Explanatory Memorandum to COM(2023)232 - Standard essential patents - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2023)232 - Standard essential patents. |
|---|---|
| source | COM(2023)232  |
| date | 27-04-2023 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
Standardisation is a key contributor to industrial innovation and competitiveness. Successful standards rest on cutting-edge technologies, which require substantial investments in research and development. Under the rules of many standards development organisations (SDOs), such as the ETSI1 and the IEEE2, companies and individuals may patent their technical contributions to a standard. Patents that protect technology essential to a standard are known as standard-essential patents (SEPs). Typically, SDOs require that any person or company wishing to have their patented technology included in a standard commit to licensing the relevant patents to others who may wish to use the standard (firms using/implementing a standard are also known as ‘implementers’3). These licences must be granted to implementers on fair, reasonable and non-discriminatory (FRAND) terms and conditions. If the patent holder refuses to make such a commitment, their patented technology cannot be included in the standard.
The overall objectives of this proposed initiative are to: (i) ensure that end users, including small businesses and EU consumers benefit from products based on the latest standardised technologies; (ii) make the EU attractive for standards innovation; and (iii) encourage both SEP holders and implementers to innovate in the EU, make and sell products in the EU and be competitive in non-EU markets. The initiative aims to incentivise participation by European firms in the standard development process and the broad implementation of such standardised technologies, particularly in IoT industries.
In this context, the initiative seeks to: (i) make available detailed information on SEPs and existing FRAND terms and conditions to facilitate licensing negotiations; (ii) raise awareness of SEP licensing in the value chain and (iii) provide for an alternative dispute resolution mechanism for setting FRAND terms and conditions.
The Commission’s 2017 Communication ‘Setting out the EU approach to Standard Essential Patents’4, called for a comprehensive and balanced approach to SEP licensing to incentivise the contribution of best technology to global standardisation efforts and foster efficient access to standardised technologies. The Commission acknowledged the need for increased transparency and addressed certain aspects of FRAND licensing and SEP enforcement. The Commission’s views were supported by Council conclusions 6681/185, with the Council stressing the importance of increased transparency.
On 10 November 2020, by Council conclusions 12339/206, the Council invited the Commission to present proposals for future EU IP policy. The Council encouraged the Commission to swiftly present the announced IP action plan, with initiatives to make IP protection more effective and more affordable, especially for small and medium-sized EU enterprises (‘SMEs’)7, and to promote the effective sharing of IP, in particular critical assets such as SEPs, while ensuring adequate and fair compensation for technology developers.
On 25 November 2020, the Commission published the intellectual property action plan8, where it announced its goals of promoting transparency and predictability in SEP licensing, including by improving the SEP licensing system, for the benefit of EU industry and consumers, and in particular SMEs. The action plan noted increases in SEP licensing disputes in the automotive sector and the potential for other IoT sectors to become subject of such disputes as they begin using connectivity and other standards. The plan was supported by Council conclusions of 18 June 20219 and by the European Parliament (EP) in its Resolution10. The EP acknowledged the need for a strong, balanced and robust IPR system and agreed with the Commission’s position that the transparency necessary for fair licensing negotiations depends in large part on the availability of information about the existence, scope and essentiality of SEPs. The EP also asked the Commission to provide more clarity on various aspects of FRAND, and to consider possible incentives for more efficient SEP licensing negotiations and reducing litigation.
In parallel with this initiative, the Commission has updated the Standardisation strategy11 and is revising the Horizontal guidelines12. The new Standardisation strategy, published in February 2022, aims to strengthen the EU’s role as global standard-setter, driving international competitiveness and enabling a resilient, green and digital economy. The present SEPs initiative is complementary to the Standardisation strategy and the Horizontal guidelines13, currently under review.
