Next month, the European Commission is reportedly poised to announce a policy initiative that would establish a sweeping new framework for fair, reasonable, and nondiscriminatory (FRAND) licensing in the European Union (EU). As first revealed by Reuters, standard essential patent (SEP) owners would be required to use a new process for determining FRAND rates that is administered by the EU Intellectual Property Office (EUIPO) before filing litigation. The draft law would establish a SEP registry that patent owners must utilize in order to be entitled to royalties and damages and would require that “[i]ndependent evaluators” determine whether declared SEPs are actually essential to a given standard.

Per additional reporting from IAM, the new procedure is the result of an EU initiative designed to establish a “new framework for standard-essential patents”. That initiative, which launched in July 2021 and underwent a public comment period in February-May 2022, reflected a series of prior studies and reports from the Commission on the problems facing the SEP licensing ecosystem. The initiative’s accompanying “Call for Evidence for an Impact Assessment” underscored the “strategic importance of patents” but lamented the “fairly limited and fragmented” nature of EU patent law, touting the impending launch of the unitary patent system as an opportunity to “recalibrate[]” EU patent law to “boost [its] resilience”. The goal, stated the report, was to “develop a coherent and balanced package” with proposals including the SEP reforms here at issue as well as changes related to supplementary protection certificates and compulsory licensing (the latter two issues primarily concerning pharmaceutical patents).

With respect to SEPs, the 2021 Call for Evidence cited prior EU publications, including a 2017 study setting forth the Commission’s perspective on SEP issues, in identifying the problems facing SEP holders and implementers: chiefly, “inefficient licensing, including ‘holdup’, ‘hold-out’[,] and ‘forum shopping’”. The Call for Evidence argued that these issues are primarily the result of “(i) insufficient transparency and predictability; (ii) uncertainty about FRAND terms and conditions; and (iii) high enforcement costs and inefficient enforcement”. As such, the Commission stated that its initiative would “build upon” the following “three policy pillars” in seeking to address these problems:

1. Enhancing transparency on SEPs, for example by: (i) requiring the disclosure and update of certain information to improve publicly available information; and (ii) introducing a system for independent third-party assessments of essentiality under the management and control of an independent body.
2. . . . Providing clarity on various aspects of FRAND by developing guiding principles and/or processes for (i) clarifying the concept of FRAND; (ii) negotiating FRAND terms and conditions; and (iii) determining appropriate level(s) of licensing in a value chain.
3. Improving the effectiveness and efficiency of enforcement, for example by incentivising mediation, conciliation and/or arbitration.

Previous European Commission publications on this issue contemplated a more limited scope for some of these suggested changes. For instance, the 2017 study recommended essentiality checks but cited certain limits to balance benefits vs. costs—such as “an incremental approach, whereby scrutiny takes place at the request of either rightholders or prospective users, calibrating the depth of scrutiny and limiting checks to one patent within a family and to samples”.

While the website for the initiative stated that the resulting solution “may combine legislative and non-legislative action”, the website characterized the action being taken as a “Proposal for a regulation”. Under EU law, a regulation is a legislative act that binds all EU member states, with no leeway for interpretation by national courts or legislatures. That outright shift toward binding legislation marked a shift from prior years, as previously noted by IAM in covering the initiative’s 2021 announcement.

Among the mandatory aspects of the newly disclosed 2023 framework, as described by Reuters (and other outlets characterizing a leaked draft), is a FRAND determination procedure meant to “simplify and speed up negotiations concerning FRAND terms and reduce costs” (Reuters quotation of draft proposal). This procedure is to be administered by the EUIPO, which currently focuses solely on trademarks and design rights as noted by IAM and others, through a newly created “competence centre”. This FRAND determination process “should be concluded within nine months”, as summarized by Reuters, and would be a required step before SEP owners can file any infringement litigation—either before national courts or the Unified Patent Court (UPC), which launches on June 1. Per the draft document itself, again as reported, “[t]his is necessary because disagreements about the FRAND terms are the main reason to seek recourse in courts”. Reuters characterizes the framework as asking parties to “to agree among themselves on an aggregate royalty, in effect the potential royalties for all SEPs covering a standard”, with other summaries further indicating that parties may ask the EUIPO competence centre for a non-binding expert opinion if they do not agree. To that end, IAM has further reported that the “suggested FRAND determination process will involve a panel of expert conciliators”.

As noted above, the draft framework would also create a registry for SEPs in an attempt to address concerns over transparency in the licensing process. This, too, would be mandatory for patent owners seeking to enforce SEPs: According to language quoted by Reuters, “[a] SEP owner shall not be entitled to receive royalties or seek damages for infringement of a claimed SEP subject to registration”. The framework would also include the aforementioned system of essentiality checks.

The European Commission’s proposal follows several years in which notable changes in the arena of standard essential patent (SEP) licensing have largely been driven by national courts. Ever since the UK Supreme Court’s August 2020 Unwired Planet v. Huawei decision, SEP enforcement has spilled across borders as courts in the UK, China, and elsewhere have indicated a willingness to resolve such disputes by imposing global licenses. Earlier this year, the London High Court doubled down on Unwired Planet in InterDigital v. Lenovo, a ruling that issued the country’s second-ever global FRAND determination and further clarified UK courts’ posture toward SEP enforcement.

Later this year, another significant SEP enforcement milestone will be the June 1 launch of the UPC, as noted briefly above. The UPC will offer a single European venue for patent infringement actions—including both SEPs and other patents—that can award damages and issue injunctions spanning up to 17 EU member states. While the European Commission’s Call for Evidence contemplated the impending arrival of the UPC—framing an EU-wide initiative as necessary given the parallel arrival of the unitary patent, a new form of patent over which the UPC has sole jurisdiction—the timing of the EUIPO initiative’s announcement has led to criticism. For instance, in an editorial published soon after the Reuters piece, IAM framed the proposal as sending the message that the European Commission lacks confidence in the UPC’s ability to “competently handle disputes relating to the FRAND licensing of SEPs” and do so equitably.

Parallel policy initiatives at the national level, meanwhile, have been less sweeping thus far. In the US, the Biden administration released a draft policy on SEP licensing and remedies in 2021 that sought to bridge the gap between a 2019 policy largely favoring injunctions in SEP disputes and its 2013 predecessor, which largely counseled against such relief. However, last year, the administration made the notable decision to withdraw the 2019 statement without replacing it, neither adopting the 2021 proposal nor reinstating the 2013 version—instead favoring a case-by-case approach to enforcement. A parallel UK reform initiative, also kicked off in 2021, apparently remains ongoing.

The EUIPO’s SEP framework proposal will reportedly be announced on April 26, World IP Day, according to a European Commission agenda cited by Reuters. Time will tell if the ensuing debate over the new system imperils the draft legislation’s passage before the current Commission’s term ends at the close of October 2024.