Standard Essential Patents Research Articles

The Challenge of Sanctioning Unfair Royalty Rate by the SEP Holder: ‘When’, ‘How’ and ‘What’

The holder of a Standard Essential Patent (SEP) is usually required to license its patent to any licensee on the basis of Fair and Reasonable and Non-Discriminatory (FRAND) terms. In their recent judgments in Unwired Planet and Sisvel v. Haier, the UK Supreme Court and the German Bundesgerichtshof ruled that a ‘range’, rather than a ‘single’ royalty rate, may be considered compatible with the FRAND commitment. On the other hand, a royalty rate ‘beyond the outer boundary of the range’ would not be FRAND. In addition, an ‘unfair’ royalty rate might also be regarded as an abuse of dominant position by the SEP holder, in breach of Article 102(a) Treaty of the Functioning of the European Union (TFEU). The paper analyses whether and under what circumstances Article 102(a) TFEU could be relied on by a competition authority in Europe to sanction a case of ‘unfair’ royalty rate requested by the SEP holder to its licensees. In particular, the paper assesses ‘when’ competition policy should sanction an unfair royalty rate requested by the SEP holder, ‘how’ a competition agency should analyse the case in accordance with the case law of the EU Court of Justice concerning Article 102(a) TFEU and, eventually, ‘what’ remedies the competition authority could adopt. Standard Essential Patent; royalty rate; Fair, Reasonable and Non-Discriminatory terms; unfair pricing; Article 102(a) TFEU; EU Court of Justice; United Brands test; benchmarking methods; efficiency defence; competition law remedies

Standard essential patents and global ICT value chains with a focus on the catching-up of China

Patents, standards and their combination, standard-essential patents (SEPs), are important in the information and communication technology (ICT) sector, in particular in mobile communication. We argue that SEPs are relevant in macroeconomic development and estimate the effect of a country's SEP portfolio on its value-added trade in global ICT value chains (GVC). We find that SEPs retain a higher share of value-adding domestically and that absorptive capacity is needed to join GVCs. China entered the SEP market late and is catching up rapidly. The trade effect of SEPs on China is different from that on matured economies because of the initially low value of its SEPs.

Downsides of Using Inadequate Open Source Software Processes and Licenses within Standard Development Organizations

Standard Development Organizations (SDO) and Open Source Software (OSS) Projects offer two different models for open and collaborative innovation. While SDO standards have interacted with independent OSS projects for a long time, an increasing number of SDOs are themselves hosting OSS projects, notably for the development tools or for reference implementations of their standards. While policy makers and industry stakeholders have rightly identified the potential benefits of tighter integration of OSS and SDO processes, the potential downsides of this integration are insufficiently understood. An OSS reference implementation sponsored by the SDO itself has the potential to dominate the market for standard-compliant implementations. SDO participants may feel compelled to participate in the OSS project, as decisions made in the development of the OSS implementation will influence standardization outcomes and determine how the standard will be used. It is thus a significant concern when formal and influential SDOs develop OSS reference implementations of their standards under a license that is incompatible with the SDO’s balanced patent policy, and using processes that do not reflect the SDO’s commitment to openness and consensus decision-making. When SDOs use inadequate licenses, owners of standard-essential patents (SEP) participating in the OSS project may be deprived of the possibility to collect royalty revenue from the licensing of their SEP. For SEP owners unwilling to forfeit this royalty revenue, participation in the standard development itself becomes unattractive, as they are excluded from significant parts of the decision-making, as well as from using the dominant implementation of the standard. We illustrate these potential risks using the case of Open Source MANO (OSM), an OSS project of the European Telecommunications Standards Institute (ETSI).

FRAND licensing levels under EU law

ABSTRACT This paper investigates whether EU or national law provides legal authority to impose a direct or indirect obligation on Standard Essential Patent (“SEP”) holders to license at all levels of the value chain, including at component level (“license to all”, hereafter LTA). It concludes that neither patent law, competition law nor general principles of EU law impose an obligation on SEP owners to license at all levels of the production chain. Whether there exists an LTA obligation is primarily a matter of contract law and depends on the precise text of the FRAND commitment made to the relevant Standard-Setting Organisation (SSO). The ETSI FRAND commitment, which is of special relevance in the European context and is governed by French law, does not impose an LTA regime. With the exception of IEEE, other SSOs also do not seem to impose a contractual duty to license to all levels of the production chain. However, what EU law and FRAND commitments do require is access to the standard. Such access can be achieved in different ways: by having a direct license; by selling standard-implementing components to licensed end-device manufacturers (indirect license); by concluding non-assertion agreements; or even without any license or authorization at all if the SEP owner has a policy of monetising its SEPs only at one level of the production chain and does not enforce its patents against others.

