Standard-essential patent litigation has been on the rise, especially in the telecoms industry in relation to the technology standards prescribed by the European Telecommunications Standards Institute (ETSI). In particular, ETSI's IP Rights Policy has been criticised for facilitating abuse by patentees that claim to own standard-essential patents. In order to appreciate the criticisms of ETSI's policy, it is imperative to understand the policy of a comparable standard-setting organisation, such as the Institute of Electrical and Electronics Engineers (IEEE), which published the latest version of its bylaws in March 2015.(1) The bylaws apply to the licensing practices of IEEE's members insofar as they relate to the technology standards prescribed by the IEEE. Article 6 of the bylaws specifically spells out IEEE's patent policy.
At a time when there is little to no judicial guidance and much less clarity on whether ETSI's policy obliges standard-essential patent owners to grant fair, reasonable and non-discriminatory (FRAND) encumbered licences to component manufacturers (eg, chipset makers), the IEEE's definition of 'compliant implementation' in Article 6.1 of its bylaws is welcomed due to its expansive scope and clarity. This is because the definition expressly treats components or subassemblies – and not just end products – as products for the purposes of standard compliant implementation. This effectively means that component-based licensing, as opposed to product-based licensing, falls under the definition, which will reduce the net royalty payable by a technology implementer.
Definitions of essential patent claims and enabling technology
Another important definition – perhaps an even more critical one – is the definition of 'essential patent claims':
"'Essential Patent Claim' shall mean any Patent Claim the practice of which was necessary to implement either a mandatory or optional portion of a normative clause of the IEEE Standard when, at the time of the IEEE Standard's approval, there was no commercially and technically feasible non-infringing alternative implementation method for such mandatory or optional portion of the normative clause. An Essential Patent Claim does not include any Patent Claim that was essential only for Enabling Technology or any claim other than that set forth above even if contained in the same patent as the Essential Patent Claim." (Emphasis added.)
The definition includes both mandatory and optional portions of an IEEE standard. In other words, even if a patent claim covers an optional portion of an IEEE standard, it will be deemed as an essential patent claim.
The other interesting aspect of the definition of 'essential patent claims' is its express exclusion of any 'enabling technology', which has been defined as follows:
"'Enabling Technology' shall mean any technology that may be necessary to make or use any product or portion thereof that complies with the IEEE Standard but is neither explicitly required by nor expressly set forth in the IEEE Standard (e.g., semiconductor manufacturing technology, compiler technology, object oriented technology, basic operating system technology, and the like)."
According to the definition, it appears that owners of essential patent claims cannot extend their claims of essentiality over, or treat as essential, patent claims which relate to technology or products that facilitate the implementation of an IEEE standard. In other words, since an IEEE standard may not spell out the specifics of its implementation, a patentee that allegedly owns a standard-essential patent cannot claim that a specific enabling technology is essential for the implementation of the standard, as there could be many different means of implementation.
This does not mean that a patentee cannot allege that infringement has occurred – only that as opposed to using a claim of essentiality to establish infringement, the patentee must demonstrate claim-based infringement using the conventional claim-to-product comparison. Therefore, a patentee can allege infringement only if the patent contains a claim which sets out a particular means by which to implement the standard or a product which facilitates implementation, as essentiality of the patent cannot aid the patentee in this regard.
In this sense, the definitions for 'essential patent claims' and 'enabling technology' distinguish between the technology and products that enable the implementation of an essential patent claim and those that actually implement an essential patent claim. This is yet another interesting aspect of the definitions which is likely to be interpreted and applied differently by the courts.
Challenges to validity and infringement claims
Both IEEE's and ETSI's IP rights policies reject any verification or certification of the validity, essentiality or infringement of any patent claim declared as essential by a patentee. The IEEE policy takes no responsibility for the assessment of FRAND compliance of a patentee's licensing terms. Importantly, the IEEE policy also states that "[n]othing in this policy shall be interpreted as giving rise to a duty to conduct a patent search". This could be interpreted to mean that the policy does not require third parties to search for patents which they are infringing or potentially infringing. This provision is consistent with the existing practice of requiring the rights holder to establish infringement. In other words, a patentee's declaration of essentiality is still considered a unilateral declaration, with no formal imprimatur by the IEEE.
This is further corroborated by an express provision in the IEEE policy which permits a prospective licensee and a patentee to litigate over:
- patent validity, enforceability, essentiality and infringement;
- reasonable rates or other reasonable licensing terms and conditions;
- compensation for unpaid past royalties or a future royalty rate;
- any defences or counterclaims; and
- any other related issues.
This confirms that a prospective licensee is well within its rights to challenge the validity and essentiality of asserted patents without being branded an unwilling licensee. However, if litigation is employed merely to delay an inevitable payment (which the patentee must demonstrate based on the defendant's conduct and lack of merits in its challenge), the defendant cannot be treated as a willing licensee.
As regards a patentee's access to exclusionary remedies such as injunctions, the IEEE policy first defines 'prohibitive order' as an interim or permanent injunction, exclusion order or similar adjudicative directive that limits or prevents a party from making, having made, using, selling, offering to sell or importing a compliant implementation or service that conforms to any mandatory or optional portion of a normative clause of an IEEE standard. Further, except for circumstances envisaged by the IEEE policy, a patentee that claims to own an essential patent claim cannot seek prohibitive orders against prospective licensees.
Injunctive relief is available to a patentee only where the implementer of an IEEE standard fails to participate in, or comply with the outcome of, an adjudication, including any first-instance appeal. The scope of the adjudication can relate to a host of issues, such as license terms, patent validity and patent essentiality. Therefore, injunctive relief is available to a patentee only when an implementer fails to abide by a court or arbitral tribunal decision. Until then, no such remedy may be sought against the implementer of a standard.
The IEEE policy defines the 'reasonable rate' of royalty as follows:
"'Reasonable Rate' shall mean appropriate compensation to the patent holder for the practice of an Essential Patent Claim excluding the value, if any, resulting from the inclusion of that Essential Patent Claim's technology in the IEEE Standard. In addition, determination of such Reasonable Rates should include, but need not be limited to, the consideration of:
- The value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim.
- The value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation.
- Existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license." (Emphasis added)
It is clear that patentees are precluded from claiming royalty based on the ex post value of the patent (ie, after its inclusion in an IEEE standard) and that royalty must:
- be based on parameters attributable to the overall contribution of the patent to the IEEE standard; and
- be a measure of the smallest saleable component which implements the standard.
These factors appear to have been distilled from the Microsoft v Motorola and Innovatio decisions.
Although there is scope to refine the IEEE policy further, it clarifies several issues which have been detrimental to all stakeholders, particularly prospective licensees. The policy is a reasonably good template for other standard-setting organisations to draw from and build on to discourage exploitative abuse by patentees.
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