License to Kill (Innovation): Problems of the Indian SEP-Antitrust Gridlock
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License to Kill (Innovation): Problems of the Indian SEP-Antitrust Gridlock
By Ambika Aggarwal
In July, 2023 a division bench of the Delhi High Court held in Ericsson that actions of enterprises in the exercise of their rights as a patentee could be scrutinised only by the office of the Controller General of Patents, Designs and Trade Marks (CG). The court extinguished the jurisdiction of the Competition Commission of India (CCI) from assessing antitrust claims related to patent licensing. Earlier this week, the Supreme Court dismissed CCI’s appeal partly owing to a private settlement between the complainant and SEP-holder, and has left the question of law on jurisdictional overlap open; discussed here. The utility of these decisions is questionable.
In this post, I talk about how a long-running battle for sectoral power, combined with a perpetual lack of policy guidance from the Indian patent and competition law offices, diverts focus from issues of regulation of the market. The remedies offered by the CG office are ill-suited and the CCI’s jurisdiction stands in limbo. Courts remain the default venues, but only till another court decision or an appeal from a CCI investigation changes the status quo. Confusion over which dispute settlement authority is in charge leads to reduced compliance expectations. Further, while the broader global SEP regulatory landscape scrambles to revise SEP enforcement rules, Indian authorities are silent on substantive questions on the SEP-antitrust overlap. This gap in directions for SEP licensing and enforcement threatens to kill domestic competition and innovation incentives.
Courts put CCI in the Corner
For device interoperability and consumer benefit, it is imperative that foundational technologies like USB slots, Wi-Fi, 5G protocols, etc., must function in a standardised manner. The patents covering these technologies are ‘standard essential patents (SEPs)’. Their development is collaborative and fundamental for the adoption of new technology. Manufacturing of a device without obtaining SEP licences would inevitably cause infringement, and manufacturing of a device without including the technical feature risks device redundancy. To guarantee equitable access to SEP portfolios, Standard Setting Organisation (SSOs) mandate SEP licensing on fair, reasonable and non-discriminatory (FRAND) terms. The FRAND commitment promotes efficiency, however, it is not wholly sufficient in preventing anti-competitive conduct.
Antitrust proceedings have become necessary to assess instances of ex-post opportunism through supra-FRAND royalties, tying and bundling, refusal to deal, or seeking injunctions against willing licensees while a FRAND commitment is in play. SEP-implementers may collude to hold-out, i.e. free-ride on SEP innovations while delaying payment of royalties. More far-reaching impacts of unchecked anti-competitive behaviour have been identified: ex-post monopoly may increase costs of goods for consumers, make follow-on innovations difficult and expensive rent-seeking behaviour can distort the standard development process.
Despite notable involvement of antitrust authorities in SEP issues across the world, the present Indian SEP jurisprudence refuses to acknowledge a similar standing for the CCI. The recent conclusion of the 12-year-long Ericsson litigation has many consequences, discussed in previous posts here and here. Justice Bakhru’s 2016 decision had harmonised the application of competition and patent laws in the context of SEP enforcement. The subsequent decision of the division bench removed the jurisdiction of the CCI through an overt emphasis on bookish statutory interpretation and left unaddressed the practical gap that this created in the patent enforcement mechanism. This was contestable. To reiterate, the provisions of the Patent Act, 1970 are not a substitute for the remedies under the Competition Act, 2002; nor is the office of the CG well-placed to investigate these issues. The scrutiny of behaviour, whether by the courts of law or antitrust regulators, must be based on the tenets of competition law. While provisions in the Indian patent law are effective in determining issues of infringement and liability, an antitrust analysis would reveal an unreasonable extension of market power and a need to restore consumer interests.
Last week, the Supreme Court’s dismissal of the appeal filed by the CCI did not make things better. It held that private settlements extinguish the CCI’s right to continue investigations. Whether an in-personam settlement should restrict the antitrust regulator’s powers to give an in-rem order is now open for debate. The more substantial question of how jurisdictional overlap could play out between the CG and CCI was left open to be determined in an ‘appropriate’ future proceeding. This appeal was as appropriate a proceeding as could be. In its earlier rulings, in Bharti Airtel and Coal India, the Supreme Court in reference to TRAI and the Coal Controller, held that the CCI could conduct competition-related investigations after sectoral regulators complete their technical assessment. The Supreme Court’s visible lack of interest in engaging with a very similar determination on patent law has left negative impressions and will cause regulatory confusion. The narrative in support of this legal development for being SEP-holder friendly, is weak. It ignores the possibility of implementer hold-outs and mischaracterises the innovation process, which is efficient only in the presence of balanced competition.
