Yesterday evening, MLex reported on the "draft of a highly anticipated regulation by the European Commission on the licensing of standard-essential patents." Reuters reported as well, but obviously in much less detail than the specialized subscription service.
IAM has already published two articles (paywalled): European Commission to propose radical new SEP/FRAND regime with major consequences for patent owners and Entrusting SEP/FRAND to EUIPO is fraught with challenges. Furthermore, IAM's former editor-in-chief (and now columnist) Joff Wild has criticized the forthcoming proposal on LinkedIn. In one post, he said "[t]his looks like legislation that has been drafted after listening to one set of interests without giving even the slightest consideration to those of people who actually understand SEP licensing" and expresses fears of "years of paralysis ahead": "Madness." In another post, he ironically notes the contradiction between the EU claiming that the Unified Patent Court will create legal certainty and encourage innovation, while now putting forward a proposal before the UPC has even decided the first SEP case.
That is something I also noted in my initial reaction on LinkedIn:
"It looks like the Commission doesn't trust the new #UnifiedPatentCourt because it wants to make the #EUIPO -- which has zero #patent expertise -- the mandatory #FRAND arbiter. The obvious alternative would be to wait a couple of years and see how the #UPC will adjudicate cases involving standard-essential #patents."
If one thinks it through, the very unbalanced draft (which is all about imposing additional requirements and costs on SEP holders without any element that would discourage hold-out) is not only an expression of no confidence in the UPC but also an attempt to overrule the European Court of Justice. In Huawei v. ZTE, the ECJ sought to strike a balance between licensors' and licensees' interests. It wanted either side to make a constructive contribution. Far be it from me to deny that the SEP licensing process could be improved for both sides. But what the EC has in mind (according to the reports I mentioned) comes down to putting a thumb on the scales only to the detriment of SEP holders.
There are issues that could have been--and still could be--addressed prior to a formal legislative proposal.
But in order to identify and fix those flaws, a proper internal and external consultation process would be needed. The Commission should simply act in accordance with best practices instead of shooting for an arbitrary date (World IP Day--April 26, 2023--is not a date that has any particular meaning for the EU legislative process).
It's not that there hasn't been any consultation. About a year ago I reported on one. And last year's Survey for start-ups and SMEs investing in, relying on or developing communication technologies is still open.
The problem is that so far the Commission has asked stakeholders only for some general input on how the SEP licensing process is working and what issues the respondents encounter. What the Commission has not done--but should do--is to let stakeholders comment on an outline of a potential legislative proposal.
Last time I engaged in patent policy work in Brussels the procedure was different. In early 2006, the European Commission outlined a European Patent Litigation Agreement (EPLA), a predecessor to the UPC Agreement. Stakeholders were able to comment on the specifics of that proposal. The Commission then held a hearing before the summer break. In parallel, the European Parliament was working on a non-legislative patent policy resolution.
If the Commission had done--or still decided to do--the same here, there would definitely be room for improvement. The draft bill that is described in those media reports would make the EUIPO--a trademark office with zero patent expertise--the mandatory arbiter over FRAND rate disputes. The EUIPO would furthermore be tasked with the accreditation of experts in a field (essentiality checks) in which the agency itself has no expertise. And the idea of a SEP register is nonsensical. Standard-setting organizations like ETSI already receive essentiality declarations. But the way DG GROW would like it to work suggests a static perspective on a dynamic environment. Major SEP holders are granted new patents on a daily basis. Patent claims change during the prosecution process (in response to rejection notices). And license agreements come with capture clauses that include patents granted during a future period. Transparency is important, but so are licensing realities.
DG GROW did not even involve other Commission DGs the way it should. That's what I learned from a reliable source I have to protect.
Normally, legislative proposals are discussed well in advance between the DG in charge of a bill and other DGs whose areas of responsibility are affected. Here, there are various DGs with a potential interest in this. From what I heard, DG COMP would rather not be involved. Should Mrs. Vestager make the announcement of the proposal, it will be in her role as the head of the EU's digital industry policy, not as antitrust chief. But there are DGs who should have been involved earlier: DG CONNECT (digital industry), DG TRADE, DG RTD (Research). Shockingly, DG GROW appears not to be listening to them at all. It appears those other DGs received the draft regulation only a couple of days ago. In other words, they were lucky to see it a day or two before MLex and Reuters.
Even the current presidency of the EU Council--the Swedish government-- was apparently blindsided as far as the specifics of the proposal are concerned.
All of this suggests that there are serious institutional (and also interinstitutional) issues. Why is DG GROW in such a hurry? There is no current crisis concerning SEPs. There's no problem with car makers spending $15 or so per car on cellular SEP license fees. That industry faces some fundamental challenges, but SEP royalties--a minor cost of doing business that affects the competitors of European automakers to the same extent--are not one of them. There isn't even a lot of SEP litigation: in most cases, license agreements are worked out without the need for patent enforcement.
The current proposal--if enacted--would weaken certain European innovators, override the ECJ, display a lack of faith in the UPC, and make other places in the world more attractive for SEP enforcement (for instance, Latin America) and standards development (the U.S.). In some other jurisdictions, the EC's proposal would likely inspire legislation that would further weaken SEP holders. Apparently the EC is also seeking to weaken ETSI, such as by reducing the voting rights of contributors and of non-EU companies. I can't elaborate on all those issues in this post, but the combination of all that's going on poses a serious threat to standards development in Europe.
The U.S. government acted more prudently. The Biden Administration ultimately decided not to adopt a new SEP policy statement, based on input from net licensors as well as net licensees.
Instead of making a hasty and ill-conceived proposal, DG GROW should discuss its ideas (as opposed to the topic of SEP licensing at an abstract level) with internal and external stakeholders, and fundamentally improve its proposal prior to officially putting it on the table. As a SEP litigation watcher I definitely see room for improvement, but no objective sense of urgency here that justifies skipping necessary steps when there is so much at stake.