This initiative is also important in the context of global developments. For example, certain emerging economies are taking a much more aggressive approach in promoting home-grown standards and providing their industries with a competitive edge in terms of market access and technology roll-out.Courts in the UK, US and China have, with their own particular characteristics, also decided that they have jurisdiction to determine global FRAND terms and conditions in specific cases which may impact the EU industry.14 Some countries have released15 or are considering guidelines governing SEP licensing negotiations as well.16
• Consistency with existing policy provisions in the policy area
Standardisation agreements usually produce significant positive economic effects. The ‘potential SEP’ holder need to declare to the SDO whether they are willing to license their patents on FRAND terms and conditions when the standard is implemented in products or relevant components thereof. If a patent holder does not provide a FRAND commitment in line with SDO’ IPR policy, their SEP contributions may not be included in the standard. However, by including a patented technology in a standard, the SEP holder has a strong economic position vis-à-vis a potential standard implementer, because implementers that want to incorporate standards cannot work around these patents and must either pay for a licence or forego manufacturing of products that use the standard. The more widespread the application of the standard is, the stronger the position of the holder can become, which again might lead to anticompetitive behaviour of the SEP holder.
The Horizontal Guidelines provide guidance for SDOs on how to self-assess compliance with Article 101(1) and Article 101(3) TFEU for standardisation agreements. They set out the following four principles to be considered by SDOs in their self-assessment: (i) participation in the standard-setting is unrestricted; (ii) the procedure for adopting the standard is transparent; (iii) there is no obligation to comply with the standard; (iv) there is effective access to the standard on FRAND terms. In light of this, SDO’s IPR policies typically require that participants in standard development disclose the existence of patents (including pending patent applications) that may be or become essential to the relevant standard. In principle, implementers would need a licence from the patent holders to practice the standard. Typically, SEP holders would invite the implementers to take such a licence on FRAND terms and conditions. In its landmark judgment in Huawei v. ZTE17, the Court of Justice of the European Union (CJEU) recognised the right of the SEP holder to seek to enforce its patents in national courts and set out the conditions (steps) that must be fulfilled to prevent an abuse of dominant position by the SEP holder when seeking an injunction. Since a patent confers on its owner the exclusive right to prevent any third party from using the invention without the owner’s consent only in the jurisdiction for which it is issued (i.e. Germany, France, the US, China, etc.), patent disputes are governed by national patent laws and civil proceedings or enforcement laws.18
• Consistency with other Union policies
The Commission has recently updated its standardisation strategy.19 The new EU Strategy on Standardisation, published in February 2022, aims to strengthen the EU’s global competitiveness, to enable a resilient, green and digital economy and to enshrine democratic values in technology applications while preserving the high-quality output of European standards. This initiative is complementary to the Standardisation Strategy in that it aims to encourage, and reward the continued contribution of cutting-edge technologies to standards by facilitating the licensing of the patented technologies incorporated in the standards.
The initiative is also complementary to the Horizontal guidelines, currently under review. The latter address issues related to the standardisation process and ensure access to the standard on FRAND terms and conditions. The initiative provides tools to facilitate the SEP licensing process after the publication of the standard without taking a position on competition-related issues.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The initiative relates to standards to which a patent holder has contributed a patented technology and for which it has committed to an SDO to license on FRAND terms and conditions. Standards for which patent holders make FRAND commitments are applied cross-border among Member States and globally. SEP licensing is also seldom national. Usually, licensing contracts are global and may take into account certain regional aspects. The international standards in question cover technologies such as 4G, 5G, Wi-Fi, HEVC, AVC, DVB and others that ensure interoperability of products worldwide.
Article 114 TFEU constitutes the appropriate legal basis as the objective is to improve the conditions for the establishment and functioning of the single market. The initiative seeks to ensure the efficiency of SEPs licensing, facilitating lawful access to the standards and promoting wider adoption of standards. There are no specific EU or national rules on SEPs apart from certain specific competition law related guidance or court judgments20. In addition, as acknowledged by the CJEU in Huawei v ZTE, apart from common rules relating to the grant of a European patent, a European patent remains governed by the national law of each of the Contracting States for which it has been granted as is also the case for national patents.
