European Commission proposes radical new FRAND royalty process for essential tech patents (UPDATED)
Commission aims to make licensing of standard-essential patents more transparent and ‘fair’ | EUIPO to oversee new process, which will be mandatory for patent holders | Nokia | Pinsent Masons.
The European Commission has proposed plans to introduce a royalty process for standard-essential patents (SEPs) and to facilitate fair, reasonable, and non-discriminatory (FRAND) determinations.
The draft regulations, due to be published on April 26, will focus on setting “fair” royalties for SEPs through licensing on FRAND terms.
The new framework is aimed at improving transparency and efficiency, and resolving disputes between SEP holders and companies using international technology standards, such as 5G and WiFi.
The EU Intellectual Property Office (EUIPO), headquartered in Alicante, Spain, will be tasked with overseeing the process. Currently, there is no existing arm of the EUIPO that deals with patents.
The EUIPO will have to establish a register for SEPs, and patent holders will not be entitled to receive royalties or seek damages for SEP infringement until registration.
Independent, third-party assessment of whether or not patents are essential will also be required.
The Commission says that under the new framework, the FRAND-setting process should be concluded within nine months, and will be a mandatory step before patent holders are able to rely on the FRAND declaration or sue for infringement.
“This is necessary because disagreements about FRAND terms are the main reason to seek recourse in the courts,” said the Commission in a document seen by Reuters.
A cautionary approach
The move will have a huge impact on both SEP licensors and licensees, both within the EU and globally.
Nokia, a major licensor, said that policymakers should “exercise caution”.
In a statement emailed to WIPR, it said: “The licensing of standard essential patents on FRAND terms generally works well and delivers huge economic and social benefits.
“The refusal by some companies to pay for the use of other companies’ technology is the main barrier to efficient and effective SEP licensing.
“Policymakers should exercise caution when considering potential changes to the regulatory framework for SEPs and avoid jeopardising the benefits of open standards or removing the incentives to invest in R&D for these vital technologies.
“Nokia is committed to a balanced framework for SEP licensing and will continue to engage constructively with regulators and other stakeholders in achieving this aim.”
A ‘commendable’ move
Mark Marfé, a partner at Pinsent Masons in London, believes the Commission’s proposals are “commendable”.
“Certainly from what I've seen of the EU Commission, it's commendable that they're looking to increase transparency and that they are engaging with how to navigate these FRAND disputes and suggesting proposals to go forward,” he said.
“It's pretty clear that FRAND determination is a complex, long and therefore potentially quite expensive process.”
He told WIPR that the proposed regulation should be read in light of recent cases in terms of how FRAND has been dealt with recently.
For example, Lenovo was recently ordered to pay InterDigital $138.7 million in royalty fees for its 3G, 4G and 5G standard-essential patents (SEPs). That decision reinforced the UK court as one of only two jurisdictions, alongside China, prepared to grant a global FRAND licence. No other European court to date has set a global FRAND rate.
While implementation of the draft regulations is still some way off, Marfé said there is a question of what happens in the interim, “and also quite interestingly, the question of how industry players are going to engage with it when it is in place”.
However, the timing is right, he added. “I think it's a good time to do it. The Internet of Things (IoT) is a very relevant area when it comes to SEPs.
“You've got lots more smaller, newer market entrants, who are perhaps less familiar with the SEP regime than say telco companies, and they've also got fewer resources.”
Technical support
In a comment emailed to WIPR, the EUIPO said it is “providing technical support to the European Commission in preparation of the new framework for standard-essential patents, part of the announced ‘patent package’ that is expected to be adopted at the end of April."
The Office said that the package will include legislative proposals for a reform of the supplementary protection certificates (SPCs) to create a unitary SPC, complementing the unitary patent, as well as proposals relating to compulsory licensing and standard-essential patents.
“The measures are expected to simplify the current patenting system, reduce fragmentation, increase efficiency, and enhance exploitation of patents that are crucial for the development of innovative technologies," it explained, "while contributing to enhancing the effectiveness of the EU’s patenting framework, especially for SMEs.”
The EUIPO added: “We do not comment on the content of the upcoming Commission’s proposals before their adoption.”
Alexander Prenter, senior policy officer at the Fair Standards Alliance, which advocates for fairer licensing of standardised technology, told WIPR: “We have taken note of the leaked draft version of a proposal for a regulation on standard essential patents from the European Commission.
“We are still considering the implications of the proposal, but we are glad to see that the Commission is reviewing the important issues we have been raising in the field of standard-essential patent licensing. What we have made clear from the outset is that the system for licensing standard-essential patents must be fair for all.”
This article was updated on Monday, April 3 to incorporate comments from the EUIPO and the FSA.
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