Roundtable: Essential reading

With landmark court decisions across the United States, Europe and Asia, case law surrounding SEP FRAND licensing has arguably never been so dynamic. It is therefore crucial for IP owners and licensees to stay up to date on how jurisprudence is affecting business-critical decisions.

In this roundtable, IAM brings together leading specialists from around the world to offer their insights into how these shifts are affecting what constitutes FRAND licensing. The group includes Jonathan Putnam at Competition Dynamics, IPlytics’ Tim Pohlmann, Tess Waldron and Peter Damerell at Powell Gilbert, and Ken Adamo from the Law Office of KRAdamo.

As they explain, for licensors and licensees, keeping on top of the global nature of the SEP market has never been more urgent.

Q: Tell us about your practice and, in particular, your experience in the SEP FRAND space

Jonathan Putnam (JP): We are Competition Dynamics (CD), an IP consulting boutique based in Salem, Massachusetts. Our founder and principal, Dr Jonathan Putnam, has been retained in nearly 30 SEP cases over the past 20 years. We produce economic testimony at the intersections of IP, competition and international trade law.

FRAND disputes can arise in many jurisdictions, over multiple standards. Our experience is similarly diverse; CD has testified before courts and arbitration panels in Canada, Germany, India, the United Kingdom and the United States, on standards related to telecoms (GSM, UMTS, LTE and 5G), computer memory (DRAM), voice communication (EVS), broadband (DSL) and video codecs (HEVC).

Most recently, CD was retained by Qualcomm in SEP litigations brought by Apple and the US Federal Trade Commission. We developed innovative econometric methods for analysing industry licences and product prices, to determine whether Qualcomm’s terms and conditions were fair and reasonable compared to the rest of the telecoms industry.

Tim Pohlmann (TP): I am the CEO and founder of IPlytics, an IP intelligence tool that augments the analysis of technology landscapes and a company’s competitive position. IPlytics Platform goes beyond patent data by linking and processing more than 120 million patents to 4 million standards and standards contributions and 300,000 declared SEPs on one platform. It helps users to perform patent valuation analysis, patent essentiality analysis and standard contribution landscaping, as well as understanding worldwide SEP-related litigation trends. Of the top 20 SEP holders, 95% subscribe to IPlytics Platform, as well as most major SEP licensors from various industries including automotives, semiconductors, home appliances and manufacturing. We have a lot of experience in supporting SEP licensing, FRAND litigation and helping our clients gain a general understanding of the patents and standards space.

Peter Damerell (PD): Powell Gilbert has over a decade of experience in the SEP FRAND space, starting with the MPEG-LA litigation in 2009 and encompassing most landmark UK decisions on the subject, including Vringo v ZTE and Unwired Planet v Huawei. As a result, we have an extremely experienced team that we can call on to address the technical and FRAND, competition or valuation aspects of these sorts of disputes.

Ken Adamo (KA): We have extensive experience counselling clients on various SEP/FRAND issues, including addressing these issues in a broad spectrum of court proceedings as lead counsel and otherwise. We are currently working with Wolters Kluwer on the Trial Lawyer’s Guide to International FRAND and SEP Licensing, Litigation, and Dispute Resolution. This book will provide an international comparison of substantive and procedural SEP/FRAND-related litigation issues and proceedings in various judicial and administrative jurisdictions worldwide.

Q: We have seen different theories around calculating royalty rates in SEP FRAND disputes put forward in recent years, but to what extent do you think a consensus is emerging around the best method?

TP: Many of our clients are also looking at the data sets of SEP declaration, pooled patents or submitted standards contributions when negotiating a FRAND licence. Here, it is very important to understand the difference of a declared patent that may or may not be essential compared to a verified SEP. However, patent declaration data, patent pool data and approved and accepted standards contribution data help to complete the picture of the SEP landscape, which is the first step to understanding who potentially owns patents for which standard and therefore holds a significant share of patents relevant for licensing under FRAND. There are different ways to then filter or even use a representative set of claim charts to, for example, calculate essentiality shares.

JP: We believe that there is still no consensus around calculating FRAND royalty rates. In SEP/FRAND disputes, economic experts typically disagree for the following reasons.

First, experts should, but often do not, agree on the definitions of ‘fair’, ‘reasonable’ and ‘non-discriminatory’, each of which has an economic foundation.