The CJEU has confirmed21 that recourse to Article 114 TFEU is possible if the aim is to prevent the emergence of obstacles to trade between Member States resulting from the divergent development of national laws. However, the emergence of such obstacles must be considered likely and the measure in question must be designed to prevent them. Certain courts in Member States, in particular Dutch22, French23 and German24 courts have been considering FRAND-related issues in national litigation based on on the circumstances of the disputes brought before them. Those cases show different approaches (not necessarily different results) with regard to FRAND determination concerning SEPs covering regional or global standards. It is difficult for competent courts in the Member States to handle SEP-related cases and make detailed and consistent FRAND determinations. This is in large part due to the lack of transparency and complexity of the issues that are central to such determinations, such as the essentiality of patents, comparable licences and compliance with FRAND requirements. While the initiative will neither interpret the CJEU case-law nor adopt methodologies for FRAND determination per se, it will establish mechanisms that promote the necessary transparency, increase certainty and reduce the potential for inconsistent rulings. This will be a significant improvement in the courts’ abilities to handle SEP disputes.
• Subsidiarity (for non-exclusive competence)
Measures taken at national, regional or local level to increase transparency and facilitate licensing of SEPs may not be efficient for the following reasons. First, instead of an EU-wide solution for SEPs, there might be different national solutions for the SEPs on a specific standard. Second, under an EU-wide approach, it will not be necessary to conduct more than a essentiality check per patent family to find that patents are indeed truly essential to a standard. The check would be done based on a single EU-wide methodology. Third, non-centralised alternative dispute resolution processes may come to different results for the same SEP portfolio, opening the door to ‘forum shopping’ within the EU. An EU-wide approach can help avoid these problems.
• Proportionality
The initiative is limited to what is necessary to achieve transparency with regard to SEPs and pricing and provide stakeholders with tools to negotiated SEP licensing agreements. Action at EU level will be efficient and save costs for stakeholders, in particular SEP holders, and for Member States. For example, there could be one register instead of many registers, one essentiality check for the whole EU, one methodology for carrying out such checks, and a streamlined and transparent FRAND determination process. SEP holders and implementers will not have to repeatedly incur the same costs in each EU Member state that has chosen to introduce SEP specific rules.
• Choice of the instrument
EU-wide rules on transparency regarding SEPs and FRAND terms would have a harmonising effect within the EU which would facilitate the work of national courts and the future Unified Patent court. The instrument to implement this initiative should be a regulation. A regulation would be directly applicable, including by empowering an EU agency with the tasks of managing a register of SEPs, and establishing a common FRAND determination procedure that would ensure uniformity across the EU and provide greater legal certainty. These outcomes cannot be achieved by means of a Directive.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
• Stakeholder consultations
The Commission has conducted a series of webinars25. The statistics for the webinars can be summarised as follows: 16 hours of content; by over 60 speakers; over 450 interactions in the Q&A field; over 1 700 impressions on the events; over 800 people in the Commission SEP Teams group; and over 1 000 respondents to the Commission surveys in total.
The call for evidence was published on 14 February 2022 and was open until 9 May 2022. During that period 97 replies and 49 position papers were submitted.
The public consultation took place between 14 February 2022 and 9 May 2022. During that period 74 replies were submitted.
A targeted survey for start-ups and SMEs was published on 28 October 2022 and was closed on 20 November 2022. At the request of a number of stakeholders, the survey was re-opened on 25 November 2022 without a closing date to enable stakeholders keep on responding as the markets on the Internet of Things (‘IoT’) develop. By the end of 2022, the Commission had received 39 replies.
Discussion with Member States' representatives took place in within the Commission Expert Group on IP Policy and relevant Council working parties.
The positions of the main stakeholders such as SEP holders, implementers, their consultants and experts as well as their representative associations are largely known. For this reason, the public consultation addressed very specific SEP-related issues and sought views on concrete potential actions.
Around half of all respondents assessed the impact of the current SEP licensing framework on SMEs and start-ups as negative, a third thought there was no impact, and around 5 % deemed it positive.
