Cellular IPR litigation is an all-too-often-overlooked stumbling block for companies developing connected solutions using cellular technology. At its core is the question of how to license standard essential patents (SEPs), a set of thousands of patents that are required to comply with cellular technology standards.
Generally, owners of SEPs that are included in cellular standards are obliged to license their patents for fair, reasonable, and non-discriminatory (FRAND) terms and conditions. One challenge when licensing on FRAND terms is that what is fair and reasonable has traditionally been determined by the patent holder without an eye towards the patent implementors’ needs and market realities. It is even more difficult to evaluate a FRAND offer because a potential licensee must rely on the statements of the SEP owner regarding SEP value. This happens because there is no transparency regarding how SEP values were determined, only statements that what is offered is FRAND, that other companies have signed a license, so it must be FRAND. However, under this scenario and based on actual facts, rarely is the SEP holder offer actually fair and reasonable, much less non-discriminatory.
All this places the companies that build cellular solutions implementing these SEP patents on treacherous terrain. Only 20 to 30 percent of declared SEPs are, in fact, essential for the implementation of the related standard. Of these 20 to 30 percent, many are essential to base station designs only and have nothing to do with user equipment. Identifying the right SEPs to pay licensing fees for them only and not the entire portfolio held by a SEP owner is time-consuming, costly, and error-prone to those new to SEP licensing. u-blox can help because of our deep knowledge regarding SEP valuation and the underlying technologies.
With the constant rise of cellular technology adoption and new cellular standards constantly in the making, it’s hardly a surprise that cellular patent litigations have increased significantly in recent years. Even in the middle of a pandemic, litigation regarding cellular SEPs has increased 19% in 2020. It is expected to increase again in 2021.
If SEP use rights and the potential for the related devastating litigation of SEPs is not yet on your radar, it should be. And we highly recommend making it a key factor in choosing a cellular module supplier. To help you, we offer three critical questions you should bring up and understand before selecting a cellular module supplier:
What patent coverage do you offer?
The first key step is to understand what patent coverage your cellular module supplier is offering. Many operate with one or two signed SEP use license agreements that cover a small percentage of the SEPs needed for wireless enablement. This leaves a lot of risk exposure in the form of non-FRAND, higher royalties calculated at the end product pricing level (for the royalty base), injunctions in the form of import and manufacturing stops (due to lack of a license), and the extensive cost of defending a lawsuit or negotiating a settlement.
At u-blox, we have signed licenses with many of the largest and most litigious patent holders and offer the broadest cellular SEP patent coverage of any module maker in the market. Our competitors offer either very limited coverage or none. As a result, our customers benefit from lower royalty rates, because the royalty base is calculated at the module price level.
What is the fine print of your indemnification clause?
In many cases, indemnification clauses have critical coverage and reimbursement limitations that may result in no coverage or – at best – little actual protection. For example, sometimes indemnity is offered, but only after a final court decision. In reality, because of the high cost and risk of an injunction, many cases settle quickly and never reach a court decision. Another example to watch for are claims that patent coverage is not needed because full indemnification is offered. These offers are hollow because damages in patent litigation cases that are based on end unit royalty base pricing could bankrupt a module supplier. The best advice is to press your module supplier to disclose any limitations, for example, based on geography, technology, final judgement, how reimbursement will be handled, guarantees, or other restrictions and caveats.
Keep in mind that indemnification also does not protect from injunctions or lawsuits being filed. In both cases, your business may suffer extensively and be saddled with the additional financial burden of defending a lawsuit, which can quickly add up to millions of dollars. These are costs that a company must carry for years as litigation progresses even if indemnification might apply. Likewise, your business also has the burden to deal with the business disruption caused by the litigation, such as time best spent on R&D being used to provide internal personnel to find documents and to coordinate discovery of all things required to be provided by you. These costs are generally not covered by indemnification clauses. And finally, business disruption is common where the actual cost of using the patent is unknown, meaning product pricing and profit estimates are inaccurate.
u-blox offers full coverage for licensed patents to reduce business risk and can offer additional “insurance” for unlicensed patents (per the terms of the agreement). This alone far exceeds any indemnification clause, as it significantly reduces the risk of an injunction or lawsuit filing for the covered patents.
Do you offer support in case of a patent infringement lawsuit?
As mentioned, because they entail a high financial cost, potentially disrupt manufacturing, and distract from a company’s main goals, patent infringement lawsuits can be enough to derail even a large global business. For smaller companies lacking a dedicated and proactive legal team, they can find themselves in a losing battle of “David versus Goliath,” with no one left on deck to steer their business in the right direction, much less coordinate a strategic response to the litigation.
At u-blox, we offer a range of patent use protection services to address the diverse needs and means of our customers. Our services can include offering assistance by intervening to resolve a patent assertion or mitigating customer patent infringement allegations with any SEP owners that are not currently part of existing u-blox coverage. This unique offering includes enhanced assistance, such as a commitment to seek negotiations with a SEP holder that asserts a patent against you with our goal being to obtain a module license, as well as to seek an offset for the module-level fees u-blox paid even though our customers may have already signed a license with the SEP holder.
Best-in-class patent coverage
It’s impossible for any cellular component supplier to enter license agreements with all SEP holders. Some SEP holders do not actively pursue licensing agreements, while others only enter agreements at the upper end of the value chain (e.g., end product) and do not license at the module level. That said, it is possible to significantly reduce the risk of patent infringement lawsuits by securing agreements with the top SEP owners that are most likely to enforce their patent rights. At u-blox, we have made it our focus to do just that.
If you source your cellular modules from u-blox, you receive the best patent coverage of any cellular module maker out there. By proactively seeking licenses from SEP holders, u-blox strives to protect device makers using u-blox cellular modules from lawsuits for cellular patents.
You don’t have to look far into the past to see how this benefits our customers. Sisvel, an IP management company, recently filed numerous lawsuits against module makers and their end product customers for patent infringement violations. In December 2020, Philips filed several lawsuits and International Trade Commission petitions to bar the import of modules and end products using modules. Because we at u-blox have license agreements with both entities, our customers were and continue to be protected and unaffected for use of the u-blox modules. Indeed, we know of one customer that has been sued three times by three different SEP owners and each time they were protected by the u-blox licenses for their use of a u-blox module.