Thomson Reuters Practical Law defines a standard essential patent (SEP) as “a patent claiming technology that is essential to an industry standard’s use.” For those of us who are not well-versed in patent law, it may be easier to understand SEPs as the patents protecting an industry’s core technology—the standard that the entire industry must use in order to continue to innovate in meaningful ways. Standard essential patents are, in fact, essential to the standard.
SEPs are determined by industry-specific standard setting organizations, or SSOs. These groups are also sometimes referred to as standard development organizations, or SDOs. It is these groups, comprised of the industry’s most innovative companies, that decide which of the members’ patents are necessary for the entire industry’s success. The unique makeup of these organizations, which are more or less the members’ direct competitors, as well as the potential benefits of holding a SEP, make the groups “both collaborative and highly competitive.”
Once a patent is declared a SEP, it can be licensed to other entities within the industry under fair, reasonable, and nondiscriminatory (FRAND) terms. These modified licensing agreements allow a technology to become standard by decreasing the barriers to implementation for companies that don’t hold the necessary patents. There are no regulations over FRAND terms, which must balance the needs of the patent holder and the industry at large. Licensors must set terms that allow them to profit from their research and development. However, if the cost of licensing a technology is too high, the industry may invent around a patent, even after it is declared standard essential. On the other hand, once an industry does adopt a patent, it is very easy for the patent holder to spot infringement. If a company is using the industry standard and you hold a relevant SEP, you know this company is using your patented technology.
Examples of Standard Essential Patents
The concept of SEPs may seem foreign until you begin to think of all the technologies that are consistent between even the fiercest competitors. It’s not that these inventions aren’t protected by patents, but rather that an SSO declared them essential to the industry standard. Therefore, they are licensed to the industry at large under FRAND terms.
For example, the European Telecommunications Standards Institute (ETSI) TS 121 205 sets the standard for 5G. This SSO also set the standard for 2G, 3G, and 4G, with contributions from the industry’s most innovative and influential companies, including Ericsson, Huawei, Nokia, Qualcomm, ZTE, Samsung, Intel, LG Electronics, and many more.
Similarly, the IEEE Standards Association set the standard for WiFi with IEEE Std 802.11. Mark A. Lemley and Timothy Simcoe, of Stanford Law School and Boston University Questrom School of Business respectively, use this example to explain why standards and SEPs are so important. They write in the Cornell Law Review, “If you want your phone or computer to connect wirelessly to the Internet, for instance, you need to use WiFi. And using WiFi means sending and receiving data according to a specific set of protocols. Those protocols are patented. In fact, they are the subject of lots of patents, all claimed to be necessary to implement WiFi. And if you want your phone to be able to talk to other people’s phones, you need to implement the agreed protocol. Changing it to something incompatible won’t do—even if there were viable alternatives before the standard was widely adopted.”
Are there downsides to SEPs?
Some of modern life’s most important innovations are protected by standard essential patents, so you might assume they’re a perfect solution to the problem industry standards present to industry leaders and laggards alike. However, that is not true in practice.
In some industries, not all innovators are part of the SSO. The organization can declare a standard but that does not mean a company that does not participate in standard setting has to make their patent available on FRAND terms. In reality, industries are more likely to have the opposite problem: patents are declared essential and added to the pool of SEPs for a specific technology when they are not actually essential. This can drive up licensing costs and pass on expenses to consumers with higher end-product pricing.