Analysing whether government intervention would help or hinder SEP/FRAND disputes in India

With the rapid pace of standardisation and the advent of new technologies, the contemporary world has become an exceedingly competitive marketplace for both innovators and implementers. Unlike the early 2000s, when innovation and technology implementation were controlled by a handful of players, the past decade has seen the rise of multiple entities, including local players, micro, small and medium-sized entities (MSMEs), and start-ups. Similarly, newer jurisdictions have overtaken the previously preferred destinations for SEP/ FRAND disputes. A particular jurisdiction that has become the centre for SEP/FRAND disputes, perhaps due to its market size and strategic positioning, is India. India, due to its unique socio-economic factors and legislation, is at a crossroads between regulating market competition (through antitrust legislation), encouraging innovation, supporting local start-ups and attracting global investment by offering a neutral dispute venue, particularly for SEP/FRAND disputes.

Unsurprisingly, India has become a hotspot for high-profile SEP and FRAND litigation over the past decade, with over 33 SEP litigation cases being instituted since 2009. These have led to a number of seminal judgments that have evolved SEP jurisprudence. Illustratively, Ericsson secured substantial damages against Lava in a significant post-trial judgment. In another landmark ruling, Nokia prevailed over Oppo regarding pro tem deposits. In 2020, InterDigital succeeded against Xiaomi in India’s first anti-anti-suit injunction in SEP disputes, following its loss in a contentious case on the constitution of a confidentiality club. Such judgments have provided an impetus to innovators and implementers alike to seek dispute resolution from India. This is further aligned with the Indian IP office’s push for increasing patent filings, which have neared 100,000 annually, demonstrating India to be a patent-friendly jurisdiction. Coupled with government initiatives such as Make-in-India and Start-up India, the stage is set for reevaluating the SEP/FRAND regime to ensure a level playing field for patent holders and implementers. As the local players grow and production of standardised products increases, it is expected that Indian firms may soon face SEP/FRAND-related challenges, many of which are likely to be MSMEs. As such, these challenges will likely require government intervention, perhaps in the form of a sovereign patent fund (SPF), which may in turn make India a less attractive venue for many foreign entities.

For Indian entities, several challenges exist, including: informational imbalances favouring patent holders; foreign entities’ superior experience in the SEP/FRAND space and superior resources; and systemic issues such as the lack of academia–industry partnerships and underfunded research institutions, which have detrimental effect on knowledge creation and dissemination in India. Indian start-ups and manufacturers often lack the economic, technical, and legal expertise to navigate SEP/FRAND disputes, as seen in India’s first SEP trial involving Philips. Even the latest judgment in Ericsson v Lava demonstrates there are a large number of gaps in Lava’s defence, either due to a lack of knowledge or due to inadequate legal expertise. Similarly, other start-ups in telecoms space, or in any standardised industry, may also face great challenges in such disputes.

These challenges, thus, raise the question of whether government intervention is necessary, and if yes, then how? Are government policies sufficient, or is a sovereign patent fund the need of the hour? Pertinently, such steps could be perceived as market interference, potentially impacting foreign direct investment and India’s goal of becoming a global manufacturing hub.

Sovereign patent funds: suitable for India?

A sovereign patent fund has been defined as:

state constituted or state-aided investment entities that acquire, manage and strategically leverage intellectual property (“IP”) rights, particularly patents, to serve national economic and technological priorities by augmenting the competitiveness of domestic innovators against foreign competition.

While the exact definition may vary, an SPF is a government initiative whereby patents are consolidated, either through direct purchase or revenue sharing arrangements, to support domestic companies in furtherance of public policy. Public policy in this regard would typically be to aid local companies and protect them from aggressive competition while maintaining a level playing field. It would also be to encourage innovation and increase the revenue of individual inventors and patentees. Some examples of SPFs in foreign jurisdictions include the Ruichuan IPR Funds in China, IP Bridge in Japan, Intellectual Discovery in South Korea and the French Sovereign Patent Fund (FSB) in France. Interestingly, while all the initiatives are either completely government-owned initiatives or public-private partnerships, the majority of these funds have ceased to exist with the intent with which they began. For example, the FSB ceased operations in 2022 due to a lack of profitability. Japan’s IP Bridge has transitioned into private entity with extensive SEP enforcement campaigns globally. Similarly, Korea’s Intellectual Discovery has only a minority shareholding of the government and is largely a private player. Such cases would demonstrate that SPFs cannot typically sustain themselves as a public serving government entity. However, SPFs may greatly aid in developing a country’s IP rights such as in the manner done by Japan with IP Bridge.

