Standard Essential Patents Research Articles

The Study of Estimation of Reasonable Royalty Rate in Respect of Standard Essential Patents

The Study of Estimation of Reasonable Royalty Rate in Respect of Standard Essential Patents

The Ways We've Been Measuring Patent Scope are Wrong: How to Measure and Draw Causal Inferences with Patent Scope

This paper presents an easy-to-use measure of patent scope that is grounded both in patent law and in the practices of patent attorneys. We validate our measure by showing both that patent attorneys’ subjective assessments of scope agree with our estimates, and that the behaviour of patenters is consistent with it. Using our validation exercise, we find that previous measures of patent scope (i.e. the number of patent classes, the number of citations made by future patents, and the number of claims in a patent) are uninformative or misleading. To facilitate drawing causal inferences with our measure, we show how it can be used to create an instrumental variable, patent examiner Scope Toughness, which we also validate. We then demonstrate the power of this instrument by examining standard-essential patents. We show that an (exogenous) diminishment of patent scope leads to patents being much less likely to be declared standard-essential.

Alternative Remedies in Standard Essential Patents Disputes

The possibility to seek and obtain injunctions for the infringement of Standard Essential Patents (SEPs) is limited in both the US and the EU. The reasons for restricting the use of injunctions is due to concern of patent holdup, i.e. the possibility of SEP holder to force standard-implementers to accept onerous licensing terms, exceeding patent’s true economic value, as well as seeing injunctions as incompatible with the commitment given by the patent holder that it will license its SEPs on fair, reasonable and non-discriminatory (FRAND) terms. Limiting the use of injunctions by SEP holders may enable implementers to engage in a holdout, i.e. delaying taking a license for as long as possible, forcing the patentee to engage in expensive and protracted litigation in order to settle for below FRAND terms. Instead of focusing on injunctions, courts may use some procedural remedies in SEP disputes to restore the balance between the interests of patent holders and implementers. Courts could, at the beginning of the trial, order the defendant to make interim payments into escrow, or provide another type of security, reflecting the value of SEP holder’s whole portfolio, and not just for the patents in the litigation. Once interim payments are in place, courts may separate patent and FRAND issue and try patent issues first, as such could provide parties a sense of the overall strength of the SEP portfolio. Courts may adjust the level of interim payments, after patent issues have been resolved, by setting the higher amount if most of the patents have been confirmed valid and infringed or, conversely, lower the amount if most of the patents have been found to be invalid and non-infringed. Interim payments could therefore secure the interests of SEP holders and make holdout strategy more costly, while at the same time dispense the need for injunctions and mitigate the concern about holdup.

Comment of the Global Antitrust Institute, Antonin Scalia Law School, George Mason University, on the Communication from the Commission on Standard Essential Patents for a European Digitalised Economy

This comment is submitted by the Global Antitrust Institute (GAI) at Scalia Law School at George Mason University in response to the Communication from the Commission on Standard Essential Patents for a European Digitalized Economy. The GAI Competition Advocacy Program provides a wide-range of recommendations to facilitate adoption of economically sound competition policy, including how to analyze antitrust matters involving intellectual property rights and standard-essential patents.

Smallest Salable Patent Practicing Unit and Component Licensing - Why 1$ is Not 1$

The Smallest Salable Patent Pricing Unit (SSPPU) is a valuation method used by courts and some Standard Setting Organizations (SSOs) as a preliminary step towards the calculation of fair, reasonable and non-discriminatory (FRAND) royalties for licenses over Standard-Essential Patents (SEPs). Under SSPPU, royalties should reflect the value added to the smallest salable component implementing the patented invention. In this paper, we discuss plans to convert SSPPU into a pricing rule that not only assists the assessment of SEPs added-value, but also forces the specification of royalties terms as a share of component costs in SEP licensing negotiations (I). We call this rule SSPPU , and show that it distorts the distribution of surplus between SEP owners and implementers by laying down a hidden revenue-cap on standardized technologies (II). We then predict that the distributional effect of SSPPU may be accompanied by adverse efficiency effects when SEPs cover General Purpose Technologies (“GPT”) (III). This pleads against a generalization of SSPPU at early standardization and negotiation stages.

