EU Commission sets middle course for SEP licensing in Europe

The AmeriKat sinking her teeth into some pretty inflexible 
FRAND royalties  

Today the EU Commission published their much-awaited and debated communication on standard essential patent (SEP) licensing. The document entitled "Setting out the EU approach to Standard Essential Patents" contains 14 pages of key principles aimed at fostering a "balanced, smooth and predictable framework for SEPs".  The key principles reflect two stated objectives:  (1) incentivising the development and inclusion of technologies in standards by providing fair/adequate return and (2) ensuring fair access to standardized technologies to promote wide dissemination.

The AmeriKat is pouring over the communication, but in brief, the key points are as follows:

• Increase transparency of declaration system and more user-friendly accessibility to databases of standard developing organizations.  ["Three cheers to this proposal" exclaims the AmeriKat...and patent litigators everywhere.]  

• Higher degree of scrutiny on essentiality claims, with scrutiny being performed by an independent party.  Although the Commission noted that this would have to be balanced against the cost.  

• Still significant flexibility in how FRAND rates are established.  IP valuation should be focused on the value of the patented technology itself, not value attributed by the fact it has been included in a standard.  Value should not be influenced by the market success of the product unrelated to the patented technology.  Individual SEPs cannot be considered in isolation; parties need to take into account a reasonable aggregate rate for the standard, assessing the overall added value of the technology to avoid royalty-stacking. 

• Non-discrimination between "similarly situated" licencees is fundamental (see Unwired Planet v Huawei [2017] EWHC 711).   

• Patent pools within the scope of EU competition law should be encouraged, especially in the context of the Internet of Things (IoT) industries and for SMEs.  

• Use-based licensing and licence-for-all not mandated, but not ruled out.  It is all on a case-by-case basis and dependent on sector and business models.   The Commission encourages "sectoral discussions with a view to establishing common licensing practices".  It further noted at page 1 that "[o]nce a standard is established and the holders of the SEPs have given a commitment to license them on fair, reasonable and non-discriminatory (FRAND) terms, the technology included in the standard should be available to any potential user of the standard" (i.e. chipset licensing still possible).  

• Patent assertion entities (PAEs/NPEs) are subject to the same rules as other SEP holders, including (importantly) on injunctions.  

• However, proportionality is still key when it comes to injunctive relief.  Many implementers may point to para 3.2 which refers to Article 3(2) of the IP Enforcement Directive and the needs to ensure proportionality stating that: "the proportionality assessment needs to be done carefully on a case-by-case basis. The Commission feels that considerations need to be given to the relative relevance of the disputed technology for the application in question and the potential spill-over effects of an injunction on third parties. "  

• Proportionality of injunctions when PAEs/NPEs concerned highlighted.  See para 3.5 which states "The application of the proportionality principle by courts provides yet another safeguard. The Commission will closely monitor the ongoing impact of these market players on the SEP licensing market in Europe, in particular once the EU unitary patent is operational." 

• Mediation and arbitration should be encouraged in this area for "swifter and less costly dispute resolution" [although the AmeriKat is not so convinced on the "less costly" claim...].

The Communication concludes that it will

"closely monitor the SEP licensing markets with a particular focus on IoT technologies, by making use of the expert group that will be created and launching further studies if necessary. It will take stock of progress achieved and assess the need for further measures to ensure a balanced framework for smooth, efficient and effective licensing of SEPs on that basis."

The communication is not binding or a statement of law, but will surely be deployed by SEP holders and implementers when negotiating licences and/or when engaged in litigation (including during the FRAND dance, see Huawei v ZTE (Case C-170/13).  This is particularly true given that neither of the camps who were intensely lobbying in advance of the publication seem able to declare an outright victory in respect of their primary positions (see post here outlining the two positions).  It seems to be a score-draw.  However, the Fair Standards Alliance did state in a press release that it was a "victory for all European consumers and innovative businesses - especially Europe's car industry" in that the use-based licensing model that had been proposed by IP Europe was not adopted (see also the FSA's letter to the Commission sent on 15 November 2017).

IP Europe also heralded the Communication as positive (although a bit more muted) with Francisco Mingorance (Executive Secretary of IP Europe) stating that:

“Today is a good day for consumers around the world, as well as the many businesses – small and large – that will rely on ‘fair reasonable and non-discriminatory’ access to the 5G open technology standard to create new products and services for the upcoming Internet of Things.” “IP Europe’s members welcome any initiative that will lead to smoother licensing negotiations. We note that this is particularly important for our SME members because they need as much support in the licensing process as the SME implementers."

"And with that, all parties join hands with the Commission and march off into the sunset..." snarks Merpel....

But before the AmeriKat allows Merpel to end this post on a sarcastic note, it is worth flagging that the Commission was busy today publishing two additional communications both on IP enforcement - which you can read more about here and here.  More to come on these later.