Will Europe become the global hub for FRAND rate setting?An analysis of the European Commission's proposal for a Regulation on SEPs
Objective, subject matter and scope of the Regulation
On 27 April 2023, the European Commission announced a proposal for a regulation on standard essential patents (SEP) and to amend Regulation (EU)2017/1001 (the Regulation).1 The main objective of the Regulation is two-fold: to provide transparency regarding the number of SEPs, their ownership and applicable rates, and to provide a swift, fair and cost-efficient way in which disputes relating to SEPs and FRAND determinations can be resolved (Recitals 15, 31, and 52). Judging from the Regulation and the related draft Impact Assessment Report, the Commission is clearly concerned with a lack of transparency in SEP licensing and a lack of efficient dispute resolution options.
The two main goals of the Regulation are (i) the development of an SEP register (Register) (including essentiality checks of the registered patents) and (ii) the establishment of a procedure for the determination of FRAND rates for SEPs. The European Union Intellectual Property Office (EUIPO) will be tasked with handling both the SEP register and the FRAND determination procedure through a Competence Centre that will be created, and that will draw upon the EUIPO's experience with eg electronic registers and databases (Recitals 11, 12).
The Regulation will apply to all standards that will be published by standard development organisations (SDO) after the Regulation's entry into force. Notably, it takes a wide aim by including optional parts of standards in its definition of ‘essential to a standard’ (Article 2(2)). The Regulation will generally not apply to standards that have been published by SDOs prior to the Regulation's entry into force (Article 1). However, if the Commission determines that there are inefficiencies in the licensing of SEPs that affect the single market, it may decide that such prior standards will be subject to the procedures under the Regulation (Article 66).
In addition, the following can be noted regarding the Regulation's scope and potential impact: Firstly, the determination of aggregate royalties and FRAND terms under the Regulation shall refer to global rates and conditions. Thus, the EUIPO's competence to determine FRAND royalties for patents and products/services under the Regulation will reach beyond the EU. Secondly, the Commission may exempt identified use cases of certain standards (or parts thereof) from some of the Regulation's measures (such as aggregate royalty determination and compulsory FRAND determination) before litigation is initiated. An example of this may be wireless communications standards, since well-established licensing practices seem to exist. Depending on the Commission's inclination to grant exemptions, the scope and impact of the Regulation may be significantly limited. However, the Regulation provides no clear criteria for the determination of whether there is a well-established licensing practice that should be exempted.
The article covers the following topics:
- The Competence Centre
- Available information on SEPs
- Essentiality checks
- Aggregate Royalties
- FRAND determination
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1Regulation of the European Parliament and of the Council on standard essential patents and amending Regulation (EU)2017/1001.