Standard Essential Patents (SEP): is EU interventionism the solution, to ensure licencing negotiations on FRAND terms?

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Standard Essential Patents (?SEPs”), despite only representing 2 percent of the total population of patents currently in force, are critical to the development of international standards, relating to technologies such as 4G, 5G, Wi-Fi, computer, audio/visual, in the ?Internet of Things” ecosystem. Yet, SEP licencing is archaic, often requiring lengthy and draining court litigation to agree terms of Fair, Reasonable And Non-Discriminatory (?FRAND”) use between SEP holders and SEP implementers. Of course, Small and Medium Entreprises (?SMEs”), which increasingly implement standards based on SEPs in the ?Internet of Things” ecosystem, are priced-out, and cannot negotiate FRAND terms with cash-rich SEP holders (think about all those royalties SEP owners are currently collecting right and left!). This state of affairs stifles innovation and breaches competition and antitrust law. So the European commission took the matter into its own hands, and passed its proposal on Standards Essential Patents in April 2023, which was then adopted by the European parliament in February 2024. Proposing ?revolutionary”, yet state-controlled, sweeping reforms, such as setting up a competence centre at the EUIPO tasked with administering a SEPs’ registry and database, forcing SEP holders to register their SEPs in such EUIPO’s competence centre and mandating the EUIPO with carrying out essentiality checks and setting FRAND criteria, the proposed regulation is bold. So, how much market freedom and contractual freedom are SEP stakeholders prepared to collectively sacrifice, in order to increase transparency regarding SEPs ownership and FRAND royalties, as well as agency during negotiations of SEP licencing on FRAND terms?

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1. What are Standard Essential Patents (?SEP”)?

1.1. Background: what is a patent?

First things first: what is a patent?

Patents are governmentally awarded monopoly rights over new inventions that are industrially applicable. Products or processes may be patented but irrespective of the form of the patent, the product or process must satisfy the substantive criteria of the United Kingdom’s (?UK”) Patents Act 1977 (?PA 1977”). These are:

• Restrictions as to subject-matter. There must be an invention, but not ?as such” inventions or non-patentable inventions (Sections 1(2), 1(3) and Sch. A2, para. 3 PA 1977);
• Novelty must be present (Section 2 PA 1977);
• An inventive step must be present (Section 3 PA 1977), and
• The invention must be capable of industrial application (Section 4 PA 1977).

The same criteria exist under French law, pursuant to article L. 611-10 1. of the French intellectual property code, which provides ?are patentable, in all technological domains, new inventions implying an inventive activity and susceptible of industrial application”. To these three positive conditions to the patentability of an intellectual asset (i.e. industrial character, novelty and inventive activity), a fourth condition must be added, which is the sufficiency of the description (since the non-compliance with this fourth condition triggers the invalidity of the patent title, which is the same sanction than in case of non-compliance with the three above-mentioned fundamental patentability criteria).

At the European level, the 1973 Munich convention, called ?European Patent Convention” (?EPC”), established a uniform patenting system for all countries signatory to the EPC (including the UK and France, which have been both signatories since 1977). In addition to providing a legal framework for the granting of European patents, via a single, harmonised procedure before the Munich-headquartered European Patent Office (?EPO”), article 52 EPC provides that ?European patents shall be granted for any inventions, in all fields of technology, provided that they are new, involve an inventive step and are susceptible of industrial application”.

In the UK, a UK patent lasts 5 years, renewable every year after the first 5 years’ period, up to a maximum of 20 years.

In France, a French patent can also be renewed for a maximum term of 20 years, but it is renewable each year at the anniversary date of the patent application provided that some annual renewal fees are paid.

At the European level, the maximum term of a European patent is also 20 years from its filing date. The patent may lapse earlier if the annual renewal fees are not paid (or if the patent is revoked by the patentee or after opposition proceedings, of course).

1.2. The rise and rise of Standard Essential Patents (?SEP”)

A Standard Essential Patent (?SEP”) is a patent that protects technology which is essential to implementing a technical standard.

A standard is an agreed or established technical description. It is also referred to as a ?technical standard” or ?technical interoperability standard”. These descriptions can cover ideas, products, services or ways of doing things and make sure different technologies can interact and work together. For example, mobile phones, wireless connectivity, navigation systems in cars and smart meters all use technical standards.

Technical standards are usually produced by Standard Development Organisations (?SDOs”), such as the International Organization for Standardization (?ISO”), the International Electrotechnical Commission (?IEC”) and the International Telecommunication Union (?ITU”), established for the purpose of creating standards, with inputs from industry and technical experts. Trade bodies, government organisations and similar entities can also create technical standards.

For example, regional standards bodies include:

• the European Committee for Standardization (?CEN”);
• the European Committee for Electrotechnical Standardization (?CENELEC”);
• the European Telecommunications Standards Institute (?ETSI”);
• the Institute for Reference Materials and Measurements (?IRMM”) in Europe;
• the Pan American Standards Commission (?COPANT”);
• the African Organisation for Standardisation (?ARSO”), and
• the Arabic Industrial Development and Mining Organization (?AIDMO”).

Once a technical standard has been agreed, manufacturers are required to make their products standard-compliant.

In some cases, these standards require the use of specific technologies protected by patents. A patent that protects technology which is essential to implementing a standard is known as a SEP.

Without using the methods or devices protected by technical standards and SEPs, it is difficult for a manufacturer (or ?implementer” of the standard) to create standard-compliant products, such as smartphones or tablets.

Intellectual property offices, such as the UK IPO, are looking at SEPs because not only are these offices responsible for granting patents – including SEPs, those patents that end up being declared essential to a technical standard -, but they also want to work hand-in-hand with their respective governments to foster an intellectual property framework which enables creativity and incentivise innovation, to become – or remain – global leaders of innovation.

So, patent holders are incentivised to declare their patents as essential to a technical standard, in order to gain access to the market and generate royalties. This could provide significant power to the SEP holder and to balance this, these SEP owners are obligated to offer their SEPs on Fair, Reasonable And Non-Discriminatory (?FRAND”) licencing terms.

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Crefovi's live webinar:?Standard Essential Patents (?SEP”): is EU interventionism the solution, to ensure licencing negotiations on FRAND terms?

26 April?2024?| 14:00pm London time

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Crefovi's live webinar will begin on Friday 26 April 2024 at 14:00pm London time (UK), and will provide an in-depth analysis on Standard Essential Patents (?SEP”) and licencing negotiations on FRAND terms.

You haven’t yet secured your free place for our upcoming webinar on competition law & patent law?

Here is your chance to join Annabelle Gauberti on Friday 26 April 2024, 14:00pm London time (UK) as she explores how Standard Essential Patents (?SEP”) have become instrumental to technological evolutions in the 21st century, and how to ensure licencing negotiations on FRAND terms.

In this webinar, our expert speaker will discuss:

1. What are Standard Essential Patents (?SEP”)?

2. What is Fair, Reasonable and Non-Discriminatory (?FRAND”)?

3. Why are FRAND terms so contentious?

4. What is the proposed SEP regulation from the European commission?

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