Summary

The current SEP licensing landscape furthers the interests of a few large international SEP holders, while creating disproportionate barriers to the innovation ambitions of small businesses in the United Kingdom (UK).  New survey data and UK High Court findings have demonstrated the urgent need for action to protect the interests of small UK businesses seeking to innovate IoT technologies. The IoT ecosystem is expected to generate €12.5 billion for the global economy by 2030, with much of this innovation coming from small businesses. The licensing of SEPs is a crucial step in developing new IoT technologies, however a lack of regulation means that small businesses are being denied access to SEPs on fair, reasonable and non-discriminatory (FRAND) terms.

Why standards and standard-essential patents (SEPs) matter

Click here to hear directly from ACT | The App Association members about why standards and SEPs matter to them.

The IoT ecosystem has been a technological revolution and is expected to generate €12.5 billion for the global economy by 2030 among businesses across all sectors. Companies across all sectors are racing to add connectivity to their products and SMEs are driving much of this innovation. Technology standards are the foundations upon which much of this IoT innovation is built. Standards enable seamless connectivity and interoperability between different devices. For example, Wi-Fi is the technology standard that allows your smartphone to connect to any Wi-Fi network worldwide.

Technology standards like 4G, 5G, Wi-Fi, and others rely on the contribution of several innovations (e.g. hardware, chips, ports, and code), many of which are patented. These patented technologies declared necessary to a technology standard are called SEPs. In declaring their patent as ‘essential’, patent holders make their patent available to a larger market, basically trading their patent’s exclusivity for a higher volume of uptake and committing to license on FRAND terms to ensure a fair return on investment. Put simply, businesses can’t use a standard like 5G without licensing the necessary SEPs. Therefore, SEP licensing is an essential part of developing IoT-connected products.

The problem is that SEP holders do not always license on truly FRAND terms as recent evidence from the UK proves.  In fact, companies using SEPs can be subject to unexpected lump sum costs, inflated fees, legal headaches, and even injunctions barring their product from sale. Any one of these is potentially fatal for a small business.

The only real opportunity for an SME to challenge a non-FRAND SEP licence offer is via the courts, if indeed they can access information to determine if the rate is fair in the first place. This is an impossible situation for SMEs, who lack the expertise or resources for expensive lawyers and court cases.

Recent activity in the UK has provided proof that SMEs are being treated unfairly

Two recent high profile court cases in the UK show that SMEs are being treated unfairly. In both InterDigital v. Lenovoand Apple v. Optis, SMEs were found to be routinely overcharged for accessing SEPs as a means to artificially inflate the market rate of the SEP.

In July 2023, the UK Intellectual Property Office (IPO) published its findings from a dedicated SME survey about SEPs. The results demonstrate that SEP licensing is an important issue for UK small and medium-sized enterprises (SMEs).

Eighty-three per cent of survey respondents felt they were not offered licences under FRAND terms. One hundred per cent feared court-imposed injunctions and 83 per cent said they do not have sufficient information on pricing of SEPs. This lack of information and threat of injunction is especially problematic for SMEs who face the choice to pay the inflated rate or risk expensive legal headaches which they are unequipped to challenge.

Change is needed

UK policymakers can act to protect the interests of innovative SMEs by introducing legislation that creates transparency and fairness in SEP licensing. Other countries are already acting, with the European Union proposing action to protect the interests of SMEs in SEP licensing negotiations and the USA looking closely at the problem.

Small, innovative companies create jobs and contribute to local economies across the UK. These companies are the key to levelling up ambitions and in reaching the goal for the UK to be a science and technology superpower. App Association members are developing IoT technologies across manufacturing, healthcare, security, sustainability, and transport. They must be free to create new connected products without the fear of unfairly high costs or future injunctions, as created by the current SEP licensing landscape. UK policymakers must act to protect small businesses and maintain its competitive advantage as a home for innovative startups and small businesses.

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