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Patent policies and standards setting: The issues. What is going on? Why should I care?

Patent policies and standards setting: The issues. What is going on? Why should I care?

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Published by George Willingmyre
This article is intended as background for persons impacted by the current discussions of patent policies in the standards-setting arena: What are the issues? Why and how will these issues affect standards development organizations, their members, and users? What may transpire over the next few years? Patent policies represent the choice a standards-developing organization (SDO) makes to balance the rights of patent holders and the need for implementers to be able to use proprietary technology that may be essential for compliance with a standard while protecting and advancing the SDO’s own interests. The incorporation of a patent that is essential to practice a standard leads to a variety of hypothetical and practical problems. These include: Patent ambush; Patent hold-up; Royalty stacking and the closely rated issue of patent thickets. Problems may also arise when NPEs (non-practicing entities, who do not build anything) seek unreasonable or unnecessary royalty bearing licenses from implementers of a standard. It seems that, relatively speaking, only a small number of standards embedding SEPs drive the current attention to revision of SDO patent policies … between one in one thousand and one in ten thousand. This is not to discount the importance of the problems that do arise nor that such problems are unworthy of attention and solution; but rather to place these problems in perspective within the global voluntary standards system. One possible explanation for the relative low rate of patent disputes involving standards is that existing patent policies have been and continue to be effective. Some of the topics under discussion within standards development organizations are: Transfer of Ownership; Disclosure Requirements; What is an Assurance to License on RAND terms?; Injunctions; Conditions of Reciprocity; Role of Arbitration.Many aspects of the voluntary standards system discourage bad behavior by participants. It is important to understand the primary causes for patent disputes in order to propose the best solutions if the goal is to reduce the overall number of disputes. While different SDOs will make different choices, all patent policies have the goal of attracting the best technology for their standards while not discouraging implementers from adopting them. In this respect, a shared characteristic of an SDO patent policy is the balancing of divergent points of view of stakeholders and the needs of the SDO itself. There is no reason to “reinvent the wheel.” SDOs will benefit from the patent policy lessons learned from experiences of organizations that have practical experience about what has worked and not worked. Its patent policy is one aspect of an SDO’s competitive position in the global market for standard setting, and the consequences of right or wrong decisions are significant.
This article is intended as background for persons impacted by the current discussions of patent policies in the standards-setting arena: What are the issues? Why and how will these issues affect standards development organizations, their members, and users? What may transpire over the next few years? Patent policies represent the choice a standards-developing organization (SDO) makes to balance the rights of patent holders and the need for implementers to be able to use proprietary technology that may be essential for compliance with a standard while protecting and advancing the SDO’s own interests. The incorporation of a patent that is essential to practice a standard leads to a variety of hypothetical and practical problems. These include: Patent ambush; Patent hold-up; Royalty stacking and the closely rated issue of patent thickets. Problems may also arise when NPEs (non-practicing entities, who do not build anything) seek unreasonable or unnecessary royalty bearing licenses from implementers of a standard. It seems that, relatively speaking, only a small number of standards embedding SEPs drive the current attention to revision of SDO patent policies … between one in one thousand and one in ten thousand. This is not to discount the importance of the problems that do arise nor that such problems are unworthy of attention and solution; but rather to place these problems in perspective within the global voluntary standards system. One possible explanation for the relative low rate of patent disputes involving standards is that existing patent policies have been and continue to be effective. Some of the topics under discussion within standards development organizations are: Transfer of Ownership; Disclosure Requirements; What is an Assurance to License on RAND terms?; Injunctions; Conditions of Reciprocity; Role of Arbitration.Many aspects of the voluntary standards system discourage bad behavior by participants. It is important to understand the primary causes for patent disputes in order to propose the best solutions if the goal is to reduce the overall number of disputes. While different SDOs will make different choices, all patent policies have the goal of attracting the best technology for their standards while not discouraging implementers from adopting them. In this respect, a shared characteristic of an SDO patent policy is the balancing of divergent points of view of stakeholders and the needs of the SDO itself. There is no reason to “reinvent the wheel.” SDOs will benefit from the patent policy lessons learned from experiences of organizations that have practical experience about what has worked and not worked. Its patent policy is one aspect of an SDO’s competitive position in the global market for standard setting, and the consequences of right or wrong decisions are significant.

