IPcopy watched CIPA’s seminar on Standard Essential Patents (SEPs) recently which was presented by Kevin Scott and Richard Vary. The seminar covered a number of topics: What is a SEP?; FRAND – what does it mean?; Licensee/licensor behaviour; Litigation venues (this part was also of wider interest than the SEP world); Unwired Planet v Huawei; SEP arbitration and the future.
What is a SEP?
The seminar started with definitions of “essential”, in the context of standard essential patents, from both the ETSI and IEEE organisations (see bottom of post for a copy of these definitions) before noting that this was quite a dry definition and the SEPs that we come across in today’s world are small improvement patents that can save a bit of power in a transmitted message or add a few extra transmitters into a particular radio channel.
The core technologies behind the smartphone in your pocket were standardised around 20 years ago but in the time since then many small improvements have been made. Kevin noted that the result of such improvements means that multiple people can now stream video while on their commute to work using a broadly similar amount of radio spectrum to that which was used to broadcast a few channels to the whole country.
FRAND – what does it mean?
Patents of course grant a right to stop other people from using your invention in exchange for the disclosure of the invention. Patent rights therefore impact on free competition. Although this is acceptable in the main when it comes to essential patents then a SEP holder could potentially block a technology standard. The rights of the SEP holder therefore need to be balanced with the rights of the standard implementers.
The question as to whether litigation within the SEP sphere is appropriate boils down to whether the implementer has refused to take a licence that has been offered on reasonable terms. Standard Setting Organisations (SSOs) require participants in a standard to declare that licences are available on fair, reasonable and non discriminatory terms (FRAND). This declaration may be legally enforced by an implementer but the right to a licence is not automatic.
The way in which SPE holders and implementers should behave in a FRAND negotiation process is the subject of the Huawei v ZTE case, the most important CJEU case in this area from 2015. The case covers whether it is abusive for a holder to request an injunction on a SEP and how the negotiation process for a FRAND licence should be carried out.
The negotiation process set out in the case comprises:
– The SEP holder alerting the implementer which SEPs are infringed. Although a list of SEPs involved is sufficient, a greater level of explanation is needed to explain how they are infringed. It was noted that claim charts are sufficient but in some cases it might be possible to provide a lower level of explanation.
– Having received a communication from the SEP holder the implementer needs to quickly indicate (even a two month delay may be regarded as too long) that they are willing to take a FRAND licence.
– The SEP holder then has to provide a written offer including the royalty rate and how it is to be calculated. There is some question of how much detail is required regarding the rate with the German courts apparently requiring details on how the rate itself was worked out.
– The implementer can provide a counter offer (again this needs to be done quickly and not try to delay matters)
– If the counter offer is rejected then the implementer needs to provide security. Different venues will apparently base this security on either the SEP holder or SEP implementer’s offer.
– Arbitration can be requested and the implementer is left free to challenge validity and whether the patent is essential.
The seminar then turned to look at different litigation venues around Europe and also the US and China. It is noted that this section of the seminar should be of wider interest than just to SEP holders and implementers.
Germany – most patent cases end up in Germany in one of Düsseldorf, Hamburg, Mannheim or Munich. Cases are bifurcated with validity issues going to Munich and the bulk of SEP cases going to Düsseldorf and Mannheim. Cases are pretty quick (1-2 years for an infringement hearing) and relatively cheap. Although the infringement proceedings will happen before validity proceedings these courts are regarded as favourable to patent owners. Having said that the infringement courts will still have an eye on validity issues.
Even within Germany there are some variations in how the courts behave with Düsseldorf considering validity of dependent claims whereas Mannheim will only look at independent claims. Mannheim makes more use of expert reports than Düsseldorf (which may require comparable licence agreements to be produced).
Looking at the Huawei v ZTE process and the obligations in that process, Düsseldorf allows those obligations to be fulfilled after filing of the suit whereas in Mannheim the obligations need to be fulfilled before filing. This means that there is more certainty for patent owner in Mannheim because you know before bringing the case what the situation is.
Cases in general are paper based with hearings for infringement possibly only lasting an hour.
Netherlands – cases in the Netherlands (specialist court in The Hague) combine infringement and validity and can be accelerated so that it takes less than a year to get to trial. Hearings are longer than in Germany with more use of witness testimony. There is limited case law however on FRAND.
UK – specialist courts in London hear both infringement and validity and can be quick. It is noted however that the UK is the most expensive European venue though nowhere near the level of the US.
