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Practising Patents in India

Non-technical Summary

Patents require positive disclosure of inventions as part of the social bargain. Many jurisdictions only require that patents are disclosed through the patent specification on paper. Patent holders are not required to reduce their inventions into actual practice, or in any way work their patents by employing it in relation to a product or a process, or by locally manufacture the product embodying the patented invention. In fact, patent holders are not even required to license it. The power to refuse a license or to condition the license on certain requirements is considered part of the patent bargain. Not only patent owning firms may not practice the patent themselves, they have the legal right to stop others who engage in infringing uses of the patent and demand accounts for profits or damages.

This notion of exclusive use in patent law has allowed firms to focus solely on innovation and develop business models that engage is monetising patents through portfolio licensing and/or litigation/enforcement. Studies have shown that such Non-practising Entities (NPEs) are now widespread in the high-tech sector. This has led to the emergence of distinct business entities termed as Patent-Assertion Entities (PAEs) that primarily focus on patent enforcement activities. Such enforcement activities may include demand letters, litigating infringers, licensing models for patent portfolios or royalty settlements. Profits made by PAEs by way monetising patents are shared through various mechanisms among PAEs and non-practising patent holders. New business models of “patent privateers” with distinct patent portfolios that allow NPEs to off-load patents through different PAEs are emerging in the market place.

This strategic use of patents has generated intense debate and scholarship for various reasons. Scholars note that since the patent system suffers from an input-output problem (inadequacy of the patent notice function promoted by disclosure), there are chances of opportunistic conduct against downstream infringers. The argument is that the activities of PAEs and NPEs threaten innovation and competition (and hence ‘access’) by engaging in opportunistic conduct such as patent holdups or demands for ‘unfair’ royalties (including potential double marginalization/royalty stacking) against unsuspecting infringers. The theory is that since patent law places strict liability for infringement (no defense of independent innovation or inadvertent infringement being available) infringers who may be downstream manufacturers or innovators are hit by the upstream patentees or those that hold complementary patents. However, there is no systematic evidence that has been presented to show holdup or royalty sharing concerns. Similarly, scholars are of the opinion that the problem of patent-thicket (anti-commons) is exaggerated. Scholars have noted that not all activities of NPEs or PAEs are suspect. They have pro-competitive efficiency enhancing justifications for their existence in the marketplace. Without the existence of such licensing models, innovative firms could be forced to vertically integrate to defend themselves as ‘practicing’ entities.

Courts in comparative jurisdictions have been sensitive to demands for injunctive relief when requested by NPEs. Courts have rejected injunctive relief in a large number of cases involving NPEs and have proceeded to grant reasonable royalties and compensatory damages. In fact, the United States Federal Trade Commission (US-FTC) has released a study on activities of PAEs in 2016 highlighting the complex factors at play and various strategies of litigation and portfolio PAEs. There are valid critiques of the evolving injunction and damages jurisprudence, which some scholars consider as seemingly skewed against NPEs without sufficient basis. Scholars are also of the view that FTC’s study on PAEs is of limited value since it cannot be used to make generalized conclusions against new licensing models emerging in the high-tech marketplace. As a consequence there is no-consensus among scholars, agencies and business stakeholders on whether or not any legislative, regulatory or antitrust intervention is warranted since its negative impact on consumer welfare and competition is unclear.

Interestingly, the patent bargain in India is structured differently. Patent holders in India are required not only to disclose their invention but to provide regular details of ‘working’ of their patents on a commercial scale in India. This policy dimension of patent law has basis in industrial policy which casts positive obligations on the patentees or their licensees to sufficiently work the patents in India. Although the patent law requires a host of information about working, including information on licensing or imports, studies have shown that there is evident gap between policy and practice. In fact, there is pending litigation on the very question of whether the Indian government (through the Indian patent office) is taking the working requirement seriously. There are also issues of transparency at the patent office and availability of data regarding on working.

Apart from pecuniary consequences of not providing relevant information on working of patents, insufficiently worked patents are considered as grounds for compulsory licences and revocation (forfeiture). What constitutes working has been a subject of intense debate and litigation. A patentee may work the patent only by ‘importing’ (provided there are valid reasons exist for lack of manufacturing in India). Patent holders and their licensees have criticised the working requirement for being onerous and in lacking any economic sense since they believe that the patent bargain is complete with disclosure of the invention. Furthermore, confidentiality of licensing info is cited as another reason. There is also an apprehension that full disclosure of such information may trigger mass compulsory licenses.

Therefore, in a jurisdiction like India, activities of NPEs and PAEs are in some sense heavily regulated by the Patent law itself through the requirement of ‘working’. Although there are no studies that point to significant PAE activity in India, it may only be a matter of time when activities of NPEs or PAEs could come under the scanner of competition authorities. Furthermore, there are instances where courts in India have denied injunctions since the infringer has worked the invention by using it in relation to a product sold in the market.

This project will examine the following key issues involving the art of practicing patents in India:

  • Theoretical basis, evolution and the notion of exclusive use in patent law in the light of its social bargain
  • Profile of NPEs and PAEs activity in the context of high-tech industries – what is the problem?
  • Regulation of NPEs and PAEs in the Indian context through the requirement of ‘working’
  • Patent remedies (injunctions and damages) in the context of NPEs and PAEs in India
  • Competition Law and Policy in India the context of NPEs and PAEs

The project will adopt a mixed methods approach. A detailed methodology and datasets used will be provided on the website in the future.

Principal Investigator: Yogesh Pai