The purpose of this article – which can be found here – is to provide a comparative analysis of EU, US and Indian case law on reverse patent holdup in the context of standard essential patent licensing.
The piece is structured as follows:
The paper begins with a discussion of patent holdup and reverse holdup in general terms.
Technological standards have become ubiquitous. Such standards foster interoperability, avoid inefficient rivalry between competing systems and facilitate competition in downstream product markets.
It has been held that firms that commit their patents to a standard – and thereby own standard essential patents (SEPs) for the purposes of that standard – often abuse their dominant position by demanding excessive royalties or by seeking injunctive relief against infringers of their essential patents. Owning a SEP provides its holder with a certain amount of market power, because users of the standard must reach a licensing agreement with the patent holder. Theoretically, a SEP holder can act opportunistically by charging more for a license to use the patented technology than what that license would have been worth but for the creation of the standard.
To curtail the possibility of exploitation of implementers by SEP holders, standard-setting organizations (SSOs) require SEP holders to agree to grant licences on fair, reasonable and non-discriminatory (FRAND) terms. FRANDs have been increasingly litigated in court around the world.
While the concept of patent holdup has been integral to debates on innovation and technology policy for several years, holdout by a would-be licensee has not received the same kind of attention. Holdout – also called ‘reverse holdup’ – arises when an implementer uses the essential patents in a standard without previously obtaining approval from the SEP holder and then refuses to negotiate a license in good faith.
The economic rationale for engaging in holdout is to use a SEP while avoiding paying licensing fees. In the absence of injunctive relief, an implementer may decide to continue to use disputed SEPs: after, even if infringement of a patent is established, the implementer will only have to make a payment broadly in the amount of a FRAND royalty. This creates incentives for implementers to try to avoid paying licenses. Furthermore, any monetary award to the SEP holder by the court will often not cover expenses incurred in litigation. It follows that a regime that makes the award of injunctive relief harder will increase the potential for patent holdout.
Recently, holdout has become a topic of discussion in the EU and in the US. In the EU, the European Commission has mentioned that one of the reasons for a rise in SEP-related disputes is delays in licensing negotiations. The Commission has repeatedly focused on the importance of undertaking negotiations in good faith, and has begun to stress the hitherto neglected ramifications of holdout. In the US, the DOJ’s Makan Delrahim has held that holdout may be a bigger issue for competition than hold-up.
The second section then looks at holdout in more detail.
The approach of courts to holdout varies significantly across the world.
In the US, courts have a large amount of discretion when deciding whether to grant injunctive relief to SEP holders by preventing implementers from using SEPs in their products. The grant of injunctive relief will hinge on two factors: the conditions for the grant of injunctive relief and the benchmark used to determine if an implementer is acting in bad faith.
In the EU, requiring an injunction to enforce a SEP may amount to special circumstances leading to a finding of abuse of dominance. To assist in the identification of these special circumstances, the European courts have developed a clear step-by-step guide on how to negotiate a FRAND license. Under this framework, a SEP holder may obtain an injunction if the user of the technology unreasonably delays negotiations.
In India, it is possible for injunction requests against unlicensed implementers to amount to an abuse of market power by the SEP holder. The courts have set the baseline licensing fee by reference to the prevailing market rate, on the basis a percentage of the downstream selling price of the infringing device. The Indian regime incentivises implementers to resolve FRAND disputes as rapidly as possible.
In conclusion, it is argued that around the world the courts take into account whether the implementer is acting in bad faith when addressing patent holdout – in particular, whether the implementer is using the law to avoid paying for essential inputs, or to reduce the applicable licensing fees.
I had some difficulty in following the argument of this. Nonetheless, the paper provides some useful input for anyone interested in the treatment of SEPs in India, and on the relevance of SEP litigation in the telecommunications industry.