Last June the guide “Core Principles and Approaches for SEP Licensing” was published under the auspices of CENCENELEC and Deutsches Institut für Normung (DIN), and on the initiative of the ACT | The App Association and the Fair Standards Alliance (FSA).
Ponti & Partners SLP and benchmark innovative companies (i. e. Apple Inc, Cisco Systems, Inc, Deutsche Telekom AG, Groupe Renault, Honda Motor Co., Ltd., Juniper Networks, Volkswagen AG) from different sectors and countries have contributed to these guidelines.
The document is intended to offer guidance to companies entering or already active in the IoT (Internet of Things) space, which need to enter into licensing negotiations with owners of Standard Essential Patents (SEPs).
This is because the mentioned companies (implementers) are willing to develop products or services (i.e. connected car, smart home appliances, energy grids) that implement a connectivity technological standard (3G, 4G, 5G), thus needing access to patents (SEPs) that protect the technology included within the standard.
Standardization aims at benefiting consumers by accessing the most advanced technologies at affordable costs while creating economies of scales and allowing manufactures to increase the size of their markets. In the context of IoT, where different areas converge (ICT, consumer electronics, automotive industry, smart cities, e-Health) massive interoperability between devices and infrastructures through standardization will be key for its full deployment.
Thus a balanced standardization system is crucial to incentivize the investments needed to develop core technologies and infrastructures that conform a standard (i.e. upstream ICT companies creating new wireless technologies) and to ensure its widest adoption by downstream innovators that develop and introduce new products and/or services in the market (i.e. connected cars) implementing the standard.
In the context of standardization and SEPs licensing, FRAND terms (Fair, Reasonable and Non-Discriminatory) in SEPs licensing offers –and counter offers-, are critical to maintain both SEP contributors and implementers incentives. Thus, the SEP owner’s FRAND commitment to provide access to their patents to all interested licensees, in a fairly and reasonable manner, is usually a competition policy requirement, also in the context of Standard Developing Organizations (SDOs) where standards are developed, to avoid hold-up by patent owners.
In other words, that SEPs owners don’t discriminately limit third parties, once they are locked-in in the standard (its assumption by the industry implies the elimination of other alternative technologies), to access the SEPs that protect the technology needed to practice the standard and then demanding excessive royalties.
Thus, in standardization, patent owners renounce their typical right to exclude third parties to access their patented technology, in exchange of their expectative to receive fair economic compensation from a bigger pool of potential licensees willing to have access to the standard.
There are, though, a number of key issues around the FRAND commitment concept in the context of SEPs licensing negotiations (specially but not limited to access to all licensees, valuation of SEPs, transparency regarding information over SEPs essentially and validity, Portfolio licensing, disputes, injunctions availability, Patent Pools), that can impede or delay the agreement between SEP owners and implementers. If not adequately addressed it can be an obstacle to the wide adoption of the standard, and in the context of 5G it ultimately may slow down the deployment of the IoT products and services industry.
These controversial aspects around the FRAND commitment are subject of discussion in this document, which aims at bringing clarity and guidance to parties involved in SEPs licensing negotiations. These issues are also of concern to the EU Commission as they are a factor that can influence the success of the Digital Single Market strategy. The Commission has produced recently a communication offering some guidelines to all stakeholders to create a level playing field for SEPs licensing negotiations that should provide the needed incentives to patent creators and implementers’ investments. This document, and the one produced by the SEPs creators, are a response to the Commission call to enter a constructive dialogue, taking into account the particularities of each industry sector entering the IoT space, from the acknowledgement that there is not a “one solution fits all”.
Article by Josep Maria Pujals.