EU Parliament adds uncertainty around SEPs regulation proposal

Last week, the European Parliament (EP) suggested amendments to the contentious European Commission (EC) Proposal for a regulatory framework intended to improve predictability and transparency in the licensing of standard essential patents (SEPs). In particular, the EP is proposing to expand the scope of the EC's draft regulation by catching also existing SEPs that cause licensing difficulties and making them subject to obligations. Recent market developments that eased licensing negotiations, such as cross-licensing agreements between major SEP holders and the expansion of patent pools' portfolios, might be impacted by the legislative uncertainty. 

Key aspects of the original proposal

Under the original Proposal, the European Commission suggested introducing various measures that lead to novel requirements and obligations for patent holders and implementers. For example, SEP holders would have to declare and register their SEPs, making them subject to random essentiality checks and a mandatory 9-month pre-litigation process for the determination of fair reasonable and non-discriminatory (FRAND) licensing terms as well as an aggregate royalties agreement facilitation and conciliation mechanism if several SEPs are covering the same standard.

Read more: EU Commission proposes extensive framework for standard-essential patents(linklaters.com).

Legislative divergence

Legislators in the EU Parliament and Council of the EU (Council) have taken opposing positions on the Proposal - which is ultimately slowing down the EU’s legislative machinery. On the one hand, the Parliament's majority has backed the EC's implementer-friendly approach to the Proposal; on the other hand, the Council has questioned the need to regulate the SEP licensing market at all. 

Comments from external stakeholders, such as Standard Developments Organisations ETSI and CEN CENELEC, as well as from European Patent Office, have also contributed to polarize the policy and legislative debate, with both arguing the Proposal would add bureaucratic burden on market players.

Concerns of the Member States

Work on the draft in the Council – where the EU Member States’ ministers sit has also been slowed down by concerns raised by a number of Member States over the Proposal’s proportionality, as well as possible damage to the attractiveness of the EU’s standardisation environment (see e.g. this note from the Dutch Economy Ministry). 

The EP’s proposed amendments

• Application: The EP suggests that the Proposal shall apply to:
  • SEPs in any EU Member State that a holder claims to be essential to standards published after the entry into force of the Regulation; but, to the extent such new SEPs do not give rise to significant licensing difficulties or inefficiencies affecting the functioning of the internal market, provisions on FRAND royalty determination and aggregate royalties do not apply; and
  • SEPs in any EU Member State that a holder claims to be essential to existing standards, only if the functioning of the internal market is severely distorted due to significant licensing difficulties or inefficiencies; but
  • in any case not to royalty-free SEPs except if they are part of a portfolio licensed for royalties. This distinction was not part of the original Commission's Proposal.
     
• Limitation on enforcement: The EP supports retaining the heavily debated limitation that holders cannot enforce a SEP for as long as it is not registered in the central registry but suggests removing the impediment to collecting (FRAND) royalties for any unregistered SEPs. However, this will not affect any relevant provisions included in existing agreements determining a SEP royalty.
   
• Essentiality checks: The Report broadly sticks to the Proposal on the essentiality check provisions, but introduces the option for an EUIPO evaluator to review any suspected inaccuracy in prior essentiality checks.
   
• FRAND determination: The EP suggests that FRAND determination should not apply to existing license agreements and parties to a FRAND determination should no longer be asked to commit to comply with the outcome. SEP holders will still to go through the 9-month FRAND determination process before being able to initiate a SEP infringement court claim, provided the implementer is willing to participate in this process. As per the Proposal, this process equally applies to implementers who would like to file a court request for the determination of FRAND terms.
   
• License to all strategy: The EP endorses requiring holders to license their SEPs to all willing implementers regardless of their position in the value chain – a particularly controversial issue for multi-layered supply chains in internet of things (IoT) products like connected cars. However, this endorsement may not have teeth as it is included in the Recitals section only and no specific operative provision has been foreseen in the Proposal. 
   
• Support for SMEs and startups: The EP report also proposes new measures to further support SMEs and start-ups, in particular through the creation of a SEP Licensing Assistance Hub offering implementers assistance with the identification of relevant SEPs and respective licensor(s)) and SEP holders with the identification of relevant licensees and provision of enforcement advice. 

Next steps

While Council can continue to review the Proposal during the upcoming EU elections, it is unclear if and when it will be able to agree on its so-called ‘general approach’ in order to proceed to “trilogue” negotiations  to agree with the EP on the final text of the Proposal.

When legislative activities resume after the elections in the autumn, the new EP and EC may also re-assess their legislative and policy priorities – leading to further uncertainty around the future of the Proposal.

It looks like the EU institutions will be embroiled in SEP discussions for some time to come, with the 2024 election year not helping with accelerating the process, and it remains to be seen what will be the scope of the final fair, reasonable and non-discriminatory (FRAND) regime, which will likely enter into force in the course of 2025. We will continue to monitor developments and the impact for the tech sector in the meantime.