Essentiality of Reasonable FRAND Terms Governing SEPs

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For a patent governing the technological standards for which there are no such infringing alternatives, that patent comes under the ambit of Standard Essential Patents (SEP). These standards are reached through the consensus for setting up the ‘Common technology standard’ supported by the Standard Setting Organisation (SSO). The difficulty comes up with the perceived ‘standard’ that a patent becomes when it controls a legitimate amount of technology.

Adoption of Standards

When a standard is adopted, for instance, the proprietor of a SEP will automatically have a dominant bargaining position that can be utilized to extract enormous revenues depending upon the value of the standard instead of the basic SEP; likewise, SSO might be hesitant to accept a standard in any case if the SEP owner does not license it in advance because the worth of the SEP is an element of the standard's degree of appropriation. These patents render it impossible to implement or operate standard-compliant equipment without infringement.

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To reduce the risk of standardization resulting in anti-competitive outcomes as well as to prevent licensing "holdups" and ensure access to SEPs, most SSOs require owners of SEPs to commit to license them on FRAND terms to all interested parties. FRAND commitments have been widely used, but the lack of strict enforcement measures has often led to failure to achieve the desired results.

The patents and other IP rights form an indispensable part of the core strategy of a company for achieving commercial success and acquiring market dominancy. SSO is mostly responsible for setting up the standards for technological promotions. But various challenges are there which poses difficulty in the process of standard creation and adaptation.

SSOs and Challenges

There are various obstacles like those of screening the patents for being standard-essential patents since the company can over-declare the patent for revenue generation. The patent pools also work for mitigating the transactional cost further obstructing the policy structure of SSO. Patent pools are created to assist technology-implementing organizations in averting the risk of being sued by patent holders and offer market convenience. But there is no assurance that the essential patent holders have been included.

One of the few problems associates with the declaration policies of SSO. For example, the European Telecommunication Standards Institute (ETSI) policy statement reads “the submitted patent may be or may become essential in ETSI works”. We can infer that the policy statement does not provide any such authoritative and comprehensive information about the validity and scope of the patent.

Nevertheless, the collaborative approach being undertaken by the SSO is promising for the future industry, but still, effective SEP disclosures need to be declared. Taking ETSI’s 2G, 3G, and 4G telecom standards only 28%, 29%, and 50% of patent families of the respective telecom standards were found to be essential to the standardized implementations.

It is beneficial to determine the actual value placed on the essentiality of the patent. Since the licensee ends up paying heavy royalties and there are instances when the patent that was declared was not adopted in the final version of a standard.

The Injunctive Relief

It is the prerogative of the standard implementers to lay down the FRAND license at a reasonable cost, avoiding royalty staking. In an obvious situation, issues under FRAND obligation generally relate to the standard-setting process, non-sharing of patent information, fixation of royalty rates, and more importantly, the reluctance of the court to issue an injunction.

The injunction has been cited to be an equitable remedy that the IPRs owners may invoke to block the activities of a standard-setting process and prevent implementers from developing the selected technology. This, as it has been argued, may happen in case of a conflict arising between licensors and licensees on the level of FRAND royalties to pay. To reduce the anti-competitive effects of hold-ups, some authors have proposed to limit the right to seek injunctive relief by the IPRs owners.

Through injunction, the IPRs proprietors may summon to obstruct the exercises of a standard-setting process and keep implementers from building up the selected innovation. To lessen the anti-competitive impacts of hold-up, a few inventors have proposed to confine the option to seek injunctive relief by the IPR proprietors. For example, some writers have suggested that the right to seek injunction should be limited in cases where the IPR owner is a non-practicing entity, which means firms are not involved in the manufacturing of the final standardized goods. By and large, the inquiry under which an IPR holder can be allowed injunction for an infringement of (F) RAND encumbered essential patent has developed into one of the most discussed issues, at the crossing point of Patent law and Competition law. Various authorities, jurisdictions, and even standard-setting bodies have, as of late, begun to give an expanding consideration to the issue.

Author: Saransh Chaturvedi (an advocate) currently pursuing LLM from Rajiv Gandhi School of Intellectual Property Law (IIT Kharagpur).  In case of any queries please contact/write back Global Patent Filing us at support@globalpatentfiling.com.

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