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SEP stakeholders want essentiality checks in 2020 to streamline negotiations

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In-house counsel say checks would be a good way to demonstrate that technologies are essential to a standard, but are not certain how they should be done or by which organisation

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With advancements in 5G, expected results from a European Commission study on the matter and ETSI exploring its potential role in carrying them out, essentiality checks are likely to be a hot topic for standard essential patent holders and implementers this year.

In-house counsel at companies including Audi and Philips say essentiality checks are a good idea because they will help show that certain technologies are essential to a standard, and thereby streamline SEP negotiations over fair, reasonable and non-discriminatory (FRAND) terms.

But counsel also contend that these checks will have to be done in the right way and by a trusted organisation so that they are valuable but do not consume too many company resources. Sources recognise that such a set up will be difficult to achieve.

“We certainly have views on essentiality tests, where the current best practice seems to be that done for patent pools,” says Kevin Scott, licensing program leader at Philips in the UK. “But also note that this is something that, if done properly, will be expensive and time consuming.”

The head of IP and standards at a telecoms company in London, agrees that checks are a good idea on paper, but adds the trick will be to ensure they're cost effective and credible.

“If you have a third party that says something is essential and everyone trusts them, you’ve got those related SEPs in the negotiation bag. So both parties don’t need to waste time debating whether or not there are essential patents,” he says. “But the question will be to what degree does the person seeking a licence think that the organisation or the checks are credible?”

Giving the implementer perspective, Audi chief licensing officer Matthias Schneider says he would like to see checks done, but that they should not be made mandatory. He says patent holders should instead be offered incentives to submit their SEP portfolios, or at least key patents, to analysis.

The European Commission’s Joint Research Centre published a call for tenders on a ‘pilot project for essentiality checks of SEPs’ in 2018. The results on that research are expected within the next couple of months.

During the ETSI General Assembly last December, members also discussed the role that the European standards development organisation (SDO) might play in carrying out these checks.

There are currently no formal procedures for essentiality checks in the major patent jurisdictions, with the exception of Japan. The JPO extended its ‘Hantei’ procedure on April 1 2018 to cover essentiality checks, but established certain criteria for those checks, such as that it would not make determinations of non-essentiality.

Patent pools also require that registrations submitted to their platform are essential to a standards, and charge patent holders for essentiality checks.

The problem the lack of checks creates is that SDOs require members to publicly disclose, to the best of their knowledge and without any obligation to conduct internal patent searches, those patents and applications they consider to be essential or might become essential to the standard.

In practice, there are several reasons why many of those potentially essential patents and patent applications may not become essential, such as that a patent could be granted with amendments rendering it no longer essential.

Whenever implementers come to negotiate licensing fees then, they have to consider whether certain patents are actually essential, which can stall negotiations and lead to litigation.

Graham Burnett-Hall, partner at Marks & Clerk in London, point out that during the Unwired Planet v Huawei case in the UK, Justice Birss gave a considerable discount to the phone company to reflect that a good portion of the patents in question could be invalid or turn out not to be essential. 

Reality checks

Whether essentiality checks become more common in Europe or the US this year will depend on whether they can realistically be set up in way that is acceptable to patent holders and implementers.

Sources say the first thing they will consider will be the cost and subsequent quality of these checks. The telecoms head of IP notes that it is quite difficult to determine whether something is essential to a standard because patents are complex documents that cover complex technologies.

Even with guidance from the SEP holder, determining essentiality can still come down to an analysis of construction of the patent claims. That process requires someone to spend a lot of time getting to know the patents involved, even when the subject is something the person is fairly familiar with.

“It is quite tricky, and that is why such an analysis can take time in a court,” he says. “You may spend hundreds of thousands of pounds working out whether just a few patents are essential or not.”

“The question becomes who takes the costs here, especially when patent holders may have hundreds of thousands of patents? However, these costs might be distributed, invariably, the consumer will end up paying for them.

“Essentiality checks therefore represent a huge potential cost to the ecosystem if they’re done properly.”

Then there is the matter of whether to make the checks mandatory or voluntary. The legal director at a telecoms company in Belgium points out that being forced to carry out essentiality checks on every SEP would be prohibitively expensive.

But if they are made voluntary, the challenge emerges of which patents to select for essentiality checks and how to extrapolate that data and apply it to the rest of the business’s SEP portfolio.

It is also important to establish grounds for a potential appeals system with the organisation that takes on the responsibility for these checks. One source says patent holders are likely to kick up a stink if the body in charge rules that something is not essential when the business is certain that it is.

Who should do it?

That challenges is, of course, closely related to the biggest hurdle in setting up essentiality checks: choosing who does them.

One source suggests that a patent office such as WIPO could take on the role. Another strongly disagrees with the idea of an SDO carrying out essentiality checks.

“ETSI, for example, is not well placed for this job and because it has no expertise and has never considered patent issues beyond its established IPR policies before. There is also the matter of how such an SDO would fund these checks. The obvious route would be to charge its members, but that could be a big problem because there is already a massive cost for ETSI membership.”

Essentiality checks are likely to be a much-spoken of and highly contentious matter in the telecoms industry and among other SEP-focused businesses this year. While everyone wants to see them happen, few agree on how they should be carried out.

There is every chance that whatever comes out of the European Commission report by March will be lambasted with criticism from implementer and patent holders alike.

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