HomeInsightsEuropean Commission opens call for evidence on Standard Essential Patents (SEPs)

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The Commission says that some users have found that the SEP licensing system is not transparent, predictable or efficient. The Commission wants to create a fair and balanced licensing framework and is therefore calling for evidence on the SEP system with a view to making changes that may combine legislative and non-legislative action.

Despite the strategic importance of patents, EU patent law is limited and fragmented, the Commission says. EU patent law therefore needs to be recalibrated to boost the resilience of the system and support the EU’s twin transition (digital and green). According to the Commission, the imminent launch of the unitary patent system also makes this the perfect time to enhance EU patent law and facilitate access to critical technologies.

The Commission says that the number of SEPs is increasing, as is participation in standards development. There is also a growing number of new industrial, business and consumer applications using standards, including SEPs, such as for wireless batteries, cloud computing and information security. This has led to a greater need for a smooth and balanced SEP licensing system. The Commission says that it will therefore develop a coherent and balanced package comprising three patent-related proposals. These proposals, announced in the 2020 IP Action Plan, will cover supplementary protection certificates, compulsory licensing, and SEPs. They share the common objectives of: (i) increasing legal certainty and transparency; and (ii) reducing fragmentation and transaction costs.

The Commission says that the main problem affecting SEP holders and implementers is inefficient licensing, including “hold- up”, “hold-out” and “forum shopping”. These problems stem mainly from:

  1. a lack of transparency: some standard development organisations allow “blanket” declarations, which do not specify the patents that could be essential for a given standard; others, such as ETSI, require patent data from anyone submitting a SEP, but once a declaration is made by the SEP contributor, it is seldom updated; as a result, it may not be clear who owns which SEP, whether declared patents are still essential, and which SEP is essential for which part of the standard;
  2. a lack of predictability: at the time the standard is adopted, SEP holders may not be aware of all the standard’s potential applications; therefore, SEP holders usually wait for the market to develop before asking implementers to take a licence, which means that when products are developed and launched on the market, implementers may not have sufficient information as to which, and whose, patents they need to license and what the royalty fees should be;
  3. a lack of public information on FRAND licensing terms: SEP holders and implementers tend to keep confidential the results of their negotiations and agreed licensing terms and conditions, including FRAND royalties; therefore, implementers, including start-ups and SMEs, may not be able to factor licensing costs into their business models, and licensors find it difficult to forecast and collect revenue; courts may adopt different interpretations of the concept of FRAND and the process for negotiating FRAND terms and conditions;
  4. territoriality: patents are territorial, while standards and the FRAND commitment are global; since infringement claims are typically met with counterclaims that argue the patent is not valid, SEP holders often enforce their patents separately in each territory, which is a burdensome and costly exercise, especially for start-ups and SMEs.

The Commission says that all this means that action is needed at EU level. It has developed three policy options:

  1. enhancing transparency on SEPs: e.g., by: (i) requiring the disclosure and update of certain information to improve publicly available information; and (ii) introducing a system for independent third-party assessments of essentiality under the management and control of an independent body;
  2. providing clarity on various aspects of FRAND: e.g., by developing guiding principles and/or processes for: (i) clarifying the concept of FRAND; (ii) negotiating FRAND terms and conditions; and (iii) determining appropriate level(s) of licensing in a value chain; and
  3. improving the effectiveness and efficiency of enforcement: e.g., by incentivising mediation, conciliation and/or arbitration.

The Commission wants to hear from all stakeholders, including SEP holders, implementers, patent attorneys, lawyers, academics, patent-pool administrators, industry associations, standard development organisations and anyone who has experience of SEPs. The call for evidence closes at midnight on 9 May 2022. To access the call for evidence, click here.

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