Technology
Technology
SEPs: The rising global significance of patent rights in everyday technology
- Increased adoption of technologies into consumer products brings additional legal and commercial risks that must be managed to avoid unexpected surprises
- There is an increasing global focus on the licensing of standardised technologies. Cases have resulted in competing claims, conflicting decisions and orders restricting parties from taking action in other countries. This resulted in growing interest from regulators and legislators across key markets
- A draft EU regulation has the potential to significantly shift the approach to licensing standardised technologies, and its associated risks
With great connectivity comes great responsibility. In 2023, standard essential patent (SEP) litigation came to the fore, with high-profile multi-billion dollar cases in the UK, China, the USA and Germany. The World Trade Organization also received a landmark complaint.
With a rise in demand for new technologies and the opening up of opportunities in the Internet of Things and more integrated products, it is critical business are familiar with the concept of SEPs in 2024 and beyond. This is important to avoid unexpectedly discovering they need to pay for a licence on fair, reasonable and non-discriminatory (FRAND) terms.
This realisation often comes late, with an unwelcome impact on past profitability. However, SEP licence holders must capitalise on the potential of new markets and revenue streams. And, for all parties, the SEP licensing landscape is facing major changes in the year ahead.
Where have we been?
SEPs came to prominence in the seminal Unwired Planet v Huawei "smartphone wars" decision by the UK Supreme Court in 2018. The case demonstrated the UK courts' tradition as an international litigation hub, confirming their willingness to set FRAND licensing terms on a global basis. This spurred similar findings and large-scale FRAND proceedings across Europe and in the People's Republic of China (PRC).
SEP litigation also took a brief hold of the automotive sector for its use of connected vehicles tech. Nokia locked horns with the Daimler Group over FRAND licensing – to name one of many disputes. This brought the automotive sector's traditional ways of addressing intellectual property (IP) licensing into conflict with how things were done in the telecoms sector. This is case in point for what happens when SEPs are used in a new sector.
In the midst of every crisis lies much opportunity. The value and importance of SEPs to the automotive industry was recognised by the emergence of the Avanci licensing platform, which helped bridge the gap between SEP licensors and connected car manufacturers. As a result, litigation over SEPs has been less prevalent in the automotive sector than across the telecoms sector.
The next expansion of SEPs is likely to be in relation to audio and video encoding. It is an old market with respected and established implementers, as well as active patent pools and licensors. But there are parallels to be drawn with the automotive sector. There has already been a start with litigation involving Vestel in the UK, the Netherlands and Germany, spurred on by the razor-thin margins inherent in a lot of consumer products in the sector. In a similar vein, Nokia has filed a high-profile claim against Amazon in the US, Germany, the UK and India, as well as the European Union's Unified Patent Court. The claims relate to streaming video compression, content delivery, content recommendation and other hardware-related aspects by Amazon Prime Video and Twitch.
The UK Intellectual Property Office is currently consulting on SEP and FRAND issues to ascertain whether UK government intervention is needed.
What next for European companies?
To date, SEP negotiations were broadly left to the market with some obligations imposed on the process. On 27 April 2023, the European Commission published a proposal for an EU SEP regulation. The legislative process is still in the first reading of the trilogue procedure but is continuing at speed. Controversial parliamentary debates and amendments are expected, with several interventions already by industry groups and by the European Patent Office.
The regulation's stated aim is to facilitate licence negotiations and to promote innovation. It provides for increased transparency around SEPs and FRAND licensing, in the interests of promoting predictability and efficiency. It proposes the creation of a central SEP register and a database, and an alternative dispute resolution mechanism. Various restrictions are proposed to promote participation; for example, a restriction on SEP holders' entitlement to licence fees or to claim damages before the relevant SEP is registered.
Improved transparency around licensing could benefit the users of standards, especially small and medium-sized enterprises that have little experience of licensing practices when they are seeking access to the relevant markets, but the position is not straightforward. Larger stakeholders have a more nuanced outlook, with their view often depending upon whether they are a net licensor or licensee. For example, Ericsson, Huawei, Intel, LG Electronics, Nokia, Qualcomm, Samsung and ZTE are among the most important companies contributing to 2G, 3G, 4G and 5G standardisation, but their views are not aligned.
The EU's proposed approach is more centralised and regulated. The regulation will increase the time required for SEP owners to bring a case and realise licensing revenues – and this will be to their detriment. Yet it could lessen the need for litigation if implemented. As ever, the devil will be in the detail.
An international dimension
A global market could lead to conflicts involving national litigation and forum shopping by stakeholders. This has happened in the case of SEPs. Anti-suit injunction (ASI) practices are developing, which adds another layer of complexity. An ASI is a court order preventing one party from bringing or taking steps in other court proceedings. However, extraterritorial jurisdiction remains dependent on the acceptance of that jurisdiction by foreign courts. For instance, the Supreme People's Court of the PRC issued an ASI to prevent enforcement of a German judgment, but the ASI was not recognised in Germany. The German courts took steps to nullify its effect.
European courts, and especially the Paris courts, have recently developed case law in FRAND litigation. European jurisprudence suggests ASIs that prohibit parties from commencing proceedings in other jurisdictions are not in line with the principles of EU law. Furthermore, one EU Member State's court cannot issue an ASI interfering with the jurisdiction of a court in another EU Member State.
In the IPCom v Lenovo case, the Paris Court of Appeal granted an "anti-ASI" (itself a form of ASI), allowing the patentee to enforce its patent rights notwithstanding an ASI being sought in pending US proceedings. The ruling indicates the French courts will affirm their own jurisdiction, with the court confirming its jurisdiction based on the location of the relevant standards body, the European Telecommunications Standards Institute (ETSI), and the relevance of French law to the ETSI IP rights policy.
Similar ASI case law has developed in Germany. In other jurisdictions, the position is unclear. For example, under Polish law an anti-ASI could be sought, but a standalone preliminary order of the Court of Appeal in Warsaw rejected granting ASIs. Following that logic, Polish courts may reject a request for an anti-ASI on the basis it is an ASI. However, the Polish courts may adopt the same position as Germany and be prepared to issue anti-ASIs to defend Polish actions. These high-level observations apply in principle to Austria, Slovakia, the Czech Republic and Hungary.
Looking to the future, European SEP litigation is likely to continue in the top jurisdictions (the Netherlands, the UK and Germany). However, more cases may be seen in the new UPC and, for the reasons given, in the French courts.
Authors
Luke Maunder Associate Director, UK luke.maunder@osborneclarke.com
Christophe Arfan Senior Associate, France christophe.arfan@osborneclarke.com
Johannes Ballestrem Partner, Germany johannes.ballestrem@osborneclarke.com
Valentin de le Court Partner, Belgium valentin.delecourt@osborneclarke.com
Ethan Plumb Associate, UK ethan.plumb@osborneclarke.com
Dr Agnieszka Sztoldman Counsel, Poland agnieszka.sztoldman@osborneclarke.com