New EU Regulatory Regime for SEPs Will Upend Mobile Telecommunications Sector

The European Union is considering a new regulatory regime for licensing and litigating standard essential patents (SEPs) destabilizing the global telecommunications market. This proposed regulatory regime is unbalanced in favoring implementers over innovators, thus inhibiting explosive technological and economic growth in this important sector of the modern innovation economy. There is fear. While the EU has finally woken up to the competitive and geopolitical threat posed by China, the regulatory proposals undermine efforts by the EU and the US to maintain global technological leadership.

Draft Regulatory System for Standard Essential Patents

The EU’s proposed regulatory regime will be unveiled on 26 April by the European Commission’s (EC) Directorate General for Internal Market, Industry, Entrepreneurship and Small and Medium Enterprises (DG GROW). The draft regulation was recently leaked. This suggests that some EU officials are aware of its serious shortcomings. Still, it’s ironic that DG GROW will announce its proposed regulatory regime for Standard Essential Patents (SEPs) on World IP Day this year. That undermines the incentives provided by credible and effective patents for innovators to invest in and commercially develop next-generation technologies such as 5G and artificial intelligence (AI).

This proposed regulatory regime would require SEP owners to register their patents in a database maintained by the EU Intellectual Property Office (EUIPO). EUIPO will be the sole arbitrator for all her SEPs. The EUIPO determines which patents are his SEPs (called “substantial checks”), determines the royalty rate for licensing SEPs, mandates disclosure of license agreements, and identifies potential SEPs. You may not license or sue for It is not registered, has been identified as mandatory, and is designated at the royalty rate set for all relevant SEPs.

This massive regulatory regime is a blatant example of regulatory overreach. There is a lack of evidence base to justify this widespread intrusion into SEP licensing and litigation. Legal and commercial evidence shows that this regulatory regime is unnecessary at best and destructive to innovation and economic growth at worst.

EUIPO has no patent law expertise

In addition to many substantive concerns, its neglect of evidence-based policymaking is evident in the EUIPO’s mandate to manage this enormous regulatory power over the mobile communications market. For Americans, the EUIPO is similar to the European Patent Office (EPO), but these are her separate EU bodies. EUIPO has no I have no knowledge or experience in patent law. I own the trademark. Last year, EUIPO Executive Director Christian Archambeau said: [] patent capacity. ”

Despite the lack of legal or economic knowledge of patents, especially those relating to technology standards like 4G developed by organizations like ETSI, the EU has decided what is considered an ‘essential’ patent. It proposes to give the EUIPO absolute regulatory authority over complex technical decisions about for the equally complex determination of technical standards and the evaluation of these SEPs for specific innovators, implementers, and end-user devices when determining royalty rates for smartphones, laptops, automobiles, consumer electronics, etc. The governing body’s ostensible justification is expertise.The EUIPO has nothing in general patent law, nor in patents specifically covering technical standards.

Unfair Regulatory Intrusion into Efficient Mobile Communications Market

In addition to the obvious failures in the selection of institutions in granting EUIPO this broad regulatory authority over SEPs, there are significant substantive failures in the EU’s proposed regulatory regime. This is a classic example of finding and solving problems.

There is no market failure in the mobile communications market to justify this regulatory regime. According to some studies, the mobile device maker pays single-digit royalties on mobile devices in aggregate. This fact is in stark contrast to the “holdup theory” prediction of 30%+ total loyalty per device.Furthermore, the quality-adjusted price for mobile devices is felland even more impressively, they faster speed compared to products produced in non-SEP-intensive sectors of the innovation economy. This consistent trend of declining prices and increasing innovation in mobile connected devices means that these technologies will be adopted around the world, mobile communication technologies will serve as the starting point for countless innovative businesses, and will become a part of everyone’s everyday life. Explain why it changed your life. It is estimated that more people now own smartphones than have access to drinking water.

Indeed, some judges and lawyers complain of a lack of certainty and transparency in SEP licensing negotiations, a systemic problem that drives up prices and reduces innovation. There are no empirical studies confirming that At best, these claims are just another example of the Nirvana fallacy at work in patent law. At worst, as many courts have admitted, they are self-serving arguments by implementers involved in “holdouts.” Even assuming that these sporadic complaints are valid, the large scale of the massively successful and efficient private licensing of SEPs, the adjudication of disputes by courts and the large scale of private arbitration that fully replaces private arbitration in the mobile communications sector. The creation of an extensive top-down regulatory system cannot be justified. global innovation economy.