Over-Declaration of Standard Essential Patents and Determinants of Essentiality

Not all Standard Essential Patents (SEPs) are actually essential – a phenomenon called over-declaration. IPR policies of standard-setting organizations require patent holders to declare any patents as SEPs that might be essential, without further SSO review or detailed compulsory declaration information. We analyze actual essentiality of 4G cellular standard SEPs. A declaration against a specific technical specification document of the standard is a strong predictor of essentiality. We also find that citations from and to SEPs declared to the same standard predict essentiality. Our results provide policy guidance and call for recognition of over-declaration in the economics literature.

Protecting Intellectual Property Rights Abroad: Due Process, Public Interest Factors, and Extra-Jurisdictional Remedies

Several recent antitrust investigations involving the licensing of intellectual property rights (IPR) have raised concerns about fundamental due process and the alleged use of industrial policy in antitrust investigations to lower royalty rates, particularly for standard-essential patents (SEPs), in favor of local implementers. These concerns raise serious problems for innovation, economic growth, and consumers, and are likely compounded by the use of extra-jurisdictional remedies whereby one agency imposes worldwide portfolio licensing remedies, including on foreign patents, for conduct that may be deemed procompetitive or benign in other jurisdictions, which may facilitate a lowest-common denominator approach.

Why SEPs have been involved in Antitrust Cases – From A Chinese Scholar’s Perspective

Abstract If patents have been included in a technical standard and thus have become standard essential patents (SEPs), the SEP holders normally have to commit to the Standard Setting Organization (SSO) to license their SEPs on fair, reasonable and non-discriminatory (FRAND) terms. Although the FRAND commitments already put constraints on the patentees, more and more disputes over FRAND licensing fees involving SEPs are reaching antitrust enforcement agencies and courts, perhaps due to the fact that the FRAND commitments are often not workable. As demonstrated in the case Huawei v. IDC in Chinese courts, SEPs have special characteristics compared to non-SEPs, i.e. the licensing of SEPs relates more to the public interest, the holders of the SEPs may be thought to have dominant positions in the licensing market of their SEPs, the holder of the SEPs often have made commitments to license on the FRAND terms, and the holder of the SEPs should be allowed to use the injunctive relief only in limited circumstances. This article also proposes that Article 55 of the Chinese Antimonopoly Law (AML) should be reconsidered because it exempts the undertakings who exercise their IPRs in accordance with the laws and administrative regulations on IPRs from the application of the AML. However, as this article shows, the excessive royalty requested or the injunction sought by the holder of SEPs may not violate the patent law, but nonetheless may violate the antitrust law.

THE FALLACIES OF PATENT-HOLDUP THEORY

Patent-holdup theory avers that the patent system threatens the rate of innovation in the U.S. economy, particularly in information technology industries that are heavily reliant on standard-essential patents. We show that arrays of empirical tests falsify the core predictions of the theory. We therefore examine the logic of patent-holdup theory. We show that patent-holdup theory conflates two mutually inconsistent economic mechanisms: holdup (the appropriation of a quasi rent) and the exercise of monopoly power (to set the market price to extract a monopoly rent). Moreover, three fallacies underpin patent-holdup theory: (1) that patent holdup is a straightforward variant of holdup as it is understood in transaction-cost economics; (2) that royalty stacking is holdup repeated multiple times on the same product; and (3) that standard-essential patents contribute little or no value to the markets they help create. These fallacies give rise to a theory that is logically inconsistent and incomplete, and that ignores economic fundamentals. The flaws in logic of patent-holdup theory, and its lack of fit with the evidence, suggest that a new theory about the mechanics and dynamics of SEP-intensive IT industries is called for, both as a matter of science and as a guide to antitrust and patent policies.

The 'Huawei v. ZTE' Judgement and Follow-On Application of Article 102 TFEU in the Light of this Judgement by German Courts

