The European Commission's draft regulation on standard-essential patents (SEPs) is an unusually ill-conceived legislative proposal (initial reaction, table of contents and synopsis, downside for implementers, access-to-justice issues, conflicts with fundamental rights and international obligations).
What makes it so irresponsible is that SEP licensing and enforcement are two complex and intertwined systems, a setup of the kind that just doesn't lend itself to a sledgehammer approach.
Adam Williams, the CEO of the UKIPO, told IAM in a recent interview (paywalled) that "massive intervention" in that area is rarely the right thing. Instead, the name of the game is to find a middle ground. Last month I commended the UKIPO for not taking all of the input it receives from self-declared SME (small and medium-sized enterprise) lobbyists at face value.
The European Center for International Political Economy (ECIPE) has published an article that says the Commission should "[g]o back to the drawing board" as its leaked SEP bill "would be bad for technological development and Europe."
While it is not a given that implementers would ultimately benefit from what is being envisaged, the negative impact on SEP holders is clear: costs, delays, uncertainty. It is, frankly, puzzling why the 27-member bloc that repeatedly stated ambitious innovation policy goals should now turn against those who innovate in fields relevant to digital standards.
What does this mean in industrial policy terms?
I can see how different types of activity related to digital standards would have to move out of Europe to a significant extent. In other words, the opposite of an "Invest in Europe" strategy. By contrast, there is no reason for any implementer to create jobs in Europe as the SEP regulation would apply to anyone, whether from America, Asia, or Europe. Any benefits to implementers (which are, on the bottom line, doubtful anyway) would not even attract investment. But some activities would increasingly take place outside of the EU:
Standards-related innovation: Politico Pro reports that "Europe’s tech patent champions want patent rules rethink" and talks about letters and statements by Nokia and Ericsson. Those companies are national crown jewels of their countries (Finland and Sweden), and they will always have close regional ties, but should the EU make an attempt to deal serious damage to those companies' patent licensing business, I can't imagine that it wouldn't play a role in some future decisions. They may be more interested than ever in recruiting Indian engineers (the Delhi High Court handed down a ruling last month that is good for SEP holders) or in strengthening their operations in the UK.
Short of certain rules that were imposed on the tobacco industry (in my view, that one shouldn't even exist), I've never seen a policy initiative so recklessly designed to harm a particular industry. And unlike in the case of tobacco, we're not talking about an industry making money at the expense of public health. We're talking about legitimate innovators.
Standards development: Even as Europe's smartphone industry went down the tubes, the European Telecommunications Standards Institute (ETSI) remained a major player on the world stage. The European Commission used to be a key supporter of ETSI. That was then. Last year, the Commission put out a communication on standardization that marked a turning point. At this stage, the Commission appears to pursue an agenda to undermine ETSI's global relevance. The draft SEP regulation envisions a SEP Register despite the fact that ETSI has a database of essentiality declarations anyway. The Commission wants to reduce the voting rights of non-EU companies (which is not going to give the EU economy more power, but would simply marginalize ETSI by reducing it to a regional forum of limited--if not negligible--global influence) and to give more weight to implementers than innovators. Rather than reinvent the wheel, let me just refer you to this article published by U.S. tech policy think tank Information Technology & Innovation Foundation (ITIF), How the EU Is Using Technology Standards as a Protectionist Tool In Its Quest for Cybersovereignty. That article discusses a variety of debatable moves by the European Commission with respect to standards. For example, in July 2022, the same directorate-general that is behind the proposed SEP regulation (DG GROW), "issued guidance for the new radio equipment directive experts groups that limits representatives to those from EU-headquartered and controlled firms" while ETSI was represented at the time by a Europe-based Intel executive and the DIGITALEUROPE industry group by individuals from Sony and Samsung.
SEP enforcement: The Unified Patent Court (UPC) could become one of the world's most important venues for the resolution of SEP disputes, not only through litigation but also alternative dispute resolution. Instead, the Commission's plan is to make the EUIPO--which would be more appropriately named EUTMO because it's essentially just a trademark office with zero patent expertise--the administrator of FRAND determination proceedings and essentiality checks. Most SEP license agreements are struck without a need for litigation. But in many of those cases where litigation turns out inevitable, the implementer is an unwilling licensee. SEP holders would increasingly rely on non-EU jurisdictions as I discussed in a recent post.
There's a parallel here: just like the Commission's ideas for ETSI will fail to make a positive impact as the key technical contributors will then prioritize other standard-setting organizations (in other parts of the world), the Commission's efforts to complicate SEP enforcement would yield the desired results because of SEP holders turning elsewhere.
If the EU chooses to marginalize its wireless industry players, its flagship standards development organization, and its patent courts, let there be no doubt that other countries and regions will welcome wireless and other digital innovators. The EU's rivals on the global stage will be more than happy to fill the void.
