Standard Essential Patents Research Articles

Non-Discriminatory Royalties for Standard Essential Patents: Setting the Boundaries

Technical standards often implicate patented technologies. This poses a risk of patent hold-up, whereby a standard essential patent (‘SEP’) holder opportunistically exploits its market power conferred by standardization and demands excessive and possibly differential royalties from implementers of the standard. Commitments to license on fair, reasonable, and non-discriminatory (‘F/RAND’) terms imposed on SEP holders are intended to avoid that risk. Nevertheless, the practical implications of the non-discrimination (‘ND’) prong of F/RAND have become a subject of debate and litigation as a matter of contract and antitrust law. This paper seeks to answer the question: ‘To what extent is a F/RAND-committed SEP holder legally allowed to charge differential royalties to different licensees for the patented technology from the U.S. and the EU perspectives?’ It explores the meaning of the ND prong by examining IEEE, (= Institute of Electrical and Electronics Engineers) JEDEC, (= Joint Electron Device Engineering Council) and ETSI’s (European Telecommunications Standards Institute) bylaws, inspecting U.S. and EU antitrust norms, analyzing case law of the U.S. and European courts, and reviewing legal and economic arguments in the academic literature. According to the dominant perception, SEP holders are obliged to license to similarly situated licensees on similar terms. Based on the interpretations in case law and literature, it is possible for a SEP holder to charge differential royalties legally to licensees manufacturing dissimilar devices incorporating the technology, and even to licensees manufacturing similar devices when the needed transactions differ. Discrimination in royalties may also trigger antitrust liability when it is capable of harming competition, although the threshold is significantly lower in EU law than in U.S. law.

Standard essential patents – a comparison of approaches between East and West

The rapid development of the ‘New Economy’ on a global scale has brought new issues of competition law, one of them concerning the licensing of standard essential patents (SEPs). Standardization allows interoperability and compatibility and thus enhances not only static but also dynamic efficiency. However, the procedures in standard setting organizations (SSOs) may not be used to unduly restrict competition. In Asia, for example, most competition regimes have highlighted their focus on fair and free competition, making clear that the field of SEP is no exception. Recently, the competition authorities in Korea and China have concluded that a breach of ‘fair, reasonable and non-discriminatory (FRAND)’ commitments may constitute violations of their competition rules, apparently taking inspiration from the case law in the EU. Therefore, it seems overdue to look at recent developments in competition law and policies on SEP and FRAND worldwide and to enquire into the divergence and convergence of competition law in selected jurisdictions. Despite considerable differences, a common feature of all competition regimes discussed in this article is that their goal is to keep markets in the information and communication technology sector as open as possible, including – and especially – with respect to standard-setting procedures.

Injunctions in Patent Litigation Following the CJEU Huawei v ZTE Ruling (Germany)

In its landmark Huawei ruling,1 the CJEU established a process-driven framework that market-dominating holders of standard-essential patents (SEPs) must follow to preserve their right to an injunction against unlicensed implementers of the patented technology. The new 'Huawei rules' effectively replace the previous 'Orange Book Standard'2 in German SEP litigation.3 Widely perceived as patentee-friendly, it remains to be seen whether the replacement of the old Orange Book rules will tip the scales in the implementers’ favour. Although the genesis of the CJEU case – litigation with inexplicably undisputed facts between two state-owned Chinese telecom companies – may raise suspicions that the case was deliberately designed to facilitate a more implementer friendly CJEU ruling, Huawei is now the law of the land and German courts are fully embracing it. Given Germany’s continuing status as the pre-eminent forum for patent disputes,4 the implementation of the Huawei ruling by the leading German patent infringement courts (especially Mannheim and Dusseldorf) and their appellate courts is thus highly relevant for any patent practitioner.

The Effect of Competition Law on Patent Remedies

Although competition law and IP law probably pursue complementary goals, competition laws can: (i) affect remedies available for patent infringement; and/or otherwise, (ii) limit the conduct of patentees, particularly when transferring or licensing their patents. This chapter discusses the cases in which tensions between the protection of patents in complex products and the competition laws have arisen or may arise, particularly as regards the ability of owners of standard essential patents (SEPs) to monetise their patents either by seeking an injunction against implementers or by refusing to grant licences complying with previously given commitments—generally, commitments to license on fair, reasonable and nondiscriminatory (FRAND) terms. This chapter also examines potential competition law constraints on the pricing of patent licences, other licensing terms, multi-level licensing and level discrimination, patent pools, sale of patent portfolios and patent acquisitions.

