Introduction
Standard Essential Patents, also abbreviated as SEPs, are patents that claim inventions essential to a specific technical standard. These patents cover technology that must be used to comply with an established standard, making them critical for ensuring interoperability and compatibility across different products and services within an industry.
SEPs are most commonly found in the telecommunications industry, where standards such as 4G, 5G, Wi-Fi, and Bluetooth are critical for ensuring that devices from different manufacturers can communicate with each other seamlessly. The computing and electronics industries also rely heavily on SEPs for standards related to data compression, storage formats, and various interface protocols. The widespread adoption of these standards depends on the availability and use of SEPs, which helps to drive innovation and maintain a competitive market.
What is technical standard?
A technical standard is a set of guidelines or specifications designed to ensure that products and services are compatible, safe, and function reliably together. These standards are created through a consensus process by industry groups, standards organizations, or regulatory bodies.
For example, consider the USB (Universal Serial Bus) standard. This technical standard defines the connectors, cables, and protocols used for connection, communication, and power supply between computers and electronic devices. Because of the USB standard, you can use the same type of cable to charge different brands of smartphones, connect various peripherals to your computer, or transfer data between devices, regardless of the manufacturer.
Example defining relation between SEP and Standardisation
In smartphones, the standard might be how devices connect to Wi-Fi. The SEPs could be the patented technologies required to make Wi-Fi work according to that standard. Companies that own these SEPs agree to share them so that everyone can use Wi-Fi the same way, ensuring all devices can connect to any Wi-Fi network without issues. This sharing is usually done under fair and reasonable terms to make sure the technology is accessible to all, promoting widespread use and compatibility.
What is FRAND?
FRAND stands for Fair, Reasonable, and Non-Discriminatory terms. When a company owns a SEP, they must agree to license their patented technology to others under FRAND terms.
Continuing with the Wi-Fi example. A company has a patent on a key technology that makes Wi-Fi work. This patent is a SEP because it’s essential for the Wi-Fi standard. To ensure everyone can use Wi-Fi, the company agrees to license their technology under FRAND terms. The FRAND terms should be fair, reasonable and non-discriminatory.
By licensing SEPs under FRAND terms, the patent holder ensures that everyone can access and use the technology necessary to comply with the standard, promoting competition and innovation while maintaining the standard’s widespread adoption.
How FRAND is non-discriminatory?
FRAND terms are designed to be applied fairly and uniformly to all similarly placed players in the industry. This means that the terms and conditions offered to one company for licensing a SEP should be the same as those offered to another company in a similar position.
For example, if two smartphone manufacturers both need to license a key technology for Wi-Fi, they should both be offered the same licensing terms under FRAND principles. This ensures a level playing field, where no company gets an unfair advantage over another.
Even in the case of Micromax Informatics Limited v. Telefonaktiebolaget LM Ericsson, 2013 SCC OnLine CCI 78, the Competition Commission of India held
12…an IPR owner is required to give irrevocable written undertaking, that it is prepared to grant irrevocable licences on FRAND Terms, to be applied fairly and uniformly to similarly placed players. The patent owner has to grant irrevocable licence to the following extent:
a) Manufacture, including the right to make or have made customized components and sub-systems to the licensee’s own design for use in manufacture;
b) Sell, lease, or otherwise dispose of equipment so manufactured;
c) Repair, use, or operate equipment; and
d) Use methods.
What is the purpose of FRAND licensing?
FRAND licenses are primarily intended to prevent Patent Hold-up and Royalty Stacking. Patent Hold-up is one of the serious problems faced by the information and communications industry worldwide. The usefulness of complex products and services often depends on the interoperability of components and products of different firms. To enhance the value of these complex products, competing manufacturers, customers and suppliers-participate in standard-setting practices to set technological standards for use in designing products or services. When such standard technologies are protected by patent rights, there is a possibility for “hold-up” by the patent owner-a demand for higher royalties or more costly or burdensome licensing terms than could have been obtained before the standard was chosen. Hold-up can subvert the competitive process of choosing among technologies and undermine the integrity of standard-setting activities. Ultimately, the High costs of such patents get transferred to the final consumers. Similarly, royalty-stacking is when a single product uses many patents, of same or different licensors. As such, from the perspective of the firm making the product, all the different claims for royalties must be added or “stacked” together to determine the total burden of royalty to be borne by the manufacturer.
Author: Adv. Rohit Pradhan, Associate – Litlegal