Why standard essential patents are now essential to you

A standard essential patent ‘SEP’ is a patent that will be infringed if a product or service is compliant with a technical standard. 

As patent attorneys, we have been involved in the world of mobile telecommunications and standard-setting organisation proceedings for over 25 years. During that time the role of patents in standardised telecommunications has become ever more significant. 

Here we look at how things developed, and why it is essential that businesses outside telecoms pay close attention.
 

Executive summary

If you are operating, or planning to operate, in the world of digital interconnectivity:

• Make sure your C-suite is aware of the new challenges of operating in this standardised world

• Educate the people in your business, from the top to the bottom 

• Protect your R&D in this area - talk to a patent attorney, find out what you can protect

• Consider joining a standard-setting organisation like ETSI

• Learn what to do when you get an offer of a licence on FRAND terms (and it will be coming…)
   

A bit of background

In August 2020 the UK Supreme Court handed down its judgment in Unwired Planet v Huawei and Conversant Wireless v Huawei & ZTE, settling questions of fundamental importance for SEPs. These disputes involved a conflict between the territorial nature of patents and the global nature of the telecoms standardisation system.  The judgment means that SEP owners may avoid the need to negotiate, at great cost,  licences country-by-country and can instead call upon the English courts to set terms for a global licence.  If the would-be licensee does not take a licence on the terms set by the English courts, the courts may grant an injunction in the UK. 
 
A number of related cases have followed.  These cases relate to SEPs and licensing on Fair, Reasonable And Non-Discriminatory ‘FRAND’ terms.  The parties do not always agree on these terms and litigation then results.  Bit by bit the judges have found ways of reconciling the significant power of patent injunctions with the commercial realities of the need for collaboration and interoperability in the telecoms world. 
But it is not just telecoms companies that are involved.  In Germany, a lengthy dispute between SEP owner Nokia and carmaker Daimler led to a court referring questions to the Court of Justice of the EU in order to seek clarity on whether it should be the carmaker or its suppliers that should be the party to license the SEPs required for ‘connected’ vehicles.  Before a judgment could be reached, Daimler and Nokia settled, with Daimler agreeing to pay Nokia for use of its telecoms SEPs.

So why should anybody else be concerned?

We need to consider why mobile telecommunications players like to get SEPs. In-house, SEPs are often considered the crown jewels of a patent portfolio. The main reason being one of licensing. ‘Claim charts’, with each element of a patent claim listed are drawn up and the standard reviewed to identify parts of the standard that read on to each element of the claim. Once every element of the claim is identified as reading onto the standard, it can be categorised as a SEP.

This means that licensing and subsequent royalties are easier: usually if you want someone to pay you for your patented technology, you’ve got to work out if their product or service infringes.  That can be a very costly procedure usually involving tearing down, reverse engineering, or going through the discovery/disclosure process. Very time-consuming and financially costly.

In a standards related scenario you don’t have to do any of that - if somebody says that their product or service is compliant with a standard, you don’t need to prove what they are doing. You say ‘you are compliant with the standard, we have a patent that covers that standard, you infringe, pay us on these FRAND terms’ - so it’s a very lucrative business model for people who have patents in these areas.

So there’s the SEP strategy: carry out R&D, protect your R&D, be a member of the standard-setting organisation, influence the standard-setting organisation, get a standard essential patent, get licensing (cross licensing or one way licensing).
But there are far wider implications.

Take Wi-Fi - we all have a router in our home (it’s almost like a human right now to be given the router password). Our many devices connect to the router and that interface is standardised. And now it’s being integrated into devices that, just a few years ago, people would never thought of and it’s being integrated into industries that have never before considered themselves as players in wireless digitally-interconnected technology. The IoT (Internet of things) has been on the horizon for so long and is now a reality.
 

So let’s think of what other industries might now be using standardised technology that weren’t before.

How about white goods - our fridges, freezers, washing machines, dishwashers all sitting in our homes just doing their job. But now they’re becoming interconnected. Your fridge will tell you what you need to buy. Your washing machine will tell you there’s a load to unload. Your dishwasher will tell you that your salmon is already cooked (a popular way of cooking fish these days apparently).

These manufacturers historically have not considered that they’re in the world of mobile telecommunications. They haven’t needed to consider these standards at all but suddenly they are going to be right at the forefront. 

Then there’s healthcare. Traditionally you go to your doctor, take some tests, some bloods, send things off for results, come back for another appointment with your doctor, and talk through your results. But the world of healthcare is changing significantly.

Healthcare providers are providing products that will do all of that in the doctor’s office there and then, communicating wirelessly perhaps with a device that the patient is wearing temporarily. Then there are the products that the patient wears 24/7 which are changing the world of healthcare - you can take real time, real life ECG’s, blood pressure, glucose levels, the works. As healthcare providers move into this digital interconnected world, they’ll have to be aware of the standardisation issues and what these mean to them.

