ARTICLE
3 September 2024

Provisions For The SMEs And Start-Ups In The Proposed EU SEP Regulation As Established In European Parliament Legislative Resolution Of 28 February 2024 –overview And Comments

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JWP Patent & Trademark Attorneys

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JWP Patent & Trademark Attorneys is one of Poland’s leading intellectual property law firms. We are a forward-thinking, innovative and experienced team of Polish and European attorneys providing high quality and commercially oriented assistance in IP filing, prosecution and litigation. We have been helping local and international businesses protect and maximize their IP assets for over 25 years now and we continue to expand our services.
The proposed EU SEP Regulation has sparked heated discussions and fierce criticism of legal practitioners across the Europe, including the President of the Court of Appeal of the UPC, Klaus Grabinski.
European Union Intellectual Property

Introduction

The proposed EU SEP Regulation has sparked heated discussions and fierce criticism of legal practitioners across the Europe, including the President of the Court of Appeal of the UPC, Klaus Grabinski. Since the disclosure of the original proposal, the EU SEP Regulation has undergone some changes in order to address those criticisms. Finally, the EU Parliament by legislative resolution of 28 February 2024 has adopted the text presented by the Committee on Legal Affairs, which has contained more than 250 amendments. While the vast majority of the modification attempted to water down the original proposal, those related to the SMEs actually were intended to expand, in some areas even extensively, the provisions originally dedicated to them.

General overview of the SMEs position in the Regulation proposal

The fact that start-ups, micro, small and medium-sized enterprises (SMEs) are also involved in SEP licensing as both SEP holders and SEP implementers was noticed by EU Commission and EU Parliament early on, resulting in a specific set of provisions guarding their interests and differentiating them from the larger entities. Start-ups and SMEs may currently comprise a very small portion of the SEP holders, but they are significantly more present among the implementers while not having the same resources at their disposal as larger enterprises. The general provisions of the EU SEP Regulation aiming for a high level of transparency in SEPs, even though partly created with SMEs in mind (as EU Commission claims in it's Impact Assessment Report, SMEs are particularly susceptible to the threat of court injunction if targeted by SEP holders), may not benefit them equally as larger players. This reality in EU Commission belief, justifies presence of additional measures necessary to relieve the cost burdens, administrative burdens, encourage provision of discounts or exemptions from FRAND royalties (or even royalty-free licensing) and provide a possibility for an easy access to the experts for the consultation. This is ensured by the amendment aiming to create a 'one-stop shop set up by the competence centre which identifies relevant licensees and licensors for the SMEs and advises them, free of charge, on SEPs' (SEP Licensing Assistance Hub for SMEs and start-ups).

Regarding those SMEs that are SEP holders, it is also proposed that their SEPs should not be the subject of sampling for essentiality check, although they should be able to propose SEPs for essentiality checks if they wish to.

Detailed review

Some of the more specific measures to support SMEs and start-ups can be summarized as follows:

  1. The newly established competence centre will be tasked with setting up and maintaining a SEP Licensing Assistance Hub for SMEs and start-ups with tasks such as:
    1. identification of which SEPs might be relevant to their product or service, possible licensors and patent pools, in the event that the SME or the start-up is a SEP implementer;
    2. identification of possible licensees and, with the help of the European Observatory on infringements of intellectual property rights, advise them on how to best enforce their SEP rights on European and global level, in the event that the SME or the start-up is a SEP holder;
    3. offering training and support on SEP related matters;
    4. proactively seeking input from SMEs and start-ups on what training and support would be most helpful.
  2. The register of standard essential patents shall contain entries related to the existence of any publicly available standard terms and conditions for SEP licensing to SMEs and start-ups. As indicated in the new Recital 13a, the goal of such provisions is to raise awareness and facilitate SEP licensing for the SMEs. Publicly available terms will encourage further transparency and consistency in SEP holders practices towards SMEs and start-ups.
  3. The electronic database for SEPs should be accessible to any third party subject to registration with the competence centre, and shall comprise publicly available standard terms and conditions for SEP licensing to SMEs and start-ups, including royalty-free access, if available.
  4. SMEs and start-ups, unlike larger players, may request to limit the territorial scope of the FRAND determination. In this situation FRAND determination shall not concern a global SEP licence.
  5. EU Commission encourages SEP holders when negotiating SEP licence with SMEs and start-ups to consider offering to them FRAND terms and conditions that are more favourable than the FRAND terms and conditions they offer to larger enterprises. However, such 'special' FRAND terms will not be considered in a FRAND determination, unless given determination is conducted solely with regard to FRAND terms and conditions for another micro, small or medium-sized enterprise.

    Additionally, SEP holders are encouraged to consider discounts, spreading payments into interest-free instalments or royalty-free licensing for low sales volumes irrespective of the size of the implementer taking the licence. Such discounts or royalty-free licensing should meet FRAND terms and be available in the electronic database.

  6. Administrative fees that competence centre may charge should take into account the situation of micro, small and medium-sized enterprises, which likely will result in differentiating of the fees.

Comments

Having reviewed some of the proposed changes, the first question coming to mind is, whether those additional measures – or entirety of the Regulation – will be of use to the SMEs and start-ups, since a number of SEP holders has indicated in the past that it is impractical to enforce their rights against smaller businesses. Even if SMEs would be a subject to licensing demands, this does not necessarily translate to a court action where little could be gained from an injunction imposing verdict against such enterprise (particularly a start-up).

Furthermore, the decision to establish SEP Licensing Assistance Hub for SMEs and start-ups is a major change, as competence centre is now required to set-up a dedicated department offering an assistance to the SMEs and start-ups, going well beyond the purely administrative or educational goals. In fact, it is expected of the Hub, to provide an assistance normally associated with private sector legal services, going as far as advising on enforcement strategies, which may include the litigation phase. It is not only doubtful that the Hub could provide such services effectively, but more so it appears to be contradicting general attempts of the Regulation (especially in its amended form) for the competence centre to be a neutral and objective institution. If one of its branches was to advise SMEs and start-ups in the disputes, against implementers, than it could lead to the objections raised by the implementers on the grounds of potential conflict of interest. This is further problematic, as any liability of the competence centre for help provided to SMEs and start-ups in reference to the above tasks is excluded.

The expansion of the tasks by the competence centre resulting in the need to establish the Hub for SMEs will require considerable financial and human resources which in the end still might not be sufficient to provide expected level of advisory services. It is hard to imagine that Hub, if it was to perform tasks going as far as Recital 46 expects it to, would be capable of providing assistance with regard to judicial support, such as a pro bono legal representative during court proceedings, on a level equal, or at least close, to private law firms specializing in SEP licensing disputes for years.

And finally, one of the envisioned outcomes of the provisions for the SMEs and start-ups on the grounds of original proposal, was the possibility of SEP holders breaking-down their patent portfolios into smaller groups and transferring to the affiliated SME or start-up or subsidiaries. In order to address that, amendments include an addition to the article 61 (new par. 3a) indicating that paragraphs 1 and 2 shall not apply to patent assertion entities or to SMEs, which are a subsidiary, affiliate, or owned or directly or indirectly controlled by another natural or legal person that is not a SME itself. Finally, based on the article 62 (new par. 3a), a provision was added that any benefits granted to SMEs under this Regulation may be withheld or withdrawn in cases of circumvention or misuse.

While those provisions are a significant improvement over the original text, they do not remove the risk of circumventing of the regulation completely.

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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