This article is the first in a four-part Ocean Tomo Insights series focused on strategies of managing standard essential patent (SEP) assertions. 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 first article, we examine how implementers (companies that implement technologies related to standards and SEPs and are typically defendants in cases involving SEPs) can leverage patent and technical expertise to understand SEPs, minimize SEP-related risk, and better respond to SEP patent assertions.
Foundations for SEP Defense: A Proactive Guide for Implementers
Key Takeaways for Defendants who may Implement SEPs
- Understanding what a SEP is and isn’t helps qualify and quantify risk
- Not all SEPs are truly essential and essentiality must be verified
- Not all SEPs are equally valuable
For companies implementing standards-based products, such as WiFi or cellular products, navigating the complex landscape of standards is the foundation of effective business and product strategy. By understanding what a SEP is and the risk posed by SEPs, you can understand how to best defend against SEP infringement allegations.
What is a SEP?
For many products, especially in the field of communications, audio, and video, the ability for products from different manufacturers to interoperate with each other is vital. Standards bodies such as the Institute of Electrical and Electronics Engineers (IEEE), the 3rd Generation Partnership Project (3GPP), and other bodies work with industry to define international standards for products that use WiFi networking, cell phone communications, Bluetooth connectivity, video compression and other technologies that must interoperate.
The companies and researchers working in these fields obtain patents for different aspects of the standards and organizations who want to implement products in these fields are obligated to use these patented technologies in order to be standards compliant and for their products to be commercially viable. In order to ease the burden of understanding or licensing these patents, the standards bodies implement rules and declarations around patents that are essential to implement mandatory and optional features of the standards. These are referred to as Standard Essential Patents or SEPs, and may be subject to FRAND (Fair, Reasonable, and Non-Discriminatory) licensing terms.
Companies that obtain patents on these technologies may file declarations that one or more of their patents are SEPs. However, in almost all cases, this is a self-declaration and there is no independent body to verify the patent holder’s claim that the patent is indeed essential to implement the standard. This means that even though a patent has been declared as a SEP, it doesn’t mean that it is actually essential. An independent technical analysis (sometimes called an essentiality check) is required to verify if the patent is essential to implement a feature of the standard, and to determine if the feature is mandatory or optional.
Managing the Opportunities and Risks of SEPs
Standard Essential Patents (SEPs) represent a double-edged sword. While a company’s own SEPs offer opportunities to receive licensing revenue from others, SEPs owned by other entities also create significant risks to a company and its products implementing standardized technologies. Many high-revenue industries are reliant on global standards—5G, Wi-Fi 6/7, Bluetooth, MPEG video codecs, and emerging automotive connectivity protocols—and companies in those industries must contend with third-party SEP holders seeking royalties, filing infringement suits, or filing injunctions to block market access.
For companies in fields governed by standards, managing SEP licensing is a necessity and preparation is highly recommended. Steps that can be undertaken to prepare include:
- Understand which standards are implemented by a company’s products and understand how SEP declarations work for each standard and any limitations or restrictions this may place on them.
- Research and understand the operating companies, non-practicing entities (NPEs), and patent pools that are actively licensing SEPs for each of the standards being implemented.
- Have a robust invention disclosure and patenting program, and evaluate patents for declaration as SEPs, or to maintain non-SEP implementation It is important to have some SEPs or implementation patents for cross-licensing negotiations with other operating companies or to contribute to relevant patent pools on favorable terms. Building a SEP portfolio through acquisition is another option that many companies pursue to provide leverage in cross-licensing negotiations or in some cases, to generate SEP licensing revenue.
First Steps to Take when SEPs are Asserted against You
When receiving a demand letter or package accusing you of infringing one or more SEPs the first step to take is to evaluate the information to assess the contents and completeness of the package.
Some demand letters list no patents and provide no evidence of infringement. An infringement assertion is required to provide some proof of infringement and simply stating that a patent is a SEP is not sufficient when the standard does not require any proof of essentiality as part of their SEP declaration process.
Depending on your company’s strategy, you may ask for proof of essentiality or infringement, thereby buying time. In some cases, it may even end the threat if the SEPs being asserted are low quality or the entity was only interested in settling for a nuisance value amount.
Detailed Analysis to Determine Essentiality and Scope of SEP
Potential exposure can be assessed through performing an essentiality check and technical analysis. This is especially important when the demand package includes proof of essentiality or infringement in the form of claim charts. A complete technical analysis will include confirming the correctness of the claim charts and the scope of the claimed technology.
The technical analysist can also include an evaluation of the commercial importance of the claimed feature which can be used later to estimate FRAND licensing royalties for negotiations, arbitration, or litigation. Features that are critical to the value provided by a product to its end-user have higher economic value that of low value features. For example, the ability to connect with a type of network like EDGE that is rarely encountered is of much lower value than a feature that connects to a modern high-speed network.
Even if a SEP is found to be essential, applicability to a company’s products must be evaluated. If the SEP covers an optional feature that you don’t implement, there is no exposure. In some cases, even mandatory features of the standard may be left out of products. For example, a feature may be one that was used in the past but has been superseded by newer features and is now rarely used. An example of this is a 2G or 3G feature that is no longer widely used in 5G devices.
In cases where infringement is based on a module or component that you sourced from a supplier, an evaluation of infringement may be made to determine if the there is any divided infringement between the sourced component and your own product.
A deep-dive review of the patent for weaknesses in the patent may also be performed. The patent prosecution history may reveal information suggesting that the patent doesn’t read on the standard or apply to the accused product.
This technical analysis is a specialty of Ocean Tomo’s Patent Analysis and Reverse Engineering (PARE) team and can be used to estimate any monetary risk due to potential royalty fees or other financial risk. At this point a strategic business decision may be made on how to proceed in responding to the asserting entity.
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].
