SEP (Standard Essential Patent)

A patent that covers technology necessarily implemented by an industry standard — such as 5G wireless protocols, Wi-Fi, or Bluetooth — such that anyone practicing the standard must use the patented technology. SEP holders are generally required to offer licenses on FRAND (fair, reasonable, and non-discriminatory) terms as a condition of having their technology included in the standard. SEP litigation finance presents unique dynamics because the FRAND commitment constrains but does not eliminate the licensor's leverage — courts still determine what FRAND rates actually require, and these determinations can involve billions of dollars in cumulative royalty liability across global product lines. Funders backing SEP holders analyze the standard body's FRAND commitment terms, the SEP holder's licensing history, and the defendant's global exposure across all jurisdictions where the standard is implemented.

SEP campaigns are underwritten around the FRAND commitment's practical limit on leverage: because the patentee cannot easily obtain an injunction against a willing licensee, expected recovery is modeled as a FRAND-consistent royalty across the defendant's global unit volume rather than a settlement premium extracted through injunction threat. Funders analyzing SEP opportunities focus on the standards body's specific FRAND commitment language and the defendant's total addressable product volume, since the aggregate royalty base — not any single infringement finding — ultimately drives recovery size.