In the telecom sector, SEP assertions in India have primarily been by foreign entities such as Nokia, Ericsson, Philips and Interdigital, and often against smaller Indian entities who have often wilted under pressure and unequal bargaining power. With the rise of Make-In-India, it has become crucial that Indian inventors and implementers alike be protected from domination by foreign players. In such a scenario, an Indian SPF may effectively balance negotiation powers by allowing Indian innovators to pool in their patents (which would lead to revenue from them), which could in turn be licensed through various implementers and increase their bargaining power across the table from major SEP holders. It is perhaps for this reason that an SPF has been contemplated by the National Electronics Policy of India 2019. India’s patent fund (ie, the Telecom Patent Fund) will be leveraged on the Universal Service Obligation Fund’s reserve of more than 600,000 million rupees. While there is presently no confirmation on when, the fund has been touted to further India’s ambitions of being a telecom leader, particularly with 6G technology.

However, this approach would present its own set of challenges and may not be as effective in resolving the SEP/FRAND dispute pressure on local entities. For starters, the Telecom Patent Fund would either have to acquire or declare patents essential to present and upcoming standards, which would be a cost-intensive exercise. Second, after acquiring these patents, they would have to be licensed to Indian industry players at FRAND rates, which would again raise the dispute of what is, in fact, the correct FRAND rate. This is crucial, as the success of a Telecom Patent Fund is predicated on the assumption that a portfolio of patents would be licensed. However, despite being able to acquire and perhaps license SEPs at a subsidised rate, the Telecom Patent Fund would not be able to prevent the pressure from established SEP players such as Nokia, Ericsson and Interdigital, as they would still be asserting their own SEPs. While the Telecom Patent Fund may offer some leverage and be effective in reducing the overall royalty burden to be paid by an implementer, local companies would still face lawsuits from the foreign players for use of their SEPs. Moreover, as demonstrated by patent funds abroad, sustaining such a patent fund is extremely capital intensive and would require investments from both the government and the industry players. As such, an SPF in the telecoms sector by itself, may not in itself be enough to ensure competition and prevent abuse by dominant players, especially as a large part of SEP disputes begins during the negotiation stage itself. The need for a facilitator thus arises.

C-DOT: a FRAND in need

The government of India seems cognisant of the problems faced by local players during SEP negotiations and has also assigned a government body to aid in negotiating SEP agreements with major SEP players. In August 2023, the Centre for Department of Telematics (C-DOT) (under aegis of the Department of Telecommunication) was positioned as the nodal IPR facilitation agency to ‘front-end on Telecommunication IPRs/SEPs/License management for Indian technology entities and industry’. Its objectives include, inter alia,managing IPRs and SEPs on behalf of the Indian research and development ecosystem, actively participating in IPRs and SEP licensing negotiations between domestic and global IPR and SEP holders and developing an Indian telecoms IPRs and SEP repository. With C-DOT facilitating SEP negotiations, local players would now be able to rely on government support to ensure that they are not subjected to supra-FRAND rates or terms. As SEP negotiations take time, the extent of the involvement of C-DOT in any ongoing SEP negotiations is not yet apparent.

The combination of an SPF and a facilitator such as C-DOT would aid and empower local innovators and implementers to foray into SEP negotiations with confidence and somewhat equalised bargaining power. On the other hand, foreign SEP holders would also be more reasonable and confident if negotiations were conducted by a government nodal agency.

