Standard Essential Patents Research Articles

Selected Quantitative Studies of Patents in Standards

After an introduction into the principle data and methodology, this study starts by providing a quantitative overview of the general features of standard essential patents (also called SEPs). It considers the occurrence of essential patents, how their existence has developed over time, and how essential patents are distributed among SSOs, technology areas, standards, and owners (including their business models). It also considers the legal status of such patents, for example whether they are actually enforceable. The study continues with an analysis on how SEPs differ from ‘regular’ patents. To make a fair comparison, a matched control set of patents was developed. We consider and compare the citation performance, the family size, and the patent grant likelihood. The final four chapters of the study focus on a set of specific topics: (1) ‘blanket disclosures’, (2) essential patent transfer, (3) patent pools, and (4) and litigation.

Comment of the Global Antitrust Institute, George Mason University School of Law, on the National Development and Reform Commissionns Anti-Monopoly Guide on Abuse of Intellectual Property Rights

This comment is submitted to China's National Development and Reform Commission (NDRC) by the Global Antitrust Institute (GAI) at George Mason University School of Law in response to the NDRC's Draft Abuse of Intellectual Property Rights Guideline. The GAI Competition Advocacy Program provides a wide-range of recommendations to facilitate adoption of economically sound competition policy, including how to analyze conduct involving standard-essential patents, as well as refusals to license, the essential facilities doctrine, discriminatory licensing, “unfairly high” pricing, bundling, cross-licensing, grantbacks, charging for expired patents, and the use of no-challenge clauses.

Standard-essential patents in standard setting organizations: competition law and the realization of licensing commitments

Standard-essential patents in standard setting organizations: competition law and the realization of licensing commitments

Comment of the Global Antitrust Institute, George Mason University School of Law, on the National Development and Reform Commission's Questionnaire on Intellectual Property Misuse Antitrust Guidelines

This comment is submitted to China's National Development and Reform Commission (NDRC) by the Global Antitrust Institute (GAI) at George Mason University School of Law in response to the NDRC's Questionnaire on Intellectual Property Misuse Antitrust Guidelines. The GAI Competition Advocacy Program provides a wide-range of recommendations to facilitate adoption of economically sound competition policy, including how to analyze conduct involving standard-essential patents and non-practicing entities.

Comment on the Japan Fair Trade Commission's Draft Partial Amendment to the Guidelines for the Use of Intellectual Property Under the Antimonopoly Act

This comment is submitted in response to the Japan Fair Trade Commission’s (JFTC’s) request for public comments on the Draft Partial Amendment to the Guidelines for the Use of Intellectual Property under the Antimonopoly Act (Draft Amendment). The Draft Amendment specifies that seeking injunctive relief to enforce a standard essential patent (SEP) encumbered by a commitment to license on fair, reasonable, and nondiscriminatory (FRAND) terms against a party that is willing to take a license on FRAND terms “may” constitute an unlawful exclusion of business activities in violation of Article 3 of Japan’s Antimonopoly Act (AMA) (Draft Amendment Part 3(1)(e)) or an unfair trade practice in violation of Article 19 of the AMA (Draft Amendment Part 4(2)(iv)). The Draft Amendment is premised upon the assumption that seeking injunctive relief “generally makes it difficult to research & develop ... products adopting the standards,” which in turn deters widespread adoption of standards. This assumption lacks empirical support. Further, as we explain, ordinary contract law makes an AMA sanction unnecessary to deter any instances of anticompetitive patent holdup that might arise; indeed, an AMA sanction is likely to reduce incentives to innovate and deter participation in standard setting, thereby depriving consumers of the substantial procompetitive benefits of standardized technologies. For these reasons, we respectfully recommend that Parts 3(1)(e) and 4(2)(iv) be deleted in their entirety. Should the JFTC decide to retain these provisions, however, they should at the very least be amended to limit liability to situations when there is proof that a FRAND-encumbered SEP holder has engaged in patent “holdup,” i.e., that the patent holder used the threat of injunctive relief to demand supra-competitive royalties.