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Published by: George Willingmyre on May 16, 2014
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Patent policies and standards setting: The issues. What is going on? Why should I care?
 by George T. Willingmyre May 2014
Introduction
This article is intended as background for persons impacted by the current discussions of patent policies in the standards-setting arena: What are the issues? Why and how will these issues affect standards development organizations, their members, and users? What may transpire over the next few years? Patent issues in standards setting are complex. Debates, discussions, and litigation are often dominated by attorney experts in intellectual property and antitrust. This article necessarily includes legal references; however it is primarily addressed to a non-legal audience. All members of the standards community have important stakes in these issues and their resolution. How the global voluntary standards system addresses these issues in the near term will have lasting implications for the future.
Patent policies represent the choice a standards-developing organization (SDO) makes to balance the rights of patent holders and the need for implementers to be able to use proprietary technology
 
that may be essential for compliance with a standard while protecting and advancing
the SDO’s
own interests.
1
 
The patent policies of consensus-based SDOs, like all of their other processes, require balancing the points of view of stakeholders with differing interests. However, the interests of the SDO are also an important consideration, because the patent policy or procedures of an SDO are a facet of its competitive position in the global market of standards setting. In developing a patent policy or procedure any SDO (and its members) essentially chooses what it believes is an optimum balance of competing interests: attracting contributions of proprietary technology so that the resulting standards will be the best solutions compared to other SDOs, and not discouraging implementers of the resulting standards from adopting them. This utilization of proprietary state-of-the-art technology to meet a market need may involve what this paper calls
“SEPs”
 or
Standards Essential Patents.
2
 
The incorporation of an SEP in a standard has specific market value to the owner of that technology. These returns may come from increased product sales, from revenues from licensing the SEPs, or both. Owners of SEPs evaluate whether it is in their interests to strive to market their innovation on its merits alone or to contribute the technology to a standards process (and which one) in order to obtain returns based on the incorporation of the SEP in a standard. Such evaluations rest on a cost/benefit evaluation of the
“costs”
 a  particular SDO imposes on such contributions in terms of forgoing rights that a patent process has otherwise granted them. For example, a tangible benefit of contributing an SEP to a standards process can be the ability to obtain reasonable royalties for licensing the use of the SEP from large numbers of implementers of the standard. Even when commitments are made to license SEPs compensation-free, economic benefits can accrue because of early knowledge, advantages of making products utilizing
one’s own
technologies, and benefits that arise from cross-license commitments made
in “reciprocity
,
where licensees agree
“not to sue” or to
 provide for access to their own patents. The conditions that many SDOs patent policies establish for a contribution of SEPs require or encourage
disclosure
 so that any SEP in the standard is not hidden or secret and that implementers will be able to utilize the SEP based upon negotiating a license under some stated assurances by the owner. The details of any specific patent policy represent an SDO-chosen balance between opposite interests. SDO patent policies that  preclude SEPs from being included in a standard or allow only compensation-free license assurances from owners of SEPs are
“advantageous” to implementers
.
3
 SDO patent policies that provide for the inclusion of SEPs if the owner makes an assurance that licenses will be made available on reasonable and non-discriminatory terms (RAND terms)
4
 give patent holders stronger incentives to invest in research and development, to patent, and to contribute SEPs to an SDO.
SDO participants’ points
 of view can change  between implementer and contributor of an
SEP as the participants’ roles change standard by standard.
 An important consideration is the ownership rights that an SDO patent policy may request an owner to forgo. A second is the role of the legal system in regulating what is acceptable and unacceptable behavior. Recent presentations by officials from the US Federal Trade Commission (FTC)
5
 and staff of the US Department of Justice (DOJ)
6
 provide helpful background. Such agencies enforce laws  prohibiting anticompetitive behavior and deceptive conduct. Another is the experience of the American National Standards Institute (ANSI) that has employed various approaches in the evolution of its patent policy to address current problems. This paper explores the issues and factors applicable in establishing such a balance and the implications for SDOs and their members. Different SDOs will develop different patent policies based on their balancing of the factors. But just as the pile of rocks in
 
