Partners Mauricio Uribe and Hironori Kubota presented "Key Terms of Standard Essential Patent Licenses" during our Knobbe Practice Webinar Series. The presentation went over negotiating terms agreements involving standard essential patents and related unique legal and business challenges.

1. Key Terms in Negotiating
Standards Essential Patent
Licenses
Mauricio A. Uribe
Hironori Kubota
August 26, 2019

2. © 2019 Knobbe Martens
Agenda
2
1SEP Licensing
Framework for Discussion 2Comparison of Key Developments
by Region
3Standards and Standards
Organizations – Key Language
Considerations

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SEP Licensing – Framework for Discussion
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Standards Organizations and Standards Essential Patents
4
Standards
Setting
Organizations
(SSO)
• Voluntary organizations that adopt and promulgate technical specifications for various
industries
• Eliminates the cost of switching for consumers
• Widespread adoption results in interoperability within an industry and encourages
manufacturing efficiencies
• Most SSOs establish IP policy but do not evaluate essential nature of “declared” patents
nor specify licensing terms
Technical
Specifications
• Drafted by engineers/technical representatives working through SSO (Working Groups)
• Primary purpose is to specify minimum requirements for technical interoperability
• Organized based on sections/chapters that are mandatory for compliance as well as
section/chapters that may be optionally implemented
SSOs and IP
Policies
• Most IP policies require a declaration of “essential” patents for organizations contributing
to the standards
• Declared patents typically require a contractual commitment to the SSO to offer FRAND
(fair, reasonable and non-discriminatory) license terms
• Most jurisdictions acknowledge third-party rights to enforce FRAND commitment
• Most jurisdictions require FRAND commitment to “run” with the patent against
subsequent purchasers

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Comparison of Key Developments by Region
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Comparison of Key Developments by Region
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United States Asia Europe
Breach of contract based on
initial FRAND
  
Third Party Rights to
Enforce FRAND
   
FRAND obligation running
with patents
  
Repudiation limits FRAND
obligation/Injunction
  
Top-down licensing
framework
  
Bottom up licensing

Single worldwide FRAND
rate


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Standards and Standards Organizations – Key Language Considerations
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Standards and Standards Organizations – Key Language Considerations
General Definitions
• Affiliates
• Term and Capture Period
• Covered Standards
• Patents/Essential Patents
• Covered Products
8
GENERAL
DEFINITIONS
LICENSE
GRANTS AND
RELEASES
PAYMENTS AND
WARRANTIES
ADDITIONAL
TERMS

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Key Language Considerations – General Definitions
General Considerations
• Corporate Organization
⎼ Parent Companies
⎼ Child Companies
⎼ Related Companies
• Grant of Patent Rights
• Receipt of Patent Rights and Sublicense Rights
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Affiliates

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Key Language Considerations – General Definitions
General Considerations
• Term of the Granted Licenses
⎼ Life of the Patent
⎼ Fixed Time
• Capture Period – Balance of IP
⎼ Alternative 1: Fixed time period – Requires Additional Negotiations
⎼ Alternative 2: Life of standards – Creates Long Term License
10
Term and
Capture Period

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Key Language Considerations – General Definitions
General Considerations
• Identification of Specific Standards or Chapters
• Identification of SSOs
• Identification of Technical Subject Matter
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Covered Standards

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Key Language Considerations – General Definitions
General Considerations
• Definition of Patents
⎼ Continuations/Divisionals/CIPs/Reissues/Corresponding International
Filings
• Identification of Specific Patents - Appendices
• Definition of Patents Necessarily Infringed by Covered Standards
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Patents/Essential
Patents

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Key Language Considerations – General Definitions
General Considerations
• Identification of Products that Match Covered Standards
• Scope Issues
⎼ Combinations/Sub-Components
⎼ Anti-Foundry Provisions
⎼ Post-Acquisition Applicability
13
Covered Products

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Standards and Standards Organizations – Key Language Considerations
License Grants and Releases
• Granted License Rights
• Geographic Scope and Considerations
• Assignment of Granted Rights
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GENERAL
DEFINITIONS
LICENSE
GRANTS AND
RELEASES
PAYMENTS AND
WARRANTIES
ADDITIONAL
TERMS

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Key Language Considerations – License Grants and Releases
General Considerations
• Make, Use, Sell, and Distribute Covered Products
• Have-Made Rights – Use of Third Party Manufacturers
• Rights to Sub-License Third Party Patents
• Avoiding Third Party Duplicative or Overlapping Licenses
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Granted License
Rights

