What Implementers Should Do When Approached for SEP Licensing – SEP Licensing for Implementers
Introduction: When the Call Comes
For many companies, the first real encounter with Standard Essential Patent (SEP) licensing happens when a letter or email arrives from a patent owner or licensing program. It can be unsettling: legal language, royalty demands, and references to technical standards you may not even be fully aware your products or services rely on. Yet if they use connectivity, video, or other standardized technologies, chances are that at some point, a licensor will reach out.
This article discusses SEP licensing especially from the perspective of the company who implements standards to their products or services, therefore being the implementer. It explains what you should expect from the process, what you can and should ask for, and how to approach licensing constructively. The goal is not to avoid paying royalties (if standardized technology is used, a license to SEPs is usually appropriate) but to ensure that the process is fair and respectful of your role as a technology implementer.
First Step: Understanding Why You Are Being Contacted
When a licensor reaches out, it’s because they believe your products or services practice one or more of their SEPs. That means your device or service uses technology that is covered by patents declared essential to a standard (e.g. 4G, 5G, Wi-Fi, HEVC). For you, this is not necessarily bad news; it simply confirms you are operating in line with the global ecosystem of standardized technologies.
What you should expect (and demand if needed) to receive at this stage:
A clear description of the licensing basis, usually referencing the relevant standard and your product or service that are using the standard.
Evidence of essentiality, such as claim charts mapping patents to the standard specifications.
An outline of the offered licensing model, including the royalty structure.
Some information sharing may require a non-disclosure agreement to be in place. NDAs are discussed later in this article.
What You Can Ask For
It is perfectly reasonable to ask questions before signing anything. Among the key points:
Transparency on the Licensor’s Portfolio. Which patents are claimed to be essential? In which jurisdictions are they granted? How is the portfolio maintained and updated?
Evidence of Essentiality. Can you review claim charts explaining how the patents are essential? Are there independent assessments confirming essentiality?
Scope of License. Which products or services are covered? Does the license include your suppliers’ or customers’ activities, to avoid double payments?
Royalty Calculation. What is the royalty base? (End product? Component? Usage of service?) How are rates justified as FRAND (Fair, Reasonable, and Non-Discriminatory)? Are there comparable agreements with similar companies?
Contractual Safeguards. How will compliance and audits be handled? What happens if patents expire or are invalidated or more relevant patents are granted? Is there flexibility if your product mix changes?
Doing Your Homework
Engaging constructively in SEP licensing also means preparing yourself. Just as manufacturers carefully calculate the bill of materials, source reliable components, and manage detailed cost structures, they should apply the same diligence to technology rights that require licenses. Same diligence is required also from providers of services that use standardized technology.
When you enter a market, you usually know:
Which technologies your product or service relies on.
What components or technology you need to purchase to ensure required functionality.
How much to spend on quality materials and manufacturing.
The same applies to SEP licensing. Manufacturers and service providers should generate knowledge of which licenses are needed, where to get them, and what cost level to expect. This is not an impossible task, as there is a wealth of information available:
Licensors themselves: Major licensors are often active in educating the market and clarifying their programs.
Patent pools: Many standards are covered by pools that provide “one-stop-shop” licenses covering large parts of the licensor market.
Public institutions: WIPO, the EPO, and the UK IPO regularly publish material explaining SEPs and licensing.
Standard-setting organizations: ETSI, IEEE, and others provide declarations and databases of SEPs.
Commercial data services and tools: For companies needing detailed analysis, there are specialized services and tools that track portfolios, make essentiality assessments, and provide insight on licensing trends.
Much of the above information is freely available. Doing your homework prepares you for negotiations, helps you understand industry practice and assess whether the offers you receive are in line with FRAND principles. Expert services and lawyers may be helpful to engage, but you will be the best expert of your own business.
NDAs: Protecting Both Sides
At some point in the discussions, the licensor may propose a non-disclosure agreement (NDA). These are not simply formalities; they protect sensitive information for both parties.
From the licensor’s side, NDAs protect technical claim charts, legal arguments, and pricing strategies.
From the licensee’s side, NDAs ensure that your business’ operational data like sales volumes, customer and supplier information, technology roadmaps, and market positions remain confidential.
In practice, NDAs often cover pricing information, market positions, sales figures, supply chain details and potential legal positions related to claim charts made by both parties.
Early conversations can sometimes proceed without an NDA, especially when only public information is exchanged. But as the process advances and concrete terms, sales volumes, or claim charts are shared, having an NDA in place becomes not just appropriate but necessary. It builds trust and enables both sides to share the level of detail needed for meaningful negotiations.
