Book review & discount: Licensing Standard Essential Patents: FRAND and the Internet of Things

This review of Licensing Standard Essential Patents: FRAND and the Internet of Things by Igor Nikolic is brought to you by Brussels-based trainee patent attorney, Henry Yang. Bloomsbury have kindly provided IPKat readers with a 20% discount for this title, please see the code below.

Sir Robin Jacob wrote in the foreword: ‘this is such a good book’. Indeed. Dr Igor Nikolic’s tour d’horizon of the key issues in licensing standard essential patents and propositions on how it may be done in the context of the Internet of Things flow effortlessly, making the subject appear easy. Yet, it is the author’s mastery of the case law, current regulatory landscape, and academic arguments that made this possible. But Nikolic’s comprehensive study did not lead him to come up with an opinion first then to shoehorn current case law and adopted policies into those supporting his point and others against it. He did it the other way around: he analysed the decisions and theories as they were, then explained his own suggestions. He pointed out the shortcomings of each approach objectively (such as using comparable licences in the ‘bottom-up’ approach to calculate FRAND royalties may lead to too high or too low a result). Only after this assessment did Nikolic evaluate the merits of each method with his own opinion.

This book is presented in three parts. Part I explained the basic concepts in the area of standard essential patents (SEPs), such as the requirement to license them on fair, reasonable, and non-discriminatory (FRAND) terms and how Standard Development Organisations (also called Standard Setting Organisations) work. The five chapters in Part II are each dedicated to a key issue in FRAND: the contractual nature of the FRAND licensing commitment distinct from competition law requirements; the principles of the FRAND royalty and its various but all unsatisfactory ways of calculation; the non-discriminatory limb in the FRAND commitment; what should be used as the base to calculate the SEP royalties; which level in the production chain should be chosen for licensing; remedies for SEP infringement and the role of injunctions in them. 

A good part of the chapter on the remedies is dedicated to comparing when SEP injunctions would be available in several jurisdictions. In the US, eBay v MercExchange made it more difficult to obtain injunctions for patent infringement. Even in Europe where the Court of Justice of the European Union already provided the test for an SEP injunction under competition law in Huawei v ZTE, Nikolic explained that the UK and German courts have interpreted it differently: UK courts seem to have taken an active role in calculating the exact licensing rate and thought that Huawei v ZTE is just a safe harbour, whereas the German courts appear to have followed the steps in that decision while relying more on existing licences and the conduct of the parties to see if an offer was FRAND. A second aspect in the remedies is that the UK, German, and now Chinese courts are all willing to set the global FRAND rates. Forum shopping, with different courts issuing against each other anti-suit injunctions, anti-anti-suit injunctions, and even anti-anti-anti-suit injunctions is hardly the way forward.  What is the way out? Mr Justice Mellor called for judicial restraint in an interview last year, but I think the litigants will argue actively against it. Setting up an international tribunal to determine the global FRAND rates, ideal as it is, may take long and then only some countries will sign up to it. It does look tricky indeed – perhaps more conversation between the parties and less litigiousness is needed.

All these problems make one wonder what could be done to avoid them in the future, and this is exactly what Part III addressed. This part looked beyond the current situation where SEPs are licensed in the telecommunications sector to the emerging area of the Internet of Things. The latter brings together participants in various sectors who use patents to different degrees. Many had little prior experience with patent licensing. Few had their own patents as bargaining counters for cross-licensing. Nikolic called for collective licensing – patentees pool together their SEPs and license them under the same terms to the implementers and amongst themselves. He made several propositions, and this is where his commercial knowledge came into play: not all patentees need to be included in the pool. This makes sense; the pool would set a benchmark rate from which those outside cannot deviate too far. Treating all patents in the pool and the participating patentees equally could discourage those having more valuable patents and taking a more active role from joining, so one needs to take into account not only the relative value of the patents but also a patentee’s role in enforcing patents on the pool’s behalf. The implementers whose products only use patents sporadically should be charged a lower rate than those using them more intensively, as has already been differed between mobile devices and cars in a 4G pool. This is correct, otherwise occasional patent users may give up the newer standard and stick to an older one, detrimental to the wider adoption of new technologies.

For all the neatness of collective licensing, whether it will be adopted widely in the field of the Internet of Things remains to be seen. A patentee with a substantial SEP portfolio may not join the pool: they may want to differ the licensing rates a bit between its collaborators and competitors. The implementers may not take licences with the rates set by the pool: smaller implementers with no licence negotiation experience may indeed take licences from pools with little say on the rate, but if they grow large enough or have established collaboration with some patentees they may want to negotiate licences individually instead, aiming for a lower royalty.

If all of that sounds jolly dry, the book has plenty of fun nuggets of information. For example, how many patents are declared essential to the 4G and 5G standards? (45,000 and 95,000 respectively) How can one evaluate the value of a patent? (The number of citations it receives in later applications, its geographical coverage, etc.) What is the tangible value that a standard can bring to an end product? (A tablet with cellular connectivity can be $120 dearer than one with only a Wi-Fi module) These pieces of information, apart from providing insights, serve serious purposes. They show some unique features of SEPs and why their licensing requires a new approach: it is impossible to challenge even a small part of the patents in a standard, so the licensing rate from a patent pool will already take into account that some patents in the pool will not be valid; even a single standard can add significant value to a final product, underlying the importance of compensating the patentees sufficiently. With this book the patentees and implementers can improve their understanding of the challenges facing the other side to smooth out the licence negotiation process. The regulators can evaluate criticism against their policies and consider whether to change them, as well as observe other jurisdictions whose approaches they may want to borrow. The industry knowledge and the case law can help the practitioners better advise their clients, devise the best way to comply with the regulations, and anticipate the potential changes that may be about to come.

As with all research on an emerging area, they may already be outdated at the time of their publication. The Chinese supreme court’s judgment on its FRAND jurisdiction has already been felt in the UK: Nokia v OPPO [2021] EWHC 2952 (Pat). And there are plenty of interesting questions which the courts and regulators may soon answer: what will an enforceable exclusion order from the US International Trade Commission (which is not bound by eBay v MercExchange) for infringement of SEPs look like and under what circumstances will it be granted? I much look forward to a second edition of this book in a few years’ time.

Details

A discount on this book is available for IPKat readers: the discount code (for 20% off when ordering via www.bloomsbury.com) is UG8

Format Hardback and eBook

Edition 1st

Extent 320

ISBN 9781509947553

Imprint Hart Publishing

Dimensions 234 x 156 mm

Publisher Bloomsbury Publishing