Competition Law and Cellphone Patents Customer Care No. 91-11-45562222 Competition Law and Cellphone Patents www.taxmann.com

Introduction The Competition Act 2002("Act") was enacted for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. The provisions of section 4 of the Competition Act, 2002 mandate the Competition Commission of India ("CCI") to inquire into the cases where dominant players may restrict competition in the market by way of denial of market access and by imposing unfair and discriminatory conditions. The present case as determined by CCI in its order Best IT World (India) (P.) Ltd. (iBall v.Telefonaktiebolaget L M Ericsson (Publ) [2015] 59 taxmann.com 55/131 SCL 392 (CCI)enunciates abuse of dominant position in market of Standard Essential Patents for 2G, 3G and 4G technologies in GSM standard compliant mobile communication devices in India. Customer Care No. 91-11-45562222 www.taxmann.com

Meaning of certain terms 2 Meaning of certain terms 2. Standard Essential Patents ("SEP"): An Essential Patent or Standard Essential Patent is a patent that claims an invention that must be used to comply with a standard. Standards frequently make reference to technologies that are protected by patents. A patent that protects technology that is essential to comply with a standard is called a Standard Essential Patent. The (supra) of judgement adjudicated by United States Court of Appeals for the Federal Circuit defines standard essential patent as……… "Creating some standards, like IEEE's 802.11 standard, is a complicated process that involves the collaboration and can involve cooperation of a number of interested parties. Due to the collaborative nature of this process, the chosen standard may include technology developed by a number of different parties. Sometimes that technology is covered by patents. Because the standard requires that devices utilize specific technology, compliant devices necessarily infringe certain claims in patents that cover technology incorporated into the standard. These patents are called "standard essential patents" ("SEP"). European Telecommunications Standards Institute ("ETSI") :-ETSI, the European Telecommunications Standards Institute, produces globally-applicable standards for Information and Communications Technologies (ICT), including fixed, mobile, radio, converged, broadcast and Internet technologies. ETSI are officially recognized by the European Union as a European Standards Organization Customer Care No. 91-11-45562222 www.taxmann.com

FRAND: It is a legal term which stands for Fair, reasonable and Non-discriminatory. FRAND terms puts obligation on owner of SEP to license its patents under FRAND terms. 3. Facts of the Case ♦ M/s Best IT World (India) Private Limited ("Informant") was engaged in Business of import and distribution of computer peripherals, mobile handsets, tablets etc. under brand name 'iBall'. Telefonaktiebolaget L M Ericsson ("TLME") incorporated under laws of Sweden. Ericsson India Private Limited ("EIPL") is 100% subsidiary of TLME and was engaged in the business of manufacturing and sale of telecom equipment, network equipment, software and other services in India.[TLME & EIPL hereinafter termed as Ericsson] ♦ Informant stated that Ericsson is one of the world's largest telecommunication companies with a global market share of 38% and also one of the largest holders of Standard Essential Patents ("SEPs‟) in the mobile phone and wireless industries with approximately 33,000 granted patents as of 2012, out of which 400 were granted in India. ♦ Ericsson issued letter to Informant stating that, informants products have infringed GSM (Global System for Mobile Communications) and/ or WCDMA (Wideband Code Division Multiple Access) and requested meeting to discuss the Issue. ♦ Ericsson specified that Informant should enter into a Global Patent Licensing Agreement ("GPLA") for all the patents of Ericsson. The Informant showed its willingness to enter into GPLA , if Ericsson specified which patent have been infringed , such patents were valid and enforceable in India and the terms of such arrangement were reasonable and not onerous. Customer Care No. 91-11-45562222 www.taxmann.com

♦ Ericsson notified the Informant to enter into a non-disclosure agreement ("NDA") before proceeding the matter .The informant alleged that, Ericsson reluctant to share information of infringement of patents unless the informant executed NDA. The informant further stated that they were willing to enter into a license agreement under FRAND terms and within jurisdiction of Indian courts as the current NDA terms were very strict ,onerous and one sided. The informant was of view that Ericsson was tying and bundling of patents irrelevant to the Informant's products and demanding unreasonably high royalties by way of certain percentage of handset, such an act of Ericsson is in violation of Section 4 of the Act. Can owner of standard essential patent be obliged to issue patents to third party? 4. A patent holder is granted a statutory right to prevent third parties from making, using, offering for sale, selling or importing the patented products and if the patent is a process then the patent holder would have the right to prevent the third parties from using or in any manner dealing with the said patent. The only manner in which a patent holder can exercise his rights is by refusing a licence permitting a third party to exploit its patent and it would be quite legitimate for a patentee to seek injunctive relief to enforce such rights. However, on the other hand, a refusal by a patentee to grant a licence may result in adverse effect on competition. Customer Care No. 91-11-45562222 www.taxmann.com

Considering the present case, Ericsson being a member of ETSI is bound to offer its SEPs on FRAND terms. As per clause 6.1 of the - ETSI Intellectual Property Rights Policy expressly provides that:– "When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory ("FRAND") terms and conditions under such IPR to at least the following extent: ♦ MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE; ♦ Sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED; ♦ Repair, use, or operate EQUIPMENT; and ♦ Use METHODS. The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate." Customer Care No. 91-11-45562222 www.taxmann.com

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