Essential patent

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An essential patent is a patent which is required in order to make a particular product. In particular a patent which is essential to a standard becomes very valuable if that standard becomes important. Due to this value, standardisation bodies often try to arrange licensing terms for the patent prior to incorporating it into their standard. These terms are often either reasonable and non discriminatory licenses or royalty free licenses.

Considerable money can be made by obtaining submarine patent on a technology that may become essential, in order to give the technology an opportunity to become standard before the patent is published. This can result in a large portion of the industry suddenly discovering that they owe royalties on a previously free standard technology. This is what happened to the GIF and JPEG standards.