This article is the second in a four-part Ocean Tomo Insights series focused on strategies for managing standard essential patent (SEP) portfolios. Each installment will address a specific stakeholder group — implementers, innovators, outside counsel, and suppliers — and explore how understanding technical standards, SEPs, and technical analysis can support proactive risk assessment, litigation defense, and strategic positioning in SEP disputes.
In this second article, we examine how innovators (companies that invent and develop technologies related to standards and SEPs and are typically plaintiffs in cases involving SEPs) can leverage patent and technical expertise to understand SEPs, minimize SEP-related risk, and better manage their SEP intellectual property.
SEP Monetization: A Proactive Guide for Innovators
Key Takeaways for Innovators Who May Own SEPs
- SEP declarations come with “fair, reasonable and non-discriminatory” (FRAND) licensing terms, which are essential to comply with antitrust laws.
- If you participate in a Standard-Setting Organization (SSO), you are likely obligated to declare SEPs following the rules of the SSO.
- Advantages to owning SEPs include ease of showing infringement to speed up licensing activities.
- Downsides of declaring SEPs include being bound by FRAND licensing terms that limit flexibility.
Standards and Industry Bodies
Many technical fields are only commercially viable if devices from multiple vendors can interoperate with each other. This can include semiconductor devices, wireless internet, cell phones, video and image compression, and many other fields. Innovative technology companies in these fields participate in SSOs to propose, debate, and decide on aspects of the technology to be implemented in compliant products. Examples of SSOs include:
- 3GPP – 5G cellular networks
- IEEE – WiFi (IEEE 802.11™) wireless networking (Institute of Electrical and Electronics Engineers)
- USB – Removable memory (standards for the Universal Serial Bus specification used for compatible USB peripherals and devices
- ISO – MPEG-4 video compression (International Standards Organization)
- SAE – Electric vehicle charging.
For companies innovating in these fields, participating in SSOs and declaring patents as SEPs is a trade-off between abiding by “fair, reasonable, and non-discriminatory” (FRAND) licensing terms, managing regulatory risk, and maintaining flexibility in patent monetization strategies.
Participation in SSOs and SEP Declarations
Companies developing new, leading-edge products may participate in SSOs that define the standards for next-generation products. Though time-intensive, this gives innovators the ability to propose features and solutions, to influence the technology, and get a head start on implementing new products. In the past, there were occasions when companies participating in SSOs defining standards would propose a solution to a technical problem and then secretly file a patent on it. If the patented solution were later adopted by the SSO as part of the standard, every compliant product would have to pay a royalty to them. This clearly went against the spirit of the standard-setting process and constituted an abuse of the monopoly obtained through the patent.
To counter this, most SSOs include patent policies that require participants to declare patents that may be essential to implementing the standard to the standards body. Declarants are also required to offer licenses to their patent in a “fair, reasonable, and non-discriminatory” (FRAND) manner.
SEP Declarations
SSO participants are obligated to declare essential patents to the SSO and thereby abide by their patent policy rules. As an example, the European Telecommunications Standards Institute (ETSI) states: “During the proposal or development of a standard, ETSI members must inform the Director-General in a timely fashion if they are aware that they hold any patent that might be essential.” During the standards-setting process, proposed solutions will change, and patent claims will change during the multi-year prosecution process. Therefore, a patent that appeared essential at some point in time and was declared as essential by the patent holder may not be essential to implementations of the final standard.
There are other companies that do not participate in SSOs that will independently patent inventions that end up being essential to a standard. These patents may be declared as SEPs to an SSO; however, they are often not declared, and there is no obligation to declare them. While most SEPs are not actually essential, if the innovator does participate in the SSO process, the risks of not declaring are greater than over-declaring.
