Europe’s Standard Essential Patents system lacks transparency, says former judge [Advocacy Lab Content]

Europe’s Standard Essential Patents (SEP) system is currently characterised by a lack of transparency and legal gymnastics regarding FRAND licenses, said Christopher Vajda KC, a former judge at the Court of Justice of the European Union. Vajda was speaking at a SEP conference in Brussels on 21 February, where he remarked that legal tactics often take prominence over legal substance.

Our daily lives are integrated by SEPs, which are patents for the technology needed to implement essential technology standards such as 5G and Wi-Fi. For regular consumers, SEPs mean wide access to all kinds of innovative products that are compatible with each other. Behind the scenes, SEPs are often the subject of litigation.

In 2023, the Commission proposed a new framework for SEPs aiming for better transparency. It proposes to establish an obligatory register for holders of SEPs to record them, non-binding aggregate royalty rates for standards, and free advisory services for SMEs. The European Parliament is set to vote on the JURI report in response to these proposals on Wednesday.

King’s College London and Charles River Associates organised a conference in Brussels ahead of the vote where lawyers, judges, and academics exchanged views on SEP regulation.

Christopher Vajda KC, one of the panellists, said that in light of the dissatisfaction voiced during the event about how the process surrounding SEPs was proceeding at the moment, it was an opportune moment for the European Commission to propose regulatory changes.

“I can’t see that it is going to make things worse. It may be that it won’t improve things by much. But I think it’s interesting and innovative,” Vajda said.

FRAND assessments often a guessing game

SEP holders are obliged to grant their licences on fair, reasonable and non-discriminatory (FRAND) terms. However, in practice, these processes are shrouded in secrecy and come with lots of litigation – for those who can afford it.

“What happens is that you sign an NDA and some of them don’t allow you to evaluate if an offer is FRAND or not. This means assessing FRAND for companies such as Fairphone is often a guessing game,” said Ana-Mariya Madzhurova, Legal Counsel at Fairphone, a Dutch company manufacturing sustainable smartphones.

She also highlighted a UK Intellectual Property Office (UKIPO) survey that found that 83% of respondents believe they weren’t offered a licence on FRAND terms.

Smaller companies wanting to create innovative products often need to use certain technology standards covered by SEPs. However, their lack of knowledge and lack of robust legal representation means they have to seriously consider settling for higher royalty payments rather than risking pricy and lengthy litigation.

“There’s this commitment to license at fair, reasonable, and non-discriminatory (FRAND) terms, but what that means is very fuzzy,” Prof. Joachim Henkel, a widely published academic from the Technical University Munich, told Euractiv.

Madzhurova explained how SMEs are often discriminated against due to their competitive disadvantage. It creates a trickle-down effect leading to consumers paying higher prices for products. When companies like Fairphone have fewer resources than giants like Apple and Huawei, they end up having to rely more on regulatory intervention.

Patent standardisation by stealth

On the other hand, Rebekka Porath, Global IP Policy Director at Intel, said some companies own patents that are vital to differentiating their own business. In these cases, that company wouldn’t want to license its technology to others but sometimes Standards Developing Organisations (SDOs) include those patents in standards, turning them into SEPs.

“Why on earth should that patent holder be obliged to go through the route of first registering that patent, of initiating reconciliation procedure that is all about terms of a license that they are not prepared to offer in the first place?” Porath asked.

Henkel questioned whether such patents should be subject to the proposed regulation.

“I think the answer is not clear,” he said, explaining that while patent owners should have the possibility to withhold their inventions from a standard, some companies have snuck patents into standards without FRAND commitments only to seek excessive royalties down the line.

“However, I think these issues can be solved because technically important patents, the ones that firms really care about, aren’t likely to be built inadvertently into a standard,” he told Euractiv.

Level playing field

German Federal Court judge Fabian Hoffmann, who also spoke during one of the panels, said one has to keep in mind that SEPs and FRAND determinations allow standards to gain better technology. They allow inventors to simply come up with inventions without having to sell the products that use that invention. In his view, the solution isn’t to decrease the amount companies pay to SEP holders but to level the playing field.

Vice President of Charles River Associates, Benno Buehler, said it is critical for parties to know what the FRAND rate is. He noted that some large non-EU jurisdictions have started venturing into FRAND determinations thus restricting the availability of injunctions. He noted that in the EU, SEP holders tend to litigate in jurisdictions that are favourable to them. Many of them end up going to German courts, where injunctions are awarded much more frequently than in other jurisdictions, according to Buehler.

“From the implementer’s perspective, if the entire product can be removed from the market, then of course that gives a lot of leverage to the SEP holder,” Buehler said.

[By Christoph Schwaiger I Edited by Brian Maguire | Euractiv’s Advocacy Lab ]

Read more with Euractiv