Standard Essential Patents (SEPs) and FRAND licensing

SEPs and FRAND are key elements in a mandatory industry standard especially mobile industry involve in mobile devices. The manufacturers (or holder’s patent rights) must follow to compulsory conditions and standards if they declared patent to SEP and the disputes, negotiations shall be based on FRAND rules. The third parties must pay royalty fee when buying or using franchisees, the payment and negotiation are account for SEPs and FRAND basis. The main and recent disputes show off the franchise fee is a center of issue.

Standard Essential Patents (SEPs)

A standard essential patent (SEP) is a patent which can be properly mapped onto integration of global industry. The unified standards are applied for all manufacturers have the same convenient processes and environment in order to compete faithfully. SEPs are common in the mobile telephony and telecommunications industry, a sector which is highly standardised due mainly to the need for interoperability between mobile devices.
SEPs, if truly “essential” to the standard, are difficult to avoid and are particularly powerful patents. For this reason, they are subject to the special licensing rules, FRAND rules, but are nevertheless the subject of many patent disputes, the so-called “patent wars”. SEPs may be registered (“declared”) by their owners at ETSI (European Telecommunications Standard Institute) or other institutions, as appropriate.

FRAND licensing

FRAND is the acronym for Fair, Reasonable and Non-discriminatory. If a patent is declared essential to a standard (as an SEP) the owner agrees that the patent be subject to the FRAND declaration that licenses to the SEP will be granted on a Fair, Reasonable And Non-Discriminatory basis. Generally speaking license offers are to a portfolio of SEPs and state a license fee for use of the patents in the portfolio.
Failing or refusing to license IPR on FRAND terms can be an infringement of the EU’s antitrust rules. For example, Samsung and Motorola had several patent disputes with Apple. Both Samsung and Motorola tried to enforce an injunction against Apple in EU but the court determined objections
  • Fair: relates mainly to the underlying licensing terms. Drawing from anti-trust/competition law; fair terms means terms which are not anti-competitive and that would not be considered unlawful if imposed by a dominant firm in their relative market. Examples of terms that would breach this commitment are: requiring licensees to buy licenses for products that they do not want in order to get a license for the products they do want or requiring licensees to take licenses to certain unwanted or unneeded patents to obtain licenses to other desired patents (bundling); requiring licensees to license their own IP to the licensor for free (free grant backs); and including restrictive conditions on licensees’ dealings with competitors (mandatory exclusivity).
  • Reasonable: refers mainly to the licensing rates. According to some, a reasonable licensing rate is a rate charged on licenses which would not result in an unreasonable aggregate rate if all licensees were charged a similar rate. According to this view, aggregate rates that would significantly increase the cost to the industry and make the industry uncompetitive are unreasonable. Similarly, a reasonable licensing rate must reward the licensor with adequate compensation for contributing its essential patents to a standard. Compensation is adequate if it provides the licensor with the incentive to continue investing and contributing to the standard in future time periods. It is worth noting that a licensor which has several different licensing packages might be tempted to have both reasonable and unreasonable packages. However having a reasonable “bundled” rate does not excuse having unreasonable licensing rates for smaller unbundled packages. All licensing rates must be reasonable.