A battle is waging inside the European Commission over the wording of a Communication due to be issued at the end of next month on transparency in SEP/FRAND licensing. The text is scheduled to include a list of what the Commission considers to be acceptable types of deal. According to a report published by competition and antitrust intelligence provider PaRR and seen by IAM, different directorate-generals and executive agencies are currently locking horns over the content of the guidelines, which will outline Commission thinking in light of the Court of Justice of the European Union’s landmark 2015 judgment in Huawei v ZTE.
Any guidelines that are released will prove extremely influential in how deals are put together and will be carefully considered by judges in EU member states (and perhaps further afield) asked to rule on SEP/FRAND disputes.They may also be the first step on the path to the Commission creating a binding set of rules.
Courts in Germany and the UK, among others, have used Huawei v ZTE – which was widely considered to strike a reasonable balance between so-called originators of technology, who tend to own SEPs, and implementers, who use them - as the basis for their own decisions. As yet, though, no overarching approach has been adopted; this means that, as things stand, there is no real certainty in SEP-realted dealmaking, although generally speaking Europe is currently seen to be a lot more sympathetic (or, perhaps more accurately, a lot less hostile) to SEP owners than the US and a number of jurisdictions in Asia. This has led to a number of big cases being brought to European courts, most recently Unwired Planet v Huawei, which was decided in London in the spring.
In its report PaRR states that the DGs squaring off against each other include, on one side, Competition and on the other Internal Market and Industry, and Research. The former backs calls from users of SEPs, including companies represented by the BigTech-sponsored, US-based ACT The App Association, for a prohibition on use-based licensing of SEPs; while the latter are supportive of the position taken by the likes of IP Europe - whose members include Nokia, Ericsson, Orange and the Fraunhofer Institute - which claims use-based licensing is the only way to fairly reward companies that invest billions in R&D and to incentivise them to develop standards that allow interoperability. With 5G on the horizon and the IoT on everyone's mind, this is a live and highly important debate.
Given the size and the wealth of the European market, the way in which licensing deals are regulated in the EU will clearly have a profound influence. Even with markets in the US and Asia that are less willing to give SEP owners negotiating freedom, a lighter-touch regime in Europe has the potential to become – excuse the pun – the de facto global standard, with SEP owners able to demand worldwide settlements as a condition for resolving European disagreements.Given many prominent SEP owners are based in Europe they are in a far better position to influence the EU decision-making process than they are elsewhere, where users of their patents are in the majority; and that's before you throw in perennial European suspicion of US BigTech.
That said, DG Competition is a very powerful voice inside the Commission and has a long record of being very sceptical about IP rights - patents in particular. If it is true that Competition is batting for SEP users, including BigTech, that is a very big deal, especially as PaRR states that the Commission’s Legal Services department is providing back up. However, the Internal Market and Industry DG, whose remit also covers SMEs, is just as powerful; while many of the big SEP owners will have considerable lobbying sway at the national level, with deep contacts inside member state government structures.
Apparently, the Communication is now in what is known as inter-service consultation, a sort of reconciliation process through which – in the time-honoured European way – differences are ironed out and compromise is reached. The difficulty here, though, is in finding a position that accommodates both sides – is it really possible both to allow and not to allow use-based licensing? If the answer is no and neither side wins the argument outright, two possible options spring immediately to mind: the subject is not mentioned at all in the Communication or the publication is permanently delayed. Both of these would throw the issue over to the courts and would be seen as a victory for SEP owners.
Longer term, though, this is an issue that is to going to go away - regulators are bound to keep returning to it. Consequently, it is incumbent on originators to come up with solutions that may not be perfect from the implementer perspective, but can be lived with. There are signs that at least some SEP owners recognise this, if a recent IP Europe initiative to create a code of practice for the licensing of SEPs related to 5G and the Internet of Things is anything to go by. As ever, market solutions to market problems are surely much better than anything imposed by regulators, who rarely have the experience and knowledge of the business world those who operate within it possess.