The Federal Trade Commission’s Hearings on Competition and Consumer Protection in the 21st Century, Innovation and Intellectual Property Policy, Comment of the Global Antitrust Institute, Antonin Scalia Law School, George Mason University

This Comment is submitted in relation to the Federal Trade Commission’s (“FTC”) Hearings on Competition and Consumer Protection in the 21st Century. We submit this Comment based upon our extensive experience and expertise in antitrust law and economics. As an organization committed to promoting sound economic analysis as the foundation of antitrust enforcement and competition policy, the Global Antitrust Institute commends the FTC for holding these hearings and for inviting discussion concerning a range of important topics. In this Comment, we will discuss contemporary issues involving innovation, Standard Essential Patents (“SEPs”), and Fair, Reasonable, and Non-Discriminatory (“FRAND”) pricing commitments. As we move forward in an era marked by constant innovation revolving around Intellectual Property (“IP”) rights, it is imperative that the FTC recognize that these IP rights should be treated under the same analytical framework as other property rights and upheld regardless whether the setting is private licensing or FRAND commitments. Our modern law and jurisprudence are well-developed in the area of IP rights, and the reliance on IP rights in the standard-development process should not be accompanied by a move away from this well-developed body of law. In writing this Comment, we want to emphasize the importance of strong IP rights, the lack of evidence supporting the concern over holdup issues, and the need for the FTC to recalibrate priorities in the relationship between IP and antitrust.

Why Patent Hold-Up Does Not Violate Antitrust Law

Owners of standard essential patents (SEPs) are cast as villains for engaging in “patent hold-up,” i.e., taking advantage of the fact that they negotiate royalties with implementer-licensees that already have made sunk investments in the standard. In contrast to “patent ambush,” patent hold-up involves no standard-setting misconduct or harm to any competitive process, and thus cannot violate antitrust law. Commentators taking a contrary positions confuse the ends of antitrust law with its means. Antitrust law promotes consumer welfare only by protecting competition. Casting aside this core principle would expose business decisions, including ordinary price setting, to judicial oversight. Commitments made by SEP owners in the standard-setting process, however, should be enforced, and they are enforced. Without an antitrust cause of action, implementers invoke the powers of the courts to resolve royalty disputes over SEPs.

CONVERSANT WIRELESS LICENSING S.A.R.L. v HUAWEI TECHNOLOGIES CO LTD (NO. 2)

H1 Patents – European patents – Telecommunications – Standards essential patents – Infringement – Claim for determination of a global FRAND licence – Jurisdictional challenges – Justiciability – Forum conveniens – Permission to appeal – Stay of the proceedings pending appeal – Proper construction of CPR r. 11 – Whether taking steps in the action pending appeal would amount to submission to the jurisdiction – Practice – Wording of orders for directions pending appeals on jurisdiction

THE ROLE OF PATENTS IN INFORMATION AND COMMUNICATION TECHNOLOGIES: A SURVEY OF THE LITERATURE

AbstractDuring the last few decades, the number of patents in information and communication technologies has increased considerably. An increasing number of patents and the associated fragmentation of IP rights have generated a series of potentially problematic consequences. Patent thickets, royalty stacking, the emergence of patent assertion entities, increased patent litigation – particularly around standard essential patents – and the difficulties with defining fair, reasonable, and nondiscriminatory licensing terms are some of the most debated issues in the literature that we review in this paper. We devote a specific section of our survey to patent quality, currently one of the most debated issues surrounding the patent system. In our analysis, we mix theoretical and empirical arguments with a more policy‐oriented reasoning. This allows us to better position the different issues in the relevant political and economic context.

Valuation of Essential Patents in Spanish Law

This study deals with the necessary adaptation of Spanish law to the new European regulations on FRAND licenses and focuses on the valuation of the so-called standard-essential patents (SEP). From the criteria followed in the USA and UK, our regulations must adapt to the valuation system in these new cases given the lack of rules and according to the European Union legal ordering. However, a consideration of the nature of such licenses is necessary first, that American and European doctrine put in the contractual field.

