SEP LICENSING OVERSIGHT: ENSURING MARKET FAIRNESS AND PREVENTING ABUSE

Introduction

The Supreme Court’s (SC) recent dismissal of the Competition Commission of India’s (CCI) appeal against Ericsson II, which does not address any substantive question of law, has left standing the Delhi High Court’s position that the Patents Act, 1970 (Patents Act) is a “complete code.” The practical effect is the exclusion of the CCI’s jurisdiction in matters that also fall within the remit of the Patent Controller, thereby displacing the concurrent approach recognised in Ericsson I . This shift has significant implications, including the confinement of disputes over standard-essential patents (SEPs) to the narrow remedial framework of the Patents Act, while sidelining competition law’s systemic oversight of market power.

This article critiques that position in three parts. First, it situates anticompetitive disputes involving SEPs squarely within the Competition Act, 2002 (Act), demonstrating why regulating SEP licensing practices requires scrutiny under competition law. Second, it highlights the inadequacy of the Patents Act, by showing that its remedies are bilateral and transactional, and that the Patent Controller lacks the institutional mandate of a regulator. Third, it advances reforms to harmonise drawing inspiration from comparative developments in the European Union, the United Kingdom, and China. By grounding SEP disputes within competition law while preserving the legitimacy of patent rights, this article argues for a framework that incentivises innovation and prevents systemic market distortions.

Situating SEP within the competition framework

Once a patent is declared essential to a standard, implementers cannot design around it; access becomes a prerequisite for market participation. This transforms SEP ownership from a mere exclusionary right into a structural bottleneck. While SEPs are licensed under the promise of fair, reasonable, and non-discriminatory terms, disputes consistently arise over whether licensing conduct honours these commitments. Globally, SEP abuses transcend bilateral patent disputes, creating market-wide distortions that only antitrust law can address. In India, this distinction has blurred subsequent Delhi High Court’s decision referring to it as “complete code” in Ericsson II. The following sections illustrate why SEPs demand antitrust intervention, focusing on hold-up, royalty stacking, and tying, each mapped to the Act.

Hold-Up: Exploiting Lock-In

A Hold-up arises when an SEP holder, knowing that implementers are locked into a standard, demands royalties that go well beyond what would have been agreed upon in a competitive negotiation. This conduct does not reward technological innovation; it monetises the dependency created by standardisation. The effect is to inflate implementers’ costs, increase consumer prices, and chill follow-on innovation by smaller firms unable to absorb inflated licensing fees.

In FTC v. Qualcomm, the district court found that Qualcomm’s “no license, no chips” policy required OEMs to accept royalties tied to final device prices rather than just component value, which the court saw as supra-FRAND and leveraging SEP indispensability. While the Ninth Circuit reversed liability, it preserved many of the factual findings about Qualcomm’s licensing model. This suggests that when implementers invest in standard-compliant products, they may become vulnerable to royalty demands that reflect dependency more than innovation.

This reasoning can be mapped to Section 4(2)(a)(ii) of the Act, which prohibits dominant undertakings from imposing “unfair or discriminatory conditions.” In Coal India Ltd. v. CCI, the SC held that by virtue of its dominance in coal supply, Coal India imposed non-transparent pricing and arbitrary quality deductions on power producers, thereby inflating costs and distorting affordability across the sector. The analogy to SEPs is direct: when a patentee calculates royalties on the entire handset price or demands multiples above a FRAND baseline, it is leveraging indispensability in the same way Coal India leveraged its supply monopoly.

Royalty Stacking: The Multiplication of Demands

Royalty stacking arises when multiple SEP holders simultaneously assert overlapping claims over the same standard, creating cumulative licensing burdens that individually may appear reasonable but collectively become prohibitive. The problem is systemic rather than bilateral: even if each patentee demands a seemingly fair rate, the aggregate effect inflates implementers’ costs, discourages entry, and raises consumer prices. Smaller firms are disadvantaged because they lack the scale to absorb or negotiate against multiple royalty streams.

