SEP licensing – first stages
Q7. Is licensing common for standardised technologies?
A first question to determine is whether licensing is the norm for a standard being implemented.
For a majority of standardised technologies there is little or no licensing of any patents underlying them. This is often because the relevant SEP owners have no interest in licensing their patents for a variety of reasons. Regardless, due to the FRAND licence commitment given by most, if not all, patent owners, a user of the standardised technology can use the technology without fear of being prevented from using it unless a FRAND licence has been first offered by the SEP owner (see Question [ ] for more details).
However, for some standardised technologies, a number of SEP owners do wish to license and obtain royalties for their products. This helps them to re-invest in the next generation of standardised technologies and enable their researchers to conduct the necessary research for this evolution.
For very new technologies, it may be unclear if anyone will seek royalties for their patented inventions. But for most technologies, it will be clear whether it is the practice of some SEP owners to obtain royalties. This is, for example, common in the following standardised technologies: cellular and Wi-Fi connected end devices, video and audio compression standards, and wireless charging. This is because it has often taken a lot of investment and innovation to create these standards.
Q8. How does one know if a licence is needed?
A quick internet search will often reveal whether licensing is common for a standardised technology and which organisations tend to seek licenses – some may be individual companies or research institutes and others patent pool administrators who act one behalf of a number of SEP owners.
However, the first indicator is when a SEP owner approaches an implementer of a standard informing it that it has patents that are infringed by the implementation of a standard. The SEP owner will typically do this by presenting a list of its claimed SEPs and inviting the implementer to enter into negotiations with it for a FRAND licence.
There is of course nothing that prevents an implementer from approaching the SEP owner to ask whether it needs to take a licence. For a variety of reasons, a SEP owner may say that one is not required. For example, the SEP owner may direct its licensing at a different part of a supply chain, which means the requestor may already benefit from a licence given to the organisation that it is supplying or from its customer’s licence with the SEP owner.
SEP licensing – process
Q9. What is the usual process for negotiation a SEP licence?
Once a SEP owner has approached an implementer for a licence, a first step the implementer should take is to seek legal advice to ensure that it fully understands its situation. It should then engage in negotiations with the SEP owner.
The SEP owner should then present a licence offer, and in turn if the implementer does not agree to the offer it should present a counter-offer. Both parties should provide reasons for their respective offers. This exchange should conclude in a FRAND licence. However, in the case of a dispute, this may be resolved either by arbitration or a court decision.
The process may also involve both parties entering into a non-disclosure agreement (NDA) to enable them to exchange confidential information. The SEP holder may provide a sample set of claim charts, which outline how some of its patent claims read onto the relevant standard. This may lead to the parties discussing the technical value of the SEPs. In some cases, the SEP owner may own hundreds or thousands of SEPs, hence these discussions will focus on just some of the SEPs. There may also be an exchange of commercially sensitive information, such as sales forecasts, to enable the parties to reach a licence that is FRAND for the particular implementer.
Q10. How should the parties conduct themselves?
The process outlined above is a rough guide only. The law on the conduct of a FRAND licence negotiation is evolving and there may be differences between jurisdictions / countries. However, most courts have made clear that both parties should act in good faith during the negotiations and without unreasonable delay towards concluding a FRAND licence. Equally, similarly situated licensees should benefit from similar terms to ensure no discrimination between them.
SEP Licensing – value
Q11. What are FRAND terms and royalties?
There is no one answer to this question. What is “FRAND” will differ between one set of circumstances and another, and there is likely to be more than one value or set of terms that may be considered FRAND – and this may change over time. Ultimately there are two guiding principles. First, there is the initial reason for FRAND, which seeks to balance an incentive to contribute the technology to a standard while balancing the cost of access to the standardised technology. Second, there is the value proposition, or the value of the patented standardised technology to its user.
While these are useful guiding principles, they do not help place a value on a set (portfolio) of patents licensed by an individual SEP owner and the particular circumstances of the respective parties. The best source of information is often comparable licences, but these are usually governed by confidentiality obligations protecting the relevant commercially sensitive information. Nevertheless, a rough assessment of a likely value can be determined from public sources – as such an implementer should seek suitable expert advice to help it understand what may or may not be FRAND terms and royalties for it.
Ultimately, this question can only be answered by an arbitrator or court. Nevertheless, mediation may be a useful and low-cost means of settling a FRAND licence.
Q.12 What are the usual terms in a FRAND licence?
The terms of a licence will in turn govern its FRAND value. The broader the licence, the more likely the higher value it will be and therefore the royalties payable. The most important terms will usually be:
- The standards covered;
- The products and services covered and/or field of use;
- Countries included, although licences are usually global in scope;
- Royalties due and payment terms/auditing;
- Term/length of the licence;