Andrew Yen: “The draft SEP regulation contradicts the fundamental pillars of FRAND”

In an exclusive interview with JUVE Patent, conducted at the AIPPI world congresses in Istanbul, Andrew Yen talks about Panasonic’s response to the European Commission’s proposed changes to FRAND and SEP regulation in Europe, and how other, industry-led solutions might lead to a more harmonious market approach. Yen also explores Panasonic’s long history with patent pools and explains why the UPC has become integral to the Japanese company’s litigation strategy, after it filed seven suits against various subsidiaries of Oppo and Xiaomi at the new pan-European court’s Mannheim and Munich division.

JUVE Patent: What is Panasonic’s relationship with standardised technology?

Andrew Yen: Panasonic is over 100 years old, with more than 40 years of experience with standardised technologies. Panasonic experienced a time when standardised technologies were not available, a time when companies needed to direct R&D resources to developing proprietary technologies. Development of standardised technologies was an overall positive, because it reduced the cost of certain R&D investments and enabled the company to pursue other areas of research interests. Also, the products gain interoperability with the products of other companies and with the overall system.

Panasonic engages with the standard ecosystem in various aspects. As a technology contributor, Panasonic shares its R&D efforts and, as an implementer, it brings products and services incorporating standardised technologies to global markets. As both a technology contributor and implementer, Panasonic cares a great deal about maintaining a balance standard ecosystem to enable developments of future standards. Thus, Panasonic also engages in discussions about IPR policies at Standard Developing Organisations (SDOs), issues in front of national courts, and national and global SEP licensing policies. There is, of course, also the licensing aspect.

“Patent pools are an effective way to realise the fundamental purposes of FRAND”

What role do patent pools play in Panasonic’s strategy?

Panasonic has been a great proponent of patent pools since the very beginning and is a founding member of various patent pools. The company believes that the patent pool is a proactive way for SEP holders to engage the market. Panasonic believes that patent pools are an effective industry-led solution to realise the fundamental purposes of FRAND: namely, to allow widespread implementation of standardised technologies, and to provide a fair and reasonable reward for technology contributors.

For users of a standard, a patent pool serves as a one-stop licensing solution. In addition, patent pools provide quality assurance to the licensed patents, as evaluation by neutral third-party experts are required before patents can be admitted into the pool. Together, these aspects significantly reduce transaction costs associated with bilateral SEP licensing. The rate established by a patent pool also provides clarity to users of the access cost for the standard, including SMEs. This enables business planning to account for potential licensing costs.

What does Panasonic make of the European Commission’s proposal for a framework on SEPs?

We do understand some of the underlying objectives that the draft SEP regulations try to address. For example, the desire to provide further transparency regarding patent landscape and access costs to a standard. That said, the draft regulations appear to unevenly place excessive burden on technical contributors, including SMEs. Panasonic is concerned that the regulations may ultimately discourage participations at standard setting, lessen the diversity of the sources of technical contributions, and reduce the overall quality of future standards.

“The European Commission should encourage the formation of patent pools to address market needs”

Finally, the draft SEP regulations may upset the pillars of SEP/FRAND jurisprudence, such as patent law and contract law. From a patent law perspective, the draft SEP regulation appears to have encroached upon fundamental rights provided under national patent law.

As to contract law, each SDO has its own IPR policy that technology contributors can review and analyse before deciding to commit. These IPR policies differ among SDOs, and the regulations do not appear to recognise these distinctions. Moreover, the regulations impose commitments upon SEP holders beyond those provided under various IPR policies. A strong and sustainable ecosystem for enabling future standardised technologies requires a balanced support for FRAND. Regulations that seem to contradict the fundamental pillars of FRAND require reconsideration.

How else might the European Commission achieve its aims of transparency and standard regulation?

