The team is joined by Guest Kats Rosie Burbidge, Stephen Jones, Mathilde Pavis, and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Hayleigh Bosher, Tian Lu and Cecilia Sbrolli.

Monday, 8 May 2017

Should we worry about "use-based" pricing in DG GROW’s Standard Essential Patent Roadmap Consultation?

Blink and you will have missed the Commission's
SEP consultation 
With the French elections preoccupying Europe, readers may have understandably forgotten about Monday's deadline to respond to the incredibly short-lived Commission consultation on the roadmap for Standard Essential Patents (SEPs) in Europe.  An industry group who did not forget, ACT | The App Association, wrote to the IPKat to alert readers of the approaching deadline.  The APP Association, through its All Things FRAND initiative, is a pro-FRAND tech trade association representing SME developers who states they are concerned about the approach the Commission is taking regarding SEPs, in particular the use-based licences that the likes of some pretty big companies are reported to have lobbied for (the AmeriKat is verifying these companies, but you can probably guess who...).  Brian Scarpelli from ACT explains their position: 
"Recently, the European Commission’s Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) issued a public call for input on its Roadmap, titled “Communication from the Commission on Standard Essential Patents fora European digitalised economy.” Readers are advised not to overlook this short (only four weeks!) consultation, which stands to have an immense impact on the patent world.
What is more, the roadmap itself omits direct discussion of the most controversial policy shifts the Commission is considering.  
According to reports going back to March 2017, the EC has, in seeking to develop a standard essential patent (SEP) licensing Communication, been seriously considering allowing patent holders to license SEPs using a controversial method known as “use-based” pricing. Around this time, Michael König, a senior DG GROW official responsible for drafting the SEP Communication, stated in a presentation to standards experts that the European Union envisions endorsing that SEP licensors differentiate their fees “according to the use case of the implemented technology. "  Further, he stated that the EU foresaw this policy in light of the emerging Internet of Things (IoT). These slides have not been made publicly available by the European Union, but have been widely distributed.  
The App Association is concerned because use based pricing practices would threaten the standards system and could price out new market entrants to the internet of things. Once the word got out about this view, the EU started to hear these sentiments from a variety of key business constituencies, such as European car manufacturers and EuropeanSMEs.  
Today, technical standards enable planes, trains, and automobiles, as well as the smartphones we all depend on.  Innovators rely on the fair, reasonable, and non-discriminatory (FRAND) licensing commitment SEP holders make to ensure reasonable access to these standards. The technology we rely on today would be damaged by use-based pricing, but with a 5G world just around the corner, the use-based pricing model could be applied to all IoT hardware and software products, representing trillions of euros in SEP license fees for the select few large multinational companies that are willing to game the FRAND system. This is bad news for the manufacturers of IoT products and downstream developers, who will face great uncertainty in knowing whether they can reasonably access key technical standards in order to innovate. By upsetting the balancing act that standards require, DG GROW would inadvertently be stifling IoT innovation in Europe before it has even started.  
It is concerning that there exists a potential that DG GROW would endorse a SEP holder being able to selectively demand exorbitant licensing fees based off of, for example, an unrelated company’s contribution to the same standard its SEP happens to be part of.  A number of problems seem apparent. Most visibly, this move would clash with a core element of FRAND – non-discriminatory. This decision would also mark a departure from the Commission’s own longstanding commitment to abstain from endorsing specific SEP pricing methodologies, positioning the European Union at odds with the approaches taken in other key jurisdictions around the world (regulatory bodies in the US, Canada, South Korea, Japan and China have all weighed in, either through proactive guidance or through enforcement actions, in an effort to protect equilibrium that balances SEP owners’ rights with FRAND access to the SEPs for licensees). Further, the decision threatens to undercut precedent from key FRAND licensing court decisions, such as the CJEU's Huawei v ZTE C-170/13 or the UK's Unwired Planet v Huawei [2017] EWHC 711.  
Our goal is to bring to the attention of readers around the world about this key development and how it may affect them. We urge readers to consider the use-based pricing issue and how SEP licensing policies will impact their clients, and to weigh in on the Roadmap consultation while you still can. The consultation closes at midnight (central European time) on May 8.  We will alert readers to further opportunities to make their voices heard."
What do readers think?  Is this direction something we should be worrying about or is it completely right that patentees push for the use-based model?

2 comments:

Anonymous said...

The opposition to use-based licensing is misplaced in two respects.

First, the reasoning is entirely based on the assumption that the rights holders would use use-based licensing to engage in price gouging. But banning such uses actually precludes appropriate lower pricing as well. It can be discriminatory to treat parties in a different position in a similar way. Royalties that appear completely reasonable in one use may preclude the emergence of another use. Where the uses are in different markets, there is no logical reason founded in competition law to suggest that the royalties should be the same; indeed, insisting on charging the same royalty regardless of the product market in which the technology is used could amount to using a dominant position in a technology market to preclude the emergence of a new product market, and therefore be anti-competitive.

Secondly, relying on Unwired Planet as authority for the proposition that the position of the licensee is irrelevant regardless of the market in which the licensees participate is a major stretch from the facts. All of the licences examined in UP were in the same product market. The judge was simply not faced with the question of whether use-based licensing might be FRAND.

So on both counts, an approach that suggests a bright line test against use-based licensing is ill-thought out, likely to produce perverse results, and potentially anti-competitive.

Bleek Look said...

It seems that once again the lobbying of large firms with the EU Commission has been quite fruitful.

Even if one could consider that SMEs may be could look alarmists, the situation looks worrying for them should it go through. They do not have the deep financial pockets which would allow them to have long fights with patent holders.

As the Commission regularly heralds the usefulness of its endeavours especially towards European SMEs, one wonders why the Commission has not been more careful.

Thee same actually goes for the UPC before which such disputes will end up once in force (when??).

A word of warning: This post is not to be reproduced on Techrights or by Mr Schestowitz in any form whatsoever.

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