The end of the road for SSPPU and the license point argument?
With the rise of IoT and, in particular, the increased importance of vehicle connectivity, the last few years have seen an increase in arguments that the licence point and royalty basis for telecoms Standard Essential Patents ("SEP") should be at the component level.
However, in the last fortnight there have been two judgments , one from the US and one from Europe, that deal with this topic: FTC v Qualcomm [1] and Nokia v Daimler [2]. These judgments give guidance on how Courts in both the US and Europe will approach this question and, while some of the details are different, both are framed as claims of breach of antitrust law. In this article we discuss the findings of these judgments and consider to what extent they close the door to arguments that the SEP license point and royalty basis are beyond the discretion of the patent owner. With more cases to come, it remains to be seen whether other courts will follow the same path.
The development of chipset level arguments
In the 1980s, 1990s and early 2000s, when the 2G and first 3G standards were being developed, the companies involved in standardisation were generally the ones who also produced the mobile handsets. As a result, the companies that had large SEP portfolios were also the ones who were implementing the SEPs. Licensing of SEPs, therefore, tended to be cross licenses made between these manufacturers, which may have involved a balancing payment.
The smartphone revolution saw new phone manufacturers bringing products to market. These companies had different business models to the established players, often buying in components rather than developing and manufacturing their own. Also, as these companies had no historic involvement in standardisation, they did not (at least initially) have significant SEP portfolios. Therefore, these new entrants had little or nothing to offer in the way of a cross license to offset against the effective royalty rate, meaning any SEP license would be a one way license with a higher cash payment. In an effort to reduce these payments, the new entrants made two arguments:
- SEPs are practiced in the chipsets that they buy in, not the end user product that they produce. Therefore SEP owners should license at the level of the chipset manufacturer, rather than the smartphone manufacturer; and
- In light of 1), any royalty should be calculated based…
