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Standard essential patents

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In this short presentation, I define standard essential patents and RAND using the Wi-Fi standard as an example.

Beyond a basic definition, however, this presentation touches on the practical ramifications (both at a legal and corporate/financial level) that may lead to the current, ongoing SEP-related court cases.

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Standard essential patents

  1. 1. Standard Essential Patents 1 Dr. Tal Lavian http://cs.berkeley.edu/~tlavian tlavian@cs.berkeley.edu UC Berkeley Engineering, CET
  2. 2. Standards 2 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. 3. Standards 3 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. 4. Standard Essential Patents 4 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. 5. Standard Essential Patents 5  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. 6. SEP Pools 6 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. 7. FRAND or RAND 7 “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. 8. RAND 8 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
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  10. 10. Questions to Consider: 10 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. 11. RAND: what’s a reasonable price? 11 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. 12. RAND: what’s a reasonable price? 12 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. 13. Questions to Consider: 13 If RAND was strong, binding, and clear, would there be so many ongoing SEP related court cases? Is there some better option?

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