On April 27, 2023, the European Commission introduced a proposal to reform the standard essential patent (SEP) process within the EU. SEPs are a category of patent that covers technologies which are part of a technical standard, such as 5G, LTE or Wi-Fi. To encourage innovation and competition in these crucial sectors, the owners of SEPs are required to license their technologies to other companies in exchange for royalties in a fair, reasonable, and nondiscriminatory (FRAND) manner. The Commission’s reform proposal aims to make the EU an attractive location for innovation by creating increased transparency and better negotiation pathways in the SEP processes. It proposes to put the European Union Intellectual Property Office (EUIPO), which currently only manages EU trademarks and design rights, in charge of a range of SEP-related matters. These duties would include offering FRAND determinations, issuing voluntary guidance to affected parties, maintaining registers and databases of relevant SEP information, and mediating patent disputes.
Proponents of this proposal argue that it represents a shift in control of intellectual property (IP) away from major SEP holders such as Nokia, Ericsson, and Qualcomm towards small and medium enterprises (SMEs). Detractors highlight the difficulties the EUIPO would face in fulfilling the role prescribed to it in the proposal and the potential burdens on innovation, including increased timelines for patent adoption. CSIS summarized these concerns and recommendations in July. This post outlines the developments in EU SEPs legislation since that initial analysis and the current status of the proposed reforms.
The period for formal public feedback concluded on August 10, with a total of 78 unique statements received from businesses, experts, and academics from Europe, the United States, and Japan. The comments reflected a division among industry sectors. Major SEP holders offered sharp critiques. Finland’s Nokia criticized the proposal as “detrimental to European interests, including Europe’s technological sovereignty and strategic autonomy” and contended that the EUIPO FRAND determination system would introduce more costs and unpredictability into the patent space. Sweden’s Ericsson argued that the need for this “radical and sweeping” intervention had not been demonstrated and that the scope and applications of the proposal were overly broad and poorly defined. From a U.S. perspective, Qualcomm warned that the regulation would “make the EU a less attractive place for innovation and standards development and drive EU SEP holders to reduce innovation in the EU.” All three companies expressed support for increased transparency and efficiency in the SEP process but favored incremental approaches with more industry input. The proposal did receive supportive comments from several organizations representing patent implementers, including the European Association of Automotive Suppliers and the European Digital SME Alliance.
National parliaments in EU member states have also had the opportunity to review the SEP legislative proposal and offer suggestions or objections. This process has been mostly without controversy, with only three member states returning comments. Finland was the most critical of the proposal, noting that Nokia—the owner of approximately 50 percent of EU SEPs—would be subjected to substantial burdens and costs by the regulation. It claimed that one third of the funds used for R&D by Nokia are generated by FRAND royalties and that annual costs of the system for Nokia and Ericsson could exceed the net benefits of the entire proposal. Noting that it does not have veto power over the proposal, Finland sought compromises to alter the parts of the proposal which it considered the most problematic, including “removing the provisions on the retroactivity of the regulation and the mandatory conciliation procedure for determining the FRAND terms” and “substantially reducing the administrative burden of the regulation.” The Czech Republic offered general support for the proposal, but it called for increased dialogue to clarify “the realistic time, financial and personnel feasibility of the proposed system,” including concerns about staffing the EUIPO competence center, finding qualified mediators, and cooperating with national patent offices. Slovenia supported the aims of the legislation but advocated for a balance between the “legitimate interests” of the patent holders and the licensees. It also called for a clearer account of how the costs of the process would be split between SEP holders and the EUIPO.
The Rapporteur assigned to the proposal, MEP Marion Walsmann, published a draft report on behalf of the Committee on Legal Affairs (JURI) on October 2 that introduces significant amendments to the draft. Many are aimed at adding more precision to the proposal’s clauses, including clearly defining in which cases of standards the Commission could bypass FRAND determination procedures, clarifying the difference between the EUIPO register and the database, and defining the proper qualifications for “evaluators” and “conciliators” that assist FRAND determinations. The proposal also limits the FRAND out-of-court dispute resolution mechanism in favor of more open negotiations, allowing parties to wait until after learning the outcome of the dispute resolution to decide whether to be bound by the result. Furthermore, MEP Walsmann proposes to provide more support for micro and small and medium enterprises (MSMEs), including the establishment of a “one-stop shop for MSMEs” within the EUIPO and offering SEPs implementers free information and advice on their rights. Other amendments aim to prevent the unilateral blocking of the non-binding aggregate royalty determination, which MEP Walsmann believes will help stakeholders set efficient SEP rates. Finally, the draft report calls for a thorough review of the proposal’s “impact on the competitiveness of European SEP holders at global level and on innovation in Europe” to be performed by the Commission and seeks corrective amendments if negative impacts are found. There are signs that not all of JURI is aligned on this proposal: MEP Adrián Vázquez Lázara, the Committee’s chair, expressed doubts about the rationale behind the proposal at an October 25 hearing.
Three other committees of the European Parliament have also offered their suggestions, which reveal some disagreement over the utility of the proposal. The European Economic and Social Committee (EESC) published comments on September 25 as part of its opinion on the broader EU Patent package of legislation. It expressed concerns about the “major challenge” of creating complex administrative processes for establishing essentiality and FRAND terms and recommended the involvement of expert bodies such as the Unified Patent Court, perhaps as an appeal authority above the EUIPO. It also warned that staffing the EUIPO could be difficult and that the burdens SEP proprietors would face due to the requirement to pay for their own evaluations had not been estimated. The EESC strongly endorsed provisions which offer training, advice, and support for SMEs. An October 2 draft opinion from the Committee on International Trade (INTA) argued that there was no clear evidence of market failure and introduced significant amendments to the proposal. Most notably, it deletes the mechanism to determine the aggregate royalty, calls for FRAND determinations to proceed in parallel with court proceedings, and lessens the requirements for sharing information on SEPs and SEP litigation. An October 18 draft opinion by the Committee on Internal Market and Consumer Protection (IMCO) was more supportive of the goals of the proposal but recommended extending the scope of the regulation to all SEPs—present and future—in order to gain the full benefits of “transparency and reduced litigation.” ICMO also called for a more comprehensive approach to essentiality checks and improvements in FRAND determination mechanisms, including striking a provision that would limit random inspections to just one patent per category.
The next step in the proposal’s progress would be a vote by the Committee on Legal Affairs of the European Parliament to advance it. It is unclear when this vote might take place or which proposed amendments would be included in the final version of the proposal. After passage out of committee, the regulation would move to the trilogue process, wherein representatives of the European Parliament, the Council of the European Union, and the European Commission would work informally to reach a provisional agreement that is acceptable to all parties. Each body would then need to formally approve the final draft to make it law. Because EU elections will be held in June 2024, these steps would all likely need to take place by March—otherwise, IAM’s Adam Houldsworth suggests that any action on SEPs would have to wait until at least the end of 2024. Given ongoing disagreements over the necessity and efficacy of the proposal within the European Parliament, it may be difficult for it to clear these procedural hurdles in time unless some kind of compromise is reached. António Campinos, the President of the European Patent Organisation (EPO), has argued that SEPS authorities should be removed from the EUIPO to the EPO and the Unified Patent Court (UPC); the European Economic and Social Committee (EESC) has also indicated support for involving the UPC. Tasking these established expert bodies with the difficult technical task of managing SEP disputes could help allay the concerns of the proposal’s detractors about the inexperience of the EUIPO in this area. Some experts have suggested that an amended version of the proposal featuring a smaller role for the EUIPO would have a better chance of eventually becoming EU law.