“There is a misconception—a myth, really—that the innovation or idea behind the technology becomes more valuable once it has been declared to be standard essential. Such an understanding fundamentally misunderstands the role of Standard Development Organizations and the purpose of Standard Essential Patents.”
Standard Essential Patents (SEPs) are patents that are unavoidable for the implementation of a standardized technology. They represent core, pioneering innovation that entire industries will build upon. These patents protect innovation that has taken extraordinary effort to achieve.
Standard Development Organizations (SDOs) exist as a mechanism for industry innovators to work together to collectively identify and select the best and most promising innovations that will become the foundation for the entire industry to build upon for years to come. Those contributing patented technologies to the development of a standard are asked to provide a FRAND (which stands for Fair, Reasonable and Non-Discriminatory) assurance, in essence committing to providing access to patents that are or may become essential to the implementation of the standard.
There is a misconception—a myth, really—that the innovation or idea behind the technology becomes more valuable once it has been declared to be standard essential. Such an understanding fundamentally misunderstands the role of SDOs and the purpose of SEPs. “The opposite is quite true,” explained Matteo Sabattini, Director of IP Policy for Ericsson. “A technology makes it into a standard because it is valuable to solve a specific problem.”
The concepts behind the industry cooperation and the FRAND framework for pioneering innovations seem easy and straightforward. Nothing could be further from the truth. Some economic realities never change. Those who create the technology want to be paid (or paid more) and those who use the technology don’t want to pay (or pay less). And this leads to yet another popular misconception about SEPs.
Some erroneously believe that technology implementers are locked into a standard, and that patent owners seek to extract unjustified licensing payments after implementers have spent great sums of money investing in the implementation of the standard. “Again, the opposite is true,” Sabattini explained. “Implementers that refuse to take a license, or hard-ball patent owners, are trying to reduce their costs and the return to standards developers when those developers have already sunk their R&D investments.”
Innovators Versus Implementers
Sabattini is exactly correct, but this is a point often lost on the public. Take for example the next great communication platform—5G technology. If you watch TV, or live in a major city with mega-billboards, or read practically any major publication, you will undoubtedly see advertisements from technology implementers touting their investment in rolling out 5G technologies to users. While it is important not to minimize the contribution of those technology implementers across the final mile to consumers, it is the likes of Ericsson and Qualcomm that have paved the way for the innovation of 5G technology from the ground up. So, while consumers wouldn’t get connected to 5G platforms without the technology implementers, 5G technology wouldn’t exist for technology implementers to roll out in the first place if not for Ericsson and Qualcomm.
It is the technology innovators that have invested massive sums of sunk costs innovating the technologies that the industry, by and through SDOs, adopts as the standard that technology implementers can build upon. It is this adoption that allows different technology implementers to roll out and create uniform, cross-platform consumer products and services, all built upon the significant investment of the technology innovators.
SEPs at the ITC
In recent years, we have seen a proliferation of disputes that are at their core about SEPs and the innovations they cover. They range from cross-border patent litigations and a race to a friendly courthouse to technology users suggesting antitrust authorities around the world institute investigations into licensing practices relating to SEPs.
Even as these disputes have grown in number, and the Courts, tribunals and forums asked to weigh in continue to grow in number, oddly enough, the U.S. International Trade Commission (ITC) has not yet really faced a situation where they have been asked to decide critical questions dealing with SEPs. So far, according to Ted Essex, retired Administrative Law Judge for the ITC and current Senior Counsel at Hogan Lovells, there have been 12 cases dealing with what could potentially be considered SEPs at the ITC. In one of those cases, the parties stipulated to the existence of SEPs. In the other 11 cases, neither party presented evidence on the issue. Judge Essex believes this may be because the defendants do not want to concede the issue of validity by presenting evidence that the patent is standard essential. While accused infringers will not present evidence on essentiality, because they would like to continue to challenge validity at the ITC and in other forums, patent owners likely also do not present evidence that the patent at issue reads on the standard, so they do not have to admit facts that would lock them into a FRAND license.
The issue of SEPs, SDOs, cross-border patent litigation and antitrust implications will only become a bigger, more complicated one for technology implementers and technology innovators alike.
Hear from the Experts
Join me on Thursday, February 7, 2019, for a wide-ranging discussion on the issue of Standard Essential Patents, Standard Development Organizations, Fair Reasonable and Non-Discriminatory licensing requirements and related antitrust investigations. Joining me will be Theodore Essex, retired Administrative Law Judge for the ITC and current Senior Counsel at Hogan Lovells, and Matteo Sabittini, Director of IP Policy for Ericsson.
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