Key takeaways

• The proposed SEP Regulation aims at mediating SEP disputes at a centralized Competence Centre within the EUIPO. The Competence Centre will be responsible for setting up and maintaining SEP and knowledge databases with the purpose of enhancing transparency. However, it will also be directly involved in the royalty determination i.a. through a FRAND determination procedure.  
• The publication of the Commission’s proposal is only a first step in the legislative procedure. The European Council and the European Parliament will have their say about the Commission’s idea and it is likely that the progress of such a controversial and extensive legislative proposal will involve controversial parliamentary debates and further changes.

In more detail

Reasons for the EU Regulation

The European Commission has long been discussing a way to align different national approaches in handling SEP disputes and determining FRAND terms and conditions. The CJEU’s decision of 2015 in Huawei Technologies Co. Ltd v ZTE Corp. And ZTE Deutschland GmbH (C-170/13) has been seen as a milestone in European FRAND litigation. However, it could not fully harmonize the approaches applied to FRAND litigation by national courts. With its proposal, the Commission aims at harmonizing, modifying and improving the SEP licensing system, based on transparency, predictability and efficiency. According to the regulator, the proposal particularly covers some aspects aimed at leveling the playing field for start-ups and medium-sized enterprises.

In this context, the Regulation sets forth requirements for fair, reasonable and non-discriminatory (FRAND) terms, dispute resolution procedures, SEP registration, evaluation of standard essentiality, and licensing transparency. Yet, the Commission's plan has been already commented by some stakeholders criticising the establishment of a new Competence Centre at the EUIPO, whose tasks reach from the mere provision of a centralized knowledge and data center to the concrete mediation in SEP disputes and the possibility to make recommendations for aggregate royalties that may anticipate the results of disputes in courts. In the same vein, other stakeholders have expressed their views on the need to fine-tune the proposed SEP Regulation in line with existing treaties and applicable legislation. The patent package comes at a time when the European patent landscape is already facing major upheavals with the launch of the UPC.

In light of the above, the ultimate purpose of the Commission’s initiative would be to provide transparency and information required to set “fair royalties” on SEPs and reduce litigation regarding the royalty disputes (between patent holders and users of the standards) i.a. by the provision of dispute resolution procedures.

Most relevant provisions of the Regulation

Some cornerstones of the proposed regulation can be highlighted:

1. The creation of a new Competence Centre, which would be established within the EUIPO, with the aim of advancing and promoting transparency for the SEP ecosystem (Title II Arts. 3 ff. of the proposed SEP Regulation).

2. The proposal requires the EUIPO to set up and maintain an electronic register and database for SEPs (Arts. 4 and 5 of the proposed SEP Regulation).

1. SEP owners would have to register their patents in order to keep their rights to royalties or past damages for the period prior to the registration (Art. 24).
2. The request for registration shall be made within 6 months after the Competence Centre has published a notice pursuant to Article 19(2) or – in case the SEP is only granted after the publication of said notice – 6 months after the grant of the SEP (Art.20).

3. The competence center would also maintain a list of SEP evaluators, build systems to assess the essentiality of SEPs, as well as set up and administer the process for the FRAND and aggregate royalty determinations (see, e.g., Art. 3(2) (b) (c)(d) and (f) of the proposed SEP Regulation).
4. The proposal restricts the ability to enforce a SEP that has not been registered within the specific timeframe and includes a requirement to perform a FRAND determination (which should be concluded within nine months) before enforcement (Art. 24(1) of the proposed Regulation).

Impact of the EU Regulation

Strengthening transparency, predictability, and efficiency are rather generic goals possibly no one would oppose to. Particularly with regard to FRAND licensing already the “non-discriminatory” criterion requires basic insights into the licensing market. However, the proposed SEP Regulation goes much further than the simple praise of some “soft power aims”, whose concrete effects would remain to be seen. Instead, it could have material effects on SEP patent enforcement. According to Art. 24(1) a claimed SEP that is not registered within the time-limit of Art. 20 becomes unenforceable until its registration in the register. Likewise, a SEP owner shall not be entitled to receive royalties or seek damages for infringement of a claimed SEP prior to the registration of his rights. However, the proposals clarifies that such loss of claims only relate to the implementation of a standard for which registration is required. Both, the UPC and national courts requested to decide on any issue related to a SEP in force, shall check whether the SEP is registered as part of the decision on admissibility of the action (Art. 24(5) of the proposed SEP Regulation, for the UPC see only recital 11).

Consequently, not only transparency but also a FRAND determination procedure is at the heart of the Regulation (Title VI). This FRAND determination procedure can be initiated either by SEP owners or by implementers (Art. 34(1)). The proposed Regulation contains quite detailed rules for such a procedure. The FRAND determination panel shall always strive for a settlement of the parties. Only if the parties do not settle or proceedings are terminated for other reasons (see e.g., Art. 56), the panel provides a report (Art. 57). This report has, according to recital 41 of the proposed Regulation, a dual purpose to encourage the parties to settle and to provide transparency as to the process and the recommended FRAND terms in cases of disagreement. Parts of the report are published.

Yet, the proposed Regulation is silent on the most important aspect of the Report – the extent to which it is binding. However, even if parties remain free to initiate proceedings before the courts of the Member States or the UPC, it can be expected that a "FRAND rate", once set or proposed by the "EUIPO panel", will be taken into account by the court, not to say have a pre-emptive effect.

1  Available here: COM(2023)232 - Proposal for a regulation on standard essential patents (europa.eu)