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    Royalty-Setting For Standard Essential Patents Might Be Balanced By Prospect Of Injunction, Speakers Say

    Published on 28 March 2013 @ 11:09 am

    By , Intellectual Property Watch

    Threats of injunction in cases of infringement of essential standard patents, which have raised concerns in Europe and the United States as being leverage for patent holders to get higher royalties, might in fact be a way to maintain an equilibrium in royalty-setting, according to speakers at a World Intellectual Property Organization event.

    Standards allow interoperability of products and are useful to producers and consumers. Those standards sometimes include a technology covered by one or several patents. In that case, the patent is described as a standard essential patent (SEP). According to WIPO, most standards-setting bodies (SSBs) have established their own patent policy, and many require that the parties involved in the standard-setting process disclose “information regarding relevant patents.”

    Many SSBs require that the patent holder agree on specific licensing conditions, such as that the licence should be granted under fair, reasonable, and non-discriminatory (FRAND) terms. Parties interested in manufacturing a product requiring such a patent have to agree on FRAND terms with patent holders. This sometimes leads to disputes that might result in an injunction prohibiting the sale of products that make unauthorised use of SEPs.

    WIPO’s seminar series on the economics of intellectual property, held on 26 March, focussed on patents and standard setting and was introduced by WIPO Chief Economist Carsten Fink. He noted that the points of views expressed by speakers in the WIPO economic seminars were their own, as WIPO takes no position on those issues.

    Two researchers were invited to present their paper [pdf] on SEPs. The paper was authored by Damien Neven, Gregor Langus and Vilen Lipatov.

    Neven, a professor of international economics at the Graduate Institute of International and Development Studies in Geneva and former European Commission chief competition economist, said a question becoming a concern in various institutions across the world is whether or not owners of SEPs should be able to seek injunctions.

    Role of Injunction

    Litigation on SEPs is increasing, according to the paper, in particular in the mobile device market. “Litigation has pitched manufacturers … such as Apple, Microsoft, Samsung and Motorola against each other, across multiple jurisdictions and before several courts,” it said.

    The European Commission (EC) Directorate for Competition and the United States Federal Trade Commission (FTC) both have expressed concern that the threat of injunctions might increase the prospect for “hold-up,” Neven said. Hold-up refers to an attempt by SEP holders to seek royalties from licensees, which are considered excessive, he said.

    It is generally considered that the threat of exclusion from the market will shift the bargaining position in favour of the patent holder during licensing negotiations, Neven said, adding that in the context of SEPs, patent holders have probably entered a FRAND agreement. The EC and the FTC both have said that FRAND terms are too vague and do not represent a real constraint, so they anticipate that the threat of injunction is enough to shift the bargaining position, he said.

    However, according to Neven, if the patent holder had no injunction possibility, there probably would be concerns about “reverse hold-up” in which an implementer of the standard could delay negotiations with the patent holder “for a very long time,” or propose very low royalty rates knowing that the patent holder would have little choice but accept the offer.

    Just focussing on the idea that there is hold-up is probably an excessively narrow focus on the issue, he said, adding that it is useful to consider the potential positive role that injunction could play in the case of reverse hold-up attempts.

    The research that was undertaken, Neven said, was aimed at trying to understand the negotiations between patent holders and prospective licensees with respect to SEPs and trying to identify the role that injunction plays in the outcome of those negotiations. This outcome depends on how the procedure unfolds and on what the court system does, he said. The EC and the FTC may have “a naive view,” in that they assume that by simply asking for an injunction, “you get it,” he said.

    Courts Grant Injunctions Only on Contingent Information

    The researchers reviewed court procedures and cases laws concerning SEPs in Europe to describe the procedures taken by courts when they are faced with a claim for injunction, he said, adding that the study proposed a model of negotiations between patent holders and patent licensees.

    The results of the research, Neven said, is that “one should not rush into the conclusion that there is a systemic problem” and that hold-up is a serious concern, as maybe, at least in Europe, “the system does not seem to be broken.”

    The outcome of the empirical research showed that courts are not simply granting injunctions when they are requested to do so. Courts “can be described as providing injunction contingent on sufficient information,” in particular information that the prospective licensee is not putting forward offers that can be considered as FRAND and might be engaging in reverse hold-up. The research showed that many steps are taken before the courts may decide to grant an injunction, Neven said.

    Langus, senior consultant for Charles River Associates who presented the model put forward by the study, said there are three variables for reaching equilibrium for royalty-setting: the strength of the patent, the cost of litigation, and the length of the litigation. The licensee can challenge the validity of the patent.

    For example, if the litigation takes a long time, it might exceed the patent life and the injunction “would have absolutely no bite,” he said. A determinant factor in the acceptance or refusal of the rate put forward by a prospective licensee is the strength of the patent. The holder of a sufficiently weak patent will always end up accepting a rate below FRAND, he said, while if the patent is strong, the patent holder will always end up refusing a rate below FRAND and end up in litigation.

