Brussels, August 30, 2016 – In this paper, we explain why varying licensing terms for SEPs based on the application for which a SEP is used may not be consistent with a patent owner’s commitment to license its SEPs on Fair, Reasonable, and Non-Discriminatory (FRAND) terms.
With the advent of new applications for wireless communications, the question of how to compensate owners of patents essential to standards (SEPs) for wireless communication is increasingly important to industry. This paper focuses on one aspect of that question: whether it is consistent with rules requiring that SEPs be licensed on Fair, Reasonable, and Non-Discriminatory (FRAND) terms for royalty rates (and other licensing terms) to vary based on the specific application for which the standard is used. In this paper, we explain why varying licensing terms for SEPs based on the application for which a SEP is used may not be consistent with a patent owner’s commitment to license its SEPs on FRAND terms. We are concerned that, by licensing SEPs at different royalty rates based on the application the licensee develops, a patent owner may seek compensation for value that it did not create, for technologies that it did not patent, and for innovations for which it cannot rightfully claim credit.
The threat of application-dependent licensing of SEPs is of increasing concern in a digitised world where Information Communications Technology (ICT) has become an integral part of our economies and societies. It is critical that input costs, such as the royalty expense of licensing SEPs, be reasonably predictable, so that creators and manufacturers of products that define the Internet of Things (IoT) can make the large investments necessary to bring innovative products to market. Lack of clarity and certainty regarding SEP licensing practices will hinder—rather than enable—the take-up of these digital technologies. More specifically, innovative companies considering investments risk being asked to pay different royalties for the use of the same patented invention. Such different royalties would allow SEP owners to unfairly capture the value of innovations contributed to the product by the implementer—not the SEP owner. These concerns are particularly important as new applications emerge that do not fit into prior frameworks for SEP licensing, as will be the case with IoT.
