A leaked draft that was seen and first reported by Politico a few weeks back suggests that the European Commission is about to dramatically change the SEP and FRAND ecosystem in the European Union, making it more complex and difficult, and hurting some of its own major IP players such as Ericsson and Nokia, among others.
The proposal looks like a train wreck driven by two major time frames. One is World IP Day, April 26, which has been cited as the launch date for the proposal. The second, more pressing date is the latter half of 2024, when the European Union is set to hold elections.
IP, SEP, and FRAND
Intellectual Properties, Standard Essential Patents, and FRAND (Fair, Reasonable, And Non-Discriminatory licensing) are some of the most complex topics surrounding technological innovation.
Let’s take WiFi, Bluetooth, or 5G as examples. Some companies invest in technologies in very early stages to help co-invent major standards and later offer them to others as a part of FRAND. Everyone who wants to implement one of those standards has to agree and pay a FRAND license rate to a patent holder.
The European Commission plans to establish a new center within the European Union Intellectual Property Office (EUIPO). In this EUIPO-based competence center, right holders will be required to register patents they consider as standard essential. This mandatory step will add a new layer of complication to a new process. The changes also include a new mechanism for disclosing information about existing licenses and public awareness of existing SEP case law. Though its name might suggest so, EUIPO office does not actually have the workforce or expertise to house such a competence center.
The registration mandate brings back haunting memories of the introduction of the woefully misguided IEEE patent registration mechanism years ago, but in this case, the European Commission does plan to make this step mandatory.
According to the draft, every SEP contributor will have a say on setting royalty rates. If any party is unhappy, there must resort to the use of a mediation process that will be lengthy and complicated.
The most worrying part is that, when it comes to FRAND disputes, both implementers and non-implementers can ask for non-binding arbitration that will inevitably and unnecessarily delay reaching a license agreement. Technology implementers need stability to ensure the technology will be ready for implementation at a certain time. The automotive industry is the best example in which the development and life cycle of the vehicle are often six years.
US former leaders on IP Policy object to Europeans
IPWatchdog reported that the change is so unsettling that six former leaders on IP policy from the Trump and Obama Administrations urged the European Commission to reconsider its draft proposal. They contend that the proposed regulation “would unnecessarily insert the European Union Intellectual Property Office (EUIPO)—an institution that currently has no meaningful experience with patents—into one of the most complex areas of patent policy, producing delays in enforcing valid patent rights and uncertain royalty guidance that militates against the value of intellectual property rights and, in turn, European innovation.”
EU-based Nokia and Ericsson to suffer
No major SEP holders or other IP industry stakeholders were consulted in drafting the proposal, which deviates far from the norm of European Commission policymaking.
There are some indications that the draft helps some European Union-based automotive suppliers, such as Continental, who had been suggesting similar changes to the SEP regulatory framework in the past. Someone in the commission obviously has bent their ear towards this concerns, without paying any notice to the broader ramifications this proposal will have on the innovation economy and digital technology leadership of the European Union.