Analyses of the Key Technologies and Development Trends of Optical Networks from the Perspective of Standard Essential Patents

Because of the advancement of 5G, mobile devices, and broadband, the development of optical network technologies has received increased research attention. However, studies have mostly focused on the technical or market aspects rather than employing a macroscopic perspective to reveal the technology distribution of optical networks and the development trends in their key fields. Given that technologies disclosed by standard essential patents (SEPs) are the key technologies that determine the standards in relevant industries, we used SEPs optical networks as the basis of analyses and constructed a technology network. Therefore, the contribution of this study lies in bridging the research gap between two studies, using the perspective of SEPs to observe the key technologies in leading industry standard-setting. In addition to the aspects of technologies and markets addressed in existing studies, this study primarily discusses technology distribution and trends in optical networks. The results reveal that transmission of digital information, wireless communication networks and multiple communication are the key technical fields in developing optical networks, with wireless communication devices and digital information transmission being the main focus in recent years. Considering the gradual standardization of future optical network technologies and the fierce competition between manufacturers in SEP applications, relevant industries and universities should cooperate in key technical fields for research and development as well as in talent cultivation to facilitate the development of key technologies and industrial standards in optical networks. The current results may serve as a reference for both industry and academia with regard to research and development resource allocation.

What Is the Significance of a FRAND License Declaration for Standard Essential Patents with Regard to their Transferability? – News from Germany

Abstract There has been considerable movement in German licensing law for some years now. Based on the fate of the license in the case of the granting of sub-licenses and in the case of insolvency of one of the contracting parties involved, a number of court decisions have been handed down which mainly deal with the legal nature of licenses and their mode of operation. Moreover, there is now an internationally significant development in licensing law, namely the increasing independence of patents used in standards, which have increasingly become the subject of economic considerations – and not only of the companies or inventors filing them.1 These so-called standard essential patents (SEPs) are the subject of numerous legal disputes and legislative activities and constitute a scientific discourse around the globe. In 2015, the European Court of Justice (ECJ) created the first leading case for the EU with regard to SEPs in its highly regarded Huawei/ZTE ruling.2 Although an abundance of decisions of the courts of first instances are now available, many questions still remain unanswered since the fundamental decision of the ECJ. There is controversy both over the dogmatic classification of the FRAND declaration and the legal consequences of the declaration’s binding effect. It is particularly unclear what happens to the FRAND declaration when the SEP is transferred to a third party and whether, how and to what extent the acquirer is bound by this declaration of the transferor. In a decision that can certainly be described as bold, a Higher Regional Court has now ruled on some of these issues for the first time, thus providing further food for discussion.3

IPCOM GMBH & CO KG v VODAFONE GROUP PLC

Abstract H1 Patents – Standards essential patents – Technical trial – Construction – Validity – Conditional and unconditional amendments – Added matter – Extension of protection – Obviousness – Essentiality – Infringement – Indirect infringement – Defences – Crown use – De minimis use – Declarations of non-infringement

Abuse of a Dominant Position by the Holder of a Standard Essential Patent

Abuse of a Dominant Position by the Holder of a Standard Essential Patent

How to license SEPs to promote innovation and entrepreneurship in the IoT

The Internet of Things (IoT) relies heavily on wireless communication technologies, which are covered by thousands of standard-essential patents (SEPs). Numerous applications of IoT technologies are being developed, frequently coming from entrepreneurial firms. The high degree of fragmentation on the side of device makers raises the question of how—i.e., on which level of the value chain—SEPs should be licensed. Device makers prefer upstream licensing, allowing them to purchase fully licensed modules, while SEP holders tend to favour licensing at the device level. I present empirical evidence on the matter from a qualitative study comprising interviews with 18 individuals from 12 firms of different sizes and industries, including device makers and SEP licensors. The focus lies on the perspective of entrepreneurial firms. I also review and discuss arguments presented in the literature. I find that device-level licensing poses serious problems to device makers, in particular to SMEs. The main problems are: A lack of resources and pertinent legal and technical competence, precluding fair negotiations with licensors; high transaction costs due to a high degree of industry fragmentation; and uncertainty regarding cost and patent clearance. As a consequence, device-level licensing would likely have a chilling effect on innovation and entrepreneurship in the IoT. Policy makers should ensure that IoT SEP licensing is simplified. They should commission studies on the feasibility of licensing and price differentiation higher up in the value chain, and on the aggregate cost of developing the main standards. Adding to those formulated by the SEPs Expert Group, I propose two additional principles for IoT SEP licensing: Licensing at a value chain level where transaction costs are minimal; and licensing in a way that promotes downstream innovation and entrepreneurship.