Second, a ‘FRAND rate’ is an artificial construct that is not observed in actual licences. According to most standard development organisation (SDO) policies, the FRAND commitment binds licensors to offer FRAND terms and conditions – not a FRAND rate. For example, a lump sum contract may be FRAND, but it does not contain a rate – nor does it contain an effective rate.

Third, there is a disconnect between traditional patent law and the economic analysis of an SEP licence; while patent law requires litigation of individual patents, SEP licences typically set terms for a whole portfolio.

Fourth, even when experts agree on economic methods, they may employ non-economic assumptions. For example, in a top-down approach, the top should be justified by reference to observed market outcomes. But some experts and courts have employed nonsensical shortcuts, such as Ericsson’s ‘pledge to the market’.

Finally, an outcome that is considered fair by most people at most times is likely to be reasonable. But with very few exceptions – the Apple and FTC cases against Qualcomm being two – it is rare to observe, and rarer still to reconcile, all industry SEP licences. Economic experts are often confined to samples of unrepresentative licences, reliance on which may produce inconsistent outcomes.

KA: Recent decisions – both at the trial court and at the appellate court levels – have tended to use a ‘lead’ methodology to calculate rates, with a second methodology being employed as a ‘check’ or confirming methodology. Decisions from both US and UK courts suggest that a consensus is emerging around the use of comparables (licences) as 'lead', confirmed by a top-down analysis, or vice versa. In the short term, provided that confidentiality and discoverability procedures are resolved and maintained, use of comparables (licences) is likely to be the consensus method, full stop. To the extent that US use of juries in regard to various SEP/FRAND issues continues to expand, comparables (licences) should be favoured for their appeal to jury dynamics and general juror familiarity with the concept of comparables/comparability, particularly arising from various real estate transactions.

PD: Broadly speaking, the two main approaches remain: a top-down analysis (usually modified to some degree); and comparable licences. The former approach seems to have been preferred to date in the United States (in TCL v Ericsson) and China (in Huawei v Samsung and, more recently, Conversant v Huawei), while the latter has been adopted by the United Kingdom (in Unwired Planet v Huawei) and Germany (in numerous cases). In reality, in any given case, the best method will depend on the circumstances and the materials available to the court in question (which, in turn, will depend on the procedural rules in the relevant jurisdiction and the arguments advanced by the parties involved).

In circumstances where the patentee has a well-established licensing programme (in particular, involving a standard licence agreement), the court may require some convincing before deviating significantly from those terms. In other cases (eg, where the portfolio in question has not previously been licensed or the comparables are hard to unpack or are simply unavailable), a top-down approach may be preferred.

In the United Kingdom, where licences negotiated at arm’s length are viewed as powerful evidence of the market value of a portfolio, we would not typically expect a top-down approach to be adopted where evidence from comparable licences is available (although it might serve, as it did in Unwired Planet, as a useful cross-check).

Q: What was your reaction to the recent decision from the UK Supreme Court in Unwired Planet?

Tess Waldron (TW): The Supreme Court has wholeheartedly endorsed the approach taken by Justice Birss in 2017, so in many ways there are no surprises and the original High Court decision – in particular, Justice Birss’ ‘FRAND injunction’ concept – remains the pivotal judgment that fundamentally altered the approach of the UK courts. That said, confirmation from the United Kingdom’s highest court that the Birss approach is the correct one dispels any remaining uncertainty and should allow a number of pending cases to start moving forward.

As to the details, certain points remain unresolved in relation to what could broadly be termed ‘case management’ issues, but which effectively amount to further jurisdiction or comity questions. While confirming that, if necessary, they would have preferred the characterisation of Conversant advanced by the patentee (that the dispute concerned the validity and infringement of UK patents with FRAND issues arising by way of a contractual defence to an injunction) and that, as such, there was no question that the UK court did not have jurisdiction over the dispute, the Supreme Court did not really grapple with the practicalities of that approach. Specifically, what should UK courts do if FRAND rates and terms have been set (or are being set) in other jurisdictions, either globally or on a national basis? This question will likely be explored in the upcoming Conversant FRAND trial and may take some years to resolve as the practice of courts in the United Kingdom and elsewhere continues to evolve.

