Top 10 Things to Know About Standard Essential Patents (SEPs)

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A robust innovation system such as the one existing in the U.S. is underpinned by a framework of rules and policies that encourage, support, and protect the invention and commercialization of new technologies. The interactive and symbiotic tech world we live in necessitates the existence of shared platforms that endorse interoperability and offer comprehensive solutions to customers. Protecting the IP Rights of an innovator while maintaining connectivity is made possible by Standards. Below we explore the top 10 themes for a better understanding of SEP issues. 

Table of Contents

Definition of SEPs 

Per the Thomson Reuters Practical Law, SEP is defined as “a patent claiming technology that is essential to an industry standard’s use.” The ‘standards’ referred to here result from technical specifications for precise technologies.

They are common practice in the mobile-wireless and telecommunications industry, Artificial intelligence, Internet-of-Things, and other emerging fields in technology. Given their core importance, SEPs are governed by special licensing rules called FRAND rules or Fair, Reasonable, And Non-Discriminatory licensing. 

Role of SSOs 

Standard Setting Organizations, also referred to as Standard-Development Organizations are tasked with developing, reviewing, reissuing, organizing, adjusting, and promulgating the industry standards for a specific tech that will be adopted for the manufacturing of products and services.

These organizations may be private/quasi-governmental or governmental in nature. SSOs mandate its members to reveal any patents or patent applications that may fall under the purview of SEP issues. 

Licensing of SEPs 

Unlike regular patents, SEP licensing does not follow any set guidelines or terms. While SEP Standards may be determined by SSOs or standard-setting organizations, they are not involved in licensing or negotiations.

Once a patent is declared as SEP, licensing is based on good-faith negotiations between SEP holders and license seekers, subject to being within the aegis of FRAND commitments. Companies usually negotiate licenses without litigation, based on mutual trust. 

What is FRAND? 

FRAND stands for fair, reasonable, and non-discriminatory and is used in the context of licensing of SEPs. Once a SEP is declared, the owner is obligated to license the technology to other implementers in accordance with the FRAND terms. These terms originated to promote the sharing of technology while preventing exploitation or infringement. In the EU, a failure to license an IPR on the terms of FRAND amounts to a breach of anti-trust laws. 

Is Licensing Mandatory? 

Licensing a SEP is a contract that requires consensus on part of both parties. Therefore, neither courts nor SSOs are qualified to force a licensor to sign an agreement or the implementer to agree to the terms. 

Dispute Resolution 

Since FRAND is a broad term, there is no point of reference as to what is fair, reasonable, or non-discriminatory. This sometimes leads to differences between the licensor and the license seeker. This breakdown in negotiations can be decided by arbitration or litigation in a court of law. In most cases, the royalty fee amount is the bone of contention in reaching an amicable agreement. 

Is an Injunction a Possibility? 

When it comes to patents, the court can order injunctions that prevent the infringing products from entering the market, giving patent owners injunctive relief. In the case of SEPs, if the parties fail to reach an agreement, the owner of the SEP has the right to approach a court and avail injunction to compel the implementer to get a license. In Europe, an injunction related to a SEP may be granted if the patent owner has offered FRAND license terms and they are not acknowledged. 

Involvement of Courts 

In the UK, courts will grant an injunction to stop infringement on UK SEPs except when the license seeker is willing to sign a global license pertaining to the worldwide portfolio of the license owner.

The German courts too are more inclined to support the patent holders. In the U.S, the Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (“2019 Statement”) professed jointly by the Department of Justice (“DOJ”), United States Patent and Trademark Office (“USPTO”), and the National Institute of Standards and Technology (“NIST”) emphasized the importance of injunction relief to maintain a balanced patent. 

Anti-Competition Stance 

SEPs are extremely powerful patents are there may be cases wherein the owner is abusing his powers. In such cases the implementer can approach the court or relevant authorities citing anti-competitive position. However, the precedence in European Courts towards such appeals has mostly been in favor of patent owner. 

Summing up SEP issues

Once a SEP is recognized, it becomes compulsory for everyone to adopt the technology to meet the set standards. This drives up the bargaining power of the holder and may sometimes result in non-consensus with license seekers. This is where the FRAND guidelines come into the picture to prevent monopoly. However, as we have seen, the FRAND terms are very subjective and vague and court decisions are inclined towards the patent holder.

The method of royalty calculation is skewed towards the licensor and is sometimes very unfair to the implementer. SEP holders follow the practice of charging a royalty on the net sale of the final product rather than just the patented part which causes distress on the implementer’s part.

An injunction is an authoritative tool in the hands of the patent owner. They may force the license seekers to accept royalty terms or face an injunction that could prevent them from accessing the tech.  

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