SEPs in Indian Innovation Policies

 In March 2016, the DIPP had circulated a “Discussion Paper on Standard Essential Patents and their Availability on FRAND Terms.” It contained several issues for resolution inter alia relating to the need for amending statutes, creating guidelines for Indian SSOs, defining FRAND and fixing royalty calculation methodologies, use of non-disclosure agreements, transparency and patent pooling. 

The deliberations on the 6G Alliance propose to create 100 specification-dependent 6G SEPs – this would increase India’s visibility from nothing to something; but, other than increasing visibility, there is no policy direction on what our long-term domestic innovation goals are, where we place ourselves in the global SEP ecosystem, and how we want to support our domestic innovators. The proposed Telecom Policy advocates for a Sovereign Patent Fund – a mechanism that has been tried, tested and failed in several other jurisdictions, considered very problematic and an idea that’s possibly outdated.

In the limited discourse that has followed on this topic, several concerns are apparent. First, the blanket mandate of creating more SEPs is disjointed from any discussion on domestic directions on the FRAND commitment. With lack of a background clarification on what meaning basic SEP concepts hold in the Indian innovation ecosystem, the success of targeted sector-specific policies will be very limited. Additionally, a broader question is whether the Indian policy-making regime believes that a separate regulatory framework must define SEP participation rules for every innovation and manufacturing sector? It is not the requirement, nor the need, of an SEP policy to identify every domain sub-structure and dictate its behaviour. For a policy on SEPs to bring a sense of certainty, rules of conduct need to be defined broadly for the entire innovation ecosystem.

Source-https://spicyip.com/2025/11/seps-are-decorative-acronyms-in-indian-innovation-policies.html

European Commission’s Draft Standard Essential Patents Regulation

 The draft regulation foresees (1) the establishment and maintenance of an electronic register and database for SEPs; (2) the establishment and administration of a system for assessing the essentiality of SEPs; (3) the creation and administration of a process for FRAND determination and (4) the administration of a system for an aggregate royalty rate determination. All of this is to be administered by the EUIPO, the European Union Intellectual Property Office.

Global FRAND rate setting- UK and China moved for an early mover advantage, now EU wants to step in.

Download report:  https://single-market-economy.ec.europa.eu/publications/com2023232-proposal-regulation-standard-essential-patents_en

FRAND rates in US Judgement

A US judge has handed down a fair, reasonable and non-discriminatory (FRAND) licence for standard-essential patents (SEPs) in a high-profile quarrel between telecoms company Ericsson and TCL, a China-based smartphone maker.   Royalty rates fixed as under:

A running royalty for End User Terminals Sold beginning January 1, 2018 according to the following schedule:

 For each such product Sold that is compliant with GSM, GPRS, or EDGE (but not compliant with WCDMA, HSPA, and/or 4G), 0.164% of the Net Selling Price if sold in the United States, 0.118% of the Net Selling Price if sold in Europe, and 0.090% of the Net Selling Price if sold anywhere in the world other than the United States or Europe; 

 For each such product Sold that is compliant with WCDMA or HSPA (but not compliant with 4G), 0.300% of the Net Selling Price if sold in the United States, 0.264% of the Net Selling Price if sold in Europe, and 0.224% of the Net Selling Price if sold anywhere in the world other than the United States or Europe;