Almost three quarters of respondents would request a licence in order not to infringe a SEP and 60 % to be able to plan production and costs. The main reasons for having/licencing SEP are securing a return on investment on R&D (70 % of answers), followed by use of SEP for defensive/bargaining purposes (60 %) and participation in standardisation process in the future (40 %).
Lack of transparency on the FRAND royalty rate, on SEP landscape (who owns SEPs) and divergent court rulings were named as the key problems by three quarters of all respondents, including all respondents in the groups of those with predominantly implementer-friendly views (implementers). For the group of those with predominantly SEP-holder-friendly views (SEP holders) the main problems were hold-out and anti-suit injunctions.
Respondents asked for more public information on SEPs as regards ‘patent and application number’ (88 % of all responses), ‘relevant standard, version, section of the standard’ (80 %), ‘contact details of SEP holder’ (80 %), ‘transfer of ownership’ (77 %), ‘licensing programmes’ (76 %) and ‘standard FRAND terms and conditions’ (72 %). Around 60 % of all respondents and 90 % of implementers supported third-party essentiality checks as long as independent experts do them. Only 24 % of SEP holders supported such a solution. A third of all respondents considered that essentiality checks should not have legal consequences.
Around two thirds of all respondents and around 80 % of implementers thought that essentiality assessment might help in assessing a product's SEP exposure and deciding whom to negotiate with, smoothen licensing negotiation and prevent over pricing. More than half of SEP holders disagreed with these impacts but agreed that checks might provide a reliable overview of the share of each SEP holders’ essential patents.
Around three quarters of respondents agreed that fair and reasonable terms and conditions might depend on functionalities of the standard implemented in a product. Around 70 % thought these terms should be independent of the level of licencing.
70 % of all respondents and 100 % of implementers argued that it is important to know the reasonable aggregate royalty rate for a product. Only 20 % of SEP holders shared that view.
Arbitration (53 % of all answers) was deemed more useful than mediation (35 %) for FRAND assessment, especially by SEP holders and academia/authorities/non-governmental organisations.
• Collection and use of expertise
The impact assessment relied primarily, but not excusively, on two external studies and the contribution of the SEP Expert Group:
'Baron, J., Arque-Castells, P., Leonard, A., Pohlmann, T., Sergheraert, E., Empirical Assessment of Potential Challenges in SEP Licensing, European Commission, DG GROW, 2023';
'Charles River Associates, Transparency, Predictability, and Efficiency of SSO-based Standardization and SEP Licensing, European Commission, DG GROW, 2016, https://ec.europa.eu/docsroom/documents/48794';
‘Group of Experts on Licensing and Valuation of Standard Essential Patents – Contribution to the Debate on SEPs’ (2021).
The Commission has conducted many studies, the most relevant of which are:
‘European Commission, Joint Research Centre, Bekkers, R., Henkel, J., Tur, E. M., et al., Pilot study for essentiality assessment of standard essential patents, Publications Office of the European Union, 2020';
‘Landscape study of potentially essential patents disclosed to ETSI’, JRC study (2020);
‘Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases’, JRC study (2017);
‘Patents and Standards: A modern framework for IPR-based standardisation’ (2014).
In addition, the Commission reviewed numerous papers and positions submitted by stakeholders, professional articles on the subject and studies conducted on behalf of other authorities. The Commission analysed initiatives on SEPs in non-EU countries. To prepare the impact assessment and the draft regulation, the Commission consulted with leading experts, judges and academics. Finally, the Commission attended numerous webinars and conferences.
• Impact assessment
The Commission conducted an impact assessment and submitted it to the Regulatory Scrutiny Board in February 2023 and received a positive opinion on 17 March 2023 (REF to be added). The final impact assessment takes into account comments contained in that opinion.
In the impact assessment, the Commission considered the following problems: high licensing transaction costs and uncertainty about the SEP royalty burden. Due to lack of sufficient information, implementers cannot assess their SEP exposure far enough in advance to take into account the licensing costs when planning their product business. On the other hand, SEP holders complain about long and expensive negotiations, especially with large implementers.
