On Wednesday, the European Commission (EC) issued guidance on the licensing of standard essential patents (SEPs), being patents that protect technology essential to a standard. Standards are set in relation to a technology by standard developing organisations (SDOs), so that equipment using that technology is able to work together. If a company owns patents that read on to a standard, it is required to give a commitment to the SDO to license those SEPs on fair, reasonable and non-discriminatory (FRAND) terms. Although not legally binding (in particular not on the CJEU) , the guidance seeks to address uncertainty in this area.
What does the guidance say?
1. Greater transparency on SEP exposure
The EC is asking SDOs to:
- make their databases more user friendly by making them more accessible and searchable and including links to patent office databases; and
- collect further information from patent holders including asking them to review and update declarations at certain points in time and to provide information required to assess exposure and reports on relevant litigation.
2. More certainty on valuation of SEPs and the definition of FRAND
The EC encourages the use of patent pools and has provided a list of principles for SEP licensing:
- no one-size-fits-all solution;
- a FRAND value should take into account:
- the economic value of the patented technology, which should not result from its inclusion in the standard;
- the present value added of the patented technology, but not the market success of the product; and
- a reasonable aggregate rate for the standard, in order to avoid royalty stacking; and
- SEP holders cannot discriminate against implementers that are “similarly situated”.
For global products, the guidance acknowledges that principles of efficiency support SEP portfolio licensing. It further suggest that worldwide licences may be a more efficient approach, and country-by-country licensing may not be in line with recognised commercial practises in the sector.
3. More certainty on enforcement of SEPs
Building on the Huawei/ZTE principles, the EC has provided further guidance in relation to SEP licensing negotiations:
- to assess a FRAND offer a party requires an explanation of the SEPs’ essentiality for the standard; the infringing products; the proposed royalty calculation and the non-discrimination element of FRAND;
- a counteroffer should contain details of the use of the standard in the relevant product; and
- timeliness of a counteroffer will depend on the facts.
Patent assertion entities are to be subject to the same rules as other SEP owners. In terms of injunctive relief, the guidance confirms that the proportionality assessment is to be applied on a case-by-case basis.
What does the guidance not say?
Earlier drafts of the guidance included recommendations in relation to (i) a use-based licensing model; and (ii) mandatory licensing. Both of these suggestions were controversial and the focus of heavy lobbying. Neither is included in the final version of the licence. However, given the “case-by-case” approach, they are also not ruled out.
If you want to read more about the EC’s recent communications on IP rights please click here.