By Jackson Avery, Policy Fellow, Property Rights Alliance
In April, the European Commission proposed a new regulation on standard-essential patents (SEPs), which aims to “ensure that standard-essential patents (SEPs) are available to all interested parties on fair, reasonable, and non-discriminatory (FRAND) terms.”
In general, the holders of SEPs are small and medium businesses (SMEs), which comprise the backbone of any healthy economy. In the first place, this sect of the economy, which has thrived in Europe for decades, does not need to be fostered through government intervention, as the EC claims. The new regulation, however, achieves the exact opposite. The EU Commission is hereby now continuing its assault on these SMEs by proposing new regulations on SEPs that eroding their protection.
This new process will instead force those who hold SEPs to release their Intellectual Property (IP) by requiring the patent holders to license their patents to all parties interested, on the basis of these FRAND terns. The new system would create a central repository of SEPs, where patent holders must publish their licensing terms.
Undermining IP protection undermines the European economy
IP is essential to the European Union economy, being the backbone for most of Europe’s wealth. The industry comprises “almost half of all GDP” in the EU and “over 90% of all EU exports.” From 2017 to 2019, robust patent protections generated approximately 76% of all internal EU trade.
One of the critical problems with the proposed regulation is that it needs to define these FRAND terms clearly. FRAND’s vagueness has raised concerns that SEP holders and implementers will interpret fair, reasonable, and non-discriminatory terms differently.
The proposed regulation creates a new system for resolving SEP disputes. A new European agency would administer this system. However, this is just an excuse to allow the EC to implement price controls and replace an existing faster and cheaper system.
The new dispute resolution system is likely more expensive than the current one, which is based on private negotiation. This is because the new system would require SEP holders and implementers to hire lawyers and experts to participate. The new system is likely slower than the current one. It requires the European agency to investigate each dispute before ruling. The proposed regulation will make it harder for SEP holders to enforce their patents.
FOSS Patents: IP Europe's call for do-over of EU SEP Regulation proposal is supported by absence of evidence and growing chorus of voices that matter https://t.co/RSzbhyco3b
— PatentBuddy (@patentbuddy) June 12, 2023
A danger to innovation
SEP holders need to be able to enforce their patents to recoup their research and development costs. If SEP holders cannot enforce their patents, they will be less likely to invest in research and development. The new policy attacking SEP holders will lead to less innovation, not more, as the EC claims.
The proposed regulation is also likely to lead to increased market concentration. New entrants must access SEPs to manufacture products that comply with industry standards. Those SMEs who cannot access SEPs will be less likely to enter the market. Implementing this policy will only lead to increased market concentration.
The EU’s new SEP regulation is a misguided attempt to address an already effective system. The regulation will likely have several negative consequences, including increased litigation costs, reduced innovation, and increased market concentration.
The EC must withdraw its proposal
The EC should withdraw the proposed regulation and work with stakeholders to develop a more effective solution. In addition to the abovementioned concerns, there are several other reasons to be skeptical of the EU’s new SEP regulation.
For example, the current regulation foresees that SEP holders and implementers are evenly matched in bargaining powers. The rule also does not consider the impact of SEP licensing on the competition. SEPs and the SMEs they originate from are essential for developing new technologies and for spurring the dynamic growth Europe has seen over the past five decades.
The EU’s new SEP regulation through the implementation of FRAND is just another avenue of attack the EU wishes to perpetuate against SMEs. It’s not the elimination of only private negotiations between SMEs but the inversion of such policy to relinquish that private ownership. A procedure to force those IPs into the public domain will only harm, not help, the EU’s economic growth.
The EU must halt this faulty pursuit and attempt to abort their economy. Instead, the EC can pursue what has been working for decades, an effective system of two private negotiators working towards a reasonable price. Once the EU has eliminated the private ownership of SEPs, then the economic powerhouse of Europe will fall apart.