The Public’s Interest in Standard-Essential Patents is Paramount
Alex Moss | February 7, 2022
Standard-essential patents (SEPs for short) are invisibly interwoven into practically every aspect of our daily lives. SEPs are patents that are considered essential to standards—sets of technical requirements that allow products from different suppliers to share infrastructure and communicate with each other. WiFi, Bluetooth, and LTE are all standards. We use them to make cellphone calls, get turn-by-turn directions in the car, and send heart monitor data to health care providers.
Standards are overwhelmingly good for technology makers and users. They make it possible for all devices to connect to the same network, regardless of which company made the device. That frees us to choose devices based on their price, processing power, or design instead of their ability to communicate over particular networks. Our interconnected world simply would not exist if a device’s connectivity depended on the identity of its manufacturer.
Standards are also good for companies that own patents covering technology a standard incorporates. Because technical standards include lots and lots of requirements, they potentially incorporate lots and lots of patented technology. Once a standard is widely used, so are patents covering the technology it includes. Those patents may cover relatively minor or insignificant advances, but once they are deemed essential to a standard, their owners get immense power and profit-making potential.
A patent gives its owner the right to stop others from making, selling, or using anything within the scope of the patent’s claims. SEP owners can use that power to demand exorbitant license fees and threaten to stop those who are unwilling to pay for accessing the standard. The ability to block access to an entire standard gives SEP owners the power to demand license fees far beyond the value of their patented technology.
To prevent SEP owners from abusing their power, the organizations that set standards (standard-setting organizations or SSOs) typically require all companies that participate in setting the standard (which gives them a say in deciding what technology the standard includes) to commit to licensing their patents on fair, reasonable, and non-discriminatory (or FRAND) terms. That sounds good in theory, but SSOs generally don’t take on the task of defining what fair, reasonable, and non-discriminatory mean. Since nobody knows exactly what FRAND commitments require, there are lots of disputes and lots of litigation.
Although patents give their owners the right to exclude, they do not give their owners the right to exercise hold up power they obtain through standard setting. Under former President Obama, the Department of Justice (DOJ) issued a policy statement explaining that the public has an interest in ensuring that SEP owners that are subject to FRAND commitments do not drive up licensing fees by seeking court orders banning the manufacture, use, or sale of products simply because they comply with a standard.
That policy makes sense: by participating in standard setting, SEP owners trade their right to exclude for the right to get their technology included in the standard. That gives them the potential to rack up licensing fees from everyone who makes, uses, sells, or imports products that comply with the standard. Since the goal of standardization is widespread (if not universal) adoption, that gives them access to licensing fees from an enormous number of companies on an enormous range of products. Trading the right to block access to standardized technology for the right to participate in defining the standard is a more than fair trade.
But under former President Trump, the DOJ changed its mind, issued a new policy statement saying that SEP owners should be entitled to injunction orders regardless of their role in standard setting and commitment to FRAND terms. Perhaps unsurprisingly, the head of the DOJ antitrust division at that time, Makan Delrahim, spent much of a decade lobbying for Qualcomm, one of the most powerful, prolific, and aggressive SEP owners in the world.
Thankfully, justice returned to the DOJ under President Biden. In December of 2021, along with the U.S. Patent and Trademark Office (USPTO) and National Institute of Standards and Technology (NIST) issued a draft of a revised policy statement, rescinding its predecessor’s pro-injunction approach. The revised draft returns to reason by stating that: “Where a SEP holder has made a voluntary F/RAND commitment, the eBay factors [for injunction orders], including the irreparable harm analysis, balance of harms, and the public interest generally militate against an injunction.”
When DOJ, NIST, and USPTO released the draft, they also requested comments from the public. The Public Interest Patent Law Institute submitted comments in response, commending agencies on making overwhelmingly beneficial changes in the draft while recommending that the final statement more fully and explicitly articulate the public’s interest. When deciding whether injunction orders are appropriate, the public’s interest in reliable and affordable access to standardized technology should be paramount.
We will keep watching to see what the final policy statement says. We hope it addresses the public’s interest more directly, and above all, that SEP owners with deep pockets and vocal lobbyists do not persuade the DOJ, NIST, and USPTO to reverse course.