Global Standard Essential patents (SEP) licensing negotiations are continuing to be transformed, and the Japan Patent Office’s / JPO’S 2nd Edition of its Guide To SEP Licensing Negotiations has been published.
As in the 1st Edition, published in June 2018, the JPO states that the “Guide aims to enhance transparency and predictability, facilitate negotiations between rights holders and implementers (patent users), and help prevent or quickly resolve disputes concerning SEPs.”
The reasons stated by the JPO for the 2022 update are shorter product life cycles, an increasing number of technology patents, and the greater difficulty for companies to assess and consider all relevant SEPs for their products before commercialization.
Key source materials for this article can be found here, at the JPO SEP Portal Site. Here, you can download The Guide To Licensing Negotiations Involving Standard Essential Patents, 2nd Edition. We also refer to SEP publications from Japan’s Ministry of Economy, Trade and Industry (METI).
Kimura & Partners writes regularly on notable updates to Japanese IP law. Our focus is on Patent and Copyright law of relevance to the global SME market seeking strong IP protection in Japan. We also have a long history of supporting Japanese SMEs in Japan, and globally, using our unique approach to client relationships and “fighting on the IP Battlefield”.
In May 2022, Kimura wrote about the JPO’s hosting the JPO Standard Essential Patents (SEP) Symposium on May 19, 2022 – “Latest Global Trends and the Frontier of Discussion”. That article is found here. At the symposium, the JO wrote that: “IoT multiplies SEP applications, implementers are increasingly SMEs.”, and “All potential actions should be to the benefit of all stakeholders, especially start-ups and SMEs.” We took immediate interest.
Background to the JPO’s SEP Licensing update.
What are SEPs? The EU definition is “A patent that protects technology essential to a standard is called a standard-essential patent (SEP). Patent-holders commit to license their SEPs to users of the standard on fair, reasonable and non-discriminatory terms and conditions.” Another definition is “A standard essential patent (SEP) is a patent which can be properly mapped onto a mandatory industry standard, such that a product which conforms to that standard infringes the patent.”
The JPO notes the fundamental challenge regarding SEP licensing that is occurring in the marketplace as below:
While a patent granting exclusive rights to a technology as compensation for disclosing an invention and a standard designed to spread a technology as widely as possible both help to promote innovation, the seeming contradiction between them also often gives rise to tension. That tension first became evident in the 1990s when telecommunications technologies started shifting to digital formats, accompanied by a trend toward standardizing the latest technologies even while protecting them with patents, resulting in SEP disputes.
The JPO Highlights the challenges in SEP licensing negotiations in the Information and Communication Technology (“ICT”) field. Such negotiations are increasingly happening between ICT companies and firms in other industries, unlike earlier when such negotiations were largely among the big ICT players. Disputes are becoming harder to resolve with cross-licensing, and divergent positions on licensing rates are furthering the difficulty and conflict in negotiations.
The July 2022 revision to the Guide takes into account recent court decisions and the latest trends in various countries, as well as the opinions received from Japan and other countries through public consultations.
The JPO states that:
“With SEP licensing negotiations continuing to become transformed, the JPO plans to review and revise this guide as appropriate. In doing so, it will strive to maintain an open and transparent process so that the guide will continue to evolve as a “living” document.”
Japan’s Ministry of Economy, Trade and Industry (METI) also weighs in on SEPs as they impact Japan.
Not surprisingly, METI has for some time, focussed on SEP such as in its “Good Faith Negotiation Guidelines for Standard Essential Patent Licenses.”
Published March 2022 METI comments highlight the critical economic and business implications of SEPs, from a Japanese perspective. An abridged subset of those comments follows:
“In recent years, disputes have arisen worldwide on licensing Standard Essential Patents (SEPs) due to the widespread use of standards and the complication of technologies required for such standards. In particular, as the Fourth Industrial Revolution progresses in which many products will be computerized and processing data will create new added-value, SEP licensing among different industries, especially those in which Japan has strengths (e.g., automobiles, construction machinery and factories), is expected to expand in the future. Therefore, it is crucial for Japan to consider measures to resolve such disputes efficiently.”
