Note4Students: 

Prelims: Standard Essential Patents (SEP);

Mains: The effect of judicial lethargy and activism on Standard essential patents (SEP);

Mentor comments: 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 is a complex policy issue that has direct ramifications for India’s effort to build a domestic manufacturing industry for cellular phones. So far, the issues of regulating SEPs have been left to the judiciary, which, as an institution, has mostly missed the ball.

Let’s learn

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Why in the News?

The government must put in place measures to regulate Standard Essential Patents before the judiciary causes further damage to India’s manufacturing dreams.

What are ‘Standard Essential Patents’ (SEP)? 

• These are the types of 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. 
• 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.

The Opaque Model:

• Countries with little innovation in the telecom sector, such as India, have minimal influence over the setting of standards or the licensing of Standard Essential Patents (SEPs). This lack of influence contributes to the opacity of the process.
• Standard-setting organizations (SSOs) are primarily run by private technology companies, leading to a concentration of power and decision-making among these entities.
• Owners of SEPs can demand extortionary royalties or licensing terms from manufacturers due to the lack of alternatives. This practice can block competition and hinder market entry for smaller players.
• The lack of alternatives and the necessity for manufacturers to license SEPs create a “patent holdup” problem, where owners of SEPs can exploit their position to extract higher licensing fees.
• Despite the theoretical expectation that SSOs would prevent unfair practices, the self-regulation model has failed in practice. This failure is evidenced by the record fines imposed on some SEP owners for engaging in anti-competitive practices.

The Effect of Judicial Lethargy and Activism

• Lack of Investigation into Abusive Licensing Practices: Due to judicial lethargy and delays, the Indian government has yet not investigated potentially abusive licensing practices of technology companies owning Standard Essential Patents (SEPs).  
• Protracted Litigation: Litigation surrounding competition law issues has been mired in delays and remained pending for an extended period, resulting in a lack of resolution. For instance, a case involving Ericsson challenging the Competition Commission of India’s power lasted for seven years before a judgment was delivered.
• Impact on Manufacturers: The prolonged litigation and uncertainty have adversely affected manufacturers, particularly Indian companies, who have been required to deposit substantial sums of money with the court during the pendency of trials. This has strained their financial resources and affected their ability to operate effectively.
• Unprecedented Interim Orders: The Delhi High Court has issued unprecedented “deposit” orders, requiring manufacturers to deposit large sums of money with the court before trial.
  • These orders lack legal basis and are unfair to defendants, depriving them of working capital for the duration of the trial.
• Impact on Investment and Manufacturing Sector: Judicial lethargy and activism have negative implications for the government’s efforts to attract investment in the manufacturing sector.
  • Delays and uncertainties in legal proceedings deter potential investors and undermine the effectiveness of government initiatives like the “production-linked incentives” scheme.
• Questioning on the Policies of Government: The situation raises questions about the rationale behind government policies that incentivize manufacturing while overlooking issues related to abusive licensing practices by SEP owners. This inconsistency may hinder efforts to promote economic growth and job creation in the country.

Way Forward:

• Need for Government Intervention: There is a pressing need for the Indian government to intervene and implement measures to regulate SEPs. The current judicial delays and uncertainties surrounding SEPs are hindering India’s manufacturing aspirations.
• Ensuring Fairness and Equity: Regulatory measures would aim to ensure fairness and equity in the licensing of SEPs, preventing monopolistic practices and extortionate royalties that could hinder competition and innovation.