IPWatchdog – Determining Essentiality: An Analysis of SEPs and Tips to Avoid Over-Declaration
“A close examination of SEP databases reveals that a large number of patents that have been declared SEPs are not essential.”
Standard Essential Patents (SEPs) cover technology that must be used to comply with an interoperability standard. An SEP patent can read onto a mandatory industry standard, such that a product that follows the standard also infringes the patent.
A patent is recognized as an SEP by Standard Setting Organizations (SSOs) or a Standards Development Organization (SDO), such as European Telecommunications Standards Institute (ETSI), American National Standards Institute (ANSI), International Telecommunication Union (ITU) or International Standardization Organization (ISO).
These patents are to be licensed to the manufacturers of the products without any prejudice. Once a patent is identified as an SEP, the owner has to accept the terms of licensing the patents on a fair, reasonable, and non-discriminatory (FRAND) basis to a potential licensee, which in the worst case can lead to patent hold-up. Each party is bound by an obligation to act reasonably, as a willing licensor and a willing licensee. The monetary benefits, as mentioned in the agreements, should be limited and nearly the same for all the licensors.
SEP portfolios differ greatly in terms of family size, legal status and relevance to the standard. Hence, SEP analysis must precisely represent the value of a portfolio, as, for various reasons, not all patents in the portfolio have the same strength and application. SEP counts and relevance measures help in the valuation of declared SEP portfolios.
SDO databases record tens of thousands of SEPs for a single standard, and this trend is growing. The declarations are based on a self-evaluation performed by the patent holders and are not subject to further inspection with respect to the essentiality of the declared patent.
Are All SEPs Essential?
A close examination of SEP databases reveals that a large number of patents that have been declared SEPs are not essential.
There arguably is a lot of “over-declaration” of SEPs and the reason might have something to do with this ETSI IPR policy:
During the proposal or development of a standard, ETSI members must inform the Director-General in a timely fashion if they are aware that they hold any patent that might be essential.
It is important to consider the use of the clause, “might be essential”. Patent owners are obliged to declare the patent as essential even if they are doubtful about its essentiality. Unfortunately, a few patent owners may intentionally proclaim many of their patents to be essential to gain benefits or a business advantage.
In practice, there are multiple reasons potentially essential patents and patent applications might be rendered non-essential. For example, a patent could be granted with amendments that cause it to be no longer essential. Whenever implementers bargain for the licensing fees, they must examine whether certain patents are actually essential, which can stall negotiations and lead to litigation.
Don’t Succumb to ‘Over-Declaration’– Perform a Simple Analysis.
Devise a strategy that could save you from paying unnecessary licensing costs. Below are a few pointers to consider:
- Understanding the Nature of Claims (applicability to handset/network entity): If you are a mobile device manufacturing company, you should avoid taking a license for those patents which do not have any device-based claims, even if the patent is standard-essential.
- Optional/Mandatory Features: If the feature mentioned is optional in the standard, then you should avoid taking a license for those patents.
- Essentiality Check: As per one of the principles of FRAND – “If, within a patent portfolio,certain patents are proven to be SEPs and certain patents are disputed, the licensee has a right to obtain a license against the proven SEPs and deny the rest, irrespective of the fact that it comes as a part of a patent portfolio.” – you can exercise your right to license essential patents only.
We have performed a similar analysis on a subset of a portfolio declared as essential to LTE standards. Below is the snippet from our analysis on the LTE brochure advertised as an SEP portfolio.
To our surprise, out of 57 patent families claimed to be essential, only 24 turned out to be really essential. Thus, 60% of the patents claimed to be essential were not. This is not a random outcome. In the UK High court’s recent judgment, Unwired Planet v. Huawei, quite a small number of patents were found essential against the claimed numbers as well.
Furthermore, among the 24 essential patents identified from our SEP analysis, 16 patent families did not have any device claims. Thus, we were left with only 8 patent families out of the initial 57 patent families that would be considered essential to a mobile device manufacturing company.
You can now think about checking the validity of these remaining patents. In this way, you can reduce your licensing (or FRAND) costs substantially.