4. SEP Disclosure and Information Transparency

4.1 Disclosure as an Element of SSO IPR Policies

Patent disclosure is one of the main elements of many IPR policies, with the objective of increasing the degree of knowledge and transparency relating to patents in the course of the standards development process, and for subsequent licensing. Information on disclosed patents and, often, associated licensing commitments is usually made public in databases published by standard-setting organizations (SSOs). In this chapter, we discuss disclosure rules across a set of SSOs, the roles disclosure can play, and the current level of available information on disclosed patents. This chapter is limited to the disclosure of patents and does not address the disclosure of licensing terms (Bekkers and Updegrove, 2012).

Many SSO IPR policies have disclosure rules as central elements. In fact, such obligations often represent a very significant part of the overall text of these policies. However, there are also SSO IPR policies that do not include disclosure obligations at all. For example, ANSI does not require its accredited standards developers to include such requirements, although it encourages them to do so. There also are many SSOs that have no overall disclosure requirement. Rather, commitments are triggered by participation in the process.

Generally, disclosure rules specify when and how members or participants should inform the SSO that they believe they own patents that might be essential to the standard when it is finalized. However, the exact rules show a great degree of variety. Some important dimensions in this regard include the following:

What triggers a disclosure obligation? Often, it is triggered when participants or members are reasonably aware that they or the companies they work for likely own patents with essential claims based on the then-current drafts of the standard. Such essentiality cannot be definitively known until the standard is finalized. Disclosure obligations are frequently linked to participation in specific working groups or the submission of technical proposals. Although the policies of all surveyed SSOs and of the SSOs of which the committee Is aware, explicitly state that patent searches are not required some state that participants and companies must act in good faith. For instance, a company is not acting in good faith if it purposely (i.e., with the intention of circumventing IPR policy rules) sends delegates who are not personally aware of certain relevant patents to participate at standards-setting meetings.



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4. SEP Disclosure and Information Transparency 4.1 Disclosure as an Element of SSO IPR Policies Patent disclosure is one of the main elements of many IPR policies, with the objective of increasing the degree of knowledge and transparency relating to pa- tents in the course of the standards development process, and for subsequent li- censing. Information on disclosed patents and, often, associated licensing com- mitments is usually made public in databases published by standard-setting organizations (SSOs). In this chapter, we discuss disclosure rules across a set of SSOs, the roles disclosure can play, and the current level of available information on disclosed patents. This chapter is limited to the disclosure of patents and does not address the disclosure of licensing terms (Bekkers and Updegrove, 2012). Many SSO IPR policies have disclosure rules as central elements. In fact, such obligations often represent a very significant part of the overall text of these policies. However, there are also SSO IPR policies that do not include disclosure obligations at all. For example, ANSI does not require its accredited standards developers to include such requirements, although it encourages them to do so. There also are many SSOs that have no overall disclosure requirement. Rather, commitments are triggered by participation in the process. Generally, disclosure rules specify when and how members or participants should inform the SSO that they believe they own patents that might be essential to the standard when it is finalized. However, the exact rules show a great de- gree of variety. Some important dimensions in this regard include the following: What triggers a disclosure obligation? Often, it is triggered when partici- pants or members are reasonably aware that they or the companies they work for likely own patents with essential claims based on the then-current drafts of the standard. Such essentiality cannot be definitively known until the standard is finalized. Disclosure obligations are frequently linked to participation in specific working groups or the submission of technical proposals. Although the policies of all surveyed SSOs and of the SSOs of which the committee Is aware, explicit- ly state that patent searches are not required some state that participants and companies must act in good faith. For instance, a company is not acting in good faith if it purposely (i.e., with the intention of circumventing IPR policy rules) sends delegates who are not personally aware of certain relevant patents to par- ticipate at standards-setting meetings. 71