Comment on the Canadian Competition Bureau's Draft Updated Intellectual Property Enforcement Guidelines

This comment is submitted in response to the Canadian Competition Bureau’s (the Bureau’s) draft stage 2 update of its Intellectual Property Enforcement Guidelines (Draft Updated Guidelines). This comment addresses five issues in the Draft Updated Guidelines: (1) product switching in the context of pharmaceutical patents; (2) settlement of patent infringement litigation between competitors, commonly referred to as “reverse-payment settlements”; (3) deceptive failure to disclose patents essential to a standard, commonly referred to as “patent ambush”; (4) reneging on a commitment to license a standard-essential patent (SEP) on fair, reasonable, and nondiscriminatory (FRAND) terms; and (5) seeking injunctive relief against infringement of a FRAND-encumbered SEP.

The interface between EU competition law and standard essential patents – from Orange-Book-Standard to the Huawei case

In this paper the recent ECJ judgment in Huawei is discussed in light of the earlier case law from the EU and the US. The Huawei case has been long awaited and many in academia hoped that it would finally deliver answers to if, when and on what terms access to so-called Standard Essential Patents would be granted under EU antitrust law. However, the question is whether Huawei is that case. On the contrary, it seems that the ECJ ruling gives room for speculation even in reference to core issues, some of which are dealt with in this paper.

Just-in-time patents and the development of standards

Modern technical standards often include large numbers of patented technologies that are required to implement those standards. These “standard-essential patents” are very valuable assets, and firms that do not own such patents are prepared to spend billions of dollars purchasing them. Whereas large numbers of standard-essential patents are often taken for granted, this study focuses on the process by which companies obtain such patents. Analyzing original data of a large standardization process, we demonstrate how many companies use a strategy we call “just-in-time patenting”: They apply for patents of low technical merit just before a standardization meeting, and then send the patents’ inventors to the meeting to negotiate this patented technology into the standard. Our findings have several implications for standard-setting organizations, patent offices, and policymakers, as the inclusion of just-in-time patents may reduce competition and market entry, increase prices, and unnecessarily complicate the technological content of standards.

The Qualcomm Decision: Protectionism? And for Whom?

This essay reviews the Qualcomm decision made by the NDRC in 2015, a case about abusing standard essential patents. It observes that this decision essentially assessed conduct of abusing dominant positions under the framework of per se illegal. As a result, it, though possibly aiming to protect domestic smartphone producers, may quickly fail its purpose.

AN EMPIRICAL EXAMINATION OF PATENT HOLDUP

A large theoretical literature asserts that standard-essential patents (SEPs) allow their owners to “hold up” innovation by charging fees that exceed their incremental contribution to a final product. We evaluate two central, interrelated predictions of this SEP holdup hypothesis: (1) SEP-reliant industries should experience more stagnant quality-adjusted prices than non-SEP-reliant industries; and (2) court decisions that reduce the excessive power of SEP holders should accelerate innovation in SEP-reliant industries. We find no empirical support for either prediction. Indeed, SEP-reliant industries have the fastest quality-adjusted price declines in the U.S. economy.

The Value of the Standard

Standard-setting organizations (SSOs) often require member firms to license their standard-essential patents (SEPs) on undefined “fair, reasonable, and nondiscriminatory” (FRAND) terms. Courts and commentators in turn have proposed various principles for calculating FRAND royalties, among them that the royalty should not reflect “the value of the standard.” As we show, however, this principle could be understood to mean any or all of three distinct concepts, namely that the royalty should not reflect the implementer’s sunk costs; that the patentee should not be able to extract any of the value resulting from network effects; or that the royalty should be proportionate to the patent’s contribution to the standard. This Article proposes, as an alternative benchmark, that a FRAND royalty should reflect the incremental contribution of the patent to the value of the standard. This principle combines two related ideas: first, that royalties should reflect the hypothetical bargain the parties would have struck ex ante (prior to standard adoption), in view of the incremental value of the technology over unpatented alternatives as revealed ex post; and second, that multiple patents reading on a standard should be valued in proportion to their marginal contribution (“ex post Shapley pricing”). Our proposal would prevent patentees from extracting sunk costs or a disproportionate share of standard value, but (contrary to some approaches) it would enable them to draw some of the increased value resulting from network effects. We show that our approach is more consistent with sound innovation policy, and suggest some practical applications.

