A comparative study of the evolving jurisprudence on standard essential patent licensing

• Date: 01 July 2020
• DOI: http://doi.org/10.1111/jwip.12154
• Author: Srajan Jain,Ashish Bharadwaj
• Published date: 01 July 2020

J World Intellect Prop. 2020;23:310–327.wileyonlinelibrary.com/journal/jwip310

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© 2020 John Wiley & Sons Ltd

DOI: 10.1111/jwip.12154

ORIGINAL ARTICLE

A comparative study of the evolving

jurisprudence on standard essential patent

licensing

Ashish Bharadwaj

1

|Srajan Jain

2

1

Jindal School of Banking & Finance, Jindal

Initiative on Research in IP & Competition

(JIRICO), O.P. Jindal Global University, Sonipat,

Haryana, India

2

Department of Law, Freie Universität Berlin,

Berlin, Germany

Correspondence

Ashish Bharadwaj, Jindal School of Banking &

Finance, Jindal Initiative on Research in IP &

Competition (JIRICO), O.P. Jindal Global

University, Sonipat Narela Road, Sonipat,

Haryana 131001, India.

Email: abharadwaj@jgu.edu.in

Abstract

Courtrooms in several jurisdictions have proven to be legal

battleground for developing jurisprudence for disputes on

standard essential patent (SEP) licensing. In India, a settle-

ment and a decision defined and reshaped the SEP licensing

landscape. These decisions by the Indian adjudicators come

in light of the solutions proposed by the Japan Patent

Office, decisions taken by the U.K. Courts and official po-

sition of the U.S. Department of Justice more recently. In

this paper, we seek to analyze the outcomes of SEP dis-

putes in India and make comparison with the ongoing ef-

forts in developing fair, reasonable and non‐discriminatory

jurisprudence in Japan, EU, and United States.

1|PART I: INTRODUCTION

Standard setting organizations (SSO) cater to a wide variety of domestic and international stakeholders whose

primary aim is to develop technical standards. SSOs generally adopt policies with regard to the licensing and

disclosure of patents that are essential to a technical standard. Judicial rulings and antitrust interventions have

evolved with recent decisions of courts based on econometric exercises to calculate fair, reasonable and non‐

discriminatory (FRAND) royalties. As a result, the existing framework of FRAND policies and rules have witnessed

significant developments in a relatively short span of time. With the advent of the fourth industrial revolution that

is inextricably linked with 5G technology of wireless connectivity, automation and proliferation of new technologies

enabled by Internet of things (IoT),

The debate on licensing of standard essential patents (SEP) on terms that are fair, reasonable and non‐

discriminatory (FRAND)

1

, has been raging across countries for well over a decade now. Standard essential patents

(SEP) licensing based on FRAND terms for new technologies may face greater action within the wireless com-

munication industry and with industries that are wanting to reap advantage of the digital dividend that will be

offered by IoT and 5G (Bharadwaj, Devaiah, & Gupta, 2020). IoT is a system of computing devices that underlie

functioning of everyday physical devices that are connected to the internet. It involves adaptation and convergence

of diverse technologies and technical standards that are likely to encompass thousands of patents spread across

industries. However, with the amalgamation of technologies across various verticals in the larger IoT ecosystem,

one key question is if and how patenting and licensing strategies will adapt to the myriad technical standards that

are already developed and are in the process of being developed?

The fifth‐generation (5G) mobile Internet connectivity promises higher internet speed, faster data download,

and upload speed, stable connection and wider coverage than its predecessors. While the standardization of 5G

technologies are currently underway, deliberations have already begun on what licensing of 5G technology entails.

Furthermore, how FRAND litigation involving these new technologies that are spread across industries are likely to

shape within the existing framework is a pertinent question to ask. Governments, standard setting bodies, industry

groups, and others have been exploring ways to address questions of how to value patents that command the

maximum rent in the IoT ecosystem? what are the appropriate licensing models for such negotiations with the roll‐

out of IoT and 5G? With these questions in the background, understanding the FRAND licensing environment

across jurisdictions is necessary.

The global debate of FRAND licensing has focused on, among several contentious issues, methodologies for

calculation of royalties, appropriate base for determination of royalty, injunctive relief for patent holders, royalty

stacking, situation of patent “hold‐up”versus “reverse hold‐up”within the mobile communication industry and

controversial antitrust implications of practices of SEP holders (Bharadwaj, 2018). Some of these issues will be

discussed in this paper.

In the determination of an appropriate royalty rate, court decisions have frequently identified two approaches.

One involves "determining the share of contribution of a particular SEP, by referencing, for example, existing

comparable licenses (bottom‐up approach)"; while the other involves "estimating the share in the calculation base

of the contribution of all SEPs for a given standard and then allotting a share to individual SEPs (top‐down

approach)" (Japan Patent Office, 2018a,2018b,2018c,2018d). In other words, the top‐down methodology for

calculation of royalties is the payment of aggregate royalty subject to all the SEPs covering a particular standard

and then allocating a portion of the total to individual SEPs. On the other hand, in the bottom‐up methodology,

royalties are determined based on individual assessment of SEPs without taking into consideration the other SEPs

relevant to the standard. Both the approaches should not be considered as contradicting each other. In Unwired

Planet v. Huawei, the UK High Court in 2017 endorsed the bottom‐up approach whereas in the same year the U.S.

Federal District Court in TCL v. Ericsson argued for and adopted a top‐down approach.

Another issue that has received considerable academic attention, industry impetus and policy relevance is the

royalty base. Under the construct of Smallest Saleable Patent Practicing Unit (SSPPU), the royalties reflect the

value added to the smallest saleable component implementing the SEP rather than the entire market value (EMV

Rule or EMVR) of the device or the end sale price of the underlying device. Several decision by courts in the United

States have dealt with these issue. In In re Innovation, the Federal District Court in 2013 stated that the average

selling price of a chip forms the first step in the top‐down approach while, the Court of Appeals of the Federal

Circuit in 2014 in Virnetx v. Cisco observed that the SSPPU is rather “a multi‐component product several non‐

infringing features with no relation to the patented feature…, the patentee must do more to estimate what portion

of the value of that product is attributable to the patented technology.”On the other hand, CAFC in its 2015

decision in CSIRO v. Cisco observed that EMVR is the right technique toward using a royalty base if it can be

demonstrated that the market demand of the infringing product is based on the patent(s) underlying the technology

in question.

The English High Court in early 2017 came up with the long awaited ruling Unwired Planet International Ltd v.

Huawei Technologies Co. Ltd and Others (2017, EWHC 711), which dealt with the issue of SEPs in the mobile

telecommunication sector and makes for one of the most important FRAND decisions to provide more clarity to

several contentious issues. The subsequent year was rather busy for courts and regulatory bodies that were dealing

with SEP cases and FRAND issues around the world. The Court of Appeals in the United Kingdom dismissed the

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