In the recently concluded SpicyIP Consilience 2016 Conference at NLS, we had an interesting session on Open Standards, FRAND and Royalty-Free models (pertaining to licensing of Standard Essential Patents). Mr. Rajiv Choudhary, Prof. Yogesh Pai, Mr. Navneet Hariharan and Prof. Natasha Nayak spoke in this session. The session discussed some interesting issues pertaining to: a) creation of value by royalty free standards; b) working of FRAND; c) creation of value by standards; and d) royalty-free model vis-a-vis FRAND model. If you intend to read this post, please go through the relevant parts of the Report on SpicyIP Consilience 2016 first (pp 6 – 12).
I am of the view that the direction of this discourse itself needs a fundamental course-correction. Unless the root-cause is addressed, the issues will remain as they are. Symptomatic treatment will offer short-term solutions and not a long-term solution. As I see it, understanding the very nature of patents is the key to the resolution of various issues mentioned above. TRIPS, by and large, adopted a “one-size, fits-all” approach, which is wrong. All patents are not alike. Unless this systemic defect is corrected, I am of the view that a near-perfect model cannot be designed. I understand that this, in fact, may open a Pandora box of disagreements, discordance etc. However, I still hold the view that identifying the root-cause is germane to the holistic treatment of the ‘disease’.
At the outset, I admit that some of the ideas evinced in this post may invite some criticisms. Even then, if the idea is worthy in the “market place of ideas”, the endeavour must be to correct / modify the framework rather than dismissing my idea altogether. Also, this post is slightly normative in tone. As I stated earlier, the idea is to trigger intellectual discussions and debates for a systemic course correction and therefore, this tone is inevitable.
Firstly, it defies logic to treat all inventions alike. Inventions may be incremental or radical. Further, some like the gatekeeper patents (say, patents with regard to telecommunication sector, genes etc) may hold the key for future downstream Research and Development. Some may not. If patents are, therefore, ‘inherently’ unequal in their character and effects, it defies logic to treat all inventions alike.
Secondly, understanding of jurisprudence may offer some tenable solutions. Basically, patents are not akin to rights over tangible property. As held by Delhi High Court in Bayer Corporation and Ors. v. Cipla, Union of India (UOI) and Ors.: 162 (2009) DLT 371: “Patents are monopoly rights granted to those who invent or discover new and useful processes, products, articles or machine of manufacture, or composition of matter, or any new and useful improvement of any of those. It is not an affirmative right to practice or use the invention; it is a right to exclude others from making, using, importing, or selling patented invention, during its term. They are property rights granted by states, to inventors in exchange with their covenant to share its details with the public.”
|Gives patentee the right to exclude without further right to use||Ownership rights include the right to use that property
|The right to exclude is the only substantive right which is granted to the patentee||The right to exclude others essentially follows from the proprietor’s right to fully enjoy that property|
The impact of “exclusion” can, therefore, evolve as a determinant criterion in evaluating the character of patents. [Note that the impact of exclusion may vary drastically from one (class of) patent to another.]
Thirdly, depending upon the inherent character of patents, FRAND or Royalty-free model may be used. There cannot be a ‘one-size, fits-all’ model in case of unequal participants. In some cases, market forces can provide an optimal result in determination of royalty. But that may not be the case always (like say, gene patents or patents in ICT sector). In short, while it is prudent to leave some cases to the “invisible hand” of the regulated free market system, that may not be the case always. Standard setting, open standards etc can be seen in a similar milieu and not as distinct and disconnected realms.
At the cost of inviting possible ‘amusement’ from readers, I would like to draw your attention to the observations made by Mr. Raghuram Rajan (RBI Governor) and Mr. Luigi Zingales in ‘Saving Capitalism from the Capitalists: Unleashing the power of financial markets to create wealth and spread opportunity’ (2003): “Capitalism, or more precisely, the free market system, is the most effective way to organize production and distribution that human beings have found. While free markets, particularly free financial markets, fatten peoples’ wallets, they have made surprisingly little inroads into their hearts and minds. Financial markets are among the most highly criticized and least understood parts of the capitalist system. The behavior of those involved in recent scandals like the collapse of Enron only solidifies the public conviction that these markets are simply tools for the rich to get richer at the expense of the general public. Yet, as we argue, healthy and competitive financial markets are an extraordinarily effective tool in spreading opportunity and fighting poverty. Because of their role in financing new ideas, financial markets keep alive the process of “creative destruction” – whereby old ideas and organizations are constantly challenged and replaced by new, better, ones. Without vibrant, innovative financial markets, economies would invariably ossify and decline.” Without expressing any kind of agreement or disagreement with Mr. Rajan on the subject, my thesis is simple and straight-forward: There is a need to in-build “creative destruction” into the extant legal framework on Patents and Anti-trust law. One-size, fits-all approach is inapposite, inefficient and does not incentivize “creative destruction”. Standardisation, Open Standards, FRAND, Royalty-free model etc cannot be “one-size, fits-all” solutions. They must depend on the inherent character of each class of patents. Therefore, an informed classification of patents is long warranted and forms the key to the solution.