Essential patents: what are they?

The economic rationale of patents is well known. Without the granting of this form of monopoly for a certain period of time, 20 years from their filing to be more accurate, companies would have no interest in investing massively in their research and development department.

If this argument appears to be well-founded in certain industries such as the pharmaceutical industry, it is, on the other hand, debated in other fields, such as software or technology, to the point of leading some to doubt the validity of the uniform approach enshrined in patent law, which was born at the dawn of the industrial revolution at a time when knowledge was not as diversified as it is today.

The granting of patents in the IT field is indeed not without problems at a time when interoperability between systems is becoming a central element in the increasingly digitalized society in which we live. Whether we think of the field of telecommunications or that of the Internet of Things, their proper functioning requires the adoption of standards allowing these different devices to communicate with each other.

However, if the objective of standards is to allow the rapid adoption of technologies and interoperability between systems, the granting of patents, far from encouraging innovation, appears to be a potential brake in this respect.

This is where the notion of essential patents comes in. Many of the standards that have enabled the successful deployment of 4G, 5G or WiFi networks are indeed based on thousands of patents. It is easy to imagine that if we had to systematically negotiate a license with each patent holder involved in the development of such a standard, their adoption would be an illusion and would considerably hinder the massive adoption of technologies in the telecommunications field in particular.

To overcome this problem, some organizations identify patents that are considered essential for the adoption of these standards, hence the name “standards essential patents“. These patents, if they are indeed considered essential, must then be licensed under so-called “FRAND” (Fair, Reasonable and Non-Discriminatory) conditions.

If the principle is established, the difficulty lies in knowing how to apply it. Cases on this subject are rare. In the only case rendered to date by the Court of Justice of the European Union in this area, C-170/13 Huawei Technologies Co. Ltd v. ZTE Corp. of July 16, 2015, the CJEU held that the holder of a patent essential to a standard set by a standards body does not abuse its dominant position if it acts in violation of its patent, provided that:

• he warned the infringer of the violation; that
• after the infringer has expressed its willingness to enter into a license agreement on FRAND terms, the infringer has transmitted to the infringer a concrete, written offer to license on such terms, specifying, inter alia, the royalty and the manner of its calculation; and
• the infringer does not diligently pursue this offer and continues to exploit the patent.

While it thus appears to be clear that the holder of an essential patent is not deprived of the possibility of bringing an action for patent infringement, many questions remain unclear: how to assess whether such a patent is essential if this qualification is likely to be challenged? Under what conditions is the holder supposed to meet FRAND requirements when granting a license?

Aware of the increasing role played by these patents but also of the many uncertainties surrounding their essential nature and the conditions for granting FRAND licenses, the European Commission set up a working group on the subject which delivered an important report in January 2021, intended to serve as a working basis for the European Commission.

We can bet that essential patents will play an increasing role in the years to come, and that the knowledge of the conditions for their grant and the terms to be negotiated will certainly present an added value. If litigation in this field will certainly increase, offering the courts the possibility to examine these questions and to refine a jurisprudence that is still very incomplete, one can only hope that the work of the Commission will allow to ensure a better transparency in a field where such is the objective, which is still far from being achieved.