The Juelsgaard Intellectual Property and Innovation Clinic recently submitted comments endorsing a fair and balanced approach to standards-essential patents (SEP) policy and encouraging federal agencies to formalize a statement embodying those principles. Clinic students Casey Lincoln (JD ’23) and Mark Westwood (JD ’23) filed the comments on behalf of Engine, a non-profit technology, policy, research, and advocacy organization that works to bridge the gap between government and high-tech, growth-oriented startups.
The Clinic’s comments urged the U.S. Department of Justice, the U.S. Patent & Trademark Office, and the National Institute of Standards and Technology (DOJ, PTO, and NIST) to proceed with a new draft policy statement on SEPs—a statement that strikes balance between the interests of patent holders, licensees, and end-users of technology and would have a positive impact on startups and the innovation ecosystem.
In the simple act of unplugging a cell phone from a charger and checking an email, you are using multiple standards. From 5G to Wi-Fi to USB, technological standards are ubiquitous in modern technology. Standards promote interoperability—ensuring products work together seamlessly and enabling future innovations to work with existing products and platforms.
Groups of industry participants set standards by selecting among technologies volunteered by the participants. A given standard typically includes technologies covered by many patents. The patents that are essential for a chosen standard are designated as SEPs. The benefits of interoperability incentivize innovators to develop standard-compliant products. Thus, having its patent declared as an SEP gives a company access to a large market of potential licensees.
In exchange for this market access, and to ensure that they cannot use the “essential” status of their patents to charge inflated licensing fees, SEP holders typically must agree to license their patents on “fair, reasonable, and non-discriminatory” (F/RAND) terms. However, F/RAND terms are not preset—a company wanting to produce a standard-compliant product must negotiate and come to a licensing agreement with each individual SEP holder.
Last year, the DOJ, PTO, and NIST released the draft policy statement offering guidance on what constitutes good faith SEP license negotiations and the appropriate remedies for alleged infringement of SEPs. The draft statement emphasizes the importance of enforceable F/RAND commitments as well as the harm that occurs when SEP holders seek to overcharge for patent licenses. The statement recognizes that, absent extraordinary circumstances, monetary damages are the appropriate remedy for infringement of an SEP that is subject to a F/RAND commitment. This draft statement would replace the previous administration’s 2019 policy statement, which, by contrast, had downplayed the potential impact of SEP market power, wrongly suggested that injunctions are equally available in both SEP and non-SEP contexts, and undermined enforcement of F/RAND commitments.
Engine’s comments support the new DOJ draft statement. First, the comments explain how startups and consumers are injured when SEP holders do not meet their F/RAND obligations. Abusive licensing of SEPs, such as overcharging for or threatening to withhold SEP licenses, hurts all stakeholders and causes harms (such as delayed product launches, higher prices, and lower quality products) that cannot be fully remedied by the courts.
Second, Engine’s comments endorse the draft statement’s clarification of appropriate remedies. The draft statement recognizes that the threat of an injunction where the patent owner has made a F/RAND commitment harms innovation. To grant an SEP holder an injunction would be in direct conflict with their F/RAND commitment. The SEP holder has already agreed to license the patent to all comers on F/RAND terms, and so monetary damages will almost always be sufficient compensation—there is no reason to exclude innovations from the market via injunctions.
Finally, Engine’s comments emphasize the impact SEP policy has on startups. Startups approach SEP policy from a variety of positions: they can contribute their own technologies to a standard, use and license SEPs, or develop products that build upon standardized technology. But as licensees and downstream developers, startups are particularly vulnerable to abusive SEP licensing given they frequently do not have the in-house counsel or other resources to challenge such practices—which unjustifiably raise the costs of innovation. Worse, the threat of an injunction is an existential threat for many startups with limited product lines, making them susceptible to coercive licensing offers or frivolous claims.
In a pervasively interoperable world, enabling connected technologies across industries is critical—especially for startups and small businesses. Engine’s comments recognize the policy statement as an important correction in SEP policy—benefitting not only startups, but also other innovators and consumers. The agencies’ new policy would foster innovation, create jobs, and help bring socially beneficial products and services to market.