Why we should pay attention to standard essential patents

By: Han Xue

Standard essential patents, or “SEPs,” are patents that protect technology essential to an industry’s standard use. The name is self-descriptive, in that such patents set the standard that an industry must use in order to innovate effectively. One example of this is WiFi. So long as a router is available, it doesn’t matter what phone or computer one has, because, generally speaking, any phone or computer, regardless of brand, will be able to connect to it. So, the ability to connect to WiFi is an industry-standard, and WiFi itself falls under the umbrella of standard essential patents. Other examples include USBs and JPEG, as well as LTE and 5G technology for phones. These industry-specific standard-setting organizations (SSOs), or standard development organizations (SDOs), composed of industry leaders determine which patents are essential for the entire industry’s success, and thus, qualify to be SEPs. Once recognized, an SEP can then be licensed to entities in the relevant industry.

The ubiquity of SEPs and the roles they play in many of the technologies in common use today make them immensely valuable. The ability to monetize them through licensing can serve as a strong incentive for research and development in many industries, especially those involved in complex technologies that require significant investment to develop, and the mirroring loss of financial compensation that occurs when an SEP is infringed upon gives companies good reason to maintain a tight grip over the ownership of their SEPs. Furthermore, the development and spread of the standards that such patents protect can enable smaller businesses to more easily access the market, creating competitive conditions that drive down prices for consumers and incentivize innovation.

Given the above, it’s unsurprising that a 2021 announcement by the Antitrust Division of the Department of Justice (DOJ), the U.S. Patent and Trademark Office (USPTO), and the National Institute of Standards and Technology (NIST) regarding a draft policy statement on the 2019 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments drew some attention. The original 2019 policy statement, among other things, examined remedies for infringement of SEPs subject to certain licensing agreements, and the draft, which contained language limiting the use of injunctions in the enforcement of SEPs drew strong scrutiny from those in the intellectual property (IP) field.

One negative reaction to the anti-injunction portion of the draft policy was provided by the Center for Strategic & International Studies (CSIS), which published an article decrying the policy as one that would effectively reduce the value of SEPs, discourage innovation, and undermine the reliability of the intellectual property system in the United States. Specifically, the CSIS focused on the concern that, without the threat of injunctions, infringers would face fewer risks by refusing certain fair licensing agreements and gain terms skewed in their favor. This would, among other things, harm SEP owners acting in good faith, ultimately leading to a decrease in SEP value and a subsequent decrease in competition at the standard-setting level. Another article was published by IPWatchdog, which criticized its language and unsupported statements. In the end, after receiving substantial criticism, the draft policy statement revealed in 2021 was not implemented.

More recently, policy related to SEPs has continued to evolve. This last summer, the DOJ, USPTO, and NIST announced a complete withdrawal from the 2019 policy statement, with the stated goal of creating “incentives to generate more innovation.” The three agencies also noted concerns about anti-competitive actions surrounding the implementation of SEPs, and explicitly claimed that this move would “strengthen the ability of U.S. companies to engage and influence international standards that are essential to our nation’s technological leadership.” More specifically, this withdrawal signals the DOJ’s attempt to use a case-by-case approach when analyzing opportunistic behavior that may lead to anticompetitive behavior in the context of certain licenses for SEPs. This move has been met with less disdain than the 2021 draft policy statement. Save Our Standards, a group centered around certain patent licensing commitments, applauded it as a step towards a fair and transparent licensing system for SEPs. Others have adopted more of a wait-and-see approach, watching for further guidance from the DOJ and pending litigation.

Right now, the stakes for the implementation of such policies are higher than ever. In 2021, the United States ranked 3rd on the Global Innovation Index (GII). However, over the last decade or so, and in the last few years, in particular, there has been a growing media focus on the perception of a blanket decrease in American innovation, and a corresponding decrease in American competitiveness in the global context. This has contributed to a flood of publications centered around current policy and America’s decline in innovation, especially in areas related to technological innovation. Given the state of intra- and international competition in technological fields, as well as increasing international tensions over technological supremacy, it is more important than ever to keep a close eye on legal developments that influence innovation, such as policy decisions affecting the protection of SEPs.