More specifically, the following causes of these problems were identified. First, there is only limited information on who owns SEPs, and it is not certain that all patents for which licences are sought are really necessary (essential) to implement a standard. Second, there is very little information on SEP licence fees (FRAND royalty), so implementers with little or no expertise or resources find it impossible to assess the reasonableness of a SEP holder’s royalty demand. Finally, licensing disputes can be time- and cost-intensive.
Consequently, the initiative aims at facilitating SEP licensing negotiations and lowering transaction costs for both SEP holders and implementers by (i) providing more clarity on who owns SEPs and which SEPs are truly essential; (ii) providing more clarity on FRAND royalty and other terms and conditions, including awareness raising with regard to licensing in the value chain; and (iii) facilitating SEP dispute resolution.
The following options were considered to achieve these objectives (the policy options are built incrementally, each adds new elements to the preceding one):
Option 1: Voluntary guidance. This would involve establishing non-binding guidance on SEP licensing. A competence centre on SEPs created within the European Union Intellectual Property Office (EUIPO) would provide free advice to SMEs on licensing negotiations (including trainings) and monitor the SEP market, conduct studies on SEP licensing and promote alternative dispute resolution.
Option 2: SEP register with essentiality checks. SEP holders seeking to license their SEPs for royalty and to enforce them in the EU would have to register the patents in the SEP register. To ensure the quality of the register, essentiality checks would be conducted by an independent evaluator using a methodology to be determined by the Commission at EU level and a system administered by the EUIPO. Sub-options are: to (i) check all registered patents; or (ii) check a small number of patents pre-selected by SEP holders and a random sample of patents registered by each SEP holder.
Option 3: SEP register with essentiality checks and conciliation (FRAND determination) procedure. Before launching a litigation, parties to SEP licensing dispute would have to go through a mandatory conciliation process. An independent conciliator would seek to help parties reach mutually acceptable licensing terms and conditions. At the end of the process, if the parties fail to reach agreement, the conciliator will issue a non-binding report with recommendations on the FRAND rate (with a confidential and a non-confidential part).
Option 4: Aggregate royalty for SEP. Processes would be established for determining an aggregate royalty (i.e. total maximum price) for using a standard before or shortly after its publication. SEP holders would be expected to agree on such royalty (potentially with the help of an independent facilitator from the competence centre). Additionally, both implementers and SEP holders could request an expert opinion on the aggregate royalty, where all the interested parties would be able to present their views. Finally, an aggregate royalty could be determined during the conciliation if the parties so request. This aggregate royalty would equally not be binding and would be published in the SEP register.
Option 5: SEP clearing house. Establishment of a one-stop-shop for implementers to acquire SEP licences by depositing an aggregate royalty with the competence centre. SEP holders should inform the centre how to allocate the aggregate royalty among them, failing which they would not be able to collect their royalty payments. They should also sign licence agreements with any implementer who would make a deposit. Any royalties not collected by SEP holders within a year from the deposit would be returned to the implementers.
Option 4 (voluntary guidance, SEP register with essentiality checks, FRAND determination procedure and aggregate royalty determination for SEPs) is the preferred option. The option reduces information asymmetry between a SEP holder and an implementer by providing the latter with information who the relevant SEP holders are, how many SEPs they have registered in the register and what their essentiality rate is (derived from a representative random sample of all registered SEPs) and what the potential [or maximum] total cost of using a standardised technology (aggregate royalty) is. A pre-trial obligatory conciliation is likely to reduce SEP dispute settlement costs to about 1/8 as the conciliator will assist both parties in reaching an agreement. A competence centre will provide objective information, guidance and support to SMEs on SEPs and SEP licensing. Benefits and costs are presented in the table below.
