© James J. Kulbaski Current Topics in Patent Law: Patent Pools and Standards Bodies James J. Kulbaski Oblon Spivak McClelland Maier & Neustadt

2 I. INTRODUCTION What’s the Big Deal About Patenting Standards and Patent Pools? Standards may be widely implemented so many infringers to pay royalties If patent is “essential” to standard, no way to design around the patent Patent Pools have “automatic” royalty collection $$ MONEY $$

3 II. Patenting of Standards A.What is a Standard? Examples of Standards -Computer Buses - Computer Memories - Communication Protocols Cable Modems DSL Wireless/Cellular Phones - Digital Video (MPEG-2, MPEG-4, DVB-T, H.263) - Electrical Interfaces - Ski binding

4 1. Must disclose existence of intellectual property rights to standards committee –Gives committee option to select alternative technology –May be duty to search for your companies patents –Cannot mislead others into thinking that no IP rights from Dell Computer (FTC consent order) 2. Must agree to license patents on standards on reasonable and nondiscriminatory terms B.Compliance with Intellectual Property Rights Policies of Standards Committees

5 Rambus Case -Federal Circuit Holding: -No Fraud because no duty to disclose at relevant time -Federal Trade Commission Holding of February 17, 2004 – -Rambus did nothing which would affect the enforceability of the patents, and the Chief Administrative Law Judge dismissed the government’s case.

6 Rambus Case -Appeal by FTC Bureau of Competition of decision of Administrative Law Judge -Rambus found to have violated standards policy by the Full Commission

7 Proving Failure to Comply With Disclosure Rules -A defense for which the defendant has the burden of proof -Defense must show a violation of standards committee rules -Must relate the contributed technology to the patent -Must be a relation to the accused product

8 Data structure claims/Signal claims –Could be the strongest type of claims Avoid unnecessary “determining” step or means Avoid the word “each” C.Getting Patent Claims that Read on a Standard (Essential Claims)

9 Draft claim chart comparing claim element with standard Ask inventor what part of standard relates to claims OK to write very detailed claims, as long as all claims features are from standard

10 C.Getting Patent Claims that Read on a Standard (Essential Claims) Draft claims which use the exact same terminology as the standard File many divisional/continuation applications - patent pools often only care about patent count File many diverse claims

11 C.Getting Patent Claims that Read on a Standard (Essential Claims) The Patent Office - Many companies trying to patent the standard - Examiners in selected areas (e.g., DVD and MPEG) know you are trying to get into a patent pool - Examiners may believe that a patent pool means smaller chance of litigation

12 III. Patent Pools A. Introduction to Patent Pools Promotes efficiencies by allowing users of technology to have one stop shopping Prevents problems of blocking patents being enforced by diverse entities Patent pools not new concept –Manufacturers Aircraft Association 1917 –Radio Corporation of America (“RCA”) 1919 –June 30, 1997 NY Times: DOJ spokesman on MPEG-2 patent pool, “It's the first statement we have made on patent pooling.”

13 B. Steps to Form Patent Pool Standards Committee Members Hire Independent Evaluator Independent Evaluator determines essential patents Essential patent holders become group Group meets to determine rules regarding licensing agreement and administration regarding patent pool Department of Justice reviews pool Administrator signs up licensees and distributes royalties

14 C. Role of Evaluator Determine essentiality of patents Definition of essentiality is important –technically necessary –commercially necessary? –necessarily infringed 100% of time by a standards compliant device Paid a fixed fee by patent owner Patent owner must submit claim chart

15 D. Role of Administrator Collect royalties Distribute royalties Monitor infringement Payment to MPEGLA for MPEG-2 –minimum of $3,000,000 per year –10% of gross royalties up to $75 mil. –5% of gross royalties between $75 and $250 –2.5% of gross royalties above $250 Source = MPEG Licensing Administrators Agreement, November 27, 1996

16 E. Litigation of Patent Pool Patents Suits not filed by Patent Pool, but filed by individual patent owners

17 F. Patent Pools Are Not Dead U.S. Philips v ITC (Fed. Cir ) Technology: CD-R, CD-RW Accused Manufacturers: – Princo, Gigastore, Linberg Other Members of Patent Pool: –Sony, Ricoh, Taiyo Uden ITC Ruled that Philips had tied non-essential patents with essential patents, which was a misuse of the essential patents. ITC found that evaluator of essentiality made a mistake. Held that the Philips patent in the pool were not enforceable.

18 F. Patent Pools Are Not Dead U.S. Philips v ITC (Fed. Cir ) Package License Which Includes Non- Essential Patents is not Per Se Misuse Patent license is a promise not to sue Unlike tying, there is no requirement for licensees to use the non-essential technology Different from block booking cases No evidence that any part of the royalty was attributable to the non-essential patents

19 F. Patent Pools Are Not Dead U.S. Philips v ITC (Fed. Cir ) Package License Which Includes Non- Essential Patents is not a violation under the Rule of Reason No evidence of a negative effect on commercially available technology No evidence that any manufacturer had considered using alternative technology No evidence that any commercially viable technology existed

20 G. Problems with Patent Pools Manufacturers of large number of products may pay more money by joining a pool Large number of products covered means large royalties paid into the pool Situation can be viewed as portfolio of entire industry against one company If not in pool, can take on competitors one-on- one and win against each Patent pools do not protect against patent trolls and contingency fee litigations

21 G. Problems with Patent Pools Critical mass of licensors needed for patent pool to be successful If the big players in the industry (or even one large player) does not join a patent pool, there may not be enough momentum to start the patent pool Qualcomm, the largest CDMA patent owner, has not joined the 3GPP patent pool; CDMA patent pools have generally been a failure

22 G. Problems with Patent Pools Administration costs of pool may be high After the success of MPEG-2, the first modern day patent pool approved by the U.S. government, the DVD patent pools do not have a third party pool administrator

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