Posts Tagged: "FRAND"

The U.S. Department of Justice – Antitrust Division (DOJ) is requesting public comment on a new iteration of the Joint DOJ-USPTO-NIST Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments. The announcement comes in response to President Joe Biden’s July 2021 Executive Order on Promoting Competition in the American Economy, which asked the three agencies to review the 2019 statement.

Standard Essential Patents (SEPs) are on the rise; the number of newly declared patents per year has almost tripled over the past five years. There were 17,623 new declared patent families in 2020, compared to 6,457 in 2015 (see Figure 1). The 5G standard alone counts over 150,000 declared patents since 2015. Similarly, litigation around SEPs has increased. One of the driving factors of recent patent litigation is the shift in connectivity standards (eg, 4G/5G, Wi-Fi) that in the past were mostly used in computers, smartphones and tablets, but are now increasingly implemented in connected vehicles, smart homes, smart factories, smart energy and healthcare applications. Another reason why litigation may rise further is the belief that large SEP owners such as Huawei, ZTE or LG Electronics may soon sell parts of their SEP portfolios, which may likely end up in the hands of patent assertion entities (PAEs). One way or another, it is anticipated that the majority of patent holders will actively monetize their SEPs covering standards such as 5G, Wi-Fi 6 or VVC in this fast-moving, high-investment environment. Any company adopting these standards must decrease operational risk and expense exposure by taking a proactive strategy towards SEPs rather than a reactive one.

Last week, IPWatchdog hosted its annual SEP conference, which once again took place in virtual format. I either moderated or directed/produced all the panels, so I stayed busy throughout the week, but still managed to pay attention to what was being said by the panelists. For some panels I participated more, making it a bit more challenging to take notes, so when I say what follows are statements that particularly piqued my interest, I am by no means suggesting there weren’t many more golden nuggets of wisdom imparted to the over 900 registrants over our four-day program.

tandard Setting Organizations (SSOs) exist as a mechanism for industry innovators to work together to collectively identify and select the best and most promising innovations that will become the foundation for the entire industry to build upon for years to come. Those disclosing patented technologies to an SSO during the development of a standard commit to offering a license at a FRAND (which stands for Fair, Reasonable and Non-Discriminatory) rate to the extent the patent is essential, as explained by Curtis Dodd, Chief IP Counsel for Harfang IP, during the second panel of SEP 2021 yesterday, which focused on FRAND and patent damages. Indeed, the myriad issues surrounding FRAND obligations and the disclosure of innovations to SSOs were the focus of the three panels that took place on day 1 of SEP 2021, hosted by IPWatchdog.

A judge has affirmed the ability of the UK courts to settle FRAND terms of a patent license covering foreign patents, despite the defendants challenging the court’s jurisdiction. But in his judgment, published on November 4 20201, His Honour Judge Hacon noted that the current framework for settling a global license between owners of standard essential patents (SEPs) and implementers “is plainly not satisfactory.” He explained: “[I]t does encourage expensive parallel litigation in several jurisdictions and more uncertainty than is necessary. I doubt that it can be sustained in the long term.” The case is one of many that SEP owners have brought before the courts since the UK Supreme Court judgment in the Unwired Planet and Conversant litigation established English courts’ jurisdiction to set global FRAND terms in August 2020.

The intersection of intellectual property (IP) and antitrust law is again a hot debate after a recent speech by the U.S. Department of Justice Antitrust Division’s (“DOJ” or “Division”) Economics Director of Enforcement, Jeffrey Wilder, titled Leveling the Playing Field in the Standards Ecosystem: Principles for a Balanced Antitrust Enforcement Approach to Standards-Essential Patents. Before we dive in on the key takeaways from the speech, and our thoughts on potential ramifications, it bears briefly mentioning how we got here.

