Bhupesh Bhandari: The hatke telecom war

Away from the limelight, a weighty issue is being debated heatedly in Delhi's telecom circles. The Department of Industrial Policy and Promotion, in the Ministry of Commerce and Industry, on March 1 floated a discussion paper on standard essential patents and their availability on fair, reasonable and non-discriminatory, or FRAND, terms. Interested people can make their submissions on the subject by the end of the month.

A standard essential patent helps a product, a cellphone in this case, meet a certain benchmark which is set by a standard development organisation. These patents are meant to be made available on FRAND terms - the idea is to protect intellectual property rights while securing the public interest at large.

One standard development organisation that works in the field of telecom is the Institute of Electrical & Electronics Engineers Standards Association, or IEEE. In February last year, it approved a set of changes to its patent policy, which meant that patent holders must offer the technology to all applicants requesting licences and not pick and choose, not seek or threaten to seek injunctions against potential licensees who want to negotiate for licences, and charge royalty on the value that the patented technology contributes to the smallest saleable component and not the whole product.

This set off a similar demand in India. In September, the Indian Cellular Association, a lobby group for makers of mobile handsets, wrote to the commerce ministry that the "updated IEEE policy should be included for India as well". It said that the patent policy of the European Telecom Standards Institute, or ETSI, another standard development organisation for telecom, as well as of any Indian organisation, is "in favour of the patentee only", which needs to be corrected.

The Telecom Standards Development Society of India, a public-private partnership, is the apex body for development of telecom standards in India. The ministry asked it to offer comments on the suggestions made by the Indian Cellular Association. Then, on March 1, the Department of Industrial Policy and Promotion came out with its discussion paper.

The makers of parts that go into mobile handsets are a worried lot. Any change in the patent policy, they argue, will devalue standard essential patents and hinder the development of technology. As evidence, they say that filing of patents with IEEE has declined sharply after the amendments were made. According to them, the new IEEE policy is incompatible with ETSI's policy, and if the Telecom Standards Development Society of India were to go the IEEE way, it too would not be able to collaborate with ETSI which is at the forefront of the development of standards for 3G and 4G technologies.

India being the second largest market for mobile handsets, their anxiety is understandable. Most of them say that any change will increase the cost and complexity of licensing intellectual property in the country.

Actually, there is a bit of history behind the tug of war between the two parties.

In March 2013, Ericsson had sued Micromax, India's largest home-grown maker of mobile handsets, for allegedly refusing to sign a licensing agreement for using its patented products across technological standards: GSM, EDGE and 3G. Ericsson claimed damages of Rs 100 crore.

Simultaneously, Micromax moved the Competition Commission of India that Ericsson was asking for exorbitant royalties because it was the sole supplier of the said technologies, and it was claiming the sale price of the handset, not the relevant components, as the base for the royalties. The competition watchdog, in November that year, found the royalties excessive and discriminatory, and initiated an investigation by the director general.

Ericsson sought relief from this investigation in the Delhi High Court, which was granted in January 2014. Then, in November 2014, the Delhi High Court asked Micromax to pay the Swedish company royalty of one per cent of the selling prices of its devices. The case has not yet been decided and the payment made by Micromax is accumulating in an escrow account.

There was much consternation amongst handset makers after this order. Some felt such royalty payment would shave off a fifth of their profits. Similar action initiated by two other equipment makers, including Intex, at the Competition Commission met with the same fate.

The government seems all set to wade into this corporate battle. Some of the issues the discussion paper has raised are: should the government prescribe guidelines on how standard development organisations must work, should the government evolve guidelines for fixing royalties for standard essential patents and defining FRAND terms, should there be a cap on royalty payments, and should the royalty be charged on the "smallest saleable patent practicing component" or the entire product?

Arguments can, and will, be made from both the sides. The stakes are huge; the lobbying naturally is intense.