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Key Language Considerations – License Grants and Releases
General Considerations
• Variations in Royalties by Region
• Interplay of “Most Favored Nations” Clauses
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Geographic Scope and
Considerations

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Key Language Considerations – License Grants and Releases
General Considerations
• Scope Issues
⎼ Maintenance of Product Lines
⎼ Limiting Potential Scope of Covered Products
⎼ Anti-Foundry Provisions
• Disclosure of Assignment Rights - Publicity Restrictions
• Assignment Based on Written Permission
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Assignment of Granted
Rights

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Standards and Standards Organizations - Illustrative Negotiation Flow
Payments and Warranties
• Lump Sum Royalties vs. Running Royalties
• Royalty Base
• Multi-Standards Royalties
• Reporting/Audit Rights
• Taxes
• Third-party Payments/Pass-through
GENERAL
DEFINITIONS
LICENSE
GRANTS AND
RELEASES
PAYMENTS AND
WARRANTIES
ADDITIONAL
TERMS
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Key Language Considerations – Payments and Warranties
General Considerations
• Royalty Rates and FRAND
• Royalty Models
⎼ Lump Sum Royalties – Fixed Volume Amounts & Releases
⎼ Running Royalties
• Interplay of Royalty Framework with Capture Period, Term, and Royalty Base
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Lump Sum Royalties
vs. Running Royalties

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Key Language Considerations – Payments and Warranties
General Considerations
• Least Saleable Patent Practicing Unit – Higher Royalty Rate(s)
• Combination Products – Lower Royalty Rate(s)
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Royalty Base

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Key Language Considerations – Payments and Warranties
General Considerations
• Royalty Stacking - Multi-Mode Devices
• Future Proofing For Additional Standards
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Multi-Standards
Royalties

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Key Language Considerations – Payments and Warranties
General Considerations
• Format for Reporting – Royalty Base
• Frequency for Reporting/Audits
• Access to Information for Audits
• Allocation of Audit Costs/Penalties
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Reporting/Auditing
Rights

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Key Language Considerations – Payments and Warranties
General Considerations
• Tax Payment Set-Offs or Withholdings
• Tax Consequences By Type of License
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Taxes

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Key Language Considerations – Payments and Warranties
General Considerations
• Sub-license Rights and Grants
• Consideration of Automatic Payment Provisions Based on Grants
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Third-Party
Rights/Pass Through

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Standards and Standards Organizations - Illustrative Negotiation Flow
Additional Terms
• Publicity
• Term/Termination
• Reformulations
• Dispute resolution
• Forum selection
• Third-party rights
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GENERAL
DEFINTIONS
LICENSE
GRANTS AND
RELEASES
PAYMENT AND
WARRANTIES
ADDITIONAL
TERMS

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Key Language Considerations – Additional Terms
General Considerations
• Existence of Agreement
• Terms
• Most Favored Nation Clauses
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Publicity

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Key Language Considerations – Additional Terms
General Considerations
• Termination Based on Breach
• Future Proofing License
⎼ Defined Time vs. Open Ended
⎼ Renewal Based on Fixed Time Periods
⎼ Voluntary Termination
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Term/Termination

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Key Language Considerations – Additional Terms
General Considerations
• Changes in the Standards
• Changes in the Patent Portfolio
• Changes in the Licensor/Licensee
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Reformulation

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Key Language Considerations – Additional Terms
General Considerations
• Resolving Breach
• Challenging Patents
• Challenging FRAND Terms
• Effect of Additional Disputes
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Dispute Resolution/Forum
Selection

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Key Language Considerations – Additional Terms
General Considerations
• Customer Rights/Exhaustion
• Vendor/Supplier Rights
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Third Party Rights

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Standards and Standards Organizations – Key Language Considerations
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General Definitions License Grants and
Releases
Payment and
Warranties
Additional Terms
• Affiliates
• Capture Period
• Covered Standards
• Patents/Essential
Patents
• Covered Products
• Assignment of
Rights
• Geographic Scope
• Granted Rights
• Lump Sum
Royalties vs.
Running Royalties
• Royalty Base
• Multi-Standards
Royalties
• Reporting/Audit
Rights
• Taxes
• Third-Party
Payments/Pass-
through
• Publicity
• Term/Termination
• Reformulations
• Dispute Resolution
• Forum Selection
• Third-Party Rights

32. Thank you!
Mauricio A. Uribe
mauricio.uribe@knobbe.com
Hiro Kubota
Hironori.Kubota@knobbe.com