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 .
A way to make considerable money, considered by some to be equivalent to legalised extortion, is to have an essential, submarine patent and to only start to charge for its use after a standard has become widely acceptable. This is what happened to the GIF and JPEG standards.
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