What Are Standard-Essential Patents?

Motorola (now owned by Google, Inc.) and Microsoft Corp. are the latest high-tech companies to square off in the so-called “patent wars.” In the lawsuit, Microsoft alleged Motorola tried to excise excessive licensing fees, while Motorola claimed that Microsoft infringed its standard-essential wireless technology patent.

A standard-essential patent is a patent that claims an invention that must be used to comply with a technical standard. Standard-essential patents are integral to the tablet and smartphone industry because they form the backbone of the basic technology they need to operate. While most owners of these patents have voluntarily pledged to grant licenses to other companies on “reasonable and nondiscriminatory” (RAND) terms, it is often easier said than done.

In a recent decision, U.S. District Judge James Robart established some useful guidelines for determining reasonable royalties for standard essential patents (SEPs). Since his opinion runs over 207 pages, it is impossible to outline all of them here. However, there are a few key takeaways.

To arrive at “reasonable” royalty, Robart conducted a hypothetical, bilateral negotiation between the parties. In doing so, the judge highlighted the need to consider the importance of the SEPs to the standard as well as the importance of the standard and the SEPs to the products at issue. The specific “economic guideposts” he cited included the following:

  • A RAND royalty should be set at a level consistent with the standard setting organization promoting widespread adoption of their standards.
  • In the context of a dispute concerning whether or not a given royalty is RAND, a proper methodology used to determine a RAND royalty should therefore recognize and seek to mitigate the risk of patent hold-up that RAND commitments are intended to avoid.
  • Likewise, a proper methodology for determining a RAND royalty should address the risk of royalty stacking by considering the aggregate royalties that would apply if other SEP holders made royalty demands of the implementer.
  • To induce the creation of valuable standards, the RAND commitment must guarantee that holders of valuable intellectual property will receive reasonable royalties on that property.
  • From an economic perspective, a RAND commitment should be interpreted to limit a patent holder to a reasonable royalty on the economic value of its patented technology itself, apart from the value associated with incorporation of the patented technology into the standard.

How Can I Help?

If you, or someone you know, need any help with Intellectual Property issues, from filing a patent, trademark or copyright, or just need advice regarding how best to protect your inventions, ideas or your brand, please contact me for a free 30 minute consultation at nvantreeck@usip.com or call TOLL FREE at 1-855-UR IDEAS (1-855-874-3327) and ask for Norman.

– Ex astris, scientia –

I am and avid amateur astronomer and intellectual property attorney in Pasadena, California and I am a Rising Star as rated by Super Lawyers Magazine.  As a former Chief Petty Officer in the U.S. Navy, I am a proud member of the Armed Service Committee of the Los Angeles County Bar Association working to aid all active duty and veterans in our communities. Connect with me on Google +

Norman

DOJ and USPTO Policy on Standard-Essential Patents

Standard-essential patents are becoming a hot topic in intellectual property law.  Google recently agreed to a consent order with the Federal Trade Commission over its pursuit of injunctions against companies needing to use its standard-essential patents.

The U.S. Patent and Trademark Office and Department of Justice issued a joint policy statement. It calls on the U.S. International Trade Commission (ITC) to exercise restraint when asked to impose injunctions in patent infringement actions involving key technologies.

A standard-essential patent is a patent for an invention that must be used to comply with a technical standard. Standards organizations often require members to disclose and grant licenses to their patents and pending patent applications that cover a standard that the organization is developing.

If a standards organization fails to get licenses to all patents that are essential to complying with a standard, owners of the unlicensed patents may demand or sue for royalties from companies that adopt the standard. This happened with DDR Memory (Rambus),  GIF and JPEG standards, for example.

Determining which patents are essential to a particular standard is very complex and may not be known at the time the standard is set.

Standard-essential patents have become integral to the tablet and smartphone industry because they form the backbone of the basic technology they need to operate. While most owners of these patents have voluntarily pledged to grant licenses to other companies on reasonable and nondiscriminatory terms (RAND), they are also prone to abuse. As the DOJ and USPTO note, “The owner of that patented technology may gain market power and potentially take advantage of it by engaging in patent holdup.”

As a result, the agencies caution the ITC against handing out injunctions too freely. “Companies that own a key patent, such as those that ensure mobile and other electronic devices work together, should be allowed to win sales bans as a punishment for infringement only in rare, very specific cases,” the policy statement argues. Instead, the USPTO and DOJ are calling for monetary damages in the majority of cases.

The recommendations of the DOJ and USPTO are not binding on judges. However, courts have already demonstrated a growing reluctance to issue injunctions in cases involving standard-essential patents. Given the latest policy statement, the trend is likely to continue.

How Can I Help?

If you, or someone you know, need help with any Intellectual Property issue, from filing a patent, trademark or copyright, or just advice regarding how best to protect your ideas and your brand, contact me for a free 30 minute consultation at nvantreeck@usip.com or call TOLL FREE at 1-855-UR IDEAS (1-855-874-3327) and ask for Norman.

– Ex astris, scientia –

I am and avid amateur astronomer and intellectual property attorney in Pasadena, California and I am a Rising Star as rated by Super Lawyers Magazine.  As a former Chief Petty Officer in the U.S. Navy, I am a proud member of the Armed Service Committee of the Los Angeles County Bar Association working to aid all active duty and veterans in our communities. Connect with me on Google +

Norman