Standard Essential Patents and SMEs: UKIPO consultation outcome highlights SME worries in SEP licensing

On 5 July 2023 the UK Intellectual Property Office (UKIPO) published the  SEPs questionnaire for SME,small-cap and mid-cap businesses: Summary of Responses.

The survey was launched on 21 March 2023 and ended only a month later. The survey was composed of a set of 33 questions which were set to solicit information from SMEs, small and mid-cap companies information as to how Standard Essential Patents (SEPs) and licensing frameworks function in their experience.  The results of the survey are intended to assist the UK Government in better understanding their viewpoints. 

The survey asked about SMEs' participation in standardization, their knowledge of SEP licensing and how they settled any disputes. Additionally, it gave a chance for respondents to discuss ideas for enhancing the system to promote SME engagement in standardization and increase transparency in SEPs licensing.

The UKIPO will deliver its overall results to UK Government to be taken in consideration for any future policy interventions. Public input will be sought before implementing any possible intervention measures.

Main results

The UKIPO received 47 responses, of which 40 passed validation. Here a recap of the main outcomes.

1. Profile of respondents and involvement in standardisation

Most of the respondents were companies with headquarters based in the UK and belonging to the Information Communication Technology (ICT) industry.  Answers were provided by Directors and CEOs.

2. Licensing of Standard Essential Patents

Most of the respondents confirmed to have good understanding of technical standards and SEPs, 73% of respondents are involved with technical standards, of which 24% are involved with the Bluetooth standard, 21% are involved with the Wi-Fi standard, 21% are involved with the 2G, 3G, 4G or 5G cellular, 14% are involved with the High Efficiency Video Coding (HEVC) standard and 10% are involved with each of these standards: AAC, AMR-WB, AV1, AVC, DVB, IEC, IP68, VP9 and USB.

With regards to Standards Developing Organizations (SDOs), 21% of the respondents are involved with the Institute of Electrical and Electronics Engineers (IEEE), 14% are involved with the 3rd Generation Partnership Project (3GPP) and 10% are involved with the European Telecommunications Standard Institute (ETSI).

Of the 29 respondents involved with technical standards, 45% are also involved in SEP licensing or negotiation of a SEP licence, while 58% of respondent knew that they may need a licence to a SEP for use of the technology having been approached by a SEP holder/licensor. 

83% of respondents answered they do not believe they were offered a licence on FRAND terms.

3. Licensing disagreement and dispute resolution

Of the 12 respondents involved in SEP licensing, 75% have disagreed with the terms of a licence or the rate that has been offered to them for a licence, while only a third have had their licensing disagreement resolved directly with the licensor.

Most of the respondents answered that the threat of a court-imposed injunction is a concern for them or their business when agreeing a SEP licence.

4. Interventions to the SEPs licensing framework

Respondents highlighted several limitations faced by SMEs in obtaining FRAND licenses, such as the cost and complexity of obtaining a FRAND license, financial risk, uncertainty around financial liabilities, difficulty pricing products, limited understanding of SEP pricing, excessive SEP pricing, discriminatory pricing, lack of information on essential SEPs, challenges in getting their IP accepted into standards, lack of resources for checking SEP license rates, UK law allowing SEP holders to seek injunctions against licensees, and SMEs not exempt from SEP fees. Respondents considered that these issues should be considered in any future UK regulation.

To improve transparency in SEP’s pricing, several suggestions were raised, including making available more information on pricing, providing access to comparable licenses, providing guidelines for FRAND definitions, setting an aggregate royalty rate. FRAND licences should be determined by a panel of experts and amendments to the Patents Act should clarify that FRAND obligations transfer with patent ownership.

To improve transparency of essentiality, accurate information on patents declared to the standard should be provided, and SDOs should require justification from SEP owners on relevance to the standard and validity. Publication of patents for which access is required for each standard will help ensure compliance.

Respondents suggested including the ability to deny injunctions on the basis of it being disproportionate or injunctive relief only being available only in limited circumstances.  Respondents also suggested that patent pools should have increased transparency and that government should provide resources to support SMEs.

To increase SME participation in standards development, respondents suggested collaboration between SMEs and SDOs, education and training programs, improving transparency, government financial support, reducing SDO membership costs, simplifying briefing documentation, promoting recognition and awards for SMEs, using technology to encourage participation, embedding teaching of SEPs and patent licensing within university courses, funding collaboration between SMEs and UK universities, SME membership of larger associations and understanding future costs of standard development. These suggestions aim to improve transparency, reduce costs and encourage SMEs to participate in the standard development process.

Photo courtesy of Antonio D'Agostino

Comment

While the UKIPO is taking time to further evaluate the issues related to a possible intervention by the UK Government, on the European Union side this process is currently running.  On 27 April 2023, the European Commission published a patent package, including a proposal for a regulation on SEPs and their enforcement in the European Union (see The IPKat here and here). This draft Regulation is now moving forward in European Parliament and Council for review and approval while being object of a heated debate among industry, scholars and practitioners.