Taking it to the Limit: Shifting U.S. Antitrust Policy Toward Standards Development

In November 2017, U.S. Assistant Attorney General Makan Delrahim, chief of the Department of Justice (DOJ) Antitrust Division, gave a speech at University of Southern California provocatively entitled “Take it to the Limit: Respecting Innovation Incentives in the Application of Antitrust Law”. In this speech, Mr. Delrahim announced a new DOJ policy approach to the antitrust analysis of collaborative standard setting and standards-development organizations (SDOs) -- the trade associations and other groups in which industry participants cooperate to develop interoperability standards such as Wi-Fi, Bluetooth, 4G and 5G, USB and the like. He explained that the DOJ had “strayed too far” in its focus on single firm conduct concerning standards, particularly the assertion of patents essential to the implementation of standards in technology products (“standards-essential patents” or “SEPs”), and that antitrust authorities should be more concerned with potential collusion by competitors within SDOs (i.e., an apparent shift in doctrinal focus from unilateral conduct under Section 2 of the Sherman Act to concerted action under Section 1 of the Sherman Act). One commentator described the DOJ policy shift announced by Mr. Delrahim as “a 180 degree turn” on SEP issues. The new policy also seems to put the enforcement priorities of the Antitrust Division at odds with those of the other principal U.S. antitrust enforcement agency, the Federal Trade Commission (FTC) and jeopardizes reliance of a long line of DOJ Business Review Letters outlining acceptable approaches to conduct such as forming patent pools. This article analyzes the contours of the emerging divide among U.S. antitrust agencies, as well as reactions to the “Take it to the Limit Speech” by industry, academics and Mr. Delrahim’s subsequent public statements.

Mapping standards to patents using declarations of standard‐essential patents

AbstractThis paper describes a new database of declared standard‐essential patents (SEPs), discusses methods for matching declared SEPs to specific standard documents, and presents empirical evidence on technology standards subject to declared SEPs. Although there is a growing body of empirical research using data on declared SEPs, this research has so far focused on the declared patents, and neglected the implications of SEP declarations for specific standards. Furthermore, we present a new methodology for matching standards with technology classes, using the classification of declared SEPs. This method allows identifying other standard‐related patents, and provides information on technological relationships between standards and standard‐related patenting. The paper discusses opportunities for new empirical research using databases of declared SEPs and data on patenting in standard‐related technology classes.

Technology Standards and Standard Setting Organizations: Introduction to the Searle Center Database

AbstractThis paper describes the Searle Center Database on Technology Standards and Standard Setting Organizations (SSOs). This database combines comprehensive information on technology standards, SSO membership, and SSO characteristics in a format designed for economic research. In particular, the database includes data on quantifiable characteristics of 797,711 standard documents issued by 615 SSOs, institutional membership in a sample of 191 Standards Organizations, and the rules of 36 SSOs on standard adoption procedures, standard‐essential patents (SEPs), participation, and openness. Using the Internet Archives, we track both institutional membership and the SSO rules and procedures over time since the inception of the Archives in 1996. We identify 67,417 entities participating in at least one Standards Organization. The paper describes how to combine these data with other new databases on standard‐related patents and standardization processes at 3GPP; and sketches avenues for empirical research.

International protection of standard essential patents

Technical standards in the mobile communications industry have been developed from national to regional and from regional to global. In the current era, global standards in the industry have enabled the formation of a single global market. However, because standard essential patents (SEPs) are territorial given the nature of the patent system, they can function as an opportunity or a threat depending on whether or not they are protected in countries of interest. This paper investigates how W-CDMA and LTE SEPs are globally distributed. From the analysis, the current study discovers SEP owners' strategies, future opportunities, and threats in their international businesses.

이동통신 분야 기업의 표준기술 특허 포트폴리오 분석

이동통신 분야 기업의 표준기술 특허 포트폴리오 분석

A cost‐based approach for calculating royalties for standard‐essential patents (SEPs)

We propose and discuss a novel approach for calculating FRAND royalties based upon average total cost per patent plus a reasonable return for the patent holder. Our approach relies upon principles common in regulated industries such as telecommunication networks. Compared to existing approaches that use net sales or fractions thereof as the basis for royalty calculation, our approach has the advantage of arriving at an estimate for FRAND royalties without the need to rely upon comparable licensing transactions. Thus, our approach helps to more accurately define royalty ranges that are FRAND compliant.