On July 20, President Joe Biden nominated Jonathan Kanter as Assistant Attorney General, a position that would place him at the head of the Antitrust Division at the Department of Justice. Kanter is an antitrust lawyer with over 20 years of experience. He is currently a partner at The Kanter Law Group LLP, which is a boutique antitrust law firm that advocates in favor of federal and state antitrust law enforcement. Prior to founding the The Kanter Law Group, he was Co-Chair of the antitrust practice at Paul, Weiss, Rifkind, Wharton, and Garrison LLP. Kanter also served as an attorney for the U.S. Federal Trade Commission’s Bureau of Competition. 

In this article, we’re going back to basics and discussing why our smartphones work everywhere, doing things closer to science fiction of the 1960s or 70s than anyone would have believed, as well as the role that Standard Essential Patents (SEPs) play in making this happen. We are going to examine inherent conflict between innovators and inventors that create new products and services, patent their inventions, and the implementors that leverage and deploy those inventions. Most of all, we’re going to discuss the process that converts these inventions and patents into money. A lot of money. Millions, tens of millions, and sometimes even billions of dollars. Why? Because your smartphone would be a paperweight without these innovations and patents. And soon vehicles, home appliances, production lines, meters, healthcare devices and many more industries will follow.

Two recent court decisions in the United States and the United Kingdom, respectively, have considered (i) the disclosure obligation pursuant to Clause 4.1 of the European Telecommunications Standards Institute’s (ETSI) Intellectual Property Rights (IPR) Policy, and (ii) the impact this has on the enforceability of a patent subject to the Policy…. Both decisions were in the ongoing patent and fair, reasonable, and non-discriminatory (FRAND) related litigations between Optis and Apple. In summary, the decisions confirmed that neither Optis nor its predecessors had breached their duty to disclose IPR to ETSI under clause 4.1, nor did the timing of their disclosures constitute egregious misconduct, so as to result in an implied waiver under U.S. law, or in the case of the UK, a proprietary estoppel, preventing or restricting enforcement of the patent.

In a previous article, we discussed the difference between a reasonable royalty for patent infringement and a FRAND licensing rate, both in terms of their origins and objectives: the former being a creature of statute and case law that seeks to compensate a patent owner for infringement, whereas the latter is rooted in contract and seeks, amongst other things, to address issues of royalty stacking and discriminatory licensing. Despite these differences, we noted that these two concepts have often been treated interchangeably by courts, often leading to confusing results…. Pursuant to appeal of that decision, however, the United States Court of Appeals for the Fifth Circuit has now addressed the photonegative question in HTC Corp. et al. v. Telefonaktiebolaget LM et al., case number 19-40643: are patent laws regarding what constitutes a reasonable royalty applicable to questions of compliance with FRAND-related contractual obligations? Though the majority decision did a great job highlighting the distinction between these two different concepts, there was a concurring decision that continues to blur the line.

The U.S. Court of Appeals for the Fifth Circuit today affirmed an Eastern District of Texas court’s judgment for Ericsson, finding no error in the district court’s jury instructions, declaratory judgment or evidentiary rulings, and rejecting HTC Corporation’s allegations that Ericsson had breached its contractual obligation to offer a license on fair, reasonable, and non-discriminatory (FRAND) terms. The case stems from HTC’s refusal of a 2016 licensing deal in which Ericsson proposed a rate of $2.50 per 4G device to license its standard essential patents for mobile devices. Although HTC had previously paid Ericsson about $2.50 per device for the patents under a 2014 licensing agreement, in 2016 the company independently assessed the value of Ericsson’s patents and ultimately proposed a rate of $0.10 per device in 2017, which was based on the “smallest salable patent-practicing unit.” According to the Fifth Circuit, Ericsson considered this “so far off of the norm” that negotiations stopped, and a few days later, HTC filed suit in the U.S. District Court for the Eastern District of Texas, alleging breach of FRAND terms.

