Standard essential patents
(SEPs) have gained its publicity in the
press recently due to a chain of SEP litigations between Apple and Samsung. In
the past decade or so, SEPs have increasingly becoming an issue for many
sectors. I thought I would like to explain what is SEP and how does it work.
So imagine that you are Apple and you are trying to enter the
Korean market. In Korea, there is a number of technologies that are established
as the standard in the smartphone industry. It could be de facto, which means that there isn’t an explicit agreement within
this industry but firms have adopted the standard. The standards can also be de jure, which means a government agency has imposed that standard on
the industry.
So when Apple wants to enter the
Korean market, Apple should incline to meet the standard of technologies. And
now let’s assume that Samsung has either developed or acquired a bunch of
technologies which are now the SEPs for the industry in Korea. Therefore, Apple
would have to pay royalties to Samsung in order to acquire license on these
technologies. Samsung, being the SEP owner, should offer a fair price for
anyone who comes to them seeking for licensing. Nonetheless, if Apple chooses
not to purchase but later got found out that it has infringed Samsung’s SEPs,
then it will be forced to pay royalties as well as a fee for damages.
Since SEPs can create
barrier of entry in certain industries, SEPs are required to be offered at a fair,
reasonable, and nondiscriminatory (FRAND) price so that other firms can
have access to the market. However, the definition of FRAND is really arbitrary
and there isn’t a regulation over it, unless the SEP owner voluntary agrees to
be bound by a standard setting organization (SSO). Sometimes, the owner of SEPs would
actually bundle SEPs with some non-SEPs and license them out together. This can
really complicate things. Hypothetically speaking, if Samsung is actually
licensing out a portfolio of both SEPs and non-SEPs, how much should Samsung
charge the licensees for? Should it still follow the FRAND rule if non-SEPs are
involved? Again, there isn’t any regulations that specify the mandatory pricing
strategy for this situation.
We can clearly see that the
legal system for SEP related regulations is far from completed. I personally
feel the follow aspects should be regulated:
- SSEP owners’ duties and rights
- Licenses’ duties and rights
- Standard for FRAND
- Pricing strategy for non-SEPs or the bundle of
SEPs and non-SEPs
- Prevention of SEP abuse
- Legal damage payment for infringing SEPs
It is interesting to see that they would allow companies to bundle SEP's with non-SEP's when selling licensing fees. When such an incident arises, it seems logical to have separate price structures for each type. Forcing foreign companies to take such a deal seems coercive.
ReplyDeleteYeah, I feel there needs to be some types of regulations saying that it's not okay to bundle these services together, or they can have some rules over the pricing strategy for this kind of situation. But for now, the rules are far from settled.
DeleteThanks for explaining SEP and bringing a very tangible example to the context. I feel like the bundling issue is not hard to solve, it's whether the industry/government decides to take action in regulating the licensing standard.
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