Private standard-setting organizations, through which industry competitors gather together and agree on standardized methods and manufactures, are considered to promote a pro-competitive activity.  Indeed, private standard setting is essential to our commercial infrastructure; in the absence of such standards, much of the technology we have come to depend on would be reduced to marginal usefulness, would be unsafe, remain prohibitively expensive for widespread adoption, or simply would not exist. 

In cleantech, standards development is occurring across all technologies. Standards development has taken an extremely high profile in the development of smart grid technologies -- and for good reason.  A recent article published on the Greentech Media website, "One World, One Grid, One Standard," by IEEE Standards President Dr. W. Charlton "Chuck" Adams Jr., highlights the importance of standards setting to smart grid development, and is excellent reading on the topic. As the article points out, the National Institute of Standards Technology (NIST) released its roadmap for interoperability standards a year ago September, mapping out an important path through which industry can harness the power of interoperability standards to streamline smart grid development, both technologically and economically.  This path is blazed via Standard Development Organizations' (SDO) working groups, described in more detail below, that develop the interoperability and security standards essential to smart grid build-out. 

However, competitors do not stop competing, even when collaborating for the common good. Nowhere is this more evident than in the world of standards development and Intellectual Property (IP), namely, patents. Indeed, the SDO working groups often are the very arena where competition among proprietary technologies plays itself out.

A patent is a government grant of exclusive rights for an inventive composition of matter, machine, manufacture, or process. A patent can be granted for any invention that is novel, non-obvious, and useful.  A common misconception is that a patent gives its owner a right to practice an invention; in truth, this is not the case. A patentee has the right to exclude others from practicing the invention covered by the patent during the patent term, regardless of whether they practice it themselves.  Thus, generally speaking, a patentee has the ability to dictate the terms to entry into the market for the patented product or method.

One of the issues of patent ownership in the standard-setting context revolves around the issue of "patent holdup." An understanding of patent holdup requires a basic understanding of the standard-setting process. SDOs allow companies that are normally competitors or potential competitors operating in the same industry to come together and agree to build their products to meet a certain set of standards. As members of the SDO, the competitors agree to design their products in the manner that the operative standard dictates, and other companies can have products certified under the standard. Competitors may agree to adopt a standard during a standard-setting process for any number of reasons, for example, to allow for interoperability between devices, to address a market demand for a single standard, or to assure that products meet certain levels of safe operation. 

In an SDO, subcommittees and working groups composed of different competitors engage in a process of discussing, proposing, and voting on standards over the course of a number of meetings. Upon adopting the standard, these competitors, and the industry as a whole, generally will build to this standard to obtain the benefits provided thereby. The issue of patent holdup arises out of the simple fact that many of these competitors have patents or patent portfolios that are essential to implementing an industry standard. Hence, there is a risk that once a standard is adopted, a patent holder, or a group of patent holders, participating in the standard-setting process, can later assert patents covering the standard, alleging that building to the standard constitutes infringement. If multiple companies have patents necessary to practicing a standard, a "patent thicket" occurs.

In order to mitigate against the possibility of patent holdup, many SDOs require that a patentee (a) disclose any patents to the standard-setting body that are necessary to practice the standard and (b) provide a license under [fair], reasonable, and nondiscriminatory ([F]RAND) terms, or provide a royalty-free license. Over the past few years, SDOs have been refining this process in an attempt to better facilitate the delicate balance between promoting high quality standards without hampering the robust competition environment that is good for market development, of which patent protection is a part. The IEEE has been a leader in this regard.

In 2007, IEEE was one of 2 standards bodies that requested Business Review Letters (BRLs) of the U.S. Dept. of Justice to obtain an opinion on the legality of a more detailed SDO policy that had more precise provisions and options on patent disclosure licensing provisions.  In April 2007, the DOJ issued a BRL stating it would not challenge the policy, and the policy went into effect the next month. 

Accordingly, the mere fact that a product is made or operates in accord with an industry standard does not render it invulnerable to a patent. In the case where the patent holder was involved with the development of a standard, that patent holder might have an obligation, for example, to license under "reasonable, non-discriminatory terms"; but even then, the patent holder may have a good deal of leeway in setting those terms, depending on a whole host of legal and factual factors.

Moreover, it is always possible that a patent holder legitimately never had any association with an SDO developing a standard.  In such an instance, a patentee would normally not have any duties or obligations that could arise from an SDO policy in place when developing the standard. 

Thus, building to a standard does not necessarily mitigate the risks posed by a patent. To the contrary, building to a standard may play a role in the infringement determination.  On September 20, 2010, the Federal Circuit Court of Appeals, the penultimate court for patent matters, issued an opinion in a patent case involving sections of the IEEE 802.11 wireless standard.  In the case, although the lower court did not find the defendant, Netgear, liable, that court held that any product that complied with certain sections of the IEEE 802.11 standard infringed the asserted patent.

