Standard Essential Patents and FRAND Licences

May 2021

Standard Essential Patents and FRAND Licences

The most common licensing model for Standard Essential Patents (SEPs) is to license the SEP on fair, reasonable and non-discriminatory (FRAND) terms. A Standard Setting Organisation usually requires an undertaking that any patents which cover the technical specification of a standard will be licensed on FRAND terms. Even if a direct competitor is using the technology, the patent owner cannot simply enforce the patent via infringement proceedings to obtain an injunction in the usual manner. This limitation of the normal practice of obtaining injunctions was confirmed by the EU Court of Justice in Huawei vs ZTE. Rather the patent owner must first contact the implementer to inform the implementer that the SEP is being infringed. If the implementer expresses a willingness to license the SEP, the patent owner must offer a licence on FRAND terms. If the implementer refuses to license the SEP even on FRAND terms, then the patent owner may seek an injunction. The implementer also has obligations to diligently respond to the initial FRAND offer. However the implementer is free to make a counter offer. And if an agreement cannot be reached, the parties may refer the matter to a court to decide on the final FRAND terms.

There has been much discussion as to how this process is to work in practice. The UK courts have accepted that the FRAND licence terms can be set on a worldwide basis in the Unwired Planet vs Huawei case in 2020. This approach taken by the UK courts of setting the FRAND terms on a worldwide basis has not met with widespread approval. Courts in other countries, in particular China, have not accepted that the UK courts should decide the FRAND terms. In some cases the China courts have issued anti-suit injunctions (ASI) to prevent the other party from commencing court proceedings in another jurisdiction. Such ASIs are highly controversial. Even in cases where the China courts have issued ASIs, it has not prevented courts in other jurisdictions, such as Germany and India, from issuing a counter measure – an anti anti-suit injunction. Indeed the German courts have even gone so far as to take the view that if an implementer applies for an ASI, this is in effect a confirmation that the implementer is not willing to license the SEP on FRAND terms, as noted in the case of InterDigital vs Xiaomi. This would render the FRAND defence obsolete and open the way for the patent owner to obtain an injunction. Implementers should proceed with extreme caution before pursuing an ASI.

One of the most active areas of technology currently in relation to FRAND licences relates to connected cars. This ecosystem typically involves 3 principal actors – the patent owner, an intermediate chip supplier, and the manufacturer of the final product. This contrasts with the simpler scenario we have considered to date with only 2 actors – the patent owner and the implementer. Some patent owners take the position that their FRAND obligations require them to grant a licence but that they may choose which level of the supply chain to grant the licence to. This has led to some patent owners refusing to grant a licence to the intermediate chip suppliers. The value of the chip per se would be many orders of magnitude lower than the value of the final product – the car. A FRAND licence based on a percentage of the sale price of the chip is therefore significantly less attractive to the patent owner compared to the same percentage of the sale price of the car. This unresolved issue has now been referred from the German courts to the European Court of Justice in Nokia vs Daimler.

There are other fundamental areas which require further certainty. One of the most important is to achieve greater clarity on what patents are truly essential to a standard. The current situation relies on the patent owner for the most part to self-declare that a particular patent is essential during the standard setting process. In general there is no independent review of whether a patent is essential, unless a court examines the scope of protection of the patent relative to the technical specification of the standard in the event of a costly and time-consuming litigation. There have been calls from the European Commission amongst others to have a formal review process before a patent can be designated as being essential to a standard. The European Commission has suggested that a body such as the European Patent Office (EPO) could take on such a task. The EPO Examiners would certainly have the appropriate technical and patent skills to perform such a task. However there are many potential obstacles to be addressed before any such system could be initiated. Not least of which is how to manage the additional workload of SEPs when the EPO already has a substantial backlog in relation to the existing patent examination and opposition procedures. In addition there would inevitably be a cost involved for the patent owner to have the patent classified as being essential which would be in addition to the existing patent costs and standards process costs.

If you would like further information please contact Dermot Roche at docketing@secerna.co.uk

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