In recent decades, the value of intangible assets has consistently increased. In particular, IP rights came to be the engine of the knowledge economy, by incentivising the development of breakthrough technologies. In addition, IP rights themselves became a discrete and quantifiable business as companies leveraged their value via IP sales and licences.

Selling and licensing IP rights—patents in particular—is difficult because the value that the end user is able to experience is not easily calculated. The pricing of ever more complex and feature-rich end user products can result in friction between patent owners and implementers, who have to pay royalties to use the patented technology in a consumer product.

SEP and FRAND commitments

This friction is especially evident in the case of standard-essential patents (SEPs). These are patents that the innovator commits to license on fair, reasonable, and non-discriminatory (FRAND) terms. The patent owner also undertakes a FRAND assurance before a standard-setting organisation (SSO).

This assurance acts as a promise to renounce the monopoly conferred by the patent right, giving access to a certain patented technology on FRAND terms. The implementer, who is obliged to use those SEPs because they are mandatory to implement a certain standardised technology, benefits from this contractual relationship between the patent owner and the SSO as a third-party beneficiary.

However, it is important to note that the implementer has to be willing to take a licence under FRAND terms. If not, the patent owner has no FRAND licensing obligations, and instead enjoys the customary remedies available to the owner of a monopoly right, including injunctive relief. Thus, the FRAND licence is a two-way street, with duties incumbent on both the patent owner and the implementer.

The rise of SEP litigation

In today’s market, technologies are complex and products increasingly feature-rich. Mobile phones are no longer just used for making calls, but rather offer a myriad of other functions to their users, such as internet access, geolocation and photography. The same is happening in the automotive industry, where cars can now communicate with devices and users.

This increased functionality available to the end user has led to an increase in the number of SEPs, which protect the right of the innovators who make such features available on the market.

An unprecedented number of standards are under development and ever more technical contributions are made to those standards. There were almost six times more SEPs declared in 2017 than in 2002. Litigation concerning these patents also increased, resulting in almost nine times more litigated SEPs over the same period of time (Figure 1).