Standard essential patents – a growing challenge for EU smart energy delivery

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ESMIG has called for standard essential patents to be licenced on a ‘fair, reasonable and non-discriminatory’ (FRAND) basis.

In a new position paper the European energy product and service provider association has expressed concern over the licensing practices of some standard essential patent (SEP) owners with the potential impact on the costs of smart meters and ultimately the cost-benefit of the rollout itself.

“The continued refusal by many SEP owners to exhaustively license SEPs to companies at any commercially reasonable point of the supply chain will lead to higher smart meter prices. In the end, this means that the consumer will have to bear the cost increase,” the position paper states.

Specifically the paper highlights wireless communication SEP owners that refuse to license component level companies that provide the wireless connectivity modules that smart meter manufacturers buy.

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“This will cause unpredictable cost increases, leading to business uncertainty and will also have a negative impact on the competitiveness of the entire sector, especially on the R&D investments of component suppliers that lead to novel, more advanced and more sustainable solutions for the smart meters of the future.”

The issue of communication SEPs is not new and has become more widely publicised with the growth of 4G and now 5G and implementation in the Internet of Things in areas such as vehicle connectivity.

An example is the recently settled high profile legal dispute running over two years between Daimler and Nokia. Daimler argued its suppliers, rather than it, should buy the technology from Nokia and pay the royalties although in the settlement between the two companies Daimler agreed to be the licencee.

ESMIG position

In an interview with Smart Energy International, Tomás Llobet, Managing Director of ESMIG, said that the issue had come to the fore again within the association and with the attention from others such as the automotive and tech industry sectors.

“For us it’s not just about the meter manufacturers but the whole ecosystem including the providers of the wireless connectivity modules. An increased cost on a relatively low margin product makes it more expensive.”

With the complexity of the issue and the fact that any formal resolution is still far off, ESMIG‘s proposal as outlined in the position paper is that SEPs in the smart metering sector should be licenced on a FRAND basis.

This would ensure that such patent owners receive reasonable compensation for their patented innovations while preventing them from receiving remuneration for innovation that is unrelated to their own efforts and would stop them from refusing licenses to any company willing to negotiate and sign a FRAND license, the paper states.

Moreover, SEP holders should not be able to refuse a FRAND license to patent implementers simply because of their position in the product supply chain. Such denial is a violation of the SEP holder’s pledge, specifically the non-discriminatory principle of the FRAND obligation.

Royalty payments

The paper adds that royalties can be paid at any level in the value chain including where the SEPs are actually implemented, i.e., at the chip, component, intermediary device or end product level.

“However, the FRAND-based license royalty should only be set based upon the value of the component implementing the SEPs and should not include the value of other components or technologies commonly found in an intermediary or end product, many of which have nothing to do with wireless connectivity.”

ESMIG’s position is in line with that of the Fair Standards Alliance, a European association representing technology implementers, including smart grid companies. However, IP Europe, with its membership including wireless tech companies, takes an opposite view.

In a recent blog posting, IP Europe argues that a ‘licence-to-all’ approach finds no support in the existing jurisprudence and does not work in the real economy. In addition, it would undermine innovation in standardised mobile technology.

Llobet says that ESMIG’s position is straightforward: “We have a simple line of argument. We think these practices are not fair, that they add cost and uncertainty and that they are tying up a lot of resources in patent litigation. And if those are increasing the price of smart meters then the pace of the rollout and ultimately the whole energy transition to a consumer-centric system can be impacted.”