 For each such product Sold that is compliant with 4G, 0.450% of the Net Selling Price if sold in the United States, and 0.314% of the Net Selling Price if sold anywhere in the world other than the United States. Should TCL purchase TCL End User Terminals from a Third Party claiming to  be licensed or to have pass-through rights under Ericsson Licensed Patents that confer a license covering the End User Terminal, then TCL will receive credit for that pass through license in the royalty rates applied. In particular, with regard to Ericsson Patents that are essential to the WCDMA Standards (“Ericsson WCDMA Licensed Patents”) for the Selling of ASICs, then TCL may have the option of remaining unlicensed by Ericsson under such Ericsson WCDMA Licensed Patents subject to Selling TCL End User Terminals with ASICs that are compliant with the WCDMA Standard. TCL shall then pay a royalty equal to the rate paid for the GSM/GPRS/EDGE and/or LTE Standards as specified in Clause E(3)(a) or Clause E(3)(c) of this Injunction, as applicable, for each such TCL End User Terminal  provided that such TCL End User Terminal is also compliant with any of the GSM/GPRS/EDGE Standards and/or LTE Standards while it is qualified as a WCDMA End User Terminal. For the avoidance of doubt, the Parties acknowledge the doctrine of patent exhaustion. Ericsson confirms that upon the Effective Date it has not provided any licenses with pass-through rights under its 4G patent portfolio to a chipset provider, making, using, importing, selling, or otherwise disposing of 4G compliant chipsets and components. For the avoidance of doubt, TCL shall only be required to pay the highest  prevailing royalty rate under this Injunction for each End User Terminal. For example, the 3G royalty rate for 3G multimode End User Terminal includes the royalty rate also for the 2G part in such End User Terminal.

Source: Judgement

EU guidelines on SEP

EU touched on transparency of SEP.

INCREASING TRANSPARENCY ON SEPS EXPOSURE
Information on the existence, scope and relevance of SEPs is vital for fair licensing
negotiations and for allowing potential users of a standard to identify the scale of their
exposure to SEPs and necessary licensing partners. However, currently the only information
on SEPs accessible to users can be found in declaration databases maintained by SDOs which
may lack transparency. This situation makes licensing negotiations and the anticipation of
risks related to SEPs particularly difficult to navigate for start-ups and SMEs. The primary
purpose of declarations is to reassure an SDO and all third parties that the technology will be
accessible to users, typically under a commitment to license under FRAND conditions.
SDO databases may record tens of thousands of SEPs for a single standard, and this trend is
growing9. The declarations are based on a self-assessment by the patent holder, and are not
subject to scrutiny regarding the essentiality of the declared patent, which can evolve in the
course of the standard adoption procedure. In addition, stakeholders report that even in
concrete licensing negotiations licensors fail to substantiate their claims with more precise
information. This is particularly unsatisfactory in the context of IoT where new players with
little experience of SEPs licensing are continually entering the market for connectivity. The
Commission therefore believes that measures, as outlined below, are needed to improve the
information on SEPs.
1.1. IMPROVING QUALITY AND ACCESSIBILITY OF INFORMATION RECORDED IN SDO
DATABASES
The Commission believes that SDOs should provide detailed information in their databases to
support the SEP licensing framework. While SDO databases collect large amounts of
declaration data10, they often do not provide user-friendly accessibility to interested parties,
and lack essential quality features. The Commission therefore takes the view that the quality
and accessibility of the databases should be improved11. First, data should be easily accessible
through user friendly interfaces, both for patent holders, implementers and third parties. All
declared information should be searchable based on the relevant standardisation projects,
which may also require the transformation of historic data into current formats. Quality
processes should eliminate also duplications and other obvious flaws. Finally, there should be
links to patent office databases, including updates of patent status, ownership and its transfer....

Read: https://ec.europa.eu/docsroom/documents/26583

Qualcomm fined $853 million in South Korea over FRAND

Last year China fined Qualcomm  $975 million and now is the turn of South Korea.  As per reports South Korea’s antitrust regulator slapped a record 1.03 trillion won ($853 million) fine on Qualcomm Inc. for violating antitrust laws. 
Charrges:

1. Qualcomm, a holder of standard-essential patents as well as a monopolistic service provider of modem chips from manufacturing to sales, has violated its agreement to license patents on fair reasonable and non-discriminatory terms, known as FRAND.

2.  Qualcomm should make standard-essential patents available for separate licensing rather than bundling them with chipset sales. 

Standard Essential Patents and Antitrust regulator in China

Now that Indian regulatory authority has got free hand to investigate abuse of monopoly position by SEP holder, Chinese success in this line needs to be highlighted.