In short, commercial and legal evidence confirms that the mobile communications sector is efficient and successful. New innovations in devices and services at an unprecedented pace, new companies entering the market, and consistently declining quality-adjusted prices for more than a decade Mobile is paying the price for his devices There are consumers

As further proof that the mobile communications sector is doing well, innovative licensing platform company Avanci now licenses 4G communications technology to 80% of the automotive market. Where there is widespread uncertainty about which patents count as SEPs and the appropriate range of fair, reasonable, non-discriminatory (FRAND) royalties, litigation can become unwieldy and costly for all parties. None of these would be the case when it comes to costs. This next phase of the mobile revolution won’t see the success of his SEP’s new licenses in the automotive sector (the same problems the “holdup theory” predicted for smartphone loyalty rates was predicted).

EU Proposes to Replace Evidence-Based Decision-Making by Courts in SEP Disputes

When there are disputes over standard essential patent licenses and the parties are unable to reach an agreement, the courts play an institutional role in resolving these discrepancies in accordance with the rules of evidence and due process, resulting in evidence-based legal decisions. I was.Almost ten years ago, the European Court of Justice ruled that Huawei vs ZTE Reaffirmed that the SEP owner’s right to obtain an injunction against an implementer involved in a holdout does not violate EU competition law.ever since HuaweiGermany, the Netherlands and even the United Kingdom (although no longer an EU member state) followed by national courts in multiple jurisdictions Huawei We have also created relevant legislation if an implementer is found to be involved in a “holdout” (see, for example, here, here, and here). Courts have also done an excellent job of evidence-based rulings using equivalent licenses in determining the appropriate scope of royalties in FRAND-compliant licenses of SEPs (see, for example, here, here, and here). reference).

Courts have worked diligently to craft reasonable legal rules and conditions of evidence in reaching decisions in SEP disputes that balance the legitimate rights and obligations of innovators and implementers. For about 10-15 years, implementers have argued that SEP owners are exercising unlawful monopoly power in licensing negotiations, that SEP owners themselves cannot obtain injunctive relief as a remedy for infringement, that SEP royalties must be calculated at the component level, and so on. SEP licenses must be provided to his suppliers of components requesting such licenses, and so on. Courts have ruled on these claims in accordance with the requirements of patent, antitrust, and contract law, as well as long-standing procedural rules and evidence. They have consistently rejected these arguments as groundless in either law or evidence.

Implementors have failed to convince courts that they must operate according to due process and the evidence of rules in reaching decisions, so they ask regulators and elected officials not to be bound by the same legal rules. I brought up their arguments. It is very likely that policy makers have no ill intentions and are serious about adopting new laws and regulations that encourage innovation and economic growth. But lacking the evidence and procedural rules to ensure that the courts acted as crucibles of truth, these officials resorted to the rhetoric and junk that has become so well-known in discussions of U.S. patent policy over the past decade. It is susceptible to misdirection by science data. -15 years.

Careless Support for China’s Challenge to EU and US Tech Leadership

If the EU adopts this new massive administrative regime that does not have patent law experts and imposes top-down regulatory mandates on SEP licensing and litigation, this could pose a competitive threat from China. would undermine policy efforts by both the EU and the US to counter China will use this move to a regulatory regime to move away from evidence-based decision-making by EU courts. As in the past, China will pursue domestic industrial policy and geopolitical agendas through similar administrative processes and actions. This is more than just a prediction. Previously, when China abused its antitrust laws to artificially reduce the SEP royalty rates that domestic implementers pay to Western innovators, US antitrust officials We have relied on and referred to policy statements and other actions by It again uses the EU’s proposed SEP regulatory regime as a superficial cover to cover up the continued discriminatory treatment of Western innovators in favor of their domestic industries. As EU and US complaints in the WTO progress against China, EU and US officials will again be quoted the same policy statements and administrative actions in this new regulatory regime on SEP licensing. .

Severely Flawed Proposal

DG GROW should reconsider the proposed regime of SEP licensing and litigation. Failing this, the European Commission must reject the massive regulatory intrusion into efficient markets that have generated unprecedented innovation and economic growth in the ongoing mobile revolution. It’s a very flawed suggestion of looking for problems and providing solutions. People now carry affordable supercomputers in their pockets, connecting them all over the world. Many people carry around his devices he mobile he two or he three. Mobile connectivity is now pervasive in myriad consumer goods such as automobiles, thermostats and refrigerators.

This unprecedented technological innovation, economic growth, and the revolution it has brought to the everyday lives of ordinary people, will only sustain if innovators and implementers continue to create inventions and negotiate licenses unimpeded. increase. The EU needs to recommit to the rules and institutions that have served so well as the legal basis for these historic successes. There, courts apply balanced principles in patent and contract law under established rules of evidence and due process to protect equal rights.innovators and implementers

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Author: Alex Milos