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24 April 2023PatentsLiz Hockley

EC’s controversial FRAND plan could 'create legal barriers'

Bureaucratic burdens ‘could force patent owners to accept lower licence fees’ | Legal experts concerned about ‘loss of competitiveness’ in Europe ahead of draft’s publication.

Experts in the licensing of standard-essential patents (SEPs) have expressed their concerns that European Commission (EC) proposals for a new regulatory framework, due to be published this week, could damage Europe’s ambition to be a technology leader.

The EC has proposed plans to introduce a royalty process for SEPs, where independent evaluators determine whether a licensor’s patents are essential to the standard, and then use this information to set a fair, reasonable and non-discriminatory (FRAND) rate.

The process will be administered by the EU Intellectual Property Office (EUIPO).

Ahead of the publication of the draft regulations on Wednesday (April 26), Andrew Sharples, co-head of EIP’s UK litigation team, said that the new initiative could “create new legal barriers and delays that may contradict natural law as it pertains to registering and licensing”.

While larger tech companies would benefit from lower prices, “the worry is that added bureaucratic burdens and drawn-out and non-binding legal procedures will force patent owners to accept lower licensing fees than they might have done under the current framework,” noted Sharples, who represented Optis in its FRAND litigation against Apple and Unwired Planet and Conversant in their successful Supreme Court proceedings against Huawei.

Pointing to other potential flaws in the process, Sharples commented on the huge volume of SEPs that would need to be assessed, with over 50,000 patent families declared to be essential to 5G alone.

Also, in order to set the royalty rate, the Commission wants companies to agree among themselves on what the total royalty rate for the technology should be—but patent licensors and licensees would have very different views on this, he said.

‘Loss of competitiveness’

In a leaked document issued on April 14, the director of the European Telecommunications Standards Institute (ETSI) Luis Jorge Romero Saro expressed concerns about the scheme to Anthony Whelan, the EC President Ursula von der Leyen’s digital adviser.

Romero said if the draft regulation imposed an obligation on ETSI to provide confidential data regarding implementers to the EUIPO, this could cause problems.

“We are wary that the creation of a second register in the EUIPO would only confuse and possibly disincentivise innovators to disclose their SEPs in Europe,” he wrote.

“At a time when the EU ambitions to lead in a series of digital domains, including connectivity, mobility and services, we believe that the proposed creation of, inter alia, a register in an EU agency risks damaging EU’s leadership in digital standardisation and the associated loss of competitiveness for Europe.”

Sharples, meanwhile, also opined that the draft regulation might jeopardise Europe’s position in the global technology sector. The proposal could “undermine relevant ETSI systems that have been put in place to guarantee a competitive landscape for European tech companies,” he said, noting that it was unclear how the Commission’s approach would interact with other jurisdictions.

“It is by no means certain that the other countries will consider it a good thing if the EU sets itself up as the arbiter of global FRAND royalty rates,” he said.

SEP implementers, including the  Fair Standards Alliance, The European Automobile Manufacturers’ Association and The App Association, have all weighed in with their support for the draft regulations. In a co-signed letter, the organisations wrote that they believed the “key elements of the proposed regulation are important to strike a good balance between the interests of patent holders and licensees”.

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