A shift in the European FRANDscape

On 27 April 2023 the European Commission published its controversial Proposal for a Regulation on Standard Essential Patents. The proposed Regulation provided for the establishment of a new competence centre at the EUIPO that would oversee substantial reforms to the framework for SEP licensing. 

This week, the European Parliament's Committee on International Trade has provided its draft opinion on the proposed Regulation. The draft opinion proposes significant amendments to the Regulation and represents a clear intention to dilute the Regulation's impact. The proposed amendments, if accepted, would mean the Regulation would apply only to future standards and use cases and not to standards published before entry into force of the Regulation. Moreover, the Regulation would not apply where significant difficulties or inefficiencies are not observed as any intervention in the markets must be evidence-based. On this point, the opinion notes that "current evidence is inconclusive". Additionally, a number of the Regulation's provisions are erased or watered down by the proposed amendments set out in the draft opinion.

This development will undoubtedly be viewed favourably by SEP holders. It will also call further into question the need for any reform of the SEP licensing industry.

FRAND determinations 

The amendments remove the requirement for SEP holders to undertake a mandatory FRAND determination before initiating infringement proceedings in national courts. This is on the basis that access to courts should remain available during a FRAND determination. Additionally, validity and infringement proceedings should run in parallel to the EUIPO's FRAND determination and there should be no ability for one party to unilaterally continue with a FRAND determination if the other party does not consent. 

Aggregate royalties 

The amendments delete the requirement for SEP holders to inform the EUIPO of the aggregate royalty for a standard. This is on the basis that "a provision for SEP holders to collectively set an aggregate royalty rate for their SEPs risks a breach of competition law principles". The opinion says that "(t)he aggregate royalty may, in any event, be calculated from individual rates that SEP holders are encouraged to publish. The determination of an aggregate royalty for an entire standard and specific use cases that the commission proposes is fraught with difficulty and it has so far only been attempted a few times by national courts outside the EU. The few such cases have so far clearly demonstrated that the determination of an aggregate royalty for SEPs is a task that belongs to the courts of law. More generally, the commission proposal appears to allow top-down price regulation, which is an infringement of Union principles unless there is a clear evidence of market failure (which in this case is absent)."

Registration of SEPS

According to the amendments SEP holders would not be prevented from collecting royalties or damages for the period of delay in registering a SEP. The opinion notes that such provision would not be compatible with the right to damages under the Charter of Fundamental Rights of the European Union. Additionally, the EUIPO's assessment that a patent is not essential may not result in the SEP being removed from the register. This is because the EUIPO is not a court and cannot render a patent unenforceable. Similarly, several provisions are deleted on the basis that it would be "wholly disproportionate" to render patents unenforceable as a result of the SEP holder not providing the correct information to the EUIPO's registry. 

Essentiality checks 

The draft opinion states that essentiality checks are not to be repeated annually as they are "highly time consuming and it would be a too big work burden to redo annually". Also, implementers should not be able to designate patents for essentiality checks as this could be used to "game" the system and cause further delays to licensing.