Making SEP agreements fair: why Europe should take the lead

Standard-essential patents (SEPs) are well known for the prolific, high stakes lawsuits they provoke, especially in the related fields of technology and telecoms. In the EU, several prominent cases have grabbed headlines in recent years. The landmark Huawei v ZTE case is one notable example, and cases continue to pile up across the EU.

In Germany in particular, a steady stream of high-profile SEP suits continue to be filed with, most recently, LG Electronics  seeking an injunction against French smartphone maker Wiko in the Mannheim Court. In the UK, the English High Court has been adjudicating a SEP dispute between  Philips and Taiwanese firms  HTC and AsusTek.

Yet SEP litigation takes place all around the world, not just in Europe, and invariably it involves companies from many countries, reflecting the fact that supply chains are global. Unless something changes, it is safe to predict many more years of hugely expensive SEP litigation.

This may be good news for SEP litigators, but it is a very worrying state of affairs for innovative companies, none more so than for the small and medium sized enterprises that reside on the cutting edge of invention in the emerging internet of things (IoT). SEP litigation is undeniably resource-draining and time-consuming for any party, but so much more so for App Association members that, as small businesses, simply cannot absorb the costs and time associated with it. Court battles also have the habit of scaring off investment in new innovations that use standardised technologies.

Policymakers from some of the most important jurisdictions—including Europe, Japan and the US—have long recognised the societal benefits associated with reducing the need to litigate, especially in the area of SEPs. That’s why all three jurisdictions have attempted to make the SEP licensing process less contentious.

Unfortunately not all their efforts to date have had much success, and in one case the situation has become even worse.

In June, the Japan Patent Office (JPO) published its initial edition of the Guide to Licensing Negotiations Involving Standard Essential Patents, with the stated goal of helping international and Japanese parties to arrange equitable licensing of key technologies covered by SEPs. The JPO’s Guide did well to comprehensively cover the many sub-issues in the SEP space and described the different viewpoints on a number of key controversies, but given this approach it remains to be seen whether a significant impact will be made on licensing negotiations and the litigation that results when negotiators lack clarity and cannot execute a licence.

The App Association appreciates the JPO’s efforts—it participated in its consultation process—and we acknowledge that the JPO describes its Guide as a work in progress that will evolve as its thinking evolves.

In the US

Shifting to the US, at the beginning of this year US Department of Justice (DOJ) assistant attorney general for antitrust, Makan Delrahim, began to give public remarks indicating his wish for the US to shift away from its long-standing (and globe-leading) support for a balanced SEP licensing ecosystem based on well-established competition law precedent and policy.

Shortly after his views became public, a large group of leading law professors from around the world and former US government antitrust enforcement officials challenged Delrahim in a letter, explaining the “broad bipartisan legal and economic consensus” on the antitrust concerns of patent holdups and the market benefit of standard setting organisations (SSOs).

Later, a group of industry associations representing the tech, auto, and retail industries, and including the App Association, submitted a detailed white paper to Delrahim explaining the substance behind the widespread opposition to his views.

This debate continues, and as long as it does, US leadership in the SEP policy space remains in jeopardy.

Meanwhile, at the end of 2017, the European Commission (EC) published its own SEP licensing guidelines in the form of a Communication on licensing practices for SEPs. The EC developed this Communication(pdf) to provide a “balanced, smooth and predictable framework for SEPs” that will contribute to “the development of the IoT and harnessing Europe’s lead role in this context”. For more details on the Communication, take a look at our suggested top three takeaways  here, and to review a comprehensive summary of the Communication, click here.

The SEP Communication takes the globally-established norms in the SEP space and builds on them to provide some much needed clarity on major issues. For example, the Communication provides concrete recommendations based around the Huawei decision and other binding EU law with regard to injunctions, noting that courts are required to ensure that injunctive relief is “effective, proportionate and dissuasive” and determined carefully in consideration of the “broad impact” an injunction can have on “businesses, consumers and on the public interest, particularly in the context of the digitised economy”.

The Communication also discourages the use of some damaging SEP pricing methodologies, such as the controversial “use-based” pricing.

A harmonised approach

The App Association is committed to working with courts and policymakers across the EU to advance a harmonised approach to SEP licensing, building on the foundations of both competition and contract law, and how SEP licensing disputes should be adjudicated, while respecting member state sovereignty.

It is also engaged with policymakers in Japan and the US with the same aim. However, Europe’s current efforts to improve the SEP licensing process have the best chance of success, because they appear to have struck a good balance between the interests of the companies that seek to license their SEP-protected technologies and the wider community of innovators that need access to the technologies in order to develop innovative applications and products.

However, the EC’s work is not finished. In July, it announced its intention to create a 15-strong Expert Group that will examine a variety of topics related to SEPs, with members to be selected in the coming weeks.

The efforts of this Expert Group and its output will be quite influential moving forward. It is vital that this group includes people who understand the broad innovation process, not just the specific and narrow business interests of a small group of SEP holders.

The SEP holders that are pushing policymakers across these and other jurisdictions to tip the SEP licensing scales further in their favour are a small sample of the businesses that actively assert their SEP rights. Many other SEP holders are more ideologically aligned with us, and they support efforts to balance the playing field across the wide range of innovators all along the value chain that need to license the standardised technologies in order to invent new apps and products.

We continue to urge policymakers in the US, Japan, and the EU—and others around the globe—to build on the global norms of a balanced SEP licensing ecosystem that is safeguarded by a meaningful FRAND commitment. We believe the EC continues to move in a positive direction in this respect, and urge other policymakers to support innovation in averting a lot of unnecessary, costly andtime-consuming SEP litigation in the years to come.

Brian Scarpelli is senior global policy counsel at the App Association. He can be contacted at: BScarpelli@actonline.org