KA: Generally, we were not surprised at the decision, having previously read all the briefings and listened to and/or read the transcripts of all four days of the hearing. To us, the main points of arguable surprise – or not – because of the record at the Court of Appeal were:

• the very pronounced European Telecommunications Standards Institute (ETSI)-centricity of the decision at all key points, particularly with regard to jurisdiction (paragraph 58);
• the forum non conveniens result that turned on the failure of another venue (eg, China) to prove the ability/jurisdiction to determine the terms of a global FRAND licence (paragraphs 97-98), taken with the caveat that “if and when other countries decide to exercise jurisdiction to settle global licensure”, additional issues may arise which the court declined to address (paragraph 98); and
• the non-discrimination result that declared that the FRAND element was general, not hard edged, and not two or three distinct separate obligations, but one unified, composite whole, in which the non-discrimination prong was blended together with the fair and reasonable components (paragraphs 112-114); this analysis turned in some important measure upon ETSI’s prior history, where it had rejected a most-favourable licence clause that would have promoted the ETSI regime and IP Rights Policy in particular (paragraphs 116-119) – a position that appears to be flatly inconsistent with US precedent, as well as existing academic literature, including analyses by Professor Tom Cotter and others.

Some of these surprises may have resulted from the court’s questionable analysis of US case law (paragraphs 68-74), both factually (eg, paragraph 72, where the court downplayed the importance of party consent to the trial court’s determination of the FRAND terms in Microsoft v Motorola Inc) and legally (eg, paragraph 74, where the court said that Optis Wireless Tech LLC v Huawei had “no bearing on the matters before us” and failed to analyse or acknowledge Optis Wireless Tech LLC v Apple Inc, which was decided in March 2020).

JP: On the one hand, there are positive aspects of the decision. It affirms that global, portfolio SEP licensing is standard practice, there is no single FRAND rate for a portfolio of SEPs and the terms and conditions found in one licence need not be ‘fixed by reference’ to the terms in another licence. The decision also permits UK courts to set global terms for the use of a global standard, which in theory can simplify the negotiation and enforcement of SEP licences.

On the other hand, the decision likely reinforces the global patchwork of SEP enforcement; courts in other jurisdictions may issue decisions that also purport to be binding on an individual litigant. Because there is no single interpretation of ‘FRAND terms and conditions’, these interpretations are likely to conflict, especially for as long as national courts see themselves as rate-setters and lack uniform licence data from which to determine licence terms.

TP: As a data provider, IPlytics is neutral in terms of a position on how SEPs should be licensed or what a reasonable FRAND rate should look like. We always vote for having more transparency on these questions. Here, we have clients on both sides of the table and observe the latest decisions with interest but no opinion on the outcome.

Q: With Decisions such as Huawei v ZTE, Unwired Planet and Sisvel v Haier, European courts have been particularly active in SEP cases. Would you agree that those courts are currently setting the agenda in SEP FRAND case law?

KA: Outside of matters involving US-related SEP/FRAND issues, it is possible that an agenda may be set if the standard setting organisation (SSO) or standard developing organisation (SDO) involved is ETSI. If not (eg, if the SSO or SDO involved is the Institute of Electrical and Electronics Engineers (IEEE) or another entity), it is too early to award anyone agenda-setting capability based on Huawei, Unwired Planet and Sisvel – in part because these cases are based on at least two different key legal points (contract or licensing versus competition law) and three different court systems. It should be noted that the new 2020 update of the 2015 Department of Justice (DOJ) Business Review Letter (BRL) concerning the IEEE is another unforeseen perturbation to the FRAND universe, especially in view of the DOJ, among others, 2019 Policy Statement on Remedies for Standards-Essential Patents.

TW: It is true that the European courts have been active in the SEP space and that we now have three cases that have been considered by three of the most senior courts in Europe – the Court of Justice of the European Union, the UK Supreme Court and the German Federal Court of Justice, respectively. However, SEP and FRAND jurisprudence is also developing rapidly in other jurisdictions – in particular, the United States and China, which are playing extremely influential roles in this area and will continue to do so.

For example, shortly after the UK Supreme Court handed down its judgment in the joined Unwired Planet and Conversant appeals, the Supreme People’s Court issued an anti-suit injunction against Conversant, preventing it from enforcing a German injunction against Huawei and, in a separate decision, found that it had jurisdiction and was the appropriate forum to decide the rate for Conversant’s Chinese SEP portfolio, notwithstanding the fact that the same point was live between Conversant and ZTE in the United Kingdom. Even more recently, in Xiaomi v InterDigital, the Wuhan Intermediate People’s Court granted Xiaomi an anti-suit injunction requiring InterDigital to withdraw its application for injunctive relief in India (discussed below), as well as prohibiting InterDigital from, in any other court (including other Chinese courts), seeking and/or enforcing injunctive relief or requesting that rates be set for the patents in suit in any other court. Further, the Delhi High Court promptly issued an anti-anti-suit injunction of its own preventing Xiaomi from enforcing the Chinese decision.

