First the leak and now the question: Will the European Commission go forward with its IP Action plan?

Kat friend Roya Ghafele reports on the leaked draft of the European Commission IP Action plan and its possible consequences.

What can be more exciting than reading a leaked document. This was my first thought in seeing emails in my mailbox containing a copy of the ‘leaked’ European Commission IP Action plan. It was rumoured that a representative from a Member State leaked the document, but who knows. Whatever, since then, statements on the leaked European Commission's IP Action plan seem to have no end in sight.

The European Commission’s IP Action plan proposes major changes relating how standard essential patents are to be treated, as follows:

1. A register of standard essential patents is proposed;

2. An essentiality check for registered standard essential patents is to be established;

3. The FRAND royalty rate is to be established on the basis of an aggregate ex ante basis for the standard as a whole;

4. A dispute resolution service for FRAND determination is to be established.

This ambitious agenda is to be administered by the European Union Intellectual Property Office (EUIPO) through a “competence centre,” which is to be newly established. The advantage of having this center in the EUIPO is that it is an EU institution, unlike the European Patent Office (EPO). This means that it is under EU authority.

The EPO, which might have seemed the more natural fit, never seemed too keen on the task, and I doubt that EPO colleagues in Munich and the Hague regret that the job is earmarked for Alicante.

The proposal envisages that all SEPs will be submitted to a centralised register representing a “trusted source of information” on SEPs within the bloc. Registration is incentivised as a prerequisite for asserting patents in infringement proceedings and by denying SEP-owners from collecting royalties or damages prior to the date of registration.

Essentiality checks are to be carried out on registered SEPs. A sample of contributors’ patents will be assessed for essentiality, with annual reports detailing whether essentiality is present or absent in each case, without detailing the reasoning for this. This will be used to establish an essentiality ratio for SEP-owners.

A SEP-owner may request up to 100 SEPs be checked for essentiality by the competence centre. The outcome of these checks is not legally binding, but it can be used, for example, in negotiations.

This approach is similar to a service offered by the Japanese Patent Office (JPO). “Hantei” is an advisory opinion provided by the JPO on the essentiality of a patent in dispute. The goal is to deliver quick and inexpensive judgements which, although not legally binding, represent the expert opinion of the JPO.

However, to my knowledge, the hantei has not found much acceptance in the market place; indeed, In the two years since its founding, the service has not been used.

The Japanese and the EU proposals can be contrasted with UK Government Action, but to what extent the UK will change its position remains to be seen. So far, a recent UK Government consultation on SEPs concluded an independent essentiality check was not required with legal certainty only being provided by the courts.

The leaked IP Action plan also seeks to establish aggregate royalties for standards and make this information public.

Contributors to a standard may reach this aggregate themselves, be assisted in reaching this aggregate through the competence centre facilitating discussions, or – in the event products are implementing the standard before an aggregate has been reached – the competence centre may establish an aggregate at the request of either contributors to the standard or implementors.

This approach resembles efforts to determine the value of patents on the basis of the ex-ante approach, that is, he value the patents enjoyed before they were adopted in the standard.

Equally, the proposal of determining the aggregate rate appears much like the Top Down Approach, a valuation method that looks at the value of the standard as a whole rather than the value of the patents in comparison to what others paid, known as the comparable licensing approach.

The fourth area of action proposed by the European Commission is that a FRAND determination process, designed to speed up and simplify negotiations, should be carried out by “conciliators” and aim to be concluded within nine months.

The competence centre will maintain a roster of conciliators, meant to be—

neutral persons with extensive experience in dispute resolution and substantial understanding of the economics of licensing on FRAND terms.

Should the parties fail to agree on the identity of the conciliators, the competence centre will select them. Parties must go through this process before they are able to file for patent infringement or seek a FRAND determination in court. The conciliators can make a FRAND determination in the absence of a party, and it is non-binding.

So far, reactions from market participants may have been polarized and, as is typical in FRAND debates, emotional. Applauded by FSA and heavily criticized by IP Europe, the market is strongly divided on the intention, approach and feasibility of the envisaged IP Action plan of the European Commission.

Downstream innovators have assured their support for the European Commission’s envisaged’ IP Action plan. Qualcomm, a major standard essential patents owner, has strongly criticized the proposal proposing instead voluntary commitments.

Against that background, the big question remains is whether the European Commission will really go live on April 26, that is on World IP Day, with its IP Action plan.

If they don’t go live, they will lose face, but if they do, they will see the wireless communications market even further split. Also, they will need to be prepared for heavy criticism. The third option would be to delay and try to find a compromise. But how could such a compromise even look like?

Efforts to shed further light on markets for standard essential patents are a brave undertaking and no matter what move the European Commission makes, it will need to show a lot of courage to stick to its position.

Have your say:

Do you think the IP Action Plan will be published on April 26 by the European Commission?