SEP Royalty Rate Calculation on the Basis of the Present Value Added (PVA): A Model and its Application in the German Legal Order

The most common method for standard essential patent (SEP) valuation and to determine a fair, reasonable and non-discriminative (FRAND) royalty rate is based on comparable license agreements. This method is relatively simple to apply, but has several disadvantages. Firstly, license agreements are often not comparable on important points. Secondly, they are usually based on a selection by the submitting party, who has an interest to select only favorable license agreements for comparison. And thirdly, those selected agreements might not result from a fair negotiation, because of possible market power by either of the two sides. In this paper, we therefore suggest how the present value added (PVA) methodology can be used to calculate the FRAND value of specific SEP technologies, avoiding biases that are intrinsically linked to the comparable licensing approach. The PVA approach can also serve as valuation methodology for the whole standard in the context of the Top-Down approach. To illustrate the approach, we present a simple interperiodical valuation model. To derive a FRAND royalty rate, we then suggest how the PVA created can be apportioned between the SEP holders and the implementer. The second contribution of this paper is therefore the normative discussion of the apportionment of the PVA. Finally, we show how the PVA methodology can be practically applied by running a hypothetical example of a full FRAND royalty estimation. The German legal framework has been chosen, since it is the European jurisdiction where an increasingly large number of legal disputes related to SEPs are adjudicated.

An Empirical Test of Patent Hold-Out Theory: Evidence from Litigation of Standard Essential Patents

The theory of patent “hold-out” posits that frictions in the market for licensing standard-essential patents (SEPs) provide incentive for prospective licensees to opportunistically delay taking licenses. We derive empirically testable predictions from the literature supporting hold-out theory—namely that hold-out should be positively associated with the size and international breadth of licensors’ SEP portfolios, but negatively associated with the “quality” of licensors’ SEPs—and we test those predictions using measures of pre- and in-litigation hold-out constructed from information disclosed in U.S. SEP cases filed 2010-2019. We find some evidence of an association between in-litigation hold-out and both SEP portfolio size and patent quality; however, we find no evidence associating pre- or in-litigation hold-out with the international breadth of SEP rights. Overall, our results provide little empirical support for hold-out theory, particularly in the context of pre-litigation licensing negotiations, which are the literature’s primary focus to date.

Anti-suit Injunctions and Geopolitics in Transnational SEPs Litigation: the EU, U.S., and China Scenarios

Anti-suit injunctions (ASIs) have recently emerged as a phenomenon significantly affecting the dynamics of standard essential patent (SEP) litigation. The enhanced role played by these patents in the Internet of Things scenario and the willingness of national courts to set themselves up as global licensing tribunals have spurred a race to the courthouse, incentivising forum shopping and the adoption of countermeasures such as anti-anti suit injunctions (AASIs) and anti-anti-anti suit injunctions (AAASIs). The implications of these litigation strategies have become a matter of geopolitics, as countries fear that the intellectual property rights of their companies may be undervalued by foreign courts to promote domestic economic interests. Against this backdrop, this paper aims to provide a comparative overview of European, U.S., and Chinese SEP disputes in which these injunctions have been issued or claimed and to identify some policy recommendations to curb the frictions affecting SEP licensing.

Issues and Challenges in Standard Essential Patents: Indian Perspective

This Paper shall examine the synchronization between the technology and law so that the fruits of technology which can be used as a standardized technology and patents (SEP) can be granted to the patent holders so that it becomes a win- win situation to the innovator of technology and society at large. It shall also examine the global issues in standard essential patents and how India has handled such issues by complying with FRAND terms. Since the body granting the SEP is called Standard Setting Organization , therefore the historical prospective of SEP along with the issues arising in SEP shall also be analyzed with emphasis on FRAND terms and the specific case studies of United states, Germany, Japan and China including India shall be analysed mainly on Patent hold up and royalty issues and suggest the remedial measures; taking lessons from other countries and suggest the way forward in the form of recommendation in order to handle the SEP challenges in India in a timely, cost effective manner; as this is also one of the key factor for ease of doing business in India and providing sufficient protection to the Patent holder and avoid any misuse.

Emergence of Intellectual Property Ecosystem of Connected Cars and its Analysis

Connected Car has attracted a high interest in the automotive industry. V2X is a standard and a core technology of Connected Car. There are many standard essential patents (SEP) in V2X. In addition, OSS is also used in platforms of Connected Cars. To date, there have been many patent infringement lawsuits based on essential patents in the telecommunications industry around the world, and antitrust authorities in various countries have established guidelines to curb such lawsuits. In other words, patent holders are required to promise licenses based on FRAND declarations, and patent licensees are also required to negotiate licenses in good faith. In the connected car business as well, disputes and lawsuits between patent holders and patent implementers over patents related to SEP and others are unfolding, and an IPR ecosystem is being formed through cooperation among companies to deal with these disputes and lawsuits. In this paper, the formation of IPR ecosystems around connected cars and the battles between patentees and licensees in these ecosystems are summarized and explained.

