Standard Essential Patents and SMEs: UKIPO consultation outcome highlights SME worries in SEP licensing

The survey was launched on 21 March
2023 and ended only a month later. The survey was composed of a set of 33 questions which were set to solicit information from SMEs, small and mid-cap
companies information as to how Standard Essential Patents (SEPs) and
licensing frameworks function in their experience.  The results of the survey are intended to assist the UK Government in better
understanding their viewpoints. 

The survey asked about SMEs’ participation in
standardization, their knowledge of SEP licensing and how they settled any
disputes. Additionally, it gave a chance for respondents to discuss ideas for enhancing the
system to promote SME engagement in standardization and increase transparency
in SEPs licensing.

The UKIPO will deliver its overall results to UK
Government to be taken in consideration for any future policy interventions. Public input will be sought before
implementing any possible intervention measures.

Main results

The UKIPO received 47 responses, of which 40
passed validation. Here a recap of the main outcomes.

1. Profile of respondents and involvement in
standardisation

Most of the respondents were companies with
headquarters based in the UK and belonging to the Information Communication Technology (ICT) industry.  Answers were provided by Directors and CEOs.

2. Licensing of Standard Essential Patents

Most of the respondents confirmed to have good
understanding of technical standards and SEPs, 73% of respondents are involved
with technical standards, of which 24% are involved with the Bluetooth
standard, 21% are involved with the Wi-Fi standard, 21% are involved with the
2G, 3G, 4G or 5G cellular, 14% are involved with the High Efficiency Video
Coding (HEVC) standard and 10% are involved with each of these standards: AAC,
AMR-WB, AV1, AVC, DVB, IEC, IP68, VP9 and USB.

With regards to Standards Developing
Organizations (SDOs), 21% of the respondents are involved with the Institute of
Electrical and Electronics Engineers (IEEE), 14% are involved with the 3rd
Generation Partnership Project (3GPP) and 10% are involved with the European
Telecommunications Standard Institute (ETSI).

Of the 29 respondents involved with technical
standards, 45% are also involved in SEP licensing or negotiation of a SEP
licence, while 58% of respondent knew that they may
need a licence to a SEP for use of the technology having been approached by a SEP
holder/licensor. 

83% of respondents
answered they do not believe they were offered a licence on FRAND terms.

3. Licensing disagreement and dispute
resolution

Of the 12 respondents involved in SEP
licensing, 75% have disagreed with the terms of a licence or the rate that has
been offered to them for a licence, while only a third have had their licensing disagreement resolved directly with the licensor.

Most of the respondents answered that the
threat of a court-imposed injunction is a concern for them or their business
when agreeing a SEP licence.

4. Interventions to the SEPs licensing
framework

Respondents highlighted several limitations
faced by SMEs in obtaining FRAND licenses, such as the cost and complexity of
obtaining a FRAND license, financial risk, uncertainty around financial
liabilities, difficulty pricing products, limited understanding of SEP pricing,
excessive SEP pricing, discriminatory pricing, lack of information on essential
SEPs, challenges in getting their IP accepted into standards, lack of resources
for checking SEP license rates, UK law allowing SEP holders to seek
injunctions against licensees, and SMEs not exempt from SEP fees. Respondents considered that these issues should be considered in any future UK regulation.

To improve transparency in SEP’s pricing,
several suggestions were raised, including making available more information on
pricing, providing access to comparable licenses, providing guidelines for
FRAND definitions, setting an aggregate royalty rate. FRAND licences should be
determined by a panel of experts and amendments to the Patents Act should
clarify that FRAND obligations transfer with patent ownership.

To improve transparency of essentiality,
accurate information on patents declared to the standard should be provided,
and SDOs should require justification from SEP owners on relevance to the
standard and validity. Publication of patents for which access is required for
each standard will help ensure compliance.

Respondents suggested including the ability to deny injunctions on the basis of it being disproportionate or injunctive relief only being available only in limited circumstances.  Respondents also suggested that patent pools should have increased transparency and that government should provide resources
to support SMEs.

To increase SME participation in standards development, respondents suggested collaboration between SMEs and SDOs,
education and training programs, improving transparency, government financial
support, reducing SDO membership costs, simplifying briefing documentation,
promoting recognition and awards for SMEs, using technology to encourage
participation, embedding teaching of SEPs and patent licensing within
university courses, funding collaboration between SMEs and UK universities, SME
membership of larger associations and understanding future costs of standard
development. These suggestions aim to improve transparency, reduce costs and
encourage SMEs to participate in the standard development process.

Comment

While the UKIPO is taking time to further
evaluate the issues related to a possible intervention by the UK Government, on
the European Union side this process is currently running.  On 27 April 2023, the European Commission
published a patent package, including a proposal for a regulation on SEPs and
their enforcement in the European Union (see The IPKat here and here). This draft Regulation is now moving forward
in European Parliament and Council for review and approval while being object
of a heated debate among industry, scholars and practitioners.