This paper discusses a judgement of the Court of Justice in re Huawei v. ZTE rendered on 16 July 2015 providing binding interpretation of Article 102 TFEU. This judgement concerns an abuse of dominant position by bringing an action for injunctive relief and/or the recall of goods from distribution by an owner of a standard essential patent who made prior FRAND commitment. Many controversies in the ICT industry as well as in Academia appeared on how to approach the interpretation of this groundbreaking judgement. The author suggests interpretation capturing a broad spectre of anti-competitive effects and thus make the best use of this judgement in the interest of prevention of stakeholders' opportunistic behaviour. A key part of this paper is formed by an analysis of German follow-on case-law applying Article 102 TFEU in the light of the Huawei v. ZTE judgement. The author concludes, inter alia, that German courts´ assessment of an abuse of dominant position is strongly focused on application of the so-called Huawei steps. For the future, the author advices to base the decisions more on persuasive theory of harm and support them by evidence of (potential) anti-competitive effects. As for the practical implications of the German follow-on case-law, one may observe a shift from the previous case-law based on the Orange Book Standard decision in some aspects. Since Germany is an important patent litigation destination, stakeholders from the ICT industry will attentively follow the development of FRAND-related case-law originating from German courts and possibly adapt their behaviour accordingly.

Who needs injunctions? Alternative remedies in standard essential patents disputes

Who needs injunctions? Alternative remedies in standard essential patents disputes

Computer-supported portfolio analysis and comparison using ontology-based patent classification mapping scheme: the case of mobile communication patent pools

Mobile communication patents must conform to LTE-Advanced (called fourth generation or 4G) specifications to be categorized as LTE-A standard essential patents (SEPs). Global LTE-A patent pools, such as Sisvel and Via Licensing, collect SEPs from patent assignees, facilitate the SEP licensing processes, and provide fast-forward technical solutions to licensees. This research develops a computer-supported ontology-based patent classification (ontology-IPC) mapping scheme. Two major LTE-A patent pools (Sisvel and Via Licensing) and a national research project pool provide the case study. The research methodology defines the patent pool profiles using visualization maps for collaborative SEPs licensing and provides critical data to avoid re-inventing technologies and infringing upon existing intellectual property. The research enables mobile network and device developers to work cooperatively to develop fast, dependable, and interoperable products and services. The ontology-IPC analysis of the data demonstrates the approach's versatile application to support national project research reviews.

The Huawei Case and Its Aftermath: a New Test for a New Type of Abuse

Competition law sets limits on the exercise of intellectual property rights by dominant companies, namely in cases involving standard essential patents (SEPs). This article will examine the framework for SEP owners’ right to seek an injunction, discussing competitive problems that such situations may cause as well as the solutions adopted by the European Institutions, comparing them with the US and Japanese approach, and finally reflecting upon the opportunity for a new test for a new type of abuse. Although the three legal orders – US, EU and Japan – apply different laws establishing a general presumption against injunctions in SEPs encumbered with FRAND commitments, their goal is the same: to protect the interest of the SEP holder to obtain a remuneration without an abusive recourse to injunctions. I will argue that, in the EU, the Huawei case created a new test for a new type of abuse, improving the comprehensibility and certainty for the companies involved in standardization across Europe and allowing the harmonization of national judicial solutions regarding the seeking of injunctions in the SEPs context. In spite of some uncertainties, the new test clarifies the role that competition rules should play in cases of abuses by SEPs owners

Hedonic Prices and Patent Royalties

A hedonic model explains a good’s price in terms of its characteristics. In this article, we use hedonic prices to estimate the permissible range for a reasonable royalty for a standard-essential patent (SEP) subject to its owner’s commitment to offer to license the patent on reasonable and nondiscriminatory (RAND) terms. Our methodology is equally applicable to the calculation of fair, reasonable, and nondiscriminatory (FRAND) royalties for SEPs. Hedonic price analysis provides a scientifically rigorous means to satisfy the Federal Circuit’s directive in Ericsson v. D-Link to disaggregate the value of having a standard of any sort from the incremental value of the chosen standard, and then to disaggregate further the incremental contribution that a given SEP or portfolio of SEPs makes to the overall value of the technologies that allow the chosen standard to operate. The common additive form of the hedonic regression model is the most appropriate econometric model to meet that directive. When implemented in an appropriate and thoughtful way, hedonic price analysis provides an expert economic witness — and, ultimately, the finder of fact — with a reliable methodology to determine whether a given license offer satisfies the reasonableness requirement of a RAND or FRAND commitment. If asked or required to set a specific RAND or FRAND rate for a specific portfolio of SEPs, a court or arbitral panel could take our analysis one step further, by determining where within the RAND or FRAND bargaining range a bilaterally negotiated royalty between the parties would most likely fall. Hedonic price estimation can also inform the calculation of a reasonable royalty in conventional patent litigation that does not involve standard-essential patents. Consequently, the use of hedonic price estimation is a conceptual breakthrough in the calculation of reasonable royalties for patent infringement, both for SEPs subject to a RAND or FRAND commitment and for patents that are not declared essential to any standard.

