By Justyn Hardcastle, Senior Intangible Assets Underwriter
On 11 February the European Commission announced that it was withdrawing its proposal for a Regulation on Standard Essential Patents (SEPs). This is a major change of policy by the Commission, which will have significant implications for innovators and manufacturers across various industries.
SEPs are critical to all sectors that rely on common technical standards (such as 5G or Wi-Fi 7 technologies) and interactivity, from mobile telecoms to vehicles, power generation and the Internet of Things. In principle, SEPs enable patent owners to efficiently license a range of technology manufacturers and service providers, ensuring that inventors are fairly rewarded, manufacturers can proceed without worrying about patent infringement and consumers benefit from products that utilise the most high-tech technology available.
However, the Commission identified a number of problems with the SEP licensing process and in April 2023 published its proposal to facilitate the licensing of SEPs through the creation of a competence centre to administer essentiality checks and other procedures. The plan also provided for a mandatory nine-month procedure to agree a fair, reasonable and non-discriminatory (FRAND) licence before parties could go to court.
Whilst the proposal was adopted by the European Parliament last year, it remained controversial. Many SEP owners strongly criticised the proposal, arguing that it curtailed their ability to enforce patents.
Now the Commission appears to have bowed to pressure from industry and abandoned the proposal quoting there was “no foreseeable agreement”. So, where next?
Where Next?
We will have to wait to see if and when the Commission makes another effort to address what it believes are the inefficiencies and lack of transparency in SEP licensing. In the meantime, disputes are likely to continue to come before courts in various jurisdictions, resulting in costly litigation, the risk of inconsistent judgments and uncertainty for manufacturers and suppliers.
In the past few years, there have been many complex disputes over SEPs before courts in multiple countries including Germany, the UK, China and the U.S. Since its creation in 2023, a number of actions have also been brought before the Unified Patent Court (UPC) in Europe. These SEP cases often result in proceedings that last many months or even years, with arguments about whether patents are valid and essential to the relevant standard and how to calculate a FRAND royalty.
In several cases where patent owners and implementers have been unable to agree on licensing terms, the UK courts have determined a global FRAND licence between a patent owner and technology implementer, on the basis that that is the realistic commercial solution. This approach was endorsed by the UK Supreme Court in its judgment in Unwired Planet v Huawei in 2020. Courts in China have also indicated that they will determine global FRAND licences, though the position in other jurisdictions is less clear. Meanwhile, some courts have granted anti-suit injunctions (and even anti-anti-suit injunctions) in SEP cases.
Implications for Businesses
Litigation over SEPs is complex and expensive. It can involve many patents and substantial amounts of prior art and often involves consideration of IP law, standards and competition law. Moreover, when it comes to determining FRAND licences, much of the evidence involves analysis of previous agreements, which raises issues about confidentiality and disclosure.
Despite the volume of decisions on SEPs, there are also a number of continuing uncertainties. For example, in industries with complex supply chains, which entities need to take a licence and what role do indemnities play? And what are the precise steps that innovators and implementers should take in licensing negotiations?
The latest announcement by the Commission makes it likely that SEP litigation will increase, with many manufacturers throughout supply chains across various industries finding themselves vulnerable to patent assertion, including by non-practising entities. Businesses in emerging technologies such as the Internet of Things and connected vehicles are particularly exposed. What is for sure however, is that the uncertainty looming over SEP litigation highlights the need for businesses to assess their patent exposures, manage and insure their risk to ensure mitigation of the risks associated with the increased likelihood of patent litigation.