CLIP of the month: European Commission draft regulation on SEPs – simplifying or muddling FRAND licensing?


Yesterday the European Commission published its draft regulation on licensing of standard essential patents (SEPs). The proposed rules follow on from the Commission’s 2020 IP Action Plan, which stressed the need for “a much clearer and more predictable framework, incentivising good faith negotiations rather than recourse to litigation”. Announcing the draft regulation, the Commission stated that “a well-functioning system [for SEP licensing] that facilitates access to technologies, while rewarding innovation, is crucial for the EU’s technological sovereignty”.

The aims of the draft regulation are certainly ambitious: to increase the transparency and predictability of the SEP licensing system; to simplify and speed up FRAND licence negotiations; and to reduce the need for FRAND litigation in national courts.

The regulation seeks to achieve these objectives through various policies and procedures. It would establish a ‘competence centre’ at the European Union Intellectual Property Office (EUIPO) which would be tasked with:

  • maintaining a register of SEPs for relevant standards;
  • maintaining a database of SEP case law and determinations of FRAND licence terms;
  • checking the essentiality of SEPs;
  • assessing the appropriate aggregate royalty for SEPs relating to a given standard; and
  • administering individual FRAND rate determinations for SEP owners’ portfolios.

Significantly, the main assessments envisaged by the proposed rules – essentiality checks, aggregate royalty assessments and FRAND rate determinations – would be non-binding in nature. It’s also important to note what the draft regulation does not cover: it’s not concerned with issues of patent validity and infringement; and it does not affect parties’ ability to litigate SEPs or seek FRAND determinations outside the EU.

Recent changes to the proposed rules

SEP owners and implementers have already been mobilising to lobby European legislators to support or oppose various aspects of the draft regulation. Following criticism that an earlier draft favoured implementers by unduly preventing SEP owners from seeking injunctive relief in national courts, the latest draft enables SEP owners to seek a provisional injunction “of a financial nature” (i.e. not a sales ban but a requirement on implementers to make a deposit or post a bond to cover licence fees) before the conclusion of the EUIPO-administered FRAND rate determination process. The recitals acknowledge that “[t]he obligation to initiate FRAND determination should not be detrimental to the effective protection of the parties’ rights”. However, the parties are required to request the national court to suspend proceedings on the merits for the duration of the FRAND determination. Whether the recent changes go far enough to protect SEP owners’ rights will doubtless be hotly debated in the coming weeks and months.

Acknowledging that SEP licences are usually global in scope, the latest draft of the regulation also clarifies that the EUIPO-administered FRAND determination will focus on terms for a global licence, unless the parties agree otherwise (see Article 38(6)). This clarification may be welcomed by SEP owners.

Practical considerations and relevance for the UK

Some have questioned whether EUIPO will be up to the job that the draft regulation envisages for it, given its lack of expertise on patents and SEPs in particular. Resourcing may also be an issue; assuming the regulation comes into force in roughly its current form (which is by no means certain), it is questionable whether EUIPO will be able to recruit enough suitably qualified experts in essentiality assessment and FRAND valuation. The practicalities of the FRAND determination process also give rise to questions: a key issue in UK FRAND determination proceedings has been the protection of confidential information from licences. While Article 54 of the draft regulation preserves the ability for a party to claim confidentiality over information used, it is unclear how the other party is to have adequate information about the basis of the determination if it only receives such information only in redacted form.

Despite the changes to the draft text aimed at addressing concerns expressed by SEP owners, it’s possible that the regulation may make other, non-EU jurisdictions – including the UK – more attractive for SEP enforcement. (Article 47 of the draft regulation envisages the possibility of parallel proceedings being initiated in non-EU countries before or during any EUIPO-administered FRAND determination process.)  In this connection, the High Court’s recent FRAND judgment in InterDigital v Lenovo provided further evidence that UK courts are willing and able to set global FRAND rates for SEPs (see here). The UK remains one of the few jurisdictions in which courts can determine FRAND terms without the consent of both parties.

It’s worth noting that the UK Intellectual Property Office (IPO) is also currently examining whether the framework for SEP licensing is “functioning efficiently and effectively and strikes the right balance for all entities involved” (see here). Other countries such as India are considering introducing SEP licensing reforms as well.

One thing seems clear: global developments in the regulation of SEP licensing are likely to continue apace.