Big Tech Voices Concern Over EU's Essential Patent Plan
By Alex Baldwin · Listen to article
Law360, London (August 17, 2023, 1:39 PM BST) -- Technology giants are still skeptical about the European Union's proposal to overhaul the system for licensing standard-essential patents, telling the bloc that its move to create a more "transparent" framework could lead to mounting costs and further delays in the licensing process.
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The European Commission, pictured, wants to create a more transparent and efficient system for licensing patents deemed "essential" to some technology. (iStock.com/PaulGrecaud)
The latest responses to the European Commission's proposal — which was open for consultation until Aug. 10 — shows that interested parties are in favor of the push for greater transparency. But patent owners, and the companies that implement them, are concerned that the proposed regulations could introduce more roadblocks to the licensing system.
The commission has set out to create a more transparent, predictable and efficient system for licensing patents deemed "essential" to some technology, including 4G/5G, Bluetooth and Wi-Fi.
A company that wants to release a mobile phone or laptop in the market must pay for a license for these patents to be in the legal clear to use the industry-wide standards.
Both the licensor and the company seeking to use the patented technology must agree to a license for the patent on fair, reasonable and non-discriminatory terms, known as FRAND. But what exactly are "fair" terms and rates for these patents? That question has created a series of legal disputes in recent years.
"This is a very divided landscape between patent holders and implementers," Allen & Overy LLP partner David Por said. "When these big waves of [standard-essential patents] cases get filed, they just overwhelm the courts ... Judges have been quite vocal for quite a time about the fact that they would welcome an alternative way to solve these disputes."
Courts in England, Germany and China have, so far, ruled that they have the jurisdiction to set licensing rates for these patents. But now the European Commission seeks to create a new framework to tackle the problem of what it described as "inefficient licensing" for these patents.
A promise of greater transparency for licensing of standard-essential patents, or SEPs, is central to the proposal. The commission plans to introduce requirements for SEP owners to register their patents on a database with the EU's Intellectual Property Office and make patent owners enter into "nonbinding" FRAND determination proceedings before litigating. It also wants to set up a procedure for determining the "essentiality" of patents.
The immediate response from the sector was skeptical. Major players including Apple Inc., Dell, InterDigital Inc., Qualcomm Inc. and Nokia Corp. have voiced their concerns about the plan directly to the commission.
The commission hopes that a register for SEPs would allow for a more streamlined process for implementers looking to license patents. But SEP owners are asking whether the resources required to implement this outweigh any potential benefits.
Semiconductor giant Qualcomm said that the concept of a register is "sound," but contended that the inevitable costs associated with registering are "unlikely to be worthwhile in the absence of substantial licensing activity." The company also pointed out that the burden of the additional costs associated with the new framework seem to be directed exclusively at the patent owners.
"If the registry is enacted, then it should be enacted in a balanced way," Qualcomm said in its response to the consultation. "The proposed measures impose all obligations and virtually all of the direct and indirect costs on patent holders. Transparency from implementers should also be required, in the form of a registry of standards-compliant products."
The register would not be the first of its kind: many standards-setting agencies maintain public databases on SEPs, including the European Telecommunications Standards Institute, or ETSI.
The question of how exactly the register would exist alongside these established databases was raised by the institute itself, which asked the commission to clarify whether it intends to have an "interrelation" between the two registers.
Por, of Allen & Overy, acknowledged that the ETSI database was "extremely comprehensive." But he said it typically holds too much information to be useful for determining what exactly is essential and non-essential. Patent owners tend to "over-declare" the essentiality of their patents, he said.
Apple said that the creation of a SEP register was "desirable" for increasing transparency, but added that the regulation, as it stands, does not provide "sufficient incentives to ensure that SEP owners will make accurate, complete and timely registrations." The iPhone maker also expressed concerns that the plan does not set out any serious consequences for making inaccurate or incomplete registrations.
The commission also proposed enforcing a mandatory procedure to determine seemingly nonbinding FRAND terms before patent owners are allowed to enforce the patent against an implementer.
Ericsson said that proposition was "confusing and complex." The telecoms giant said that could yield an "ideal setting for the creation of many (new) purely procedural friction points" that could be exploited to delay the conclusion of a licensing agreement.
InterDigital — which was a party to one of the FRAND disputes heard in London in recent years, which led to Lenovo handing over a lower-than-expected $138 million in royalties — also echoed the concern that either side could use these proceedings to delay licensing talks. The patent owner added that it would be "legally unclear" how these nonbinding commitments would work in practice and would probably be treated differently depending on the jurisdiction.
And Dell said that the requirement for a pre-litigation FRAND determination "has promise." The consumer tech giant also told the commission that it supported the publication of the final nonbinding FRAND determination to give third parties insight into rates associated with specific patent portfolios.
"Any delay associated with the FRAND determination process is relatively inconsequential," Dell added.
The proposal also posits mandatory "essentiality checks" for a sample of patents registered by larger companies, which would be handled by Europe's Intellectual Property Office. The office would collect and publish data on a representative "ratio" of all patent owner SEPs.
But the checks must be reliable and the sampling methodology sound if the ratio is to be representative, Qualcomm said. If that is not the case, it might give companies looking to license SEPs "unreliable information" as they argue for FRAND rates.
Canon Inc. doubted that the EUIPO has the "knowledge and experience necessary" to deal with the so-called essentiality checks as well as the FRAND determinations. The camera company said that the office's "extensive experience" in dispute settlements is limited purely to trademark and design matters.
Canon also questioned whether the EUIPO would be equipped to deal with the number of checks it would have to conduct in the first few years that the system is in operation. The commission estimates that 14,500 patents will have to be checked, according to the company. The 30 full-time employees assumed to be carrying out the checks "cannot possibly" be responsible for that many checks, Canon said.
Apple argued in its responses that much of the criticism of the essentiality checks falls flat. It noted that the regulation is intended to "provide useful inputs for bilateral negotiations" rather than being the "final word" on the matter.
Although the respondents have been quick to poke holes in the new proposal, there is a long road of refinements and amendments ahead. The proposal will have to be approved by member states and the bloc's parliament and will probably face opposition every step of the way.
"Maybe things can be improved, but it needs to be properly considered with input from more sides, but I just don't think this has been," Andrew Sharples, partner at EIP, a patent boutique law firm, said.
"Maybe as it goes through Parliament it will get that input and may impact on how this proposed legislation progresses," Sharples added.
