The UK Intellectual Property Office, UKIPO, has published the outcome of a call for views on Standard Essential Patents, SEPs, and innovation, the purpose of which - as part of the UKIPO’s broader aim to support innovation1, 2 - was to gather evidence on whether the ecosystem around SEPs is functioning efficiently and effectively and strikes the right balance for all entities involved.
56 written submissions were received from sectors including the telecoms and automotive industries, tech industry, academia, and legal and IP professions.
Responses to the call for views covered six themes: the balance of the ecosystem and benefits to innovation and consumers; competition and market functioning; transparency; patent infringement and remedies; licensing of SEPs; and SEP litigation, which we will now summarise in turn.
BALANCE OF THE SEPs ECOSYSTEM
Responses under this theme paint a mixed picture on whether change in the existing SEP framework is needed.
Although many respondents said that a balanced ecosystem was essential to supporting innovation and competition (and that standardisation is beneficial), there was a divergence of opinions on whether the current system favours the implementer, or the SEP holder, or neither.
Where change was suggested, standard development organisations, SDOs, commercial entities including patents pools, regulators and the UK Government were named as playing a potential role in contributing to a balanced framework and protecting the interests of consumers.
SEPs, COMPETITION AND MARKET FUNCTIONING
Responses to questions under this theme showed divergent views from SEP holders and implementers, each group providing evidence in support of their arguments with few areas of agreement.
For example, some respondents said there were no issues in respect of market power in relation to SEPs, pointing to the rapid adoption of standardised technology and other indicators as evidence. Others argued that the requirement to offer licences on fair, reasonable and non-discriminatory, FRAND, terms meant that SEP holders could not exercise potential market power derived from the incorporation of their technology in a standard.
A divergence of views were also submitted on a perceived imbalance of power to influence prices in SEP negotiations. Some SEP holders said implementers derive power from the requirement to offer FRAND terms, which gave them the ability to “hold-out” or delay entering into a FRAND license. Most implementers said that SEP holders exercise market power, and some argued that SEP holders used the threat of injunctions to coerce implementers to accept non-FRAND licences (so called “hold-up”). Similarly, there was a mixture of views on whether there were wider issues related to competition and market functioning, the issues discussed including negative impacts of UK courts determining global license terms, as seen in the Unwired Planet v Huawei case.
TRANSPARENCY WITHIN THE SEPs ECOSYSTEM
Questions under this theme drew a discussion on the challenges surrounding:
- essentiality, including over-declaration (and the potential knock-on problems of uncertainty, costs and inefficiencies for firms seeking to negotiate licences or involved in litigation);
- essentiality checking (who would perform such checks, and the appropriate methodology);
- legal certainty of essentiality checks (and the practicalities thereof); and
- transparency of pricing (where proposals to improve transparency included education programmes and changes to SDO IPR policies and responsibilities).
Also, on charging different FRAND rates to different licensees, the call for views asked whether there is a justification under FRAND to charge implementers different rates when using the SEP for the same purpose. In response, some SEP holders said that different approaches or methodologies might be used by different SEP owners to negotiate royalty terms, and all may be consistent with the FRAND concept because they reflect the market-based value of the licensed SEPs or differences in the value created by different uses of the technology (e.g. in cars compared to domestic appliances).
However, several respondents said that that SEP holders bound by the FRAND commitment have no justification to charge similarly situated users differently.
PATENT INFRINGEMENT AND REMEDIES
Respondents reported a variety of issues that affect parties that interact with the SEP ecosystem, including the levels of litigation, global fairness and the decisions of national courts, enforcement, and anti-suit injunctions.
Respondents nonetheless also commented on the benefits of the patent system, particularly its role to incentivise contribution to a standard and promote competition, and thus continued innovation.
LICENSING OF SEPs
Respondents were asked to comment on how the existing SEPs and FRAND licensing ecosystem should adapt to new standard development for emerging technologies, examples of which include IoT and the metaverse.
While some respondents said that the existing framework could work well for new technologies, others argued for change to improve balance and efficiency (the latter potentially through patent pools, although some respondents said that patent pools could raise costs for smaller SEP holders or licensees).
Respondents also gave views on the best way to resolve disputes around pricing, the issue of which point in the value chain at which licences should be offered (e.g., to a component manufacturer or to an end-product manufacturer) and the distinct but related issue of the basis for setting royalties.
SEP LITIGATION
The last theme of the call for views asked questions on global FRAND terms and the role of courts and alternative dispute resolution (ADR). Several respondents stated that the setting of global licensing rates can be more efficient than pursuing litigation in multiple jurisdictions, while others, including many implementers, said national courts should not be able to compel a party to accept a determination of global licensing terms.
Respondents also reported that the use of courts in SEP disputes is generally inefficient, but some said the right of access to court should be maintained. There was a mixture of views as to the advantages and disadvantages of existing ADR, whether existing ADR is effective, and whether existing ADR needed reform or new ADR mechanisms should be created.
WHAT IS THE OUTLOOK FOR STANDARD ESSENTIAL PATENTS?
The UKIPO has indicated:
“Given the breadth of issues raised and the divergence of the views on the case for government intervention, the IPO will require a further period while we assess the issues and, as appropriate, consider the merits of the proposals submitted. During this period, we will engage with businesses and others to ensure we have understood their concerns and seek further evidence where needed.”
A report to UK ministers is expected later this year, the UKIPO expecting any significant policy interventions to be subject to consultation.
With emerging digital, smart, and next-generation wireless telecoms technologies continuing to drive innovation, we believe that stakeholders in sectors where technical standards play a vital role (or are predicted to do so) would benefit from an expansion of the SEPs ecosystem, with improved transparency on essentiality and pricing (e.g., to avoid uncertainty and unnecessary costs). We are also supportive of businesses at all levels improving their awareness of SEPs as part of their IP (and, more generally, commercial) strategies3.
Our SME-focussed article on this topic “UKIPO Publishes Summary of Responses to SEPs Questionnaire for SMEs” can be read here.
We will report further developments on this topic as they occur. To find out more about SEPs and how intellectual property can help you create commercial value from your innovations, feel free to contact any of our electronics and computing team.
FURTHER READING
- UK Innovation Strategy: Leading the Future by Creating It
- 5G Supply Chain Diversification Strategy
- Our white paper What are Standard Essential Patents?, which aims to provide a thorough understanding of SEPs and their significance for businesses, can be accessed here.