The Legal Framework for SEP Disputes in the EU Post-Huawei: Whither Harmonization?

This article revisits the antitrust treatment of unilateral conduct in Standard Essential Patent (SEP) disputes in the EU, with particular focus on the landmark CJEU judgment in Huawei v ZTE and the way it has affected subsequent developments before national courts. It explains that while the court in Huawei significantly improved legal certainty both for SEP holders and their potential licensees, it also left open a number of crucial questions affecting everyday licensing practice. First, it is not entirely clear whether the liability of an SEP holder presupposes leveraging by a vertically integrated firm or can also arise in purely vertical or horizontal relationships. Secondly, the safe harbour procedure formulated in the judgment begs important questions concerning burden of proof and portfolio licensing, which have given rise to divergent interpretations. It follows that the space remains wide open for competing national and even regional approaches to the rights and obligations of SEP holders, calling for further European harmonization—be it judicially, legislatively, or administratively through the European Commission. In support of the latter measures, the article illustrates the limited remit of EU private international law rules in preventing the forum shopping which is likely to unfold as a result of a fragmented landscape for the resolution of SEP disputes, and the limited ability of the Unified Patent Court to ameliorate the associated fragmentation a.nd coordination problems.

Fair and Unfair Discrimination in Royalties for Standard-Essential Patents Encumbered by a FRAND or RAND Commitment

Legal disputes between SEP holders and implementers regarding FRAND or RAND royalties for SEPs have increasingly focused on the meaning of the nondiscrimination requirement contained in a FRAND or RAND commitment. However, as of August 2017, there is no agreement on the precise duties arising from such a requirement. The legal and economic literature has proposed divergent, and mainly normative, interpretations of the nondiscrimination requirement. Some commentators say that the nondiscrimination requirement prohibits the SEP holder from excluding individual implementers from using its SEPs, but that the requirement does not limit the terms and conditions that the SEP holder may offer to different licensees. Others say that the requirement imposes on the SEP holder a duty to offer similar terms to similarly situated implementers—although, even then, there is no agreement on how to implement the “similarly situated” construct in practice. The most misguided and unhelpful interpretation in that literature comes from economic scholars who contend that the nondiscrimination requirement imposes on the SEP holder the duty to create and maintain a “level playing field” among the SEP holder’s licensees. The majority of these proposed interpretations rest on normative expressions of what the nondiscrimination requirement should be, as opposed to positive principles of what that requirement is. Thus, they are limited in their ability to guide a court’s interpretation of the nondiscrimination requirement in the FRAND or RAND commitment at issue in a given dispute. If American law controls the interpretation of the obligations arising from an SEP holder’s FRAND or RAND commitment, there exists a rich positive jurisprudence on nondiscrimination that provides common principles that can aid a court’s interpretation of an SSO’s nondiscrimination requirement. Those principles, which are consistently applied across various fields of law, suggest that evidence that the SEP holder has treated similarly situated implementers differently is necessary but insufficient to prove that the SEP holder has violated the nondiscrimination requirement of a FRAND or RAND commitment. The court must also examine whether the SEP holder had a valid justification for the differential treatment of similarly situated implementers. Economic analysis can help a court to determine whether (1) the claimant is situated similarly to other implementers, (2) the SEP holder has treated the claimant differently, and (3) a valid justification exists for any differential treatment. A finding of impermissible discrimination is supportable only when the SEP holder lacks a legitimate justification for the disparate treatment of similarly situated implementers.

Patent Holdup and Holdout Under the New IEEE's IP Policy: Are These Breaches of Competition Law?

