Patents allow inventors to lawfully prohibit others from using, manufacturing, or selling an invention. They are exclusive and grant monopolistic rights to the owner. These circumstances, however, are transformed in the case of Standard Essential Patents (SEP). While these are more powerful than patents, they are also more inclusive. Let us understand how patents can be declared SEPs and the benefits they accrue.
A SEP is a patent that claims an invention that must be used to fulfil a technical standard. They are instrumental in protecting the core technology of an industry and making it available to all under fair circumstances. They are especially essential for the global application of technology. While the SEP trend is most notable in the telecommunications sector, the pervasive nature of technology is gaining them importance in other sectors as well. Wi-fi and Bluetooth are examples of SEPs.
Standards are set by Standard Setting Organizations (SSOs) or Standard Development Organizations (SDOs). These are bodies comprising notable companies in the sector, who collectively decide which of the member’s patents qualify to become a standard.
The onus to declare a SEP rests on the inventor. If they feel that their invention is critical in standard setting then they can approach the relevant SDO and declare the patent. In European Telecommunications Standards Institute (ETSI) for example, anyone who wishes to declare a patent must submit a declaration along with the standard/specification number and the patent application or publication number. The Declaration must be duly filled and verified before submission. Once submitted, the SSO declares a patent as SEP. SEPs must be declared by companies at the earliest in order to benefit monetarily from licensing revenues. All SEPs can be found on the database of the concerned SSO.
The patented technology or process that becomes essential to an industry standard must be implemented by every company in their products. In order to do so, they must seek a license from the inventor. The licensing of SEPs is the opportunity for inventors to retrieve the expenses on R&D and get awarded for their time and effort. Terms of licensing are usually decided based on FRAND (Fair Reasonable and Non-Discriminatory) terms. FRAND refers to the mutual and voluntary agreement between the SEP holder and SSOs for the fair licensing of the SEP to other companies.
While FRAND exists to create a sense of balance and prevent monopolistic tendencies, it is not legally enforceable. There is no regulatory agency to ensure that the SEP holder is adhering to FRAND terms. Any disputes concerning SEP licensing are presented in a court of law.
SEPs are powerful patents which give a tremendous boost to a company’s Intellectual Property portfolio. As a result, everyone wants to add SEPs to their IP assets. This leads to companies declaring even non-essential patents as essential in the hope to benefit from the advantages. Since there is no objective ‘test’ for essentiality, this leads to an over-inflation or over-declaration in the patent landscape. Mass declarations are also caused by lenient SSO policies, expensive cost of essentiality checks, and huge undeclaration penalties.
Over-declaration of SEPs is a lacuna that causes inefficiencies in patent licensing as well as litigation. It leads to an artificial price hike in licensing agreements and can hamper creativity and innovation, thereby proving detrimental to the very idea behind granting patents.
Once a technology is declared as a standard, every standard-compliant goods manufacturer needs to incorporate it into their product. The licensee approaches the SEP holder and both negotiate the fee and conditions of using the technology. These negotiations are expected to be based on FRAND terms so that both parties are able to draw optimum benefits. The FRAND terms are created with the goal to increase transparency, predictability, and facilitate smooth negotiations between the implementers and license holders.
“Hold-ups” are a common phenomenon in SEP license agreements. A ‘hold-up’ occurs when the implementers are forced to accept disadvantageous terms from the SEP holder. The SEP holder may threaten the license seeker with an injunction over the infringement of patent rights. The other side of the coin are “hold-outs”. In a “hold-out”, the implementer delays or rejects negotiations in the hope that the infringement injunction will be denied in court, and they will be able to get terms that are more favourable to them. Both these unscrupulous methods taint the spirit of healthy competition and ethics in business.
The role and importance of standards is increasing with each passing day. The globalization of commerce, the rise of new technologies, and the need for interoperability make standards a vital aspect of development. They are instrumental in creating enhanced machines and processes. The sharing of knowledge and patent portfolios opens the doors to greater opportunities, innovation, and creativity that can immensely benefit humankind. Standards and patents have the ability to transcend boundaries and sectors. In this sense, SEPs will play a pivotal role in the near future.
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