Evading Portfolio Royalties for Standard-Essential Patents Through Validity Challenges

Portfolio Licensing at the End-User Device Level: Analyzing Refusals to License FRAND-Assured Standard-Essential Patents at the Component Level

A FRAND Contractts Intended Third-Party Beneficiary

We build an equilibrium royalty stacking model that links the number of standard-essential patent (SEP) holders with the equilibrium quantity, price and cumulative royalty. We show that all observable implications of the theory are inconsistent with the data from the world mobile wireless industry. In this industry, the number of SEP holders grew from 2 in 1994 to 130 in 2013. Royalty stacking theory predicts falling or stagnant output, rising selling prices, and rising or stagnant quality-adjusted prices. By contrast, between 1994 and 2013 worldwide yearly device sales grew 62-fold, at an average rate of 20.1% per year, and both selling and quality-adjusted prices fell fast over time. Controlling for technological generation, the real average selling price of a device fell between -11.4% and -24.8% per year. Similarly, under conservative parametrizations, royalty stacking theory predicts royalty yields, which are more than an order of magnitude larger than the observed average cumulative royalty yield charged by SEP holders in practice, which hovers between 3% and 3.5%. A theory based on Lerner and Tirole’s (2015, J. Political Econ., 123(3), 547–586) within-functionality competition yields observable implications consistent with the observed facts. If all the technologies protected by SEPs have meaningful substitutes that cap the royalty that any SEP holder can charge, then the cumulative royalty is independent of demand parameters in the downstream market and can be as low as the observed average cumulative royalty yield. Moreover, if the product market is competitive and technological progress is fast, then prices follow costs, quality-adjusted prices protractedly fall, and sales grow fast.

Tracing the Evolution of Standards and Standard-Setting Organizations in the ICT Era

Standard-Essential Patents and Market Power

The rise of the Internet of Things (IoT) and the development of 5G are set to add a new layer of complexity to the current practice of standard essential patents (SEPs) licensing. While, until recently, the debate has centred on the nature of fair, reasonable and non-discriminatory (FRAND) commitments and the mechanisms to avoid hold-up and reverse hold-up problems between licensors and licensees, a new hotly-debated issue has now emerged. At its core is the question of whether SEP holders should be required to grant a FRAND licence to any implementer seeking a licence, including component makers (the so-called ‘licence-to-all’ approach), or if they should be allowed freely to target the supply-chain level at which the licence is to be granted (the so-called ‘access-for-all’ approach). After providing an up-to-date overview of the current legal and economic debate, this article focuses on the most recent antitrust case law dealing with the matter on both sides of the Atlantic and argues that no sound economic and legal bases which favour licence-to-all solutions can be identified. * The authors would like to thank the anonymous referees, Luigi Federico Signorini and the participants in the 2021 Annual Conference of European Policy for Intellectual Property (EPIP), in the 38th Annual Conference of the European Law and Economics Association (EALE), in the TILTing Perspectives 2021 (Tilburg University), and in the 16th Annual Conference of the Academic Society for Competition Law (ASCOLA). The study was conducted as part of the research activities promoted by the DEEP-IN (Digital Ecosystem, Economic Policy and Innovation) Research Network. The author is grateful for the financial support received. Any opinions expressed in this paper are personal and are not to be attributed to the Bank of Italy. The first is Half-Causation Branching, which allows the logical mapping of the inventing space, within which the imaginary invention is located. Implementing this tool reveals two alternative nearby inventions, which if left out of the sought patent protection would render any eventually granted patent practically worthless. Following that, Half-Causation Encapsulation comes to the rescue by allowing the encapsulation of the original imaginary invention, plus the two alternative nearby ones, all in a manner that provides the all-important unity of invention On the one hand, patent agents are not supposed to contribute to their client’s inventive concept to the extent that they become co-inventors. On the other hand, scientists and engineers are not supposed to dedicate so much time and effort to learning about complex patent laws as to become patent agents. Arguably, each should aim to excel in their discipline. However, a structured dialogue should be considerably helpful to each and to the patent process as a whole. It is proposed that Half-Causation, with its logical structure, can provide a basis for such a dialogue. Besides targeting a readership in patent practices and theory, this paper should be of interest to multiple readerships, for example in engineering design, medical discovery and philosophy of technology.

Standard-essential patents (SEPs) are specific types of patents that protect the technology incorporated in a standard. China has one of the world’s largest telecommunication markets, and its legal policies and practices regarding SEP protection profoundly influence the competitive environment of the Chinese telecommunication market, international economic and trade cooperation, and global telecommunication technology innovation. Recently, frequent disputes in the communication sector surrounding SEPs in China’s judicial practice revolved around the fair, reasonable, and non-discriminatory (FRAND) principles, embodying three key issues: patent hold-up, licence fee rates, and anti-suit injunction. Regarding the patent hold-up and hold-out of SEPs in the telecommunication industry, a balance of interests between SEP holders and implementers in licence negotiations should be achieved under the guidance of the principles of FRAND from the perspective of legislation, administrative management, and the judiciary. Concerning licence fee rates, billing benchmarks should be judged based on individual cases, utilizing a comprehensive approach combining comparable licence agreement methods and top-down methods to determine a fair and reasonable licencing fee acceptable to all parties. In the conflict between anti-suit and anti–anti-suit injunctions, improving the anti-suit injunction rules and international cooperation mechanisms is necessary to achieve fair and non-discriminatory judicial processes and judgment results.