    The conclusion of the research is that it is not clear that there is a systemic failure, and that the current approaches that the courts are taking are balancing hold-up and reverse hold-up. Injunctions, he said, are in fact only granted when reverse hold-up is a concern, adding that injunction may play an important role in preventing attempts of reverse hold-up.

    UN Agencies Looking at Standards

    Separately, on 21-22 March, five United Nations agencies launched the UN Forum on Sustainability Standards (UNFSS) to tackle what they consider to be the rising issue of private standards affecting developing countries’ exports by creating market entry hurdles (IPW, UN, 18 March 2013).

    The five UN agencies are: the UN Food and Agriculture Organization (FAO), the International Trade Centre (ITC), the UN Conference on Trade and Development (UNCTAD), the UN Environment Programme (UNEP), and the UN Industrial Development Organization (UNIDO).

    According to a summary soon to be posted on the UNFSS website, the launching conference attracted over 200 country delegates. “Most of the debate focused on the identification of priority subjects and activities for the first two years of UNFSS operation,” according to a source.

    Delegates “singled out as key themes, the role of governments on voluntary sustainability standards related to public goods, legitimacy, competitiveness effects, transparency,” and the implications of those standards on the World Trade Organization rules.

    The report of the meeting will be available shortly on the website, he said.

     

    Catherine Saez may be reached at info@ip-watch.ch.

     


    Leave a Reply

    We welcome your participation in article and blog comment threads, and other discussion forums, where we encourage you to analyse and react to the content available on the Intellectual Property Watch website. By participating in discussions or reader forums, or by submitting opinion pieces or comments to articles, blogs, reviews or multimedia features, you are consenting to these rules.

    We welcome your participation in article and blog comment threads, and other discussion forums, where we encourage you to analyse and react to the content available on the Intellectual Property Watch website.

    By participating in discussions or reader forums, or by submitting opinion pieces or comments to articles, blogs, reviews or multimedia features, you are consenting to these rules.

    1. You agree that you are fully responsible for the content that you post. You will not knowingly post content that violates the copyright, trademark, patent or other intellectual property right of any third party or which you know is under a confidentiality obligation preventing its publication and that you will request removal of the same should you discover that you have violated this provision. Likewise, you may not post content that is libelous, defamatory, obscene, abusive, that violates a third party's right to privacy, that otherwise violates any applicable local, state, national or international law, that amounts to spamming or that is otherwise inappropriate. You may not post content that degrades others on the basis of gender, race, class, ethnicity, national origin, religion, sexual preference, disability or other classification. Epithets and other language intended to intimidate or to incite violence are also prohibited. Furthermore, you may not impersonate others.

    2. You understand and agree that Intellectual Property Watch is not responsible for any content posted by you or third parties. You further understand that IP Watch does not monitor the content posted. Nevertheless, IP Watch may monitor the any user-generated content as it chooses and reserves the right to remove, edit or otherwise alter content that it deems inappropriate for any reason whatever without consent nor notice. We further reserve the right, in our sole discretion, to remove a user's privilege to post content on our site. IP Watch is not in any manner endorsing the content of the discussion forums and cannot and will not vouch for its reliability or otherwise accept liability for it.

    3. By submitting any contribution to IP Watch, you warrant that your contribution is your own original work and that you have the right to make it available to IP Watch for all purposes and you agree to indemnify IP Watch, its directors, employees and agents against all damages, legal fees and others expenses that may be incurred by IP Watch as a result of your breach of warranty or of these terms.

    4. You further agree not to publish any personal information about yourself or anyone else (for example telephone number or home address). If you add a comment to a blog, be aware that your email address will be apparent.

    5. IP Watch will not be liable for any loss including but not limited to the following (whether such losses are foreseen, known or otherwise): loss of data, loss of revenue or anticipated profit, loss of business, loss of opportunity, loss of goodwill or injury to reputation, losses suffered by third parties, any indirect, consequential or exemplary damages.

    6. You understand and agree that the discussion forums are to be used only for non-commercial purposes. You may not solicit funds, promote commercial entities or otherwise engage in commercial activity in our discussion forums.

    7. You acknowledge and agree that you use and/or rely on any information obtained through the discussion forums at your own risk.

    8. For any content that you post, you hereby grant to IP Watch the royalty-free, irrevocable, perpetual, exclusive and fully sub-licensable license to use, reproduce, modify, adapt, publish, translate, create derivative works from, distribute, perform and display such content in whole or in part, world-wide and to incorporate it in other works, in any form, media or technology now known or later developed.

    9. These terms and your posts and contributions shall be governed and interpreted in accordance with the laws of Switzerland (without giving effect to conflict of laws principles thereof) and any dispute exclusively settled by the Courts of the Canton of Geneva.

     

     
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