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Somebody Else’s Problem – SEPs and the Commission

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EU CommissionSmall quantities of excitement have been created by the “Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee” entitled “Setting out the EU approach to Standard Essential Patents”, linked on the Commission’s Patents and Standards page.  Given the largely innocuous content of the Commission-originating document and the complexity of EU decision making processes, the title may well be the most contentious thing in the document.  However, there are good reasons why the content is a little blander than might have been hoped, as set out in this article by Richard Vary (a distinguished standards warrior from his time at Nokia).

There are three main areas where the Commission gave a view.  In the best political traditions, these views tended to indicate that something should be done, with in most cases the clear implication that someone else should be doing it (and paying for it, in a “proportionate” way).  These are (i) provision of information about SEPs and their essentiality to a standard, (ii) SEP valuation and FRAND, and (iii) SEP enforcement.  I’ll focus on the first of these areas, primarily from the perspective of a patent attorney used to building standards-related patent portfolios.

The Commission felt that lack of clear information about SEPs was a problem, particularly for startups and SMEs (the magic word when invoked in any Commission article – like saying “but think of the children”).  Attention was drawn to the poor quality of information in standard developing organisation (SDO) databases, the lack of information tools to assist in licensing of patents for particular standards, and the lack of effective checks for essentiality of patents for declared standards.  The Commission is right.  These are all significant problems which can create a real barrier to entry to potential new players, with larger companies often partnering with existing players as much to offset risk resulting from this lack of information as to access technology.  There are some market-driven attempts to meet these needs – in particular, a number of information service providers are beginning to address the lack of useful information in SDO databases – but in respect of the first and last issues, the Commission’s answer appears to be that something should be done, with an implication that SDOs should probably do it.  This may not be enough guidance or incentive to change SDO behaviour.

If the Commission’s wishes were enacted somehow, what would the consequences be?  The party best placed to determine whether a patent is essential (or even relevant) to a standard is the patentee.  They have a significant commercial interest as an SEP licensor, so it is reasonable for them to assume some burden.  What could an enhanced SDO patent register look like?  Ideally it would identify patents, and provide some indication as to the portion of the standard for which they were essential.  This looks like a job for a patent attorney or patent lawyer – to determine whether a portion of the standard, prima facie, reads on to a claim of the patent.  More specifically, it is probably a job for the patent attorney who drafted the patent claim, as his or her intention was most likely to try to ensure that it read on to that portion of the standard.  The Commission has suggested that experts play a role in this process – however, experts assessing essentiality from first principles would be expensive, and so probably not realistic, whereas experts assessing statements made by patentees could be a practical approach.

Timing would be a difficult problem.  It would not be appropriate to make this kind of declaration on filing of the initial application (generally the patent attorney is scrambling to file a patent application on a new engineering solution in the days before it gets submitted for standards body working group assessment – there is no guarantee that the solution will be adopted at this stage, in which case the resulting patent would not be an SEP).  It would be reasonable to add this step at the point at which the standard is adopted, as essentiality cannot really be assessed until this time – for example by requiring the patent holder to submit a brief reasoned statement as to why a particular patent was essential to a particular standard, relating the patent claim(s) to the relevant portion of the standard, within a particular time period.  This would not be easy at all, even if potential SEPs had been identified all along the way in the standardization process.  Just one issue would be that many patent applications would still be in prosecution at this stage, so it would not be possible to determine for certain whether the eventual scope of claim would read on to the standard or not.  While these issues may not be insuperable in principle, they would require (i) a lot of work that (ii) someone would have to pay for (one way or another) and (iii) stakeholders with different interests would have to agree on the process.  This will need a very strong lead from someone.

The position does not look that different in the other two areas identified.  The Commission tries to establish basic principles for best practice in FRAND licensing, though this does look like a bit of a wish list, with the Commission’s initial role limited to establish an expert group to help in policymaking.  The Commission’s belief that patent pools and licensing platforms may provide a panacea also looks like wishful thinking without intervention to guarantee competitive balance between a patent pool supporting expert licensees and a new market entrant.  For enforcement, the Commission provides useful guidance on what may be considered acceptable in the light of the Huawei v. ZTE judgment in FRAND negotiations and their interaction with enforcement proceedings.  The Commission also give practical guidance on the application of the principle of proportionality and on the principles governing availability of injunctive relief, before going on to make ritual statements about ADR (good!) and patent assertion entities (bad!).

Buffeted by rival lobbyists, The Commission’s conclusions may be limited, but they could still improve the position for new market entrants and bring the exploitation of SEPs better into line with EU competition law – provided that the Commission takes positive action to bring them about.  Otherwise, little is likely to be done, because the issues are hard, it is not clear, at all, who should take the lead, and interests of licensors and licensees are not aligned.  A recent indication of this need to take a lead may be found in the recent decision on redaction of the judgement in Unwired Patent v. Huawei Technologies – the original decision had been significantly redacted to preserve commercial confidentiality, and in the middle of a carefully reasoned analysis which allowed a little (but not much) more to be revealed, Mr. Justice Birss stated that “it strikes me that it might be said that the lack of public information about FRAND licence terms is a cause of difficulty in this sphere and perhaps more transparency about royalty rates would be a good thing, but this is not the occasion to get into that.”  Because of its competition law role, the Commission is uniquely well placed to help – the fear is that without a more positive lead from the Commission, it may never be “the occasion to get into that”.

Richard Lawrence 6 December 2017

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