Posts Tagged: "SEPs"

On October 5, the Senate Judiciary Committee considered the nomination of Judge Lucy Koh, currently of the U.S. Federal District for the Northern District of California, to an appointment by President Biden to the United States Court of Appeals for the Ninth Circuit. After that hearing, several Senators submitted written questions, which Judge Koh responded to last week. There is no indication that Judge Koh’s nomination to the Ninth Circuit is in jeopardy, but it is noteworthy, and at least somewhat unusual, numerous Senators asked Judge Koh virtually the same questions regarding her decision in FTC v. Qualcomm. This level of overlapping interest by multiple members of the Senate Judiciary Committee, which IPWatchdog.com has learned was not coordinated and developed organically, is normally reserved for nominees to the Supreme Court, and even then, typically reserved to social or constitutional issues. So, even though it is believed Judge Koh can and will easily receive a favorable confirmation vote, the questions relating to the intersection of antitrust and patent law demonstrate a keen awareness and interest in these issues on the Senate Judiciary Committee.

In this article, we’re going back to basics and discussing why our smartphones work everywhere, doing things closer to science fiction of the 1960s or 70s than anyone would have believed, as well as the role that Standard Essential Patents (SEPs) play in making this happen. We are going to examine inherent conflict between innovators and inventors that create new products and services, patent their inventions, and the implementors that leverage and deploy those inventions. Most of all, we’re going to discuss the process that converts these inventions and patents into money. A lot of money. Millions, tens of millions, and sometimes even billions of dollars. Why? Because your smartphone would be a paperweight without these innovations and patents. And soon vehicles, home appliances, production lines, meters, healthcare devices and many more industries will follow.

Most market experts predict dramatic changes in the auto industry because of shifting consumer preferences, new business models and emerging markets. The sector also looks set to be heavily affected by new sustainability and environmental policy changes, as well as by upcoming regulations on security issues. These forces are predicted to give rise to disruptive technology trends, such as driverless vehicles, electrification and interconnectivity. Forecast studies posit that the smart car of the near future will be constantly exchanging information with its environment. Car-to-X or car-to-car communication systems will enable communication between cars, roadsides and infrastructure, while mechanical elements will soon be embedded into computing systems within the internet infrastructure. The auto industry is one of the first sectors to rely on Internet of Things (IoT) technologies, which connect devices, machines, buildings and other items with electronics, software or sensors. Interconnectivity across multiple vehicle parts and units relies on the specification of technology standards such as 4G or 5G, Wi-Fi, video compression (HEVC/VVC), Digital Video Broadcasting (DVB) and Near Field Communication (NFC) or the wireless charging Qi standard to name a few.

Two recent court decisions in the United States and the United Kingdom, respectively, have considered (i) the disclosure obligation pursuant to Clause 4.1 of the European Telecommunications Standards Institute’s (ETSI) Intellectual Property Rights (IPR) Policy, and (ii) the impact this has on the enforceability of a patent subject to the Policy…. Both decisions were in the ongoing patent and fair, reasonable, and non-discriminatory (FRAND) related litigations between Optis and Apple. In summary, the decisions confirmed that neither Optis nor its predecessors had breached their duty to disclose IPR to ETSI under clause 4.1, nor did the timing of their disclosures constitute egregious misconduct, so as to result in an implied waiver under U.S. law, or in the case of the UK, a proprietary estoppel, preventing or restricting enforcement of the patent.

In a previous article, we discussed the difference between a reasonable royalty for patent infringement and a FRAND licensing rate, both in terms of their origins and objectives: the former being a creature of statute and case law that seeks to compensate a patent owner for infringement, whereas the latter is rooted in contract and seeks, amongst other things, to address issues of royalty stacking and discriminatory licensing. Despite these differences, we noted that these two concepts have often been treated interchangeably by courts, often leading to confusing results…. Pursuant to appeal of that decision, however, the United States Court of Appeals for the Fifth Circuit has now addressed the photonegative question in HTC Corp. et al. v. Telefonaktiebolaget LM et al., case number 19-40643: are patent laws regarding what constitutes a reasonable royalty applicable to questions of compliance with FRAND-related contractual obligations? Though the majority decision did a great job highlighting the distinction between these two different concepts, there was a concurring decision that continues to blur the line.