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72 Patent Challenges for Standard-Setting in the Global Economy Whose patents must be disclosed? Almost invariably this obligation relates to all relevant SEPs owned by the individual and the company that person works for. The large majority of policies also require that SEPs owned by affiliate companies (e.g., direct and indirect subsidiaries and sometimes parent and sib- ling companies) are included. In addition, quite a few policies encourage or re- quire disclosure of known essential patents owned by third parties. What information must be disclosed? Some SSOs require that disclosures identify all the specific patents or patent applications that are believed to include potentially essential claims. Many, however, allow for blanket disclosures, which are statements that the company believes it owns patents that may end up being SEPs but not listing them. How is essentiality defined? There are many different attributes that such definitions may incorporate and SSO policies display great variety in the details. However, most SSOs’ policies refer just to SEPs that are technologically re- quired in order to comply with the standard. The assessment of essentiality is somewhat subjective and actual determination can only be made by a court. When must disclosures be made? One common approach is for the policy to allow disclosures at any time during the standards development process. Here, policies typically require timely disclosures, triggered when the representative of a company becomes aware that it may have an essential patent. Few SSOs, how- ever, have exact rules on this. Several SSOs stress that there is a tradeoff be- tween the timeliness and the quality of disclosures. In fact, it can be difficult for companies to project what might end up being essential until the text of the standard is almost finalized. Another common approach is to expect disclosure at particular points in the process, such as 30 to 60 days from the date when a draft is posted. This is usually imposed in addition to the ongoing duty to dis- close. To whom is disclosed information made available (and which information)? Many SSOs make disclosure information available to the general public, but some do not. There is great diversity in the completeness and accessibility of the infor- mation that is made public. Rules relating to the recording and availability of dis- closure statements made orally during meetings may be unclear. Often such dis- closures at a meeting are incomplete and the individual’s employer must determine whether a formal statement needs to be submitted to the SSO. It is important to recognize that because disclosure obligations can create significant costs and burdens for participating patent holders, many SSOs are willing to accept broad licensing commitments in lieu of detailed disclosures. 4.2 The Possible Roles of Information Disclosure Few IPR policies of SSOs are explicit about what disclosure rules or guidelines aim to achieve. It is possible that many disclosure policies aim to serve multiple goals. The fact that these goals may require different and some- times conflicting policy elements (e.g., regarding the timing of disclosures) also contributes to the ambiguity of these rules.

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SEP Disclosure and Information Transparency 73 The committee’s background study of disclosure policies suggests that they may serve at least one or more of the following four distinct goals. The first objective is to allow working group members to make appropriate and informed choices concerning the inclusion of technologies, based on technical merit, im- plementation costs, and the prospective availability of licenses. Working groups may also use disclosure information to choose between different technical alter- natives or to mount efforts to design around a certain patented technology. In the IETF, working group members are known to have frequently considered disclo- sure information in this respect.1 A second goal is to record which members and participants are subject to licensing obligations for SEPs following directly from the policy. Third, disclosure serves as a trigger so that essential patent holders can be requested or required to make a related licensing commitment. Finally, disclosure rules inform prospective implementers about which companies they may want to approach to seek licenses and to allow them to assess the extent and value of the claimed patents. SSOs vary in terms of which goals they try to achieve, depending on the specific context. For a relatively narrow standard, the working group may only face a handful of SEPs and might thus pursue the first goal above. In contrast, an extensive and complicated standardization effort might incur thousands of dis- closures, making this much less realistic. Often, SSOs may try to achieve multi- ple objectives, which might require different and sometimes conflicting ele- ments in disclosure policies, as discussed below. Stakeholders have diverse interests in disclosure information. The array of stakeholders is long (Raes, 2010). First, working group participants may need disclosed information in order to perform their work. Second, for planning pur- poses, actual and prospective implementers of the standard may need to know which parties claim to own essential IPR, which specific patents they believe may contain essential claims, whether the IPR holder will require implementers to obtain a license, and if so, whether payment of a royalty or other fee will be required. Sufficiently specific disclosure information also allows implementers to review how many possible SEPs are disclosed, their nature and potential val- ue, and whether implementers agree that the patents in question are valid and essential. Third, SEP owners may use disclosure to assess their claims in the context of those owned by others and develop a general idea of what fee levels might be appropriate within the boundaries of their FRAND commitments. Policymakers and public authorities are also interested in disclosure. Doc- ument disclosure can expand the stock of prior art information available to pa- tent examiners and also be an important input into post-grant opposition pro- ceedings, long established at the EPO and expanded in the United States under 1 While IETF rules allow for the inclusion of technologies for which FRAND com- mitments were submitted, many working groups have a strong preference only to include unpatented technology or patented technology available at RAND-RF conditions. Thus, many IETF working groups wish to receive disclosure and commitment information as early as possible in order design around certain technologies, if desired.

