Standards are necessary for wide adoption of technologies and to ensure interoperability. Mobile phones, for example, can connect to 4G/LTE and WiFi regardless of make and model because the technologies conform to standards set by patent holders and industry groups. Many computers, smartphones, and other electronic devices can be plugged in with the same USB cable because the ports and connectors are standards. When a technology or protocol is deemed to be a standard, the patents of its essential components become standard essential patents (SEPs). Raghav Bajaj, partner at Haynes and Boone and patent law expert, explains the basics of the standard-setting process and how a typical patent may become an SEP.
One standard can include thousands or tens of thousands of individual SEPs, laying the ground for potential disputes when so many different parties are involved. Raghav explores the common legal issues relating to SEPs, including what it means to license on fair, reasonable, and non-discriminatory (FRAND) terms, the problem of overdeclaration, and how patent pools can streamline SEP licensing.
Raghav Bajaj is a partner in the Intellectual Property Practice Group at Haynes and Boone.
What are standard essential patents and why do I need to know about them? (Haynes and Boone Practice Alert, May 3, 2021)
Interview with Patent Lawyer – Raghav Bajaj
Joel Cohen: A standard essential patent (or "SEPs") is a patent that, as the name suggests, is intended to protect an industry standard. Examples include USB, Wi-Fi, and JPEG. Today, we’ll get some insight into how standard essential patents are created, how they’re licensed, and some of the unusual legal issues that they raise. Hello, and welcome to TalksOnLaw. I’m Joel Cohen. Today, we’re joined remotely by patent expert Raghav Bajaj of the law firm Haynes and Boone. Raghav, welcome to TalksOnLaw.
Raghav Bajaj: Thank you, Joel. Very happy to be here.
Definition of 'Standard Essential Patent'
JC: Today, we’re talking about standard essential patents; what about a quick definition for everyone?
RB: So a standard essential patent—to understand you need to know what a standard is. So standards are all around us. Your cellphone has LTE or 5G—those are both standards. Your computer has WiFi—that’s a standard. You go to Netflix or Hulu—that has video covered by standards. So standards are everywhere, and standard essential patents are patents that are required when you’re implementing the standard.
JC: Is this enabling people to harmonize their technology, or does it allow people to have access to these patents because they are necessary?
RB: The standards so that, like I said, there are interoperabilities. So when I have a WiFi router from whatever manufacturer, it doesn’t matter what other phone or PC or Mac that I buy, I can connect to that router and those companies have agreed to follow the standard. And as part of following the standard, they have to use some patents, some technologies developed by companies all around the world that have agreed to license their patents as part of a standard. So there are thousands of standard central patents in any given technology.
From Patent to Standard Essential Patent
JC: How does a regular patent become a standard patent?
RB: Yeah, so, I’ll step back a little bit. When companies get together to form a standard, they meet together with a bunch of industry participants and define a document that says this is how the standard is going to work in various different aspects. And when they contribute their technological developments, they say, “I’m contributing this technological development and it is covered by one of my patents.” So if I contribute a development about how two WiFi devices are communicating with each other and I say that’s covered by my patent, if the standard incorporates that method of communicating between the two WiFi devices, my patent is now a standard essential patent.
FRAND Rates & SEPs
JC: So if these are standards, do patent holders have all the power? Are you kind of over a barrel here and have to accept whatever terms they offer?
RB: They have some power, because they have the patents themselves. But typically, when they designate a patent as essential to the standard, they also engage in an obligation with the standard setting organization to license the patent on fair, reasonable, and non-discriminatory terms. And that’s very important in the competitive sense that they can’t charge different implementers different rates that are discriminatory. So I’m not paying more on a per-device basis simply because I sell more devices. Now, the definition of what a FRAND rate is not standard, and so sometimes there is litigation about what a FRAND rate should be for a particular aspect of technology and brand litigation has been increasing. But generally, companies try to work this out in a business negotiation before going to courts.
Overdeclaration & SEPs
JC: Another interesting aspect of standard essential patents are patents that claim to be part of the standard, but may not be. What’s going on there?
RB: That’s called overdeclaration, and it’s exactly what you said. A patent is declared as essential to the standard, but in reality, practicing the patent is not needed to implement the standard. And that can occur for a couple of different reasons. When a company contributes a technology to the standard, they identify that they have a patent application on that aspect of technology. But as the patent application goes through the patent office, whether it's in the US or in Europe, that patent application claims get modified, and at the end of the day, the standard may no longer read on what gets granted at the patent office. So that patent has been overdeclared. Another reason is that a patent might be granted, but ultimately be found to be invalid. And it’s still part of the patent pool, or it’s still part of the standard, and companies are paying for that invalid patent. So those are two aspects of overdeclaration. Another aspect is that there is no independent method of determining essentiality, of determining whether a patent is essential to a standard. So a company can say that their patent is essential, but unless the licensee looks into whether that patent is actually necessary for the standard, you’re kind of at the patent owner’s word.
SEPs & Patent Pools
JC: In the world of standard essential patents, the patent pools have become more and more common. Why do you think that is?
RB: So, as the technologies that we work with and that we experience on a day to day basis become more complicated, there are more participants in the development of the standard. So the standards have become more complicated, and as a result, there are more patents that are dedicated to or deemed essential to the standard. So, whereas in prior standards you may have had a hundred patents and maybe five or ten patent owners, now some patent pools include ten thousand patents or more. And so trying to negotiate a license that covers ten thousand patents with each individual owner is really difficult. So patent pools streamline that by making it much easier for a potential implementer to license a pool of standard essential patents and implement that technology.
JC: If I’m needing to implement a standard there may be ten thousand patents that are being paid out in my license?
RB: That’s exactly right. Some of the video standards that your phone uses or that some of the streaming providers use cover in the tens of thousands of patents in the US and around the world.
JC: Raghav, thank you for your time today.
RB: Thank you, Joel. It was great talking to you.
JC: And thank you for watching TalksOnLaw.