Standard Essential Patents (SEPs)

The standard-essential patents (SEPs) are those that cover critical technologies for the operation of a particular technical standard. In the telecommunication industry, especially, technical standards are commonly adopted in order to ensure interoperability between devices, equipment and systems of different manufacturers and competitors. In other words, the technical composition is standardized, so as to enable, for example, a cellphone made by the brand “X” to receive calls from a mobile manufactured by the company “Y”.

This technical standard is made of several patents, the essentiality of which for the implementation of the standard is declared, unilaterally and voluntarily, by the patent holders seeking the benefits that this entails, being the biggest one the widespread and obligatory use of the technology by all companies connected to that standard.

On the other hand, however, the holder of the standard-essential patent is committed, before the standard international body, to automatically license the SEP in FRAND terms (i.e., “fair, reasonable and non-discriminatory” terms), to any interested party.

Therein lies the main difference between SEPs and “ordinary patents”, since the technology, once declared essential, is considered obligatory to a particular technical standard and deserves special treatment, due to the limitations on the enforcement of patent rights as a result of the FRAND system.

So, because of the commitments assumed before the International Institute responsible for the standardization system, the judicial remedies available for the holders of a SEP to protect their industrial property rights, without abusing of their dominant position, are limited.

In Brazil the two leading cases are taking completely opposite directions at the Court of Rio de Janeiro. In the first one, the Judge of the 2nd Business Court of Rio de Janeiro granted an injunction to prohibit a Chinese company from selling cellphones that supposedly used certain essential patents. In view of this, the Chinese company filed a motion requesting the suspension of the preliminary injunction, based on the payment, under protest and into a Court escrow account, of royalties.

The judge granted the request, considering that "[T] he Plaintiff himself affirms that his invention was incorporated to a technical standard, being of obligatory use by industry, in order to allow devices from different manufacturers to be compatible with each other and work properly in cellular networks," and concluded that "in the standardization negotiation, the business corporations that participate in the standardization process and offer their patents agree to license them on fair and reasonable terms. It is credible the allegation of the Defendant relative to the impossibility of refusing the licensing of the patent".

In the second leading case, filed against another Chinese company, whose discussion was exactly the same, the Defendant made an equivalent request, i.e., deposit of royalties to suspend the injunction that restricted the selling of several equipments, allegedly infringing an essential patent. When analyzing the offer, the Judge of the 5th Business Court of Rio de Janeiro understood that "it was not responsibility of the judge to impose the licensing value to the parties, but them to reach an agreement”. Thus, considering that “the Plaintiff did not accept the offer”, the Judge rejected the request and upheld the PI, which remains effective until nowadays.

As seen, although addressing similar discussions, the two leading cases involving essential patents in Brazil were analyzed in a completely opposite way. While in the first case the understanding prevailed that the deposit of royalties is a reasonable way to balance the scales between the parties – not an injunction seeking to stop the sales of the Defendant –, in the second one the Court analyzed the lawsuit without complying with the particularities relative to SEPs.

This is because, in the first case, the Judge considered the fact that the protection of essential patents should be reduced before the FRAND commitment and also because of the burdens arising from the self-declaration of the technology essentiality. In the opposite way, the second case was treated as a classical infringement of an ordinary patent.

Therefore, we conclude that the parties involved on a SEP litigation in Brazil – where the discussion of SEP matter are brand-new – must demonstrate the sophistication involving these technologies, so that the Judge take into account the singularities of this discussion and do not treat it as an act of mere ordinary patent infringement.

Rodrigo A. Torres and Patrick Rahy