In every country and region, there is an active debate on Standard Essential Patents (SEPs). In the EU, the European Parliament’s Legal Affairs Committee adopted a draft regulation on patents in January 2024.
In Japan, the JPO (“Japan Patent Office”), published in 2022 the “Guide to the Negotiation of Standard Essential Patient Licenses (2nd edition)”. This guide is available in Japanese and English and explains how to proceed with SEP licencing negotiations with a view to good faith and effectiveness, as well as how to calculate royalties.
In this article, we will explain the concept of SEPs and summarise the guidance on how to conduct licence negotiations with a view to good faith.
I.- Standard Essential Patents
SEPs refer to patents which are essential for the implementation of a technical regulation (a standard) of a product or a service.
SEPs are used, for example, when dealing with technologies such as USBs, 4G and 5G, and with the development of IoT, for mechanisms that connect various infrastructure devices via the Internet.
A patent is an exclusive right to an invention. Therefore, a patent owner can file a lawsuit in the case of unauthorised use of their invention by a third party.
Technical regulations (standards), on the other hand, are documents issued by standardisation bodies, which safeguard the dissemination and application of new inventions and technologies.
Therefore, when a technical standard is developed, the holder of an SEP must submit a declaration to the standardisation body, undertaking to grant a licence to third parties (implementers) subject to regulations, under FRAND (fair, reasonable, and non-discriminatory) terms.
II.- Contents of the guide
The guide is in no way legally binding. Its aim is to summarise issues relating to licence negotiations as objectively as possible.
The guide discusses SEP licencing negotiations under FRAND conditions.
According to what is set out in the guide, when patent rights are infringed, right holders can, in principle, exercise their right to seek an injunction. However, when implementers, i.e. an entity that manufactures and/or sells products that implement such standards, seek to obtain a licence under FRAND terms in good faith, court decisions around the world coincide as to the limitations on the granting of injunctions to SEP holders subject to FRAND terms.
The guide then examines this good faith at each of the following phases of the licence negotiation process:
Phase 1: The rights holder makes an offer to negotiate the licence.
Phase 2: The implementer demonstrates their interest in obtaining a licence.
Phase 3: The rights holder makes a special offer of the rights under FRAND terms.
Phase 4: The implementer makes a specific counteroffer under FRAND terms.
Phase 5: Two scenarios could take place: (i) The rights holder rejects the counteroffer; (ii) Dispute resolutions in court, or through Alternative Dispute Resolution (ADR).
The guide considers it to be common practice during Phase 1 for the patent owner to provide (1) documentation identifying SEPs, (e.g., a list of patent numbers, the name of the legislation, geographical scope of the patent) and (2) documentation which links SEP claims to standards and/or products (lists of demands, etc.)
In phase 2, there are a number of points upon which the implementers statement can be challenged:
(1) Whether the patents are truly essential;
(2) Whether the patents are valid;
(3) Whether the implementer has infringed these patents;
(4) Whether the patent rights are enforceable;
(5) Whether the entity that has exercised its rights is the true owner of the patents;
(6) Whether the patents are in force and have not expired.
The guide states that in Phase 3, it is common for the patent holder to provide specific rationale, explaining that their patent complies with FRAND terms, as well as a method for calculating royalties. Based on the above, the implementer can determine whether the terms presented are reasonable or if they are discriminatory.
On the other hand, in Phase 4, the implementer should, when submitting the counteroffer, provide, in addition to their method for calculating royalties, a specific basis explaining how the counterproposal also complies with FRAND terms. Based on the above, the patent owner can evaluate the counteroffer and determine whether the terms presented are reasonable or if they are discriminatory.
With regards to Phase 5, the guidance notes that conciliation or arbitration will be a flexible resolution for SEPs.
In conclusion, the guide is a document tailored to SEP licence negotiating situations. It is also worth mentioning that, in recent years, there has been an accumulation of court cases in several countries globally, which should also be closely followed.
Satoshi Minami
Vilá Abogados
For more information, please contact:
12th April 2024
