Standard Essential Patents Holders Research Articles

Standard-essential patent legal protection in China’s telecommunication industry: an international trade and economy perspective

ABSTRACT Standard-essential patents (SEPs) are specific types of patents that protect the technology incorporated in a standard. China has one of the world’s largest telecommunication markets, and its legal policies and practices regarding SEP protection profoundly influence the competitive environment of the Chinese telecommunication market, international economic and trade cooperation, and global telecommunication technology innovation. Recently, frequent disputes in the communication sector surrounding SEPs in China’s judicial practice revolved around the fair, reasonable, and non-discriminatory (FRAND) principles, embodying three key issues: patent hold-up, licence fee rates, and anti-suit injunction. Regarding the patent hold-up and hold-out of SEPs in the telecommunication industry, a balance of interests between SEP holders and implementers in licence negotiations should be achieved under the guidance of the principles of FRAND from the perspective of legislation, administrative management, and the judiciary. Concerning licence fee rates, billing benchmarks should be judged based on individual cases, utilizing a comprehensive approach combining comparable licence agreement methods and top-down methods to determine a fair and reasonable licencing fee acceptable to all parties. In the conflict between anti-suit and anti–anti-suit injunctions, improving the anti-suit injunction rules and international cooperation mechanisms is necessary to achieve fair and non-discriminatory judicial processes and judgment results.

A balanced approach to standard-essential patent disputes: from the perspective of the sustainability of technological resources

Standard-essential patents (SEPs) are closely linked to technical standards and have the nature of public products. The combination of patents as private property rights with technical standards as public goods magnifies the exclusivity of patent rights, may hinder the application of technical standards and gives rise to a large number of legal disputes. Two solutions have been developed to alleviate this tension: a strong protection model that emphasizes the property rights nature of patents and a sharing model that emphasizes the public goods nature of technology standards. However, both options are detrimental to the efficiency of the allocation of technological resources and have led to conflicts in judicial decisions worldwide. To reconcile such conflicts, the courts should interpret the fair, reasonable and non-discriminatory principle flexibly according to the status of the parties to re-establish an equal relationship between SEP holders and technical standard implementers, thereby promoting the parties’ voluntary conclusion of patent licensing contracts. Effective measures include strengthening the obligation to negotiate licences between SEP holders and technical standard implementers and applying the principle of good faith to avoid ‘patent blackmail’ by patent holders and ‘reverse blackmail’ by technical standard implementers. Moreover, courts should be careful when deciding whether to adjudicate global licensing matters between parties to avoid judicial deadlock. These measures will ultimately contribute to the sustainability of technological resource creation and exploitation.

Price Commitments in Standard Setting under Asymmetric Information*

Standards may create market power for the holders of standard essential patents (SEPs). To address these concerns, the literature advocates price commitments, whereby SEP holders commit to the maximum royalty they would charge were their technology included in the standard. We consider a setting in which a technology implementer holds private information about profitability. In this setting, price commitments increase efficiency not only by curbing SEP holders' market power, but also by alleviating distortions in the design of the royalty scheme. We derive conditions under which price commitments can be implemented using a simple royalty cap as used in practice.

Antisuit injunctions in SEP disputes and the recent EU's WTO/TRIPS case against China