Table 1: Average total approximated annual costs and benefits of the preferred option per affected party and location (EUR million).
| EU | non-EU | Total | ||
| SEP implementers | Costs | -0.77 | -0.77 | -1.5 |
| Benefits | 12.89 | 13.03 | 25.9 | |
| Net | 12.11 | 12.26* | 24.4 | |
| SEP holders | Costs | -8.13 | -46.04 | -54.2 |
| Benefits | 3.79 | 21.50 | 25.3 | |
| Net | -4.33 | -24.54 | -28.9 | |
| Subtotal (net effect for implementers and holders) | 7.8 | -12.3 | -4.5 | |
| European or national patent office benefit | 29.0 | 29.0 | ||
| Total net benefit | 36.8 | -12.3 | 24.5 |
* concerns non-EU implementers with subsidiaries in the EU
• Regulatory fitness and simplification
This initiative is not part of the REFIT simplification effort as there are currently no EU rules on SEPs that could be simplified or made more efficient.
• Fundamental rights
The proposal should improve the conduct of business for both SEP holders and implementers, and ultimately other businesses downstream (Article 16 of the Charter).
The proposal respects the intellectual property rights of patent holders (Article 17(2) of the EU Charter of Fundamental Rights), although it includes a restriction on the ability to enforce a SEP that has not been registered within the prescribed time-limits and introduces a requirement to conduct conciliation (FRAND determination) prior to enforcing individual SEPs. Limitations on the exercise of IP rights are allowed under the EU Charter, provided that the proportionality principle is respected. According to settled case-law, fundamental rights can be restricted provided that those restrictions correspond to objectives of general interest pursued by the EU and do not constitute, with regard to the aim pursued, a disproportionate and intolerable interference which infringes the very essence of the rights guaranteed26. In that respect, the proposal is in the public interest in that it provides a uniform, open and predictable information and outcome on SEPs for the benefit of SEP holders, implementers and end users, at Union level. It aims at dissemination of technology for the mutual advantage of the SEP holders and implementers. Furthermore, the rules concerning the FRAND determination are time-limited and aimed at improving and streamlining the process but are not ultimately binding.27
The FRAND determination is also consistent with the right to an effective remedy and to access to justice (Article 47 of the EU Charter) as the implementer and the SEP holder fully retain that right. If the SEP is not registered, the exclusion of the right to effective enforcement is temporary, thus limited, and necessary, and meets objectives of general interest. As confirmed by the CJEU28, a mandatory dispute resolution as a precondition to access to courts would be deemed to be compatible with the principle of effective judicial protection. The FRAND determination follows the conditions for mandatory dispute resolution outlined in the CJEU judgments, taking into account the particular characteristics of SEP licensing.
4. BUDGETARY IMPLICATIONS
This proposal would have no impact on the European Union. The SEP system introduced with the initiative will remain fully self-funded, using fees paid by EUIPO competence centre service users. EUIPO is going to finance set up costs (including IT costs) of the competence centre, the SEP register and other services. It is expected to recuperate these set up costs by fees charged when the system is fully operational.
The EUIPO estimates that set-up cost of the competence centre and register including IT infrastructure will amount to around EUR 2.4 million and may involve work of up to 12 FTEs. The EUIPO running cost of the new system will require around EUR 2 million annually (excluding services of external experts such as essentiality experts or conciliators). The costs will be higher in the initial year(s) when registration of an estimated number of 72 000 patent families, and essentiality checks for an estimated number of 14 500 SEPs are expected (which are estimated to be the peak of all registrations and essentiality checks). In the subsequent years, the number of registrations and essentiality checks is expected to drop to 10% of the peak numbers. During the operational period, the competence centre would require on average around 30 FTEs in the peak year(s), and around 10 FTEs in the following years. The financial and budgetary impacts of this proposal are presented in the legislative financial statement annexed to this proposal. Detailed calculation of costs are presented in Annex 7.1 of the Impact Assessment.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The Commission will use the data collected by the competence centre (EUIPO) to monitor implementation of this proposal and the achievement of its objectives. The monitoring activities would take into account the required implementation period (including the time needed to enact the necessary new implementing legislation based on implementing powers to be conferred to the Commission) and the time needed for market participants to adapt to the new situation. The set of pertinent indicators referred to in Section 9 of the impact assessment would be considered for evaluating the changes.
