Transparency in 3G/4G/5G FRAND Licensing and ETSI’s IPR Database

“A declaration to ETSI is not […] an allegation of essentiality but rather a commitment to make licenses available to the declared patents on FRAND terms and conditions.” disturbing trend has recently emerged whereby an alleged lack of transparency associated with the European Telecommunications Standards Institute (ETSI) intellectual property rights database (IPR Database) is being used in support of antitrust allegations and to propose radical changes to the fair, reasonable and non-discriminatory (FRAND) licensing framework for 3G, 4G and 5G wireless technology. But is there really such a transparency problem or is this yet another attempt to tilt balance of power in favor of implementers and excuse hold-out?

The Role of ETSI’s IPR Policy and IPR Database

Before delving into these recent developments, consider first what ETSI intended to achieve with its intellectual property rights policy (IPR Policy) and IPR Database. ETSI’s primary concern was ensuring that FRAND licenses would be available to implementers for any patents essential to practicing a standard, such as the standards developed through the 3GPP for 3G, 4G and 5G wireless communications. ETSI achieved this objective through its IPR Policy which was designed to identify potentially essential patents so that licensing commitments could be secured. These licensing commitments are then uploaded to ETSI’s IPR Database to facilitate implementers knowing if any patent brought to their attention is available for FRAND licensing.

The IPR Database does not, however, indicate if a license is required for any given patent. That is to say, ETSI’s IPR Database is not, and was not intended to be, a real time, up to date repository of only essential, valid and unexpired patents needed to practice the standards. See, for example, the “Disclaimer” on ETSI’s IPR Database (emphasis added):


Also noteworthy is that ETSI’s IPR Policy encourages so called “over declaration” by seeking disclosure of patents that “might be ESSENTIAL”, given it is in ETSI’s interest that more patents be subject to FRAND licensing commitments than less. Further, ETSI encourages disclosure of potentially essential patents early in the standardization process which complicates essentiality determinations given the standards text and patents claims are often in flux at that point.


Lenovo v. InterDigital

Notwithstanding the objectives underlying ETSI’s IPR Policy and IPR Database Lenovo asserts, in a recently filed complaint, that InterDigital Communications (IDC) has engaged in anticompetitive behavior, and breached its commitment to ETSI for, amongst other reasons, overstuffing the ETSI Database (emphasis added):

  1. IDC compounded the deceptive nature of its IPR Declarations by declaring thousands of its patents as essential to the Cellular Standards without regard to whether those patents are actually—or reasonably may become—essential, thereby creating a thicket of alleged SEPs intended to raise the costs and complexity, as a practical matter, for potential licensees to assess fully those claims of essentiality. In doing so, IDC tilts negotiations improperly in its favor through a massive and disproportionate imposition of transaction costs upon implementers of the Cellular Standards that seek to license Cellular SEPs on FRAND terms.

A declaration to ETSI is not, however, an allegation or confirmation of essentiality but rather a commitment to make licenses available to the declared patents on FRAND terms and conditions to the extent they are or become, and remain, essential.

Lenovo’s complaint tacitly acknowledges that not all patents for which licensing commitments have been made are essential by noting InterDigital’s position regarding its share of patents “likely to be essential”:

  1. IDC claims to hold a portfolio of over 34,000 patents and patent applications worldwide. As a result of its manipulation of the standard-setting process, its deceptive FRAND commitments, and its over-declaration of patents to ETSI, IDC claims that thousands of its patents are essential to the Cellular Standards, although it is careful not to identify all such patents with particularity. Instead, IDC purports to control 7-10% of the patents “likely” to be essential to the 3G UMTS standard and nearly 10% of the patents “likely” to be essential to the 4G LTE standard.

For if InterDigital is saying it controls 7-10% of the patents that are likely to be essential based on studies by third-party analysts, that is going to be far less than the total number of InterDigital patents in the ETSI Database based on average rates of “over declaration” (which is a misnomer given the aforementioned purpose of ETSI’s IPR Policy and IPR Database). Further, Lenovo’s acknowledgement of such third-party studies analyzing essentiality undermines its position that reviewing ETSI’s IPR Database is necessary to determine relative shares of SEP ownership.

Interestingly, and giving very little credit to the intelligence of arbitrators, Lenovo raises another straw man saying that “…IDC’s efforts to coerce Plaintiffs into arbitration is merely another means by which is seeks to take advantage of secrecy and its inflated counts of declared SEPs to extract non-FRAND royalties…”. But even if one were to assume, arguendo, that IDC would try to equate the number of patents for which declarations were submitted to ETSI to its share of likely SEPs, which it doesn’t appear to be doing, that façade would cease to be effective the moment Lenovo pointed out that inclusion in ETSI’s IPR Database does not mean the patents are, in fact, essential.

Though only mentioned once in its complaint, Lenovo frames such issues as being a matter of “transparency”, despite that term not having an accepted legal meaning or understanding in the industry:

Transparency in licensing of SEPs would, in contrast, enable prospective licensees to assess more effectively the value of IDC’s portfolio, as well as expose IDC’s non-compliance with its FRAND commitments and its pattern and practice of violating its FRAND licensing obligations.