JP: These recent European decisions are noteworthy; however, they do not set the agenda. Being relatively friendly to SEP owners, they take the same side and therefore appear relatively consistent. But, from an economic perspective, there is no agenda or other organising principle; future decisions, particularly in other jurisdictions, may be inconsistent. That is not an insurmountable problem when it involves individual patent rights and damages individual countries. But as national courts extend their reach by determining worldwide portfolio licensing terms, inconsistencies among binding authorities become increasingly likely. SDOs generally exacerbate this problem by articulating a global IP rights policy but leaving the interpretation of that policy to national litigations between individual members. Therefore, this is actually a structural problem that we face; there is no global agenda when it comes to determining FRAND licensing terms and conditions. Especially as many new standardised technologies are being developed, it is important that someone sets an agenda to prevent confusion and inconsistency relating to the licensing of SEPs. This will require coordinated efforts across jurisdictions and between creators and users of standardised technology.

TP: Indeed, the worldwide litigation data that we connect to all declared SEPs and patent pool data shows that European courts have very much increased their role as SEP venues that issue decisions on FRAND. However, again, we are only observers. We do not want to comment on any court performance or decision.

Q: With his so-called ‘new Madison approach’, US antitrust chief Makan Delrahim has been particularly vocal on the overlap between antitrust and FRAND licensing in the United States. How much has that influenced the general conversation on SEPs around the world?

KA: Other than among commentators and academics, not much, if at all – yet. We are aware of no non-US court discussing the new Madison approach or even acknowledging its existence.

JP: Our understanding is that Delrahim does not think there is much overlap between antitrust and FRAND licensing (“hold-up is not an antitrust problem”). He views the FRAND commitment as a contractual arrangement between SEP holders and SDOs, with standard implementers as third-party beneficiaries. As such, FRAND disputes should be resolved under contract law, not antitrust law.

Antitrust agencies around the world have struggled to address – never mind answer – the pivotal empirical question: is standardised technology priced above the competitive level? Standardisation is fundamentally a non-market process. SDOs do not compare the features and performance of candidate technologies, then choose the best based on price. That is, they do not optimise. Until antitrust agencies develop the machinery to analyse non-price-based selection mechanisms, they will struggle to show that a price is high, much less satisfy the legal predicates for harm to competition.

The contractual approach to SEP licensing takes advantage of better-informed actors. Although complex, SEP licences provide better market evidence than a hypothetical ex ante auction. What is more, their information content will improve if standardised technology buyers must commit ex ante to purchasing it, instead of implementing it for free.

TW: The interface between intellectual property and antitrust, including the extent to which the latter should apply in the FRAND context, is a perennial source of debate. In Europe, there has been some uncertainty as to whether the FRAND commitment could be enforced other than through Article 102 of the Treaty on the Functioning of the European Union, which prevents the abuse of a dominant position.

The new Madison approach, under which antitrust law is not to be used to police FRAND commitments, is:

• wholly consistent with the more recent direction of travel of the European courts generally, which have shown themselves reluctant to find the behaviour of SEP holders abusive under Article 102 of the Treaty on the Functioning of the European Union; and
• aligned with the UK court specifically, which has determined that FRAND – at least in the context of undertakings to ETSI – is contractually enforceable by third-party implementers (and, absent extreme behaviour, not a competition law issue).

More broadly, it mirrors global concerns that, in eliminating patentee hold-up, courts and policy makers may instead have enabled implementer hold-out.

That said, the United States is an extremely important and influential jurisdiction and clear policy shifts of this nature will evidently affect the behaviour of courts and industry participants worldwide.

TP: Again, we do not want to comment or have an opinion on these issues.

Q: While patent pools are not a new concept, they seem to be enjoying something of a renaissance in areas such as HEVC, automotive and the Internet of Things (IoT). To what extent do you think pools represent a sensible approach to licensing SEPs?

PD: Patent pools are an extremely sensible and practical way of licensing SEPs, providing (ideally) a one-stop shop for implementers and a fair return to patentees, while reducing negotiation and transaction costs. The growth of new licensing markets seems to be encouraging the emergence of successful pools, perhaps because licensing outside of the field in question (eg, in the IoT space) reduces the complexity of the transaction by reducing (or eliminating) factors such as cross-licensing.

