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Background
29 February 2024

Navigating Standards Essential Patents as an SME

Introduction

Technical standards are usually produced by standard development organisations (SDOs), with inputs from industry and technical experts. Large businesses may be involved in the development of standards from an early stage, which may give them an advantage over competitors in developing technology and filing patent applications that are in line with upcoming standards. A patent holder is incentivised to declare patents as essential to a standard to gain access to the market and to generate royalties by licensing patented technologies to any other organisations making use of standardised technology in their products, as discussed below.

The standards development process may start with establishing work streams to address particular issues. Such work streams may be led by professionals with expertise in the relevant technology who work together to agree on solutions to the identified issues (e.g. by selecting between features proposed by different contributors). The progress of the standardisation process (such as lists of identified issues/desired goals, establishment of work streams, and the solutions adopted) is typically published at regular intervals. Thus, even if SMEs are not directly involved in the development of a particular standard, they can still follow the standardisation process in detail.

Standard Essential Patents (SEPs)

A “standards essential patent” is a patent that protects technology that is essential to implementing a technical standard. For example, mobile phones, wireless connectivity, navigation systems in cars and smart meters all use technical standards.

A patent may be considered to be a SEP if implementation of the standard requires the use of technology protected by that patent. While large businesses may have opportunities and be able to dedicate resources to develop standard-relevant technology, obtain granted patents for such technology, and declare qualifying patents as SEPs, this may be more difficult for SMEs. At the same time, SMEs, like everyone else, would be liable to pay royalties to patent holders if they implement technologies covered by SEPs.

Licensing

One of the biggest advantages of having a significant SEP portfolio is the revenue that can be generated from licensing SEPs. For example, organizations having a large SEP portfolio relevant to a particular standard may be owed licensing fees by other organizations working with the standard that have smaller (or no) relevant SEP portfolio. Typically, a patent that is declared as a SEP can become part of a patent licensing arrangement relatively easily.

A feature of most technical standards is that contributors to the standard agree to licence their SEPs to others on request. Thus, it is typically possible to avoid the risk of infringing patents that have been declared to be essential by obtaining a licence. Indeed, many SDOs require SEP holders to offer their SEPs on Fair, Reasonable and Non-Discriminatory (FRAND) licensing terms.

Of course, negotiating licences on FRAND terms takes time which may not be ideal for SMEs looking to launch standards-related technology quickly. Moreover, even if acceptable FRAND rates can be secured, if licence fees need to paid to multiple patent owners who each have relevant SEP portfolios, then the required royalty payments can become prohibitive.

In December 2021, the UK Intellectual Property Office (UKIPO) led a call for views to better understand whether the current framework for SEPs is functioning to support innovation. The results of the survey suggest a degree of frustration amongst SMEs when seeking to navigate SEPs. Some SMEs note a lack of transparency regarding rates agreed by a SEP holder with their other licensees, as licensors do not disclose valuation calculations or their investment in creating the technology. It also may not be straightforward to get, for a given standard, an accurate view of all potential licensors and what licence fees are reasonable. Some SMEs even accuse SEP holders of using the threat of injunctions to extract higher rates.

It should also be noted that even obtaining a licence to declared SEPs does not remove the risk of infringing other patents entirely. For example, there may be other patents that are not essential that could be infringed by a particular implementation (and may not be covered by some licences). Furthermore, patents owned by companies that are not part of the standards organisation could also be infringed.

Cross licensing

SEP licence fees required to access standards can be expensive, sometimes prohibitively so. This cost can be mitigated if you have essential patents of your own to cross-licence.

Large players in a particular sector may conclude licence negotiations by assessing which party has the larger/better portfolio of SEPs. The party with the smaller/weaker portfolio will probably need to make licence fee payments to the other party.

It is, however, not possible to take advantage of cross-licensing if you don’t have a relevant patent portfolio of your own.

Building a relevant patent portfolio

SMEs may file their own patents for technology falling under industry standards. It is possible to declare these patents to be essential to the standard(s) by approaching the relevant SDO. This can lead to cross-licensing opportunities, as discussed above. However, building a patent portfolio itself can also be expensive, which may cause SMEs to be left behind in the development of a significant SEP portfolio.

SMEs may have a further disadvantage for building an SEP portfolio as it can be difficult to obtain patents that are truly essential without being involved in the standard development process from an early stage. Nevertheless, patents that are relevant to a standard, even if not ‘essential’, can still be licensed. For example, patents covering implementation features or optional aspects of a standard are often valuable as there is a good chance that organizations, including SEP holders, may be using such implementation features or optional aspects in their products relating to standardized technology.

Even if an SME is not directly involved in standards development meetings, they can follow the progress of the standards group and develop solutions in that space. Patent applications directed to such solutions can be patented – these might give rise to “essential” patents (or, if not, at least patents that are relevant to the standard). On a practical note, having pending patent applications can be valuable as it provides the ability to tailor a patent application to particular aspects of the standard that can increase the likelihood of obtaining a SEP.

“Proof of Concept” approach

A different approach adopted by some SMEs is to develop technology in a field in which standards are relevant, but without launching a product themselves. Such a company could develop a proof of concept, protected by patents, and look to sell or licence that patented technology to a larger player, leaving the problems and costs of obtaining the required licences to that larger player.

Conclusion

Even though SEPs may be hard to navigate for SMEs working with standardized technology, it is certainly not impossible. It is important for SMEs to be up-to-date with the developing standards, to be aware of the SEPs in their relevant technology sector, and know who owns relevant SEPs. Working towards building an ‘essential’ patent portfolio may be an important step for getting ahead in the licensing game or to at least minimize licensing fees payable to other larger players. This would not only help mitigate costs, but can also lead to revenue from licensing out SEPs or standards-related patents. It is a good sign for SMEs that the UKIPO and others are investigating the areas of typical SEP frameworks that need improvement. SMEs will hope that this work leads to frameworks that are easier for SMEs to navigate.