Entering new domains

Vidya Bhushan Mehrish and Priya Anuragini at LexOrbis explain how the licensing of standard essential patents has strayed into the realm of competition law

The standardization of technologies is vital for ensuring interoperability and compatibility across different products, processes and technologies. Globally acceptable technology standards incorporate numerous patents commonly known as standard essential patents (SEPs). As they are potentially essential for the implementation of technological standards, SEPs have become an important source of revenue for the companies that own them. However, owners of SEPs are often unwilling to license them on fair, reasonable and non-discriminatory (FRAND) terms, despite an obligation to do so. And since this behaviour is detrimental to the growth and development of other companies in the industry, it becomes a case of SEP holders abusing their dominant position, which is contrary to competition law.

Most standard-setting organizations mandate that SEP owners grant irrevocable licences on FRAND terms, but in reality this rarely happens. All too often SEP owners demand exorbitant royalties or impose unreasonable licensing terms. And since the companies seeking to license SEPs would have already invested in the standard compliant products, they have no alternative but to comply. In extreme cases, SEP owners may even prohibit the entry of other players by not granting licences, thereby eliminating competition. All of this may make certain products unviable and severely disrupt the business activities of companies that use SEPs in their products.

Furthermore, with a single product sometimes using multiple SEPs that may or may not have a single owner, the ultimate cost to the consumer is of little consideration, as royalty rates for individual SEPs are fixed without any regard to the complete royalty burden of the product. It has even been reported that some SEP owners have charged royalties on the basis of the price of the product in which it is to be implemented. As such, they impose different rates on different implementers for using the same technology. This violates competition norms.

Vidya Bhushan Mehrish is a partner at LexOrbis, where Priya Anuragini is an associate.