The document discusses standard essential patents (SEPs) and their significance in the compatibility of mobile devices, emphasizing how industry-wide standards facilitate communication between different technologies. It reviews the roles of standard-setting organizations, the negotiation processes for establishing standards, and the benefits of patent pools for reducing costs and litigation risks. It also raises questions about the fairness and transparency of licensing terms under FRAND (Fair, Reasonable, and Non-Discriminatory) agreements, highlighting ongoing legal and economic debates surrounding SEPs.

1. Standard Essential Patents
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Dr. Tal Lavian
http://cs.berkeley.edu/~tlavian
tlavian@cs.berkeley.edu
UC Berkeley Engineering, CET

2. Standards
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Imagine you just bought an iPhone. You expect it to be
able to call an Android, a 3G phone, a landline…
People want phones to be compatible with all other
phones.
Therefore, there are industry wide standards of phone
operation. Standard compliant phones can “talk” to
other standard compliant phones.
Example of standards: Wi-Fi, UMTS, GSM, GPRS

3. Standards
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Who sets the standards? Committees (representatives
from multiple companies).
Voluntary Standard Setting Organizations (SSO)
Example: IEEE-SA
The process involves long, painstaking negotiation
between competing interests.

4. Standard Essential Patents
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Wi-Fi covers many small details of phone operation
(for example, data encoding)
A specific patent might cover the standard-compliant
way of, say, data encoding
Such a patent would be standard essential.

5. Standard Essential Patents
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 When complying with a particular standard, instruments
simply MUST implement a variety of standard essential
patents.
 It is no coincidence that when a firm takes part in an SSO, its
patents are more likely to become SE.
 Due to firms’ investment in existing standards, the more SEPs
a standard has, the more likely it is to be upgraded frequently
instead of replaced.
 The creation of SEP pools leads to patenting peaks prior to
pool creation.
Essential Patents and Standard Dynamics by Baron, Pohlmann, and Blind, 2011
Patent Pools and Patent Inflation by Baron and Pohlmann, 2012

6. SEP Pools
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Patent pools combine patents from multiple
companies for licensing purposes
Easier to know what royalties to pay and to who!
Also, reduce royalty rates, transaction costs,
likelihood of infringement litigation.
FTC considers them a good, pro-competitive
solution.
Patent Pools and Patent Inflation by Baron and Pohlmann, 2012

7. FRAND or RAND
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“Fair, Reasonable And Non-Discriminatory"
The owners of SEPs agree to license them out to
anyone (even competitors) for a fair and reasonable
price.
Note FireWire vs USB: companies that overcharge for
their SEPs may render their respective standards
unpopular.
The goodness of an invention is easily trumped by its cost.

8. RAND
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All SEP holders must agree to make the patent available at a
reasonable price before a standards committee makes the
patent an SEP.
http://standards.ieee.org/about
/sasb/patcom/pat802_11.html

9. 9

10. Questions to Consider:
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Is it possible to set a standard that avoids all patents
or software copyrights?
Is it possible to set a standard with full knowledge of
all patents contained therein?
Once a standard is set, can it be easily altered to
avoid using a patent from a RAND-unwilling
individual?
Is it acceptable that there is constant lobbying on the
part of corporate patent interests during the
standard setting process?
Treacy and Lawrance, Journal of Intellectual Property Law & Practice, 2008, Vol. 3, No. 1

11. RAND: what’s a reasonable price?
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Many conflicting opinions! Should price be based
on…





Percent of available profit from technology?
Industry comparisons in comparable markets?
The number of patents held by the licensor as compared to the
total number of patents necessary to make the product?
How innovative and important the patent is to the standard?
How much it cost to invent the patent (R&D)?
Should price take into account the total royalty
burden of someone bringing a product to market?
Treacy and Lawrance, Journal of Intellectual Property Law & Practice, 2008, Vol. 3, No. 1

12. RAND: what’s a reasonable price?
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Judge Richard Posner (June 2012, Apple vs Motorola):
“The proper method of computing a FRAND royalty
starts with what the cost to the licensee would have
been of obtaining, just before the patented invention
was declared essential to compliance with the
industry standard, a license for the function
performed by the patent. ”
Further court developments are currently taking place!

13. Questions to Consider:
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If RAND was strong, binding, and clear, would there
be so many ongoing SEP related court cases?
Is there some better option?