The European Commission's proposal for a regulation on standard-essential patents (SEPs) is facing the fundamental problem that--if enacted as is--it would increase costs and cause delays without being truly useful to either side of the licensing negotiation table.
The procedural reason for that problem is that the Commission did not seek stakeholder feedback to specific ideas. Instead, the Commission relied on a "consortium" of five "researchers". At least two of them simply have business interests related to patent data. And if the two "studies" they produced are any indication, the group as a whole lacked a sufficient understanding of how patent licensing and litigation work in practice. It's pretty certain that none of them ever advised companies with respect to SEP licensing, and that none of them ever actually followed a SEP dispute. The same applies to the Commission staff who drafted the bill, but that's normal and wouldn't be an issue if they had not decided to rely on researchers whose collective angle from which they're looking at the topic is way too narrow. There's just no way that the people who authored those "studies" could have been reasonably expected to obviate the need for stakeholder feedback to concrete proposals.
I'm still in the process of digesting all that material, but I've already identified some deficiencies and I plan to discuss all of the issues in a series of posts over the coming weeks and months, just like I did after the initial draft. Here's the first item:
Regulating SEPs prior to harmonizing substantive patent law puts the cart before the horse.
At the heart of the EU proposal are those essentiality checks. But what standard will be applied to those essentiality checks? There is no EU-level harmonization of claim construction and of how to map claim language (construed as necessary) to an accused technology.
The proposal itself and the study on essentiality checks don't say anything about claim construction. The Commission's impact assessment mentions the term only once: in connection with U.S. litigation costs.
DG GROW and its "researchers" just ignored the fact that there are differences between Member States. They're not huge, but they can be outcome-determinative. Think of the following hypothetical scenario (and I'll oversimplify it here by saying "patent" when I mean one specific patent claim):
A given patent is essential if construed and mapped in accordance with German and Dutch case law, even if it may be a close call (such as a case in which the Doctrine of Equivalents must be applied).
The same patent is not essential if claim construction and/or mapping applies the standards of, say, France or Bulgaria.
The essentiality check is performed by someone applying French law. Therefore, the patent is deemed non-essential. Even a "second opinion" assessment by another person doesn't change the result.
The patent will be stigmatized as non-essential and removed from the SEP register.
The SEP owner is prejudiced in the sense that this patent will reduce its essentiality ratio and adversely affect valuations.
The SEP owner will also find it more difficult to convince a German or Dutch court that the patent is essential if the judges take the EUIPO-led essentiality check seriously.
But if the SEP holder manages to convince a German court that the patent is essential under that country's patent law, the restrictions under the SEP regulation wouldn't apply (as the patent would have been removed from the register). Enforcement would not be impaired and the implementer might have to settle before any EUIPO-led FRAND determination has been made. In this scenario, the SEP holder will benefit, but it won't be easy to overcome an initial presumption of non-essentiality.
Right now we don't even know what, if anything, the EU will instruct those performing the essentiality checks to do. If they don't specify the legal standard, it's going to be a gamble, based on who will perform the assessment. If they do, which standard would they choose?
In the short term the choice could be German patent law because that is where most SEPs are litigated. But politically it's impossible for the EU to just declare German law the EU-level standard.
The EPO construes claims, and its claim construction case law is reasonably persuasive in national courts, but the EPO doesn't perform infringement analysis, so it has no case law in place for mapping.
The UPC will develop its case law over time, but is just about to start. It will take several years before there will be enough case law from the UPC appeals court that essentiality checks could be performed under a UPC standard.
None of those options would avoid divergent outcomes. For instance, if there is a German national patent, a European patent that has been opted out of the UPC, or a utility model in the same IPR family, then it will be enforced in national court. No EPO, UPC or whatever other standard would be applied there.
If essentiality checks had to be performed country by country, with potential appeals or second opinions on a country-by-country basis, the cost estimates in the essentiality checks study would look rather different. But the assumption that there can be a single essentiality check for a set of countries prior to harmonizing substantive patent law is simply a false premise.
I've spent countless hours in courtrooms listening to debates over claim construction and mapping. I've seen SEP cases in which a reasonable person could come down on either side. I've seen only a few SEP cases where there was really no reasonable non-infringement argument at all, and in those cases there were typically serious questions of invalidity (the downside of broad claim language). Very often essentiality is a close call. And the problem of jurisdictional differences also relates to validity determinations (where, for example, the EPO's standard for added subject matter is stricter than that of some national courts), as I mentioned in other posts commenting on the proposed regulation.
The SEP Register in the envisioned form, with those essentiality checks, doesn't make sense unless the EU previously harmonizes all relevant aspects of substantive patent law.