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Lobbying for one’s cause may not qualify as “fake news” in the strict sense, I get that (and I apologize for any linguistic offense caused). But let me unpeal the geopolitical messaging for you:

• The SEPs Framework Regulation corrects a proven market failure and re-instates the spirit of the CJEU Huawei/ZTE precedent. MEPs should not be fooled by SEP holder arguments that the SEPs Framework Regulation would wantonly strengthen overseas interests, be they Chinese or – lest it be forgotten -- American. First, there is a proven issue of market failure: national courts (in Germany in particular) ignore the special responsibilities attached to SEPs and have overly empowered injunctions for SEP holders.
• Indeed, there is a basic example of market failure taking place. Rather than a balanced relation between SEP holders and SEP implementers, the result is that SEP holders have a massive advantage through the threat of injunctions attached to their SEPs against anyone not taking up a license;
• Yes, the Commission and the CJEU tried to rectify that through the Huawei/ZTE precedent in 2015, laying out an 8-step negotiation setting to ensure both SEP holders and SEP implementers engage in negotiations “willingly” in order to come to a FRAND solution. But Huawei/ZTE leaves it to the parties and – importantly – the national courts to fill in how to go about the various steps identified by the CJEU, and very quickly, the German courts (Munich in particular, but also Mannheim) have suborned the balanced spirit of Huawei/ZTE by reversing the burden of proof such that it is now (again) with the SEP implementers to show willingness (for themselves) and (un-)willingness for SEP holders;
• The latest EU impact studies the EU procured ahead of launching the SEPs Framework Regulation were criticized by one of its authors – Prof Baron – as inconclusive. But this ignores that meanwhile Prof Baron has submitted a further paper that shows he was sponsored by the SEP holders (see his comments on the SEPs Framework Proposal as lodged over summer). In my mind, Prof Baron has effectively disqualified himself. Perhaps more importantly, this critique completely tries to forget there was already the substantive study done for the Commission by De Coninck, Régibeau and Zenger (2016), that does show market failure at large. And it ignores recent studies re the power of injunctions as meanwhile (again) wielded by SEP holders, see Banasevic and Bobowiec (2022);
• The EP should remind itself that SEPs effectively are the result of a cartel: EU law allows holders of IP to get together (in SSOs, standard setting organizations) to decide – as competitors, in the same room – to fix what will be the standard that, after this agreement between competitors, will be mandatory for all to use. In any other setting, trustbusters would be at the doorstep, ready to raid. With standards, EU law is willing to consider an exception, because there is a benefit to standardization that may weigh up against the anti-competitive nature of its emergence. But the law only does so in exchange for two important commitments, i.e. (i) that SEP holder subsequently provide a license to all that want a license and (ii) do so at FRAND terms. Without that double commitment, this would be an illegal cartel (also reiterated in the Commission’s Horizontal Guidelines);
• Seemingly, Courts in Germany overlording SEPs disputes tend to ignore that. Maybe, that is because they are staffed with IP lawyers more geared to looking at IP rights than the special regulatory constraints outlined above and in Huawei/ZTE. To correct that, more than a precedent is needed this time (Huawei/ZTE experience shows that judges are willing to hollow out such precedents), hence the SEPs Framework Regulation makes sense;

• Simple numbers demonstrate SEP holder supra-normal royalty charging through the threat of injunctions.To illustrate the potential cost of market failure, simply look at the Avanci numbers game during 4G licensing – once the Munich court had ruled against the car industry by granting injunctions to one of the Avanci members (see Nokia/Daimler ruling from September 2020) on the TCU module, royalties could be pushed up to the USD 15-20 range, while the TCU module only costs USD 70-80 to produce. Facing crippling production stops once Avanci threated to injunct, the car makers all had to take a licence at the Avanci terms (“take it or leave it”). To be clear, the car makers had made the necessary Huawei/ZTE offers before, in line with “willingness” as per the CJEU. They tried to get Avanci to explain the royalty setting basis, but Avanci and its members never engaged. They didn’t have to: the threat of injunctions ensured the car makers would cave;
• Without the SEPs Framework Regulation, those supra-normal royalties will flow (primarily) overseas, to China and the US. What is borderline disingenuous, is the argument that the SEPs Framework Regulation would lead to a geopolitical advantaging of China. First of all, as outlined above, the SEPs Framework Regulation corrects a clear market failure, whereby an undue amount of royalty gets paid to the SEP holder side. That is a problem in and of itself, no matter where the SEPs holder stems from. For 3G and 4G, one could argue that at least a decent part of that supra-normal royalty would remain “European” (as Nokia and Ericsson still had material patents – compare the shares within Avanci). But, that no longer holds true for 5G and 6G. The material shareholdings of SEPs making up the future standards and thus the supra-natural royalty flows are in (primarily) Chinese hands (Huawei & co) and American hands (Qualcomm & co). Without the SEPs Framework Regulation, Europe sponsors a market failure which leads to supra-normal royalty leakage overseas. Worse, the undiminished threat of production stops through injunctions weighs disproportionately on car makers producing in Germany – it cannot be in the interest of the EP to stimulate the relocation of the “motor of the European economy” to areas outside of the Union.