The National Development and Reform Commission (NDRC) is the Chinese competition authority charged with investigating price-related conduct that is anticompetitive, such as cartels, “resale price maintenance” (RPM), and abuses of dominance. The NDRC investigated Qualcomm’s standard-essential patents (SEPs) for certain telecommunication standards and its licensing practices on the basis of complaints filed.  The NDRC formally started its investigation in November 2013 when several dozen NDRC officials raided Qualcomm’s offices in China.  There followed multiple rounds of submissions, intense hearings and negotiations between Qualcomm representatives, NDRC officials, as well as many other interested parties. Qualcomm was found to have abused its dominant position in three ways: excessive pricing, unfair terms, and bundling. The NDRC found that Qualcomm charged unreasonable royalties on Chinese mobile device manufacturers.  This finding is actually split into several claims.  First, Qualcomm refused to provide customers with a list of all patents included in its comprehensive licensing package, resulting in customers being charged for patents that had already expired.  Second, Qualcomm imposed unfair cross-licensing conditions: it forced customers to grant Qualcomm free licenses for their own patents whilst refusing to lower the royalties it imposed in consideration of the value of the patents licensed to it.  Third, the royalty rate was set at a high level and applied to the net wholesale price of the mobile devices concerned. The NDRC also found that Qualcomm forced customers to accept the licensing of Qualcomm’s non-essential patents (for which Qualcomm possibly holds no dominant position) in order to obtain a license for its SEPs. 
On 10 February 2015, China fined Qualcomm CNY6.08 billion (approx. USD975m or EUR870m) for abusive patent licensing practices and imposed several remedies on the company. 
The payoff to China continues. Now, Chip maker Qualcomm has agreed a licensing deal with Zhuhai Ewpe Information Technology in China related to 3G and 4G patents. Under the terms of the agreement, Qualcomm has granted Zhuhai a royalty-bearing licence to develop, manufacture and sell subscriber units covering 3G WCDMA and CDMA2000, and 4G LTE for use in China.

Qualcomm agreed to offer separate licences to certain patents, with licensees whose phones use 4G technology paying a 3.5% royalty rate and those whose handsets incorporate 3G paying 5%.

Standard Essential Patents and Monopoly position.

When a patented technology is incorporated in a standard, adoption of the standard eliminates alternative to the patented technology. Ericsson has taken Indian assemblers of smart phones to court for their refusal to pay royalty for SEP (Standard Essential Patents). Phone manufacturers complained of unreasonable demands by the SEP owner both on royalty rate and base unit for enforcing royalty. FRAND terms for SEP are under debate in USA and Europe. IEEE and manufacturers have taken different positions on this.

China is said to have reduced the royalty rates on SEP by bringing in their Competitive commission. Indian manufacturers also approached Competitive Commission of India and as expected SEP owners did not like it and questioned CCI role in patent infringement.

Now Delhi High Court ruled that  that the Competition Commission of India (CCI) can continue its investigation into Ericsson’s alleged anti competitive practices. 

“In my view, there is no irreconcilable repugnancy or conflict between the Competition Act and the Patents Act. And, in absence of any irreconcilable conflict between the two legislations, the jurisdiction of CCI to entertain complaints for abuse of dominance in respect of Patent rights cannot be ousted.”