The U.S. Court of Appeals for the Fifth Circuit today affirmed an Eastern District of Texas court’s judgment for Ericsson, finding no error in the district court’s jury instructions, declaratory judgment or evidentiary rulings, and rejecting HTC Corporation’s allegations that Ericsson had breached its contractual obligation to offer a license on fair, reasonable, and non-discriminatory (FRAND) terms. The case stems from HTC’s refusal of a 2016 licensing deal in which Ericsson proposed a rate of $2.50 per 4G device to license its standard essential patents for mobile devices. Although HTC had previously paid Ericsson about $2.50 per device for the patents under a 2014 licensing agreement, in 2016 the company independently assessed the value of Ericsson’s patents and ultimately proposed a rate of $0.10 per device in 2017, which was based on the “smallest salable patent-practicing unit.” According to the Fifth Circuit, Ericsson considered this “so far off of the norm” that negotiations stopped, and a few days later, HTC filed suit in the U.S. District Court for the Eastern District of Texas, alleging breach of FRAND terms.

President Joe Biden’s recent executive order was billed as “promoting competition in the American economy,” but is a prime example of why one should always read the fine print. Rather than boosting the technology and innovations that spur American competitiveness in the global marketplace, the Biden administration is pushing a directive that reinforces the dominance of technology giants like Apple and Google. Part of the executive order addresses the complex but essential way we protect those who develop standard technology – such as the shared technologies that make mobile communication possible across multiple networks. Standards enable critical technologies such as 5G, the Internet of Things, video transmission, artificial intelligence, and autonomous vehicles. Nations that develop these technologies and the standards they are based on will have a significant advantage in gaining the lead in the next industrial revolution.

he Versatile Video Coding standard (VVC), finalized in 2020, is now entering a fragmented, multi-codec market. However, VVC’s adoption is uncertain in the face of competitive video solutions that are subject to lower or no royalties. VVC owes thanks for this to the excessive royalties and licensing uncertainties that continue to plague VVC’s predecessor, HEVC. Over the past five years, the formation of multiple pools for HEVC has led to licensing inefficiencies and royalty stacking that have hampered HEVC’s adoption. This has prompted the video industry to develop competitive, lower cost solutions, such as the Alliance for Open Media’s Advance Video 1 codec (AV1) and MPEG’s Essential Video Codec (EVC) and Low Complexity Enhancement Video Coding (LCEVC) standards. These video solutions, together with the already existing AVC and HEVC standards, provide a lot of choices to device manufacturers, streaming platforms, and content owners. VVC’s chances of success are further weakened by the dramatic decreases in broadband download, shown below, and video storage costs, which negate any gains in compression efficiency generated by VVC for most uses.

Last week, an article was published on the Social Science Research Network (SSRN) website by Matteo Sabattini, who is the director of IP Policy at Ericsson. SSRN is an open research paper repository that does not peer-review any articles that are uploaded. Sabattini’s new article, a summary of which was also recently published on IPWatchdog, is titled, “When is a portfolio probably standard-essential?” and cites several studies that determined the overall essentiality rate for 4G and 5G. Here, Sabattini cites the Concur IP study that was part of the expert witness report of witness Dr. Zhi Ding in the TCL v. Ericsson litigation case, as well as several studies published by David Edward Cooper from Hillebrand Consulting, who is an Ericsson commissioned subject matter expert and who also testified in court, e.g. for the Unwired Planet v. Huawei case. Finally, Sabattini also mentions the EU commission 2017 study conducted by IPlytics:

Do owners of patents for which licensing declarations have been made enjoy more rights than other patent holders? Do such licensing declarations impose obligations on potential licensees rather than on patent holders? Should prospective licensees have no right to challenge such patents? In another responsive article, that is what one commentator claims our series of articles on IPWatchdog asserted, although we never wrote or suggested anything of the sort. In doing so the commentator employs intentionally misleading language like “declared essential patents” to characterize such licensing declarations as claims of essentiality, and “prov[ing]… licenses are needed” which, as will be explained, is not possible. These hyperbolic assertions are commonplace in the world of standards related patents, as are straw-man arguments concocted by implementers trying to escape the need to take a license. While we appreciate that all of this comes down to innovators wanting to be paid for their innovations embodied in standards and implementers wanting to pay less, or nothing, for using those innovations, we’d prefer the debate to be without histrionics and hyperbole. We hope this final response will clear up any remaining misconceptions. 

