By, Pragya Sharma
Fifth Generation wireless, (popularly referred to as 5G), once a distant dream, is now finally here. Envisioned a decade ago as a possible global fabric of connectivity, it has rapidly transformed into a commercial reality. It is expected to assist in connecting not only people and data, but also transport systems and nations into intelligent networks through speedy processing and transmission of data. Up until now, 3G and 4G patentees have exerted dominance over mobile technology processes with respect to the telecommunication industry. Predicted to improve and take final shape in the near foreseeable future, 5G poses some problems for policy formulators and regulators in privacy, cybersecurity, etc., but most of all with respect to licensing 5G SEPs.
To give a little background, in sectors such as telecommunications, the concept of Standard Essential Patents (SEPs)[i] is pervasive. They are defined as patents which cannot be circumvented in the sequence of implementing existing technologies. These technologies were revolutionary inventions around which entire industries were built. This same concept can be extended to 5G, since SEP issues sit at the heart of every new and promising technology across consumer fora. Hence, as technology becomes more and more complex, SEPs are expected to dominate the markets that enable communication.
Even though the processes of patenting and standardization serve a common purpose of incentivizing innovation, they do so in very distinct ways. Through standardization,[ii] investment in research and development takes place to generate technologies that are capable of being disseminated and adapted globally. This enables fast-tracked innovative solutions through a common standardized platform. On the other hand, patentees are afforded monopolies of technologies, which are denied to third parties for utilization. Hence, where standards aim at wide-ranging applications, patents act as exclusive negative rights.
This apparent conflict has been attempted to be resolved through licensing.[iii] Since it isn’t possible to employ a patented standardized technology without running the risk of infringement, claims that are necessary to the licensing of a standard patent shall be construed as its own isolated market.[iv] Thereby, if an enterprise contributes to the standard development of a particular technology, it shall be expected to license these patents.
Additionally, to make these technologies affordable in the public domain, patentees are restricted in determining monopoly prices by subjecting licensing to FRAND (Fair, Reasonable, and Nondiscriminatory) prerequisites.[v] To sum up, with standardization, patent owners revoke their statutory right to exclude third parties from accessing patented technology, in exchange for receiving fair compensation from a bigger pool of potential licensees wishing to access the standard.[vi]
Evaluation of licensing or quantifying patent damages, and determining the value of technology that has been patented has always appeared to be tricky, but within the context of SEPs, the same has been rendered even more complex. With respect to 5G, this complexity of SEPs becomes magnified since 5G is not simply a communication network similar to its predecessors, but rather is a transformative technology with implications well beyond the interaction of public and technology.[vii]
The broad application of 5G hence, will result in a complex licensing landscape in the following ways. Even though the licensing is subject to the FRAND conditions, there is no “best” way that optimally maximizes the benefits of individual SEPs. This ambiguity leads to difficulty in determining the value of technology for both licensors and licensees and consequently, calculating royalties.[viii] There is a dearth of efficient tools that may be utilized to identify which patent needs to be licensed in order to partake in the standardization of technologies. Further, there is insufficient jurisprudence relating to issues of portfolio licensing, damage claims, and alternate dispute resolution mechanisms.
Additionally, use-based licensing,[ix] wherein SEP holders can charge differential royalties to different licensees subject to how the final product utilizes the technology, has been at the center of debate and concern amongst industry stakeholders.[x] Critics of this licensing practice take issue with the fact that if too much emphasis is placed on the final product, then SEP holders taking a cut of the value created by inventors who came up with solutions will become commonplace. In contrast, the current system of licensing practice where SEP holders license all comers poses its own set of issues which has come to be termed as, “double-dipping”.[xi] This takes place when all newcomers are licensed to the same underlying SEPs allowing them to recover higher royalties, but complicating the increased number of licensing negotiations. A solution that has often been proposed to this problem is the implementation of a uniform mechanism that allows cumulatively packaging the licenses of 5G patents. However, the same has been found to not be feasible as it is not practical to discuss with licensors their royalties individually.[xii]
Other issues with SEP licensing, such as over-declaration, royalty stacking, portfolio licensing, disputes, hold-up, hold-out, injunctions availability, appropriate royalty base pose challenges to SEP owners.[xiii] The diversification of the application of 5G and its user base of telecommunications, and one size fits all model is expected to further reduce incentives of companies to standardize.[xiv]
With respect to the FRAND conditions, judicial regulation and imposition of arbitrary FRAND policies on the royalty rates threatens a shift in patent licensing from a market system to a regulatory one. Further, since FRAND itself has not been defined anywhere in the regulations of standardization organizations, whether or not a standardized license claim satisfies the FRAND conditions is more often than not, a matter of disagreement between licensors and licensees.[xv]
In view of these difficulties posed by licensing 5G SEPs, firms should attempt to initiate the development of mechanisms that reconcile these differences and resolve the issues. While the deployment of 5G will usher with it, exciting novel technical developments, the success of the same will ultimately depend on how well current markets can proactively respond to the licensing and enforcement challenges presented by 5G SEPs.
