SEP: Navigating the Technology-Driven World

Standard-Essential Patents (“SEP” or “SEPs”) are the concept arising from the interaction between patent rights, which provide exclusive use of an invention and “standards” aimed at the widespread and mandatory use of this innovation in the relevant market. Considering the upward trend in the number of patent litigation arising from SEPs, it would be fair to say that SEP has become the new buzzword of patent law.

Licensing SEPs: FRAND Terms

Standard Developing Organizations (“SDOs”) determine the technical specifications and standards, including a set of technical specifications in the relevant industry and aim to make such standards accessible to all players in the industry. In this sense, SDOs typically publish their policies regarding intellectual property rights as part of their governing rules.

Among the said policies of SDOs regarding intellectual property rights is the identification by the SDO members of their patents that may be essential to the SDO’s standards. When a member identifies a potential SEP, it is also asked to declare whether it will agree to license the patent on FRAND (Fair, Reasonable, Non-Discriminatory) terms and conditions.

The terms of FRAND declarations vary across different SDOs and may vary from declarant to declarant. In this regard, as their main goal is to increase the number of members and make SEPs available to as many industry players as possible, SDOs do not impose rigid policies regarding intellectual property rights on their members, causing the SEP holder to have a significant advantage over the party wishing to implement the standard.

SEP Licensing

It can be observed that as the number of SEPs increased over time, patent litigations arising from SEPs also increased. Although the parties suffer from the lack of detailed and case-by-case laws governing licensing in the FRAND terms, the widely known and cited Huawei Technologies v. ZTE (Case C-170/13) and Nokia v. Daimler (Case 4c O 17/19) decisions and other decisions from different jurisdictions currently seem to shed light on practice in this area.

In addition, last year, on February 14, 2022, the European Commission initiated a public consultation process to establish a fair and balanced licensing framework for SEPs, asking industry stakeholders to provide feedback on policy options for a sustainable, transparent, and predictable SEP licensing ecosystem. In this context, the European Commission is expected to evaluate the feedback collected from the sector in the second quarter of 2023.

One of the most discussed concepts in SEP is “access to all” and “license to all”, which try to answer at which point to license SEPs in the production supply chain. The “access to all” approach allows SEP holders to choose at which level of the production chain to license their patents, which is usually the end-product stage. Accordingly, a license fee is requested per product in which the standard is used. However, this concept is criticized by end-product manufacturers as it allows companies at different levels of the value chain to access the standard without paying a license fee. The concept of “licensing for all”, which envisages the reflection of the value of a standard on the parts of the end-product and granting FRAND licenses to parts manufacturers (or suppliers at different levels of the supply chain) instead of the end-product manufacturers, emerged as a result of these criticisms.

Another heated discussion in SEP cases is the interpretation of the “unwilling licensee” concept. The prevailing question is when a company using the standard essential patents becomes an unwilling licensee. There are many possible answers to this question, such as when the alleged infringer is aware of the SEP but continues to use the standard without a license or when the alleged infringer walks away from the licensing negotiations, although the license terms were FRAND. In such scenarios, the licensee may be considered unwilling.

Turkey’s Position

In Turkey, Turkish Standards Institution (the “TSE”) and the Information Technologies and Communications Authority in Turkey (the “BTK”) are the two central government-backed organizations dealing with standards. The TSE has full membership of the International Organization for Standardization (ISO), and International Electrotechnical Commission (IEC), the Standards and Metrology Institute for the Islamic Countries (SMIIC), European Committee for Standardization (CEN) and European Committee for Electrotechnical Standardization (CENELEC). The relations of Turkey with standard organizations in the field of international telecommunications are conducted through the BTK, which has an observer status membership at the ETSI.

Although TSE and BTK have memberships in SDOs, these institutions are not actively taking a role in setting standards in Turkey or publishing policies regarding intellectual property rights at the moment. However, the Technology Standards and Standard-Based Patents Task Force, established in 2020 under the Turkish Industry and Business Association, leads the required infrastructure process to carry out standard-setting studies in Turkey and to expand SEP licensing with the reports published in 2022 as a result of its extensive work, and with the support of public institutions such as TSE and the Turkish Trademark and Patent Institution.

Regarding SEP litigations, as far as is known, Turkish courts have not issued a detailed decision on FRAND licenses and/or SEPs yet. However, on December 26 2019, the Turkish Competition Authority (“TCA”) issued its first decision regarding SEPs in the Vestel v. Philips investigation (19-46/790-344). The Competition Board evaluated Vestel’s application by referring to the decisions of the European Union Commission, especially the European Union Commission’s Apple v. Motorola (AT.39985) decision and the Samsung (At.39939) decision and the European Union Court of Justice’s Huawei-ZTE decision (C-170/13). However, the FRAND principles were implemented even more strictly considering some points than the EU jurisprudence above.

In its decision, the Competition Board concluded that Koninklijke Philips N.V abused its dominant position in the relevant TV technology market due to the provisions of the TV Patent License and Settlement Agreement signed by the parties upon a series of SEP litigations and imposed on Koninklijke Philips N.V a penalty of 0.75% of its annual gross income generated by the end of the fiscal year 2018.

Increase in SEP Litigation

It appears that SEP litigations will continue to increase in the upcoming years. Although we see that SEP holders mostly prefer German, USA and UK courts to enforce their SEPs due to the reliability and predictability of these jurisdictions, this trend may change in the future as technology companies continue to increase the number of production facilities in different parts of the world every day by following an expansionary policy with the effect of globalization and shortage crises.

Given the investments and incentives in different industries and high market potential, Turkey may soon become one of the jurisdictions to handle SEP litigations. While the Competition Board surprisingly dug into the specifics of the patent law in its only case law regarding SEPs, we will be keeping a close eye on whether a case will be heard in an IP Court in Turkey and if they will follow the Boards approach in dealing with FRAND terms.

Tagged with: Gün + Partners, Beste Turan, Selin Sinem Erciyas, Özge Atılgan Karakulak, Patent, SEP, Intellectual Property