DIPP paper on patents leaves industry divided

A discussion paper, rolled out by the Department of Industrial Policy and Promotion (DIPP) on Standard Essential Patents (SEP), has got the electronics sector in a twist.

While a large section has opposed any intervention in the patent regime, a bunch of Indian phone brands is pushing for the adoption of a policy on the lines of the US’ Institute of Electrical and Electronics Engineers (IEEE) standards body.

The new IPR policy of the IEEE mandates members to agree to a pre-determined royalty, license their inventions at the “smallest saleable unit level” than at the “handset level”, and not be able to seek Injunctive relief at any stage in case of “hold out” situation (manufacturer continues to use patents without paying royalties), thereby diluting the value of the inventions.

Many argue that if introduced, the basic tenet of Digital India could fall apart as it may take away rights from an IP owner.

The key objective of the DIPP paper is to see what role the government can play in setting the price of royalties, and deciding whether a patent holder can sue a company or not (in case of patent violation), etc.

An SEP is a patent that a manufacturer needs to use to manufacture a product that’s based on certain standards.

The pricing of royalties in such patents are done on fair, reasonable and non-discriminatory (FRAND) terms globally, and courts get involved only if the patent holder and the user of the technology are unable to reach a common ground on pricing terms.

“The involvement of government in setting FRAND terms is contrary to Prime Minister Modi’s ‘minimum government maximum governance’ stance. I am not aware of any country except China where the government is getting involved in this. Should India go the China way? My answer is no,” said Senior advocate Prathiba M Singh, a leading intellectual property (IP) litigator. “If start-up India has to become big, you need to acquire technology legally so that the products you build using the technology can be exported. You cannot do so without paying for the technology,” she said.

Industry body FICCI has also objected to government involvement. “Any government intervention in examining SEPs on FRAND terms set by the DIPP will lead to unnecessary ripples in the existing market framework, which is working efficiently as it relies on the very competent national judicial system to intervene in case of any potential dispute,” read a note sent by FICCI to the Centre this month.

On the other hand, Indian handset makers such as Micromax, Lava and Intex, already fighting legal battles for non-payment of royalties to patent holders, are pushing for the changes.

“The Indian Cellular Association views the updated IEEE policy as one that should be included for India as well. Under the current IEEE policy, the interest of both the patentee/innovator, as well as the user of the patented and standardised technology, benefit,” Pankaj Mahindroo, President of the Indian Cellular Association (ICA), said in a letter to the Centre.

Though the ICA represents the interests of the handset industry, not all multinational brands agree with the stand.

“It appears that Indian handset makers are keener on getting technologies for free, rather than try and negotiate pricing terms with patent holders. If the Centre heeds to their demands, it will leave no incentive for any Indian company to innovate and create international quality products,” said TV Ramachandran, President, European Business Group, and former head of Cellular Operators’ Association of India.

The changes in the IEEE rules have even been questioned by the European Parliament.

“Since the new IEEE rules were adopted, European innovators, including SMEs and research and technology organisations (RTOs), are finding licensing extremely difficult, and the development of important standards for technology such as Wi-Fi, 5G and the Internet of Things is already being negatively affected,” European parliamentarian Ramon Tremosa i Balcells said in a written statement to Parliament this month.

According to one study the number of Letter of Assurance, a document stating the regarding ownership, enforcement, or licensing of essential patents for a specifically referenced IEEE Standard, has gone down since the new policy was implemented by the IEEE.

Experts believe a status quo must be maintained in the way standard essential patents are currently licensed in India.

“The upcoming policy seems to be a solution in search of a problem. The current policy in the country has ensured that today, India has the cheapest cell phones and has competition at every spectrum. Making any changes to that will prove detrimental to the Make-in-India effort of the government, as it will discourage companies to build their IP here, knowing they can’t even fight for their royalties,” said Mahesh Uppal, a consultant specialising in regulatory aspects of the telecom and Internet markets.