Self-driving cars. Vehicles have historically not been considered digitally interconnected products - they are very much becoming that way now. They use GPS, they use Software over the Air. ‘eCall’ is the requirement in Europe for cars to make an emergency call if they are involved in an accident. That is standardised, there are SEPs that cover eCall - we’ve handled some of them.

Then there are all those products now available that we would not previously have thought would need to be wirelessly connectable – but are now (egg trays, salt mills, drinks bottles, toothbrushes, umbrellas to name a few).

What does this mean?

This gives holders of SEPs a whole new world of potential licensees and a whole new world of potential licensing revenue.

3G and 4G licensing was very lucrative for a lot of parties.  It is likely that 5G will be even more so because 5G is designed to enable a wireless communication device in practically every product you can think of.

So that’s an explosion of licensing activity for the people who own these SEPs. An explosion of royalty payments afterwards.

So, who needs to think about this? How does it apply to other technology?

You need to think about this - if your drive is to make things more interconnected, then you are going to be using standardised technology and need to be aware of these issues.

SEPs now apply to many fields of technology other than telecoms - you need to have this on your radar. It’s relatively easy to identify infringements of SEPs because tear down or review of third party products is not usually needed. If your product or service is compliant with a standard, you infringe a SEP. There is a large new world of potential standard-compliant products and solutions out there and patent owners will be looking to benefit from those new revenue streams.
 

What’s the future look like?

We are not betting people but one thing we would put money on is this - the telecommunications industries are going to continue as before.  They’re going to continue their R&D, they’re going to continue to protect that R&D by patents, they’re going to continue their involvement with standard-setting organisations to influence adoption of their technology and then they are going to go and seek licensing revenue in relation to those SEPs. So that’s not going away. We think that’s here to stay and will be a continuing part of their business model.

So what should you do now?

Operators in other areas of technology now need to consider this as well and, whatever industry you are in, if you’re going to be relying on digital interconnectivity technologies (which so many industries are doing), this is what you should be doing:

Firstly, patent:

• Revise your patenting strategy. Patent any improvements that you can in this area, speak to a patent attorney for advice in this area (one who’s dealt in standardised patents before would be good). 

• Redefine your patent strategy so that you focus your patenting on areas of technology that you haven’t ever focused on before. You might have been making fridges and previously thought you’d just consider the fridge aspect - can you do something on the wireless interconnectivity aspect?

• Make sure you revise your patenting processes to look for those areas for development that maybe you haven’t paid attention to before. Put some focus on those.

• Make sure you educate the people in your organisation, from the top to the bottom.  Educate your engineers, educate your C-suite. 

• Focus on any new uses involving interconnectivity - they can always be worth trying to patent. If it’s a disruptive field, you may be able to get patent protection that you might not get if you were in the telecoms field.

Why do you want to do this?  Because you protect your R&D, you get patents, you might get standard essential patents, and you can then seek royalties or have a valuable asset to sell. It can also put you in a better negotiating position if somebody comes to you wanting payment. If you’re in a position to say ‘I’ve got something as well’ that may help your licensing negotiations.

Secondly, budget for a new world:

• Budget for an increase in patents if you haven’t thought of that before or a change in where you are spending your patenting budget.

• Consider budgeting for paying licensing fees.

• Consider budgeting for litigation costs should you not be able to agree with someone who comes to you with a licence opportunity on FRAND terms. 

• Make sure now that the C-suite is aware of the potential costs coming up on the horizon and the implications of moving in a new business direction and into new areas of investment.

If you are, or are going to be, a big player in your industry, if you’re going to be using digital interconnectivity technology, and if this is a new direction for your business, then you’re going to be very attractive to people who already own these SEPs and you’re going to be a prime target for them. You need to plan. 

Thirdly, consider getting involved in a standard-setting organisation:

• It gives you the opportunity to find out what’s going on and which direction things are going.

• It gives you the opportunity to influence standard-setting organisations to adopt your technology – that technology that you have patented so that you now have some SEP’s

• There is a upfront financial cost to this (for example see the terms for ETSI) and there will be additional costs. You will have the hours spent by people attending these standard-setting organisation meetings, putting together documentation (so called change requests) to influence standards moving the way you want them to go, taking the time to find out that information from your developers.

We understand that isn’t an answer for everybody but it may be an answer for some of you. Do this if you can make the business case stack up.
Always remember the SEP approach: invest in R&D, protect it, influence the standard organisation, get your SEP, license it.

Lastly, one other thing you need to do:

• Learn how to respond to a letter offering a licence on FRAND terms – there are particular ways you need to respond to preserve your position. Talk about that with a solicitor who has experience of negotiating SEP licensing terms.
   

Whatever your field of technology it is essential to understand the world of standard essential patents and their impact on your business.

For further information or assistance, please get in touch with Nick, Tomos or your usual Kilburn & Strode adviser.