Standard Essential Patents (SEPs) play an important role in the development and promotion of new technology and highly standardised industries, such as telecommunications, information technology and consumer electronics industries. Special licensing terms may apply to the licensing of SEPs in some jurisdictions. SEPs have increasingly been the issue of patent disputes all over the world. This article provides a general and current snapshot of the licensing of SEPs in Australia.
What is a Standard Essential Patent?
SEP is a patent for an invention that has been incorporated into an industry standard. This means that any person or organisation in the relevant industry must use the SEP in order to comply with the relevant industry standards. Industry standards permit manufacturers and innovators to develop products to meet minimum safety, quality or performance requirements. In addition, industry standards promote compatibility and interoperability across a range of industries and new technologies. This prevents inefficiencies and potentially widens the reach of innovative products.
Setting the Standards
While SEPs may help increase competition within an industry, SEP holders may gain commercial advantage over their competitors by charging prohibitively high licence fees to other users of the SEP (such as their competitors). This leads to possible anti-competitive issues and the potential to lock competitors from the market. Regulators are often concerned about misuse of market power by patent holders of SEPs since most electronics or telecommunication products may be subject to a large number of patents owned by a few key players in the industry.
In this regard, some Standard Setting Organisations (SSOs), composed of industry participants, may have policies which require members to make licences available in respect of SEPs on fair, reasonable and non-discriminatory (FRAND) terms. A patent invention may not be incorporated into a standard if the SEP holder is not willing to make a FRAND commitment. SSOs may also require industry participants to disclose whether they have a patent (or pending application for a patent) covering technology that is proposed to be incorporated into a standard in order to avoid patent ambushing by the SEP holder. Even if participants are open about ownership of SEPs, disputes can still arise over what constitutes FRAND terms.
Licensing SEPs in Australia
In Australia, there are no direct regulations or statutory requirements for the disclosure and licensing of SEPs. Additionally, FRAND licensing obligations are yet to be considered in the Australian courts. Anti-competitive behaviours are generally regulated under Part IV of the Competition and Consumer Act 2010 (Cth) (CAA) in Australia. With the repeal of s51(3) of the CCA taking effect on 13 September 2019, there will be no intellectual property exemptions under the CCA, which may have previously applied to the licensing of SEPs.
If a patentee contravenes Part IV of the CCA, a person may seek a compulsory licence to license the subject patent under Section 133 of the Patents Act. In addition, if a patentee has failed to satisfy the “reasonable requirements of the public” with respect to the patented invention, a third party may also apply to the Federal Court to seek a compulsory licence, provided the third party has tried for a reasonable period to obtain a licence from the patentee.
The licence fee of a compulsory SEP licence must not be excessive and the applicant will be required to pay a fee determined by the court as just and reasonable. A compulsory licence has never been granted in Australia and we are yet to see the Australian courts apply this provision in relation to the licensing of SEPs and otherwise.
In this regard, the test and requirements under Section 133 may be subject to change soon. The Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Bill 2019, if passed, will replace the ‘reasonable requirements of the public test’ with a ‘public interest’ test for determining whether a compulsory licence is granted under Section 133. The bill was introduced to the Senate last month and is currently before the Parliament for consideration.
SEPs in Australian Courts
Whilst SEPS have increasingly become the subject of litigation and arbitration overseas, it has received comparatively less consideration here in Australia. Proceedings between Apple and Samsung, which commenced in 2011, were settled before the Federal Court had the opportunity to deliver its judgment.
However, patent holders and IP lawyers are closely watching the current ongoing proceedings between Motorola Solutions Inc (Motorola) and Hytera Communications Corporation Ltd & Anor (Hytera). In 2017, Motorola commenced action against Hytera for patent infringement in the Federal Court of Australia (NSD1283/2017) (Motorola v Hytera).
Hytera is a manufacturer of radio transceivers and systems. Motorola alleges that certain Hytera digital mobile radio products infringed three Australian Motorola patents owned by Motorola. This is one of a number of lawsuits filed by Motorola against Hytera around the world including in Germany and the United States.
Hytera’s defence is that two of the patents were “essential” to the European Telecommunications Standards Institute’s (ETSI) digital mobile radio standards (DMR Standards) and compliance with the DMR Standards could not be achieved without infringing the Motorola patents.
Hytera also alleges that Motorola, a member of ETSI and bound by the ETSI policy to use reasonable endeavours to inform ETSI of all essential patents when developing the DMR Standards, had failed to disclose to the ETSI that it owned the relevant SEPs. The patents were not identified as SEPs by the DMR standards and Motorola had not offered licensing of these patents under FRAND terms.
As a result, Hytera argues that they didn’t infringe the patents and any judgement in favour of Motorola should only be for a notional licence fee based on FRAND terms.
At the time of writing this article, the Motorola v Hytera case is being heard. This case may finally provide lawyers, patent holders and other interested parties with an insight on how Australian courts view SEPs and apply FRAND obligations to SEP licensing in Australia.