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Study on the Interplay between Standards and Intellectual Property Rights (IPR)

The study on the Interplay between Standards and Intellectual Property Rights (IPRs) pdf - 3 MB [3 MB] was commissioned by DG Enterprise & Industry. This study was produced by the Fraunhofer Institute for Communication System and Dialogic in collaboration with the School of Innovation Sciences at Eindhoven University of Technology.

This study was aimed at providing a sound factual basis for possible policy development in the area of European standardisation and innovation policy.

The final report pdf - 3 MB [3 MB]   of the study was delivered to the European Commission services in April 2011.

Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the information in relation to the aforementioned study. The views in relation to this study are those of the authors and do not necessarily reflect the policies of the European Commission.

Executive Summary

Intellectual property rights (IPRs) in standards have proven to be an intensively debated issue in industry bodies, in standard setting organisations (SSOs), in academic circles, and - increasingly - in court. While both standards and patents aim to promote innovation and market place adoption, there is little else that they have in common. Patents in standardised technology are one of the many issues that market players have to address during the development and implementation of standards. The phenomenon of patents in standards occurs in those areas where standards relate to innovative and therefore often patented technologies, e.g. in the information and communication technology (ICT) which is regarded as being crucial for the development and success in more and more industry and service sectors.

Based on this background the European Commission announced in the Communication COM(2008) 133 "Towards an increased contribution from standardisation to innovation” supported by Council Conclusions to “launch a fact-finding study to analyse the interplay of IPR and standards.” Consequently, the study has to produce an up to date and quantitative picture of the interplay between IPRs and standards. Starting from a literature survey, this study implemented a multidimensional approach based on an analysis of IPR databases of important international and European SSOs and consortia, interviews with various stakeholders located all over the world, and an international survey among standards producing and standards implementing companies. In addition, we investigated the IPR policies of more than 20 SSOs and reviewed case law, industry views and trends.

The analysis of the essential IPR databases of eleven of the most important SSOs revealed that approximately 250 distinct standards include technologies that are covered by one or more declared IPRs, and many of these standards are successful and widely employed. Since there are several hundred thousands of standards available worldwide, this is a quite selective group. By far, patents are the most relevant type of essential IPR. Copyrights and other types of IPR are virtually not claimed. We also observe that the distribution of patents in standards is very skewed, both in terms of standards and in terms of owners. In other words, a few standards cover a large number of patents while most standards include only a few patents, or no patents at all. And a relatively small group of companies own a large number of essential patents in standards, while most companies own only a few or none of these patents.  Most IPR owning companies are from the United States, Japan and Europe. We did also find essential patents among some small and medium sized enterprises (SMEs) including a number of Non-Producing Entities (NPEs). However, due to convergence of technologies and globalisation, more and more companies also in emerging economies, research organisations, and NPEs have entered the game. Surprisingly, we observe a slightly decreasing inclusion of patents in standards in contrast to perceived growing importance of patents. Most patents in standards relate to telecommunications standards and to standards for consumer electronics products. However, we also observe that patents in standards extend to other fields and sectors, such as transport, logistics, energy, and health. This extension seems to be driven by ICT-type enabling technologies, though, and less by ‘genuine’ IPR in those areas.

Owning essential patents is seen as important and often even crucial. Yet, it serves multiple, different purposes like securing freedom to operate and signalling own technological competencies besides generating licensing revenues. In the telecommunications and the consumer electronics market, implementers ensure access to essential IPRs is most often via cross-licensing and - to a lesser extent - via general licensing-in and patent pools. Surprisingly, we learned that many smaller firms simply do not have formal license agreements at all because for many IPR owners the costs and resources to negotiate such a license are not justified by the income. In the IT field, firms that hold IPR often reciprocally and sometimes unilaterally agree not to assert them. In general, it is difficult to assess the value of essential patents, or the exact licensing terms (including fees).

The broad perception in the market is that while royalty-free regimes may facilitate the standardization process and the implementation of standards, Fair Reasonable and Non-Discriminatory (FRAND) licensing regimes provide IPR owners with stronger incentives to invest in research and development, to patent, and to contribute to standardisation.

Despite the variety of IPR policies of SSOs, IPR owners perceive no significant impact of the heterogeneous framework conditions. Overall, companies expect SSOs to improve transparency related to essential IPRs and take care of possible problems with the implementation of standards already in the standardisation process on a voluntary and member driven basis, rather than to reform or extend their activities regarding IPRs in general.

Disputes about IPRs in standards have been an exception in the past, but can be expected to increase due to more players, transfers of IPRs and heterogeneous IPR regimes. However, these disputes are often privately settled between the parties. Nevertheless, the publication and cataloguing of European and foreign case law on intellectual property and competition policy rulings related to standardization should be considered.

Regulatory solutions such as imposing mandatory ex-ante disclosure of licensing condition are not broadly supported. Allowing and promoting voluntary ex-ante disclosure of licensing terms is favoured by some, but particularly in the telecommunications sector, stakeholders are very pessimistic that such a mechanism would eventually work. There is a consensus, however, that patent offices should further improve patent quality, in order to reduce the problems related to IPRs in standardisation. Legal uncertainty in cases of transfer of IPRs subject to a FRAND licensing commitment are becoming increasingly problematic and need to be further addressed by SSOs.

Our findings suggest that the globalisation of actors and the convergence of technologies call for a global perspective on the interplay between IPRs and standardisation. The policies of the European Union should continue to promote voluntary, market-led standardisation, whereas IPR policies should be set by the SSOs themselves. Competition policy guidelines should provide safe harbours for SSOs’ IPR policies, while supporting flexible and different approaches and business models  – provided these do not result in anti-competitive behaviours.

SSOs should be encouraged in their efforts to further consider:

  • clear and binding IPR policies including irrevocable and worldwide licensing commitments;
  • legal certainty in case of the transfer of essential patents to third parties;
  • reasonable incentives for good faith IPR inquiries and disclosure;
  • transparent, complete and accessible IPR databases;
  • cooperation with patent offices on identifying prior art.

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