Standard Essential Patents (SEPs): Do They Work for Smaller Businesses?

On 5 July 2023, the United Kingdom Intellectual Property Office (UKIPO) released the results of its survey of small and mid-cap businesses involved in standardisation and licensing of Standard Essential Patents (SEPs), which are available here.

By way of background, a SEP is a patent that is essential to implementing a standard. It is difficult for a manufacturer (or “implementer” of the standard) to create a standard-compliant product (such as a smartphone or tablet) without using the methods or devices protected by SEPs.

However, there is a balance to be struck here between allowing inventors to be fairly rewarded for the use of their inventions whilst preventing inventors blocking others from using the patented inventions that are incorporated into the standards.

That balance is achieved by requiring implementers who use such patented inventions to take an appropriate licence and pay a fair royalty. The appropriate licence is one that is fair, reasonable and non-discriminatory (FRAND), which ensures that the technical standards can be readily used by implementers of the standard.

If a SEP owner refuses to give a commitment to license their patent on FRAND terms, then their patented technology cannot be included in the standard.

Call for Views

In December 2021, the UKIPO published a Call for Views on Standard Essential Patents and Innovation, with the aim to better understand how increased transparency and access to patent portfolios could improve market functioning and whether there were inefficiencies that needed to be tackled.

The Call for Views covered a broad range of themes and collected opinions from more than 60 UK and international businesses and industry representatives on the balance between innovation and consumers; views in respect of competition and market functioning; transparency in the SEPs ecosystem; patent infringement actions and remedies, including the use and availability of injunctions; views on the licensing of SEPs; and views in respect of SEP litigation. 

However, the summary of responses (published in August 2022) indicated that there was little consensus amongst respondents to the Call for Views on the nature, extent, causes and impact of problems, or the need for the Government to intervene.

SEP licensing questionnaire for SMEs

As further evidence-gathering and analysis was required, the UKIPO published a new SEP questionnaire on 21 March 2023 to address the lack of direct evidence on SEP licensing from UK SMEs (small-cap and mid-cap businesses), including their experiences of interacting or using technical standards when innovating.

Composed of 33 questions, the SEP licensing survey quizzed participants on their understanding of SEP licensing, experience of SEP licensing disagreements and dispute resolution, and on their participation in standard development.

The UKIPO received 47 responses, 40 of which passed validation and most of those respondents (73%) were involved with technical standards. 

Of the respondents involved with technical standards, 45% were also involved in SEP licensing or negotiation of an SEP licence. The many reasons as to why the other respondents were not involved with SEP licensing included believing that they did not require a licence, the cost of obtaining a licence being seen as prohibitive and being unclear on the licensing process and who to approach for a licence. And the survey revealed more confusion! For example, over half (58%) of the respondents involved in SEP licensing either did not have or did not know whether they had sufficient information on how their innovation related to the SEP they had been offered or taken a licence for, and 83% said that they did not have sufficient information on pricing of SEPs that they license or may license in the future.

Turning to licensing disagreement and dispute resolution, 75% of the respondents involved in SEP licensing had disagreed with the terms of a licence or the rate that had been offered to them for a licence and only a third of those licensing disagreements had been resolved. Some of the reasons why licensing disagreements had not been resolved included a belief that the respondent was overpaying and being discriminated against as a smaller licensee and appealing injunctions on the grounds of an SEP holder refusing to negotiate in good faith.

All the respondents that had experienced a licensing disagreement answered that the threat of a court-imposed injunction was a concern for them or their business when agreeing a SEP licence.

Suggestions for improvement of transparency

The respondents provided many suggestions for the improvement of transparency, such as making information on pricing of SEPs (including determination of FRAND terms) publicly available and providing access to comparable licences (data on who has taken a licence and what they have paid), reduction of costs and to encourage SMEs to participate in the standard development process, such as providing education and training programmes to help SMEs understand the standards development process, generally improving transparency of the standard development process and Government provision of financial support to reduce costs barriers to standard development participation.

Comment

The Call for Views and SEP licensing questionnaire for SMEs have highlighted the increased importance of SEPs in recent years, and that the applicability of SEPs has spread from the telecommunications industry to growing sectors such as the Internet of Things and Artificial Intelligence.

The English courts have become a popular forum for SEP litigation, especially in light of the proceedings between Unwired Planet and Huawei, in which the court looked for the first time at the question of whether offers for the licensing of patents for mobile phones and mobile telephony infrastructure claimed to be essential to various telecommunications standards were made on FRAND terms, and decided it could set a worldwide FRAND rate.

The UK Government will consider the responses as part of its policy development and present its overall finding to ministers later this year, and any options for intervention will be subject to public consultation. 

The UK Government has also said that it wants to ensure that all those within the SEPs ecosystem have an ongoing opportunity to submit views, and asked that anyone wishing to contact the IPO concerning these matters to contact them using the dedicated mailbox: SEPcallforviews@ipo.gov.uk.

Our full article on this case is published in C.T.L.R. 2023, 29(7), 125-128. Please see here.

If you have any questions on Standard Essential Patents or the patent system in general, then please contact: patents@maucherjenkins.com