SEPS, FRAND, AND ANTITRUST LAW – PART I

17.07.2017

By Lawrence Hoffman

Sooner or later, whether your products are in the field of driverless vehicles, data security, telecommunications, or medical technology, to mention a few that come immediately to mind, you are going to be confronted with a technical standard. It may be voluntary or part of a regulation and will effectively have the force of law. As a practical matter, compliance is necessary to compete in the market place.

Standards are generally the work of standards development organizations (SDOs) comprised of individuals from the industries to which the standards will apply and others to whom the subject matter is of concern. Often, such stakeholders will have patents in the field, which means that it may be necessary to practice the subject matter of these patents to comply with a standard.  Such patents have come to be known as “standard essential patents” (SEPs).

The owners of SEPs must commit to licensing them to anyone seeking to comply with the standard since selective refusal to grant licenses or otherwise unfair terms are likely to have  anti-competitive effects. SDOs therefore will not incorporate the subject matter of a patent in a standard unless the owner agrees to license the patent on fair, reasonable and non-discriminatory (FRAND) terms.

When SEPs are involved in patent infringement litigation, FRAND issues arise in determining past and future damages. However, there has also been litigation involving alleged antitrust law violations arising out of alleged predatory and discriminatory licensing. Trade regulation agencies in various countries are investigating some of these licensing activities as well, particularly in the telecommunications field.

A typical standard normally does not cover a single product, but rather a universe of products. Nor is there usually just one SEP involved in a typical standard. For example, say there are five SEPs (an atypically small number which I use only for simplicity in my discussion) that are incorporated in a particular standard. Some products may be covered by all the patents while others may be covered by only some or even one patent. Also, the standard will often be adopted in many countries and there may not be patents in all the countries. Even where there are patents, the scope of the claims may differ so significantly from country to country that, in some instances, one or more of the patents are not even SEPs at all. How in the world can you determine FRAND royalties given all those possibilities?

In Part I of this article, we will discuss issues related to judicial interpretation of the FRAND commitment in determining appropriate SEP royalty rates. In Part II, we will discuss in detail the appellate decisions in the U.S. and in Europe governing setting of FRAND royalties. We will also provide an update on U.S. lower court cases involving SEPs and on a recent post on our Website concerning antitrust litigation brought by Apple against Nokia and several Patent Assertion Entities (PAEs) to which Nokia assigned patents when it exited the handset business.  Finally, we will discuss other antitrust litigation relating to SEPs and investigations in China, South Korea and elsewhere into the licensing practices of the owners of SEPs.

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