One of the most interesting and unknown aspects of patent law is standard-essential patents, which have made modern tech possible.
Imagine a groundbreaking new technology is developed—let’s say WiFi. Often, different companies invent different aspects of the technology. Maybe one company invents the unique way the radio waves are transmitted from a router, and another invents the WiFi chip to receive those waves. Each of those companies gets a patent on that aspect of the technology. There may be tens of thousands of such patents.
This means that each patent owner can prevent anyone from developing a WiFi device. If I have the patent on the WiFi receiving chip, no one else is allowed to build it without my permission, or else they’re committing patent infringement. That means if a company wants to build a WiFi device, it must obtain licenses from every patent owner.
This becomes prohibitively expensive because patent owners have an incentive to “hold out” to increase their licensing income. If the company obtains a license from everyone except me, I'm going to demand a lot of money.
The result under this scenario is that different WiFi technologies develop. Because companies can’t use my specific WiFi chip, they each develop their own. The result is maybe a dozen different types of WiFi, none of which are interoperable with each other. My Apple iPhone many not be able to receive WiFi signals from my Cisco router. This is a bad outcome for both consumers and businesses selling WiFi devices.
The solution is to create a uniform standard. When WiFi was created, the biggest players in the industry like Broadcom and Intel got together and agreed on a single standard that all WiFi devices should use. Anyone who wanted to build a WiFi device just had to follow the standard and it was guaranteed to work with all other WiFi devices.
But this introduced another problem. The standard that was chosen would inevitably infringe some patents. That meant anyone who followed the standard would infringe.
The solution was to force (via contract) any company who wanted to be involved in creating the standard to agree to license any of its patents deemed “essential” to the standard on a fair, reasonable, and non-discriminatory (FRAND) basis.
WiFi, Ethernet, USB, 5G, Bluetooth, and much more all emerged from standard-setting bodies. They wouldn’t exist without the standard-essential patent system.