But is this really a matter of transparency given InterDigital’s patents, the licensing declarations submitted to ETSI (which help narrow down those InterDigital patents that might be essential), the standards, and prior art are all publicly available?  With respect to the licensing declarations, note that unlike the situation with ETSI, where patent numbers and standards section numbers are provided, “blanket” declarations are commonplace in the IEEE and ITU, with patent owners merely declaring that, to the extent they have any patents that may be essential, they are prepared to license on RAND or FRAND as the case may be.

To use Lenovo’s own words, this sounds more like an issue of who should bear the “transaction costs” of determining which patents need to be licensed and what the appropriate FRAND rates should be. But what is wrong with Lenovo having to do its own analysis and taking its chances on issue of non-compliance with FRAND in court if not agreeing with InterDitigtal’s assessment, as compared to making InterDigital show its hand in pre-litigation negotiations without any commitment from Lenovo to obtain FRAND licenses? Taking Lenovo’s proposed approach to the logical next step, is InterDigital also responsible for analyzing third party patents given assessing its compliance with FRAND requires consideration of the total universe of essential patents?

The ‘SEPs Expert Group’

An “expert group” set up by the European Commission “to provide the Commission with economic, legal and technical expertise and to assist the Commission to inform policy measures that it may take to ensure a balanced framework for smooth, efficient and effective licensing of SEPs”, also noted concerns with transparency in its January “Contribution to the Debate on SEPs” (“Contribution”). Specifically, the Contribution states that “there is a lack of transparency as to the ownership and number of true SEPs covering an adopted standard, which makes it difficult for implementers to determine what SEP licences they need for their standard-compliant products or services” and, according to the experts, “providing greater transparency on the SEP landscape could be beneficial to both SEP holders and implementers as it may facilitate smoother SEP licensing negotiations and reduce SEP litigation” (emphasis added). The Contribution notes, however, that “there is currently no clear evidence” of a lack of transparency increasing licensing transaction costs and making FRAND licensing less efficient.

Where the experts really go off the rails is with respect to ETSI’s IPR Database. For example, the Contribution notes that while ETSI’s declarations are more detailed than those used by other standard development organizations, they “are not regularly updated to reflect changes in the SEP landscape” to reflect that “[p]atent applications may be rejected, patents may be invalidated or expire or lose their essential character, as standards are approved, supplemented or amended…”  Somewhat surprisingly, the experts make this statement despite acknowledging the purpose of the declaration process was “to ensure that all patents that are or could become essential to a standard are available for licensing…” and that such declarations were “not intended to facilitate SEP licensing…”.

Notwithstanding the lack of evidence regarding the impacts of transparency issues, and the purpose behind ETSI’s IPR Policy and IPR Database, the Contribution goes on to make several proposals the vast majority of which place additional burdens and obligations on patent owners. For example, the Contribution proposes requiring patent owners to obtain third party essentiality assessments, to submit additional information to ETSI (e.g. the results of essentiality assessments), to update information provided to ETSI, to accelerate prosecution for declared patents, and to conduct prior art searches amongst other things. Setting aside the myriad problems such proposals would create, many of which are touched on in the Contribution itself, the biggest problem is the underlying and unsupported assumption that the FRAND licensing regime is intended to provide implementers with full transparency, without any obligation to reciprocate.

The Big Imbalance

Regarding whom, as between patent owners and implementers, should shoulder the burden of assessing the essentiality and value of standards related patents (i.e. “the transaction costs”), consider the fact that patent owners have already made significant investments into innovating and patenting those innovations, whereas implementer have been free to commercialize, and profit from, the technology without any obligation to enter into FRAND licenses.

Also, worth questioning is the fantastic nature of the narrative that large implementers somehow are losing sleep over not being able to identify all the patents they wish they could license but cannot, due to the state of ETSI’s IPR Database. Consider, for example, that many tech companies have an implicit (if not explicit) internal policy preventing their employees from looking at, or commenting on, third-party patents so as to reduce the risk of willful infringement. More realistic is the view of the European “expert group”, that patent owners typically have to make the first move:

The lack of detail in a large of majority of SDO declarations makes it difficult if not impossible for an implementer using the standard to ascertain the scope of licenses needed to avoid infringing applicable SEPs. Instead, implementers have to do their due diligence on those questions regarding the potentially relevant SEPs portfolios individually, although SEP holders are facing the same questions. Thus, many implementers may choose not to proactively investigate the matter and rather wait for SEP holders to notify them about their SEP portfolio and provide a notice of infringement.

So, with the possible exception of industry giants like InterDigital, who can more heavily rely on their licensing history, sheer portfolio size, and third-party essentiality analyses to support their positions without identifying specific patents, implementers are well aware of those patents mentioned in  ETSI’s IPR Database that are believed to be essential, namely those they are being approached to license.

Finally, consider the rules of civil procedure in discovery jurisdictions as an analog which also seek to increase transparency. Two notable distinctions from what is being proposed by the European “expert group” for FRAND licensing are: (1) the obligation to disclose relevant information is reciprocal; and (2) a result is guaranteed. To the extent any initiatives are undertaken to increase transparency, fairness dictates that those obligations should be reciprocal and designed to facilitate reaching FRAND licenses as a result.

Image Source: Deposit Photos
Author: iqoncept
Image ID: 39072457 


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