As I have discussed in previous blog posts, the technical standards developed across a range of standards bodies for countless economic sectors and sub-sectors seek to enable interoperability among all industry participants. These standards bodies desire that an implementer can use the standard under predictable licensing terms even when it includes contributions covered by (sometimes hundreds of) patents. If even technology covered by a single patent is contributed (and accepted through the consensus process) into such a standard and is “essential” to the standard – making that patent a standards-essential patent (SEP) – and that standard becomes globally adopted, the holder of the patent will hold incredible bargaining power come license negotiation time, as anyone using the standard arguably must infringe their patent. In return for this potential, those making contributions covered by patents to a standardization activity are asked to make a commitment to license such patents to those who implement the standard on Fair, Reasonable and Non-Discriminatory (FRAND) terms.
On February 8, 2015, after nearly 2 years of debate which included over 600 individual comments, multiple public meetings, and consideration and approval by majority or super-majority votes by PatCom, the Standards Board, and the Board of Governors (Voting tallies were: PatCom 3:2, Standards Board 14:5, Board of Governors 9:3, IEEE BOD approval by a higher rate than Board of Governors), the Board of Directors of the Institute of Electrical and Electronics Engineers (IEEE) approved updates to the IEEE-Standards Association (IEEE-SA) patent policy, which were implemented on March 15, 2015. These updates received a good deal of attention at the time from a large number of supporters as well as opposing rhetoric from a small but vocal minority. The purpose of this blog post is to (1) provide a baseline on the changes made by IEEE-SA to its patent policy and their current status; and (2) to filter through this rhetoric in order to provide an assessment of these changes and their wider impact.
Who is IEEE-SA?
The IEEE-SA is an open, voluntary, and consensus-based standards development organization (SDO). It is significant in both size and stature, and its standards are recognized and deployed around the world. Under IEEE-SA’s process, technical standards related to the functionality, capabilities and interoperability of a wide range of products and services are developed. You may not realize it, but it is likely that every day you use a device that implements IEEE-SA’s standards. For example, IEEE-SA’s process has developed technical protocols utilized by billions around the world, including Ethernet (802.3), Bluetooth (802.15), and the IEEE 802.11 standard, commonly referred to as WiFi. Importantly, IEEE-SA’s process is also accredited by the American National Standards Institute (ANSI). ANSI accredits SDOs whose standardization processes are open transparent, inclusive, fair and generally meet international best practices.
Why did IEEE-SA update its IPR policy and what did they clarify?
As IEEE-SA detailed in its request for a Business Review Letter from the Department of Justice, Antitrust Division (DOJ) in September of 2014, and as further clarified in a series of articles written by Dr. Konstantinos Karachalios (Article 1 + Article 2), IEEE-SA’s members determined that its then-current policy was “insufficient to deal with the broad problem of uncertainty over the meaning of ‘reasonable rates’ for SEPs.” These uncertainties had resulted in the “burden of disputes over SEPs [being] borne not just by implementers and SEP owners, but by consumers and other users of products that implement IEEE standards.” Further, dating back to 2012, the DOJ (Speech 1 + Speech 2), Federal Trade Commission, and European Commission had all publicly noted the need for greater certainty around the impact of a FRAND commitment. Further debate occurred within the United Nations’ International Telecommunications Union.
The clarifications to the policy largely relate to the commitment of IEEE-SA members to license patents to users of IEEE standards on terms that are “fair, reasonable and nondiscriminatory” (FRAND). Notably, these include:
- Clarifying that the owner of a FRAND-encumbered SEP is entitled to a royalty based on the value of the SEP apart from its inclusion in the standard. The policy also provides three factors that may be considered when making this determination, which include the “smallest saleable unit” concept (i.e., that licenses for technology should reflect the value of the functionality added to the smallest component using the patented invention);
- Clarifying that a SEP implementer is entitled to the benefit of FRAND obligation (put forward in a Letter of Assurance) on a SEP implemented in conforming with the IEEE Standard;
- Clarifying that implementers and SEP holders should engage in good faith negotiations, and that “prohibitive orders” (injunctions, exclusion orders, and similar adjudicative orders) should not be sought unless the implementer fails to participate in, or comply with, the outcome of an adjudication to resolve any issues between the parties;
- The SEP holder cannot condition a license on its SEPs in an IEEE-SA standard on the implementer’s agreeing to (a) license patents other than its own SEPs in the same standard or (b) take a license for any of the SEP holder’s other patents.
- Clarifying that a SEP holder who has made a FRAND commitment must bind any new owner or transferee of that SEP to that FRAND commitment.
What has been the effect?
So, one year later, what has the effect of this policy clarification been? While the virtues of the IEEE-SA’s policy changes continue to be debated, we cannot truly know for sure until further time has passed and we have the luxury to measure trends in statistics related to IEEE standards, the patents in them, the number of related injunctions sought in District Courts, etc. However, there are some things we can say now that we are at the one year anniversary.
The IEEE-SA’s policy changes have survived challenges made by certain companies both with regard to the substance of the policy and the process by which the changes were adopted by the IEEE-SA. While this may seem obvious to note, these facts provide key assurances, particularly to the small- and medium-sized businesses that simply don’t have the resources to hire specialized teams of attorneys to address SEP issues preemptively or reactively.
The IEEE-SA’s updates have provided some much-needed clarifications to the participants of the IEEE-SA in threshold areas, such as what constitutes a “reasonable” royalty and when seeking an injunction is appropriate (among other areas). This may be especially beneficial as the application of the IEEE-SA’s standards increases with the onset of the “Internet of Things”, which suggests that additional vertical industries adding things like WiFi capability to an increasing number of products and devices will likely want assurance that they can implement IEEE-SA standards knowing that they will not be confronted with unreasonable requests from SEP holders.
Despite a great deal of rhetoric from a small group of companies that represent some of the most prolific litigants in the SEP arena attacking the IEEE-SA process for making this decision as well as predicting the demise of the IEEE-SA as a result, these forecasts have rung hollow. The IEEE-SA has continued to thrive in its efforts to develop and improve upon key technical protocols (e.g., IEEE 802.11, commonly known as WiFi), and its membership has not walked away from the table. Expectations from supporters of the IEEE-SA policy (including a number of those supporting AllThingsFRAND) remain intact. AllThingsFRAND supporters – consistent with our founding principles – continue to work towards them in order to facilitate innovation, make negotiations more efficient, reduce hold-up in patent negotiations, and increase fairness in the negotiating processes for all parties involved.
Finally, the IEEE-SA policy update has provided key leadership in the treatment and effect of SEPs in standardization at large. More often than not, areas of intense competition (such as the ICT industry) can serve as “canaries in the coalmine” on foundational issues. As the changes become more permanent over time, other standards bodies serving as fora for the development of key technical standards to segments of the economy other than ICT can look to both the IEEE-SA’s verified processes and rationales with reliance as they too face the patent holdup issue.