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April 30, 2024

Standard-Essential Patents And Frand Terms

INTRODUCTION

As technological advancements accelerate, the intricacies of establishing cross-industry standards and navigating patent utilization are becoming more complex. Especially in the fields such as telecommunications, electronics and information technologies, when a product or technology becomes an industry standard, it brings along with it questions of intellectual property and competition law.  Intellectual property grants the holder the rights to use, benefit from, prevent unauthorized usage of third parties, register, and license the rights pertaining to intellectual property. However, if this absolute protection leads to monopolization, it may conflict with Competition Law, which aims to eliminate elements in the market that impede and distort competition, thus establishing a free and fair competitive environment. In this context, FRAND (Fair, Reasonable, and Non-Discriminatory) terms provide a framework for fair licensing and preserving competition. 

Intellectual property rights promote quality and diversity by incentivizing innovation and fostering competition through safeguarding the rights of the holder. The right to license granted to owners of intellectual property rights involves licensing the use of specific products, services, technologies, or intellectual property elements to third parties under a license agreement. 

The FRAND principles encompass a set of regulations governing industry standards and managing interactions among companies manufacturing products aligned with these standards. These terms enable intellectual property owners to protect their rights while ensuring that such rights do not restrict market competition, thereby providing a fair licensing process for industry stakeholders.

A. STANDARD-ESSENTIAL PATENTS

    Standard Essential Patents (“SEP”), referring to patents covering technologies essential for implementing a standard, represent an evolving concept within patent rights, safeguarding the owner’s exclusive right to utilize the innovations therein. This concept emerges from the interplay between standards designed to facilitate widespread adoption of the innovation in question. A patent qualifies as an SEP when its rights, granting exclusive use of an invention, are indispensable for implementing a technical standard. Three criteria must be met for a patent to be classified as an SEP: (i) a standard, (ii) essential, and (iii) patent eligible.

    1. Standard: A patent must be associated with a standard of technology that is widely accepted and used in a particular industry in order to be an SEP.
    1. Essential: A patent must be an essential component or technology to perform a specific function or feature in the standard. In other words, it must be a technology that must inevitably be used to perform a particular function in the standard.
    1. Patent Eligible: There must be a patent and a patent holder for the relevant technology for SEP to be considered.

    Given that the exclusive use of the relevant invention granted to the holder of the patent right and the ability to produce a standard technology are also linked to SEPs, the ability of other businesses to survive in the market and new players to enter the market is only possible by limiting the exclusive authority of the SEP holder arising from the patent right. This is because the patent protection granted to the holder tends to create a monopolistic market and the patent right holder’s decision to use or license its patent is entirely at its discretion. Therefore, the inventor’s utilization of the protections provided under industrial property law for an invention that has reached the industry standard may create a monopoly in the market and this situation may have a distorting effect on competition. In order to limit this effect of SEP, the FRAND  which refers to “Fair, Reasonable, and Non-Discriminatory Conditions”, has been introduced. FRAND obligations mean that patent holders who hold the patent essential to a standard must offer fair, reasonable and non-discriminatory licensing terms to others by virtue of holding the standard patent, which is important in establishing a patent as an industry standard in order to protect competition in the market, to encourage innovation in the market and to ensure that consumers have access to high quality products at fair prices. Therefore, in accordance with the FRAND terms, the relevant patent holder undertakes to license the relevant invention to anyone who complies with the FRAND terms by giving up the authority to determine the counterparty for licensing.

    B. ANALYSIS OF LEGAL DISPUTES REGARDING SEPs WITHIN THE EU AND TÜRKİYE

      Disputes regarding the licensing of SEPs within the framework of FRAND terms are examined under the heading of abuse of dominant position in the context of competition law. In particular, where SEPs create a dominant position, the breach of the FRAND obligation by the SEP holder amounts to an abuse of dominant position. In this context, many decisions regarding SEPs include an acknowledgment that SEP owners are in a dominant position. In the context of industrial property law, disputes are analysed in terms of the validity of the SEP under the claim and whether there is any patent infringement in relation to the SEP in question.

      An important decision regarding FRAND terms is “Unwired Planet International Ltd v. Huawei Technologies Co.Ltd”, decided by the Supreme Court of England and Wales in 2018. In this case, Unwired Planet, a telecommunications device manufacturer, claimed that five Standard Essential Patents (SEPs) in the wireless connectivity sector were infringed by Huawei because the parties had not reached an agreement on FRAND terms and a licensing transaction had not taken place. Huawei claimed before the court that SEP holders have an obligation to offer license fees to other similarly situated undertakings on the same or similar terms, but Unwired Planet failed to comply with this requirement, leading to an abuse of dominant position. The Court decided on a FRAND license fee based on comparable licenses, based on the assessments below:

      1. the “non-discriminatory” element of the FRAND commitment means that a uniform license fee is offered for all actors existing in the relevant market,
      2. Regarding the allegation of abuse of dominant position, requesting an injunction without prior notification to the alleged infringer would constitute an abuse of dominant position. However, in the specific case mentioned, as Unwired Planet had previously made offers, this aspect does not apply.

      In Türkiye, the decision of the Competition Board (“Board”) in Vestel v. Philips is an important ruling that examines whether there is an abuse of dominant position through SEPs and establishes legal precedent. The investigation, in which Philips was accused of violating FRAND terms in the licensing of SEPs related to subtitling technology, began when Vestel alleged that Philips abused its dominant position by unilaterally determining contract terms after the injunction was issued.

      The Board determined that Philips holds a dominant position due to its SEPs and that it has an obligation to license in accordance with the FRAND terms. In its decision, the Board stated that Philips failed to comply with the FRAND requirements by resorting to litigation before applying to an independent third party for the license fee, even though the negotiations for the license agreement had been ongoing for more than two years. It was emphasized that Philips’ application to the court for an injunction to recall Vestel’s products would be considered as an abuse of dominant position. It was determined that forcing Vestel to comply with the contractual terms set by Philips constituted an abuse of dominant position.

      C. CONCLUSION

        In conclusion, Standard Essential Patents (SEP) and the Fair, Reasonable and Non-Discriminatory (FRAND) terms provide an important balance in intellectual property and competition law. The dominant position of SEP holders may adversely affect competition by bringing the risk of non-compliance with FRAND requirements. At this point, the decisions taken by competition authorities and courts to direct SEP owners who demand high license fees to follow fair and balanced licensing processes are important. Legal procedures, fair licensing agreements and transparent communication are important elements to ensure a fair competitive environment in the world of technology. In the future, monitoring legal developments in this area will be critical to protect fair competition and encourage innovation. It is predicted that SEP lawsuits will increase in Türkiye, especially by patent holders using the monopolization opportunity given to them by patent protection. In this context, there is also interest in how the Board will evaluate the cases and the Intellectual and Industrial Property Law Courts will assess the related infringements.

        Authors

        Gökçe Ergün

        Gökçe Ergün

        Lawyer

        Çağla Yargıç

        Çağla Yargıç

        Lawyer

        Şimal Taşkın

        Şimal Taşkın

        Legal Intern