An Introduction to SEPs
A Standard-Essential Patent, or SEP, is a patent that protects an invention that must be used if a product is to comply with a technical standard.
Technical standards are used across many sectors and technologies to ensure that products from different manufacturers are compatible and interoperable, both for physical products and software. For example, technical standards underpin the field of information and communication technologies, ranging from the dimensions of USB connectors and CDs, to the specific communication protocols used in WiFi, Bluetooth, and 4G/5G mobile communication technologies.
Technical standards are developed by standards organisations working with partner organisations to develop and decide on the features and functionality of specific standards. For example, the standards for 5G mobile communications technology, which is currently being rolled out globally, are being developed by the 3rd Generation Partnership Project (3GPP), which is a consortium of standards organisations in a number of countries and is located within the European Telecommunications Standards Institute (ETSI) in France.
The aim of standards organisations is to evaluate technologies that enable a specific set of performance targets to be met and then decide which specific technologies must be adopted in the finalised standard. For those technologies protected by patents, manufacturers of products that comply with those particular standards must seek a licence to use the patented technologies from the respective patentees. Of course, many of these patented technologies that make the standards possible in the first instance will be subject to many years of expensive R&D by the patentees. If a company's patented technology is not selected for use in a standard, it is unlikely that that technology will be used by third parties. However, having a patented technology considered valuable enough to be included in a technical standard for a widely adopted technology such as 5G, will allow the patentee to be rewarded for their development efforts.
The standards organisations themselves do not determine whether or not a patent is essential for a given standard. Instead, standards organisations enable the relevant patentees to submit a "declaration" that relevant patents may be essential. For example, ETSI states "during the proposal or development of a standard, ETSI members must inform the Director General in a timely fashion if they are aware that they hold any patent that might be essential". Therefore, it is up to the patentees to declare that their patents may be essential to the standards.
A key condition of a declaration that a patent is an SEP is that the patent holder must undertake to grant irrevocable licences on Fair, Reasonable and Non-Discriminatory (FRAND) terms. The meaning of FRAND terms has been the subject of much discussion worldwide, and was the subject of a recent judgement by the UK Supreme Court in Unwired Planet v Huawei - you can read our briefing on this decision here.
When a third party is interested in manufacturing a product that is governed by a standard, they can search the relevant SEP databases to identify what SEPs exist, along with their owners. The third party can approach those patentees in order to be granted a licence on FRAND terms.
SEPs also allow for an insight into the development of technologies, in particular by providing information on which companies and countries are leading the development of those technologies. For example, by using SEP data from ETSI, it is possible to gain an insight into the development of 5G technology based on the contributions from individual companies.
However, a widespread problem in the field of SEPs is that of "over-declaration" of patents that are considered to be SEPs. Because the standards organisations leave it to the patentees to declare patents which "might be essential", there is an inherent risk that borderline patents are declared as SEPs. This is because patentees may risk not being able to claim for licence fees if patents that turn out to be essential are not declared as such. Other reasons for over-declaration also exist, such as changes to the standard, meaning patents that were previously essential no longer are, and changes in the scope of the granted patent compared to the patent application as filed. There may also be business incentives to bolster the number of SEPs declared by a company, which may further skew the number of over-declarations. For example, licence fees, particularly in patent pools, are sometimes determined or divided up based on the count of patents without analysis of the quality of those patents.
In summary, whilst there are some issues with the declaration of SEPs, developing patented technologies that end up being used in significant standards such as 5G can prove to be a major business, especially as the number of connected devices is projected to exponentially increase in the coming decade.