Interview with Georg Nolte on the EU SEP Regulation draft proposal

Jean-Claude: Georg, you had the opportunity to hear DG COMP Head of Unit Hanna Anttilainen speak at the recent FRAND-FORUM. In her speech, she identified the controversial issues in the open consultation and gave an outlook on where the focus of a potential SEP regulation could lie on. Did the leaked draft proposal confirmed your worst fears?

Georg: Thanks for having me, Jean-Claude. Please note that I speak here in my personal capacity and not as Panasonic or Chair of the DVB IPR Module.

Yes, when I heard her speaking at your conference in early March, I was astonished that she (still) states patent ambush in the Rambus case which happened in mid-2000, i.e., more than 15 years ago. I'm not aware of any (major) patent ambush case since then. Also, the EC's decisions in Motorola and Samsung were superseded by the CJEU's Huawei v ZTE decision. So, where's the patent ambush and patent hold-up problem the EC actually wants to address?

She mentioned in her introduction that there's "increased litigation". I have no idea where she got that information from. I think litigation in the mobile area is actually constant or even declining, but for sure not increasing to a level that would raise any concern. She wants to "avoid costly litigation", but with the Draft I saw I actually think there will be more litigation as companies will fight over the results of the essentiality checks as well as the other measures proposed (see below) that will be mandatory to be done though their results will be non-binding.

She used a pie chart to show that 68% of "SEP industry experts" "think that SEP licensing will be more challenging for IoT applications compared to the smartphone market". Even I would possibly subscribe to that question, but drawing the conclusion that this warrants such a drastic intervention by the EC as envisioned by the leaked draft Regulation is just not right. Besides this, the number of respondents might have been limited and there are usually much more implementers than SEP holders, so the 68% is not really a number to base any intervention on in the first place.

Looking at what the EC has done in the run-up to the draft is very strange, too. All of the questionnaires and webinars were about theoretical ideas and not about any actual proposals. Now the Draft presents the final results and as far as I understand, the EC does not plan to consult with the affected parties anymore. This is for sure not good and balanced policy making.

All proposed measures (registering of SEPs, essentiality checks, FRAND and aggregate royalty determinations) will just delay the conclusion of SEP licenses and not help anybody to get a better or quicker result. All obligations and costs in the Draft are on the SEP holders. There is just nothing about SEP users. There is no balance of interests.

"[...] the draft did not even confirm but went way beyond my worst fears."

The goals that she stated in her slides are all not met by the Draft. This Regulation

- is not in the interests of both SEP holders and implementers,

- does not ensure a continued participation in standardization, and

- will not be to the benefit of all stakeholders, especially start-ups and SME.

SMEs might be the big losers of the Regulation. SMEs already have massive problems in enforcing SEPs against big companies. Now they will be faced with even more delays and costs, which might drive them out of business.

So, yes, the draft did not even confirm but went way beyond my worst fears.

Jean-Claude: In my recent interview with Eric Stasik on the draft proposal, Eric qualified the proposal to be a "somewhat na?vely optimistic solution for imagined harms". Would you concur with Eric?

Georg: Absolutely. As stated above, I don't see a problem with litigation and SEP licensing in general. Litigation is actually needed to get reluctant potential licensees (better say "infringers") back to the negotiation table or just exclude them from the market. It's unfair if some users pay for the technology they implement, and others don't. If we are mild with the EC we could say they were na?ve. But for me the Draft shows such a lot of deficiencies (in drafting, scope, and balance) that I really wonder what happened.

Jean-Claude: According to Recital 27, essentiality checks conducted by e.g. patent pools prior to the entry into force of the Regulation should not be re-checked for essentiality.?Recital 30 states that results from essentially checks can be used in patent pools.?How do you assess the provisions on patent pools und essentiality checks in the draft proposal?

Georg: About 20 years ago we had some essentiality checks for a few patents before DVB invited those companies that passed this hurdle to a patent pool "fostering" meeting. Those (rough) essentiality checks were not accepted by the patent pool administrator. I have the strong feeling it will be the same for the envisioned essentiality checks in the Draft. They will just create extra cost without providing any additional benefit to the SEP holders. It's not a benefit if you are allowed to license your SEPs after such essentiality checks. It's a burden! If they were voluntary, and a successful passing would mean you can increase any fees charged to licensees by say 10%, then SEP holders would be incentivised to subject their patents to such essentiality checks. But nothing like this is planned. There's just no incentive at all to do these essentiality checks.

Jean-Claude:?Recitals 17 and 18 introduce the conciliator who, i.a., shall make a non-binding recommendation for an aggregate royalty, also upon request from implementers. How do you see the whole conciliation procedure?

Georg: An aggregate royalty as envisioned in the Draft is a theoretical thing. You will almost never know what the total stack of SEPs is for a specific technology, also as it varies over time (some patents expire, and new ones get granted). License agreements and pool arrangements cope with this uncertainty by "factoring" this uncertainty into their royalty fees. Recital 18 states that "all interested stakeholders are invited to participate." but this does not mean that all will actually join. So how shall a conciliator make a recommendation for an aggregate royalty then? Will that recommendation always be 20% or 50% higher to cope for the uncertainty of missed patents and additional royalty demands? If not, will it clearly state such an uncertainty? Honestly, I don't think this procedure will help a lot. But what it will certainly do is increase cost, as the conciliator will not be paid by EU funds, but by those parties joining the conciliation proceedings, which might in fact be SMEs.

Jean-Claude: One controversial issue is to establish a competence centre at the EUIPO. Eric thinks that?a lot of what the competence centre is tasked with is already commercially available. Enrico Bonadio and Dyuti Pandya?in the recent Kluwer Patent Blog state that the issue of lacking SEP experience at the EUIPO could be addressed by requiring the EUIPO to appoint recognised SEPs experts who could efficiently do the job. What is your take?

Georg:?The EUIPO has no expertise in patents, as was even acknowledged by its Executive Director last year. So any "real" job besides administration needs to be done by others. And even administering essentiality checks, FRAND and aggregate royalty determinations should be done by people with at least some knowledge in the field. The problem for the EC was that the EPO has declined to do the job, so the EUIPO was left as the only alternative European institution. That's at least my assumption. Another issue is not with the EUIPO but the experts that will need to do the work: it will be quite some challenge to make sure that any essentiality checks are not done by people that have a conflict of interest. And building up an effective "competence center" in just two years might not be possible, too.

Jean-Claude: Thank you for the interview, Georg.

About the interviewee: Mr Georg Nolte is the Patent Representative at the Panasonic R&D Center Germany (PRDCG). After getting his technical degree in television techniques and working in R&D as well as leading international R&D projects, he now works with patents since 20 years and is responsible for all patent related matters at PRDCG. Besides this he's the chair of the IPR Module of the DVB Project and represents Panasonic in IPR topics at various industry groups and international standards bodies like ETSI, ITU, IEEE, Digital Europe and the German Bitkom and ZVEI. He's also representing or advising Panasonic in several patent pools for various technologies. Finally he's a board member of IP Europe in Brussels.