Essential facilities with Chinese characteristics: a different perspective on the conditional compulsory licensing of intellectual property

China has become the world’s fastest growing market for licensed goods and by some estimates, China has found to be emerging d as the world’s largest patent filing nation. China’s State Administration of Industry and Commerce (SAIC) has indicated that it is close to finalizing rules on how to enforce the Anti-Monopoly Law in intellectual property-related fields. These Regulations of the Administration for Industry and Commerce on the Prohibition of Abuse of Intellectual Property Rights to Eliminate or Restrict Competition (‘AML Enforcement Rules in IP’ or ‘the rules’) contain the potential for compulsory licensing. In particular, the rules contain provisions intended to compel access to standard-essential patents and to curtail patent ambushes arising out of standards setting. In general, the rules presume it to be an abuse of a dominant position when a patentee deliberately fails to disclose the existence of a patent knowing it would likely be included in a standard, in violation of the standard-setting organization’s rules. The IP Enforcement Rules may promote a kind of ‘essential facilities with Chinese characteristics’—a result, that while similar to EU approaches, is at great odds with the approach that courts in China’s largest single-nation trading partner, the United States, have taken in the past decade.

An economic perspective of standards and FRAND enforcement in China

China has confronted issues surrounding fair, reasonable and non-discriminatory terms (FRAND) for standard essential patents (SEPs) and has become an important arena for FRAND-related antitrust enforcement and litigation. This article summarizes the key enforcement activities in China to date by the Chinese courts and three antitrust enforcement agencies with regard to FRAND issues. These activities indicate that China’s approach to analysing and enforcing FRAND terms has been under the framework of the abuse of dominance. Chinese authorities’ decisions to date appear to indicate the following logic when deciding the FRAND issues: SEP holders generally possess market dominance in licensing SEPs, and that disputes concerning SEPs licensing terms may be scrutinized for the risks of abuse of market dominance. This abuse may take the form of charging excessive rates, imposing unreasonable licensing terms, or both. They also reflect that Chinese authorities appear to place an emphasis on preserving FRAND commitments, regardless of whether they are requested by a standard setting organization or unilaterally made by an individual company.

FRAND in India: The Delhi High Court's emerging jurisprudence on royalties for standard-essential patents

Indian jurisprudence on fair, reasonable, and nondiscriminatory (FRAND) licensing practices for standard-essential patents (SEPs) is at a relatively nascent stage. Unlike US and EU courts, which have dealt with cases concerning calculating a FRAND royalty for a considerable time, Indian courts and the Indian antitrust authority—the Competition Commission of India (CCI)—have only just begun to decide such cases. In its initial orders in the first two antitrust complaints concerning SEPs, the CCI seemed to favour using the smallest salable patent-practising component (SSPPC) as the royalty base to determine a FRAND royalty. However, in the short time since the CCI's orders, the Delhi High Court has rendered contrary decisions in two SEP infringement suits. The Delhi High Court's decisions use the value of the downstream product as a royalty base and rely on comparable licences to determine a FRAND royalty. The Delhi High Court's decisions are not only consistent with sound economic principles, but also indicate that the court is responding to the judicial and industry trends in the rest of the world. Because the CCI is still investigating the antitrust complaints with respect to the same SEPs, the CCI could benefit from considering the legal and economic arguments in the Delhi High Court's decisions. It would be counterproductive for the emerging FRAND jurisprudence in India if the judiciary and the competition authority take opposing views toward the rights of SEP holders and SEP implementers.