This can be captured under Section 4(2)(c) of the Act , which prohibits dominant enterprises from practices that result in the denial of market access “in any manner.”. In MCX Stock Exchange v. NSE, the SC held that NSE’s zero-pricing policy foreclosed rivals’ access to the market and therefore constituted an abuse of dominance under Section 4(2)(c) of the Act[ca8] . Applied to SEPs, royalty stacking operates as a structural barrier because when overlapping royalty demands accumulate to levels that render standard-compliant products commercially unviable, implementers, especially smaller entrants, are effectively excluded from the market. Just as NSE’s policy prevented new exchanges from gaining a foothold, excessive and uncoordinated SEP royalties foreclose market access by making market participation economically unsustainable.

Tying and Bundling: Leveraging SEPs Beyond Their Scope

Tying arises when SEP holders condition access to essential patents by licensing non-essential patents or ancillary services. Because implementers cannot comply with a standard without securing the relevant SEPs, patentees may leverage this indispensability to extend their dominance beyond the essential technology. The effect inflates licensing costs and forecloses competition in adjacent markets, particularly disadvantaging smaller firms with limited bargaining power.

In Huawei v. InterDigital, the Shenzhen Intermediate People’s Court found that InterDigital abused its dominance in SEP licensing with Huawei by tying essential patents to non-essential patents as part of licensing negotiations, and awarded damages. The Indian parallel is found in Section 4(2)(d) of the Act , which prohibits dominant enterprises from “conditioning contracts on obligations unrelated to the subject of the agreement.” In Shamsher Kataria v. Honda Siel Cars India Ltd, the CCI held that car manufacturers had abused their dominant positions by requiring customers to purchase spare parts and diagnostic tools exclusively from the manufacturer or its authorised dealers, thereby imposing obligations unrelated to the primary contracts, in violation of Section 4(2)(d) of the Act. This reasoning applies directly to SEP licensing: when SEP holders exploit the essential nature of their patents to compel implementers into licensing non-essential patents, it constitutes a similar form of leveraging dominance. In reality, what may superficially appear as a contractual condition is an exercise of market power that inflates costs and restricts competitive participation, undermining market efficiency and fairness.

Inadequacy of the patent regime for market abuses

The Patents Act’s ability to curb market abuses is constrained not only by the narrow text of its provisions but also by the institutional role of the Patent Controller that those provisions reveal. For example, Section 84 permits compulsory licensing but only at the instance of a prospective licensee. Its proviso to Section 84(6)(iv) removes the need for prior negotiation where the patentee has behaved in an anti-competitive manner, yet this is merely a procedural concession; it does not empower the Controller to investigate or sanction such conduct independently. Section 90(1)(ix) similarly authorises remedial terms in licences but only after anti-competitive conduct has been established in another forum, highlighting that the Controller is not empowered to make those findings himself. Section 140, voids restrictive clauses in licensing contracts but cannot touch industry-wide practices such as patent pools or royalty stacking.

These provisions confine the Controller’s role to disputes about individual licences and contracts. He acts only when approached by a party, with no authority to supervise markets or pre-empt abusive behaviour. This statutory design mirrors the institutional character of the office: adjudicatory and administrative, not regulatory. As the SC explained in CCI v. Bharti Airtel Limited and Ors., “regulating” a market requires proactive oversight, sectoral expertise, and the ability to shape market structure attributes deliberately absent from the Controller’s remit. The Act acknowledges this by authorising courts to appoint scientific advisors in complex disputes, reflecting that the Controller was never intended to function as a competition regulator.

Unlike the Patents Act’s reactive, transactional tools, Section 27 of the Act grants the CCI the power to intervene in the full market context. Its scope extends from discounting of abusive practices to modifying agreements, imposing behavioural obligations and ordering structural remedies. Critically, these powers are preventive and curative: the CCI need not wait for a single licensee’s application but can act whenever systemic practices such as discriminatory licensing or tying SEPs with non-essential patents threaten competition. This breadth must address structural distortions that ripple across industries and affect consumer welfare.

