Earlier this year, President Biden issued Executive Order 14036, “Promoting Competition in the American Economy,” which he stated would “lower prices for families, increase wages for workers, and promote innovation and even faster economic growth.” But one part of the order could deal a hard blow to American inventors, especially small ones, by weakening protections for a pivotal part of technological pioneering: the standard-essential patent (SEP).
An SEP protects a technology that is “essential to an industry standard’s use.” Patents are declared SEPs by standard setting organizations (SSOs) for particular industries. SSOs are comprised of an industry’s most innovative frontrunners, which also happen to be the competitors within an industry. When these organizations gather, they determine which inventions are necessary to continue innovation in the field and declare them to be SEPs; after this, the inventions can be licensed within the industry only under fair, reasonable, and nondiscriminatory (FRAND) terms. This method of licensing—a relaxed form of traditional licensing—allows competitors to innovate with the SEP, rather than around it, allowing the SEP to be accessed widely throughout the industry. A popular example of an SEP is the WiFi standard, which was determined by the Institute of Electrical and Electronics Engineers (IEEE), an SSO comprised of over 400,000 engineers from 160 countries. The details of the WiFi standard are now available for $800 from the IEEE, allowing companies across the globe to harness it for innovation to build the internet of today.
While EO 14036 claims to boost innovation, its changes to SEP policy would do the exact opposite: the order instructs the Attorney General and the Secretary of Commerce to consider revising the “Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments,” which was issued by the DOJ, the USPTO, and the National Institute of Standards and Technology. The statement allowed SEP holders to seek injunctions against potential patent infringers, replacing the Obama Administration’s guidance that such injunctions are potentially “incompatible” with FRAND licensing. This move is reminiscent of the Obama Administration’s policies toward SEPs, including President Obama’s veto of the International Trade Commission’s import ban on old iPhone models. That veto allowed Apple to use technology from Samsung’s patent for decoding and encoding data on cellular networks—which Samsung claimed was an SEP—without obtaining a license.
The Obama Administration was attempting to stop Samsung from extorting high prices for FRAND licenses by weakening its SEP protections. Similarly, the Biden Administration is attempting to protect small firms by weakening the value of SEPs. However, weakening SEPs in turn weakens small firms’ abilities to innovate. Weak SEPs allow large technological companies that have not developed the SEP-protected inventions to pay little to nothing in licensing fees to small innovators. Robbed of this source of income, smaller innovators will lose money while large companies profit off small firms’ work.
SEPs have enabled American innovators, especially smaller inventors, to create the most dynamic modern technologies. Weakening SEPs, especially with the shadow of “Made in China 2025” looming, threatens American innovators’ ability to compete in today’s global intellectual property arena.
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