Another consequence of this sectoral division is that confusion over CCI’s jurisdiction stunts the development of Indian SEP jurisprudence. The CCI orders in the course of the Ericsson proceedings had brought forth the opinions of the regulator that were different from those of the court, for instance, the CCI saw the issue of royalty rates as the benchmark of FRAND commitment while the court had diverse opinions. These differences as well as the general intent of the CCI in these disputes were widely noted. In a short amount of time, the divergences and complementarity in the decisions of both authorities had become evident.
Although legal certainty demands precision in the rules of dispute resolution, since the jurisprudence is evolving in real time, a little back-and-forth dialogue between the authorities would likely have functioned akin to a checks and balances mechanism for a healthy evolution of new rules. The potentially pessimistic presumption now is that the court will either continue to quash CCI investigations or the parties will try to settle to avoid its jurisdiction.
Alternative Endings and Missing Pieces
This very long sectoral struggle begs a few new questions: was it possible to arrive at a different status quo? Irrespective of changing circumstances, what basic antitrust guidelines can any Indian regulator fall back on? And, how does this uncertainty impact innovation and competition?
The court, myopically intent on rules of interpretation, did not consider that different solutions in line with established international practice were readily available. For some reason, the Delhi HC continuously restricts its comparative analysis to decisions in the EU and US, in ignorance of the East Asian conception of competition and IP overlap more aligned to our domestic perspective. South Asian economies generally have clear or conditional exceptions in their competition laws for IPRs, making space for legislative interpretations of the overlap.
For instance, South Korean laws interpret competition law as integrated with patent law for SEPs. Article 59 of the Korean MRFTA is a legal stipulation quite similar to the carve-out of Section 3(5) of the Competition Act, 2002, but has been interpreted to a very different effect. South Korean competition law recognises SEP-related anti-competitive activities as subject to KFTC jurisdiction. The KFTC’s ‘Review Guidelines on Unfair Exercise of Intellectual Property Rights’ categorises IP activities as anti-competitive that though ‘externally and formally constitutes an exercise of IPRs but goes beyond the purpose of the IPR system’.
Within the EU system too, the Huawei judgement, which has been liberally quoted by the Delhi HC in nearly all of it SEP decisions, determines the EU competition policy for standardisation. EU SEPs are also subject to competition law limitations through regulations on Article 101 TFEU and customs enforcement. The EU SEP Reform Proposal of 2023, despite its withdrawal, catalysed global discussions on centralised regulation and power dynamics. China’s new Antitrust Guidelines clarify existing principles and introduce flexibilities in the Anti-Monopoly Law to incorporate complexities of SEPs. In Japan, the JPO Guide of 2019 and the METI Guidelines of 2022 have a similar effect. In the USA, previous policy statements are being revised. UKIPO’s consultations for improving the SEP ecosystem are underway. This dialogue is absent in India. Other than a handful of precedents, there is no guidance describing antitrust intervention in SEP disputes. As global interest in India as an SEP-active jurisdiction rises, SEP-related antitrust parameters like identification of relevant market, abuse of dominance, good faith negotiation framework and discriminatory pricing remain ill-defined.
A lack of antitrust-SEP guidelines leaves domestic innovators directionless. The Indian market is dominated by small-scale SEP-implementers, SMEs and start-ups. They will need recourse to structured antitrust intervention, especially as the SEP landscape advances to include new IoT-based markets and welcomes market entrants that may not be too familiar with traditional SEP dynamics. An inward-looking blueprint will align the SEP ecosystem with the broader goals of industry, give reliable support to domestic participants and encourage them to innovate and compete in an environment free of anti-competitive threats from bigger corporations. Domestic as well as internationally established market players should be able to engage in SEP licensing with the assurance that their innovation collaborations will not be unfairly curtailed. Antitrust authorities can investigate patent enforcement with a view of innovation competition, restoring an equilibrium that can ensure access to standards, support follow-on innovations and better consumer choices.
Conclusion
Competition law regulators should be available as an active parallel forum for SEP dispute resolutions despite their occasional conflicts with judicial courts. Issues of overlaps and the possibility of conflicting opinions can be resolved by a conscious development of SEP jurisprudence, instead of a brute-force ouster of jurisdiction. The discourse we need is not whether the antitrust regulator should have power, but rather how much power would be exercisable and triggered in what kind of events. Irrespective of this sectoral struggle, dedicated antitrust guidelines in line with economic analysis are necessarily needed for developing an Indian SEP jurisprudence that inspires confidence and promotes domestic innovation.