Opinions expressed in this article are solely the authors’ personal opinions and do not express the views or opinions of their employer. 

In the modern landscape of technology and innovation, SEPs play a pivotal pole in incentivising and sharing innovation. In an ideal world, effective SEP licensing negotiations among experienced and professional licensing executives help to achieve that goal. However, the reality is unfortunately much more complicated than that. 

This is a rapidly developing field due to constant policy changes and court decisions, which comes under harsh scrutiny in high-profile litigation. 

As an insider and daily practitioner in this area, we intend to share some of our observations and perspectives based on our experience. While there is no one-size-fits-all solution for patent licensing disputes, a common practice involving three distinct stages – initial engagement, technical evaluation and commercial discussion – is widely utilised. We will therefore dissect each of these stages in three separate articles.

Contextual background

SEPs are patents that are essential to comply with technical standards. To address the potential risk of hold up and impediments to the adoption of the standard, the standard-setting organisation requires the patent holder to give a FRAND declaration, with the ultimate goal being to establish a FRAND licensing agreement. 

This serves to protect the interests of both parties; it ensures that patent holders are compensated for their innovations while also allowing implementers access to crucial technologies.

In our opinion, with the goal of increasing standards adoption and improving consumer welfare, a balanced and sustainable IP ecosystem that prioritises the consumer is indispensable (see “Industry perspective: considering the consumer in SEP/FRAND negotiations”).

Initial engagement

The initial engagement phase marks the beginning of the negotiation process and is the point in which both parties set the stage for a fruitful discussion. As this phase is foundational, understanding its dynamics can greatly influence the subsequent technical and commercial negotiations. 

The initial engagement phase typically unfolds in three main steps, each of which carries significant implications for how the negotiation will progress:

  • issuance of an infringement notice by the patent holder;
  • response to the infringement notice by the implementer; and 
  • possible signing of a non-disclosure agreement (NDA). 

Issuance of an infringement notice

The entire process often begins when a patent holder identifies a product or service that allegedly infringes its SEP rights. At this point, the SEP holder will send a formal infringement notice to the alleged infringer. This document is pivotal as it outlines specific details concerning the patents and products in question.

The issuance of infringement notice is also considered the first of four steps in many SEP licensing negotiation frameworks regulated or suggested by court rulings or government guidelines. For example, the EU Court of Justice’s decision in Huawei v ZTE, China’s Supreme People’s Court ACT v Oppo judgment and various patent agencies’ SEP guidelines set out a sequence of four interactive procedural steps that are common in skeleton but contain different nuances. The four steps generally include:

  • the SEP holder informing the implementer of infringement in writing;
  • the implementer expressing willingness to take a licence;
  • the patent holder sending a FRAND offer; and 
  • in cases where it does not accept this offer, the implementer proposing a FRAND counteroffer.

In addition, the Huawei v ZTE framework requires SEP holders to send a notice of infringement that:

  • expressly complains of patent infringement;
  • names the patents concerned with their numbers; and
  • specifies the manner of infringement. 

Although the details of how to specify the manner of infringement were not clarified in Huawei v ZTE, many patent holders are willing to provide comprehensive claim charts in practice, which facilitate the understanding of the patent value and help to accelerate the negotiation process. Further, in some jurisdictions, court decisions and guidelines explicitly require the provision of claim charts. For example, ACT v Oppo considered the refusal to disclose necessary patent information (eg, claim charts of exemplary SEPs) to be the fault of the patent holders. 

In the SEP context, which, by nature, has a high degree of technical complexity, substantial claim charts are crucial to facilitate discussions since they are direct evidence to prove the value of a patent portfolio. In practice, we have also observed that patent holders that are more confident about the value of their portfolios are willing to provide a much higher number of claim charts than others.

Response and willingness to negotiate

Upon receiving an infringement notice, implementers are expected to respond within a reasonable timeframe. This response typically indicates their willingness to take a licence on FRAND terms.

