Standards
Standard can be defined as 'a set of technical specifications that seeks to provide a common design for a product or process'. According to the ISO/IEC Guide 2:2004 Standardization and related activities - General vocabulary, the term ―Standard is defined as a document, established by consensus and approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context. In other words, a standard is a document that sets out requirements for a specific item, material, system or service, or describes in detail a particular method or procedure. These standards can be voluntary or mandatory when enforced by law.1
Another way to define Standard is - Document approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for products or related processes and production methods, with which compliance is not mandatory. It may also include or deal exclusively with terminology, symbols, packaging, marking or labeling requirements as they apply to a product, process or production method2 .
One example of a widely used standard is the A4 size for sheets of paper. Another example would be the common mobile phone charger. Basically, there are two categories of technical standards: one is de facto standards and the other is de jure standards. A de facto standard comes into existence when a particular technology is widely implemented by market players and simultaneously accepted by the public as a result of which such technology becomes dominant in the market even if it has not been adopted by a formal Standard-setting body.
The de jure standards are the standards set by Standard Setting Organizations (SSOs) such as the European Telecommunications Standards Institute (ETSI), the International Telecommunication Union (ITU), etc. The role of SSOs is to coordinate and facilitate a standard-setting process with the involvement of various stakeholders. Standards can be adopted worldwide, or only regionally or even nationally. It is usually in the interest of industrial players to create products that comply with standards. Products that do not follow such defined standards are generally commercial failures because consumers want their devices to conform to commonly accepted standards in society. In sum, standards today play an important role in improving the compatibility and quality of products and services in the market3 .
Standard Essential Patent
A Standard Essential Patent (SEP) is a patent that claims an invention that is used to comply with a standard. These standards frequently refer to technologies which protected are under the Patent regime. A patent that protects a technology that defines standards to be followed by technologies of that field is called Standard Essential Patent. In Microsoft Corp. v. Motorola Mobility, Inc. US court defined SEP as "A given patent is 'essential' to a standard if the use of the standard requires infringement of the patent, even if acceptable alternatives of that patent could have been written into the standard". A patent is also essential "if the patent only reads onto an optional portion of the standard". Thus, it is impossible to manufacture standard-compliant products without using technologies covered by one or more SEPs4 . Patents and standards serve common objectives of encouraging innovation and diffusion of technology. Standard organizations, require members to disclose and grant licenses to their patents and pending patent applications that cover a standard that the organization is developing. If a standard organization fails to get licenses for all patents that are essential to comply with a standard, owners of the unlicensed patents may demand or sue for royalties from companies that adopt the standard5.
Standard Essential Patents & FRANDS
The relevant standard set out by Standard Setting Organizations gives birth to a body inclusive of essential features that must be fulfilled by any device to be in conformity with a particular standard. When a device is found to be in conformity with an essential standard it is allowed to bear a mark to indicate to the public that the product is compliant with the set standards. In order to produce a standard-compliant device, use of certain patents is required.
The main requirement for using a patent is obtaining a license from the owner of the patent concerned6 .
Many SSOs require their members to undertake that they will grant binding licenses to companies that wish to use the standard. If a member does not provide such an undertaking, the standard may not be adopted. To promote the application of the standard and to avoid any competition concerns, such licenses must be made available under Fair, Reasonable and Non-Discriminatory (FRAND) terms. Thus, this patent right is not absolute like the rest of the patent rights. Here the owner of SEP is under an obligation to license its patented technology which sets a standard for the industry and such license must be granted on FRAND terms. Licensing of Standards Essential Patents (SEPs) on Fair, Reasonable, and Non-Discriminatory (FRAND) terms is a foundation of the standards development process. The idea behind FRAND is to provide the benefit of such patent terms to the market at large and prevent the patent holder of such SEPs from abusing his dominant position in the market7.
WIPO on Standard Essential Patents
The issue of Patents and Standards was discussed during the 13th Session of the Standing Committee on the law of Patents. Recognizing the importance of standards, the study report prepared by WIPO states, "In view of globalization and increased economic interactions among states, the importance of developing international standards is increasing in many industries." As mentioned in the earlier part of the study report, it also supports the fact that patents and standards serve certain common objectives insofar as they both encourage or support innovation as well as the diffusion of technology. Thus, the proper functioning of the patent system influences the proper functioning of the standard system. The study report shows it's concern about self-regulatory mechanisms of SSOs and suggests enhanced transparency and accessibility to patented technologies that cover the standards8 .
Judicial approach in India
In Micromax Informatics Ltd v Telefonaktiebolaget LM Ericsson9 , Micromax Informatics Limited filed a complaint with the CCI, contending that Ericsson was abusing its dominant position in the market by imposing exorbitant royalties for the use of its SEPs, thereby violating the Competition Act 2002. Micromax further argued that using the sales price of the downstream product, as the royalty base constitutes a misuse of SEPs that would ultimately harm consumers. Micromax alleged that Ericsson was charging such royalties because there is no alternate technology is available in the market and Ericsson is sole licensor for the SEPs necessarily implemented in 2G and 3G Wireless Telecommunication Standards.
CCI, in its preliminary order stated that, in the relevant product market, Ericsson was the largest holder of SEPs for mobile communications and it was in a dominant position in the market for devices that implemented standards like 2G, 3G, etc. CCI opined that FRAND licenses are primarily intended to prevent patent hold-up and observed that patent hold-up undermines the competitive process of choosing among technologies and thus, threatens the integrity of Standard-Setting activities. CCI also said that Ericsson's royalty rates were excessive and discriminatory, given that they were set as a percentage of the price of downstream products instead of as a percentage of the price of the GSM or CDMA chip.
The CCI concluded that the requested royalties had no linkage to the patented product, thus discriminatory as well as contrary to FRAND terms. Ericsson challenged the order of CCI in High Court of Delhi in W.P No. (C) 464/2014. Court, vide order dated 21st January 2014, restrained Competition Commission of India or its Director-General from passing any Final Order in the matter.
Footnotes
1 http://www.ipindia.nic.in/writereaddata/Portal/News/196_1_standard EssentialPaper_01March2016_1_.pdf
2 https://www.wto.org/english/docs_e/legal_e/17-tbt.pdf
3 https://www.wipo.int/edocs/mdocs/scp/en/scp_13/scp_13_2.pdf
4 ibid
5 http://www.ipindia.nic.in/writereaddata/Portal/News/196_1_standard EssentialPaper_01March2016_1_.pdf
6 ibid
7 ibid
8 supra note 3
9 Supra note 5
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