Day-to-day effect of SPF and a nodal agency

While theoretically the creation of a telecoms-focused SPF and nodal agency for SEP/FRAND disputes would appear to aid local players, in reality it would pose its own set of challenges:

• Role and responsibility: while the C-Dot has been designated as a nodal agency, there is no clarity as to the extent of its responsibility (ie, does it act as a mediator, or does it take on the role of an implementer in negotiations?). If the latter is correct, does C-Dot acquire the locus to appear in the disputes in court? Will C-Dot take final call on the licensing fee or would the implementer have final say? SEP negotiations often extend far beyond the SEPs and often assign value to future collaborations and assignment of patents, which may not be the case if C-Dot is negotiating on behalf of the implementers.
• Anti-competitive behaviour: while the purpose of C-Dot may be to balance the playing field for local players, it is possible that these local players, under the aegis of C-Dot, form a cartel and hold foreign SEP holders to ransom. With the Delhi High Court, in Ericsson v CCI, ousting the jurisdiction of India’s competition watchdog in SEP matters (at least for abuse of dominant position by a patentee), it may be difficult to police such cartelisation, and SEP holders would be left with no recourse.
• Indian SEP holders may suffer: while typically viewed to be beneficial from an implementer’s perspective, both the Telecom Patent Fund and the C-DOT are also intended to aid and develop local SEP holders. However, if these local SEP holders are forced to license their patents at subsidised rates to Indian players, they may not even be able to glean the actual FRAND value from foreign implementers who would also demand the subsidised rates citing FRAND obligations.
• Bureaucratic red tape: as with most government initiatives, decisions often take an enormous amount of time due to the extensive bureaucratic red tape involved. In a SEP scenario, where the licensing fees typically extend into the millions of dollars, it is unlikely that there will be a quick resolution process. As noted by courts the world over, this confers an asymmetric advantage on implementers, while SEP holders would be in mounting losses.

International impact: make in India or used to be made in India?

As illustrated above, theoretically, the proposals, coupled with various court decisions, demonstrate India to be a neutral, safe venue for foreign investment, but in reality, the enactment of these proposals will be fraught with challenges. Many foreign companies may hesitate to manufacture or invest in India if certain advantages are being conferred only on local Indian players. This may also run afoul of India’s obligations under international obligations, such as those under World Trade Organization. Similarly, SEP holders may choose to initiate lawsuits and negotiations in other jurisdictions if they believe that facilitators such as C-Dot are dragging the process or are promoting anticompetitive behaviour. Such concerns may lead to a sharp drop in foreign investment both in terms of research and development and patent filings. There would also be an increased risk of trade tensions with countries whose companies hold major telecoms patents, potentially affecting ongoing trade agreements and negotiations.

However, if implemented correctly, these initiatives could substantially reduce technology access barriers for Indian companies by lowering patent licensing costs and fostering domestic manufacturing capabilities in telecommunications. This could strengthen India’s position in global supply chains and potentially accelerate India’s goal in becoming a leading telecoms industry jurisdiction.

Way forward: SEP/FRAND policy

A policy in the SEP/ FRAND space is imperative in India, which would define the roles, responsibilities and guidelines of SEP holders, implementers, SPFs and nodal agencies. India might also do well to have certain rules to guide FRAND negotiations as well as FRAND determinations by courts. To date, the Delhi High Court has shaped SEP/ FRAND jurisprudence in India. However, it cannot be ruled out that such disputes might end up in other courts, which may or may not follow the jurisprudence developed by the Delhi High Court (outside of its jurisdiction, any judgment of a high court is merely persuasive and not binding). Further, it might be worthwhile to ensure that licensing in sectors extremely sensitive for the country’s technical and economic growth must not be left to private entities alone, nor to the legal system – a system that may not have sufficient technical or economic expertise.

In conclusion, the success and failure of the SPF and a nodal agency is subject to its implementation (ie, the actual creation and role of the Telecom Patent Fund as also defining the roles and responsibilities of C-Dot). It is only then that it would be apparent as to whether the Indian government has taken a more pronounced role for itself in the SEP/ FRAND space or continued with somewhat lassisez-faire approach. The importance of India in the telecommunications sector cannot be understated, and it is therefore crucial that steps are taken to ensure a balance playing field that allows low-cost innovation and implementation while also allowing fair avenues for foreign investment and IPR enforcement. It would be interesting to see how Indian entities – start-ups and mid-sector firms – respond to these proposed steps. Will they be helped or hindered by government support? Only time will tell.