By Shriya Ghosh
What is A SEP?
A Standard Essential Patent, or SEP, is the industry standard. In other words, a SEP is a type of patent which protects an industry’s core technology. An industry’s core technology is the standard which the entire industry must use to continue to innovate in meaningful ways. So, a SEP claims a technology that is essential to an industry.1
How Are SEPs Determined?
SEPs are determined by industry-specific standard setting organizations, or SSOs. SSOs are groups of an industry’s most innovative companies. Sometimes, SSOs could include direct competitors, which could make these groups both highly competitive and collaborative. SSOs decide which of the member companies’ patents are necessary for the entire industry’s success and these essential patents become the industry standard.1
What Happens After a Patent Is Declared a SEP?
After a patent has been declared an SEP, companies and innovators can license the SEP technology under FRAND terms. FRAND stands for Fair, Reasonable, and Non-Discriminatory terms. FRAND terms balance the needs of the patent holder and the industry by ensuring that the transaction is reasonable. However, there are no regulations over FRAND terms, so licensors must set the agreement terms in a way to protect their work product and to increase their profits.2
What Are Some Examples of Standards?
SEPs are much more common in our everyday lives than we may realize. For example, the IEEE Standards Association, an SSO, sets the standard for Wi-Fi with IEEE Std 802.11. We all rely on WiFi every day; whenever you connect your phone wirelessly to the internet, you are using WiFi. WiFi sends and receives data according to a specified set of protocols. These protocols are patented and claimed as necessary to implement WiFi. The protocols are required each time two different phones, or any device which uses WiFi, need to “communicate” with each other wirelessly.1 To demonstrate another way, if you have a WiFi router, it does not matter whether you are trying to connect a smart phone, iPad, Mac, or a PC, all these devices can connect to the router because all the companies (inventors of the various devices) have agreed to use the same set of protocols (the WiFi implementing standard). Similarly, LTE or 5G are also examples of standards that we rely on every day and which the tech industry follows.3
What Are the Benefits of SEPs?
SEPs are patents that are volunteered to be an industry standard, meaning that several companies and innovators will depend on using the SEP technology to create other products and technologies. This would require other companies and inventors to license the SEP technology, therefore SEP holders make their patents available to a broad market, avoid barriers to implementation, and can license their patents at higher volumes. An increase in licensing one’s patents means an increase in revenue from licensing fees and greater exposure of the SEP holder in the relevant industry which could in turn attract investors. Another benefit of owning a SEP is that it can reduce the risk of patent infringement. When licensing a technology becomes too expensive, some companies may find it lucrative to invent around a patent. However, once an industry standard has been adopted, it is quite easy for the SEP holder to spot patent infringement because the standard is essential for that given industry and the only way to innovate in that industry is by incorporating the SEP in some way. Finally, SEPs also allow companies who do not hold the necessary patents to license the standard, this promotes efficiency and reduces costs for companies and innovators because they do not have to reinvent the industry standard.1
Are There Any Downsides to SEPs?
Yes. In some industries, not all companies and innovators are part of SSOs. This means that if an organization declares a standard, a non-participating company or innovator is not required to make its patent available on FRAND terms. However, in reality, industries declare several patents as essential, and these patents are added to SEP pools for specific industries when they are not essential. Some of these patents may be invalid, but companies could still be paying licensing fees for them.2 This is known as the over-declaration problem. Over-declaring, or over disclosing patents, can increase licensing costs to companies and therefore, increase the cost to consumers who will buy the final product at inflated prices.1
Is There a Solution to the Over-Declaration Problem?
As recent technologies are invented, there are more participants in the development of a standard. This has led to more complicated standards and the over-declaration problem. For instance, if previously, there were one hundred patents and five to ten patent holders, now, the patent pools can include a thousand patents or more. This makes negotiating license agreements difficult because it is challenging to agree on contract terms and conditions when there are potentially thousands of patent owners to negotiate with. However, recently, patent pools are streamlined, meaning that invalid patents and non-essential patents are removed from the patent pool.3 Consequently, it is much easier for a company or inventor to license and implement the standard into their technology by negotiating with a few patent holders and pay reduced royalty fees.3
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- https://ip.com/blog/standard-essential-patents-explained/
- https://actonline.org/2021/09/14/the-tech-terms-you-need-to-know-to-understand-standard-essential-patents-seps/#:~:text=Standard%2Dessential%20patent%20(SEP)%3A,agrees%20to%20waive%20that%20requirement
- https://www.talksonlaw.com/briefs/standard-essential-patents