When is a Portfolio Probably Standard-essential?

Abstract

In recent years, several patent experts and commentators have claimed that there are too many “low-quality” patents being granted by patent offices around the world, or that a large percentage of patents are often found invalid by courts and judges. Until a patent is found to be invalid by a court or another tribunal, during licensing negotiations both licensor and licensee can only consider the likelihood that such patent is eventually found invalid, based on the incomplete information available to them.
Similarly, it has been claimed that a patent-by-patent analysis of a large patent portfolio could determine, without any uncertainty, whether a portfolio is infringed or standard essential. For example, several studies have been published or presented in courts that try to determine which patents in a portfolio are “truly” essential.
Even if one had an infinite amount of time and processing power, and access to all the knowledge ever generated by humanity, the questions above cannot be answered with zero margin of error. To answer those questions, one would need to know how examiners, judges, courts or juries would interpret the claims in light of the prior art, read the specifications, and many other variables.
A better model, in the author’s opinion, is a probabilistic model that tries to estimate the likelihood of a portfolio to be infringed, valid, and/or essential. In essence, the model accepts the notion that no patent comes with zero risk to be infringed and/or rendered invalid, and tries to estimate that risk associated with a portfolio. Such risk is a function of several considerations, such as: is the portfolio being actively licensed, is there evidence of use associated with it, what is the available prior art, how large is the portfolio, etc.
In this paper we will focus on the question of essentiality and validity. We will model the likelihood that a patent is essential and/or valid as random variables following a certain probability distribution. We note that in information theory it is common to model unknown data (although those data might be known to a source and / or a receiver) as random variables that can take a value from a certain alphabet with specific probabilities. As such, at least at a macroscopic level in light of the many variables (see above) and patents, we believe our model is in fact not unreasonable at all.
This paper uses a probabilistic model to reach several conclusions for practitioners and regulators. First, the risk of infringing a portfolio of essential patents heavily depends on whether the patents are simply declared as potentially essential at an SDO, or rigorously claim-charted and scrutinized, for example through previous licensing negotiations or litigation. Second, the level of risk depends on many factors, including the size of the portfolio. In particular for smaller portfolios, solid evidence of essentiality, like claim charts, and validity is crucial to justify a relatively high level of risk. Lastly, this paper demonstrates how a top-down approach in determining royalties is not only fundamentally flawed, but also biased towards implementers, unless a rigorous analysis of essentiality is used that takes into account overdeclaration rates.

Keywords: SEPs, Probability, Essentiality, Patent, Standards