Supreme Court points the way for licensing telecoms patents in the automotive sector – our top tips to license SEPs

Terence Broderick

Supreme Court points the way for licensing telecoms patents in the automotive sector our top tips to license SE Ps

One of the most important decisions in the patent space for many years has just been handed down, as the long running and high-profile Unwired Planet vs Huawei and Conversant v Huawei and ZTE case draws to a close. Here, our automotive and SEP expert Terence Broderick explains the outcome and why the decision is so instructive for the automotive sector.

Telecoms and automotive — a connected future

The development of connected car infrastructure means that telecommunications technology is now becoming an important part of vehicles and their surrounding infrastructure. We’ve delved into this topic before, when we set out the next steps that automotive innovators and implementers should take to best protect their commercial positions.

Communication technologies have long been subject to complex standardisation processes, which the automotive industry now finds itself having to deal with. Among these are licensing and commercial issues relating to patents covering standardised technologies — so-called standard-essential patents (SEPs).

Being able to navigate the SEP landscape, and understanding the associated legal framework, will be critical to the ability of automotive manufacturers to innovate in this technology space.

The recent decision of the UK Supreme Court in the long running battle in Unwired Planet vs Huawei and Conversant v Huawei and ZTE was handed down on 26 August 2020. It settles some of the issues around SEP licensing to enable access to telecommunications infrastructure, and should provide a more concrete legal basis to work from. The decision should assist the automotive sector as it moves toward a connected future, by providing greater certainty around the SEP licensing process.

What is a Standard Essential Patent (SEP)?

An SEP is a patent that has been declared as essential to the implementation of international standards for mobile telephony, in that it is impossible to make, sell or use telecommunications equipment (i.e. to connect an autonomous vehicle to connected vehicle infrastructure) without infringing that patent. SEPs are intended to be licensed on Fair, Reasonable and Non-Discriminatory (FRAND) terms.

The standards in question are those set by the European Telecommunications Standards Institute (ETSI) for 2G (GSM), 3G (UMTS) and 4G (LTE) technologies. The adoption of these standards is important as an enabler for international telecommunications — therefore, the licensing of SEPs is important to enable access to these technologies without fear of being dragged into expensive litigation (and while providing a fair reward to innovators).

Although the Unwired Planet vs Huawei and Conversant v Huawei and ZTE case didn’t relate explicitly to 5G technology, the substance of the decision is highly instructive as we move towards developing 5G infrastructure, where the licensing of 5G technology becomes important.

A single global licence

The automotive industry is global by nature. Its supply chains are international, convoluted and complex. It can’t accept a licensing environment where different licences for SEPs are needed for each border crossing and territory. In this respect, the Supreme Court has been helpful.

The decision dismissed the appeals of Huawei and ZTE and confirmed the Court of Appeal’s view that a single global licence can be FRAND and that negotiating a licence to an SEP for each territory would be prohibitively expensive and wholly impractical.

Therefore, if an implementer in the automotive sector wants to access technology protected by an international pool of patents (as telecommunications technology often is), there is now a legal basis to use a single global licence.

The decision also confirmed that an English Court has the power to grant an injunction in respect of a UK SEP unless the implementer enters a global licence of a multinational patent portfolio. It also confirmed that the Court has the power to determine the terms of that licence.

Be flexible and use your commercial leverage

Although SEPs are supposed to be licensed at FRAND terms, this is not an absolute rate. The decision confirms that there isn’t a single set of FRAND terms for any specific set of circumstances. It therefore isn’t mandatory for the owners of SEPs to grant licences on the same or similar terms as other licences in order for those terms to satisfy the ‘non-discriminatory’ element of the FRAND obligation.

Indeed, the decision held that to qualify as ‘non-discriminatory’, a single royalty price list should be available to all market participants and must be based on the market value of the patent portfolio, without adjustment for the characteristics of individual licensees. However, there is no requirement for owners of SEPs to grant licences on terms equivalent to the most favourable licence terms to all similarly situated licensees.

This means that it’s vital to be flexible with how much you’re willing to pay when you enter negotiations to licence an SEP. Just because you know that a competitor received a specific rate, you won’t be guaranteed the same price. Ultimately, your rate will be determined by your own commercial leverage (such as access to your patents).

Additionally, by adopting a more open approach when negotiating with the owner of an SEP, you may create other opportunities to work with the key innovators in the field. Collaboration in the automotive sector, particularly with companies in the telecoms space, is currently of huge importance, as developers of automotive technology seek to advance the delivery of data and content to their vehicles.

Balancing expectations vs risks

To access technology covered by an SEP, a licence must be taken under the patent. If a global licence has been offered on FRAND terms, you must accept those terms or face an injunction, preventing you from using that technology. This is particularly relevant when you consider the current approach to patent infringement in the UK, which has made it far more difficult to design around a patent without falling within its scope.

It’s therefore important to be realistic when negotiating the terms of an SEP licence, and to balance expectations against the risk of being blocked from implementing a certain technology.

Accept that some SEPs may be invalid

There are already thought to be more than 90,000 SEPs related to 5G technology (and even more related to 2G, 3G and 4G). It’s these portfolios which are being accessed when licensing pools of SEPs using the sort of licenses discussed in this case.

It’s highly likely when licencing large patent portfolios that some of them will be invalid, but it would be highly expensive to determine which. The royalty rates expected by owners of SEPs often include an element of compensation for the risk that some of the patents will be invalid. Pushing hard in negotiations simply because you expect that some of the patents will be invalid, or even because you have identified one or two that are, will only delay your progress. Taking the dispute to court would be ill advised, and would likely add yet further expense, since it’s accepted (by the Lords in this decision and in the decisions of the lower courts) that some of the patents in such a large pool will likely be invalid.

Additionally, a licence to an SEP pool often goes way beyond the rights defined by the patents. Access to the know-how and confidential information can often be included in the rights provided by the licence and the benefit of such access can be key in effectively implementing the technology, particularly for the automotive industry, where these technologies are still new.

A huge decision

This decision is one of the biggest in recent history. While it will take a long time to digest, and the discussion around it will rumble on for a while yet, it does provide welcome instruction to those seeking to access telecommunications technology.

If you’re developing technology in the automotive space and might need to access technology related to telecoms infrastructure, get in touch with us.