Clark Hill 2023 Automotive & Manufacturing Industry Outlook: Intellectual Property
The Impact of SEPs on EV Design and Development
Historically, issues with Standard-Essential Patents (“SEPs”) involved the information technology industries and did not heavily impact the automotive industry. That is changing. Quickly. Today’s automobiles increasingly are, and certainly tomorrow’s will be, internet-connected computers with motors. Everything from electrical charging connections to how the EVs must read and understand road signs, to connecting and interacting with other EVs and passenger devices, etc., will likely become standardized. See, for example, https://ipwatchdog.com/2021/09/27/role-standard-essential-patents-auto-industry/id=138080/ (Figure 1: Connectivity standards implemented in vehicles) (providing good examples and graphics of some of the many aspects of EVs that will require standardization). That means that SEPs — that have applied almost uniquely to the IT and network communications industries — will now apply to the automotive industry. EV innovators and implementers must understand that they will soon, if they have not yet, be confronted with SEPs.
An SEP is a patent that includes at least one patent claim that covers an adopted industry standard, such that the implementation of that industry standard necessarily infringes that SEP. In practical terms, this means that if your product implements an industry standard or the product performs an industry standard by its intended use, it necessarily infringes the claim(s) of the SEP. SEPs became ubiquitous with the internet, cell phone and IT revolution over the last 20 or so years. Now that the Electrical Vehicle (“EV”) market is transforming into an Internet-of-Things (IoT) market, SEPs are relevant to development of EVs. Additional background of SEPs and Automobiles can be found here. This article offers some insight and tips vis-a-vis SEPs as the EV space continues to develop and mature.
Brief Background of SEPs
Standard-Setting Organizations (“SSOs”), such as ETSI (European Technical Standards Institute), ANSI (American National Standards Institute), 5GAA (5G Automotive Association), and IEEE (Institute of Electrical and Electronics Engineers) comprise industry insiders who collectively create and agree upon standards that allow products to interact and function together seamlessly worldwide. Such standards have allowed the Internet, and entire industries, to thrive. An owner of a patent that includes a claim that covers a part of the industry standard can dedicate that patent (the SEP) to the standard as an “essential patent” to the industry, by executing a Declaration that its SEP will be licensed to the entire industry at a fair, reasonable, and non-discriminatory (“FRAND”) rate. The Declaration is a contract between the SSO and the SEP owner and makes a third-party beneficiary of any third party that implements the standard. Such a symbiotic relationship was thought to be mutually beneficial – the industry receives the benefit of important and necessary patents/technology, and the SEP owner(s) are promised a FRAND royalty. However, it does not always work out as planned.
Occasionally, standards implementers (companies that sell products that implement the standard(s)), will refuse to pay a royalty (referred to as “holding out”), requiring the SEP owner to sue for infringement, thus undermining the incentive to the SEP owner for dedicating its SEP to the standard. Sometimes, it is the SEP owner who refuses to agree to the FRAND rate or demands a royalty rate that the implementer asserts are not a FRAND rate (referred to as “holding up”), thus potentially holding an entire industry hostage to its non-FRAND royalty demands. These disputes, between holdouts and hold-ups, occur more often than expected, thus upending the bargain that SSOs and SEP owners thought they had struck.
U.S. Department of Justice (“DOJ”) Weighs In
In general terms, the greatest value of a U.S. Patent is its right to exclude, which allows the owner to obtain a nationwide injunction. That injunction power means that an SEP could, potentially, allow a single owner of a single patent to enjoin operation of an entire industry standard nationwide. Because of the potential ramifications of that, the DOJ has weighed in on the ability of SEP owners to obtain injunctions. Yet, the DOJ policy on that subject has varied, based on politics. In 2013, under a Democratic administration, the DOJ issued a policy statement asserting that injunctions should generally not be allowed as a remedy for dedicated SEPs. See https://www.justice.gov/atr/page/file/1118381/download, at p. 9. Then, in 2019, under a Republican administration, the DOJ issued a new policy, stating that injunctions generally should be allowed for infringement of an SEP. See https://www.justice.gov/atr/page/file/1228016/download. Then, on December 6, 2021, the Democratic administration issued a DRAFT policy statement, stating that application of “the eBay factors generally militate against an injunction” for infringement of an SEP dedicated by the owner. See https://www.justice.gov/atr/page/file/1453471/download, at p. 9. Not long after, on June 8, 2022, the same Democratic administration officially withdrew that “Draft policy,” expressly stated that it is not reinstating the prior 2013 policy and stated that whether or not an SEP owner should be able to obtain an injunction as a remedy for infringement is too complicated for a single blanket policy and should be decided case-by-case. See https://www.uspto.gov/sites/default/files/documents/SEP2019-Withdrawal.pdf, at p.2. The U.S. Patent and Trademark Office provides a summary of all of this here. It is complicated.
Tips and suggestions:
Since most of the growth in the automotive industry is in EV technology and infrastructure, EV-related companies should start to develop policies to deal with that now. Here are a few suggestions:
- Consider joining and becoming involved in the SSOs that are relevant to EVs and/or to your involvement with EVs;
- Consider monitoring the draft standards published by EV SSOs, and act accordingly;
- Consider draft patents with the goal toward contributing to the developing standard(s) that affect you;
- Consider including in any standard SEP Declaration a requirement/agreement that the party (the hold-up or hold-out) who act unreasonably vis-à-vis the FRAND rate and licensing negotiations pay all attorney’s fees incurred by the wronged party in any litigation; and/or
- Consider working with applicable SSOs to set a suggested FRAND rate in its official policy made an express part of the dedication Declaration, which considers all SEPs dedicated to the standard and allows each SEP owner to opt in or out.
Helpful SSO links:
The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.
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