Following around a year of lobbying and intensive debate, the Commission has today (29 November 2017) published its Communication on ‘The EU Approach to Standard Essential Patent Licensing’.
As we reported back in April when the Commission published its initial ‘Roadmap’ for this area, the Communication is intended to address some of the uncertainties in SEP licensing left unresolved following Huawei v ZTE (see e.g. here), and to drive progress for the EU-wide adoption of 5G.
And as we predicted a couple of months ago, the intensity of the debate surrounding the key issues in SEP licensing means that the Communication is far from overly prescriptive.
The Communication will take a little while to digest in full, but for now the headline points are:
• The current declaration system needs modernising to ensure greater transparency about which SEPs are actually essential and – in an era of great patent liquidity – who owns them. A new EU body may become involved in this. And if this all seems rather aspirational, to be noted that the Commission is aware of the (not inconsiderable) costs implications, and suggests that changes may only be possible prospectively, e.g. for 5G…
• There remains significant flexibility in how FRAND values are established, but a couple of preferences emerge from the guidance
o ‘In principle’, FRAND values should not include any value attributable to the inclusion of the technology in the standard. This is in line with previous statements in the Commission’s Horizontal Guidelines, and diverges from the approach in Unwired Planet, where both parties accepted that some such value could be taken by the patentee (see para 97). However, where technology “has little market value outside the standard” (hardly an infrequent situation), other techniques may be needed, such as comparisons between types of contribution.
o Aggregate royalty rates are important, and should be taken into account. The Commission proposes that FRAND value should reflect the “present value added” by the SEP, bearing in mind that this can change over time, and that it should notinclude value attributable to market success of the product.
• Non-discrimination between similarly situated licensees remains fundamental, and evidence of non-discrimination forms part of the information that SEP holders should provide to licensees.
• Chipset licensing remains possible – but is not mandated. One of the key areas of dispute in industry was whether the FRAND obligation required SEP holders to license all comers, including component manufacturers, or whether they can decide to license end manufacturers (thus giving a higher potential royalty base) to the exclusion of those higher up the value chain. The report does not come off the fence on this issue, save to say that business models may vary from sector-to-sector. Cases such as Apple v. Qualcomm will therefore have to continue to fight this issue out from first principles.
• Use-based licensing is not mandated – but nor is it wholly out of the question. This is another area of significant dispute in industry, with a deep split between rights holders and potential licensees (see the Fair Standards Alliance’s response to the Communicationhere…). The concept behind use-based licensing is that it allows SEP holders to charge different rates for different uses (e.g. compare a smart car, a smartphone and a smart thermostat). The Communication does conclude that FRAND is not a one-size-fits-all concept, and may differ from sector-to-sector and over time. However, it also emphasises the need not to discriminate between similarly–situated parties.
• Safeguards against the inappropriate use of injunctions are still needed to prevent both exploitation (using threats to extract unfairly high licence terms) and exclusion. Companion papers giving guidance on ‘certain aspects’ of the IP Enforcement Directive (here) and on ‘A balanced IP enforcement system’ (here) have also been published.
• The Communication confirms that non-practising entities should be subject to the same rules (including on transparency and injunctions) as other SEP holders. As with many of the points in this paper, there is no big surprise here.
And overall? The Communication will be pored over by industry, and – while not binding in any strict legal sense – will no doubt feature in arguments on both sides of the FRAND debate. There are certainly some common-sense points in here, as well as some regulatory aspiration. But if this is a roadmap, it is certainly not the end of the road – and we will continue to watch as the debate unfolds in the UK, Europe and beyond.