It was my pleasure to participate in a panel session on “SEP Current & Proposed Regulations” last month at the George Mason University Antonin Scalia Law School Center for Intellectual Property x Innovation Policy (C-IP2) Annual Fall Conference entitled “The Importance of Exclusive Rights.” The other panelists were Angela Barr, Mark Cohen, and David Kappos. Our moderator was Kristen Osenga.
We compared SEP policies and developments in various jurisdictions including the United States, China, the EU, Germany and the UK. Discussion encompassed many aspects of SEP licensing including availability of injunctions, patent pooling, use of international arbitration, what constitutes discriminatory licensing, and rate setting such as that using the top-down approach.
I started by describing the European Commission’s audacious proposed new SEP regulation. I said this is bold, risky, reckless, and will be counter-productive to the Commission’s new industrial policy to slash red tape, promote innovation and improve global competitiveness. With the purported objective of increasing transparency and predictability in SEP licensing, the proposed legislation requires registration of patents, subjecting these to essentiality checking and rate regulation with the setting of an aggregate royalty and the apportionment of that based on patent counting using the top-down approach. The proposed rate setting is non-binding but introduces a 9-month delay, for example, before SEP owners can pursue litigation for infringement and unwillingness to pay FRAND royalties.
The proposed regulation — still in the works also with the European Parliament and Council — is contentious because the SEP licensing business model that prevails in smartphone licensing is in fundamental and major conflict to the way use of patented intellectual property has been licensed, indemnified, and monetized (or not) elsewhere, such as in the automotive industry.
David Kappos highlighted the global ramifications for the proposed EU regulation, reiterated that the EU’s impact assessment found no harm to rectify, and he questioned whether political support for the policy would be sustained with changing leadership in Europe. He identified fundamental deficiency in what is being proposed, including disregard for patent validity in proposed valuation assessments.
The United States has withdrawn from having an SEP policy — having wandered from side to side like the crab, according to Kappos. Proposed rate setting regulation has not been pursued in the United States. He also had much to say about the need for injunction availability — “the importance of exclusive rights,” as is the title of this conference. For example, availability in Germany versus the United States where it is difficult for SEP owners to obtain FRAND licenses.
Mark Cohen said that China, with its judicial-made civil law “sets its own course,” has no disclosed SEP policy and has been very unpredictable. For example, its pursuit of anti-suit injunctions a couple of years ago was a surprise. But these stopped after the EU filed a complaint against China at the WTO. China even interprets the meaning for FRAND in its own way. It is “highly experimental” there regarding SEPs. Once highly territorial, China acts with global considerations now. China is favoring the top-down approach in SEP valuation. If the EU adopts its proposed regulation, that will accelerate what China is doing. On the other hand, he noted that as Chinese companies such as Huawei become increasingly SEP licensors, rather than mostly licensees, China might well reconsider the generally low SEP valuations it derives.
Angela Barr explained InterDigital’s focus on standardized technologies and position as major a global licensor. She emphasised extensive work and long timescales in the technical developments, standard development and patent prosecution, with financial returns from licensing coming much later. She voiced concern about prospective price fixing with proposed SEP regulation. She believes that Europe is leading in SEP policy setting, but it is doing that in the wrong direction. There is a strong ecosystem in standard development and SEP licensing — things are not broken and don’t need fixing.
Here is some additional support to what was said in this panel session.
The United States officially has no SEP policy. A June 2022 joint press release by the DoJ, USPTO, and NIST — following issuance of their 2021 draft policy on SEPs —notes that the withdrawal of 2013 and 2019 SEP policies “Best serves the Interests of Innovation and Competition.”
I also compared the proposed EU regulation with developments in the United States and in China in a paper I published in the Antonin Scalia Law School’s Journal of Law, Economics and Policy in February 2024.
In September 2024, I co-authored an op-ed about the proposed EU regulation, how it is a solution absent a problem to fix, and how it is in conflict with the new Commission’s industrial strategy, as previously explained. Despite the European Commission’s own Impact Assessment finding no harm, the Commission is in the throes of outsourcing the task of identifying which standards and applications to regulate based on a new blanket test and the contractor’s opinion of where “severe distortion of internal market due to inefficiencies in licensing” has occurred or is expected to occur. This will be a very bureaucratic, burdensome, and contentious demand on SEP owners.
There are also new academic publications on the controversial issue of availability and use of injunctions in SEP litigation. Empirical Analysis of the German Caselaw on SEP Injunctions after Huawei v ZTE by Justus Baron, Santiago Bergallo, and Eric Sergheraert can be found on SSRN. A paper by Kristina Acri née Lybecker*, also on SSRN, explores Injunctive Relief in Patent Cases: the Impact of eBay. She also moderated the panel session on “Cross-Industry Exclusive Rights” at the conference. For example, John Kolakowski of Nokia explained at 44:18 why injunctive relief is vital for SEP owners.
*Update November 22, 2024: Dr. Acri’s new policy brief, The Importance of Injunctive Relief and the RESTORE Patent Rights Act, is also now available.