AbstractThe existence of standard essential patents (SEPs)—and the associated litigation—has potentially disruptive consequences for the manufacture, marketing and distribution of complex products that incorporate many patented standards, for example, information and communication technology (ICT) products such as smartphones that incorporate a camera, video, web browser, wireless communications, text messaging, and so on, as well as an increasing number of ‘connected’ Internet of Things products such as wearable devices and ‘smart home’ devices. Indeed, SEP owners may use the patent enforcement system to prevent implementers of these technologies from bringing to market competing products that use the same standards. As is known, this raises concerns about competition in the market and the need to maintain interoperability to ensure the development of the ICT industry. One of the legal tools which can be used by implementers to (try to) neutralise SEP holders' anticompetitive behaviours is the ‘antisuit injunction’ (ASI). ASIs are not uncommon in common law jurisdictions while they are foreign to civil law countries within the European Union (EU). ASIs are particularly useful to SEP implementers when patent holders disrespect their commitment to license their patents on a FRAND basis. For example, a judge who is in the process of assessing whether the SEP owner complies with FRAND terms may at the same time grant an ASI to stop the patentee taking patent infringement actions in other jurisdictions until the FRAND litigation has been concluded. In February 2022, the EU filed a complaint at the World Trade Organization (WTO), arguing that China's use of ASIs prevents EU‐based companies from properly protecting their SEPs. Indeed, ASIs have recently been granted in several Chinese disputes, including in Huawei v Conversant and Xiaomi v. InterDigital. More specifically, China's Supreme People's Court held that Chinese courts can use ASIs to prevent SEP owners from filing disputes in any foreign courts to enforce their patents; and that anyone who does not comply with the injunction should be fined €130,000 per day. In the WTO case the EU notes that such a case law jeopardises innovation and growth in Europe, ‘effectively depriving European technology companies of the possibility to exercise and enforce the rights that give them a technological edge’. From a legal perspective, according to the EU, China's conduct is in violation of various Trade‐Related Aspects of Intellectual Property Rights (TRIPS) provisions, including Article 28 which grants exclusive rights to patent owners. The paper focuses on this EU–China WTO/TRIPS dispute and more generally, on the relevance of ASIs within SEP cases.

Licensing standard‐essential patents with costly enforcement

AbstractWe study the interaction between the holder of a standard‐essential patent (SEP) and two downstream firms using the patented technology to design standard‐compliant products. The SEP holder approaches the downstream firms simultaneously in the shadow of patent litigation and is subject to fair, reasonable, and non‐discriminatory licensing requirements. We show that the patent holder faces a litigation credibility constraint and a license acceptability constraint when setting its licensing terms. For patents of intermediate strength, there is no royalty that allows the patent holder to reconcile these constraints. Consequently, it cannot license its technology and must go to court against infringers. We show that the availability of an injunction improves the patent holder's ability to license its technology, but it tends to inflate the royalty rate for implementers.

SEP licensing in the automotive sector: shifting gears too quickly?

... The licensing of standard essential patents (SEPs) has, for a large part of the last three decades, occupied an integral position in the development of information and communications technology (ICT) standards. But while much of the focus has been on SEP licensing in the telecommunications sector, the emergence of the Internet of Things (IoT) and increasing use of connected technology by cars make the automotive sector the next major battleground for technology owners and implementers. The ‘smartphone wars’ might have left several major telecom companies financially drained but have certainly made these companies highly experienced at both asserting SEPs and defending against their assertion.1 Automobile manufacturers have, on the other hand, benefitted from the collaboration between suppliers and original equipment manufacturers (OEMs), without being restricted by concerns surrounding the licensing of proprietary technology.2 The introduction of autonomous and connected vehicles brings with it interoperability needs that will likely change the status quo. With features such as access to the internet, streaming of music and real-time traffic updates offering enhanced functionality, cars will require connectivity to not just the internet but also the OEM servers, nearby cars and other users of roads.3 In other words, cars will become part of the IoT, further necessitating the implementation of technologies previously unheard of, as far as the automotive industry is concerned.4 More specifically, a lack of acquaintance with the licensing of patents of the nature of SEPs might prove to be a stumbling block for car manufacturers. Add to it the complexities involving a long supply chain, multiple stakeholders and enormous financial stakes, which will challenge companies to address a wide range of crucial licensing questions5—the same questions that have attracted a significant amount of debate, as well as a series of patent infringement cases involving SEP holders and automobile manufacturers, in the USA and the European Union (EU).

