• Building a Foundation for Essentiality in Standard Essential Patents

    Legal and economic incentives can lead to an over-declaration of standard essential patents (SEPs); little work has been done to link patent value with essentiality.

    SEPs cover technologies that must be used in order to conform to a particular standard. SEPs trade off the competitive exclusivity afforded by a patent for a steady stream of royalties. Companies typically self-declare SEPs to standard-setting organizations (SSOs) and license their technology widely in exchange for a negotiated fair, reasonable, and non-discriminatory (FRAND) royalty.

    Determining the value to place on the “essentiality” of a patent often is left to the companies negotiating a licensing agreement. If disputes arise between the parties, however, opposing legal teams may well find themselves presenting technical arguments on whether the technology at issue actually is essential to a standard. 

    Although academic research has found several patent attributes explaining economic or technological value, most studies assume that a patent declared as an SEP is, in fact, essential. In a recent project, Analysis Group studied the determinants of true essentiality for a specific technology by using a unique dataset of patent characteristics and independent technical assessments of essentiality. We then estimated regression models to assess the relationship between essentiality and variables that have been found to be important in explaining patent value. 

    For example, in making a declaration to an SSO, a patent holder can reference a specific section of the standard to which the patent applies and identify the patent family to which it belongs. Although companies are not required to provide this level of specificity, doing so in the appropriate circumstances could provide a more tangible foundation for defending the patent’s essentiality in the future. 

    Understanding which factors or characteristics contribute to the acceptance of essentiality can also support efforts to reduce the rate of over-declaration. Companies are motivated to over-declare SEPs due to a combination of the risk of losing enforceability and the incentive to improve their bargaining position. By addressing the question of essentiality in advance, some uncertainty in SEP licensing, negotiation, and potential litigation may be reduced.

    Reliance on SEPs to ensure interoperability will only become more urgent as Europe’s data economy grows and the EU pursues the Digital Single Market. Greater analytical rigor in determining essentiality can inform both policy-making and questions of validity and scope, yielding important benefits for markets, competition, 
    and innovation. ■

    Building a Foundation for Essentiality in Standard Essential Patents-Figure 1

    Source: Royer, J., Van Audenrode, M., et al., Over-Declaration of Standard Essential Patents and Determinants of Essentiality, SSRN (2017).

      


    Jimmy Royer, Principal  
    Nick Dadson, Manager
    Marc Van Audenrode, Managing Principal