KA: Patent pools (eg, MPEG LA’s various platforms and Avanci) present, at first view, a workable, possibly sensible approach to SEP licensing, particularly as to the IoT and automotive technologies. While issues concerning the level of licensing remain (eg, whether the licence will attach to end-devices or components), a correctly structured and well-run pool may ameliorate the essentiality problems that seem to bedevil many SEP controversies. Such an approach may also offer the easy application of safeguards against anti-competitive effects, which the DOJ noted in the Avanci BRL. A probable early issue will be operating expenses relating to how patents are accepted to a pool, which may be quite high.

TP: Most of our clients that own large SEP portfolios predict that licensing SEPs will be more complex for generations of new standards such as 5G or WiFi 6, partly because new standards have increasingly more complex technology components, which can be combined or used separately. Companies may, for example, implement different 5G modules depending on the specific 5G use or implementation (eg, a smartphone will use different 5G features from a car, refrigerator or medical device). As different specifications are subject to different SEPs, it will be a challenge in licensing negotiations to define which patents will be needed and thus licensed in the final standard implementation. It will therefore be important to offer different pricing structures to accommodate this. Thus, patent owners will have to find efficient ways to set up licensing programmes such as patents pools for different uses.

As the number of standards implementors will rise dramatically with the wide use of connectivity standards in the IoT, one often-suggested solution is to group patents under a patent pool contract. The main rationale for patent pools is to solve some of the inefficiencies of licensing (eg, by saving transaction costs for both licensors and licensees). Considering that connectivity standards will be used across multiple industries by a much larger number of companies (compared to the smartphone industry), transaction costs will inevitably increase. The goal of patent pools is to simplify licensing by providing a single contract, thereby eliminating the discussion about patent quality as all patent pool members will have to agree and commit to the pool’s terms and conditions. These terms and conditions define how royalties will be shared among patent owners, as well as how licensees will access pooled patents. The success of a patent pool therefore depends on the number and size of patent holders that join, as well as the licensees that take a licence. However, joining a patent pool can be a chicken and egg-type situation, as companies might be hesitant to join if no one else has. Even as a member of a patent pool, some inefficiencies in licensing may remain – especially when licensors do not agree to the terms and conditions of the pool licence, which can lead to litigation. Being a member of a patent pool but not being involved in the ongoing litigation of other members can create situations that are not always transparent and thus will not benefit the licensing strategy of all patent owners.

In addition, defensive pools that aggregate the licensees could reduce negotiant costs and make licensing more efficient. As to these considerations, patent pools will definitely play a more prominent role for future SEP licensing, but challenges will remain.

JP: How sensible patent pools are depends on the context. Pools allow small licensors to recover royalties that they could not otherwise recover, due to high licensing and litigation costs. Meanwhile, for SEP owners that are also implementers of the technology, pools may offer an efficient exchange of rights with other participants. Patent pools can also help when products implement multiple standards; for example, HEVC is one of several video compression standards, each of which has many declared essential patents. Licensors share the need to monetise their patents with hundreds of other patentees, all pursuing the same implementers. Patent pools can streamline negotiations so that implementers can enter a licence with the pool rather than with each member individually.

However, patent pool members often trade royalties for efficiency gains, typically agreeing to lower royalties than if the parties entered into individual licences. Lower royalties also result from bundling complementary patent rights together. Knowing this, owners of very large or extremely high-quality patent portfolios may optimally choose not to join the pool. For these reasons, the price offered by a pool may be biased downward from the competitive level.

Q: The growth of the IoT will lead to a huge increase in connected devices that read on SEPs across a range of sectors. What advice would you give to implementer companies in these sectors that may have little experience in licensing SEPs but want to limit their potential litigation risk?

KA: Operating with a lack of experience specific to licensing SEPs in a standards-driven interoperability world may be concerning to many implementors. However, it is no different to licensing in or out in any new technology. Experienced licensing counsel are readily available and there are multiple well-recognised legal advisers who have the requisite skills and legal acumen to guide an implementor in learning what reasonable and usual licensing practices are where a standard is in issue. Analysis of alleged SEPs against a product’s construction for mandatory standard components and functions is basic to long-held patent analytic skills.

A fair licence fairly negotiated is always the best vehicle to limit or forestall litigation risk. It is no different in an SEP world.

