When a Stranger Calls: Standards Outsiders and Unencumbered Patents

An extensive literature exists regarding the patent disclosure and licensing commitments made by participants in standards-development organizations (SDOs), and how such commitments affect the assertion of standards-essential patents (SEPs). But this literature largely ignores the acquisition and assertion of SEPs by entities that do not participate in SDOs (Outsiders). SDO Outsiders, which are not themselves bound by the licensing and other requirements imposed by SDOs, have far greater freedom to employ a range of litigation tactics not available to SDO participants when they enforce SEPs against manufacturers of standardized products (Producers). This article describes the first study that has been conducted to collect and analyze data relating to SEP assertions by SDO Outsiders, a large number of which are so-called nonpracticing entities (NPEs). Over a fifteen-year period, the proportion of Outsider assertion of SEPs has been significant. More importantly, both SDO Outsiders and participants assert a combination of SEPs that are encumbered by SDO FRAND licensing commitments and that are unencumbered. Thus, while NPE Outsiders are responsible for numerous assertions of unencumbered SEPs, the greater threat of hold-up and rent extraction could arise from assertions of unencumbered SEPs by SDO Outsiders that are themselves Producers.