The evolution of SEP jurisprudence
Standards development organisations (SDOs) foster the development of complex collaborative technology standards which promote the interoperability, performance and innovation of consumer products.
5G, the telecommunications standard, will change the world by stimulating diverse innovations and new consumer products that rely on the cutting-edge technology contributed to this open standard
The common requirements in SDO governance are that technology contributors (typically those who invest heavily in development of the standard) indicate their future licensing intentions for any patents they own or may come to own, which have become known as standard essential patents (SEPs).
Such intentions typically involve a voluntary contractual assurance that provides access to essential patents on fair, reasonable and non-discriminatory (FRAND) terms.
Benefits and drawbacks of FRAND agreements
Antitrust enforcers recognise the competitive benefits of collaborative standards, which reduce barriers to entry and lead to cheaper products. But they also recognise the potential market power that may be created by incorporating a patented technology into the standard.
FRAND assurances have long been recognised as mitigating potential antitrust concerns because they provide all potential users access to the standard (including all original developers) on FRAND terms, while ensuring adequate compensation to contributors.
In the past, especially between 2012 and 2015, the US Department of Justice’s (DoJ) antitrust division had expressed policy concerns about the potential for “hold ups” caused by the owners of essential patents, whereby the owner tries to get more than the FRAND value of essential patents after it has been incorporated into the standard.
Another problem, also recognised by antitrust enforcers, is a “hold out” scenario, in which an infringer who is already using the standard strategically refuses to get a licence or mandates a sub-FRAND rate.
In 2013, the DoJ and the US Patent and Trademark Office (USPTO) jointly issued an unprecedented Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments, targeted at the International Trade Commission (ITC). It was premised on the assumption that an exclusionary order to enforce an SEP “may be inconsistent with the public interest” in ITC cases as the patentee had supposedly agreed to license at FRAND rates
The statement emerged from the disquiet resulting from the Supreme Court’s standard in eBay v MercExchange (2006), which did not apply to the ITC.
The other US antitrust agency, the Federal Trade Commission, did not join the 2013 statement and nor did any other agency.
A systemic problem
In December 2018, Makan Delrahim, the first assistant attorney general (AAG) for the DoJ’s antitrust division who is also a patent attorney, announced the DoJ’s withdrawal from the 2013 policy statement.
The withdrawal of the antitrust division led the patent and antitrust communities to believe that the USPTO would follow the DoJ’s decision to withdraw, or that a new policy was imminent.
But after nearly a year, the USPTO had not disavowed the 2013 statement and it was unclear whether a new statement was forthcoming, which led the Senate IP subcommittee to encourage DoJ to collaborate with USPTO.
Delrahim believed that the 2013 statement skewed too heavily in favour of technology users rather than patent owners. Additionally, there was and is no evidence that “hold up”—the motivation for the 2013 statement in the first place—represents a systemic problem. However, there are plenty of examples of “hold out”.