PD: It is easy to say, but companies need to be aware that the cost of operating in the connected devices space in major jurisdictions involves the payment of FRAND royalties to the relevant innovator companies and be prepared to pay those sums. Once that principle is accepted, the guidance available as to what standard of behaviour an implementer must meet is clear. If an agreement on rates and terms cannot be reached, alternative dispute resolution (ADR) procedures (including, in the right circumstances, expert determination) can provide a cost-effective way of resolving issues.

An alternative strategy is to consider the merits of entering certain markets (an obvious example being the United Kingdom) if the cost of doing business there (in terms of SEP licensing) vastly outweighs expected returns.

JP: In our opinion, each licensing negotiation involves business risks. For example, negotiating with an NPE with a strong patent portfolio presents different risks compared to negotiating with a competitor facing a counter-claim, even if the portfolios to be licensed are similar.

If an implementer has little experience in licensing SEPs, avoiding expensive licensing missteps should be a long-term goal; an early miscalculation regarding when to license, and on what terms, can be detrimental to future deals. For example, refusing to license an SEP that has been repeatedly litigated may demonstrate unwillingness. Yet there are also disadvantages to going first, notably accepting a cost increase not currently (and perhaps never) borne by a company’s competitors. In the currently uncoordinated world of SEP licensing, a licensee may wish to seek royalty terms that increase as and when its competitors also agree to pay royalties.

In some cases, the implementer company practises the standard by incorporating components supplied by a third party into its own product. Making indemnification a condition of the supply agreement is often a good strategy. In certain product segments, patent pools exist and can be a quick solution to license a significant portion of relevant SEPs. A young and inexperienced implementer company may find it beneficial to license through patent pools instead of bilateral negotiations.

TP: While the telecoms industry and large SEP-owning companies in particular are experts in standards development and worldwide SEP filing and licensing, other sectors such as the auto industry, consumer electronics, industrial manufacturing, energy, medical-healthcare and many more have little knowledge about connectivity standards that are subject to SEPs. IP professionals in these sectors will need to gain more expertise around patents and standards to understand that by making use of technological advances around connectivity, they will need to implement patented standards and will thus at some point will have to pay for royalties. Standard setting is not only about developing the core technology layer of communication, but also about developing application layers. Here, industry experts with domain knowledge across industries where connectivity matters will need to consider participation in standards consortia such as 3GPP, the IEEE and others in order to have a seat at the table where future technology decisions are made.

IP professionals, as well as directors in standard development, should bear in mind the following key considerations:

• Future technologies that enable connectivity will increasingly rely on patented technology standards such as 4G and 5G, WiFi, NFC, RFID, Bluetooth and many more.
• The number of declared SEPs is constantly rising – IP decision makers should consider royalty costs and appropriate security payments in advance.
• IP professionals should not only consider information retrieved from patent filing data, but also monitor standardisation activities (eg, through standards contributions or declarations of SEPs to monitor market trends and competition).
• IP decision makers should bear in mind the dynamic market of SEPs, where patent assertion entities often acquire SEP portfolios to assert extensive royalty payments.
• Companies beyond the telecoms sector should pursue a common strategy for patenting and standards development to ensure that they are fully prepared for the next technology revolution.
• IP professionals need to be aware that while the market for 5G and other connectivity-type technologies is fairly new, it is now time to be thinking about what the business will need two, five and 10 years in the future, and what the patent portfolio will need to support that. Be proactive, not reactive. Do not get left behind.

Q: While a lot of litigation cases over SEPs have been focused on the United States, Europe and China, to what extent do you think we might see other jurisdictions such as India and Brazil emerge as popular places to bring cases?

TP: As soon as countries such as India and Brazil have a significant stake of businesses that use connectivity standards that are subject to SEPs there will be a lucrative market for licensing and in a lucrative market SEP owners will also chase royalties. If the courts in these countries have an efficient and independent enforcement practice when it comes to IP rights, we will indeed see litigation in these regions.

JP: As the second largest market for cellular devices, India is already a common venue for FRAND disputes; CD has already been involved in five cases there. Moreover, injunctions remain available, and Indian courts sometimes require that defendants pay royalties in escrow pending the outcome of a suit – both of which are attractive features for patent holders. Yet as long as there is no global mechanism for setting FRAND terms and conditions, it is likely that litigants will exploit national legal differences to gain advantage in global negotiations. This prospect seems especially likely after Unwired Planet, as there is now precedent for the courts of individual countries to establish worldwide terms. We expect to see conflicting judicial opinions purporting to set global terms and conditions for the same SEP portfolio – not a consensus.

