“‘There is little incentive to take a license early when [implementers] can take a license late for the same rate,’ explained [Hasan] Rashid. And therein lies a very real problem for innovators, which will remain the case as long as damages are equivalent to FRAND.”
Standard Setting Organizations (SSOs) 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 disclosing patented technologies to an SSO during the development of a standard commit to offering a license at a FRAND (which stands for Fair, Reasonable and Non-Discriminatory) rate to the extent the patent is essential, as explained by Curtis Dodd, Chief IP Counsel for Harfang IP, during the second panel of SEP 2021 yesterday, which focused on FRAND and patent damages. Indeed, the myriad issues surrounding FRAND obligations and the disclosure of innovations to SSOs were the focus of the three panels that took place on day 1 of SEP 2021, hosted by IPWatchdog.
Innovators disclose technology and innovations to SSOs as a prerequisite for participating in discussions about the standard and are required to disclose anything that could potentially relate to the standard. For that reason, a bit of an Abbott and Costello routine akin to Who’s on First emerges with respect to what is and what is not a standard essential patent. By definition, a standard essential patent is one that has been disclosed as potentially relating to the standard, whether it ultimately does relate to the standard selected or not. For this reason, it is entirely possible for an implementer to not utilize a particular standard essential patent despite implementing the standard. This ultimately leads to a question of whether there is over disclosure of SEPs, which by definition is impossible since those participating must disclose everything, otherwise they run the risk of violating contractual obligations and engaging in fraudulent withholding of information relevant to the adoption of the standard.
Still, this creates a problem relating to the overwhelming task associated with determining whether any particular patent or set of patents, or even a patent family, is actually being used by an implementer. This was a focus, in part, of the first panel that discussed the SEP ecosystem. If one has to do this by hand, it would be an insurmountable task. IPLytics, a sponsor of SEP 2021, has an artificial intelligence approach to sorting portfolios to identify those patents that most likely actually read on the standard.
Hold Up, Hold Out and Calculating FRAND
Of course, even if you can agree what patents read on the standard and are as a matter of fact infringed standard essential patents, there is no agreement between implementers and innovators on basic topics such as willingness to engage in good faith negotiations and how to actually calculate a FRAND rate.
“I see a lot of hold out,” explained Roberto Dini, an IP senior consultant for Metroconsult, who in 1982 founded Sisvel. “Companies that engage in hold out should not have a FRAND defense in court.”
Dini would go on to say that he finds the so-called top down approach for determining FRAND “deserving of an award for stupidity.” In response, however, Kent Baker, Head of IP for u-blox AG, unsurprisingly disagreed, saying that they do use and advocate for the top down approach because “comparable licenses are not helpful.” Baker would go on to explain that in many situations the comparable licenses were negotiated outside of a FRAND obligation, which makes the comparisons inappropriate and unhelpful at best.
Baker also pointed out that in many negotiations, indemnification clauses are required, which are a non-starter. “We will never agree to indemnification,” Baker explained. “One lawsuit would bankrupt our company.” When Baker negotiates, he offers to walk the SEP holder through their books. “Take a look at how the SEPs will be implemented and we will walk you through it,” Baker explained. “When you license us, you tap into the [small company] market segment… and we can show you what you are leaving on the table.”
Parties to SEP Suits Need Each Other
Perhaps the quote of the day came from Hasan Rashid, Associate General Counsel of Licensing for GE: “There are things you say to settle a case and there are things you say to a judge to win a case.” This rather profound observation articulates how two parties can be engaged in what appears to be a worldwide fight to the death only to have all litigation and disputes settle. Unlike many other areas of litigation, innovators need implementers and implementers need innovations. There is a symbiotic relationship, and the parties will be doing business with each other over a long period of time, so while things get tense and very heated in the courtroom, and arguments are made to gain leverage (i.e., antitrust theories in SEP litigation, which so far have really gone nowhere), at the end of the day, the parties need each other. Of course, “there is little incentive to take a license early when [implementers] can take a license late for the same rate,” explained Rashid. And therein lies a very real problem for innovators, which will remain the case as long as damages are equivalent to FRAND.
With respect to the risk profile that could make implementers think twice about waiting until the very end to take a license, Zoe Butler pointed out that in the UK there is cost shifting of attorney’s fees. Butler also pointed out it is powerful to have a UK patent portfolio and enforcement strategy that includes the UK because in SEP cases, patent owners, if successful, can either achieve an injunction or a worldwide FRAND license.
More to Come
SEP 2021 will continue on Tuesday, November 9 with panels on patent pools at 11am EST and litigating SEPs at 1pm EST. Later in the week, on Wednesday, November 10, we will have two more panels that will focus on licensing SEPs in specific industry verticals; we will discuss the Internet of Things at 11am on November 10, and the Automotive Industry at 1pm EST, also on November 10. SEP 2021 will conclude on November 11 with discussion of Arbitration of FRAND and SEP disputes at 11am, followed by a panel that will focus on Antitrust enforcement at 1pm EST