Jay Jurata, David Smith, Oct 15, 2013
A technology company is on the verge of introducing a cutting-edge device that builds on a widely adopted industry standard. To do so, it must use patented technology that is technically essential to the standard. The patent owner, despite committing to license its standard-essential patents on fair, reasonable, and non-discriminatory terms to all potential licensees, makes an extreme royalty demand. When the company refuses this offer, the patent owner threatens to seek an injunction in court. The potential licensee is at a crossroads-should it infringe the SEP and risk its product being excluded from further sale, or agree to pay what it believes is an excessive royalty and attempt to pass on the cost to its customers?
In recent years, competition agencies, courts, and scholars have become increasingly alarmed over exactly this scenario. These concerns have been prompted by the ability of SEP owners, using the market power conferred upon them as a result of the standard-setting process and “lock in” nature of SEPs, to distort competition for downstream products implementing that standard.
Although industry standards carry great benefits (consider WiFi, Bluetooth, or HDTV), they also pose risks. Companies owning SEPs might refuse to license them to competitors, or demand exorbitant or otherwise unreasonable license terms. This is known as “patent hold-up.”
To prevent hold-up and encourage widespread adoption of the standard, stand…