A Standard Essential Patent (SEP) refers to an invention that is critical to a standard for interoperability of (typically) electronic devices. These standards are adopted by standard setting organizations (SSOs) or standard development organizations (SDOs), which are made up of industry participants. Once an invention is selected for a standard, the patent on the invention potentially becomes more valuable than it would have been had it not been selected for the standard.
SSOs work to establish technical specifications to ensure interoperability across different manufacturers for a particular product. When a SSO incorporates a patented technology into a standard, the SSO creates the risk of licensees having to pay higher royalty payments than they may have otherwise if not for the SSOs adoption of the standard.
To prevent a patent holder of the SEP from exploiting the selection of its patent as an SEP to obtain an unfairly excessive royalty, SSOs maintain intellectual property rights (IPR) policies. These policies require the owner of a patent being considered for inclusion in a standard to agree to license the patent to third parties under terms that are “fair, reasonable and nondiscriminatory” (FRAND).
Finally, infringement of an SEP can be established by showing that the patent covers a mandatory aspect of the standard and that the accused product complies with the standard. The Patent Act permits a patentee to pursue a claim for inducement to infringe its patent and/or a claim, as carefully defined by the Act, for contributory infringement of its patent. (See 1 Gray Markets: Prevention, Detection and Litigation § 17A.01 (2023)).