In recent years, several patent experts and commentators have claimed that there are too many “low-quality” patents being granted by patent offices around the world, or that a large percentage of patents are often found invalid by courts and judges. Until a patent is found to be invalid by a court or another tribunal, during licensing negotiations both licensor and licensee can only consider the likelihood that such patent is eventually found invalid based on the incomplete information available to them. Similarly, it has been claimed that a patent-by-patent analysis of a large patent portfolio could determine, without any uncertainty, whether a portfolio is infringed or standard essential. For example, several studies have been published or presented in courts that try to determine which patents in a portfolio are “truly” essential….. A better model, in the author’s opinion, is a probabilistic model that tries to estimate the likelihood of a portfolio to be infringed, valid and/or essential.

In a previous series of articles that were published on IPWatchdog, we analyzed and categorized various fair, reasonable and non-discriminatory (FRAND)-related statements made by a variety of entities, including those that are primarily licensors of Standard Essential Patents (SEPs), those who sell network equipment products or components and who are also significant licensors of SEPs, those who sell end user products and who are significant licensees of SEPs, an association focused on FRAND policy development, and a patent pool. One of those articles considered statements made in relation to the appropriate royalty base to which FRAND licensing rates should be applied, with one camp apparently favoring use of the end product and another clearly favoring using a component thereof (oftentimes referred to as the smallest saleable patent practicing unit, or “SSPPU”). Conscious of the fact that there is a wide range of opinions on issues related to FRAND licensing, we intentionally chose to avoid putting forth any subjective views as to the way things should be, instead choosing to simply report such statements, highlight the main differences, and sprinkle in some FRAND-related decisions and court guidelines that appeared relevant, and sometimes contradictory, to such statements. Despite our approach, a recent responsive article, “The SSPPU is the Appropriate Royalty Base for FRAND Royalties for Cellular SEPs,”accuses us of “fail[ing] to present a balanced view” and supporting the extraction of “excessive revenues for SEP patent owners”.

The next industrial revolution will not only impact the smartphone and computer world but will spread to many more industrial verticals. Automotive, manufacturing, energy, health care, and MedTech are among the industries most likely to be impacted by connectivity, as they have high-value equipment that is constantly networked and needs to handle massive amounts of data. Standards such as 5G or Wi-Fi 6 (802.11ax) will connect industrial machinery and robots allowing for remote control, monitoring, and repair, as well as industrial automation. From smart grids to drone control, energy and utility, companies will rely on standards to handle massive data. Connectivity standards will be used by hospitals and medical equipment manufacturers to provide data to a variety of tablets and fixed machines, as well as to enable remote surgery. Enhanced monitoring and automation are likely to assist industries as diverse as agriculture and finance. Online shops will increasingly turn to virtual reality experiences. 5G based tracking will emerge in the logistic sector. Edge computing and low latency of 5G and the improved compression of the versatile video coding (VVC) standard will be used in the gaming business, as well as in general augmented and virtual reality applications. As transportation operators rely on connectivity standards to connect smart city infrastructure, media companies will boost mobile streaming speeds and quality. Over the next few years, when advanced cellular, wireless and video standards replace existing protocols, these developments will occur swiftly.

One of the major challenges when licensing, transacting, or managing Standard Essential Patents (SEPs) is that there is no public database that provides information about verified SEPs. Standard-setting organizations (SSOs) such as ETSI (4G / 5G), IEEE (Wi-Fi), or ITUT (HEVC/VVC) maintain databases of so-called self-declared patents to document the fair, reasonable and non-discriminatory (FRAND) obligation. However, SSOs do not determine whether any of the declared patents are essential, nor are the declarants required to provide any proof or updates. As a result, in the course of licensing negotiations, patent acquisitions, or litigation, the question about which patents are essential and which are not is one of the most debated when negotiating SEP portfolio value, royalties, or infringement claims. Artificial Intelligence (AI) solutions have started to support the process of understanding how patent claims relate to standards to assess larger SEP portfolios without spending weeks and months and significant dollars on manual reviews by technical subject matter experts and counsel.

Historically an esoteric area of law, in recent years, antitrust policy is drawing broader attention as a tool to curb the exercise of monopolistic market power, especially by big tech behemoths. Congressional reports on both Democratic and Republican sides of the aisle, multiple legislative initiatives to reform U.S. antitrust law, and a recent book by Senator Amy Klobuchar (D-MN), Chair of the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights, are some indicators of this trend. Along these lines, broad outcry broke out against rumored Department of Justice (DOJ) Antitrust Division leadership appointments of candidates representing big tech interests, such as Karen Dunn (Apple, Amazon), Renata Hesse (Google, Amazon), Susan Davies (Facebook), and against Deputy Attorney General Lisa Monaco’s (Apple, Google) involvement in deliberations over the nomination of a DOJ Assistant Attorney General (AAG) for Antitrust.