SEPs licensing across the supply chain: an antitrust perspective

The rise of the Internet of Things (IoT) and the development of 5G are set to add a new layer of complexity to the current practice of standard essential patents (SEPs) licensing. While, until recently, the debate has centred on the nature of fair, reasonable and non-discriminatory (FRAND) commitments and the mechanisms to avoid hold-up and reverse hold-up problems between licensors and licensees, a new hotly-debated issue has now emerged. At its core is the question of whether SEP holders should be required to grant a FRAND licence to any implementer seeking a licence, including component makers (the so-called ‘licence-to-all’ approach), or if they should be allowed freely to target the supply-chain level at which the licence is to be granted (the so-called ‘access-for-all’ approach). After providing an up-to-date overview of the current legal and economic debate, this article focuses on the most recent antitrust case law dealing with the matter on both sides of the Atlantic and argues that no sound economic and legal bases which favour licence-to-all solutions can be identified. * The authors would like to thank the anonymous referees, Luigi Federico Signorini and the participants in the 2021 Annual Conference of European Policy for Intellectual Property (EPIP), in the 38th Annual Conference of the European Law and Economics Association (EALE), in the TILTing Perspectives 2021 (Tilburg University), and in the 16th Annual Conference of the Academic Society for Competition Law (ASCOLA). The study was conducted as part of the research activities promoted by the DEEP-IN (Digital Ecosystem, Economic Policy and Innovation) Research Network. The author is grateful for the financial support received. Any opinions expressed in this paper are personal and are not to be attributed to the Bank of Italy. The first is Half-Causation Branching, which allows the logical mapping of the inventing space, within which the imaginary invention is located. Implementing this tool reveals two alternative nearby inventions, which if left out of the sought patent protection would render any eventually granted patent practically worthless. Following that, Half-Causation Encapsulation comes to the rescue by allowing the encapsulation of the original imaginary invention, plus the two alternative nearby ones, all in a manner that provides the all-important unity of invention On the one hand, patent agents are not supposed to contribute to their client’s inventive concept to the extent that they become co-inventors. On the other hand, scientists and engineers are not supposed to dedicate so much time and effort to learning about complex patent laws as to become patent agents. Arguably, each should aim to excel in their discipline. However, a structured dialogue should be considerably helpful to each and to the patent process as a whole. It is proposed that Half-Causation, with its logical structure, can provide a basis for such a dialogue. Besides targeting a readership in patent practices and theory, this paper should be of interest to multiple readerships, for example in engineering design, medical discovery and philosophy of technology.

PEMBATASAN TERHADAP PERSAINGAN UNTUK MEMBENTUK PASAR DALAM KASUS STANDARD ESSENTIAL PATENT (SEP) (PERBANDINGAN HUKUM PERSAINGAN USAHA DI INDONESIA DAN UNI EROPA)

The role of patents is complex when dealing with the problem of technological interoperability in cases where patented technology becomes standard. In such cases, a balance is needed between the protection of the interests of the inventor, i.e. the standard essential patent (SEP) holder, and of users who need the technology to enter the market. There is a susceptibility to restrictions on competition to create markets (competition for the market). Market dominance can be created by the adoption of SEP holder technology as a standard and hence, a key for other business actors to enter the market. With the potential for the formation of a dominant position in the relevant market, the competition law intervention is required when patent abuse occurs, as it appears typical in the pharmaceutical and information technology industries. The normative research examines how competition law in the European Union deals with SEP cases in comparison to Indonesian competition law.

Are collecting agencies a model that fits to SEP licensing?

Every day, more and more devices are connected to wireless networks and need to exchange vast amounts of data in a reliable manner. This high-performance connectivity and interoperability between devices are achieved thanks to standards. In particular, standards such as 5G (ie cellular) offer cutting-edge technologies which serve as the foundation of the Internet of Things (IoTs).1 Standards are typically developed in Standard Development Organizations (SDOs) with the collaboration of multiple stakeholders.2 A patent that protects a technology that is essential for the implementation of a standard is known as a Standard-Essential Patent (SEP). In order to balance the interests of the SEP holders and its users, SDOs encourage their members that own SEPs to make them available on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions. This allows for a broad dissemination of the standard (thanks to access to the standardized technology) and a fair and adequate...

