2023 IP Outlook: The Latest in SEP Licensing | McDermott Will & Emery

OVERVIEW

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Uncertainty surrounding Standard Essential Patents (SEP) licensing persisted in 2022 and shows little sign of resolution in 2023. SEPs must be licensed to technology implementers on fair, reasonable and non-discriminatory (FRAND) terms. However, since there is no formal definition of FRAND terms, legal decisions related to FRAND have historically been determined by courts and non-governmental standards-setting organizations (SSOs). Disputes are common – particularly between patent holders and technology implementers – and will only get worse with the proliferation of advanced wireless technologies such as 5G and WiFi 6.

IN THE DEEP

Different countries—including the United States—and SSOs developed new policies in 2022 to balance the interests of patent owners and licensees, but comprehensive regulation is still lacking. The United States still does not have an official policy on the appropriate remedies in a SEP/FRAND dispute. This hands-off approach creates significant uncertainty for parties fighting 5G patents in the United States.

Looking ahead: The US Department of Justice (DOJ) pledged to review the conduct of patent owners and implementers on a case-by-case basis “to determine whether a party engages in practices that result in anti-competitive use of market power or other abusive processes that cause harm.” wreak competition,” but it remains to be seen just how committed the DOJ will actually be.

Global policy for SEP disputes is similarly unclear, with many countries also reviewing their policies.

• Europe is a particularly advantageous place of jurisdiction for patent holders. In 2022, for example, several injunctions were issued in Germany against well-known companies, including Huawei, Ericsson and Ford. The European Union is currently examining a new framework for SEP regulation with an emphasis on transparency and efficiency in minimizing licensing disputes, but it is unclear when and if the EU will publish proposals. The UK is also reviewing its SEP policy.
• In late 2021, China’s top court ruled that it could set the terms of global FRAND sentences in certain circumstances, including deciding a dispute involving a foreign party if the dispute has an “appropriate connection” with China. A “reasonable connection” can be made when China is the country where the defendant is located, the patent is to be enforced, or a contract is being signed or performed. This ruling could lead to more patent holders filing or threatening to file SEP disputes in China.
• The Chinese decision follows a UK court’s finding that the UK has jurisdiction to hear global contractual disputes, as a patentee’s FRAND obligation arises from a contractual obligation to SSOs and national courts can rule on disputes related to obligations.

Looking ahead: While Europe is one of the most popular places for SEP litigation, South America could become a more popular place for SEP litigation. Ericsson recently won an injunction against Apple in Colombia. Patent owners are unlikely to turn to courts in South America to set tariffs, but they could use the injunction to expedite licensing negotiations.

On the political front, the Institute of Electrical and Electronics Engineers announced in September 2022 that it would lift restrictions on patent owners’ ability to seek injunctions.

Looking ahead: This appears to be another win for patent holders and could provide additional leverage in licensing negotiations.

In SEP-related litigation, 2022 saw the resolution of a high-profile dispute over whether a patent holder was required to license SEP patents to specific implementers in the supply chain. This issue has been an issue in the United States and beyond, as SEP licensors (particularly those in 3G, 4G, and 5G spaces) tend to offer licenses exclusively to end-product manufacturers and not to manufacturers of sub-components or other supply chain entities. In Continental Automotive Systems versus AvanciThe US Court of Appeals for the Fifth Circuit found that Continental was not entitled under Article III to bring an antitrust complaint against Avanci after Avanci denied Continental a license.

Looking ahead: The decision confirms that patent owners have significant discretion in developing their licensing programs and deciding who in the supply chain to license to. SEPs are therefore likely to continue to license final product manufacturing, as these agreements are likely to offer the highest royalty payments.