Understanding standard essential patents

10/24/2012 12:52 PM EDT

These days, there are so many lawsuits being pitted between companies in the race to dominate the mobile computing and communications market that it is difficult to keep up with everything. One thing that has been a troubling area involves standard-essential patents. What is a standard-essential patent? Basically it is a patent that is necessary in order to implement an industry standard. Most standards organizations will require committee members to disclose any known patents that relate to the work of that committee and must agree to license those patents on fair and reasonable terms to anyone. This is often referred to as Fair, Reasonable and Non-Discriminatory (FRAND) licensing. They cannot license them to some and not to others. Most companies will agree to this when they offer technology to a standards organization in order to get their technology adopted and to give them both a potential jump on the market and a royalty stream down the road.

As an example, Qualcomm holds many essential patents for the technology behind CDMA, but that would not have been adopted by other phone makers if it had not been a standard. Thus in order to get more widespread adoption, Qualcomm makes a number of essential patents available so that the standard can be implemented. Now that does not mean that they make all their patents, particularly ones about their implementation, available. It also does not mean that Qualcomm is the only company with standard-essential patents that relate to CDMA. It can get quite complicated and determining how important and valuable each patent is can be very tricky.

You may remember the huge prices that were being paid for patent portfolios a little while back, with Apple and Microsoft paying out $4.5M for the Nortel patents and Google paying $12.5M for the Motorola Mobility patents. Many of those patents were standard-essential patents and both parties agreed, to varying extents, that they would not deny anyone reasonable licensing terms. However, it appears as if many of these were not defined in an open and equitable way.

However, the Federal Trade Commission is getting worried and is running various investigations to see if certain companies are not playing by the rules. It would appear that they have received complaints that certain companies are receiving licenses and other refused. We shall have to wait and see how this evolves.

Steve Schulz talked about this very issue within the EDA industry a few weeks back in “Collaborative Advantage: How Apple-Samsung will impact standards development”.