Standard Essential Patents, Trolls and the Smartphone Wars: Triangulating the End Game

Abstract

Few legal issues in recent years have captured the public’s attention more powerfully than litigation over standard essential patents (“SEPs”). This Article explains how SEP litigation overlaps with two other major centers of patent litigation – litigation involving smartphones and patent assertion entities (“PAEs”). It offers a reasoned analysis of key developments and offers predictions on the end game.

The Article observes that attempting to pre-empt patent hold-ups by imposing blanket ex ante disclosure obligations and royalty caps on standard setting organizations (“SSOs”) is misdirected and counterproductive. Instead, the solution lies in clear and balanced rules to determine “fair, reasonable and non-discriminatory” (FRAND) royalties and injunctive relief. This solution will help parties make more realistic assessments of their options and help adjudicators resolve SEP disputes.

Correctly framed, implementers bear the burden of proving the breach of a FRAND commitment. FRAND royalties should, in the absence of comparable licenses, focus on apportioning the profits based on the relative importance of the patented technology in the covered product. Royalties should be measured at the time the standard is set but generally should not be discounted for the possibility of invalidity and non-infringement. Discriminatory licenses can be hard to detect, but targeted initiatives and improved transparency would make the task easier. Injunctions should be granted based the wording and intent of the relevant FRAND commitment, conduct of the parties, and proof that the technology drove the sales of the component or product on which the relief is sought. More broadly, courts must understand both the limits and opportunities of the antitrust and patent laws. While useful in arresting ex ante misconduct and attempts of elide FRAND commitments through patent assignments, antitrust is largely irrelevant to SEP litigation in addressing patent hold-ups; patent law has a role in both improving patent quality and deterring vexatious litigation.

Keywords: standard essential patent, smartphone, trolls, PAE, SEP, FRAND, RAND, NPE, antitrust, patent misuse, SSO, royalty, eBay, injunction, exclusion order, ITC, Apple, Google, Microsoft, Motorola, Samsung, Rockstar, ICT, Innovatio, Intellectual Ventures, SEP, VITA, IEEE, FTC, DOJ