In addition, the process and requirements for not declaring are greater than those for over-declaring from SSO to SSO. However, most SSOs have very flexible rules on what must be declared. Individual patents and patent families may be declared, but often a declaration may be made without listing any specific patent numbers. Furthermore, it is common that the essentiality of a patent to the standard is never verified, and many SEPs are not actually essential or are only essential to implementing an optional feature. These concerns around over-declaring SEPs have been discussed for years. It is estimated that only about 20% to 47% of all ETSI-declared 2G/3G/4G patents are essential (Unwired Planet v. Huawei, TCL v. Ericsson), and that only about 10% to 15% of all ETSI-declared 5G patents are essential.
In many cases, a SEP declaration boils down to a promise to abide by FRAND licensing rules, should any of the declared patents be later asserted against an implementer.
For innovators who did not participate in the SSO, the essentiality of their patents to a standard may not be obvious. Technical analysis may be used to review patents suspected of being required to implement a standard. With this information, an inventor may then make an informed decision on whether they should declare the patent to the SSO. Whether they do declare or not, a complete claim chart documenting essentiality greatly increases the value of a patent and may be used to craft strategic continuation applications or for future licensing, litigation, or sale.
Monetizing SEPs
From a monetization perspective, SEPs offer the advantage of allowing infringement to be documented under the published standard rather than a particular product. For example, a claim chart for a video compression patent documented on the standard can be asserted against any product that successfully plays (decodes) a suitable video. This process can be repeated for several products quite economically. The alternative is to purchase and test several products – one by one – generating different claim charts for each product, which can be a labor-intensive and potentially expensive process.
The SEP declaration, despite its limitations, can be leveraged to obtain faster settlements due to FRAND royalty rates, thereby accelerating negotiations.
Assuming non-participation in the standards-setting process, drawbacks of SEP declarations include being bound by FRAND royalty rates when the patent-holder is confident that they should obtain a higher rate or be able to negotiate different rates depending on who the licensee is. For example, a FRAND obligation limits the ability to charge a direct competitor at a different royalty rate for strategic business reasons.
The process is further complicated when a company has both SEP and non-SEP patents. If they must take a license, most licensees want to license all of a company’s patent portfolio to buy “patent peace,” not just a portion. A licensor, after signing an agreement, does not want to have to deal with the same licensee for a long while.
Detailed Analysis to Determine Essentiality and Scope of SEP
Whether declared or not, to successfully monetize a SEP portfolio requires a claim chart reading on the standard, with or without some technical analysis of a competitor’s product.
Standards have both mandatory and optional features. Analysis will map the patent claims to the standard and identify whether this is a mandatory or optional feature. If the mapping requires an optional feature, further testing or reverse engineering can be used to determine if the optional feature is implemented in a particular product or enabled in a particular environment. Even for mandatory features, there have been cases where a manufacturer did not implement the feature. So, if you are basing your licensing activities on a small number of patents, you may also want an analysis to verify that mandatory features are implemented as required by the standard.
Technical analysis can be done on standards, devices, or field testing to conclusively show compliance with a standard. Patent claims are compared to standards to illustrate which sections of the standards map to the claims. For infringement analysis, the claims can be mapped to the latest version of a standard. For validity analysis, they can be mapped to previous versions. By comparing versions of a standard, it can be determined when a feature was first introduced. If any claim elements are mapped to optional features, this will be noted. If optional features are identified, testing of target devices may be performed to demonstrate that the device supports those features or practices the claimed method. Field testing can be used to demonstrate how a network is configured, such as for a specific base station or a network provider in a particular area. This is particularly useful for method claims when the standard may allow for different options to be configured.
This technical analysis is a specialty of Ocean Tomo’s Patent Analysis and Reverse Engineering (PARE) team and can be used to demonstrate that a SEP or non-SEP is essential to a standard. The team can also perform technical analysis to demonstrate patent infringement of individual products.
To explore this topic further, contact Sam Wiley at +1 602 463 8260 | [email protected] or David Fraser at +1 403 229 9192 | [email protected].