I do trust our MEPs to see through the strategizing taking place, navigating the terminology and inherent complexity of licensing to come to the same result – regulation is needed, and the SEPs Framework Regulation (as amended by JURI) is fit for purpose.

To be continued!

As always, views in this post are my personal views only.

Fresh on the heels of my previous post, more evidence is emerging that the European Parliament (EP) is progressing well its review of the SEPs Framework Regulation. After JURI (Legal Affairs) and INTA (International Trade), now also the IMCO (the Committee covering the Internal Market and Consumer Protection) opinion has entered circulation.

The EU Internal Market is all about leveling the playing field within the Union, and, unsurprisingly, IMCO “fully supports” the objectives the European Commission has set out to achieve with the SEPs Framework Regulation, by proposing amendments that ensure all standards are brought in-scope of the new Regulation. Most notably, as JURI, IMCO proposes to delete Recital 4 that provided a loophole to Wi-Fi, HEVC and LTE, and it also removes the entire Article 66 process for delegated acts (seen to overly facilitate the ability for SEP holders to achieve injunctions to the detriment of innovation and European resilience).

Further, IMCO improves on two key aspects of the SEPs Framework Regulation, the determination processes for (i) FRAND and (ii) aggregate royalties:

• The FRAND determination is clarified to be non-binding, disallowing proceedings in third countries to “torpedo” the EU FRAND determinations by introducing a consent mechanism in Article 47(2);
• In what is perhaps the most important contribution of IMCO, Article 18(6) is proposed to be modified to represent an independent means for SEP implementers to request the aggregate royalty determination, in a streamlined manner (no link with SEP holders, a simple threshold based on number of companies instead of market shares).

Besides those big brush strokes, IMCO introduces a slew of amendments aiming at strengthening the EUIPO processes, streamlining the existing draft, improving transparency further, and providing further benefits to SMEs (while distinguishing them from patent assertion companies). Another constructive contribution, this, also highlighting the investment that will need to be done to enable the EUIPO to take on this new and important task.

With the three opinions available, look for intense discussions to take place within the EP over the next couple of weeks. IMCO and INTA will aim to finalize by October 26 as things stand now, JURI to follow the next day (October 27). Votes to follow in November.

Meanwhile, the Spanish presidency is hard at work positioning the Council. Watch this space for further developments!

As before, this post covers my personal views only.

The European Parliament (EP) is powering on with its review of the SEPs Framework Regulation. Reports of the reviewing Committees are due by end of the month. Draft versions are already circulating (this is Brussels, after all).

The key report is from the Committee on Legal Affairs (JURI), which is in the lead. It’s a constructive effort to further safeguard European interests. The draft report sets out to solidify the draft from the European Commission, by (i) improving legal certainty and (ii) balancing further the interests of both SEP holders and SEP implementers. Mostly SEP holders have bemoaned the Commission drafting (inconsistencies, lack of experience, all too one-sided, etc.). They should read twice now:

• The JURI amendments strengthen the processes for achieving transparency, cleaning up the drafting, catching essentiality at the stage of declaration, clarifying that complying with the FRAND determination is only for after it’s done. More generally, the JURI amendments strengthen the EU IPO and Competence Centre functioning. In so doing, the balancing act foreseen in the Huawei/ZTE judgment gets a big boost too – including the additional guidance in Article 2(1)(7a);
• Somewhat wanton sectoral exemptions (read: Recital 4) have been removed;
• The increasingly important role patent pools play in licensing has been duly recognized, highlighting the safeguards for proper dealing with SEPs. Interestingly, also LNGs (Licensee Negotiation Groups) get a mention.

The one area where JURI might want to do some further work is on aggregate royalties. Noting (in the accompanying explanatory statement) that JURI believes it should not be possible for either the SEP holders or SEP implementers to engage in one-sided blocking tactics, one might expect some change to be forthcoming still on Article 18 (which is the sole gateway for SEP implementers to launch an aggregate royalty determination, but, at present, still hinging on SEP holder engagement).

All in all, though, a laudable effort by JURI – or, why to put lawyers in charge of reviewing legislative proposals.

Not so, by the way, from another EP Committee (INTA, the EP committee dealing with international trade). INTA is not part of the immediate review process relating to the SEPs Framework Regulation, but seems to believe it should contribute a de-constructive “no need for any of this” view in a blatant attempt at pandering the SEP holder side. Pity, that. Actually engaging with the Commission proposal might have added to the critical discourse.

Let’s watch this space, and (also) see what the other Committee with a direct stake in the review (IMCO, the EP committee dealing with the internal market) produces.

Finally, lest anyone might think otherwise, this post covers my personal views only.