Small and medium enterprises (SMEs), including startups operating in standard-driven sectors such as telecommunication equipment, artificial intelligence (AI), the Internet of Things (IoT), autonomous vehicles, mobile communications, Wi-Fi, computers and laptops, medical devices, drones and fintech, face disproportionate challenges in navigating the Standard Essential Patent (SEP) ecosystem. Compliance with global technical standards is a prerequisite for market acceptance, interoperability, scalability, and integration with existing hardware and software platforms. However, access to the patents essential to these standards is typically possible only through licensing from SEP holders, creating structural disadvantages for smaller firms.
Structural Disadvantages Faced by SMEs SMEs are at an inherent disadvantage in SEP-related negotiations due to several factors:
• Minimal involvement in standard-setting activities
Small firms rarely participate in the work of Standards Setting Organizations (SSOs), limiting both influence and early visibility into evolving technical and licensing frameworks.
• Limited awareness of standards and SEPs
Many enterprises lack foundational knowledge of standards and the role played by SEPs in governing standardized technologies.
• Absence of proprietary SEP portfolios
Unlike large technology firms, SMEs generally do not hold SEPs, eliminating opportunities for cross-licensing and weakening their negotiating position.
• Challenge in mapping SEP to standards and product
Linking SEP claims to a product requires specialized legal and engineering expertise that is often in short supply in small firms.
• Difficulty identifying relevant SEPs
Patent documents do not disclose whether they are standard-essential, making identification both complex and resource-intensive.
• Limited understanding of licensing processes
SEP licensing involves sophisticated legal, economic, and technical assessments that SMEs are ill-equipped to handle.
• High cost of assembling negotiation expertise
Raising an experienced in-house or external negotiating team imposes financial burdens beyond the reach of most startups and is difficult too.
As a result, SMEs become heavily reliant on SEP holders—predominantly large multinational corporations—creating significant power imbalances during negotiations.
Imbalances in SEP Licensing and FRAND Limitations
Although SEP licensing is governed by Fair, Reasonable, and Non-Discriminatory (FRAND) commitments, the practical operation of this framework is fraught with uncertainty. Key FRAND concepts like fair and reasonable, lack precise definitions, and many jurisdictions—including India—do not have specialized mechanisms to resolve SEP licensing disputes efficiently. Further, SSOs do not independently verify whether declared patents are genuinely essential to a standard. This shifts the burden of essentiality assessment entirely onto licensees, requiring extensive technical and legal analysis. SEP holders may exploit this asymmetry by demanding excessive royalties or imposing restrictive licensing conditions, knowing that smaller firms lack the capacity to challenge such claims effectively.
Challenges in Assessing Essentiality and Validity
Determining whether a patent is truly essential, valid, and infringed is particularly challenging for SMEs. For example, over 100,000 5G patent disclosures were reported in 2023. Although many of these patents may not be granted and some of the granted patents may not be SEP. Navigating this landscape under a cloud of uncertainties requires expertise and resources that many firms simply do not possess. Consequently, SMEs face risks of inadvertent infringement, over-licensing, or excessive royalty payments. Some studies indicate that a significant proportion of declared 5G SEPs may not, in fact, be essential—an assertion strongly disputed by SEP holders.
The navigation complexity is further amplified by the existence of a large number of technical standards documents which may run into tens of thousands. Patent documents themselves provide no indication of SEP status. Establishing essentiality requires detailed claim-by-claim analysis against technical standards, often necessitating independent expert review. While reliance on SEP holders’ declarations may reduce costs, it exposes licensees to strategic information asymmetry.
Gaps in Standards Knowledge and Education
The ability to develop globally competitive products depends on a sound understanding of international standards. However, awareness of standards and their legal implications remains limited, particularly in low- and middle-income economies. One contributing factor is the lack of formal education on standards and standardization processes in engineering and technical curricula. Although SSOs maintain databases of declared SEPs, these repositories remain underutilized due to limited awareness and accessibility. It has been reported that a substantial number of mobile communication standards can be implemented by directly utilizing SEPs.
Limited Representation in Standard-Setting Organizations
SMEs have minimal representation within SSOs, restricting their ability to influence technical directions or licensing policies. This lack of participation also limits their understanding of licensing commitments, policy debates, and emerging compliance obligations discussed within these forums. Litigation Risks In the absence of clear and affordable licensing pathways, SMEs are particularly vulnerable to patent litigation. The financial and operational burden of litigation can be catastrophic for smaller firms. In some cases, litigation is used strategically by SEP holders as leverage to secure licensing terms that exceed FRAND expectations.
Innovation Pressure and Opportunity
Despite these challenges, access to SEPs remains essential for innovation. Licensing enables firms to build upon cutting-edge standardized technologies and develop differentiated products. SMEs operating at the frontier of standardized technologies can leverage SEPs as platforms for further innovation rather than mere compliance tools.
The Way Forward
One potential solution is the creation of a Special Purpose Vehicle (SPV) through which SMEs could collectively access standards documentation, identify declared SEPs, and develop shared technical and legal expertise. Such an initiative would require investment in skilled personnel and access to standards databases and could benefit from targeted government financial support.
Additionally, there is a pressing need for India to develop a clear, enforceable SEP licensing framework, aligned with but more precise than existing FRAND principles. Such a framework should be binding on SEP holders operating in India and designed to balance innovation incentives with fair market access. The idea is not to regulate licensing but to enable the licensing process to create a win-win situation for all the people concerned and utilize new technologies.
Standards and SEP literacy and awareness would go a long way in easing the present situation. Standards being so critical, it should be integrated into engineering and technology curricula. More companies need to become familiar with functioning of SSOs and their intellectual property rights (IPR) policies.
SEPs are not anti-innovation like other patents. In fact, they enable global interoperability and put you in the orbit of cutting-edge technologies from where you can see the future and invent. SEPs are indispensable for innovation in standards driven technologies. There is a need to evolve some policy mechanism for facilitating SEP licensing in India. By targeted policy intervention, transparent licensing mechanisms, and institutional support, SEPs would lead to new technological and market opportunities.
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