This division of roles affirms the complementarity of the Patents Act and the Act. Patent law secures exclusionary rights, while competition law regulates their market exercise. In Ericsson I, the Delhi High Court this concurrency, distinguishing between legitimate monopoly rights and their misuse through supra-competitive royalties or foreclosure. By affirming parallel jurisdiction, the Court ensured that patentees remain protected in their statutory monopolies and are accountable when those monopolies are distorted into market abuse.

Way forward: Towards a harmonised framework

The challenges posed by SEPs cannot be resolved by the Patents Act alone, which is transactional and reactive, nor by competition law in isolation, which does not calibrate exclusionary rights. What is needed is a harmonised approach: the Patents Act secures the grant and validity of SEPs, while the Act disciplines their market exercise. This complementarity allows systemic abuses such as royalty stacking, discriminatory licensing, and tying to be addressed without undermining the patent bargain. A three-pronged roadmap is therefore proposed.

Mandating SEP Licensing Transparency

SEP disputes often arise from information asymmetries: over-declaration of patents as “essential,” concealment of licensing terms, and discriminatory treatment of licensees. To address this, transparency must become a structural mandate under the Act. Using its rule-making authority under Sections 64(1) and 64(2)(h) of the Act, the CCI should notify the SEP Licensing Disclosure Regulations, binding on systemically important SEP holders.

Drawing inspiration from Article 5 of the EU’s proposed SEP Regulation and Article 6 of China’s 2025 SAMR Guidelines, these regulations should require: (i) registration of declared SEPs with a publicly accessible database; (ii) independent audits of essentiality claims, and (iii) disclosure of the royalty base and methodology used in calculating licensing terms.

Importantly, this obligation should be an ongoing prudential duty, not triggered only upon initiating an investigation under Section 19. Much like prudential disclosures required of systemically important financial institutions, SEP transparency must operate as a standing regulatory guardrail.

Codifying Fair Access and Licensing Protocols

SEP holders often provide early or preferential access to favoured implementers, usually large firms with cross-licensing leverage, while delaying or denying licenses to smaller innovators. This undermines the principle of FRAND and entrenches asymmetries in market structure.

India must therefore codify SEP Access and Licensing Protocols under Section 64 of the Act, drawing from Article 6(5) of the Digital Markets Act (DMA) and the UK CMA’s FRAND guidance. These protocols should require SEP holders to: (i) publish objective criteria for determining eligibility to license; (ii) disclose whether portfolio size or cross-licensing affects royalty negotiations; and (iii) ensure non-discriminatory access to all licensees, regardless of scale.

Where discrimination becomes systemic, Section 27 must be expanded to authorise structural remedies such as royalty caps based on chipset value, unbundling of non-essential patents from SEP pools, and mandatory adherence to published FRAND commitments. Unlike the Patents Act, which can only address disputes on a case-by-case basis, Section 27’s systemic reach ensures that remedies rebalance bargaining power across the entire market.

Preventing Infrastructure Tying in SEP Licensing

Transparency alone does not prevent SEP abuse when licensing itself is structurally tied to other patents or services. In practice, SEP holders often bundle SEPs with non-essential patents or condition licenses on cross-licensing of unrelated portfolios, thereby raising barriers for smaller implementers. This conduct mirrors the tying and self-preferencing rules in Article 5(7) of the EU DMA, which prohibits gatekeepers from linking access to one core service with the use of another.

To address this, India should amend Section 3(3) of the Act to explicitly include “tying or bundling of SEPs with non-essential patents” within the category of per se prohibited agreements. By treating such licensing conditions as concerted practices, even absent an express written agreement, the law would shift scrutiny from a rule-of-reason analysis to a presumption of illegality. This would deter exploitative bundling and align Indian competition law with the emerging global consensus on SEP licensing practice