There is a large body of legal and economic literature on standard-essential patents (SEPs) and competition law that focuses on the availability of injunctive relief and strategic behaviour of SEPs’ holders. There is much less literature on the role of standard-setting organisations (SSOs) and their IP policies.In 2015 the Institute of Electrical and Electronics Engineers (“IEEE”), one of the most relevant SSOs active in the ICT sector, has significantly modified its IPRs policy with an effort to better clarify the “reasonable and non-discriminatory” (“RAND”) commitments that SEPs’ owners are supposed to accept through the submission of a letter of assurance (“LOA”).SEP holders and purchasers of technology have traditionally experienced issues in agreeing on what is fair, reasonable and non-discriminatory and courts have had similar problems in developing rules on this. This has caused debate on whether SSOs can do more on making FRAND more concrete. Eventually, IEEE has done so with its new IP policy and this reform has raised tension between parties on a number of issues related to the licensing conditions of SEPs, endangering the development of new technologies and technical standards.The purpose of this paper is to answer a number of questions arising from the adoption of IEEE’s new IP policy:1. Are the new IEEE’s IP policies in line with EU competition law, insofar as they provide companies involved in negotiating SEPs with a definition of “reasonable royalty” which may influence decisions on price?2. If a component maker asks for a licence to the SEP holder, would the SEP holder be obliged to grant it under the updated IEEE’s IP policy, so incurring in the exhaustion of its rights under the exhaustion doctrine and in a potential financial loss? 3. Will SEP holders that refrain from submitting a LOA be liable under competition law if they refuse to license to component manufacturers or if they restrict the scope of the licence?

EU Competition Law Analysis of FRAND Disputes

This paper describes the degree of obligation created by a FRAND commitment on the holders of a Standard Essential Patent (“SEP”) from an EU competition law perspective. It shows that the EU courts case-law does not seem supportive of the reading of FRAND as a distributional, pricing commitment. Instead, it views FRAND as a soft commitment device, designed to promote cooperation and exchange amongst independent firms. This is apparent in the Huawei v ZTE judgment, which conveys an invitation on both SEP holders and unlicensed implementers to follow basic procedural requirements in licensing talks. In addition, the paper contributes to the debate on the legal applicability of Article 102 TFEU to SEP holders other than practicing entities. Last, the paper discusses if Standard Setting Organizations (“SSOs”) ex ante specifications of FRAND terms can constrain the conduct of SEP holders under EU competition law.

Standard Essential Patents: Royalty Determination in the Supply Chain

Standard Essential Patents: Royalty Determination in the Supply Chain

Standard-Essential Patents within Global Networks - An Emerging Economies Perspective

Efficient licensing of standard-essential patents (SEPs) is crucial for achieving a rapid and broad-based diffusion of innovation. Owners of large SEP portfolios (and their supporters) argue that the governance of SEPs works reasonably well and that patent holdup and other negative effects are “purely theoretical”. In reality however, the governance of SEPs remains highly inefficient. Nobel prize laureate Jean Tirole as well as Carl Shapiro, Mark Lemley, Josh Lerner and many others have painstakingly documented that the licensing of SEPs is prone to market failures such as externalities (both positive and negative), information problems, market power and free-riding, which might hinder the realization of the economic and societal benefits of the affected standards. There is no doubt that SEP-related market imperfections continue to constrain standard implementers (both large and small) who are increasingly opposed to this form of “technology taxation”.This paper addresses two unresolved issues. First, most of the existing SEP research has focused on advanced countries. It is time to address growing concerns in emerging and developing countries that SEP-related market failures may create added uncertainty for their companies, generating unpredictable and often quite significant costs and delaying market entry of their products. Second, such SEP-related market failures are even more important in a world where increasingly complex and diverse global corporate networks integrate dispersed production, engineering, product development and research across geographic borders. The paper seeks to extend the analysis of SEPs to include challenges that companies from an emerging economy face that when they are deeply integrated into these global networks of production (GPNs) and innovation (GINs). The paper summarizes what we know about SEP-related market failures and their impacts on standard implementers, and highlight drivers and the hierarchical nature of GPNs and GINs, distinguishing network flagships and different layers of network suppliers. I will then discuss a new “gains from trade” doctrine for economic development, promoted by the OECD, the WTO, and the World Bank, which emphasizes the role of global network integration as “the 21st century’s fast lane to industrial development”. I will show that participation in these global corporate networks raises new challenges, especially for lower-tier suppliers, many of them based in emerging or developing countries. I will describe restrictions imposed by the new “gains from trade” doctrine on national innovation policies, especially with regard to patents and standards. These restrictions may well constrain the capacity of those companies to cope with the imperfect governance of SEPs.It is on this basis that I will then sketch out a preliminary research agenda for exploring impacts that Chinese companies may face within GPNs or GINs. In the Conclusions, I will review suggested responses to some of these market failures, using illustrative examples from standard development organizations and competition policy.