European Parliament committees and EPO issue opinions on draft SEP regulations

Several months ago, the European Commission released a draft regulation designed to fundamentally redraw the standard essential patent (SEP) licensing landscape in the EU. The draft regulation has resulted in significant commentary from all sides of the SEP licensing debate. Recently, it has drawn differing opinions from the committees of the European Parliament, as well as an unusual intervention from the European Patent Office (EPO) president.

Standardisation and SEPs play a huge role across a variety of technologies and sectors; for example, communications, media and the Internet of Things. SEPs (as patents essential to the implementation of standardised technologies) generally must be licensed on fair, reasonable and non-discriminatory (FRAND) terms, though what amounts to FRAND terms is often disputed, leading to litigation.

The Commission states it has introduced the draft SEP regulation with the aim of facilitating SEP licensing through various transparency and alternative dispute resolution (ADR) initiatives. In particular, the draft SEP regulation provides for a SEP register; essentiality checks on such registered SEPs; a means to consider aggregate royalty burdens for relevant standards; a mandatory ADR FRAND determination process; and a competence centre at the EU Intellectual Property Office (EUIPO) to administer the various aspects.

What is the recent commentary?

Two opinions have been handed down by European Parliament committees so far.

The first, an opinion from the Committee on International Trade, largely disagrees with the wording of the Regulation as drafted. It commented that the FRAND determination procedure should run in parallel to validity and infringement court proceedings. It recommended that the use of an aggregate royalty mechanism be deleted, noting that such determinations should be left to the courts. And it emphasised the need to remove the unilateral nature of the potential FRAND determination process, which it highlighted may be used by a party in bad faith in order to cause further delays.

The second opinion, from the Internal Market and Consumer Protection Committee, is fundamentally supportive of the regulation as drafted, stating that it would help to streamline and improve the licensing of SEPs. It went a step further, proposing that the regulation should also cover all standardised technology, not just wireless communications.

The president of the EPO has also recently intervened in the debate through a letter to the European Parliament's Committee on Legal Affairs. His comments broadly align with those of the Committee on International Trade, and he expressed his doubts that the draft SEP regulation will address the issues it identifies. In particular, he emphasised the pre-existing expertise at the EPO, at the various standard setting organisations including the European Telecoms Standards Institute, and at the nascent Unified Patent Court (UPC) and its associated Patent Arbitration and Mediation Centre.

Osborne Clarke comment

If enacted, the Commission's proposals would drastically change the landscape of SEP licensing disputes in the EU, with potentially wider ramifications. However, the draft regulation leaves many questions unanswered, particularly with respect to how it would actually work in practice, with more question marks being raised by the differing opinions of the different European Parliament Committees and the EPO. In particular:

• Essentiality checks. It is unclear what exactly would be addressed during the essentiality checks. The courts of EU Member States (including the UPC, where relevant) have exclusive jurisdiction to determine patent validity and therefore the competence centre should not address validity in its assessment. Furthermore, the non-binding nature of the essentiality checks, aggregate royalty expert opinions and FRAND determinations means they lack the force that has made court determinations popular. This could lead to these mechanisms being used as a delaying tactic, particularly given the restrictions on bringing proceedings in the EU while the determination is ongoing. That said, court proceedings could be commenced during the process in non-EU jurisdictions. Equally, proceedings can be commenced in the EU after the determination is made if it is unfavourable, so SEP holders are equally free not to commit to the outcome.
• The institutions involved. It is also not clear how the introduction of the EUIPO into the European patent system will play out, particularly given the radical changes that are currently afoot in the European patent landscape with the introduction of the UPC (strictly a non-EU organisation, though its status is nuanced). The EUIPO was likely selected because it is an EU body, but at present it has no responsibility for European patents (undertaken by the EPO, a non-EU organisation) and so it is not clear how the competence centre would be staffed or how long any recruitment process might take. Inevitably, whether there is engagement from all parties in the proposed out of court FRAND determination process will hinge on the practices of the competence centre, the determination methods used and the expertise of the appointed conciliators. The introduction of another institution into the European patent ecosystem is an unknown that risks adding an additional layer of complexity and cost that could be avoided by commencing proceedings in other jurisdictions willing to make global FRAND determinations (such as the UK). (At present, it is unclear how the UPC will deal with FRAND litigation, for example, will it be able to make FRAND determinations or will its competence be limited by article 31(1) of the UPC Agreement?)
• The mandatory requirements. The introduction of an obligation to undertake the FRAND determination process prior to commencing litigation in an EU court (therefore including the UPC) may disincentivise parties from seeing various EU courts and the UPC as attractive fora for SEP and FRAND disputes. This is especially true in relation to the UPC given an approach to FRAND disputes and relevant case law has yet to develop. Indeed, concerns are reported by industry news source Managing IP to have been raised by the president of the UPC Court of Appeal, Klaus Grabinski, at the court's formal inauguration in May on whether the inability to commence EU litigation during the course of the EUIPO FRAND determination process is compatible with the Charter of Fundamental Rights of the EU.
• The existing solutions: With its proposal, the Commission seeks to position the EU as an attractive destination for simplified out of court settlements. However, the focus on aggregate royalties is an interesting one given the strong preference (of parties and national courts) to focus on comparable licences as the best evidence of market rates for particular portfolios. There is also a sense of the Commission seeking to reinvent the wheel, with arbitration already being an optional path for parties seeking to resolve FRAND disputes, and given the World Intellectual Property Office already has a FRAND ADR function that provides mediation and arbitration services (and, indeed, given other potential pre-existing ADR fora).

While the Commission's proposal is radical, it still leaves many questions unanswered, leaving plenty of room for debate as the proposal makes its way through the legislative process, as is clear from the various opinions that have been issued. The vast majority of Commission proposals are agreed at first reading, taking an average of just below 18 months from publication to adoption. However, in this case, given the divergence of views in the European Parliament, it might take considerably longer to be adopted and concessions might have to be made.

For a complete refresher and primer on what you need to know about the draft SEP regulation, see our Insight on the EU's draft standard essential patents regulation.