[i] See Dipak Rao, India: Standard Essential Patents, Mondaq (Apr. 22, 2016), https://www.mondaq.com/india/patent/484412/standard-essential-patents.
[ii] See Standards & Patents: An Introduction, WIPO Current Issues, https://www.wipo.int/patent-law/en/developments/standards.html (last visited Oct. 01, 2020).
[iii] See Rohan Dalbehera, India: Patent Licensing, Mondaq (Mar. 12, 2019), https://www.mondaq.com/india/patent/789046/patent-licensing; See also Patent Licensing 101: Patent Licensing And Its Types: Everything You Need to Know, GreyB (October 18, 2020), https://www.greyb.com/patent-licensing-101/.
[iv] Tim Pohlmann & Knut Blind, The interplay of patents and standards for information and communication technologies, 37(3) PIK 189-195 (2014), https://www.degruyter.com/view/journals/piko/37/3/article-p189.xml.
[v] Rao, supra note 1.
[vi] Joseph Maria Pujals, Guidelines for the licensing of 5G and IoT Standard Essential Patents, Ponti Intellectual Property Blog (30 July, 2019), https://www.ponti.pro/en/news/guidelines-for-the-licensing-of-5g-and-iot-standard-essential-patents/.
[vii] Steven Pepe et al., Challenges in Quantifying 5G Benefits and SEP Value, Bloomberg Law (2020), https://www.ropesgray.com/-/media/Files/articles/2020/April/5G-Challenges-Quantifying-Benefits-SEP-Value-Bloomberg-Law-Article-4-8-20.pdf?la=en&hash=D414D109A64B0D292AED11A1E3ABCF5C9BEF45B7.
[viii] Pepe, supra note 7.
[ix] See Etienne Gabella, Use-based v “License to all: the battle to influence the workings of FRAND licenses, LLR Attorneys, https://patents-trademarks.llr-international.com/2019/05/13/use-based-v-licence-to-all-the-battle-to-influence-the-workings-of-frand-licences/ (last visited Oct. 01, 2020).
[x] Bristows LLP Attorneys, SEPs, 5G and the IoT: where will the Commission land on use-based licensing?, Lexology (Oct. 25, 2017), https://www.lexology.com/library/detail.aspx?g=e6d3e12c-7e7a-42d8-bdae-7d173f728838.
[xii] Tim Pohlman & Knut Blind, Fact finding study on patents declared to the 5G standard, IPlytics (Jan. 2020), https://www.iplytics.com/wp-content/uploads/2020/02/5G-patent-study_TU-Berlin_IPlytics-2020.pdf.
[xiii] Pepe, supra note 7. See also Bristows LLP, Patent licensing: 5G & the Internet of Things, Lexology (Apr. 24, 2017), https://www.lexology.com/library/detail.aspx?g=6b2221d0-4d49-44ea-8ada-89a629289f79.
[xiv] Daniel F Spulber, Licensing Standard Essential Patents: Preparing for 5G Mobile Communications, SSRN (Aug. 7, 2019), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3383745. See also Pohlman, supra note 12.
[xv] Justus Baron, Jorge Contreras et al., Making the Rules: The Governance of Standard Development Organizations and their Policies on Intellectual Property Rights (2019), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3364722.