ForumIAS announcing GS Foundation Program for UPSC CSE 2025-26 from 26th June. Click Here for more information.
Source-This post on Judicial Activism and its impact on manufacturing sector has been created based on the article “The judiciary’s shadow over standard essential patents” published in “The Hindu” on 3 May 2024.
UPSC Syllabus-GS Paper-3- Science and tech- issues relating to Intellectual Property Rights.
Context– There’s a problem emerging in India where some tech companies are using standard essential patents (SEPs) against the telecom manufacturing sector. This directly affects India’s goal of building its own cell phone manufacturing industry.
What are standard essential patents (SEPs)?
Description-SEPs are patents that cover technologies adopted by the industry as “standards.” For ex-technologies such as CDMA, GSM, LTE are all industry standards in the telecom sector.
Control-Private tech companies mostly control the process of setting standards through organizations called Standard Setting Organizations (SSOs)
Significance-They are important for ensuring interoperability of cellular phones manufactured by different companies.
What are the challenges that arise from the ownership of SEPs by certain companies?
1) Limited Influence in Standard Setting– Countries like India, which don’t innovate much in the telecom sector, have little say in how standards are established or how SEPs are licensed.
2) “Patent holdup” problem– Without other options, SEP owners can demand high royalties from manufacturers, which can stifle competition. This is known as the “patent holdup” problem in economics.
3) Anti-competitive practice-The technology industry has been found to be guilty of engaging in anti-competitive practices due to the secretive nature of operating. This is evidenced by the hefty fines some SEP owners had to pay worldwide for unfair competition.
For ex-the largest of these SEP owners, Qualcomm, has been fined $975 million by China (2015), $873 million by South Korea (2017) etc.
4) Impact on creation of job-While the government helps manufacturers with programs like “production linked incentives,” SEP owners are criticized for taking money out of the country without creating jobs.
Read more- Patent Rules 2024- Significance and Challenges
What has been the response of the Indian judiciary to this issue?
The Indian response to the issue involves judicial lethargy and activism at the Delhi High Court
1) In 2013, the Competition Commission of India (CCI) investigated whether Ericsson abused its dominant position by demanding high royalties for its SEPs.
2) Ericsson challenged CCI’s power before the Delhi High Court, resulting in a lengthy legal battle.
3) Despite pending competition law issues, the Delhi High Court proceeded with lawsuits filed by SEP owners against cellular phone manufacturers.
4) The court granted “interim” remedies requiring manufacturers to deposit money, impacting their working capital.
What is the impact of this judicial activism on India’s manufacturing sector?
1) Fund Availability-The court ordered manufacturers to deposit money temporarily. This has affected their available funds for business.
2) Hamper investment-This judicial activism has negatively impacted the government’s attempts to attract investment in the manufacturing sector.
What should be the way forward?
Indian government should intervene to regulate SEPs, like the European Parliament.This will safeguard India’s manufacturing interests.
Question for practice
What are the challenges that arise from the ownership of SEPs by certain companies? What has been the response of the Indian judiciary to this issue?
