Standard Essential Patents: Reviewing the IEEE’s IPR Policy- Part II

In the last post, I reviewed portions of the IEEE’s updated IPR policy for Standard Essential Patents. I continue with the review in this post.

What is common between the IPR policies of IEEE and ETSI is that both disclaim any verification or certification of validity or essentiality or infringement of any patent claim declared as Essential by a patentee. The IEEE policy further disclaims any enquiry into the FRAND-compliance of a patentee’s licensing terms. Importantly, it states that “Nothing in this policy shall be interpreted as giving rise to a duty to conduct a patent search”. This could be interpreted to mean that the policy does not cast a burden on any third party to undertake a search for patents which it infringes or may potentially infringe, which is consistent with the extant practice of casting the obligation of establishing infringement on the right holder. Simply stated, a declaration of essentiality by a patentee remains a unilateral declaration by the patentee, with no formal imprimatur by the IEEE.

This is further corroborated by an express window in the Policy which permits a prospective licensee (“Applicant”) and the patentee (“Submitter”) to litigate over patent validity, enforceability, essentiality, or infringement; Reasonable Rates or other reasonable licensing terms and conditions; compensation for unpaid past royalties or a future royalty rate; any defenses or counterclaims; or any other related issues. This is a thumping endorsement of the position that a prospective licensee’s bonafide challenge to the assertions of the patentee cannot result in an adverse inference of unwillingness. As recognized last year by the England and Wales High Court in Vringo v. ZTE, a prospective licensee is well within its rights to challenge the validity and essentiality of the patents asserted without being branded an “unwilling licensee”. It must however be noted that if litigation is merely employed to delay an inevitable payment, which must be demonstrated by the patentee from the conduct of the prospective licensee and the lack of apparent merits in its challenge, the prospective licensee may not be entitled to be treated as a “willing licensee”.

As regards a patentee’s access to exclusionary remedies such as injunctions, the Policy firstly defines “Prohibitive Order” to mean an interim or permanent injunction, exclusion order, or similar adjudicative directive that limits or prevents making, having made, using, selling, offering to sell, or importing a Compliant Implementation. Further, except for circumstances envisaged by and in the Policy, a patentee who claims to own an Essential Patent Claim may not seek Prohibitive Orders against prospective licensees. 

That exceptional window is available when the implementer of an IEEE Standard fails to participate in, or to comply with the outcome of, an “adjudication”. Adjudication includes adjudication in a first appeal by any party from the decision of the forum of first instance on any issue. Importantly, the scope of the adjudication could relate to a host of issues such as license terms, patent validity, essentiality and the like. Therefore, an injunctive remedy is available to a patentee only when an implementer fails to abide by a Court’s finding, which includes the finding of an arbitral tribunal. Until then, no such remedy may be sought against the implementer of a standard.

As for what constitutes a “Reasonable Rate” of royalty, here’s the definition from the Policy which is best reproduced:

“Reasonable Rate” shall mean appropriate compensation to the patent holder for the practice of an Essential Patent Claim excluding the value, if any, resulting from the inclusion of that Essential Patent Claim’s technology in the IEEE Standard. In addition, determination of such Reasonable Rates should include, but need not be limited to, the consideration of:

• The value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim.

• The value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation.

• Existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license.

So not only is the patentee precluded from claiming royalty based on the ex post value of the patent i.e. post its inclusion in an IEEE standard, the royalty must also be based on parameters attributable to the overall contribution of the patent to the IEEE standard and must be a measure of the smallest saleable component which implements the standard. These factors appear to have been distilled from the Microsoft v. Motorola and Innovatio decisions.

Broadly speaking, although there could be room for further refinement (as is always the case), the Policy must be credited for clarifying quite a few issues which have festered to the detriment of all stakeholders, particularly prospective licensees. Importantly, the Policy is a reasonably good template for other SSOs to draw from and build on. Let’s hope the ETSI IPR Policy too is amended on similar lines given the room for exploitative abuse by patentees under the current ETSI Policy.