The European Commission’s withdrawal of the standard-essential patent regulation proposal has sparked celebration and outrage among the deeply-opposed sides of industry. Scrapping the proposal to increase transparency in the licensing process now shifts attention to a landmark ruling expected from a German court next week, which will determine if the current framework in resolving SEP disputes needs revisiting.
The EU’s failure to agree on new legislation aimed at injecting transparency into the licensing of standard-essential patents means the battleground moves to the German courts where judges are soon expected to decide whether EU judges should give more clarity on the hotly-contested sector. The Standard Essential Patents Regulation is among 37 legislative proposals that will be withdrawn this year, as part of the European Commission’s work program for 2025. The executive is binning some of the draft laws in a move to simplify rules for industry amid criticism of a tendency to overregulate and a lag on global competitiveness.
“European companies should spend less time on red tape,” said EU trade commissioner Valdis Dombrovskis at a press conference this morning, adding that Europe “cannot afford to continue business as usual.”
The demise of the SEP Regulation was down to the limited chances of it being agreed by lawmakers and national governments, the commission said (see here). EU commissioners could not yet say whether they will consider an alternative approach to regulating SEPs.
Lawmakers in the European Parliament and EU member states have the right to oppose the withdrawal and request additional explanations from the commission.
The SEP bill was pulled after a relatively short time in the EU’s legislative machinery, with the commission having published the proposal in April 2023 (see here). Other files have been stuck for years longer in legislative limbo before the EU gave up.
The withdrawal represents a win for Europe’s telecommunications giants like Nokia and Ericsson, which own patents required for the standardized operation of technologies such as 4G, 5G, Long Term Evolution or LTE, WiFi, Bluetooth and USB connections.
The regulation would have required companies holding patents deemed essential for some technologies to register their intellectual property in an EU-mandated database and submit it for independent assessment. It would have also set an aggregate royalty rate for licenses and introduced a mandatory nine-month reconciliation period to set a fair licensing agreement between parties before they can choose to litigate.
“IP Europe believes that the work program of the European Commission reflects its commitment to strengthen Europe’s competitiveness by encouraging research and development, innovation, and growth,” an IP Europe spokesperson told MLex.
“We look forward to working with the commission to ensure a strong innovation ecosystem that acknowledges the crucial roles of patents and open standards — both of which are key drivers of Europe's growth, security, and technological leadership,” said the spokesperson of the association representing Ericsson, Orange, Panasonic and others.
Nokia (see here) and Sisvel (see here), both also IP Europe members, have welcomed the decision and said the regulation would not have adequately achieved its aims.
On the other hand, companies that need to license and use the SEPs were largely advocating in favor of the regulation.
“The Fair Standards Alliance is stunned by the commission’s decision to abruptly scrap the SEP Regulation,” Evelina Kurgonaite, secretary general of the Fair Standards Alliance, told MLex.
“The withdrawal sends a terrible signal to innovative businesses who rely on a predictable and fair SEP licensing system,” she said, on behalf of the association representing companies including Amazon, Google, Apple and Microsoft.
Several automotive giants as well as small and medium-sized companies, which rely on implementing SEPs in their products and services, are also members of the association.
"The SEP Regulation is a lifeline for SMEs — without it, they are left defenseless in a minefield of opaque negotiations, legal threats, and exploitation by patent assertion entities," said Raymond van Eck, Fairphone CEO, in a statement shared with MLex.
— Political climate shift —
Neither side has given an inch in this debate for years and patent holders continued to hit hard against the law, while patent users talked up its importance.
As new commissioners took office last year — including Finnish digital chief Henna Virkkunen and French industry commissioner Stephane Séjourné — the law’s opponents made a fresh push to see off the draft law (see here).
Last month the CEOs of Ericsson and Nokia, two of Europe’s largest connectivity providers and SEP holders, came to Brussels to make a plea for a better regulatory climate for Europe’s companies. And they put the withdrawal of the SEP Regulation at the top of their list of changes (see here).
The withdrawal shows how the political climate is different now than when the proposal was adopted.
The widely cited reports published last year by former Italian prime ministers Mario Draghi and Enrico Letta have dominated the regulatory climate, shifting policy emphasis to helping European companies rather than ceding ground to Chinese rivals.
The withdrawal of the regulation “goes against Draghi’s call to put innovation at the center of Europe’s quest for competitiveness and to eliminate obstacles that hinder innovation of Europe’s strength industries,” FSA’s Kurgonaite said.
— Eyes on Germany —
The legislation was the commission’s latest foray into the licensing sector, after a period of treading carefully. The antitrust directorate has had complaints touching on SEP questions on its desk for years and declined to open formal investigations.
Officials often pointed towards the EU Court of Justice’s 2015 judgment on Huawei v ZTE as the roadmap for regulating licensing disputes – a ruling which outlines the steps required in the negotiation process to ensure compliance with antitrust laws in SEP disputes.
In April last year, the commission decided it was time to re-enter the fray, having disagreed quietly with the interpretation of Huawei v ZTE by German courts, where some rulings were seen as favoring patent holders.
The commission intervened with an amicus brief sent to the Munich court handling a dispute between VoiceAge and HMD. It outlined its opinion on how to interpret the decade-old judgment (see here).
With the SEP Regulation abandoned, the commission’s intervention at the German court now represents the executive’s main engagement on its perceived shortcomings in the licensing system.
The outcome of VoiceAge v HMD now carries an even greater weight in addressing dynamics between SEP holders and users. Following a hearing in November, the case is now up for judgment on Feb. 20 (see here).
Munich’s judges will decide whether to refer questions to the EU courts for guidance on European law. Or they may otherwise decide to rule on the case, leaving the litigation prone to a further appeal by either the standard-setting telecom provider or the mobile phone maker.
Some experts predict the fallout of the SEP Regulation might accelerate a referral to the EU’s Court of Justice, or that the Munich court may now be more likely to accept the commission’s interpretation in the absence of a potential regulatory framework.
Another avenue open to the commission, in the absence of a regulation, may be more drastic: opening a formal investigation into suspected anticompetitive behavior.
Still, proponents of the SEP regulation worry that no commission intervention or clarification from higher courts will be able to establish fair, reasonable and non-discriminatory licensing rates between parties.
Please e-mail editors@mlex.com to contact the editorial staff regarding this story, or to submit the names of lawyers and advisers.