European Union: Inside IP: The EU Approach To Standard Essential Patents

Last Updated: 7 December 2017
Article by David Rose, Nina O'Sullivan and Natasha Pearman

In April 2016, the European Commission identified three areas of the SEP licensing environment that needed improvement: (1) opaque information on SEP exposure (2) unclear valuation of patented technologies reading on standards and the definition of FRAND and (3) the risk of uncertainty in relation to enforcement of SEPs.  It has now issued its much anticipated guidance aiming to create a coherent framework, given the standardisation of 5G and the Internet of Things. 

The Commission identifies two main objectives in devising its 'holistic' approach to SEPs: (1) incentivising the development and inclusion of top technologies in standards, by preserving fair and adequate return for these contributions and (2) ensuring smooth and wide dissemination of standardised technologies based on fair access conditions. However, the guidance is merely that, it is not a statement of the law. 

" Increasing transparency on SEPs exposure

Standard developing organisations (SDOs) should provide detailed information in their databases to support the SEP licensing framework, and improve the quality and accessibility of the databases, including through new transparency tools to facilitate licensing negotiations.

The Commission also considers that declarations should be more up-to-date and precise.  Rightholders should review the relevance of their declarations when the final standard is adopted, and when a final granting decision on the patent is taken. Further, declarations should include enough information to assess patent exposure, for exampleby making reference to the relevant section of the standard and the link with the patent family; and identify a contact for the owner/licensor of the declared SEP.

As recorded declarations create a de facto presumption of essentiality, the Commission considers there should be a higher degree of scrutiny on essentiality claims, in the form of an independent party, subject to the costs of such an approach.  The Commission proposes a pilot project in selected technologies.

" General principles for FRAND licensing terms for SEPs

Licensing principles

There had been much debate, prior to the communication, as to whether SEP holders should be able to adopt 'use-based licensing' (which could allow them to charge different rates depending on the use made of the technology), and whether they should be required to 'license all comers', or whether they can exclude, for example, chipset manufacturers.  The Commission has dodged this debate by concluding that there is no one-size-fits-all solution as to what FRAND is, encouraging stakeholders to pursue sectoral discussions. 

The Commission does, however, set out a number IP valuation principles that should be taken into account. For example, licensing terms must bear a clear relationship to the economic value of the patented technology. The value must primarily focus on the technology itself, and not 'in principle' any element resulting from the decision to include the technology in the standard.

Efficiency and non-discrimination

Under FRAND, a SEP holder cannot discriminate between implementers that are 'similarly situated'. Again, as FRAND is not one-size-fit-all, the Commission notes that solutions will differ from sector to sector, and will depend upon the relevant business models.  However, for patents with a global circulation, the Commission suggests that SEP licences granted on a worldwide basis may be compatible with FRAND as they contribute to a more efficient approach.

Patent pools and licensing platforms

The Commission considers that the creation of patent pools and other licensing platforms should be encouraged, within the scope of EU competition law, as they could address many SEP licensing difficulties, by offering better scrutiny on essentiality, clarity on aggregate licensing fees and one-stop-solutions.

The Commission will also monitor licensing practices, in particular in the IoT sector, and set up an expert group to deepen knowledge of industry licensing practices, valuation and FRAND determination.

" A predictable enforcement environment

The Commission has reviewed various Member State court decisions interpreting the CJEU's decision in Huawei v ZTE and has identified the following guidance:

  • A FRAND offer: must include clear explanations on the essentiality for a standard, the allegedly infringing products of the SEP user, the proposed royalty calculation and the non-discrimination element of FRAND.
  • A FRAND counter-offer: must be concrete and specific and should contain information on the exact use of the standard in the specific product.
  • Willingness to submit to binding third party FRAND determination is an indication of FRAND behaviour.
  • Timelines for the counter-offer: the Commission does not set a general benchmark as much will depend on the number of SEPs asserted and the details of the infringement claim, but upstream transparency on SEP exposure should have a positive impact.
  • Security: should be fixed at a level that discourages patent hold-out strategies by SEP users.
  • Proportionality of injunctive relief: the Courts should conduct a proportionality assessment on a case by case basis. 
  • Patent assertion entities (PAEs) should be subject to the same rules as all other SEP owners.

The Commission will work with stakeholders to develop methodologies, such as sampling to allow for effective SEP dispute resolution, and also development of mediation and other ADR tools.   

In the meantime, there have been further developments in the ongoing Unwired Planet v Huawei dispute, with the Patents Court issuing a revised version of its decision (discussed in our April 2017 and June 2017 bulletins) to make certain information relating to licensing, which had previously been redacted from the judgment, public. The Court of Appeal will hear Huawei's appeal in May 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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