A first evaluation will be scheduled for 8 years after entry into force of the Regulation (allowing for the fact that the Regulation will start to apply 24 months after entry into force). The implementing acts need to be adopted, and the competence centre needs to be set up organisationally during that time. Subsequent evaluations will be carried out every 5 years.
• Detailed explanation of the specific provisions of the proposal
Title I determines the subject matter and the scope of the proposal.
The proposal provides for enhanced transparency with regard to information necessary for SEP licensing; registration of SEPs; procedure for evaluating the essentiality of registered SEPs; and procedure for determination FRAND terms and conditions for a SEP licence.
The proposal applies to SEPs in force in one or more Member States. It concerns standards published by a standard development organisation (SDO) that calls on SEP holders to commit to licensing on fair, reasonable and non-discriminatory (FRAND) terms and conditions. It does not apply to SEPs that are subject to royalty-free intellectual property policy of the SDO that has published the standard. The proposal does not apply to claims of invalidity and infringement of SEPs unrelated to the scope of this Regulation.
Title II of the proposal creates a competence centre within EUIPO to administer databases, a register and the procedures for essentiality checks of SEPs and the FRAND determination. The competence centre will also provide training, support and general advice on SEPs to SMEs and raise awareness of SEP licensing.
Title III This Title includes provisions detailing the process of notifying standards and aggregate royalty, registration of SEPs and expert opinion on aggregate royalty. It also includes provisions concerning the information and data that the competence centre would include in the register and databases. The registration will be subject to a fee.
The SEP registration process is triggered when contributors or implementers notify the competence centre of a standard and/or aggregate rates for a standard and specific implementations of the standard. The competence centre publishes a notice inviting SEP holders to register. SEP holders have 6 months to register. To incentivise timely registration following the 6 months, SEP holders cannot enforce their SEPs until they register. A SEP holder that has not registered within the 6 months may also not seek royalties and damages prior to the registration. This is not only to encourage registration but also to ensure legal certainty for implementers.
The rules take account of the fact that certain SEPs may be granted by a patent office after the 6 month period and certain implementations of a standard may not be known at the time of publication of the standard. A SEP may be removed from the register only where the SEP has expired, has been invalided or found non-essential. The registration can be modified and should be updated by the SEP holder. Any stakeholder can signal that a registration is incorrect or incomplete and needs to be modified.
Contributors or implementers may request an expert opinion on the aggregate royalty, subject to a fee. The competence centre would then appoint a panel of three conciliators to deliver the expert opinion. Any stakeholder can participate in the process and express its views provided that it demonstrates its interest. The expert opinion should also consider potential impacts on the value chain in question. The expert opinion will not be binding but will serve to provide the industry with some guidance in respect of individual SEP licensing negotiations.
In addition to the data provided by the SEP holders in the register and/or the databases on individual SEPs, public licensing arrangements and contact details, the competence centre should collect data on case law worldwide, rules of third countries and public information on FRAND terms and conditions. It should also produce statistics and commission studies. The objective would be to have a one-stop shop for everything a stakeholder needs to know about SEPs and SEP licensing. Most of the information will be available free of charge to the public. Some specific detailed information, for example, on particular SEPs or on reports from FRAND determinations will be available only on registration and for a fee. SMEs will benefit from reduced fees.
Title IV of the proposal contains rules for the selection of candidate evaluators and conciliators to carry out tasks assigned to them in proceedings set out in the proposal. The evaluators or conciliators should not only have the requisite technical competence but should demonstrate that they are independent and no biased. The competence centre should establish a roster of candidates that satisfy all conditions. The competence centre should regularly review the rosters that a sufficient number of qualified candidates is maintained.
Title V of the proposal pertains to essentiality checks of SEPs. Determining whether a patent is essential to a standard is a very difficult technical task. Despite the best efforts of the SEP holders, there may be registered SEPs that are not actually essential to the standard for which they are registered. Essentiality checks are thus very important to ensure the quality of the register and also to prevent any potential abuse, because of a lack of checks on the registered data. Essentiality checks are also important for SEP holders or implementers, who may wish to submit some of their SEPs for such a check to demonstrate essentiality or non-essentiality during negotiations. The essentiality checks will be subject to a fee payable by the SEP holders whose SEPs are checked and by the implementers who request such checks. The lack of an essentiality check should not preclude licensing negotiations or any court or administrative procedure in relation to such SEPs.
