SEP licensing in the United States: Understanding the impact on US business

March 13, 2023
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US Business Survey

On behalf of ACT | The App Association, consultants with Charles River Associates undertook a survey of US businesses that use technical standards in their products and so are currently or potentially affected by SEP licensing. This survey aims to summarize the views and experiences of US businesses regarding SEP licensing and to understand any issues that US businesses may face with SEP licensing.

The survey results reflect responses from 305 firms active in the United States and that use standardized technology. The results also capture the views of small businesses that may not be SEP licensees yet, but for which SEP licensing may still, either currently or in the future, be affecting their business.

  • The survey highlights that businesses have significant concerns about hold-up and the risk of injunctions in the current SEP licensing framework. Despite a commitment by SEP holders to license on fair, reasonable, and non-discriminatory (FRAND) terms, more than two-thirds of respondents are concerned that SEP holders may behave opportunistically to charge excessive royalties or impose non-FRAND terms. To avoid a court order banning their products from the US market, more than two-thirds of respondents would accept SEP license terms that they do not consider to be FRAND.
  • There has been public debate as to whether SEP royalties should be calculated on the value of the end-product sold to consumers (e.g., a smartphone) or on the component that provides standardized functionality (e.g., the chip). Most respondents consider that licensing at the end device level may result in inflated royalties and risks disadvantaging start-ups and SMBs. An overwhelming majority of respondents believe that royalties based on the end-product’s value will be higher than if they are based on the component’s value, and that component suppliers should have a right to obtain SEP licenses on FRAND terms. Respondents also believe that start-ups and SMBs with limited resources and experiences with SEP licensing are disadvantaged if they must negotiate directly with SEP holders because they are unable to purchase licensed components.
  • The prevalence of SEP licensing issues and the strength of feeling among respondents meant that nearly three-quarters of the respondents would support US government intervention to ensure that SEP holders abide by their commitments to license their SEPs on FRAND terms. In this context, around three-quarters of respondents agree that the International Trade Commission (ITC) should not have the power to bar firms that are willing to take a license on FRAND terms from selling products in the US market.

To learn more about the survey, click here.

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