“The EU Commission has missed a great opportunity”

Let’s be honest for once. In the end, it’s all about the money. And the SEP licensing business is worth billions. Licences can have a serious impact on the balance sheets of SEP owners, but also on the sale price of implementers’ products.

Accordingly, market participants negotiate hard over licences. If the owners and users of SEPs cannot quickly agree on a licence rate, they end up in court — usually in several jurisdictions simultaneously.

It often seems as though the industry — be it SEP owners or implementers, law firms or courts — has accepted this system of global SEP licensing. But, as experts from all sides repeatedly emphasise at conferences around the globe, nobody is truly happy. However, none of the stakeholders are prepared to make a reform proposal that would really change the system.

Reform attempt ends in failure

The EU Commission thus took up the task with its proposal for the regulation of standard essential patents in Europe. The attempt ended in failure, however, as the Commission suddenly withdrew its proposal on Tuesday.

The EU Parliament had adopted the proposal only last year. The member states had just begun to discuss possible changes under the EU Council’s Polish presidency. They had not officially come to any common stance.

“The proposal never had chance to mature into a balanced compromise”

Admittedly, the project faced huge criticism from the outset. The first draft was leaked in 2023 and came in for criticism from many sides, especially patent pools such as Sisvel and SEP holders such as Nokia and Ericsson. All the while, however, critics emphasised their willingness to help solve the SEP problem.

But the Commission’s proposal never had a real chance to mature into a balanced compromise. The conundrum is how the parties can arrive at a FRAND-compliant licence rate without accusations that the SEP holder is exaggerating its market power and the implementer is artificially delaying the conclusion of a licence agreement.

Multiple missteps

In view of this, the EU Commission proposed establishing a competence centre. This would serve as a type of clearing house, which would check whether the SEPs are really essential by default. The proposal also included a non-litigation clause while the centre assessed the value of the SEPs. Many stakeholders would presumably have agreed to this.

But the fact that the Commission wanted to locate the centre at the EUIPO in Alicante had many stakeholders up in arms. Even supporters of the reform were unconvinced that the trademark office has any competence in patents.

Then, the Commission made another psychological mistake. It pushed ahead with the project in the very year in which the Unified Patent Court was launched. Even at the UPC’s opening ceremony in June 2023, its president Klaus Grabinski indicated his displeasure at the idea of a non-enforcement clause in which SEP holders would have to waive their right to bring a lawsuit.

“Finance should not be the reason a new proposal fails”

When or if the Commission makes a new attempt it must avoid these missteps. The Commission should make it clear from the outset how much money it will provide to the centre and which experts will work there. It would certainly be in a position to do this. After all, the EU member states have provided the UPC with a high-calibre bench of judges that is unparalleled in the patent world.

Finance should not be the reason it fails. There is a very good chance that the UPC and an SEP competence centre can be self-financing.

No satisfaction

The proposal’s withdrawal caught SEP owners and implementers equally unprepared. The Commission must now provide its reasons for the sudden U-turn. The recent anti-regulatory climate in many countries probably played a role. Another reason is likely the European states’ search for pragmatic solutions to make their economies more competitive in the face of China and the US.

Initial reactions immediately revealed the sharp dividing line that runs through the industry. SEP owners such as Nokia welcomed the decision, but want to work on new proposals. Others, such as the Fair Standards Alliance, which is more on the side of implementers, were surprised by the move. “The withdrawal sends a terrible signal to innovative businesses who rely on a predictable and fair SEP licensing system,” said a statement.

“The Commission must find the best compromise between many conflicting interests”

IP2Innovate, which also leans more toward implementers, urges “Member States and European Parliament to reject this proposal for withdrawal and demonstrate their commitment to progressing this vital file”.

Most likely, the Commission’s proposal would not satisfy any of the stakeholders in this billion-dollar business. Its task, and that of the member states, is to find the best possible compromise between the many conflicting interests.

Five-year wait

The market will now have to wait years for a new attempt — potentially until there is a new EU Commission in five years’ time. It is unlikely the market will sort itself out before then. It has not managed to do this in the last 20 years.

“Critics might not like to hear it but the state needs to act as a neutral advocate”

The critics of regulation might not like to hear it but the state needs to act as a neutral advocate of interests in order to bring about a solution. This must also be in the interest of consumers, who ultimately pay for the products.

Stakeholders now have at least five years to jointly develop pragmatic proposals on which the legislator can build.

Slowing competition between courts

Patent judges will have a particular responsibility in the coming years — especially those in London, Germany and at the UPC. The competition between these courts has become all the more clear in recent years. Disputes about interim licences are playing out in London, while many speculate over whether UPC judges will one day set a FRAND rate.

“Patent judges must now act with a sense of proportion”

Patent judges in the UK and Europe, but also in China and the US, must act with a sense of proportion. Otherwise, the global SEP litigation system threatens to take on a life of its own, potentially leading to spiralling litigation and the related costs. This would benefit the legal industry, but it would not benefit manufacturers and consumers. It would certainly be to Europe’s detriment in global competition. Working together to find economically sensible solutions is and remains the best way forward.