Essentiality checks on claimed SEPs entered into the SEP register will be conducted by evaluators who have expertise in the relevant technical field and whose independence is beyond doubt. Such checks will be made annually on a sampling basis and there will be only one essentiality check per patent family. The checks will be conducted based on methodology that ensures a fair and statistically valid selection capable of producing sufficiently accurate results about the percentage of truly essential patents among each SEP holder's registered SEPs.
If the during the check, the evaluator has reasons to believe that the claimed SEP may not be essential to the standard, she or he should inform the SEP holder through the competence centre of any such reasons and give the SEP holder time to submit its observations. Only after considering the response will the evaluator deliver its final reasoned opinion. The SEP holder would be able to request a peer evaluation before a negative opinion by the evaluator is issued. The results of the peer evaluation should serve to improve the essentiality check process and ensure consistency.
Title VI of the proposal establishes provisions for the determination of FRAND terms and conditions. The FRAND determination must be initiated by the SEP holder or implementer before initiating respective court proceedings in the EU. A FRAND determination may also be initiated by one of the parties voluntarily to resolve disputes related to FRAND terms and conditions.
Where the responding party does not reply to the request, the competence centre will either terminate the procedure or, upon request of the requesting party, continue with the FRAND determination. This may be necessary either to establish that an offer is FRAND or to determine the amount of the security.
If both parties engage in the process, or in case the proceedings are continued with one party only, a conciliator will be appointed. The parties or party, as applicable, will be requested to make submissions and proposals. They can also commit to comply with the outcome of the FRAND determination. The conciliator will assist them in an independent and impartial manner in their endeavour to reach a FRAND rate determination. The conciliator will be empowered to proactively seek information, consult all information available in the register and databases, including the confidential reports of other FRAND determinations and hear any experts, where necessary. The conciliator will make proposal(s) to the parties. The procedure should not last longer than 9 months. If, at the end of the procedure, the parties have not yet settled, the conciliator will make a final proposal, which the parties may or may not accept.
If the parties settle, the conciliator will terminate the procedure without a report. If the parties do not settle at the end of the procedure, the conciliator will terminate the procedure and issue a report on the determination of FRAND terms and conditions. The non-confidential part of that report will contain their last proposal and the methodology the conciliator applied for the determination, and will be available for consultation in the register/database(s).
If a party obstructs the FRAND determination or seeks resolution in other jurisdictions, the conciliator may propose that the other party either terminate or continue with the procedure. The complying party will decide how to proceed depending on its needs.
Title VII of the proposal contains provisions setting out the treatment of micro-enterprises and small and medium-sized enterprises taking into account their specific needs. The competence centre will offer training and provide support on SEP-related matters for micro-enterprises, small and medium-size enterprises free of charge. The costs will be borne by the EUIPO. When negotiating a SEP licence with micro, small and medium-sized enterprises, SEP holders will be required to consider offering them more favourable FRAND terms and conditions.
Title VIII of the proposal contains rules as regards the fees and charges for the services of the competence centre. Those fees should be reasonable and reflect the costs for the service rendered. The Commission will adopt implementing acts to determine the administrative fees, and the fees for expert opinions on aggregate royalty, evaluators and conciliators, the amounts to be charged and the payment method. Fees should be appropriate to the needs of micro, small and medium-sized enterprises.
Title IX of the proposal contains final provisions. The proposed regulation applies to standards published after its date of application. There may also be a need to cover certain important standards such as 4G on which many IoT applications run and for which SEP licencing is inefficient. Such standards shall be determined in a delegated act and may consequently be notified to the competence centre within a limited time-period after the date of application to trigger the registration process. This Title also includes the empowerment of the Commission to adopt delegated and implementing acts and the evaluation and review clause. Finally, the Title contains provisions to amend Regulation (EU) 2017/1001.