patents
5 May 2023FeaturesPatentsSarah Speight

Reaction Part II: Are Europe's SEP proposals fair?

Proposed regulations on standard-essential patents (SEPs) offered up by the  European Commission (EC) are proving to be somewhat controversial.

The official draft was  published on Thursday 27 April—one day later than planned and around a month after an  earlier version was leaked, which in itself drew notable consternation.

Now, as the international patent community pores over the revised 77-page document—which, notably, contains significant revisions to the earlier draft—reaction to the  proposed regulation is crystallising into fairly widespread criticism.

While broadly welcoming efforts by the EC to improve the SEP licensing landscape, licensors and licensees—as well as standard-setting organisations—are already finding holes in its proposals, as we reported yesterday.

Even US senators joined the debate, suggesting that the draft regulations threaten innovation, economic success, and security in Europe and the US.

In this second part of a focus on industry reaction, we gathered views from patent lawyers in the UK, Europe and the US.

UK
Tom Foster, partner in the patents team at Taylor Wessing, London: “We are likely to continue seeing heavy lobbying from both sides of the SEP licensing industry.”

"If put into force, the Commission’s proposals would bring about significant reforms to SEP licensing and enforcement in the EU, with the establishment of a new competence centre within the EUIPO [ EU Intellectual Property Office] to administer the reforms.

“SEP owners will be required to register SEPs on an EUIPO database and will have limited ability to enforce them in the EU unless they are registered.

“The regulation introduces a requirement for the EUIPO to carry out ‘essentiality checks’ (ie, whether a patent said to be essential is in fact a SEP). Essentiality checks are often hotly contested when relied on by parties during negotiations or litigation, and there is currently no fully harmonised legal standard for assessing essentiality throughout the EU.

The draft does not specify the procedure the EUIPO would use for carrying out its essentiality checks but states that the Commission shall determine the detailed methodology within 18 months of the entry into force of the regulation.

“The regulation also introduces a procedure by which the EUIPO may make determinations of the FRAND royalty amounts payable under SEPs, upon the request of a SEP owner or implementer.

“Of particular note, a SEP owner must initiate a FRAND determination prior to initiating a SEP infringement claim in a court of any EU member state, which is likely to be one of the more controversial aspects of the draft regulation if it delays SEP owners obtaining royalty payments.

“The regulation provides that a SEP owner may request a ‘provisional injunction of a financial nature’ before a FRAND determination has been carried out by the EUIPO, but it is unclear what this means in practice.

“If implemented, the regulation states that it will not apply until 24 months after the date of its entry into force, so we are likely to continue seeing heavy lobbying from both sides of the SEP licensing industry until then."

UK
Mark Marfé, partner at Pinsent Masons, London: “...It is likely that SEP holders will see the UK as an attractive forum to resolve their future FRAND disputes.”

“The draft regulation provides that SEP holders would be prohibited from initiating infringement proceedings in the EU without first engaging with a FRAND determination process. Technology implementers would similarly be prohibited from requesting that an EU court determine the terms of a FRAND licence if they don’t first engage with the same process.

“Despite these mandatory requirements, the parties would be free to choose whether to engage with the FRAND determination process. If a party commits to accept the outcome and the other doesn’t, then the ‘commitor’ may commence proceedings before a competent national court pending the FRAND determination.

“The regulation also permits SEP holders to apply to court for ‘provisional injunctions of an adequate and proportionate financial nature’ where they have committed to license their SEPs on FRAND terms.

“It remains to be seen if the recent changes to the draft regulation go far enough for SEP holders, some of whom had raised concerns about the earlier draft.

“What’s also interesting is the draft regulation provides implementers with the ability to proactively seek a FRAND determination, something that has been challenging for implementers who have sought this in the courts. It also provides implementers (and especially SMEs) with the means to seek more favourable terms such as a licence that is limited in territorial scope.

“The draft regulation does not prohibit SEP holders from initiating infringement proceedings outside the EU, however, and jurisdictions such as the UK are not subject to these proposals. The English Court has shown it is willing to determine global FRAND licence rates so it is likely that SEP holders will see the UK as an attractive forum to resolve their future FRAND disputes.”

Germany
Tillmann Schöller, associate in the IP practice at Linklaters in Frankfurt: “...Some patent owners fear that the proposed regulation would hinder enforcement of their patents.”

“SEPs are patents that are necessary to use communication standards like 4G and 5G, and every manufacturer of connected products (eg, mobile phones, automobiles or connected fridges) must use them.

“Due to the essential nature of SEPs for entering a market, antitrust law compels SEP owners to grant licences under their SEPs at fair, reasonable and non-discriminatory (FRAND) conditions.

“There are intense discussions and extensive litigation on what terms are in fact FRAND, in particular concerning royalties and the question of who the licence must be granted to.

“The European Commission aims to address these discussions with its proposal, in particular by improving market transparency and involving EU institutions in the management of the relevant patent and licensing information.

“The proposal further contains limitations on the enforcement of SEPs by patent owners and considerations on aggregate royalties for whole standards. SEP licences are usually granted with worldwide effect, which has caused international discussions about the EU’s proposal.

“While many telecommunications operators approve the direction of the proposal, some patent owners fear that the proposed regulation would hinder enforcement of their patents and limit their patent rights.”

US
Erik Puknys, a partner at Finnegan in Palo Alto, California: “There could be more litigation in the US, where SEP owners at least get leverage through the threats of larger damages awards…”

“The new proposal risks the unintended consequence of driving SEP/FRAND litigation away from Europe and towards the US or the UK, where, compared to Germany and China, there is comparatively little SEP/FRAND litigation.

“The dynamic as it currently exists is that Germany is generally considered more SEP-owner friendly, while China is perceived as being more implementer friendly. The proposed EU policy is far less patent-owner friendly than current policy.

“At the same time, implementers are also expressing serious concern with the policy. The EU proposal threatens to drive away litigation initiated by SEP owners without providing any incentive for implementers to view EU litigation more favourably. Implementers will still prefer China.

“The result could be more litigation in the US, where SEP owners at least get leverage through the threats of larger damages awards and greater litigation costs, even if their chances of getting injunctions remain low. The UK courts have also recently issued some pro-SEP-owner decisions, so we might see more litigation there as well.

“There also are serious questions about the competency of the EUIPO to determine patent essentiality and FRAND rates. This is not a knock on the EUIPO, but the issues of essentiality and FRAND are so complex, and the number of patents that will need to be considered so great, that dealing with those issues will be a truly Herculean task.”

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