Whether or not the willingness declaration must be unconditional is subject to dispute. In its amicus curiae brief in VoiceAge EVS v HMD, the European Commission highlighted that for HMD’s declaration of willingness to conclude licence agreements on FRAND terms for all of VoiceAge EVS’s patents – which were essential to the standard in question, actually used by HMD and were effective and enforceable – two German regional courts arrived at different conclusions. The Mannheim Regional Court concluded that a reservation of these rights does not mean that the patent user does not sufficiently express its willingness to license on FRAND terms. The European Commission appeared to side with the Mannheim Regional Court in this regard. It explained in detail:

…the Huawei judgment shows that although the patent user must declare its willingness to conclude a licence on FRAND terms, it does not lose its right to challenge the essentiality of the patent for the standard and its effectiveness… a patent user can therefore not be considered a “unwilling to licence” if it expresses an intention to challenge the patents in question as invalid or non-essential to the standard or it reserves this right. The assessment of the patent user’s response under step 2 of the Huawei framework must not be so strict as to deprive the patent user of its right to review the validity and essentiality of the SEP holder’s patents.

Signing an NDA 

Once both parties establish a willingness to negotiate, they often proceed to sign an NDA. While it could be observed in the industry that patent licensing negotiations can be conducted without one, NDAs are generally signed for multiple reasons, for example: 

  • NDAs foster an environment of trust and open discussion, allowing both parties to share potentially sensitive business information without fear of it being disclosed; and
  • they protect the confidentiality of the negotiation process itself. 

Typically, the NDA will outline the obligations that each party has concerning the information exchanged during negotiation. 

Signing this agreement is important as information concerning business strategies and product sales are at stake. By ensuring confidentiality, NDAs encourage more open dialogue about the technologies involved and financial terms, which are essential for reaching a mutually beneficial agreement. However, whether certain technical information (eg, claim charts) should be included in the scope of the NDA is still up for debate. Such technical information is not business sensitive information, but more transparency will help the discussion between the involved parties and benefit the industry at large. 

As the legal nature of an NDA is contract, some patent holders want to impose additional obligations on implementers not to initiate any invalidation proceedings during the licence term. The general goal of an NDA should ensure that neither party in a patent licensing negotiation is made worse off for engaging in a discussion that is aimed at reaching a business solution. In our view, it is unjust and unfair if one party must waive its legal rights in the context of an NDA. Implementers should retain access to their legal rights at all times. The same applies to implementers that require patent holders not to initiate any patent lawsuit during the term. Ultimately, it is up to each party to independently decide whether to accept or reject these additional obligations and ensure that the overall interests remain balanced. 

Risky behaviour to avoid

In the SEP realm, courts consider certain behaviours to be faulty, which consequently increases the risk to both sides , even though the faulty party might negotiate the licence in a target-oriented manner. 

ACT v Oppo indicates that during the initial engagement stage – as well as in the subsequent stages – patent holders should avoid:

  • directly filing a lawsuit to request a royalty determination without issuing a written infringement notice to the implementer; and
  • repeatedly threatening or directly taking action to file an infringement suit.

Meanwhile, implementers should:

  • respond within a reasonable time after receiving the written infringement notice; and 
  • avoid delaying or interrupting the negotiation without a justifiable reason.

Key takeaways

The initial engagement phase is a critical starting point in the complex journey of SEP licensing negotiations. By fostering a spirit of cooperation, maintaining open lines of communication and complying with government guidelines and court rulings, patent holders and implementers can navigate this phase more effectively.

As we delve into the next instalments of this three-part series, we will explore the technical evaluation that follows this first phase, analysing how both parties can deal with the intricacies of technology assessments and financial considerations to reach a mutually beneficial agreement. Understanding these stages holistically will enhance appreciation of the nuances involved in SEP licensing and the ultimate goal of fostering innovation while ensuring fair access to essential technologies.



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