Facilitating Negotiation for Licensing Standard Essential Patents in the Shadow of Injunctive Relief Possibilities

SEPs Licensing Across the Supply Chain: An Antitrust Perspective

The Legal Framework for SEP Disputes in EU Post-Huawei: Whither Harmonization?

Purpose This paper focuses on the strategic inclusion of reciprocity clauses in the licensing commitments disclosed by firms claiming standard essential patents (SEPs) in the telecom industry. We highlight the main cost and benefit of using these clauses for SEPs holders, namely, a possible deterrence effect for potential standard users on the one hand, and a legal instrument to prevent holdup and negotiate cross-licenses with other SEPs owners on the other hand. Methodology/approach We formulate general hypotheses explaining firms’ disclosure strategies with respect to reciprocity clauses, and use an original dataset of 19,601 patent disclosures in 12 different ETSI (European Telecommunications Standard Institute) projects (including UMTS, GSM, 3GPP, or GPRS) to test them empirically. Findings Our econometric results first confirm our predictions that reciprocity clauses are used as an insurance mechanism in technologically complex environments. They are more frequently included in patent disclosures when the ownership of SEPs at the project level is more fragmented. We also find that firms do not claim reciprocity clauses before having already declared a significant number of non-reciprocal SEPs in the same project, which suggests a deterrence effect on standard users that must be balanced by a strong patent position. Practical implications/originality Our findings highlight a trade-off for the SEPs holder to insert a reciprocity clause. There is both a cost and a benefit of adding this clause to the patent licensing commitment. Contrary to the usual literature on the subject, we do not analyze the general patenting strategies but the conducts on the licensing terms.

Several cases pertaining to standard essential patents (SEPs) and fair, reasonable, and non-discriminatory (FRAND) commitments filed with the Competition Commission of India (CCI) raise a pertinent issue on whether companies promoting innovation are able to exert monopoly power. As amongst the first cases in India pertaining to SEPs, arguments of monopoly power of a patent owner is compelling. The reference point is the case involving Telefonaktiebolaget L M Ericsson (Publ), M/s Ericsson India Private Limited where royalty payment pertaining to licensing of SEPs were considered. The chapter addresses two basic but interlinked issues pertaining to monopolization: Are SEPs prima facie dominant and whether dominance leads to a per se inference of abuse. Licensees preferring Section 4 of the Competition Act instead of Section 3(4) relating to anti-competitive agreements raise critical issues. First, the inference that SEP licensors are dominant does not stand the scrutiny based on available evidence. Second, prevalence of competition among both parties does not permit a per se inference of abuse of dominance. Third, assertion of monopoly power by companies promoting innovation based on their licensing agreement stands on weak logic. The chapter identifies and highlights some of the critical misconceptions pertaining to SEPs and FRAND.

H1 Patents – European patents – Telecommunications – Standards essential patents – Infringement – Claims for global FRAND licences – Jurisdiction – Justiciability – Whether validity of foreign patents in issue – Stay of proceedings – Forum non conveniens – Whether China the natural and appropriate forum – Service of proceedings – Whether defendants validly served within the jurisdiction – Service out of the jurisdiction – Jurisdictional gateways – Whether good arguable case for a FRAND injunction – Property within the jurisdiction – Serious issue to be tried – Appeal to Court of Appeal

Mark Anderson is managing partner at Anderson Law LLP, Oxfordshire, United Kingdom, and a visiting professor at the Institute of Brand and Innovation Law of University College London. The English High Court case of Unwired Planet International Ltd v Huawei Technologies Co Ltd & Anor is of great interest to IP lawyers who advise on standards-essential patents (SEPs), on associated questions of competition law, and on licensing patents on fair, reasonable and non-discriminatory (FRAND) terms. The case is also of interest internationally, partly because there have been relatively few cases anywhere in the world, to date, that provided judicial guidance on legal issues relating to SEPs and FRAND and because this is the first time that an English court has determined a FRAND royalty rate. This article focuses narrowly on the FRAND aspects of the Unwired Planet case, and on what the case teaches us about how to draft a patent licence agreement that is FRAND. But the discussion is broadened to reflect not only on the licensing of SEPs but also of other types of licence where there is an obligation to negotiate fair and reasonable licence terms, with particular reference to the terms of grant of the European Commission for Horizon 2020 research projects. This focus results in the author omitting discussion of some points that would be of interest to the lawyer who is running litigation against a user of an SEP (perhaps in parallel with negotiating a FRAND licence with that infringer), or who may be advising on compliance with competition laws in the context of such litigation and negotiations.

How to license SEPs to promote innovation and entrepreneurship in the IoT