End-product- vs Component-level Licensing of Standard Essential Patents in the Internet of Things Context

The appropriate level of licensing Standard Essential Patents (SEPs) in the case of a multi-tiered supply chain is among the most hotly debated issues in the SEP community and at the crux of an ongoing dispute between Nokia and Daimler. The debate centres on whether the SEP holder is (or should be) under an obligation to grant a license to any implementer, including component makers, or whether the SEP holder is (or should be) free to only license at the end-product level. After examining the various arguments raised in favour of and against each licensing model, we consider there are strong policy reasons to promote component-level licensing in the context of the Internet of Things. Component-level licensing is more likely to reduce transaction costs and spur downstream innovation of implementers, while preserving the SEP holders’ incentives to innovate. At a positive level, we examine whether a SEP holder that has given a FRAND commitment to a standardization body may be under an obligation under contract law or EU competition rules to grant a license to component suppliers. We consider that, properly interpreted, ETSI’s IPR Policy obliges SEP holders to license any implementer that seeks such license, regardless of the latter’s position in a supply chain. Assuming that the SEP owner holds a dominant position per Article 102 TFEU, it is argued then a similar conclusion can be reached on the basis of EU competition law.

SEPs Licensing Across the Supply Chain: An Antitrust Perspective

The rise of the Internet of Things (IoT) and the development of 5G are set to add a new layer of complexity to the current practice of standard essential patents (SEPs) licensing. While, until recently, the debate has centred on the nature of fair, reasonable and non-discriminatory (FRAND) commitments and the mechanisms to avoid hold-up and reverse hold-up problems between licensors and licensees, a new hotly-debated issue has now emerged. At its core is the question of whether SEP holders should be required to grant a FRAND licence to any implementer seeking a licence, including component makers (so-called ‘licence-to-all’ approach), or if they should be allowed freely to target the supply chain level at which the licence is to be granted (so-called ‘access-for-all’ approach). After providing an up-to-date overview of the current legal and economic debate, the paper focuses on the most recent antitrust case law dealing with the matter on both sides of the Atlantic and argues that no sound economic and legal bases which favour licence-to-all solutions can be identified.

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

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.

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.

Access to standard essential patents and antitrust enforcement: the case for licensing component manufacturers

The ability to compete on numerous markets today depends on access to technological standards. When standards are protected by standard essential patents (SEP), a license to use such SEPs will be required. There have been numerous disputes in various jurisdictions over refusals to license SEPs. Most recently, disputes concern access to SEPs by the manufacturers of components. Some SEP holders deny access to their standard essential patents to component manufacturers and prefer to license end product producers. This practice has become a highly contentious issue around the world. In particular, manufacturers of components who are denied access to SEPs claim that such refusals amount to violations of competition rules. The author examines this highly contested practice is an attempt to show when denying access to an SEP license could harm competition.

Injunctive Relief under Anti-monopoly Law for the Holders of SEPs

Abstract In this article we develop a simple economic model to analyse the effects of injunctions obtained by the holders of standard essential patents (SEPs), which shows that patent hold-ups involve two types of behaviours in the context of SEP-encumbered fair, reasonable and non-discriminatory (FRAND) commitments. One is general trading hold-up, which is a phenomenon described in transaction cost economics; the other is an abuse of market power prohibited by anti-trust law and/or competition policy. Therefore, it is utterly vital to identify the proper role of private governance and anti-trust intervention. A FRAND commitment does not include a waiver of the right of the holder of an SEP to seek injunctions. The holder of an SEP still can obtain injunctions. However, the granting of injunctions for holders of SEPs should be limited in special circumstances, so as to balance the interests of patentee and user. The holder of an SEP seeking an injunction against a willing licensee may not necessarily constitute an abuse of dominance; anti-trust scrutiny needs to pay much attention to anti-competitive effects. China’s Patent Law lacks provisions regarding injunctive relief. China’s Civil Procedure Law is vague with regard to the granting of injunctions, as are relevant judicial interpretations by the Supreme People’s Court. The decision in InterDigital and the draft of the Anti-monopoly Guidelines (2017) in China demonstrate there are some issues which need to be resolved for the Anti-monopoly Law and the enforcement thereof.

