What's happening with the EU Regulation on standard essential patents?

In May 2023, we wrote about the proposal for a EU Regulation on standard essential patents that issued on 27 April 2023 and whether this will this make it through to EU legislation. So what has happened since?

Three committees have been appointed: the Committee on International Trade (INTA), the Committee on Legal Affairs (JURI) and the Committee for the International Market and Consumer Protection (IMCO).

The draft opinion from INTA, and from JURI (both of which issued on 2 October 2023),and from IMCO (which issued on 9 October 2023) indicate that committees have some concerns. So it is looking like the proposal is unlikely to get rubber-stamped by the committees straight through to approval.

If the Regulation was adopted in its proposed form, this would severely curtail a patent holder’s rights in the EU. A SEP holder would be unable to enforce its patent rights or collect royalties or damages in respect of infringement if the SEP involved was not registered with the EUIPO. In addition, a FRAND determination must have been initiated before the EUIPO before a SEP holder is able to start infringement proceedings before a court.

The main areas of amendment suggested by INTA, JURI and IMCO are:

• Suspension if a SEP holder fails to provide correct information for a SEP registration (Art 22 and Art 23) and  effects of absence of registration or suspension of registration (Art 24)
  
  • As discussed above, Art 24 curtails a patent holder’s rights to enforce a patent. This would be a fundamental change to patent holder’s rights in the EU. However, this does not seem to have concerned some of the committees.
  • The inclusion of these terms is considered by INTA to have a "wholly disproportionate effect", since a suspended patent becomes unenforceable. In addition the proposed effects are considered by INTA to be "incompatible with the fundamental property right".
  • INTA therefore proposes the removal of Art 24.
  • This amendment would remove the effect that if a SEP is not registered, or a SEP's registration is suspended, then the SEP is not enforceable and a SEP holder is not entitled to receive royalties or seek damages for infringement of such a SEP.
  • This amendment would also remove the requirement for a court of a EU member state, requested to decide on any issue related to a SEP, to verify whether the SEP is registered as part of the decision on admissibility of the action.
  • IMCO has not suggested any amendments to Art 24 along these lines. However, this is contrary to its comments in the ‘Short Justification’ that “Article 24 of the proposal should be revised to eliminate penalties associated with non-registration of these SEPs”. Perhaps IMCO is saving this discussion for another day.
  • Interestingly, JURI (which speaks in relation to ‘legal affairs’) also does not raise any amendments to these articles.
  • It is surprising to see that some committees have not challenged this fundamental change to patent holder’s rights in the EU and we expect challenge to come from other areas.
• Removal of time barring of claims before a court during FRAND determination (Art 37(2) and Art 56(4)) and allowing for a provisional injunction comprising seizure of goods (Art 34(4))
  
  • Art 34 as drafted would mean that a FRAND determination must have been initiated before the EUIPO before a SEP holder is able to start infringement proceedings before a court.
  • INTA’s view is that the obligation to initiate FRAND determination should not be detrimental to the effective protection of the parties’ rights to address infringement and validity of SEPs. Therefore, the FRAND determination should run in parallel to any court proceedings. A defence of lack of essentiality or invalidity takes time to conclude; this is another reason why the FRAND determination should proceed in parallel with any court proceedings.
  • INTA’s view is that a court in the EU should not be barred from deciding on FRAND terms or infringement before the EUIPO has finalised a FRAND determination. Validity is not assessed in the FRAND determination. Determination of validity and infringement procedures are prerequisite to any EU court determination of FRAND terms. This therefore should not be delayed by the FRAND determination procedure of this Regulation.
  • INTA also proposes that the option of a provisional injunction should not be limited to financial provisions but also to the seizure of goods suspected of infringing a SEP.
  • JURI and IMCO have not proposed any amendments along these lines.
  • As discussed above, Art 34 further curtails a patent holder’s rights to enforce a patent and is another fundamental change to patent holder’s rights in the EU. We expected comment from the committees on this point. However, none of the committees has suggested any amendments to the initial sections of Art 34.
• Commitment to comply with the outcome of the determination FRAND (Art 38)
  
  • INTA proposes that the FRAND determination only continues if both parties agree to participate (Art 38(3)) and that the outcome ‘may be binding for both parties’ (Art 38(4)). The amendment to Art 38(3) proposed by INTA removes some of the uncertainly perceived in the original proposal.
  • However saying that the “outcome may be binding for both parties” is still ambiguous.
  • JURI suggests that the parties should be able to wait until the outcome of the FRAND determination procedure before deciding if they want to be bound by the result,
  • IMCO, similarly, has proposed that Art 38(2) is amended to remove reference to whether a party “commits to comply with its outcome”. The reasons given for this are that the draft Regulation “provides little guidance on what “committing to comply” with the outcome of FRAND determinations means and what legal effects such commitment will have.“
  • The opinions of INTA, JURI and IMCO are therefore unaligned on this point.
• Registration for existing standards (Art 66)
  