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More from SpicyIP

Fair Standards Alliance- friend of FRAND

A group of companies which include global firms such as BMW, Cisco, Dell, HP, Intel and Lenovo launched the Fair Standards Alliance this week in Brussels, aimed at ensuring licensing of standard-essential patents is done on fair, reasonable and non-discriminatory (FRAND) terms. The support revision made by IEEE. On the critical issue of Royalty on SEP, they state:
(a) Fair and reasonable royalties for a SEP must not tax features of a product that are unrelated to the patented invention 
Some SEP holders suggest that licensing rates should be based on downstream uses of standardised technology. Licensing polices that seek to charge such rates are unfair – they violate the FRAND commitment because they seek compensation for unpatented technologies or technologies that the patent holder did not invent or create. For example, when a smartphone has an innovative user interface that helps drive consumer demand for that device, the owner of a patent essential to a cellular standard should not be permitted to use that patent to appropriate any portion of the value of the user interface. Instead, in most circumstances, FRAND licensing rates should be determined with reference to the device, or the part of the device, that implements the patented invention; this ensures that the patent holder obtains fair compensation for what it actually invented, and not compensation for the value of others’ work or contributions. In other words, the price of a brick should be independent of whether that brick is used for building a garage or a mansion – and the royalty for a SEP associated with a standard that enables an Internet of Things (IoT) device to be wirelessly connected to other IoT devices (or the cloud) should be independent of whether that first IoT device is a smart watch, a refrigerator or a car. That is why it is so important to not blindly base royalty rates for SEPs on the overall value of an end device that makes use of the SEP’s invention, but to rather carefully consider the actual value that the SEP contributes to that end device. Often, that assessment can greatly be aided by considering the smallest component that actually implements the patented invention. When that part can be isolated as a separately saleable unit (a brick for building various types of buildings), a fair royalty rate will typically bear a relation to the price of that unit. 

Microsoft refused to pay royalty of 2.25% on final product price for standard essential patents to Motorola

Both Motorola and Microsoft are members of the standard setting organisations Institute of Electrical and Electronics Engineers ("IEEE") and the International Telecommunication Union ("ITU"). Motorola owns numerous patents that are essential to the IEEE 802.11 wireless local area network ("WLAN") Standard ("802.11 Standard") and the ITU H.264 advanced video coding technology standard ("H.264 Standard").On October 21 and 29, 2010 Motorola sent letters to Microsoft offering to license its standards-essential patents (SEP) for the 802.11 Standard and H.264 Standard. The offer asked for a 2.25% royalty rate on the price of all end products Microsoft sold utilizing the technologies protected by these patents. Microsoft regarded these terms as blatantly unreasonable and responded by filing a breach of contract case against Motorola in the Western District Court of Washington, claiming that Motorola had violated its agreement with the IEEE and ITU to provide reasonable and non-discriminatory terms of licensing to all potential licensees on a global scale.

Read the court judgement.

Standard Essential Patents- Huawei Technologies Co. Ltd v ZTE Corp.,

European Court delivered its judgement in this case. Highlights:

Huawei Technologies, which is a multinational company active in the telecommunications sector, is the proprietor of a European patent, which Huawei notified to the European Telecommunications Standards Institute (ETSI) as a patent essential to the ‘Long Term Evolution’ standard. At the time of that notification, Huawei undertook to grant licences to third parties on FRAND terms.

Huawei brought an action for infringement before the Landgericht Düsseldorf (Regional Court, Düsseldorf, Germany) against two companies belonging to the multinational group ZTE. That group markets products in Germany that operate on the basis of the ‘Long Term Evolution’ standard and thus use Huawei’s patent without, however, paying Huawei a royalty. By its action, Huawei is seeking an injunction prohibiting that infringement, the recall of products, the rendering of accounts and an award of damages.

The Court holds that the proprietor of a patent essential to a standard established by a standardisation body, which has given an irrevocable undertaking to that body to grant a licence to third parties on FRAND terms, does not abuse its dominant position by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:

‒ prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating the patent in question and specifying the way in which it has been infringed, and, secondly, presented to that infringer, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and

‒ where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.

The Court has held, inter alia, that the alleged infringer which has not accepted the offer made by the proprietor of the SEP may invoke the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP, promptly and in writing, a specific counter-offer that corresponds to FRAND terms.

FRAND in India: India Judiciary and Competitive Commission of India differ

Debate on FRAND terms for SEP (Standard Essential Patents) is hotting up. Two important articles published today:
First from India by Vinod Dhall in Financial express ` Standard-setting, a reason for foreclosing competition?
Second "FRAND in India: The Delhi High Court's emerging jurisprudence on royalties for standard-essential patents" by J. Gregory Sidak (Criterion Economics), has been published online by the Journal of Intellectual Property Law & Practice (2015).