Figure 1 will fall if not carefully balanced, so will market forces reward or punish SDOs depending on the balance or lack thereof of their patent policy.
Figure One Symbolic illustration of need for balance in a patent policy
Patents are such an essential aspect of stimulating innovation and competition that they are mentioned in the US Constitution. The granting of a patent in the United States is authorized by Article One, Section Eight:
“The Congress shall have P 
ower ... To promote the Progress of Science and useful Arts, by securing for limited times to  Authors and Inventors the exclusive Right to their respective Writings and Discoveries;
 Developed countries have similar authorizations and procedures for granting patents. Generally these provide for granting to qualified applicants a limited term monopoly right to exclude others from making, using, selling, or offering for sale the patented item within their territory. SDOs whose standards are used around the world must therefore approach development of a patent policy from a global point of view. The global landscape of intellectual property and antitrust law is beyond the scope of this paper; it will be sufficient to address US law given broad similarities in laws. In the United States such patent rights are valid for twenty years from the earliest claimed filing date. This is the primary reward a patent grants in exchange for making information public about the patented item.
7
 After this anyone might practice one or more of the rights to the invention previously granted exclusively to the patent holder. The owner of a patent has various options. The holder might decide to develop and commercialize the technology itself (and exclude others); commercialize the technology itself while also licensing the technology to others, possibly in exchange for some compensation; forego development itself and license the technology to others; sell the patent rights to someone else; or not exploit its  patent in any way.
SDO patent policies generally seek a patent holder’s assurance
that it will not pursue the first option in the case of an SEP. This right to develop and commercialize a technology to the exclusi
o
n of all others is one of the most significant rights granted to patent holders. Patent policies elaborate the nature of an assurance the patent holder must make to license others to use the SEP. These SDO  patent policies generally demand assurances from a patent holder that licenses to practice the SEP will be available on RAND terms or  perhaps free of monetary compensation (RANDz).
8
 A variation of RANDz is an assurance that the patent owner will not take action when the patent is being infringed.
The requirement that license terms be “RAND” establis
hes an assumption that the owner of the SEP and implementers will be able to agree on financial royalties and or non-financial terms (such as cross-licenses) under which the SEP owner will grant use of the SEP to practice the standard. There may be occasions when others appear to use one or more of the patent rights without permission. This might happen when an SEP is used because someone is practicing the standard without regard to the SEP owner 
s rights, or when the owner of an SEP and an implementer fail to agree on the terms and conditions for (or even the need for) a license. In such cases the SEP owner may take some action if it wishes to protect and enforce its patent rights. Disputes can lead to litigation and costs to determine whether the  patent should have been granted in the first place;
9
 whether the alleged infringer does actually violate one or more of the patent rights; and what damages the patent owner has suffered because of the infringement. In some cases a court may grant a temporary or  permanent ruling (an injunction) that the alleged infringer must cease the actions alleged to infringe the patent right. In the United States, a patent owner may also call on the International Trade Commission (ITC) to ban (an exclusion order) infringing products from  being imported into the United States. The ITC may then launch a fact-finding investigation and make a determination. However the President of the United States may overrule such an ITC exclusion order based on additional public interest factors. In July 2013 the Office of the US Trade Representative did just that, disapproving an ITC decision to issue an exclusion order favorable to Samsung that would have prohibited importation of certain products of Apple.
10
 
Concerns about SEPs in Standards Setting
 
The incorporation of an SEP in a standard leads to a variety of hypothetical and practical problems. Some argue that SDO patent  policies should derive primarily from data about actual problems and, more specifically, problems experienced by the SDO and its members. Others argue that policies should anticipate and address potential problems whether experienced or not. Some types of real or potential problems are described below. can occur when the existence of an SEP is not known during the development and approval of a standard. The concern is that after a standard has been developed and implementers have made products meeting the standard, an SEP owner might
“ambush” implementers with unexpected demands for licensees. Most SDOs have developed rules and guidance
,
11
 and competition agencies have initiated cases
12
 that encourage if not require participants in standards setting to disclose SEPs. The FTC contended in these instances
that ‘hiding’ an SEP while participating in standards setting and then seeking licenses for the SEP is d
eceptive conduct. However such problems currently rarely occur and SDO patent policies do not apply to parties that do not participate in the standards development process. Even the most rigorous procedures intended to address the possibility of patent ambush by  participants in standards setting do not apply to entities that have no duty to follow SDO rules and guidelines. can occur when an SEP owner that has made an assurance to an SDO to license its SEP on RAND terms and an implementer cannot agree on terms and conditions in a specific license to the SEP. The term is used when an implementer believes
that the SEP owner is seeking “unreasonable” royalties or other terms and conditions in a license inconsistent with the SEP owner’s
RAND assurance to the SDO. However the SEP owner may view the same situation as deriving from a recalcitrant implementer who
rejects offered terms and conditions that are “clearly” RAND. This latter view is called
. Several courts have interpreted the meaning of an
SEP owner’s assurance of offering a license on RAND terms. These legal interpretations, while not
dispositive, set precedents which SEP owners and implementers will take into account in their negotiations. In 2013, the FTC also took several enforcement actions intended to address concerns with alleged patent hold up situations involving standards
13
 where  parties sought injunctions to prohibit using the SEP. Some, however, contend that the FTC goes too far.
14
 Addressing the matter of these FTC enforcement actions preceding his appointment, FTC Commissioner Wright stated:
15
 
These complaints and consent orders, taken together, logically and necessarily depend upon the assumption that seeking injunctive relief, without more, is itself anticompetitive. There is certainly no economic evidence available to support that policy view.
 
Royalty stacking
 or the closely rated issue of
patent thickets
 may arise when there are many SEPs asserted to be essential to  practice a standard. A 2011 European study of intellectual property (IP) issues in standards setting found that the number of patent assurances per standard varied widely from sector to sector. See Figure 2. In an often referenced paper 
16
 the authors state that a modern laptop embodies or utilizes at least 251 interoperability standards, but the actual number could be even higher.
 
When the matter of multiple SEPs for a standard is combined with the situation that a single product may implement many different standards, the possibility of excessive royalties to be paid to different SEP owners arises. The value of any single SEP to a final product that utilizes many patents becomes controversial and subject to dispute. A license to use a single SEP may be RAND, but the sum
of many such licenses may become “unreasonable” from the point of view of the implementer. Accurate data about the
dimension of this issue is lacking.
Figure Two Patents per standard as in Technology class
17
 

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