New study suggests improvements to harmonize the inconsistent IPR policies of standard-setting organizations

I recently came across an interesting study, commissioned by the US Patent and Trademark Office to the Board on Science, Technology and Economic Policy (STEP) of the National Academy of Sciences, entitled 'Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communication Technology'. An expert committee examined the IPR policies of twelve major standard-setting organizations (SSOs), looking for inconsistencies in the way they address the disclosure and licensing of standard-essential patents (SEPs). The study suggests numerous improvements that SSOs and legislators should implement to strengthen F/RAND commitments, prevent abusive behaviors by SEP holders and ensure that standard-setting efforts provide a significant contribution to innovation. If you have time on your hands, the study makes for an interesting and insightful reading.

The researchers noted that, on a general level, the development of standard-setting organizations is influenced by the economic context in which they operate. 'The mature industrialized countries - the United States, members of the European Union, Japan, and to a large extent South Korea -', according to the report, 'generally share a common policy environment that relies on private sector organizations to develop and implement technologies through decentralized market competition'. Emerging economies, instead, either 'view standards setting as a centralized, top-down process that may achieve a variety of objectives, including domestic industrial policy and inbound technology transfer', as in the case of China, or have not yet developed an approach to standards, as in the case of India and Brazil. Even within economies that share the same perspective on the role and function of standards, the approaches of national jurisdictions to the issues surrounding SEPs and F/RAND commitments appear to be inconsistent, if not conflicting.

Standard-setting organizations, besides being exposed to different legal and economic contexts, have a diverse set of stakeholders and constituents. Their IPR policies, however, share a common goal: ensuring that essential patents are timely disclosed and made available under a licensing framework that prevents the exploitation of the increased market power acquired after standardization, through hold-up or royalty stacking. The study found that, despite this coherent aim, there is wide variation and considerable ambiguity in the rules concerning disclosure and licensing. Inter alia, inconsistencies concerned the following issues:

[Disclosure] Whose patents must be disclosed; what qualifies as an "essential" patent or patent claim; when disclosures must be made in the standards development process; whether blanket (non-patent specific) disclosures suffice; to whom the disclosed information is provided; and whether there is a requirement to update disclosures, for example, as a standard evolves and as patents are issued or denied.

[Licensing] What specific terms or limitations are imposed by a commitment to FRAND licensing; what is meant by the individual terms "fair," "reasonable," and "non-discriminatory"; whether a maximum royalty must be posted before the standard is adopted ("ex ante"); how FRAND applies to portfolio licenses and cross-licenses; how non-royalty licensing terms (e.g., grant-backs, geographical or field of use limitations, etc.) are treated; and whether royalty-free licensing is encouraged or required.

According to the report, most of the standard-setting organizations, including all those surveyed, do not implement restrictions on the availability of injunctive relief for SEP holders, while only a few adopt rules that make the F/RAND commitment binding on successors to the original SEP holder. In light of these findings, the committee recommended a number of improvements meant to strengthen the IPR policies of SSOs. The study's suggestions are substantially similar to the recommendations made by three leading economists in a paper published in March 2013 (see IPKat post here).

In relation to F/RAND commitments, the committee suggested that SSOs should be more explicit in their IPR policies regarding their understanding and expectations about licensing obligations, in particular (i) providing guidance on the maximum licensing burden in light of royalty stacking concerns, (ii) clarifying that implementers and consumers of their products and services are the intended beneficiaries of F/RAND commitments, (iii) requiring SEP holders to license their essential patents without obliging the licensee to license back unrelated SEPs or non-SEPs, or to accept a portfolio license that includes non-SEPs or SEPs for unrelated standards, (iv) allowing SEP holders to require the licensee to license back the SEPs it owns or controls covering the same standard or related standards; (v) reaffirming the freedom of the negotiating parties to agree to a portfolio or cross license.

Rules on disclosure, according to the study, should be compulsory. SSOs are expected to clearly state their objectives, the preferred timing and the degree of specificity required, as well as to make the disclosed information available to the public.

SSOs should also develop policies to address patent transfers, binding any successor in interest to the licensing commitment made by the original SEP holder. Legislators should seek to reduce inconsistencies across national legal jurisdictions in patent-transfer issues, tying licensing commitments to F/RAND-encumbered patents and requiring recording of all patent transfers and disclosure of the real party in interest. Similar rules should apply if the patent holder is subject to bankruptcy proceedings.

As for the availability of injunctive relief, SSOs operating in industries where the risk of hold-up is high should adopt rules aimed at allowing the use of injunctions only when (i) a prospective licensee refuses to participate in, or comply with the outcome of, a third party adjudication (by a court or arbitrator) of F/RAND licensing terms, or (ii) the SEP holder has no other recourse to obtain compensation. The majority of the committee also clarified that F/RAND disputes should be adjudged before courts or arbitrators which allow the parties to raise any related claims and defenses (e.g. validity and non-infringement), and which can assess the economic value of the SEPs at issue and award monetary compensation.

The study identified several steps that the USPTO should take to improve the exchange and transparency of information about claims in issued patents, the status of patent applications and finalized standards documents. In particular, the USPTO should (i) comparatively assess the notion of 'prior art' (and, specifically, evaluate when art is 'publicly available' in a standards context), (ii) conclude agreements for the exchange of information with SSOs, similar to those signed by the European Patent Office with ITU, ETSI and IEEE-SA, (iii) establish, in coordination with other patent offices, uniform fields and templates for the submission of standards-based prior art documents, (iv) improve standards technology education for patent examiners.

Finally, with regard to the development of standard-setting efforts in emerging economies, such as China, India and Brazil, the committee suggested that the US government should promote awareness 'of the importance of developing IPR policies at an early stage of the development of SSOs', for example by offering appropriate training programs.