France – relatively slow and limited case law to date.
US – some similarities with the UK system but with a detailed “discovery” phase which can provide an advantage to owners of implementation patents as they can get information regarding the defendant’s product. US courts can decide on validity but tactically defendant’s can try and start an Inter Partes Review at the USPTO in front of the PTAB which will construe claims more broadly than in the courts. Defendants can then ask for litigation in court to be stayed.
Costs awards in the US are very rare and the federal circuit allows for consistency between courts. Damages awards in the US however can be huge.
Another option in the US is the International Trade Commission (the ITC) which can stop importation of products into the US. Advantages of the ITC is that it is a judge only forum who are used to patents, full discovery is available and it is quick (6-9 months to trial). However, there is a need to show that there is a domestic (US) industry to be protected.
China – system similar to DE system. Infringement can be determined before one of a number of specialist IP courts but validity is determined by the Patent Reexamination Board of SIPO (Chinese Intellectual Property Office). If you are sued then need to file invalidity case within 15 days if you want to argue that the court should stay the infringement proceedings pending the outcome of the invalidity case.
The German courts are generally quick but will keep an eye on other courts (Federal Patent Court in Germany, the Italian courts, the UK and the US). The ITC in the US gives (i.e. controls) access to the whole US market. China is apparently unpredictable possibly depending on whether the infringer is Chinese or not.
Unwired Planet v Huawei
The Unwired Planet case involved the purchase of 50 SEP families from Ericcson. Some were licensed and two SEPs were held valid and infringed before Samsung settled. A FRAND trial then took place with Huawei.
In the decision it was found that Unwired’s offers with royalty rates three times higher than the FRAND rate were not an attempt to impose an unfair selling price. Unwired’s commencement of the action before its offer of FRAND terms to Huwaei was also not an abuse of its dominant position since both parties were sophisticated players who could continue to negotiate a licence.
The ETSI licensing declaration amounts to a contractual undertaking which the implementer can use to compel the SEP holder to licence. However, it does not allow the SEP holder to compel the implementer to take a licence. However, if the implementer does not take a licence on FRAND terms then he needs to stop using the patents. In Unwired a FRAND injunction was issued that was stayed pending appeal.
Under the Unwired decision it was held that the FRAND rate is not a range. This was seen to be somewhat contentious but Richard Vary indicated that he’d somewhat come round to the decision. It was also held that the fact that the patent is part of a standard does not prevent some of the value of the patent coming from the standard (so the FRAND rate does not have to be assessed on the patented invention before it is adopted into the standard). Determining the FRAND rate should be on the basis of comparable licences with a top down assessment of the rate being used as a cross check.
In the Unwired judgement the court analysed comparable licences to work out FRAND rates for a worldwide licence. Two factors considered by the court were whether the licensor was the same and whether the licence was recent. The identity of the licensee was not a strong factor in the analysis.
The court looked at the methods used to rate portfolios – both parties used a patent counting approach though they implemented that approach in different ways. The judge did not like these ways of rating the portfolios and Richard Vary noted that there are alternative approaches, namely contributions from a patent owner and the number of forward citations for a patent. Richard also presented a mini sales pitch for a Bird & Bird portfolio analysis tool….
Arbitration of FRAND rates is a new development which can be a cheaper approach to litigation (though still expensive). A number have taken place so far (Nokia/Samsung; Nokia/LG; Ericsson/Huawei; Huawei/Interdigital) and these can be quick to conclude.
The seminar ended with a brief look forward to the future of SEP litigation. 5G is coming and Richard Vary asked whether this would be accompanied by a new version of the smartphone wars. Opinion in the field seems to be divided. Clearly the potential for more litigation is present but there now exist mechanisms to shortcut global litigation such as litigating in a court that will determine the rate or going to arbitration.
Mark Richardson 15 November 2017
Standard Essential Patents – Definitions
“ESSENTIAL” as applied to IPR means that it is not possible on technical (but not commercial) grounds, taking into account normal technical practice and the state of the art generally available at the time of standardization, to make, sell, lease, otherwise dispose of, repair, use or operate EQUIPMENT or METHODS which comply with a STANDARD without infringing that IPR.
“Essential Patent Claim” shall mean any Patent Claim the practice of which was necessary to implement either a mandatory or optional portion of a normative clause of the IEEE Standard when, at the time of the IEEE Standard’s approval, there was no commercially and technically feasible non-infringing alternative implementation method for such mandatory or optional portion of the normative clause