President Joe Biden’s recent executive order was billed as “promoting competition in the American economy,” but is a prime example of why one should always read the fine print. Rather than boosting the technology and innovations that spur American competitiveness in the global marketplace, the Biden administration is pushing a directive that reinforces the dominance of technology giants like Apple and Google. Part of the executive order addresses the complex but essential way we protect those who develop standard technology – such as the shared technologies that make mobile communication possible across multiple networks. Standards enable critical technologies such as 5G, the Internet of Things, video transmission, artificial intelligence, and autonomous vehicles. Nations that develop these technologies and the standards they are based on will have a significant advantage in gaining the lead in the next industrial revolution.

Do owners of patents for which licensing declarations have been made enjoy more rights than other patent holders? Do such licensing declarations impose obligations on potential licensees rather than on patent holders? Should prospective licensees have no right to challenge such patents? In another responsive article, that is what one commentator claims our series of articles on IPWatchdog asserted, although we never wrote or suggested anything of the sort. In doing so the commentator employs intentionally misleading language like “declared essential patents” to characterize such licensing declarations as claims of essentiality, and “prov[ing]… licenses are needed” which, as will be explained, is not possible. These hyperbolic assertions are commonplace in the world of standards related patents, as are straw-man arguments concocted by implementers trying to escape the need to take a license. While we appreciate that all of this comes down to innovators wanting to be paid for their innovations embodied in standards and implementers wanting to pay less, or nothing, for using those innovations, we’d prefer the debate to be without histrionics and hyperbole. We hope this final response will clear up any remaining misconceptions. 

In a previous series of articles that were published on IPWatchdog, we analyzed and categorized various fair, reasonable and non-discriminatory (FRAND)-related statements made by a variety of entities, including those that are primarily licensors of Standard Essential Patents (SEPs), those who sell network equipment products or components and who are also significant licensors of SEPs, those who sell end user products and who are significant licensees of SEPs, an association focused on FRAND policy development, and a patent pool. One of those articles considered statements made in relation to the appropriate royalty base to which FRAND licensing rates should be applied, with one camp apparently favoring use of the end product and another clearly favoring using a component thereof (oftentimes referred to as the smallest saleable patent practicing unit, or “SSPPU”). Conscious of the fact that there is a wide range of opinions on issues related to FRAND licensing, we intentionally chose to avoid putting forth any subjective views as to the way things should be, instead choosing to simply report such statements, highlight the main differences, and sprinkle in some FRAND-related decisions and court guidelines that appeared relevant, and sometimes contradictory, to such statements. Despite our approach, a recent responsive article, “The SSPPU is the Appropriate Royalty Base for FRAND Royalties for Cellular SEPs,”accuses us of “fail[ing] to present a balanced view” and supporting the extraction of “excessive revenues for SEP patent owners”.

The next industrial revolution will not only impact the smartphone and computer world but will spread to many more industrial verticals. Automotive, manufacturing, energy, health care, and MedTech are among the industries most likely to be impacted by connectivity, as they have high-value equipment that is constantly networked and needs to handle massive amounts of data. Standards such as 5G or Wi-Fi 6 (802.11ax) will connect industrial machinery and robots allowing for remote control, monitoring, and repair, as well as industrial automation. From smart grids to drone control, energy and utility, companies will rely on standards to handle massive data. Connectivity standards will be used by hospitals and medical equipment manufacturers to provide data to a variety of tablets and fixed machines, as well as to enable remote surgery. Enhanced monitoring and automation are likely to assist industries as diverse as agriculture and finance. Online shops will increasingly turn to virtual reality experiences. 5G based tracking will emerge in the logistic sector. Edge computing and low latency of 5G and the improved compression of the versatile video coding (VVC) standard will be used in the gaming business, as well as in general augmented and virtual reality applications. As transportation operators rely on connectivity standards to connect smart city infrastructure, media companies will boost mobile streaming speeds and quality. Over the next few years, when advanced cellular, wireless and video standards replace existing protocols, these developments will occur swiftly.