The Pro-Patent Holder Approach in Unwired V. Huawei in Interpreting the ‘Fair, Reasonable and Non- Discriminatory’ Rule for the Licensing of Standard Essential Patents

The English Supreme Court case of Unwired Planet International Ltd v. Huawei Technologies (UK) Co Ltd demonstrated a pro-patent holder approach when interpreting the ‘fair, reasonable and non-discriminatory’ (‘FRAND’) rule/ undertaking. This article argues that this is a welcomed decision, because this approach pays due regard to commercial reality and the commercial needs of the patent holder. Understanding this approach is very important, because it helps in applying the rule. This approach also vitally provides more certainty by supplementing the existing, yet limited and vague, guidance on the interpretation of this rule. Furthermore, this comment rebuts the concern that the Court may have demoted the usefulness of the ‘non-discriminatory’ limb by allowing differential pricing. It is argued that this approach is both legally correct and makes practical sense. The impact of differential pricing to prospective licensees should not be over-exaggerated. English Supreme Court case, Unwired Planet International Ltd v. Huawei Technologies (UK) Co Ltd, patents

Anti-Suit Injunctions and Jurisdictional Competition In Global FRAND Litigation: The Case For Judicial Restraint

The proliferation of international jurisdictional conflicts and competing “anti-suit injunctions” in litigation over the licensing of standards-essential patents has raised concerns among policy makers in the United States, Europe and China. This article suggests that national courts temporarily “stand down” from assessing global “fair, reasonable and nondiscriminatory” (FRAND) royalty rates while international bodies develop a more comprehensive, efficient and transparent methodology for resolving issues around FRAND licensing.

Comments on Draft Policy Statement on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments

Comments on Draft Policy Statement on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments

Compulsory licensing in favor of patentholders of dependent pharmaceutical inventions

The article analyzes the conditions for issuing a compulsory license in favor of the patent holders of dependent pharmaceutical inventions on the basis of Paragraph 2, Article 1362 of the Russian Civil Code. The criteria for the relevance of a dependent invention to important technical advancements with significant economic advantages are disclosed. An analysis of the emerging Russian court practice on the issuance of compulsory licenses in the pharmaceutical market, meanwhile, showed that Russian courts lack a clear understanding of when a patent holder can and cannot apply for a compulsory license. The author proves that compulsory licensing is an effective mechanism to prevent abuse of the right (first of all, to standard-essential patent) in the markets of complex innovations (IT, electronics and telecommunications). At the same time, its implementation on the pharmaceutical market can lead to negative consequences: discourage pharmaceutical companies to invest in the development of new drugs, register breakthrough drugs in Russia; reduce foreign investment in the pharmaceutical sector. In this case, the provision of compulsory licenses should be interpreted as an exceptional tool. The issuance of a compulsory license in favor of the owner of the dependent invention can be justified only if such an invention represents a genuine innovation, an important step in the development of pharmaceuticals. The licensee must offer the market a new drug with improved characteristics: increased therapeutic efficacy and (or) safety, which has no available alternatives.

UK Courts’ Determination of Global FRAND Rates: There Is a Will but Is There a Way? UKSC Judgment in Unwired Planet v Huawei, Huawei v Conversant, and ZTE v Conversant

On 26 of August 2020, the United Kingdom Supreme Court (UKSC) published its judgment1 on the cases Unwired Planet v Huawei, Huawei v Conversant and ZTE v Conversant2 in a single decision on the appeal of two decisions3 corresponding to two (three) cases related to Standard Essential Patents (SEPs), namely Unwired Planet v Huawei4 and Huawei and ZTE v Conversant.5 The decision – which upheld both decisions from the Civil Division, dismissing all five grounds of appeal – is the first chance that the UKSC has had to deal with key aspects of SEP litigation, notably with regards to the reach of the FRAND commitment included within the ETSI IPR Policy6 and to jurisdictional aspects. The judgment substantially confirms the decisions of the lower courts and stresses the willingness and the aptitude of UK courts to establish themselves as an appropriate...

The Supreme Court's decision in Unwired Planet – what comes next?

The Supreme Court's decision in two appeals relating to telecommunications licensing disputes and ‘Standard Essential Patents’, or ‘SEPs’, has profound implications for patent owners and implementers. It established that UK courts have the power to settle the terms of global licences for SEPs, and developed the meaning of the non-discrimination component of ‘FRAND’ (Fair, Reasonable and Non-Discriminatory) terms. However, these appeals leave unanswered a number of related questions – from the proper role of foreign courts to the drafting and practical operation of ‘adjustment’ clauses – that courts are likely to have to grapple with in future. This article summarizes the issues at stake in the two appeals, examines the arguments in the lower courts and the Supreme Court's reasoning, and looks ahead to the potential impacts of this long-awaited judgment.