US court rules on royalty for 2G, 3G, 4G SEPs

The court took a firm stand against royalty stacking. The judgement cited one of the key reasons for using top down analysis is that it prevents royalty stacking. The court also found that the results from the ex-standard approach proposed by Ericsson are highly suggestive of royalty stacking and lack fundamental credibility. The court adopted a maximum aggregate royalty rate based on various public announcements made by SEP owners and industry leaders for the top down calculations.
The court relied on the top down approach for determining a fair and reasonable royalty rate. It said: “A top down model aims to value a portfolio of SEPs by determining a fair and reasonable total aggregate royalty for all patents that are essential to a standard.” “It then apportions that royalty to the SEP owners based on the relative value of their portfolio against the value of all patents essential to the standard.”
Rates under FRAND:
4G- 0.45%
3G- 0.30%
2G-0.16%
(source: IP Pro Patents)

Survey on Foreign Collaboration in Indian Industry: 2007-2010

The RBI survey captures comprehensive information relating to the nature, pattern, and operations of Indian companies having technical collaboration with foreign companies valid during the period April 2007 to March 2010.Highlights of the survey:

Drop in pure technical collaboration.

• Out of the 158 companies which had entered into foreign technical collaboration agreements during the period 2007-08 to 2009-10, 129 were subsidiaries, 19 were associates having equity participation and 10 had pure technical collaboration (PTCC).
• Out of 678 companies which has entered into foreign non-technical collaboration (equity only) , 543 were subsidies and 92 associates. 
• Patents transferred as part of agreement stood at 5 in 8th survey compared to 3 in seventh survey.

This was on expected lines as with liberalization, Indian partner is not a condition for operating in India. MNCs discovered that doing business in India is easier with professional managers than rent seeking Indian business partner.

Impact on Economy

• The total value of production reported by the foreign collaboration companies covered in the present survey increased from `604.8 billion in 2007-08 to `822.4 billion in 2009-10. As a percentage of GDP these companies contributed 1.3% of GDP. 
• The number of employees in the responding foreign collaboration companies increased from 62,166 in 2007-08 to 71,268 in 2010.
• Total exports of the foreign collaboration companies covered in the present survey increased from `120.7 billion in 2007-08 to `156.7 billion in 2009-10.Total imports made by the foreign collaboration companies covered in the present survey increased from `275.0 billion in 2007-08 to `342.3 billion in 2008-09 but declined to `299.0 billion in 2009-10.
• R&D intensity measured as the ratio of R&D expenditure to the value of production declined for both manufacturing as well as service sector from 1.55 in 2007-08 to 0.83 in 2009-10.

Trend

• Foreign Collaboration has negligible impact on GDP, employment, exports or R&D. Strange, considering the fact that India needs better technology in all sectors. 
• Direct import of technology goods seem more attractive than even local assembly with FC.
• Unlike China, Indian govt had no strategic vision of technology acquisition. While China made heavy payments for patents & technology and became global leader in  areas like High Speed Rail transport, Batteries etc, India every year routinely transfers large payments to Suzuki, Unilever etc as royalty(!).

Disputes on Royalty over Standard Essential Patents.

         Before the creation of a standard, all patents are implementation patents. However, when a standard is created and a patent holder declares its patents to be essential to the standard, the patent is a standard-essential patent (SEP) and is subject to the FRAND (Fair, Reasonable, Non discriminatory) commitment. A patent holder is obligated to make licenses available to its Essential Patent Claims defined as  “any Patent Claim the use of which was necessary to create a compliant implementation of either mandatory or optional portions of the normative clauses of the [Proposed] Standard when, at the time of the [Proposed]  Standard’s approval, there was no commercially and technically feasible non-infringing alternative.” The IEEE’s guidelines emphasize that the IEEE bears no responsibility for identifying essential patent claims for which a license may be required or for investigating the legal validity or scope of essential patent claims.

         CCI ( Competition Commission of India) recently addressed this issue in the dispute between Micromax Vs Ericsson. The Informant (Micromax) has alleged that the OP (Ericsson) was demanding unfair, discriminatory and exorbitant royalty for its patents regarding GSM technology. The royalty demanded by Ericsson was excessive when compared to royalties charged by other patentees for patents similar or comparable to the patents held by Ericsson.  OP demanded royalty on sale price of product whereas Informant took the stand that royalty should be applicable on Chip (protected with the patents) and not on phone as smart phone manufacturer has to pay royalties on other components as well , leading to royalty stalking. Second, Ericsson was inclined to share data on Royalties imposed on other licensees to verify non-discriminatory aspect.

         CCI ruled:

         The allegations made in the information and not refuted by OP concerning royalty rates make it clear that the practices adopted by the OP were discriminatory as well as contrary to FRAND terms. The royalty rates being charged by the OP had no linkage to patented product, contrary to what is expected from a patent owner holding licences on FRAND terms. The OP seemed to be acting contrary to the FRAND terms by imposing royalties linked with cost of product of user for its patents. Refusal of OP to share commercial terms of FRAND licences with licensees similarly placed to the informant, fortified the accusations of the Informant, regarding discriminatory commercial terms imposed by the OP. For the use of GSM chip in a phone costing Rs. 100, royalty would be Rs. 1.25 but if this GSM chip is used in a phone of Rs. 1000, royalty would be Rs. 12.5. Thus increase in the royalty for patent holder is without any contribution to the product of the licensee. Higher cost of a smartphone is due to various other softwares/technical facilities and applications provided by the manufacturer/licensee for which he had to pay royalties/charges to other patent holders/patent developers. Charging of two different license fees per unit phone for use of the same technology primafacie is discriminatory and also reflects excessive pricing vis-a-vis high cost phones. 

         In view of above discussion, the Commission is of the opinion that it was a fit case for through investigation by the DG into the allegations made by the Informant, and violations, if any, of the provisions of the Competition Act. 

          This is the first and defining case in India. Request readers to share information on similar cases from other countries.