In an era defined by rapid digital transformation, the success of innovations like smartphones, 5G networks, and smart devices depends heavily on cross-industry standards. But seamless connectivity would be impossible without patent licensing mechanisms that balance everyone’s interests. At the heart of this delicate balance are FRAND obligations – the Fair, Reasonable, and Non-Discriminatory commitments made by patent holders to global standard-setting organizations (SSOs) when their inventions become essential to industry standards. These commitments underpin the global framework for patent licensing, royalty negotiations, and fair access to technology.
Why FRAND Matters in Patent Licensing
Standard Essential Patents (SEPs) are patents that claim technologies integral to a standard, such as Wi-Fi, Bluetooth, or cellular networks. Once adopted, every manufacturer, whether multinational giants or local startups must use these technologies to create compatible devices. Without the safety net of FRAND obligations, SEP owners could wield immense market power, block competitors or charging extortionate royalties. FRAND promises ensure both patent licensing revenues for inventors and reliable access for implementers, fostering an environment where innovation benefits all.
Fractures Beneath the Surface: Royalty Negotiations and FRAND Obligations
Although FRAND was designed to promote fair and efficient patent licensing, its real-world application frequently triggers complexity and litigation. The crux of the “fractured in practice” paradigm lies in inevitable ambiguity:
- Defining “Fair and Reasonable”: Industry standards differ across regions, and what one party considers reasonable may appear excessive to another. Should royalty rates be computed on the cheapest component (SSPPU) or the entire device? SEP holders tend to prefer the latter, while implementers argue for the former to avoid “royalty stacking” the accumulation of patent fees that can outpace a product’s value.
- Non-Discrimination Quandaries: FRAND aims to treat similar licensees equally, but deals can differ based on company scale, market reach, and bargaining power, creating tension.
- Negotiation Stalemates: SEP holders sometimes engage in “hold-up,” raising royalty demands after widespread standard adoption. Conversely, implementers may “hold out” using the technology but delaying or refusing compensation.
These challenges make royalty negotiations for patent licensing far from routine. Disputes spill into courts, generating inconsistent global outcomes and accelerating forum-shopping, where parties seek the most favourable jurisdictions.
The Indian Experience: Evolving Law, High Stakes Litigation
India’s telecom boom and the “Make in India” initiative have turned the country into a hub for SEP and FRAND disputes. Here, patent licensing and royalty negotiations are largely shaped by landmark judgments and regulatory actions.
Key Legal Framework and Jurisprudence
India does not have explicit FRAND or SEP legislation. Instead, the legal structure relies on:
- The Indian Patent Act, 1970 and Competition Act, 2002: Courts interpret FRAND obligations under these statutory regimes.
- Judicial Precedent: Major disputes involving Ericsson (a Swedish SEP owner) and brands like Micromax, Intex, and Xiaomi have laid the groundwork for Indian FRAND policy. The Delhi High Court, in particular, has become central to jurisprudence, while the Competition Commission of India (CCI) scrutinizes antitrust practices.
Dual Jurisdiction and Recent Shifts
Both the Delhi High Court and CCI have historically governed FRAND matters, often with conflicting approaches. In a pivotal 2023 appellate ruling, the Delhi High Court asserted that the Patent Act should prevail over CCI investigations, limiting competition authority power a decision now contested in the Supreme Court.
Highlights from India’s SEP Battles
- Ericsson v. Micromax (2013-2016): Ericsson sued Micromax for infringing GSM/EDGE/3G SEPs, offering FRAND licenses based on device price. Micromax claimed the royalties were excessive and discriminatory, and approached the CCI, which saw potential anti-competitive “royalty stacking.” Ultimately, the Delhi High Court granted injunctions and required interim royalties based on the entire phone’s value, rather than the narrow SSPPU approach.
- Ericsson v. Intex, iBall, and Gionee: Here, portfolio licensing and NDA provisions came under scrutiny. Courts supported global portfolio licensing and ruled that NDAs protected confidential licensing negotiations, not anti-competitive practices.
- Ericsson v. Xiaomi (2014): Significant as an ex-parte injunction halted Xiaomi’s sales until royalty deposits were made, setting a precedent for swift SEP enforcement in India.
- InterDigital v. Xiaomi (2020-21): Featured India’s first “anti-anti-suit injunction” to defend jurisdiction over SEP infringement.
- Ericsson v. Lava (2024): India’s first full SEP trial saw the Delhi High Court affirm seven SEP infringements, label Lava as an “unwilling licensee,” and order record damages with FRAND rates set at approximately 1.05% of end-product price.
Core Issues in Royalty Negotiations and Patent Licensing
The following legal and business questions take center stage in India’s evolving FRAND landscape:
- Royalty Base Calculation: Should SEP royalties be based on the smallest saleable component or the whole device? The Delhi High Court generally prefers the latter, aligning with global trends, while the CCI initially pushed for the SSPPU standard.
- NDAs and Confidentiality: The CCI has critiqued NDAs for possible anti-competitive effects, but courts have ruled them necessary to protect sensitive licensing information.
- Portfolio Licensing Validity: Indian courts permit global portfolio licensing arrangements as FRAND-compliant, refusing to mandate country-specific licenses.
- Willing Licensor/Licensee Principle: Courts emphasize “candid and transparent” negotiations. Unwilling implementers who stall or refuse reasonable royalties risk injunctions and damages, while SEP holders must avoid excessive demands and disclose comparable licensing deals.
Lessons for Stakeholders: Navigating Patent Licensing and Royalty Disputes
The upshot for SEP owners and device manufacturers is clear. Early, good-faith engagement in royalty negotiations and transparent patent licensing practices are essential. SEP holders must avoid supra-FRAND demands and provide evidence of comparable deals. Implementers should counter-offer responsibly and keep clear documentation.
India’s legal approach guided by the Patents Act and court precedent enables robust enforcement of patent rights, in contrast to many jurisdictions where courts are hesitant to grant injunctions for SEPs. With 5G and emerging technologies, more patent licensing and FRAND obligation disputes are inevitable, but fair, balanced licensing could fuel innovation and industry growth.
The Road Ahead: Policy Evolution and Harmonization
India’s Department for Promotion of Industry and Internal Trade (DPIIT) and the Patent Office are crafting a national SEP licensing framework based on FRAND principles. Their aim: clearer guidelines, reduced uncertainty, and stronger incentives for technological advancement and investment.
Conclusion
FRAND commitments remain powerful tools to bridge the gap between patent owner rights and industry-wide access to key technologies. Yet, as the global experience and Indian cases show, theory rarely matches reality, the theory was beautiful, however the practice remains stubbornly fractured. Patent licensing, royalty negotiations, and FRAND obligations comprise a landscape where vigilance, expertise, and strategic collaboration are essential for fair outcomes. For India’s tech ecosystem and the global industry at large mastering the fractured reality of FRAND is no longer optional, but essential for sustainable progress.
