the legal theory underlying the Commission’s decision. What this is effectively saying that it is something like a crime or something for which a company can be fined a great deal of money to approach a court and seek discretionary relief and my own view is that this a very odd thing for an anti-trust agency to do when the courts are able to fully assess the competition law and the intellectual property law implications of seeking an injunction or going to trial on validity and infringement or the fair terms of a license. So it is peculiarly bold intervention by an anti-trust agency and in my view- one that is contrary to fundamental legal principles.”

The second ground on which the Commission found Motorola guilty was its threat to use an injunction unless Apple gave up its future right to challenge the validity or infringement of Motorola's SEPs.

James Flynn QC
Barrister, Brick Court Chambers
“The Commission’s position now- it has clearly adopted these decisions as precedent and guidance to the industry as it says- is that the licensee or if you think the other way round, the infringer must be free to contest the validity of the patent and so the extensive litigation you see going all in all over Europe and of course the rest of the world will continue.”

Stefano Macchi di Cellere
Of Counsel, Jones Day
“Today, the decision by the Commission represents a precedent. Motorola has not been fined because there were no precedents in the past and the decisions by the national courts have so far been kind of conflicting. But now that the principle has been established, obviously an owner of a SEP has to be very careful if it wants to exercise enforcement through injunction because it may run the risk of being found abusive and there are very heavy sanctions in such case- up to 10% of the worldwide turnover of the group.”

Giving Motorola company in this investigation was another tech giant- Samsung.

Last month, Samsung agreed to sign a legally binding commitment with the European Commission. The commitment requires Samsung to not seek injunctions against licensees who agree to two terms- one, a mandatory negotiation period of up to 12 months. And two, if no agreement is reached, a determination of FRAND terms by a court or an arbitrator  

Stefano Macchi di Cellere
Of Counsel, Jones Day

:The core of the decision by the Commission today is exactly this- it is legitimate for the holders of SEPs to act for the enforcement of their IP rights but on the other hand if you have a dominant position, which is generally the case when you have a SEP recognized, in such a case you cannot abuse your dominant position by taking action with injunctions against the licensee. So there is a balance that has to be found. For the licensees to accept a decision by a court or a decision by an arbitrator on the amount of the royalty should be sufficient to get into a situation of safe harbor.”

In saying so, the Commission has laid down that SEP-based injunctions should only be available when there is an unwilling licensee- one who is not willing to take a licence on FRAND terms decided by a court or an arbitrator. Back home, the Competition Commission of India is facing a jurisdiction crisis on this issue.

In February this year, the Delhi High Court restrained the Competition Commission of India from passing any orders in its ongoing investigations against Ericsson. Last year, Micromax and Intex had complained to the CCI that Ericsson was abusing its dominant position by demanding unfair, discriminatory and exorbitant royalty for its patents.

Naval Chopra
Partner, Amarchand Mangaldas
“The European cases will definitely have an impact on the way the Commission precedes simply because the Indian Competition Act - like in Europe-follows the approach that intellectual property rights must be recognized. But where the Intellectual Property right holders go beyond what is reasonably permitted by way of restrictions, competition regulators will frown upon on it- especially when it comes to Standard Essential Patents where the patent holder has market power by virtue of being included in that standard, Therefore I would foresee that the Indian regulator would take the approach that if you have a SEP and you have a willing licensee but you decide to pursue the route of injunctions or you impose conditions which would be considered excessive, then it would be frowned upon.”

But unlike the European regime that allows for settlements and we’ve seen Samsung take advantage of that last week, the CCI will have to conclusively decide whether Ericsson abused its dominant position as the Indian competition law doesn’t permit settlement. But all that will happen only if CCI manages to surmount the jurisdictional challenge!  

In Mumbai, Payaswini Upadhyay

 
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