On Friday, the Japan Patent Office (JPO) said it would issue guidelines on SEP licensing negotiations after a month-long public consultation period. The policy document will stake out an official view on issues such as what constitutes good faith and reasonable royalties in SEP talks. But we don't know for certain how – if at all – the new plans are connected to an earlier proposal to introduce an alternative dispute resolution (ADR) system that has been described as “compulsory licensing for SEPs”.
In its request for comments, the JPO states that the purpose of new SEP guidelines will be to prevent SEP disputes, and quickly resolve any that do arise. The growth of IoT technologies, it notes, means that SEP licences are being negotiated by a wide range of companies outside the telecommunications sector, which has produced a wide gap in royalty expectations. The government proposes to make recommendations in two key areas, reproduced below:
Appropriate licensing negotiation methods
(1) Elements of “good faith” negotiations
e.g. Negotiation periods, attitudes, and histories
(2) Factors in conducting negotiations effectively and efficiently
e.g. Which parties are supposed to be at the forefront of licensing negotiations? End product manufacturers, or suppliers
e.g. Allocation of burden in assigning royalties
e.g. Information to be provided by right-holders/implementers
Reasonable royalty levels
(1) Royalty base
e.g. The contribution of a standard to product sales: entire market value, or the smallest saleable patent-practicing unit?
(2) Factors and methods for calculating royalties
e.g. Royalty rates of patent pools or other licences, relative values of SEPs under negotiation to other SEPs, cumulative royalty rates, total numbers of SEPs, patent portfolio strength, R&D costs, negotiation histories
The last time the JPO asked for industry input was back in July, when it put forward a proposed ADR system (which it also calls a “licensing award system”) which would see the patent office take a major role in resolving SEP disputes by stepping in to set FRAND royalty rates at the request of implementers. The ADR scheme, which would allow the government to set a rate “with due care of not unfairly harming the interests of patent holders”, has been described by one patent owner as “in practice, compulsory licensing for SEPs”.
Public comments on the ADR proposal were collected through September, and policy makers had hoped to introduce it to the Diet in 2018; but IAM understands that the ADR proposal has now been shelved, at least for the time being.
It is possible that this latest JPO consultation reflects a scaled back attempt to have a say on key SEP issues after the more aggressive ADR plan met with resistance from industry. On the other hand, if the ADR plan is resurrected at some point, then these guidelines – particularly the provisions on royalty calculations – could wind up forming the basis for how the JPO determines rates in very important disputes.
Companies and others who want to weigh in on these questions can do so before 10th November; there are instructions on how to do so here.