Reaction: Europe's SEP proposals draw sharp scrutiny

The  European Commission’s much-anticipated proposed regulations on standard-essential patents (SEPs) were  published on Thursday 27 April—one day later than planned and around a month after a  draft was leaked.

However, the  proposed regulation has drawn mixed reactions from the international patent community, with potent criticism coming from all stakeholders—SEP holders and implementers alike.

Even standard-setters have expressed unease. For example, before the official draft was published, the  European Telecommunications Standards Institute (ETSI)  voiced concerns over the Commission’s plans to regulate SEPs.

And the  European Center for International Political Economy (ECIPE) suggested that the draft proposals would be bad for technological development and Europe.

Letter from America

The debate has even spilled beyond Europe’s borders. Several former senior officials from US Democratic and Republican administrations, including  David Kappos and  Andrei Iancu, wrote to the Commission to warn that the proposals threaten innovation and economic success and security in Europe and the US.

In a letter addressed to EC president Ursula von der Leyen, they said: “We write to express our shared concerns regarding an apparent pivot in the European Commission’s longstanding intellectual property policy that threatens European and American innovation leadership, and by extension, European and American economic success and security.”

Added to that, in a recent hearing, US Senator Chris Coons expressed his concerns about the proposed EU SEP regulation.

Referring to the “competitive threats” to the US’s economic leadership, he highlighted China’s abusive practices with respect to SEPs.

“I have real concerns about the European Commission's new shop regulations. And if it goes in a certain direction, that resolution will just validate China's abuse of royalty setting practices and harm our patent owners. There may be room to engage with the European Commission to discuss the unintended, let's hope, consequences of their regulation.”

Coons asked US Secretary of Commerce Gina Raimondo to work with him to “communicate the potential harm to our global competitiveness if this is adopted by our European partners,” to which she agreed.

WIPR asked stakeholders for their initial responses to the proposals, and in this first part we share views from SEP holders (licensors) and implementers (licensees) within the industry.

Nokia company spokesperson: “Our first impression is that there are elements which are unworkable and unbalanced.”

“To date, the licensing of standard essential patents on FRAND terms and conditions has worked well and delivered huge economic and social benefits. And so it is disappointing that the proposed reforms have been developed without an open and transparent industry consultation.

“We are studying the package now that it has been published. Our first impression is that there are elements which are unworkable and unbalanced. Nokia is committed to a balanced and transparent framework for SEP licensing and will continue to engage constructively with policymakers and other stakeholders in achieving this.”

Silke Reinhold, head of corporate IP at  Volkswagen Group (and a member of the Fair Standards Alliance): “We are concerned that the overall goal of the SEP regulation will be undermined by exceptions to its applicability.”

"We appreciate the Commission's efforts to create a more transparent and predictable licensing system for SEPs.

“Due to high investments in digitalisation, a balanced framework for SEP licensing is of significant importance for the automotive industry.

“However, we are concerned that the overall goal of the SEP regulation will be undermined by exceptions to its applicability.”

The  Fair Standards Alliance (FSA), which promotes transparency and fairness in SEP licensing: “We regret that the proposal fails to live up to the objectives that earlier drafts sought to aspire to.”

“We agree with the Commission’s view that the system for licensing SEPs needs to be more predictable and transparent. It notes in particular that inefficient licensing practices in new markets such as the rising Internet of Things (IoT) may be hindering the broad implementation of standardised technologies.

“We regret, however, that the proposal fails to live up to the objectives that earlier drafts sought to aspire to. A number of new considerations have been introduced that risk undermining the implementation of a fair and transparent licensing system for all stakeholders.

“While many details remain to be assessed and further improved, we shouldn’t lose sight of the initial and overall objective from the Commission with this review: improving the much-needed licensing of SEPs.

“The Commission is acknowledging that companies active in the most innovative EU industries struggle to get licences on fair and reasonable terms. That should not be the case and we trust that policymakers will work to address this effectively”.

Eva Gouwens, CEO of  Fairphone, an FSA member: “We hope that the proposed regulation will create a more trusted and accessible system for FRAND licences.”

"As a small company we have struggled in the past to obtain FRAND licences, and faced many demands from patent assertion entities. We hope that the proposed regulation will create a more trusted and accessible system for FRAND licences.

“Fairphone looks forward to working with policymakers to ensure the final regulation creates a more balanced, predictable and transparent licensing environment for SEP."

Mike Sax, founder and chairperson of  ACT | The App Association, a global organisation representing technology SMEs: “The Commission is failing to reinforce a basic concept underlying the FRAND commitment, putting Europe’s SMEs at the greatest risk.”

“A SEP licensing ecosystem with increased transparency, predictability, and efficiency is a prerequisite to improving the competitiveness of EU businesses, especially for SMEs.

“While the [proposals] reflect a clear concern by the Commission to address the lack of transparency and fairness in SEP licensing, the App Association is deeply concerned with recent changes made in its proposed regulation.

“For example, our community is troubled by the Commission’s decision to remove the following from the final text:

‘If a patent owner makes this promise (called “FRAND commitment”), it cannot refuse to licence its SEPs to a party who is willing to agree to FRAND terms and conditions.’

“A FRAND commitment plainly requires non-discriminatory treatment of licensees by licensors, meaning that any willing licensee should be able to license the technologies that are part of a standard. The Commission is well aware of this fact because it was reflected in an earlier version.

“By removing this text from its regulation at the last moment, the Commission is failing to reinforce a basic concept underlying the FRAND commitment, putting Europe’s SMEs at the greatest risk.

“We urge the Commission to reinforce that small innovators should be able to license the technologies they need to implement standards in their products. We believe it is crucial that the current abuses of power in the context of SEP licensing are brought to light and properly addressed as part of the implementation of the SEPs legislation.

“This is one of a number of last-minute damaging changes we see in the regulation that indicate the Commission is choosing to pull back from creating a framework that would provide balance and make the EU more competitive.

“Further, the changes are at odds with the Commission’s statements that its new framework is intended to benefit SMEs.”

Tomorrow, Friday May 5, we will publish further reaction to the EC’s proposed regulation, from patent lawyers in the UK, Europe and the US. Watch this space…