International Professional Fora:

A study of civil society organisation participation in internet governance

International Professional Fora:

A study of civil society organisation participation in internet governance

EC Communication on Setting out the EU approach to Standard Essential Patents: Review

On 29 November 2017, the European Commission (EC) issued the Communication Setting out the EU approach to Standard Essential Patents.

A patent that covers a technology required as essential in a standard is known as standard essential patent (SEP). The EC Communication highlights the importance of interoperability and interconnectivity of ICT technologies and devices for boosting the economic potential of the EU industry vis-à-vis the emerging Internet of Things (IoT) domain. According to the forecasts cited by the Commission, the potential economic contributions of the IoT applications in various user cases could reach an estimated EUR 9 trillion per year by 2025 in the developed world; whilst more 40 percent of these contributions could be lost if IoT interoperability is not ensured. In order to boost the development of a competitive interconnected IoT industry in Europe, the Commission demands ensuring ‘smooth’ licensing procedures of SEPs on fair, reasonable and non-discriminatory (FRAND) terms in ICT standards developing organisations (SDOs) that would enable speedier standardisation processes. Conflicts between SEPs users and SEPs holders on the terms of licensing have protracted standardisation developments in the ICT sector, whereby SEPs users have complained about excessive licensing fee demands and questionable litigation threads by SEPs holders, while the latter have accused the former of free-riding and infringing intellectual property rights. The Commission has thus demanded all stakeholders in EU standardisation to engage in finding a ‘balanced’ approach to SEPs licensing policy.

First, the EC has proposed to increase transparency in SDOs’ databases of filed SEPs declarations. Those are based on patent holders’ self-assessment, while the SDOs do not scrutinise the essentiality of the declared patent. The Communication is urging SDOs to improve the quality and accessibility of the information deposited in the patent databases, including more up-to-date and precise, information-rich declarations. Most importantly, however, the EC has urged European SDOs to subject patent declarations to an increased scrutiny over essentiality claims, potentially performed by an independent external entity (which could be a patent office). The Commission itself will be launching a pilot project in order to determine an appropriate mechanism for scrutinising the validity of SEPs declarations.

Second, the EC has expressed concerns over ambiguities in FRAND interpretations which the institution sees as potentially hampering the roll-out and uptake of new technological developments in terms of IoT and 5G. It highlights the importance of time and sector-specific factors that play a role in FRAND licensing considerations rather than one-size-fit-all approach. In particular, the Commission suggests that FRAND licensing should be based on the present value of the patented technology, and not the estimated or real market success of the product developed using the patented technology. In addition, it has argued for the strengthening of the reasonable and non-discriminatory licensing terms, such as ‘reasonable aggregate rate of the standard’ (in order to prevent royalty stacking) and non-discrimination between ‘similarly situated’ implementers. In order to facilitate an effective SEPs licensing process in IoT, and SME sectors in general, the Commission has asked SDOs and SEPs holders to consider the use of patent pools or other licensing platforms. The EC will undertake a monitoring and set up expert group research to determine ‘sound IP valuation and FRAND’ licensing terms for SEPs implementers.

Third, the Communication identifies the need for a predictable enforcement environment enabling a fair and balanced approach for both SEP holders and users. In particular, the Commission points out the importance of determining an appropriate mechanism to safeguard the fair application of injunctive relief in situations where ‘good-faith technology users threatened with an injunction [may] accept licensing terms that are not FRAND, or in the worst case, are unable to market their products (hold-ups).’ The document refers to the Court of Justice of the EU (CJEU) Huawei decision (Case C-170/13 Huawei Technologies, EU:C:2015:477) as a basis for assessing a potential injunction demand by a SEP holder towards alleged infringers. Drawing on the Huawei judgement, the Commission underlines the importance of the provision of clear indications of essentiality of SEP claims and the allegedly infringed products, the provision of precise royalty calculations and non-discrimination guarantees when making an offer to a SEP user. The counter offer, on the other hand, should also clearly specify the exact use of the SEP in the designed product. The EC has encouraged the use of alternative dispute resolution mechanisms such as mediation and arbitration to be carried out within the prospective Unified Patent Court which could facilitate a more streamlined agreement process. In terms of Patent Assertion Entities, the Commission has not been unfavourable, relying on established safeguards in the EU litigation system and the Unified Patent Court.

Finally, the EC has highlighted the EU support on open source developments and standardisation, pointing out a win-win situation for both sides, i.e. speedier standardisation process and interoperability guaranties for open source software implementations.