KA: Whether India or Brazil might emerge as a popular venue to bring a volume of offensive and/or defensive cases will be driven by the same factors that drive venue popularity in IP infringement litigation generally. An early issue would be fairness to non-Indian or non-Brazilian parties. Another issue would be the complexity of existing trial and appellate systems. The central consideration – time to trial and time to appeal – will probably be the principal driver of any decision to bring a case in India or Brazil. If time to trial is excessive, for example, an SEP owner risks exposure to a declaratory countersuit in another jurisdiction that might get to trial first. With the risk of anti-suit and anti-anti-suit litigation, the lack of relevant precedent in India and Brazil might also impede filing cases. In other words, countries may not want to be the poster child for such litigation as a legal system learns by doing.

PD: It is an interesting question. While markets other than the United States, China and Europe are of huge importance commercially, leaving aside Intex v Ericsson (in which the Indian Competition Commission and then the High Court of Delhi considered the meaning of the ETSI IP Rights Policy), they have not to date been particularly significant for SEP/FRAND disputes.

Practically speaking, given that there are now courts that will award injunctive relief where an implementer has refused to take a global FRAND licence (and even courts that will set the terms of such a licence), there may be less of an incentive for SEP holders to explore new jurisdictions – although, as alluded to above, it is noteworthy that InterDigital recently commenced infringement proceedings against Xiaomi in India seeking an injunction unless Xiaomi takes a licence on terms determined to be FRAND (proceedings which were the subject of Xiaomi’s recent, successful anti-suit application in Wuhan and InterDigital’s subsequent anti-anti-suit injunction awarded by the Delhi High Court). We might also start to see implementers with significant businesses in these jurisdictions bringing invalidity proceedings and, possibly, FRAND declaratory actions in a bid to influence cases being conducted elsewhere.

Once these courts start to generate their own SEP/FRAND jurisprudence, it may well be that they too establish themselves as attractive venues, particularly if their litigation costs are comparatively low.

Q: Are there any changes or reforms that you would like to see made to the world of SEP FRAND licensing?

TW: The main question that the UK Supreme Court was asked to decide in Unwired Planet and Conversant was, at its heart, a question of policy. As such, it is perhaps unsurprising that in confirming that the ETSI IP Rights Policy conferred upon it (and upon other courts) the jurisdiction to set the terms of a global SEP licence, the UK Supreme Court’s reasoning is firmly grounded in practical, commercial and policy considerations.

Some might argue that policy questions such as these, which essentially go to the balance between implementers and SEP owners, between hold-up and hold-out, should be decided at the SSO level and not left to the courts of various jurisdictions, particularly where that might result in forum shopping and jurisdictional disputes. One way of addressing some of these concerns might be for SSOs to establish explicit guidance on this point and, potentially, their own SEP licensing dispute resolution procedures.

JP: SDOs create a product – an interoperability standard – that they do not own, then offer that product for sale without any commitment from the buyer to pay for it. A contract that requires neither payment in advance nor an enforceable promise to pay afterwards is at best one-sided. As standardised markets fragment into specialised technology sellers and technology buyers, the SDOs as owners should require symmetric, enforceable promises from both as a condition of contributing to and implementing the standard. A standard typically comprises numerous patents, which are litigated on a patent-by-patent basis. But that enforcement strategy confuses liability and compensation for the use of a single invention with the use of the standard itself; even if an individual SEP is ‘probabilistic’, the implementer’s implementation is not. The FRAND analysis of licensing behaviour by innovators and implementers should not be grounded in patent damages law (which imagines a hypothetical negotiation subject to hypothetical liability), but in the actual (and preferably, mutual) contractual commitment made by SDO participants.

Finally, when the courts declare property rights, as they do with an injunction, they facilitate bargaining by parties having the best information, expertise, incentives and knowledge of the relevant trade-offs and alternatives.

KA: A major reform that is heavily discussed by academic commentators, such as Professor Jorge Contreras, is the use of ADR proceedings to resolve disputes over SEP FRAND licence valuations and damages, under a system driven by the comparables (licences) methodology. ADR proposals have been made to use non-administered arbitration or an NGO structure along the lines of a WIPO-type organisation. The usual benefits of ADR (eg, confidentiality that removes the impediment of existing licence secrecy, providing secrecy of settlements and litigation resolutions, and handling any amorphous substantive focus on issues that the ADR might drift into) are of special advantage. These, and other issues, would be controllable in a carefully structured ADR vehicle. Rigorous methods of selecting neutrals would also allow skilled and experienced persons who are acceptable to all parties to participate and guide proper resolution of SEP/FRAND facts and law. A timetable would also be established by the structure created, to insure timely disposition.