Indemnifications: Why They Are Not a License
Another issue that often arises in SEP licensing discussions is indemnification. Suppliers may claim that they will “indemnify” you for any patent claims relating to their components. While this may sound reassuring, it is crucial to understand what indemnities can and cannot do.
An indemnity is not a license. It is a contractual promise by one party (usually a supplier) to cover costs if claims arise. It does not provide you with the actual right to use the patented technology.
Indemnities in the supply chain are common, but they only work if the supplier itself has access to the necessary license. For SEPs, this is often not the case. Many licensors do not license component manufacturers at all, but they license at the end-product level.
This means a supplier’s indemnity may not protect you if the licensor only licenses device makers or service providers. You could still be exposed to infringement claims, despite the supplier’s promise.
There are exceptions. Some licensors do license component makers, and in those cases, a supplier indemnity can provide meaningful protection. The key for implementers is to check carefully:
Does your supplier hold the necessary SEP license?
If not, is the indemnity enforceable in practice, or just a hollow promise?
As highlighted in industry practice, relying solely on indemnification without confirming licensing coverage is a common and risky misunderstanding.
Balancing Business Practicalities
From an implementer’s view, SEP licensing is about legal obligations and operational certainty. A license can:
Reduce litigation risk and potential injunctions.
Clarify cost structure in your bill of materials.
Ensure continuity of supply and customer trust.
Positive Engagement: How to Approach Negotiations
Approaching licensing positively means recognizing that the licensor invested in R&D and contributed to the standards you now rely on. At the same time, you have legitimate interests in predictable costs and fair terms. A constructive implementer will:
Acknowledge the need for a license if use of SEPs is clear.
Request information in a structured way.
Compare proposed terms with market practice.
Keep communication professional and business-oriented, with open communication lines.
Remember: licensors expect some level of negotiation. What matters is showing you are a willing licensee, engaging in good faith, and not simply delaying. Courts in many jurisdictions will consider your conduct if disputes escalate.
What FRAND Means for You
As an implementer, the FRAND principle is your safeguard. It means:
You should be offered terms that are broadly consistent with what other similarly situated companies in your industry have.
Rates must be justified and not discriminatory.
Conditions must be commercially workable.
You can, and should, ask how the licensor ensures FRAND compliance. Some licensors publish guidelines or rely on patent pools that already have transparent structures. Others may negotiate bilaterally.
When to Seek Expert Advice
SEP licensing can be complex. Consider external advice when:
The portfolio is large and global.
Multiple licensors approach you simultaneously.
The financial impact on your business is significant.
Specialized licensing advisors or counsel can benchmark terms, check technical evidence, and guide negotiation strategies.
From Uncertainty to Clarity
Being approached for SEP licensing does not need to be alarming. Think of it as a business process: the licensor seeks a return on their innovation investment, and you seek legal certainty and business continuity. The key is to engage openly, ask the right questions, do your homework, and ensure that the license you agree on is fair, and aligned with your business.
Handled well, SEP licensing becomes part of building a reliable, competitive product or service line, not just a legal checkbox.
Quick Reference: What Implementers Should Do When Approached for SEP Licensing
When the first letter or call comes in, here’s a structured way to respond:
1. Understand the Basics
Clarify which standards and products are said to be covered.
Ask for evidence of essentiality (claim charts, references to standards).
2. Ask the Right Questions
Which patents and jurisdictions are included?
What is the royalty base and rate?
How does the licensor demonstrate FRAND compliance?
What scope does the license cover?
3. Protect Information
Agree on an NDA once detailed data (sales, claim charts, legal positions) are exchanged.
Ensure that confidentiality works both ways.
4. Check Indemnities Carefully
Remember: indemnity is not a license.
Verify whether your supplier is actually licensed for SEPs. If not, the indemnity may not protect you.
5. Make Sure the Homework is Done
Research typical licensing models and rates in your industry.
Use public resources (WIPO, EPO, UK IPO, standard-setting bodies).
Check patent pool options.
Consider commercial data services if exposure is large.
6. Keep Business Perspective
View licensing as part of your bill of materials and cost structure.
Engage positively: be a willing licensee, not a holdout.
Compare with industry practice and negotiate constructively.
7. Know When to Seek Expert Help
If the portfolio is global or negotiations complex, involve licensing advisors or counsel.
Benchmark against comparable deals to ensure fairness.
Bottom line: Treat SEP licensing like any other critical part of your supply chain. Prepare, ask, verify, and engage. Done well, it’s not just compliance, but a foundation for reliable and competitive products.
