Standard Essential Patents: Balancing Innovation, Competition and Access

This Blog is Written by Priyanka Ghosh, 2nd Year, BA LLB (Hons.), KIIT School of Law, Bhubaneswar.

Blog 27 | Edition VII

Introduction

Can exclusive rights conferred by a patent coexist with the need of preserving free and effective competition? This question becomes of utmost importance when any patented technology is incorporated into particular technical standard. Standard Essential Patents (SEPs) are patents that claim technologies that are indispensable for implementing a technical standard; the attainment of prescribed standard is contingent upon their usage. Standard enables products manufactured by different firms to remain capable of integration, but they may also put patent holder in a greater position of bargain. Once any technology becomes an essential to a standard, implementers may, in practical terms have no viable alternative but to obtain the license.  This creates a conflict between objectives of patent and competition law. The Patent’s Act 1970, grants patent holders exclusive rights as an incentive for innovation, while the Competition Act 2002, particularly section 4, seeks to prevent abuse of dominant position. In the context of SEPs, the conflict becomes visible during licensing negotiations.

The FRAND Commitment: The Middle Ground

The solution of this problem lies in the concept of FRAND licensing- fair, reasonable and non-discriminatory licensing. When a parent holder voluntarily contributes its technology to a standard, it is generally expected to commit to licensing the resulting SEP on FRAND terms. The rationale is straightforward: the patent holder should be adequately rewarded for its innovation, while implementers should be not left at the mercy of a single technology provider. FRAND is meant to guard against two opposite risks- patent hold up, where a SEP holder exploits the indispensability of its technology to demand royalties, and royalty stacking, where an implementer faces cumulative demands from multiple SEP holders covering the same standard. FRAND, however, does not suggest any specific amount of royalty. What counts “fair” and “reasonable” depends on factors such as the value of the patented technology, comparable licenses, the patent’s contribution to the standard, and the size of holder’s overall SEP portfolio. This is what makes SEP disputes so difficult, the negotiation happens only after the technology has already become essential to the standard, by which point the implementer may have little bargaining power and no realistic alternative technology to switch to.

Judicial Landscape: The Indian Approach

In India, the debate sits right at the intersection of the Patents act, 1970 and Section 4 of the Competition act, 2002, which prohibits the abuse of dominance. While section 84 of the Patent’s act, 1970, offers a path towards compulsory licensing when public access is hindered, real world litigation has pushed to navigate a tricky middle ground. A major jurisdictional ground has emerged, whether competition commission can investigate SEP licensing terms. The Delhi High Court eventually, concluded that the Patents act, 1970, acts as the specific legal framework when it comes to guiding the process of patent management, meaning that statutory remedies take precedence over general antitrust investigations during active licensing disputes.  Historically, courts mostly granted interim injunctions against implementers. Modern Indian jurisprudence however, increasingly favors a balanced approach: requiring implementers to deposit provisional royalties with courts while pushing patent holders to prove that they are negotiating in good faith.

The High-Stakes Friction Points in FRAND

Translating ‘fair, reasonable and non-discriminatory’ from a well-defined policy into currency is where negotiations usually break down. The core challenge stems from contrasting commercial incentives. On one hand, patent hold-up occurs when SEP holders leverage the indispensability of their technology to demand exorbitant royalties after manufacturers are locked into the standards, raising the costs for implementers and distorting market competitors. One the other hand, patent hold-out occurs when implementers stall negotiations indefinitely while continuing to use the patented technology royalty-free, depriving innovators of timely returns on their heavy investment. Adding to this complexity is royalty stacking, where dozens of SEP owners demand individual royalties for a single device, inflating the final cumulative price beyond commercial visibility.

Building a Fairer SEP System

If technical standards are meant to propel consumer technology forward rather than tie it up in court, a few structural fixes are necessary. First, adopt the “smallest saleable patent-practicing unit” the royalty base, not just a top down cap. Royalties should be calculated against the value that specific standardized component contributes, rather than price of the finished goods. Appropriate safeguards could allow courts or independent experts to evaluate comparable agreements without necessarily exposing commercially sensitive information. Second, studies consistently found that 30-50% of patents when tested are actually not essential. A mandatory third-party audit, would shrink the base only to genuinely essential patents, directly reducing stacking at the source rather than capping its symptoms. Finally, pushing parties into specialized alternative dispute resolution such as international arbitration can solve royalty disputes globally which can be far better than running over costly and time taking lawsuits across multiple jurisdictions.

Conclusion

At its core, standard essential patents is meant to be a foundation for widespread technological integration rather than an engine that facilitates endless legal friction. The delicate balance between patent law and competition law is merely a theoretical debate for courts; it shapes the economic reality of how accessible everyday technology remains for public. Ensuring that innovators are rewarded with fair financial returns is essential to sustain high-risk research and development. However, allowing exclusive rights to convert into unbridled monopoly powers risks pricing implementer out of the market, chilling downstream innovation and burdening consumers with inflated prices. The path forward requires courts, competition authorities and standard setting bodies to collaborate in enforcing licensing mechanisms that prioritizes market harmony rather than opportunistic litigation.

(Write to the author at priyankaghosh3806@gmail.com.)