Right now there’s a lot in play with the EU Commission’s aim to more strictly monitor the essentiality of SEPs. What’s really going on, and why is it important?
It is important because standard essential patents are closely related to the reason why we have a very vibrant global economy. A lot of technology goods, especially in the telecommunications space, operate on global technical standards. Because we have global technical standards, a lot of companies don’t have to customize their products to different countries. For example, if a company is making smartphones, it can make one model with one design that complies with global technical standards and then can sell it in just about any country. Global technical standards really simplify the manufacturing, among many other things, and have been a huge contributor to global trade. They bypass a lot of hurdles that companies used to face.
Many standards setting organizations have an IPR policy and require all these SEP holders to license their patents, either royalty free or according to FRAND — on a fair, reasonable, and nondiscriminatory basis. The problem for these organizations, including the EU Commission, is that no one can seem to agree what fair and reasonable really means. What is “fair and reasonable” tends to change depending on which hat you’re wearing.
My view of fair and reasonable when I was the one enforcing SEPs was a little bit different than my view of what fair and reasonable should be when I was defending against SEP demands. For instance, I liked Motorola’s starting rate of 2.25% when I was enforcing SEPs, but definitely preferred the 0.555 cents per unit FRAND rate that the federal district court ultimately set in Microsoft v. Motorola when I was defending against SEP demands. At the end of the day, it all comes down to the bottom line.
You’ve transitioned from enforcing and defending against SEP demands into being a neutral. How has acting in that capacity changed your perspective on the space and on these types of disputes?
In order to be a good advocate, you have to believe your side of the story with full conviction. What that means is that it’s actually necessary for you to become tunnel-visioned; you’re not open to the other person’s perspective. Whereas as a neutral, I hear both sides of the story and have to appreciate both perspectives. I usually tell the parties I work with that there are three sides to a story: There’s your side, there’s their side, and then there’s truth, somewhere in between.
As a mediator, I bring parties together in a way that makes sense to them. I see myself as a dealmaker in that I’m trying to make two separate deals that actually have a commonality. I have to deal with the plaintiff, and I have to deal with the defendant, but the deals for each of them have to be the same. So, I’m making a deal in two directions, and I’m at the fulcrum of this process.
What’s the thorniest matter you’ve ever had to contend with?
I had one partnership dissolution dispute where it turned out all the parties were [personally] related. Family matters are the most difficult, because they’re not strictly driven by business considerations but also raw emotions. Emotion can come into play in the IP space too, of course. If you deal with individual inventors, especially, I think it plays a larger part because individuals may think their invention is the greatest thing since sliced bread. And even when you’re dealing with companies that are trying to dispose of their patents, there’s pride to contend with.
The companies will say to me, “These are good patents. Why is it that the other side doesn’t understand these are worth X amount of dollars?” Often, they don’t grasp that acquisition quality patents actually have to be of higher quality than litigation quality patents. Litigation quality patents just have to survive summary judgment motion. With acquisition quality patents, people who are paying for those patents have to be able to justify to the management why they spent so much money acquiring them.
How do you counsel people to make that important distinction between litigation quality patents and acquisition quality patents?
They have to be critical of their own patents. This is sometimes easier said than done. A lot of companies have patent committees, and, emotionally, it’s difficult for them to admit that some of these patents may not be as good as they think they are. I have to tell them to step back and put themselves in the shoes of the buyer or licensee. Why would the buyer want to pay for these patents or for licenses? Because these have a high infringement potential and they can withstand IPR-type challenges. Only then will the buyer or licensee be able to say, “Oh, these are pretty good patents, I think I can go up to my management and tell them we should do the deal.”
What’s the psychology of that exchange? Obviously, there’s the technical case that you can make, but there’s also the human element. How do you approach that?
You need to have a story, because there’s a limit to technical analysis. For example, let’s say the patent is from a company that is well known in this industry for pioneering some technology. Then, even if the technical analysis is not perfect, there is going to be a consensus that they have something in this portfolio that it would be better to deal with now rather than later. Or maybe there’s some sort of business reason, beyond the technical analysis, for why you should do the deal. Whatever the reason for acquiring patents, it’s got to feel more meaningful to the buyer than simply checking a box. There’s has to be some emotional appeal. It’s like buying anything, actually.
“There has to be a coordinated global policy regarding SEPs in order to keep global technical standards intact.”
We’ve touched on some of the SEP issues going on now. From your vantage point, what is the state of innovation in regard to the law? Is it being constrained? Is it being incentivized? Where does that balance fall right now?
What’s driving innovation is the profit motive. Investors are willing to put a large sum of money at risk if they see great ideas that can turn into the next Apple or Qualcomm. The law in the intellectual property area can help with that willingness to invest if it provides certainty. Unfortunately, that does not seem to be the case, which has led to dissatisfaction among stakeholders.
Patent quality is still an issue. A patent issued by the USPTO, as a matter of policy, should be valid and enforceable. It should not be of low quality such that there is a better than 60% chance of it being invalidated by another branch of the USPTO in a post-grant review.
On a global level, the companies have to contend with another significant uncertainty in the SEP area. There is a fragmentation of the SEP/FRAND law along national boundaries. One national court can set a global FRAND rate that is significantly different than the FRAND rate set by another national court involving the same SEPs. Different national courts are divided over what remedies should be available in a FRAND case. They also have no qualms about issuing anti-suit injunctions (and anti-anti-suit injunctions) over which court should decide the global FRAND rate, leading even to a WTO trade dispute.
The EU’s recently proposed SEP reforms, with registering and nonbinding conciliation of FRAND rates, may or may not address these issues — but only within the EU borders.
There has to be a coordinated global policy regarding SEPs in order to keep global technical standards intact. They have contributed so much to the global economy that they are worth such effort.
Know a Dealmaker you would like us to profile? Contact [email protected]