The Competition Enhancement Office and the Intellectual Property Policy Office of Ministry of Economy, Trade and Industry (METI) held the “Study Group on Licensing Environment of Standard Essential Patents”. The Study Group, comprised of representatives from industry and experts on intellectual property and competition law, has discussed the measures preferable for Japan.
Considering problems faced by SEP holders and implementers caused by low predictability and transparency due to the absence of clear rules on the SEP licensing negotiations as well as international trends, METI indicated that “the Japanese government will promptly consider and externally disseminate the rules on good faith negotiations that should be complied with by both SEP holders and implementers” in the interim report of the Study Group published in July 2021, so that good faith negotiations between the parties may encourage early settlements and avoidance of unnecessary disputes, leading to the development of Japanese industries.
Following this policy, METI asked domestic and foreign companies, etc., about their opinions on actions at each of the main steps of SEP licensing negotiations, and METI also asked for opinions on the same contents on the website. The Study Group discussed good faith negotiations with reference to these opinions. METI then established the “Good Faith Negotiation Guidelines for Standard Essential Patent Licenses” (hereinafter referred to as “the Guidelines”), considering the results of the discussions. METI also published a report that indicates the process of discussions to establish the Guidelines in the Study Group.
2022 Revised Guide Contents.
JPO’S 2nd Edition of its Guide To SEP Licensing Negotiations. Again, the PDF of the actual guide is here. The following is the Table Of Contents, simply to share with readers its scope, and to allow them to determine if there are helpful materials there for them.
TABLE OF CONTENTS
- Purpose of the Guide………………………………………………………………………………….1
- A. SEP Issues and Background…………………………………………………………………..1
- B. Nature of this Guide ……………………………………………………………………………..4
II. Licensing Negotiation Methods ………………………………………………………………….8
A. Good Faith…………………………………………………………………………………………..8
1. Step 1: Licensing Negotiation Offer from Rights Holder ………………………11
2. Step 2: Expression from Implementer of Willingness to Obtain a License……..15
3. Step 3: Specific Offer from Rights Holder on FRAND Terms……………….19
4. Step 4: Specific Counteroffer from Implementer on FRAND Terms ……21
5. Step 5: Rejection by Rights Holder of Counteroffer/Settlement of
Disputes in Courts or through ADR ……………………………………………………23
B. Efficiency………………………………………………………………………………………….27
1. Notification of a Timeframe …………………………………………………………….28
2. Parties to Negotiation in Supply Chain………………………………………………29
3. Protecting Confidential Information ………………………………………………….35
4. Choice of Patents Subject to Negotiation …………………………………………..37
5. Geographic Scope of Licensing Agreement ……………………………………….38
6. Patent Pool Licensing………………………………………………………………………41
7. Greater Transparency of SEPs ………………………………………………………….42
III. Royalty Calculation Methods………………………………………………………………….43
A. Reasonable Royalties ………………………………………………………………………….43
1. Basic Approach………………………………………………………………………………..43
2. Royalty Base (Calculation Base)………………………………………………………..45
3. Royalty Rate ……………………………………………………………………………………49
- Bottom-Up Approach ……………………………………………………………………49
- (a) Comparable Licenses Held by the Same Patent Holder ………………..50
- (b) Comparable Licenses Held by Third Parties ……………………………….51
- (c) Patent Pools…………………………………………………………………………….51
b. Top-Down Approach …………………………………………………………………….52
i
4. Other Factors to Consider in Determining Rates ………………………………….53
- Number of Licensees that Agreed to the Royalty Rate ………………………53
- b. Scope of License…………………………………………………………………………..53
- c. Essentiality/Validity/Infringement of Patent…………………………………….53
- d. Value of Individual Patents ……………………………………………………………54
- e. Negotiating History ………………………………………………………………………54
B. Non-discriminatoryRoyalties………………………………………………………………55
- Concept of Non-Discrimination …………………………………………………………55
- 2. Royalties for Different Uses ………………………………………………………………56
C. Other…………………………………………………………………………………………………57
- Fixed Rate and Fixed Amount……………………………………………………………57
- 2. Lump-Sum Payment and Running Royalty Payments …………………………..57
- 3. Past Component and Future Component ……………………………………………..58
- 4. Volume Discounts and Cap (Paid-up) …………………………………………………58
