Standards Development Organizations (SDOs) are organizations that develop standards that allow for interoperability and/or interchangeability between products of different companies. SDOs have become quite commonplace. The adoption of industry standards can greatly expand the market for companies that provide products compliant with a standard while simultaneously increasing competition. Some of the more well-known SDOs include the Institute of Electrical and Electronic Engineers (IEEE), the Internet Engineering Task Force (IETF), the American Society of Mechanical Engineers (ASME), the American National Standards Institute (ANSI) and the American Society of Testing and Materials (ASTM).
How do SDOs Work?
The issuance of a patent affords the patent holder the right to exclude others from making, using or selling a product covered by the patent, or employing a patented method. While protecting the patent holder, this can have consequences for the adoption of industry standards and the effectiveness of SDOs. Companies that obtain the issuance of one or more claims in a patent that are essential to the practice of a standard adopted by an SDO (essential patent claims) could demand unreasonably high royalties from parties producing products compliant with the standard or take steps to enjoin the manufacture and sale of products compliant with the standard. Such actions would make it more difficult for companies to compete with the patent holder when selling products that were compliant with the standard.
To avoid these types of problems, SDOs typically require that, as part of the standards adoption process, SDO participants disclose the existence of potential or granted patent rights necessary for the practice of the proposed standard. Upon the identification of such potential or granted rights, SDOs typically require that the patent holder provide the SDO with a Letter of Assurance (LOA) in which the patent holder agrees to make essential patent claims that they own available on reasonable and non-discriminatory (RAND), fair, reasonable and non-discriminatory (FRAND) terms, or without compensation. Such disclosures allow the SDO to consider whether to adopt a standard encumbered by potential or actual patent rights that would (a) be made available for license without compensation of the patent holder, or (b) be made available by the patent holder on RAND or FRAND license terms. If the SDO is not able obtain a suitable LOA, the SDO may choose an alternative technical path that might be unencumbered by patent rights. Entities that do not participate in SDOs are under no obligation to disclose the existence of their pending patent applications or granted patents that are applicable to a proposed industry standard.
Should you Participate?
Companies that own essential patent claims or that own patent applications that might issue with essential patent claims, should participate in an SDO only after a strategic evaluation of the pros and cons associated with the licensing restrictions that are likely to flow from participation. The strategic benefits associated with participation in the SDO, including the ability to urge the adoption of the participant’s technology as an industry standard, could outweigh the restrictions associated with an agreement to license essential patent claims without compensation or on RAND or FRAND terms. On the other hand, the desire to maintain exclusivity in the marketplace and exclude competitors through the enforcement of patent rights involving essential patent claims could be of paramount importance. Participation in an SDO should thus occur only after a careful review of the SDO policies regarding the licensing of patent rights and consideration of pros and cons attendant to such participation.
There is often no simple answer as to whether participation in an SDO makes sense. Companies should therefore consider their strategic objectives and weigh the benefits and risks of participation before joining an SDO.
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