The proposed EU SEP Regulation is a type of “light-touch”, proportionate regulation to boost transparency and predictability and provide non-binding skilled opinions, that ought to, on stability, profit EU trade and customers.
Professor Renato Nazzini, King’s School London and companion, LMS London.
Requirements resembling Wi-Fi, 5G, and narrowband IoT are key to technological progress, productiveness and financial development in key sectors of the economic system from telecommunications to linked automobiles, from sensible home equipment to modern medical functions. A know-how underpinning normal might learn throughout tons of or 1000’s of patents. Normal creating organisations (“SDOs”) usually require the proprietor of patented applied sciences which might be important to an ordinary to decide to license the standard-essential patent (“SEP”) on truthful, cheap, and non-discriminatory (“FRAND”) phrases. The reason being apparent: as soon as an ordinary is adopted, the whole trade is locked into the usual. With out efficient safeguards, SEP homeowners can extract excessively excessive royalties that restrict the provision of the usual to the detriment of different trade gamers and customers. A decade in the past, in Motorola, the European Fee determined that it was an abuse of dominance for Motorola to hunt and implement an injunction towards Apple earlier than the German courts, when Apple had communicated its willingness to enter right into a FRAND licence. On the identical time, in Huawei v ZTE, the Court docket of Justice dominated {that a} SEP proprietor abuses its dominant place by bringing a declare for an injunction if it doesn’t adjust to sure pre-litigation steps until the possible licensee reveals itself, by its conduct, to be unwilling to take a FRAND licence.
On 21 February 2024, these points have been mentioned with judges, specialists and trade representatives from all sides of the controversy. There was a transparent view that the present utility of Huawei v ZTE and, extra usually, the present authorized framework fail to ship balanced and environment friendly market outcomes, not least as a result of the case was solely even about behaviour, moderately than FRAND charges and FRAND phrases.
EU courts have usually kept away from setting FRAND phrases and the post-Huawei litigation has primarily centered on injunctions and on the behaviour of SEP homeowners and potential licensees in what has been described because the “FRAND dance”. An important lacking aspect on this strategy is what the FRAND fee truly is: injunctions are sometimes issued by courts within the EU and not using a correct FRAND dedication though the extent of the FRAND royalty is usually on the coronary heart of SEP disputes. The chance of market exclusion that will end result from an injunction being granted, might power a licensee to just accept higher-than-FRAND royalties, which was the difficulty within the Motorola case. In contrast, US courts (if requested by the events), and English and Chinese language courts do set the phrases of world FRAND licences. This isn’t with out its issues from an EU perspective. EU-wide FRAND phrases are set by non-EU courts. Potential licensees which have the sources and skill to resort to Chinese language courts might profit from the decrease international charges set in that jurisdiction however many EU firms, notably SMEs, will not be lively in China and should merely not have that choice.
What the market wants is transparency and predictability over the FRAND royalties and different phrases that shall be relevant to a given normal. A extra environment friendly and clear SEP licensing setting would enable SEP homeowners to monetise their SEPs rapidly and effectively, avoiding protracted negotiations and litigation prices, with important sources being diverted from R&D efforts to unproductive, socially wasteful actions. It will additionally stimulate investments into downstream innovation by potential licensees and facilitate the event of standard-compliant merchandise.
At present, there seems to be a spot out there the place there may be an acute want for enhanced disclosure of knowledge on SEPs and the utmost mixture royalty burden referring to a given normal. There may be additionally an acute want for a facilitative FRAND conciliation process, in step with established ADR practices which were used within the industrial subject for many years, that would scale back the probability of litigation and, if litigation is actually unavoidable, would assist the events and the courts concentrate on the important thing points and velocity the method up. These issues have an effect on, in precept, all potential licensees and the market as a complete, however could also be notably acute for SMEs. The European Fee’s influence evaluation addressed this level particularly, by conducting an intensive literature evaluate, backed up by an empirical evaluation of responses to the session by SMEs. The UK IPO’s personal SME survey and up to date findings by UK courts are in step with the Fee’s conclusions concerning the issues of the present system.
The proposed SEP Regulation addresses these issues in a proportionate, cheap and even, I’d recommend, “light-touch” means. I don’t query that the proposal could also be topic to enchancment by streamlining and clarifying its scope of utility, registration necessities, essentiality checks, mixture royalty dedication and FRAND conciliation procedures. However the basic pillars of the reform are sound and far wanted:
- The proposal fills a spot by offering for registration and knowledge necessities referring to SEPs. These measures merely improve market transparency and are essentially in step with the concept an efficient licensing system have to be predicated on info being obtainable to all events in a means which is, as a lot as attainable, symmetrical and dependable.
- The proposal gives for a process for the dedication of an mixture FRAND royalty, if there may be adequate market demand. Such a dedication will not be binding. Its purpose is solely to supply the events and the market with a non-binding view on the combination FRAND royalty, which might be the point of interest for additional discussions and, probably, settlement.
- The proposal additionally gives that, earlier than both a SEP proprietor or a potential licensee can begin litigation, there shall be a interval of as much as 9 months throughout which the FRAND conciliation process will happen, which can end result within the events agreeing a FRAND licence or in a non-binding third-party skilled opinion on FRAND phrases. If the events don’t agree a licence, the following litigation, by which the court docket is after all not sure by the opinion, is prone to profit from the sharper focus and narrower set of points that may have been scoped throughout within the conciliation process. A 9-month interval will not be unreasonable on this respect. The SEP proprietor, allow us to not neglect, has dedicated to license its SEP on FRAND phrases. Which means that its solely danger in a postponement of the litigation is solely monetary. That is addressed within the proposal by giving the SEP proprietor the unfettered proper to use to a court docket for an injunction of a monetary nature, for instance requiring the possible licensee to submit a bond for any FRAND royalties that could be due. At present, from reported circumstances, plainly the “FRAND dance”, which is a pre-requisite for a SEP proprietor to use to a court docket for an injunction, in observe takes way more than 9 months anyway.
In conclusion, the proposed EU SEP Regulation is an inexpensive and proportionate step in the correct route. By all means, we must always work to enhance it. However we must always not miss this vital alternative to supply for a lot wanted predictability and transparency – together with, crucially, on the whole mixture royalty burden and on particular person FRAND charges – to European stakeholders in essential sectors of our economic system.