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  • Marta Beckwith

We Sell Tomatoes - SEP Licensing's Impact on SMEs

I will never forget what a friend (who at the time was working for a grocery store chain) said to me a while back because it was such a sad indictment of our current SEP licensing system: “We sell tomatoes and we have seven patent cases.” Nearly all of those patent cases involved SEPs (or alleged SEPs).  Standards, particularly communications standards, are easy assertion targets:  a patent holder need only do one analysis (against the standard) and then simply determine whether a business is using that standard.  Unfortunately, that means that my friend’s company is not unique. 


SEP infringement lawsuits against SMEs have been happening for over a decade.  For example, almost 15 years ago, a non-practicing entity which named itself Innovatio acquired a small portfolio of 802.11 SEPs.  Innovatio sent out over a fourteen hundred licensing inquiries to mom-and-pop stores and small businesses that were using WiFi or offering it (usually free) to their customers.  Many of these companies paid the amount requested because they did not have the resources to challenge the patents and they had no experience in how to deal with these type of licensing inquiries.  Eventually, a number of WiFi equipment makers stepped up and sued Innovatio for a declaratory judgement which resulted in Judge Holderman’s seminal decision about how to value SEP patents.[1] 


Cases against SMEs have continued since those days. Not too long ago, Unified Patents analyzed all United States patent lawsuits and concluded that “SMEs are a regular NPE target.”[2] Their Q1 2020 Patent Dispute Report established that SMEs represent 32% of the Q1 2020 patent defendants. 


And SMEs themselves have come forward to discuss what they are facing.  Nearly half of the SME respondents in a recent poll done by the U.K government have been involved in SEP licensing negotiations.[3]  Nearly a third of the those who participated in an EU survey reported that the current SEP licensing system had a negative impact.[4] I also have seen SEP licenses taken by SMEs and licensing assertions made against SMEs that have not become public – not because the SMEs want them to be confidential but because SEP licensors nearly uniformly require confidentiality before they will agree to enter into FRAND negotiations.[5]


A number of commentators have entirely discounted all of this evidence, and what the SMEs have to say about their own experiences, claiming that “SEP licensing is not a pressing problem for SMEs.” Some commentators have gone so far as to call what SMEs are saying “Fake News” and have alleged some vast conspiracy.[6] Other entities, typically large licensors, have objected to the EU’s SEP Proposal on the basis that there is simply not enough evidence of the impact of SEP licensing on SMEs to support the Proposal.[7]


But here’s the thing.  Many of those objectors are net licensors.  They already have information about the impact of, at least, their own licensing program on SMEs and other companies.  One assumes that if that information supported their position, they would be racing to provide it.  Yet, to date, they have been singularly unwilling to publicly share their licenses or provide evidence of the extent of their licensing and litigation activities against SMEs. 


Instead, they point to a lack of the very evidence that they themselves are hiding as grounds to reject the Proposal that would help collect and disseminate this information.[8]  To the extent that public evidence about the impact of SEP licensing on SMEs is scant, or the sample size of SMEs coming forward is small, the right thing to do if one truly wants transparency is to gather more evidence and more information.  It makes no sense to claim the evidence is fake, or insufficient, and then to oppose the very proposal intended to gather truthful and accurate information. One can only conclude that these large licensors (and commentators) are objecting to the Proposal because they already know what the information will show, and they do not want it to come to light. 

 

[5]          Every SEP licensing negotiation with which I have been involved has started with the licensor requiring the perspective licensee to enter into an NDA before the licensor will share information or negotiate a FRAND license.  And, as other commentators have noted, even after the potential licensee has signed an NDA, the licensor usually will not share its other licenses, leaving the licensee to play “a guessing game.”  See Europe’s Standard Essential Patents system lacks transparency, says former judge – Euractiv

[8]          I know a number of licensees that have agreed to public production of their SEP licenses despite a confidentiality provision.  But I have rarely seen a SEP licensor also agree to make those licenses public.

 

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