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Standard Essential Patents (SEP) and Fair Reasonable and Non-Discriminatory (“FRAND or “RAND”) licenses

… what every lawyer should know

The Patent Guys, Arthur Peslak and Richard Malagiere wrote this article about Standard Essential Patents, SEP, and Fair Reasonable and Non-Discriminatory FRAND licenses for the Bergen County Bar Association Intellectual Property Committee

If one were to obtain patent on the very technology that allows a wireless network to function or enables a cell phone to connect to and use data from a wireless network, what value would you put on it? Would you license it or keep it to yourself so that you are the only one who can use it and thereby monopolize the cellular telephone business. These types of patents are called Standard Essential Patents and the holders of them (Apple, Samsung, Motorola in the cellular phone world) license them and at fair, reasonable and non-discriminatory terms and here’s why.

Standard-setting organizations (SSOs) set technical standards which ensure interoperability between devices complying with such standards. Technical standards play a vital role in the mobile telecoms sector where interoperability between devices and networks is key. If a patent is a Standard Essential Patent (SEP), namely, if it is ‘essential’ to a particular standard, it is not possible on technical grounds to make or use products that comply with such a standard without infringing that patent. If a standard-compliant product incorporates SEPs then, in principle, those who manufacture such products require licenses to use the SEPs. If such licenses were withheld, and the patents enforced against infringers, it would undermine the usefulness of the standard as it would not be accessible to all. To deal with this problem, SSOs have relied on voluntary licensing commitments from SEP holders to license their SEPs on FRAND/RAND (fair, reasonable and non-discriminatory) terms. SEP holders who participate in SSOs have generally been willing to give such commitments, although the underlying rationale for doing so may differ. Some, who plan to manufacture for the larger market, which standardization may make possible, are keen to facilitate effective standard-setting and may perceive technical benefits in having their technology included in the standard. Others, who may seek to recuperate R&D costs through licensing, may see significant benefits in incorporating their patents as essential in a standard that may command a large market. Many companies have mixed interests.

Standard-setting organizations include this obligation in their bylaws as a means of enhancing the pro-competitive character of their industry. They are intended to prevent members from engaging in licensing abuse based on the monopolistic advantage generated as a result of having their intellectual property rights included in the industry standards. Once an organization is offering a FRAND license they are required to offer that license to anyone, not necessarily members of the group. Without such commitment, members could use monopoly power inherent in a standard to impose unfair, unreasonable and discriminatory licensing terms that would damage competition and inflate their own relative position.

Specifically, as relates to cellular communication, mobile wireless telephony is the general term for describing the technology and equipment used in the operation of cellular telephones. A cellular telephone contains one or more computer “chipsets”–the core electronics that allow it to transmit and receive information, either telephone calls or data, to and from the wireless network. Chipsets transmit information, via radio waves, to cellular base stations. Base stations, in turn, transmit information to and from telephone and computer networks. It is essential that all components involved in this transmission of information be able to communicate seamlessly with one another. Because multiple vendors manufacture these components, industry-wide standards are necessary to ensure their interoperability. In mobile wireless telephony, standards are determined privately by industry groups known as standards-determining organizations (“SDOs”).

Two technology paths, or families of standards, are in widespread use today: “CDMA,” which stands for “code division multiple access”; and “GSM,” which stands for “global system for mobility.” Cellular telephone service providers operate under one or the other path, with, for example, Verizon Wireless and Sprint Communications operating CDMA-path networks, and Cingular (now AT&T) and T-Mobile operating GSM-path networks. The CDMA and GSM technology paths are not interoperable; equipment and technologies used in one cannot be used in the other. For this reason, each technology path has its own standard or set of standards. The standard used in current generation GSM-path networks is the third generation (“3G”) standard created for the GSM path, and is known as the Universal Mobile Telecommunications System (“UMTS”) standard.

The UMTS standard was created by the European Telecommunications Standards Institute (“ETSI”) and its SDO counterparts in the United States and elsewhere after a lengthy evaluation of available alternative equipment and technologies. Companies that supply some of the essential technology that the ETSI ultimately included in the UMTS standard, and hold intellectual property rights (“IPRs”), such as patents, in this technology are required by the ETSI to license their technologies on fair, reasonable, and non-discriminatory (“FRAND”) terms.

SOURCE MATERIAL: Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3RD Cir 2007); Getting the Deal Through: Patents, 2014 Frank L. Bernstein; Wikipedia.

Please contact us with questions or comments…the Patent Guys

Arthur M. Peslak, Esq. Registered Patent Attorney
Richard Malagiere, Esq. Registered Patent Attorney