TP: We are a data company and we always suggest more transparency and open data on licence contracts, court settlements, arbitrage cases and so on. In the end, transparency should always lead to efficiency and fair royalty rates both for SEP owners and licensors.

Q: Do you have any final thoughts on what some of the big trends shaping this space might be over the next five years?

TP: While licensing SEPs in the smartphone industry is well understood and, for example, 5G licensing negotiations will be comparable to those of 3G or 4G, licensing SEPs will be more difficult to navigate outside of the smartphone industry. What is more, each sector will apply connectivity differently, so licensing mechanisms will need to become more flexible as there is no one-size-fits-all model that will work across all industry verticals. For example, linking a refrigerator to other home appliances might be a much simpler application of 4G/5G than installing 4G/5G-enabled security features in a car, which are crucial to avoiding road accidents. As such, a uniform licensing model will not work. Instead, the SEP royalties for the refrigerator will likely need to be lower than those for vehicles. Although flexibility is vital, the industry must also find mechanisms that allow companies to aggregate and package the licensing of SEPs to avoid licensing inefficiencies yielding lengthy negotiations or even patent litigation.

Many SEP owners feel that with regard to IoT applications, it is not feasible to discuss terms with each licensor individually. There must be an aggregated solution, which could be a patent pool or another mechanism to combine licensing efforts. Here, the challenge is the long tail of the market. Patented standards will be implemented in IoT applications and products, then produced and shipped by thousands of companies – sometimes small revenue ones (eg, a smart IoT start-up from Berlin with a €10 million revenue). Collecting royalties from numerous small companies will be inefficient if the royalty per company is too low.

Patent owners will either have to bundle resources to chase all small connectivity standards users or accept a certain number of free-riders that fly under the radar and use patented standards without paying royalties. Experts find it difficult to predict how standards such as 4G/5G or WiFi will be applied to various IoT use cases – it is likely that end users will be the ones to decide where standardised technologies will be used. A car manufacturer will only implement connectivity standards if the enabled features add value and the standardised technologies are supported by the infrastructure.

The situation may arise where 4G or 5G base stations are not yet available across all countries and regions; for instance, a smart car owner may want to travel to regions where 4G/5G technologies are not yet in place. Further, discussions about the competing standards relevant for the auto industry – 802.11p (WAVE) and V2X 5G – will depend on the connectivity use cases of a car. Both standards have advantages and it remains to be seen which will be used more often. Competition on standards will also mean competition on price and thus on the royalties charged for SEPs.

KA: One big trend over the next five years will certainly be the involvement of US juries in cases where SEP/FRAND issues are presented, including SEP damages, evaluation of whether an offer is FRAND and satisfaction of mandatory SEP standard requirements as a short cut to proof of infringement. The Seventh Amendment right to a jury in a US trial court will likely continue to be fleshed out, including in those cases where Sherman Act and competition law claims are raised. A second trend will be the broadened application of anti-suit and anti-anti-suit injunctions, where the law will be further developed in additional countries with expanded usage (eg, China, Germany, the United Kingdom and the United States).

JP: As 5G technologies are rolled out, many new product segments and verticals will be involved in SEP licensing. This will bring new players into the SEP licensing sphere, with new litigation issues and opportunities. In the coming years, we expect markets and courts around the world to address and resolve several open questions. To what extent can SEP holders choose which level of the vertical chain to license? How do we properly interpret ‘non-discrimination’ when licences are not directly comparable (eg, they cover licensees operating in different product segments)? Will there be a mechanism by which to analyse industry licence terms while maintaining confidentiality?

Given the entry of many implementers that are inexperienced with SEP licensing, hold-out will likely become even more prevalent. How should SEP holders respond to widespread hold-out, and can they seek compensation for it while keeping their FRAND commitments? Can (or should) SDOs play a more active role in reducing these and other licensing frictions among their members? Over the next five years, we believe that industry players and courts will offer guidance and directions to resolve these questions.

TW: It seems inevitable that the next few years are going to see a further rise in jurisdictional battles and anti-suit injunctions as national courts grapple with FRAND while remaining live to the potential encroachments by other courts onto territory (eg, infringement, validity and, increasingly, FRAND rates for national patents) that they perceive as their own.