Injunctive Relief in SEP Litigation : The Consideration of Innovation and Competition

The injunction is a significant relief for patent holders. However, if a standard-essential patent (SEP) holder apply for an injunction, it may prevent potential competitors from entering into the related market and constitutes abuse of market dominant position. In Huawei v. ZTE case, the CJEU set a rule of “five steps” to judge the justification of the SEP holders’ injunction application. This issue refers to not only the interests between SEP holders and users, but also the aim of innovation incentive and the aim of free competition protection. To better balance the two significant legislative intentions namely ‘innovation incentive’ and‘competition freedom’and further improve the social and economic development, there are more elements need to be concerned: (1)As for market dominant position judgment, SEP holders should not be directly assumed as a market dominator, following elements need to be concerned: the competition situation among different standards, the market share of SEP, whether the standard is a mandatory one, the competition between standard products and non-standard products, the technology transfer costs.(2) As for abuse behavior judgment, the ‘five step’ is not enough. The identity of SEP holders, the time of the injunction application, the good faith of SEP users, whether the SEP holders charges for an unreasonably high royalty, these factors also need to be examined. (3)As for the assessment of validity of injunction application, the principle of weighing advantages and disadvantages needs to be established. The court should uphold the injunction application if the advantages outweigh disadvantages, otherwise the injunction should not be granted.

The case of the missing royalty stacking in the world mobile wireless industry

Abstract We build an equilibrium royalty stacking model that links the number of standard-essential patent (SEP) holders with the equilibrium quantity, price and cumulative royalty. We show that all observable implications of the theory are inconsistent with the data from the world mobile wireless industry. In this industry, the number of SEP holders grew from 2 in 1994 to 130 in 2013. Royalty stacking theory predicts falling or stagnant output, rising selling prices, and rising or stagnant quality-adjusted prices. By contrast, between 1994 and 2013 worldwide yearly device sales grew 62-fold, at an average rate of 20.1% per year, and both selling and quality-adjusted prices fell fast over time. Controlling for technological generation, the real average selling price of a device fell between -11.4% and -24.8% per year. Similarly, under conservative parametrizations, royalty stacking theory predicts royalty yields, which are more than an order of magnitude larger than the observed average cumulative royalty yield charged by SEP holders in practice, which hovers between 3% and 3.5%. A theory based on Lerner and Tirole’s (2015, J. Political Econ., 123(3), 547–586) within-functionality competition yields observable implications consistent with the observed facts. If all the technologies protected by SEPs have meaningful substitutes that cap the royalty that any SEP holder can charge, then the cumulative royalty is independent of demand parameters in the downstream market and can be as low as the observed average cumulative royalty yield. Moreover, if the product market is competitive and technological progress is fast, then prices follow costs, quality-adjusted prices protractedly fall, and sales grow fast.

International Jurisdiction over Standard-Essential Patents

Standards often require the use of patented technologies. Holders of standard-essential patents (SEPs) typically commit to make their patents available on fair, reasonable and non-discriminatory (FRAND) terms. National competition authorities increasingly intervene against perceived FRAND violations. But which competition authority should regulate SEPs that affect more than one country? The paper uses a very simple economic framework to assess the impact of three main legal bases for allocating jurisdiction: territoriality, nationality, and cross-border effects. The findings are negative: neither base will implement a jointly efficient outcome, and the relative performance of the bases depends on the particular circumstances at hand.

Judicial Determination of FRAND Royalties: the English High Court’s Valuation in Unwired Planet v. Huawei. Moving Away from Mainstream Economic Valuation Approaches? Who Should Determine FRAND Royalties and How? Iudex non Calculat?

Connectivity plays a key role in today’s economy and increasingly so as the Internet of Things develops. Standards, as enablers of connectivity, are central to this development. The fifth generation technology standard for cellular networks (5G) is pushing new industries to consider access to standards, including the licensing of standard-essential patents (SEPs), which are patents that need to be accessed for a product to comply with a standard. A predictable and efficient licensing environment is therefore key for companies’ strategies worldwide. To ensure accessibility to standards, some standard setting organisations require SEP holders to commit to license on fair, reasonable and non-discriminatory (FRAND) terms. These terms are subject to different interpretation, which gives rise to legal uncertainty and increased litigation. Despite this, judicial FRAND determination has been rare in Europe. This paper analyses the principles and methods applied by the courts to determine FRAND royalties, with a focus on the valuation methods adopted by Birss J in the landmark English Unwired Planet v. Huawei decision. It argues that the comparables method applied by Birss J is generally in line with mainstream economic valuation approaches and that judicial FRAND royalty determinations benefit the licensing system, albeit methods and access to data, including regarding SEP essentiality, need improvement.