The FRAND Contract

Government agencies in various countries have issued guidelines to facilitate private negotiation to license the use of standard-essential patents (SEPs) that a patent holder has voluntarily committed to a standard-setting organization (SSO) to offer to license on fair, reasonable, and nondiscriminatory (FRAND) terms (or on reasonable and nondiscriminatory (RAND) terms, as the case may be) to a third-party seeking to implement the standard. In effect, these jurisdictions are competing in a tournament of sorts to identify the best legal framework for resolving FRAND licensing disputes. A leading candidate is the existing body of U.S. contract law. In this article, I examine the FRAND licensing of SEPs through the lens of U.S. contract law.1 I will eschew the phrase “FRAND commitment” in favor of the bulkier but more precise phrase “the FRAND contract between the SEP holder and the SSO.” That terminology helps to clarify that the license agreement potentially formed between the SEP holder and the implementer on FRAND terms is a separate, subsequent contract that is entirely distinct from the preexisting contract into which the SEP holder and the SSO have entered. I begin by asking in Part I whether the FRAND contract is enforceable. U.S. courts have found that it is, yet commentators, courts, and other tribunals have flagged various theories of unenforceability when analyzing a FRAND commitment as a contract. In Part II, I analyze the anatomy of the FRAND contract, as informed by first principles of U.S. contract law. Whether, with respect to a given implementer, a given SEP holder has discharged its FRAND duty to the SSO turns on whether the SEP holder has offered to license its SEPs to that implementer on FRAND terms. An implementer loses its rights as a third-party beneficiary of the SEP holder’s FRAND contract with the SSO if the third-party beneficiary rejects a FRAND offer or if it fails to accept that offer within a reasonable time. By underscoring the applicability of these fundamental principles of U.S. contract law, judges, arbitrators, and other decision makers would encourage both the SEP holder and the implementer to avoid dilatory tactics and orthogonal bargaining positions when negotiating license terms for the use of SEPs. In Part III, I examine some of the frameworks that other countries have recently proposed for guiding negotiations for SEPs. Although these frameworks supposedly identify principles that would facilitate the license negotiation between an SEP holder and an implementer of an industry standard, they ignore the relevance of first principles of contract law. Instead, they try to reinvent the wheel—by fashioning a sui generis bargaining protocol for SEP license negotiations that ignores the transactional efficiency of preexisting contract principles of offer and acceptance. These proposals are unlikely to be more efficacious than U.S. contract jurisprudence in defining a clear protocol that encourages the expeditious execution of bilaterally negotiated FRAND licenses. In Part IV, I offer preliminary observations on how a given SEP holder and a given implementer might agree to opt out of the FRAND contract so as to create a superior structure for concluding their bilateral negotiation of a license or, in the event of an impasse, for achieving a more expeditious and cost-effective resolution of their dispute.

Standard Setting Organisations and Standard Essential Patents: Voting and Markets

The analysis provides conditions under which standard setting organisations (SSOs) choose efficient technology standards. I introduce a two-stage game with both voting and market competition. In equilibrium, standards and market outcomes are efficient even with market power from scarce capacity and standard essential patents (SEPs). I show that a drastic innovation with SEPs generates greater social welfare than a less efficient standard without SEPs. A key finding is that voting power and market power have counterbalancing effects. The discussion helps explain empirical observation of differences in SSO voting rules, intellectual property (IP) rules, membership and alliances.

IP licences and agreements: recent developments

... This article seeks to provide an overview of a number of developments within the last year or so regarding IP licences and agreements, with a focus on (the somewhat surprisingly high number of) cases that have come through the UK courts. Some of the cases reported below involved IP agreements, but some do not (however, many of the principles from these cases have broader application for IP-related agreements across the life sciences, TMT and other sectors). Topics covered below include whether third party option rights under a licence agreement affect exclusivity for patent standing, and who is liable when obligations are performed in line with an agreed standard which subsequently was found to be incorrect. We will also briefly review a case which illustrates the willingness of the UK courts to rule on infringement of foreign patents in the context of licence disputes, and a number of cases that provide a refresher on the basic principles of contractual interpretation as adopted by the UK judges when interpreting provisions in IP agreements. We will also touch upon the first assessment by the UK court of a fair, reasonable and non-discriminatory (FRAND) rate for a licence of standard essential patents (SEPs).