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74 Patent Challenges for Standard-Setting in the Global Economy the America Invents Act. Perhaps most concerned are competition authorities, who may monitor standardization processes to ensure that no unnecessary harm is done to competition. When a case of possible anticompetitive behavior is brought to their attention they might consult relevant patent disclosure data- bases. Such databases may show whether certain parties fulfilled their commit- ments and may help authorities assess possible anticompetitive behavior. More generally, policy makers may have an interest in SEP disclosure databases to understand how reliant specific industries are on SEPs. Courts proceedings may rely on disclosures as matters of record for estab- lishing compliance with the rules of an IPR policy. They may provide key benchmarks of behavior during the standards development process and help determine which parties are bound to specific commitments. Moreover, several courts and competition authorities have embraced the view that FRAND fees should bear a reasonable relationship to the economic value of the IPR prior to its inclusion in the standard (Federal Trade Commission, 2011; European Com- mission, 2011). Thus, accurate disclosure information is an important potential input in court proceedings. 4.3 Levels of Disclosure Our survey of actual disclosure information in SSOs suggests that there are limitations to the data and the transparency it provides with regard to the availability, quality, accuracy and comprehensiveness of disclosed SEPs. We next discuss the most important elements that affect the degree of transparency, noting that the underlying choices often reflect a tradeoff among different objec- tives or concerns. Under-disclosure and over-disclosure Study of SSO databases suggests that current lists of disclosed patents dis- play a high level of both under-disclosure and over-disclosure of patents. There are at least two underlying reasons: (1) the incentives that drive organizations into setting certain levels of disclosure, such as the costs or effort of making them and the legal risks of not doing so; and (2) the nature of the IPR rules se- lected by SSOs.2 Under-disclosure refers to a situation in which some SEPs are not present in the IPR disclosure lists. One obvious cause is that IPR policies can only bind members or participants and not third parties. At best, identified third parties can only be requested to provide disclosures and possibly licensing commitments. A requirement that SSO participants disclose third-party patents that might be es- sential can potentially fill this gap. However, the level of disclosure resulting 2 Industrial economists sometimes argue that over-disclosure in particular could result from the strategic behavior of patent owners, who may attempt to suggest early that they deserve a claim on licensing revenues or attractive cross-licensing conditions. .

