EU’s plans for SEPs could drive innovation from Europe
On April 27, the European Commission presented a legislative package comprising proposals for the regulation of standard-essential patents (SEPs), compulsory licensing and supplementary protection certificates (SPCs)—including unitary SPCs.
As far as the draft regulation on SEPs is concerned, the Commission’s objective is to make the EU attractive for standards innovation, and to encourage both SEP holders and implementers to innovate in the EU.
According to the Commission, the regulation is intended to facilitate licensing negotiations by making available information on SEPs and existing fair, reasonable and non-discriminatory (FRAND) terms; and to provide for an alternative dispute resolution mechanism for setting FRAND terms and conditions.
Burden on SEP holders
These objectives can be lauded. However, the industry and practitioners have challenged the effectiveness and efficiency of these draft measures, given the burden that would be placed on SEP holders’ shoulders and the new mission given to the European Union Intellectual Property Office (EUIPO), which is currently in charge of EU trademarks and designs.
It is important to underline that the vast majority of SEPs are the subject of licences granted out of court—that is to say, without leading to a court dispute. Litigators tend to believe that their everyday life is the normality, but the industry will confirm that FRAND disputes are not a part of their daily life, and luckily!
However, by considering the proposals on SEPs with a desire to understand and not to challenge it by principle, we may seriously wonder whether it will enable the EU to achieve its objective of efficiency, attractiveness, innovation and economic growth.
It is one thing to consider some guidelines for industry players and, ultimately, courts when a dispute arises; it is another thing to heap new obligations on companies.
‘Great gift’ to UK
SEP holders will have to register the patents they consider to be essential with the EUIPO. This registration will be a prerequisite for SEP holders to negotiate royalties and/or to bring an action before a court. They will also have to provide precise information on their FRAND terms and conditions, which include FRAND rates and to keep this information up to date.
A panel of conciliators with expertise in the relevant technology appointed by the EUIPO will oversee a conciliation process to assist SEP holders and implementers in agreeing FRAND terms.
SEP holders will be barred from filing a court dispute without first following this conciliation step and, similarly, implementers will not be allowed to file an action to request a court to set the FRAND terms of a licence.
The determination of FRAND terms by the conciliators will not be binding, so the parties will be entitled to bring an action. How will the national courts or the very new Unified Patent Court (UPC) assess where applicable the rate proposed by the conciliator?
This burdensome and costly process of registration and FRAND determination places the EU’s innovation, economy and judicial systems at risk.
As far as judicial systems are concerned, the Commission does not seem to realise that it has offered a great gift to the UK system and has penalised the national European courts and the UPC.
Why would a SEP holder follow the new EU FRAND framework, which makes registering SEPs a prerequisite before any action? And if national courts in continental Europe and Germany in particular refuse to set royalty rates, they limit their jurisdiction in which to determine whether terms are FRAND or not. Will the UPC follow Germany’s practice?
In parallel, UK courts have jurisdiction over determining royalty rates applicable to global SEP portfolios. SEP holders can obtain a decision in the UK setting global FRAND terms and royalty rates, which, if refused by the implementer, will become an injunction.
SEP holders and implementers might, therefore, consider acting in the UK rather than before the UPC.
Is the EUIPO competent?
Another debate is the question of the competence of the EUIPO, which will manage the SEP register, check patent essentiality, and determine a FRAND rate. The EUIPO has proven to be efficient and to have a very solid database system, but it has competence neither in patents nor in very highly complex technologies and in sophisticated determination processes.
According to some information, we may wonder whether a sufficient budget has been envisaged for the new tasks allocated to the EUIPO. Indeed, in addition to SEP and FRAND competencies, the other proposals for obligate the EUIPO to grant SPCs and compulsory licences. Given these new areas of competence and the technicality of these areas, a budget should be provided for recruiting and training new talent immediately, otherwise the risk of failure is high.
Added to this, the proposals would place unnecessary, complex burdens on SEP holders and implementers, which might lead to delays and costs and could mean the industry will treat the EU as a lower priority.
The objectives of the European Commission are far from being met with this proposal. But now, it is time for the council and the parliament to debate. Let’s hope that a destabilisation of the European telecommunications market is avoided.
Marianne Schaffner is partner and head of the Intellectual Property team at Reed Smith in Paris, and head of the firm’s Patent practice in Europe. She can be contacted at: MSchaffner@reedsmith.com