IP and competition law—the Chinese perspective

Recent case law and enforcement activities in China have begun to shed light on the approach of Chinese courts and competition authorities towards the application of competition law to issues involving intellectual property rights. This article considers these developments against the backdrop of the prevailing European and US practices, with particular focus on standard essential patents and how they relate to the issues of: (i) compulsory licensing; (ii) use of injunctive relief to enforce standard essential patents; (iii) how a FRAND royalty rate should be determined; and (iv) tying or bundling of licences. Although some of the principles applied by the Chinese courts and authorities are broadly in line with those adopted in the European Union and the US, the lack of a clear approach in areas such as compulsory licensing, the concept of ‘willing licensee’ and the determination of FRAND rates serves as a reminder that the regulation of competition and intellectual property laws in China is a comparatively recent endeavour and continues to evolve. The article concludes with a summary of competition enforcement activities in other areas of intellectual property rights and the lessons that businesses should be aware of in China.

Patent Assertions: Are We Any Closer to Aligning Reward to Contribution?

The 2011 America Invents Act was the most significant reform to the United States patent system in over fifty years. However, the AIA did not address a number of major problems associated with patent litigation in the United States. In this paper, we provide an economic analysis of post-AIA developments relating to Patent Assertion Entities (PAEs) and Standard-Essential Patents (SEPs). For PAEs and SEPs, we examine the alignment, or lack of alignment, between the rewards provided to patent holders and their social contributions. Our report is mixed. Regarding PAEs, we see significantly improved alignment between rewards and contributions, largely due to a series of rulings by the Supreme Court. Legislation currently under consideration in Congress would further limit certain litigation tactics used by PAEs that generate rewards unrelated to contribution. We also see some notable developments relating to SEPs, especially with the recent reform to the patent policies of the IEEE, a leading Standard-Setting Organization (SSO) and with several recent court decisions clarifying what constitutes a Fair, Reasonable and Non-Discriminatory (FRAND) royalty rate. However, other steps that could better align rewards with contributions on the SEP front have largely stalled out, particularly because other major SSOs do not seem poised to follow the lead of the IEEE. Antitrust enforcement in this area could further improve the alignment of rewards and contributions.

Standard-Essential Patents

A major policy issue in standard setting is that patents that are ex ante not that important, by being included into a standard, may become standard-essential patents. In an attempt to curb the monopoly power that they create, most standard-setting organizations require the owners of patents covered by the standard to make a loose commitment to grant licenses on reasonable terms. Such commitments unsurprisingly are conducive to litigation. This paper builds a framework for the analysis of these patents, identifies several types of inefficiencies attached to the lack of price commitments, and shows how structured price commitments restore competition and why such commitments may not arise spontaneously in the marketplace.

Standard essential patents to boost financial returns

Numerous innovative applications build upon standardized technologies. These technologies increasingly incorporate standard essential patents (SEPs). It is crucial to own SEPs in order to achieve and maintain significant market shares. We test the influence of owning SEPs on a firm's financial performance. In our analysis, we use a unique dataset of firms participating in international standard setting organizations (SSOs). Our results indicate a curvilinear (inverse U‐shaped) relationship of owning SEPs on a firm's return on assets. The curvilinear relationship suggests that firms should balance their patent portfolio by holding a share of patents, which are essential for standards, and by holding a share of patents on technologies that are not standardized. Our results further show that the effects of owning SEPs depend on the specific SSO as well as on the size of the patent portfolio. Our findings are a first step toward identifying and assessing the financial impact of patents essential to standards. Our empirical tests suggest that companies should pursue a common strategy for patenting and standardization to exploit patented inventions in technology fields where standards matter.

An Empirical Examination of Patent Hold-Up

A large literature asserts that standard essential patents (SEPs) allow their owners to “hold up” innovation by charging fees that exceed their incremental contribution to a final product. We evaluate two central, interrelated predictions of this SEP hold-up hypothesis: (1) SEP-reliant industries should experience more stagnant quality-adjusted prices than similar non-SEP-reliant industries; and (2) court decisions that reduce the excessive power of SEP holders should accelerate innovation in SEP-reliant industries. We find no empirical support for either prediction. Indeed, SEP-reliant industries have the fastest quality-adjusted price declines in the U.S. economy.

Justice Department Agrees IEEE's New RAND Policy Isn't Price Fixing

This column discusses IEEE's recent update to its reasonable and nondiscriminatory (RAND) policy on the licensing of standard-essential patents (SEPs), as well as the Justice Department's announcement that it will not challenge the IEEE proposal.