  • INTA proposes the deletion of Art 66, so that the Regulation would only apply to new standards and not to existing standards.
  • JURI proposes that Art 66 be retained.
  • IMCO also proposes the deletion of Art 66, but amends other articles (e.g. by a new Article 14(4a)) to allow for existing standards
  • It is difficult to see how in practice application of the Regulation to new standards only and not to existing standards would work, as one standard often evolves from an earlier one – which one would be considered the ‘new’ one?
• Introduction of the requirements for a SEP holder to report annually in relation to license agreements with SMEs (new Art 61(3)) and providing an ADR route for SMEs (Art 61a)
  
  • The amendments by INTA to Article 61 and new Art 61a are said to outline a range of possible measures to implement a “SME SEP Licensing Assistance Hub”. In particular, these amendments are said to seek to focus the EUIPO on one of the main issues that this Regulation is intended to prevent, namely the reduced use of standards by EU SMEs seeking to enter new IoT markets because of SEP licensing issues.
• Aggregate royalty rate
  
  • The proposed Regulation has articles relating to the notification of an aggregate royalty rate for a standard (Art 15). This notification is not mandatory.
  • INTA proposes the deletion of any reference in the Regulation to aggregate royalty rate as these may risk a breach of competition law principles (Art 15 to 18).
  • JURI and IMCO retain aggregate royalty rate, with JURI amending the definition in Art 2(1)(10) to mean “total amount of money paid or required to be paid to license all patents essential to a standard”.
  • The parts of the proposed Regulation that relate to aggregate royalty rate are not mandatory, and so stakeholders may have little concern whether these parts are retained or amended.
• Arbitration
  
  • INTA proposes the deletion of any reference in the Regulation to arbitration, as in practice arbitration is likely to be subject to confidentiality undertakings.
• Essentiality checking (Art 29)
  
  • INTA proposes the deletion from the Regulation of the option for an implementer to annually propose up to 100 SEPs for essentiality checking.
  • There are many implementers and INTA considers that a proposal along these lines from numerous implementers may result in an excessive burden on the EUIPO.
  • JURI proposes the exclusion, in relation to registered SEPs of micro and small enterprises, does not apply if they are “a patent assertion entity or a subsidiary, affiliate, or owned or directly or indirectly controlled by another natural or legal person that is not a MSME itself”.
  • JURI also proposes that an evaluator has the “authority to review the result of a previous check” and “conduct a fresh essentiality check for the specific SEP in question”.
  • Whereas the original wording means that EUIPO does not undertake an essentiality check if one has already been done, JURI’s proposal would mean the duplication of work, with apparently no way for this to be challenged.
• Parallel proceedings (Art 47(2)),
  • INTA proposes that FRAND determination may be terminated upon a request of any party rather than any other party
  • JURI proposes that FRAND determination may be terminated upon a request of “the other party”.
  • IMCO proposes that FRAND determination may be terminated upon a request of any other party, only if the party who requested the establishment of the FRAND conditions gives its consent.
  • In summary, there seems to be confusion among the committees as to the best way to terminate a FRAND determination.
• Different rosters of evaluators and conciliators (Art 27(2))
  
  • INTA considers the skillsets required for essentiality checking (evaluators) and for FRAND determination (conciliators) are very different. For instance, evaluators require engineering and legal skills, whereas conciliators require economic and negotiation skills.
• INTA proposes that the regulation applies from 36 months after the date of entry into force of this Regulation, rather than the previous 24 (Art 72)
  
  • INTA considers that more time is needed for setting up the structure envisaged by the Regulation.
• JURI and IMCO introduce the feature that the regulation applies to a patent “declared to be essential” rather than “essential” (Article 1(2))
  
• JURI also proposes that EUIPO verifies information submitted by patent pools (new Art 9(1a)) and that the Commission (new Art 70(1a))
  
  • JURI proposes that the EUIPO “systematically” verifies the information submitted by patent pools “at least once a year”, to ensure “that the verification process is thorough, transparent and consistent”.
  • JURI also amends the Regulation to include that the Commission evaluates the impact of the essentiality check system, the aggregate royalties determination and the FRAND determination system on the competitiveness of EU SEP holders on a global level and on innovation in the EU.
• Finally, IMCO proposes that access to the register is free of charge to all (Art 5(3) deleted)

What's next?

As we commented before, if the Regulation was adopted in its proposed form, this would severely curtail a patent holder’s rights in the EU. A SEP holder would be unable to enforce its patent rights or collect royalties or damages in respect of infringement if the SEP involved was not registered with the EUIPO. In addition, a FRAND determination must have been initiated before the EUIPO before a SEP holder is able to start infringement proceedings before a court.

It is surprising to see that some committees have not challenged this fundamental change to patent holder’s rights in the EU. The EU Parliament and Council consider the opinions of the committees and may return to the committees for further input. Whatever the outcome, it is looking like there is a debate ahead (and possibly an EU parliamentary election) before agreement regarding this proposed Regulation is in sight.