From interim orders it appears Delhi High court considered Royalty on final products as a better norm whereas CCI consider it as a bitter norm and favour royalty on chip sets.

Watch out as this decision will be critical to Innovate-In-India and/or Make-In-india.

China imposes $975 million fine against Qualcomm and caps royalty rates at 3.5 percent (4G) and 5 percent (3G).

As per reports, China's National Development and Reform Commission ("NDRC") published its decision in theQualcomm case, which resulted in a $975 million fine against Qualcomm for alleged violations of the Anti-Monopoly Law. The decision provides useful guidance with respect to the NDRC's views regarding several intellectual property licensing practices involving standard-essential patents ("SEPs").

Qualcomm charged excessive royalties. 

• First, Qualcomm engaged in portfolio licensing that included expired patents in the portfolio. In doing so, Qualcomm did not provide licensees with lists of patents covered by the licenses, and did not demonstrate that newly added patents were of the same value as patents that were expiring. Even if that were true, the NDRC said that it was unreasonable not to provide licensees with a list of patents when Qualcomm offered long-term or even non-fixed term licenses. 
• Second, Qualcomm required some licensees to provide royalty-free grantback licenses for relevant wireless communications patents that are not SEPs. The NDRC determined that this practice is not reasonable, and that Qualcomm should take into account the value of grantback licenses when negotiating licensing terms. Third, Qualcomm required licensees to pay royalties based on the price of the finished product, which the NDRC concluded misappropriated value based on unpatented components.  
• Finally, Qualcomm included in its license portfolio non-SEPs that some licensees did not want to license. The NDRC also noted that the practice of requiring royalty-free grantbacks could discourage licensees from technical innovation and have the effect of restricting or eliminating market competition.

Qualcomm unreasonably bundled the sale of non-SEPs with SEPs as a package at a constant licensing rate. 

The NDRC rejected Qualcomm's three reasons for bundling non-SEPs with SEPs: 

(1) it offered to license SEPs separately but licensees prefer the package of non-SEPs and SEPs; 

(2) it is difficult to differentiate non-SEPs from SEPs so licensees are at risk if they license only SEPs; and 

(3) bundling non-SEPs with SEPs does not restrict competition and licensees are free to license a competing technology. 

The NDRC did not accept these explanations, finding that some licensees were not offered a license to SEPs only; non-SEPs and SEPs can be differentiated on a patent list; and bundling non-SEPs with SEPs restricted competition in the market for non-SEPs, hampered innovation, and harmed consumers.

Qualcomm imposed a "no-challenge" requirement on the sale of baseband chips. 

The NDRC objected to Qualcomm's practice of requiring purchasers of base band chips to enter into an agreement that provided that the purchaser would not challenge the license agreement. It found that given the nature of the issues it identified in Qualcomm's license agreements, it was improper for Qualcomm to require licensees to waive their right to challenge the agreements.

The NDRC's decision orders Qualcomm to cease engaging in the identified practices:  (1) Qualcomm must provide patent lists, and it cannot require royalties for expired patents; (2) it cannot require grant backs without consideration; 

(3) it must cap royalty rates at 3.5 percent (4G) and 5 percent (3G), and apply those royalty rates to modified royalty base representing 65 percent of the net sales price of the overall terminal unit; 

(4) it cannot bundle non-SEPs without reasonable cause; 

(5) it cannot require acceptance of royalties for expired patents, grantbacks without consideration, bundling non-SEPs without reasonable cause, or "no-challenge" clauses as conditions for supplying base band chips. 

In addition, the NDRC imposed a fine equal to 8% of Qualcomm's revenue within China for 2013, which was 76.102 billion yuan, resulting in a fine of 6.088 billion yuan (US$975 million).

The NDRC's decision is available here.

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.