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SEP Disclosure and Information Transparency 75 from such rules can be both erratic and of limited reliability. Such disclosures may also be restricted for confidentiality or other legal reasons. A second reason for under-disclosure is that the disclosure obligation, in the context of a specific standard falling under a particular SSO’s IPR policy, may not be triggered at all, even if the IPR owners are members or participants. As noted above, disclosure obligations are often linked to actual participation in a working group or to the submission of a technical proposal, and to actual knowledge of patents or patent applications. A company that is an SSO member but does not participate in a particular case may not have an obligation to dis- close its IPR. No SSOs in the surveyed group have an all-encompassing patent search requirement. A third factor is that disclosure rules are often subject to the individual knowledge of participants. While there may be additional good-faith requirements, it is possible that member companies will own relevant SEPs and yet the disclosure requirement may not be triggered due to the specific wording of the IPR policy. Over-disclosure refers to patents listed as possibly essential that end up not being essential in the final version of the standard. A major cause is that companies have strong reasons to disclose and thereby be on the safe side. Sev- eral legal cases have held that a company in certain circumstances found to have intentionally failed to disclose was prohibited from commercially exploiting the non-disclosed SEPs later on.3 Thus, many firms may decide that it is better to disclose too much than too little. A second factor is that over-disclosure takes less time and costs less than undertaking the effort of determining whether spe- cific patents might be essential in the draft standard, especially as its text evolves. Lastly, over-disclosure can be a consequence of the lack of a require- ment to update information, as discussed below. Although over-disclosure may appear less costly than under-disclosure, this is not necessarily clear-cut. As a strategic matter, over-disclosure could re- veal to competitors more than firms would like about the patents it believed to be potentially relevant. Under-disclosure has the corresponding strategic ad- vantage of preserving non-public information about patent ownership. Both over-disclosure and under-disclosure can have market consequences as each may result in legal uncertainty for implementers. For example, if imple- menters believe there is a substantial degree of under-disclosure, they may de- cide not to adopt the standard in question because of the legal and financial risks of not being able to assess actual SEP ownership. Similarly, substantial over- disclosure could impede the adoption of standards if implementers are con- cerned that there may be more patent owners seeking to license more SEPs than there actually are. 3 See, for example, Qualcomm, Inc. v. Broadcomm, Inc., No. 2007-1545 (Fed. Cir. Dec. 1, 2008) and the Dell VESA case, in re Dell Corporation, 121 F.T.C. 616 (1996), in which a consent agreement was reached.

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76 Patent Challenges for Standard-Setting in the Global Economy Blanket disclosures SSOs that allow blanket disclosures of patents and patent applications of- ten let the submitter decide whether to make blanket or specific SEP disclosures. Sometimes blanket disclosures are only allowed when certain conditions are met. At IETF, for example, they are only permitted if the owner also commits to licensing its patents on FRAND-RF terms. At ITU blanket disclosures are al- lowed only if the related licensing declaration does not contain a refusal to offer FRAND or FRAND-RF licenses to ultimately essential patents. Blanket disclosures entail both advantages and disadvantages with regard to licensing. One advantage for SSOs is that if such disclosures are accompanied by licensing commitments, those commitments will cover any SEP that the submitter has reading on the final version of the standard. In some SSOs, licens- ing commitments associated with specific disclosures apply only to those partic- ular patents.4 Further, allowing blanket disclosures may increase the willingness of firms to be SSO members, participate in work programs, and make technical submissions. Blanket disclosures also provide advantages for SEP holders. They may reduce the legal risks SEP owners might face with under-disclosure. They per- mit firms to avoid incurring costs associated with specific disclosures. For firms with large patent portfolios, such costs would be both high and recurring. Some of these companies do not routinely seek to monetize their SEPs, so making specific disclosures represents an unnecessary cost. In contrast, companies that do monetize their SEPs see identifying their claims as an investment. Concerns have been raised that forcing companies that do not seek monetization to make specific disclosures may cause them to seek licensing revenues to offset the as- sociated costs. At the same time, blanket disclosures have a number of disadvantages. First, they make it difficult for engineers to invent around patents. Second, they can shift search costs onto other parties, such as prospective implementers, working group members, or other stakeholders. Third, blanket disclosures may create a situation in which prospective licensees have limited information about the exact magnitude and content of an essential IPR portfolio. In principle, this situation could raise the relative bargaining power of SEP holders that proactive- ly seek licenses and garner better contract terms for them, especially if their ne- gotiation partners cannot readily determine essentiality.5 Whether this is a prac- 4 In the IPR policies reviewed in the Bekkers-Updegrove paper, this was the case for 4 of 10 policies. In the other six cases the commitment covers any essential claims under the specific standard in question, regardless of whether these patents were actually dis- closed by their owner. 5 This situation describes a case of asymmetric information, which the theoretical liter- ature links to an improved bargaining position for the party with the greater knowledge (Spence,1973, Gallini and Wright, 1990).