Reflection and Improvement on the Injunctive Relief Legislation of Standard Essential Patents

Since standard essential patent（ SEP”）is a special result of mutual combination of patent and standard, and both the connotation and enforcement of SEP are significantly different from that of general patents. Injunction is an essential remedy enjoyed by patentees to assert their own legal interests through the patent law. Nevertheless, when it comes to SEP, the traditional principle that injunction must be issued” might lead to patent hold-up”, breach FRAND commitment, or even endanger public interests. So it is necessary to limit injunction of relief SEP patentees rationally. Till now, in order to solve the international problem of injunction abuse by SEP holders, Chinese legislators have promulgated restrictive rules of injunction relief in relation to SEP. However, when reflecting on these laws and regulations, we could find that the newly-established system still comes with some flaws: firstly, current rules are only applicable to some standards, and some rules concerning the same content differ from each other significantly; secondly, the expression of relevant rules is vague and there might be contradiction between some provisions; thirdly, some provisions provide over-protection for rights and interests of SEP users, while public interests are ignored. It is no doubt that, acting as the direct legal basis of injunction issuance, the flaws mentioned above would seriously damage the enforcement effect of this system, which is against original intention of the legislators. It is in urgent need of modifying and improving the current rules so as to provide guidance for relevant parties to stick to FRAND commitment, to negotiate in accordance with principle of honesty and credibility and prevent patentees or users from seeking unjust benefits through making use of injunction relief, so as to unit good law” and well governance”. To be more specific, firstly, two pre-conditions shall be made clear from macro perspective, namely roles played by patent law and anti-monopoly law respectively should be clarified: the former is responsible for the adjustment to seeking injunction relief behavior which is inconsistent with the purpose of injunctive relief system, and aims at the balance of interests between SEP patentees and users, while it focuses on social public interests too; in order to maintain fair competition in the market, the latter is required to regulate abuse injunction relief right to eliminate or restrict competition. Secondly, as patent implied license make it hard for the patentees to obtain incentive rewards, it is necessary to avoid this practice. Finally, requirements for SEP patentees and users to obtain injunction and resist injunction shall be listed respectively. The obligation of FRAND license shall originate from relevant statement made by the patentees instead of compulsory laws or regulations. Last but not least, it shall make involved type of standard as reference for whether issuance of an injunction would bring any effect to public interests and how serious the effect would be.

International Trade Commission Exclusion Orders for the Infringement of Standard-Essential Patents

A patent holder whose U.S. patents have been infringed may seek redress for patent infringement from the U.S. International Trade Commission (ITC) under section 337 of the Tariff Act of 1930. Section 337 authorizes the ITC, among other things, to investigate and bar from entry into the United States products that infringe a valid and enforceable U.S. patent. A holder of standard essential patents (SEPs) that has committed to license its SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms typically retains the right to file a complaint with the ITC. However, as of early 2016, no SEP holder has been able to enforce an exclusion order against an infringer of SEPs. Limits on the availability of exclusion orders for SEPs have largely arisen from concerns that that remedy might facilitate patent holdup. In 2013, President Obama, acting through the U.S. Trade Representative (USTR), echoed those concerns in vetoing an exclusion order that the ITC had issued against an infringer of SEPs on the grounds that the exclusion order would not serve the public interest. The USTR instructed the ITC to examine, in future investigations, whether there is evidence that patent holdup or holdout has occurred. However, a detailed analysis of the ITC’s patent decisions shows that the ITC considered those allegations even before President Obama’s veto. In addition, the ITC’s decisions issued since President Obama’s veto have confirmed that, even after examining evidence of patent holdup, public interest considerations will not necessarily weigh against the issuance of an exclusion order. Raising concerns about the theoretical risk of patent holdup and presenting unsupported allegations about the violation of a FRAND commitment will be insufficient to advise against the issuance of an exclusion order. In this article, I examine the evidence that should inform the ITC’s decision in investigations concerning SEPs. I explain that, to the extent that the ITC needs to consider patent holdup in its public interest analysis, the ITC should determine whether the SEP holder has made a FRAND offer to the respondent. If the SEP holder has extended a FRAND offer, any argument that the SEP holder is attempting to extract compensation above the boundaries of its FRAND commitment becomes moot. It is irrelevant, for the purposes of the ITC investigation, why the respondent failed to accept the SEP holder’s FRAND offer.