To assess infringement, the lower court compared the claims of the patent (which describe what the patent covers) to the "Wi-Fi Alliance Wireless Multi-Media Specification" related to one of the standards instead of Netgear's actual product. On appeal, Netgear argued both on legal and policy grounds that the Federal Circuit should adopt a rule completely foreclosing the use of a standard to assess infringement, arguing the claims of a patent should only be compared to the accused products themselves, or else merely practicing a standard would lead to automatically concluding that all those who practiced the standard in the future infringed (Fujitsu Ltd. v. Netgear, Slip. Op 6-7).

The Federal Circuit disagreed, and found no error in the lower court's determination of direct infringement based solely on the standard, stating:

[A] district court may rely on an industry standard in analyzing infringement.  If a district court construes the claims and finds that the reach of the claims [of a patent] includes any device that practices a standard, then this can be sufficient for a finding of infringement.  We agree that claims should be compared to the accused product to determine infringement.  However, if an accused product operates in accordance with a standard, then comparing the claims to that standard is the same as comparing the claims to the accused product....  An accused infringer is free to either to prove that the claims do not cover all implementations of the standard or to prove that it does not practice the standard.

It is important to note that the Federal Circuit did not set forth a rule stating that if a product or method falls under a standard it will infringe. As the court explained, "In many instances, an industry standard does not provide the level of specificity required to establish that practicing that standard would always result in infringement," and that in certain instances, "standards compliance alone would not establish that the accused infringer chooses to implement the optional section."

The court made it clear that in many instances, mere compliance with a standard would not justify a conclusion of infringement.  But clearly, in certain instances, mere compliance with a standard would be enough evidence to conclude a product or process infringes a patent. In particular, the court stated: "[o]nly in the situation were a patent covers every possible implantation of a standard will it be enough to prove infringement by showing standard compliance."

It should be understood that the processes of patenting and standard setting may seem to be contradictory, they are in fact regarded as complementary. Different standard-setting organizations have different degrees of latitude that they extend to industry members regarding their patents. This is because it is generally understood that patents foster competition for speedier innovation, and indeed, a patented technology may find its way into a standard because competitors agree that it is the best, the safest, the most economical, etc., manner of proceeding.

As such, it is perfectly conceivable that, for example, a communication protocol for specific smart grid hardware that lends itself to better cyber-security may be adopted into a standard, even though it is covered by a patent.  Indeed, NIST's own patent policy states: "In support of the NIST Mission to promote U.S. innovation and industrial competitiveness by advancing measurement science, standards and technology -- in ways that enhance economic security and improve the quality of life, NIST encourages patent protection on an invention that has been assigned to NIST by one or more inventors" (NIST Patent Policy, September 21, 2006).

As explained above, SDOs often insist upon disclosure of essential patents, and often, some compel participants to promise to license on [F]RAND terms, or even allow participants to proffer specific licensing provisions and even sample licenses. In this vein, patent holders who participate in SDOs to develop standards also run risks.  A storied body of defenses, causes of action, and even FTC actions to counter charges of patent infringement, which is beyond the scope of this article, have grown up around challenges to patentees who participated in a standard setting process, predicated on, for example, the failure to disclose patents during the standard setting process, or improperly refusing to license thereafter.

The cases can prove colorful, even including allegations of corporate espionage and sharp corporate practices -- not the sort of thing one typically thinks of when contemplating patent cases.  As such, patent holders with patents that may be relevant to a standard also have minefields of their own to navigate if they intend to participate in or influence standard setting.

As noted above, many SDOs, such as the IEEE, have been in the lead in developing more sophisticated patent policies that balance the interests of patent holders and industry members and take advantage of developed law. That said, the standard setting/IP interface is an extremely complex and fact-intensive area of law, and as such, no single case or set of facts are definitively conclusive when faced with such issues.

However, as cleantech companies and investors are going to be ever more involved and affected by the standard setting that shapes technological development and markets, each and all must do so being both mindful and informed of the complex risks and benefits of Intellectual Property impacting these standards.


Brian M. McGuire is an attorney at Frommer Lawrence & Haug LLP.  His practice focuses on procurement and enforcement of intellectual property rights, including patent prosecution, litigation, the preparation of patent infringement, validity and freedom-to-operate opinions, intellectual property due diligence, and client counseling on intellectual property matters. 

The case discussed in this article turned on theories of "indirect" patent infringement, which are beyond the scope of this paper.  However, one of the elements of an indirect infringement is that "direct infringement" must occur at some point.  The lower court found this "direct infringement" existed based on compliance with the standard.