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SEP Disclosure and Information Transparency 77 tical concern in actual negotiations is unclear, for the parties can ask each other for detailed information. No requirements to update There are various reasons why patents or patent applications disclosed as essential at one time may later be deemed as nonessential: (1) the final version of the standard no longer covers the patented technology; (2) the patent applica- tion was rejected, successfully opposed, or abandoned; (3) the relevant patents expired; (4) patents with essential claims were successfully challenged in court, or rescinded on reexamination by the relevant patent authority; (5) the scope of the issued patent was narrowed or modified and no longer contains claims that are essential to the standard; and (6) new technical alternatives can arise. Fur- ther, even if claims under a disclosed patent end up being essential to the final standard, new information that could be useful to implementers may become available over time. It should also be noted that SEP ownership often changes hands and a new owner may decide to require payment of a FRAND fee even though the original owner may not have required any fee at all.6 Finally, there may be complex situ- ations with regard to inventions that are patented in various countries around the world. It is common for the precise scope of patents in such a patent family to differ by country. Thus, a family member may be essential in one country but not in another. All of the factors above may affect the accuracy and validity of infor- mation contained in disclosures and several IPR policies recommend that SEP owners update disclosure information. However, few SSO policies provide guidance on how and when any such updating should occur, let alone impose a requirement to do so. While changes resulting from some causes may be tracked from public sources such as patent offices, many changes may not be. Costs can arise where patent information is not updated. An implementer may find it difficult to determine from whom it should obtain licenses and which technologies that license should include. Also, implementers may need to recon- struct such information multiple times across several potential licensors. These costs may be borne by each prospective licensee, resulting in considerable du- plication of efforts. The accuracy and validity of information contained in disclosures is also related to the rules regarding their timing. If early disclosure is encouraged or required, the updating problem becomes greater because it is more difficult for companies to project what might end up being essential. 6 Transfers are discussed fully in Chapter 5. Note that the increasing prevalence of pa- tent transfers provides a mixed argument for and against blanket disclosures. On the one hand, the buyer of an undisclosed patent may never realize that she/he has acquired an essential claim and therefore might not assert it. On the other hand, if she/he did discover and assert the SEP there would be a competitive change in the marketplace.

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78 Patent Challenges for Standard-Setting in the Global Economy ETSI illustrates that stakeholders sometimes value more accurate infor- mation. In that case there has been a process of substantial quality updates to the IPR database, by linking the disclosure data to the European Patent Office data- base and asking the original submitters to correct data believed to be in error.7 A varied group of ETSI members donated a significant amount of money to fund this upgrade of the database, suggesting they see benefit in more transparency. However, some companies do not make use of the database. Limited information on third party IPRs As mentioned above, SSO IPR policies are not and usually cannot be binding on non-members or non-participants.8 In the absence of effective rules on third party disclosures, there is an incomplete IPR disclosure database. Disclosures not made public Although most SSOs make disclosures public, not all do. Furthermore, many SSOs have a ‘dual’ disclosure policy. This contains first a disclosure pro- cess based on written declarations, often using a predefined form or template and often combined with a licensing commitment declaration. The second arm is an oral disclosure requirement for participants present at meetings. Several of the policies reviewed in the background paper specify that the latter disclosures are to be recorded by the meeting chairperson. But the process may be unclear as to how often disclosures are made and to whom the entailed information is available. Typically, any IPR-related information disclosed at a working group meeting is used by the SSO to initiate contact with the implicated company to see if it agrees on essentiality and, if so, whether it will submit a formal declara- tion. Discretionary disclosure policy Some SSOs do not have any disclosure policy at all. Although ANSI en- courages accredited SSOs to include a disclosure policy, it is not a requirement.9 Other SSOs have a participation-based policy, in which participants agree up- front to be bound by certain licensing commitments for any SEPs they have that end up being essential for the final standard, but no disclosures are required. We conclude this section by observing that many of the aspects affecting transparency are subject to meaningful tradeoffs. Some of these tradeoffs are 7 See Chapter 7 for further discussion. 8 There are complexities here, especially with regard to ISO and IEC, which have spe- cific rules that place obligations on those involved in the national accreditation process. See Bekkers and Updegrove (2012) for more details. 9 An ANSI task force is considering the disclosure issue and its revelance to its IPR policy.

