A year in review: transparency and the EU Communication on SEPs
In November 2017, the European Commission issued a long-awaited Communication titled “Setting out the EU Approach to Standard Essential Patents (SEPs)”. Overall, the Communication framed licensing of SEPs in a careful manner, stressing its aim of “incentivising the development and inclusion of top technologies in standards, by preserving fair and adequate return for these contributions, and ensuring smooth and wide dissemination of standardised technologies based on fair access conditions”.
It is no secret that the Communication was the subject of significant industry debate before its publication. In such a polarised climate, it would have been a challenge for any regulator to propose a balanced policy approach; from that perspective, the Communication can be considered a significant success—or, at the very least, an important step forward.
First, several licensing negotiations that had been halted before the Communication was published (given the uncertainty around the impending EU policy guidance) were successfully concluded. In particular, the December 2017 licensing agreement between Avanci and BMW is significant—introducing a tripartite structure and a fixed dollar per unit royalty which will never increase (regardless of how many patent holders join the pool).
The deal’s importance lies in the fact that it puts forward a viable model for efficient and cost-effective licensing of cellular technology in the automotive industry.
Second, the Communication is a forward-looking policy document, providing guidance but above all encouraging industry to find solutions for the internet of things (IoT) without prescribing rigid models or solutions. In doing so, the Commission acknowledges that technology in the ICT field is evolving extremely fast, and that a prescriptive approach would limit, rather than foster, industry’s ability to reach workable solutions. Some issues, such as valuation, will be discussed further by the forthcoming EU Expert Group on Standard Essential Patents.
The need for more accessible information on SEP licensing
One of the key themes of the Communication is the need to improve publicly-available information on SEPs. With IoT, many new entrants are seeking to incorporate connectivity in their products for the first time and do not have prior experience with SEP licensing. To address this, the Communication sets out recommendations addressed to standard development organisations which focus on (i) improving the quality and accessibility of their SEP declaration databases; and (ii) turning these into an information tool to assist licensing negotiations.
The first of these proposals is relatively uncontroversial. Users of SEP declaration databases sometimes point to their lack of structure, the difficulties in finding, entering and updating information, and the lack of functional links to other patent databases. In the European Telecommunications Standards Institute, for instance, discussions on ways to improve the declaration framework have been taking place since 2015 and have already involved a significant effort from large patent holders to clean up thousands of so-called “non-normalised” declarations.
Other Commission proposals, however, deserve careful consideration. Reconciling the purpose of the declaration system (ie, to ensure that the standard is not blocked due to IP rights by having patent holders disclose all patents they believe are, or may become, essential to a standard) with the Commission’s aim of turning it into an information tool to assist licensing negotiations (ie, a repertoire of only those patents which are essential) is a task which, at least in part, is contradictory.
The recommendation that patent holders regularly update their declarations, if interpreted strictly, could also pose a significant burden for standardisation work, while offering little value in terms of added transparency.
As acknowledged by the Commission, the right solution needs to be balanced and cost-effective. A holistic approach to transparency is needed, with incremental improvements to the standard development organisation framework aided by industry efforts to explain the basics to new entrants: what standardised technology is, how it is developed, why it is accessible, and why licensing costs should be considered when developing a business plan to commercialise IoT products.
Multiple industry efforts are under way to address this, including an initiative led by patent holders (with input from implementers and small and medium-sized enterprises) to set out clear principles and guidance for SEP licensing.
Essentiality ‘assessments’ vs essentiality ‘checks’
Declarations submitted by patent holders on (possible) essentiality are not currently subject to independent third-party scrutiny, leading the Commission to conclude a “risk of broad over-declarations”. To address this, the Communication proposes that some form of independent assessment of essentiality is put in place, while acknowledging that the introduction of such a process must be balanced against its cost.
Determining essentiality is a complex task, and many factors will need to be taken into account in such an exercise: which independent entity has the best legal and technical expertise to conduct this type of assessment; the need for it to be rigorous and neutral while enabling feedback from the patent holder throughout the process, as well as an appeal possibility (similar to the patent-granting process); non-binding nature of the assessment; liability in case of an erroneous assessment; and many others. Above all, it is important to understand that essentiality cannot be assessed with a quick, binary and superficial “check”.
The Commission has published a tender for a pilot project on essentiality assessments, and no doubt some of these issues will inform the work to be undertaken. Applications from interested parties are expected until October 5.
The road ahead
