Recently, IAM Magazine published an article by Ruud Peters and Nikolaus Thumm entitled “A six-point plan for a new approach to assessing SEP essentiality”. The authors proposed six core questions, with the fifth asking: “What incentives could be introduced for patent holders to have essentiality checks carried out”? The authors suggest that a proper incentive would be to allow a SEP licensor to collect royalties starting only at the date it has submitted a patent for an essentiality assessment. To begin with, this is not an incentive but rather a penalty. Moreover, this proposal is inconsistent with current SEP licensing practices that have been developed over decades in the real economy. Below we explain why this proposal is unworkable and would have detrimental effects on innovation and consumers.
SEPs for the mobile wireless standards are almost uniformly licensed on a portfolio basis. Many portfolios include hundreds, even thousands, of patents. SEP portfolios are dynamic, meaning that new SEPs are constantly being added to the portfolio, while expiring SEPs are removed. A portfolio licence covers whatever patents are in the portfolio at any given time during the term of a licence. Such a portfolio licence is an agreement, between the licensor and licensee, that manages risk and provides certainty. The price stays the same whether the portfolio grows or shrinks during the term of the licence.
Now, let’s consider a situation in which a licensor could not begin to collect royalties before a patent is sent for an essentiality assessment. This would mean that the new patent could not be added to the licensed portfolio until the patentee was able to undertake the essentiality assessment process. This could mean that the patentee would remain unlicensed for an SEP before it undergoes the essentiality assessment process – a seemingly odd outcome.
Perhaps more problematic is the potential delay that this would cause to licensing. It already takes SEP holders many years – sometimes more than a decade – to execute a licence and be compensated for the use of their essential technologies. This proposal would impose an additional burden on SEP holders and further delay their ability to be compensated for their contributions.
Due to these delays, the proposal is not balanced. While the implementer can go forward and immediately earn money from selling products which incorporate the standardised technology, the patent holder is saddled with additional obligations that complicate and delay the licensing process. A better strategy would be to equip the finding of essentiality with some legal effect, to incentivise amicable licensing while ensuring that implementers do not engage in holdout and delay the royalty payments. There is no valid justification for imposing on patent holders an additional burden before they can enforce a legally obtained patent.