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SEP Disclosure and Information Transparency 79 balanced in more conscious ways than others. Where these have been consid- ered, not all legitimate stakeholders have always been part of that decision pro- cess. Finally, for companies, there is an important internal tradeoff to manage with respect to transparency. On the one hand, more transparency can reduce their legal risks and uncertainties and can be beneficial in cases of conflict. On the other hand, achieving transparency through disclosures entails significant efforts and compliance costs for companies. 4.4 The Timing of Disclosures in Relation to Licensing Commitment Procedures When analyzing the IPR databases of large SSOs, it becomes evident that many initial disclosures are submitted long after the final standard is adopted, even if the SSO policies encourage early disclosure. Obviously, such disclosures come too late to allow working group members to make appropriate choices concerning the inclusion of alternative technologies. Why do companies often disclose so late, even if the rules stress the need for ‘timely’ disclosure, and why do the rules of any SSO fail to require disclosure prior to final adoption of a standard? We believe that one important explanation lies in the IPR rules and associated procedures themselves. The disclosure rules are often intertwined with the licensing rules, with a single form used for both. Most IPR policies are not clear in whether they prefer early or late disclosure. The entanglement of the disclosure and licensing policies encourages late rather than early disclosure. The committee suggests that SSOs evaluate whether there is a need to ad- dress these issues, in which case SSOs could consider one of two approaches. First, disentangle the disclosure and the licensing commitment processes, for instance by introducing ‘early general licensing statements’ such as that recently introduced by ETSI. Such statements provide assurances of availability but do not constitute disclosures. They can be made before a company examines the draft specifications or knows it owns essential patents. In fact, disentangling could usefully distinguish between blanket disclosures and blanket licensing commitments, which are different promises and exist in different combinations. Suppose, for example, that a company only discloses a single patent, with an associated blanket FRAND licensing commitment. The latter would also commit it to FRAND licensing for other essential patents it might eventually be found to own but did not disclose. Alternatively, SSOs might adopt a policy that encourages early disclosures and has an updating requirement. This way, knowledge about essential IPR is “correct” at the time the standard is being developed, allowing for informed de- cisions, as well as at the time the standard is finalized. In this case, the SSO would have to weigh the benefits this would yield against the burdens this would place on patent holders. Although such procedures may represent advances for some SSOs, we note that many have evolved requirements that seem to strike a workable bal- ance between timing and information disclosure. Many SSO policies require

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80 Patent Challenges for Standard-Setting in the Global Economy patent calls at every meeting and participants must choose between binding li- censing obligations or disclosing previously withheld essential claims) before final adoption of a standard. Disclosure of essential patents is also often required if the right to charge a FRAND royalty is reserved. This time-tested approach may represent an effective balance of interests for other SSOs to consider. 4.5 Recommendations to SSOs SSOs should consider several actions to increase the transparency of SEP ownership and licensing. Recommendation 4:1 SSOs that do not have a policy requiring FRAND licensing commitments from all participants should have a disclosure element as part of their IPR poli- cy. Recommendation 4:2 SSOs with disclosure policies should articulate their objectives and con- sider whether they sufficiently serve these objectives. In particular, such SSOs may consider separating patent disclosure from licensing commitments and bet- ter define their preferred timing and specificity of disclosures. Recommendation 4:3 SSOs should make disclosed information available to the public. Recommendation 4:4 SSOs should to consider measures to increase the quality and accuracy of disclosure data. Such measures might include updating requirements or greater coordination with patent offices.