Existing industry-led solutions such as patent pools already enable many results intended by the draft regulations. For example, a patent pool provides transparency and quality assurance as to licensed patents, and clarity regarding access costs to standards. Finally, the rate of a patent pool that has been widely accepted by the industry may also serve as a strong valuation indicator for other patents directed to the same standard. Thus, instead of putting forth rigid regulations, Panasonic believes the European Commission should encourage the formation of patent pools to flexibly address both existing and future needs of the market.

How does involvement in AIPPI help in the process of finding a solution?

AIPPI is a great organisation with a wide range of participants from different sectors within the legal industry. SEP licensing and FRAND is a very complex and specialised area and one’s view can be highly influenced by how the issues are framed. I am grateful to have the opportunity to participate in the SEP panel at AIPPI with other personalities with strong legal, commercial and industry experiences. Personally, I believe it is important to share the views from the industry’s perspective, because these are experiences and insights that are generally not accessible to legal professionals who practice in a law firm or courtroom setting.

Panasonic launched one of the first big UPC campaigns. What were the reasons to litigate beyond national court level?

Panasonic has one of the most diverse portfolios available in the market, and the UPC system supports that. Our negotiations reached a point that we thought it was necessary to involve a third party, when our invitations to discuss alternative dispute resolution were not successful. It is impossible to enforce in every single country and the UPC offers a platform to resolve a bigger market, compared to a more limited market such as Germany.

“Panasonic wants to present cases to the UPC to help shape dialogue”

There’s still quite a bit that is unknown in relation to the UPC, but we have confidence in the court. Considering the reaction to the European Commission’s draft SEP Regulation taken by some within the UPC, Panasonic understands that the court takes SEP issues very seriously. We took our case to the UPC to see if we have done enough as a licensor under the Huawei vs. ZTE framework. Hopefully what we do is sufficient; we want to present the cases to the new court to help shape the dialogue and perhaps help influence bilateral SEP licensing discussions going forward.

What does Panasonic take from the UK’s recent FRAND judgments and subsequent market developments?

Obviously, we thought that the UK court has placed great efforts into these FRAND judgments. The Unwired Planet decision was a very strong decision. I think the later decisions – for example InterDigital vs. Lenovo or Optis vs. Apple – have a lot of information that are specific to the parties that are involved. So perhaps the referential value of the decision itself, although it’s still relevant, cannot be just taken from the results. But if you really delve into the reasoning of the UK decisions, you can see why the judge decided certain things. And I think it is a responsibility of industry participants to look into those and try to derive a deeper guidance from those decisions. This is not just what the rates are, or how the rates are being set – for example, why the judge cannot find a comparable licence, why Mr Justice Mellor in InterDigital vs. Lenovo went through all the negotiation history and licences.

“Case law should consider that implementers who take licences in good faith should not be at a market disadvantage”

There might be some issues in terms of how patents are being licensed that came up in those decisions and which are associated with practices that exist in the market, like volume discount. So, it would be interesting to see how those do play out in later proceedings since these decisions will influence how licensing will develop in the future. Finally, I think it is important to recognise that most of the SEP licenses concluded amicably without litigation. I do believe that case law should be mindful to reflect the important principle that implementers who take licenses in good faith should not be placed in a disadvantaged competitive position in the market, vis-à-vis their competitors who have not done so.

Is a more global approach needed to streamline the disparate approaches across jurisdictions?

SEP licensing is a global issue and different approaches and flavours have developed in parallel in multiple jurisdictions. It is important to recognise that comity plays a key role in SEP and FRAND jurisprudence, as different jurisdictions do have important views to contribute to the dialogue. A country can only look and regulate internally and cannot monopolise SEP issues. A country also cannot influence legal rights duly afforded by other countries. I believe it is helpful to keep relevant guidance from different jurisdictions in mind as, at least in theory, they should encourage and enable both parties who wish to engage in good faith negotiations. That said, in cases where the parties cannot resolve an SEP licensing dispute through bilateral discussions, agreement to utilise alternative dispute resolution such as arbitration can help streamline the issues and to facilitate a final resolution.

