EU faces telecoms ire over new Standard Essential Patent rules

Draft European rules aimed at simplifying patent rules for technical standards in “connected” cars and smartphones have divided opinion among industry leaders and lawyers.

In January, the European parliament agreed new rules for “standard essential patents”, or SEPs. These are for technologies that have been declared essential to implement a technical standard — for example, 5G, WiFi or Bluetooth connectivity.

For the large telecommunication companies that have invented and control these patents, such SEPs can be worth billions of euros in royalty payments. Carmakers and technology companies, for example, have to pay to use the patents’ technical standards in their products.

But Europe’s system for licensing SEPs can be confusing, complex and prone to litigation, say patent experts. For example, a company that wants to build a device that uses WiFi or 5G or 4G mobile phone networks can find it very difficult to get information on who holds the SEPs, and which royalties apply, explains Bernd Holzgartner, a partner at German patent law firm 2SPL. “So, that’s a huge burden for you as an implementer” of a technology, he says.

The European parliament says its draft law will make the system fairer and simpler for patent holders and companies using their inventions. It will require holders of SEPs to input patent details into a new European database — including the expected cost for using the technical standard.

In addition, if there is a dispute over an SEP, a patent holder cannot sue for breach of its patent until it has completed mandatory out-of-court arbitration with the other company.

This new system is to be overseen by the European Union Intellectual Property Office (EUIPO), the agency responsible for managing EU trademarks. It would be responsible for creating an SEP “licensing assistance hub”, and for providing free training and support to small and medium-sized businesses and start-ups.

The EU patent proposal is strongly opposed by some technology and telecommunication companies, though, and patent lawyers have raised questions over its practicality.

Nokia, the Finnish telecoms equipment maker, and others in the industry argue that the current system encourages competition and innovation. It notes that many of the tens of thousands of patents it holds are SEPs, including those for fourth and fifth-generation mobile networks, which are widely used in connected cars, as well as for mobile WiFi, streamed entertainment, safety, and software updates.

Nokia says that licensing SEPs has helped it to invest more than €150bn in research and development since 2000.

Although the group agrees with the EU’s aim to make the system for licensing SEPs more transparent, efficient and predictable, it disagrees with the plan to achieve it.

It will result in delays in licensing, which would deprive holders of [SEPs] of revenue necessary to contribute to future development of technology

The EU approach will not deliver predictability or efficiency, claims Collette Rawnsley, Nokia’s European IP policy and advocacy head. “If anything, it will result in delays in licensing, which would deprive holders of [SEPs] of revenue necessary to contribute to future development of technology,” she says. A better alternative, she suggests, would be using “patent pools” — voluntary industry agreements for organising the licensing of multiple technical standards.

Mobile phone chipmaker Qualcomm also has a vast SEP collection and its chief licensing lawyer, Fabian Gonell, acknowledges that SEP rules are far from perfect. He says there should more transparency about which patents are deemed essential, how much they cost to license, and what the “implementers” — or licensees — use the patents for. But the draft EU law needs revision if it is to achieve its objectives, he adds.

“I think portions of it are misguided,” Gonell argues. While Qualcomm would like the EU proposal to expand transparency, he adds that parts of a new SEP regime would be better handled by the court system, including the EU’s Unified Patent Court, which opened last year.

However, support for the draft EU patent rules is strong among carmakers, which rely on multiple technical standards covered by SEPs to provide in-car WiFi and other features.

A Mercedes-Benz representative says the proposed plans will create a “fairer” and more transparent framework for the licensing of SEPs. A Volkswagen representative adds that the draft rules would ensure access to essential technologies on fair and reasonable terms. Currently, disputes over SEPs can potentially result in the halting of car production, the VW representative adds.

Luis Ferreira, managing partner and European patent attorney at Portuguese IP law firm Patentree, says the EU proposal is broadly positive for the small businesses and start-ups he advises. Any law that reduces paperwork for small businesses and makes it easier to work out how much they need to pay for an SEP would be welcome, he says.

But he adds that there are serious doubts as to whether EUIPO has enough technical expertise in patents — and sufficient staff — to oversee the proposed new system. The European Patent Office, which handles patent applications for the EU as a whole might be more suited — with its “thousands of highly skilled people” — to overseeing the new rules, he believes.

Other details for a new SEP system — including any charges companies will pay for accessing patent information — have yet to be agreed, observes Ferreira. “Will it be subsidised? Probably not,” he says. “Experts for these fields are really expensive. Imagine 5G standards. Thousands, thousands and thousands of pages in the standard.”

Much will emerge as the draft law winds through Europe’s legislative system. Gonell sees room for compromise. He says the question for the European Commission, the EU’s executive arm, is whether it is “willing to do the work to find something that is balanced, and to work with people who are willing to reach a reasonable way forward to improve the proposal”.