Could more Chinese companies becoming SEP holders lead to a more balanced ecosystem?

It is important to recognise that Chinese companies are becoming important contributors to standardised technologies. This is a natural and positive development for the standard ecosystem. At the same time, not all Chinese companies share the same view and experience about SEPs. While achievements by Chinese companies in recent years are impressive, it is critical to also recognise the contributions made by Korean, Japanese and other Asian companies to the standard ecosystem over the years.

“Chinese companies are becoming important contributors to standardised technologies”

Together, Asian companies made significant technical contributions to standardised technologies. Thus, it is important for these companies to participate in maintaining and improving the SEP ecosystem that enabled their growth in both R&D and business activities. After all, a great deal of Asian sensitivities did help establish the most balanced and successful patent pools that enabled the exponential grown in the video industry.

How do you foresee developments in technology, such as IoT, impacting SEP licensing in the global market?

We live in an exciting time when new and improved technologies are being developed and brought to the market at an increasing pace. IoT products and services, however, do not all interact with the standards in an identical way. Like products and services that came before, not all IoT products and services will succeed. Thus, from a SEP licensing perspective, it is important to recognise different application verticals do exist. Sensitivity is needed to enable new IoT products and services, especially those offered by SMEs, to grow and compete in the market.

Patent pools are particularly well-suited to address these concerns. Pool administrators often engage in discussions with industry participants to understand industry needs and expectations. This enables dynamic valuation approach for new application verticals. Patent pools can also be helpful to new market entrants, including SMEs, as they provide certainty about an aggregate market rate to enable business planning and provide a one-stop licensing solution to limit licensing costs. Pools can also be designed to provide a grace period to allow new products and services to test market before making licensing commitments.

Is it fair to say that you advocate more of an industry-led approach to harmonisation?

Industry participants stand at the juncture between technology and the market, and will continue to do so as the dynamic between technology and market evolves. Industry-led solutions are well suited for proactively engaging market needs and licensing expectations at a comprehensive level. In contrast, case law and regulations, while relevant, tend to be reactive and less dynamic in nature. As standardised technologies found new applications in products and services in the IoT era, SEP licensing disagreement can and often does arise from clashes of traditional industry expectations. In automotive, for example, a big issue is who should bear the cost to access the standards. This is where traditional expectations from the automotive industry and cellular industry seem to diverge. And this may be an issue where industry-led solutions, rather than legal-driven resolutions, could better satisfy the fundamental purposes of FRAND and forward the needs of the market.

“Industry participants stand at the juncture between technology and the market”

It seems productive for industry participants to collaboratively explore and examine how the fair and reasonable cost to access the standard should be shared among those in the value chain that derive benefits from the standard. Doing so would lessen cost pressure at specific points within the value chain to enable sustainable competition. It would also reasonably reward technology contributors based on added value attributable to the standardised technology.

Finally, why did you become an in-house lawyer from your previous career in private practice?

The easy answer would be that I don’t like to bicker every single day! But the bigger context is I was raised as a multicultural person and I gravitate towards that – I was born in Taiwan, raised in the United States, and ended up working in Japan. I decided to leave big law after I was seconded to Panasonic for two years, and that’s when we started building up some of our licensing programs. When I returned to my law firm, I continued to work on the same projects I worked on in Japan. At the same time, I cannot help to think that I could achieve so much on the ground with much less resources and higher efficiency; my engineers are around, and I can ask them questions, I can talk to the licensing team directly. As an outside lawyer, I can do all that, but the cost may become prohibitive.

Also, my personal nature is more collaborative. Sometimes I say outside counsel are like surgeons: when you have big issues, you go to them, but I prefer to practice Chinese medicine where I can condition the body. It also helps that I get to use different languages in my practice and interact with Panasonic’s global team. As in-house counsel, my role is less US-focused, as there is a need to follow global developments. That approach fits into my multicultural upbringing.

This interview was conducted by Amy Sandys and Mathieu Klos.