The European Union is currently overhauling its regulatory framework for the licensing of standard essential patents (SEPs), which are patents that must be used in order for a product to comply with a technical standard. For example, patents for USB or Wi-Fi technology used in many different products are SEPs.
However, a new Economic Analysis commissioned by the CCIA Research Center shows there are important SEP-related problems that still need to be resolved. For the European Union, in particular, there are four major areas in which outdated SEP regulation is holding back innovation.
Anything but Fair, Reasonable, and Non-Discriminatory
Owners of patents that are essential to a standard are already required to licence SEPs on fair, reasonable, and non-discriminatory (FRAND) terms today. Yet, in reality the licensing process for SEPs is often anything but FRAND. This continues to harm innovation, efficiency, and consumers in the European Union.
Digital innovation can be boosted by making it easier for EU companies to licence standard essential patents. Simplifying this process will benefit both patent owners and licensees, making it key to shoring up broader support for innovation in the European Union. Indeed, EU policymakers need to make sure the EU’s new SEP regime introduces practical and straightforward definitions of what ‘fair’, ‘reasonable’, and ‘non-discriminatory’ actually means.
Affordability Suffers From Restrictive Licensing
Standard essential patents are key to many of the digital and tech products that Europeans love, but licensing remains a mess. It is urgently needed that SEPs are also licensed to component makers in order to keep things affordable for consumers. Because currently, many SEP owners still restrict licensing to final product makers – or original equipment manufacturers (OEMs) – only, refusing a licence to upstream component suppliers that make parts.
Allowing component manufacturers to use SEPs can minimise costs, according to the latest research. This, in turn, will help make products cheaper for EU consumers, innovation more dynamic, and Europe’s economy more efficient.
Europeans deserve better than having protectionist laws that serve the interest of a handful of corporate dinosaurs that cling on to their SEPs. Digital innovation requires the promotion of partnerships instead of protectionism. It’s high time for the EU to change how SEP licences are granted and to whom.
Unfair SEP Licensing Hurts Innovation
New research shows that problems with SEP licensing result in excessive royalties, going far beyond a patent’s technical contribution. SEP owners can exploit their position to collect royalties that include other components that are part of OEMs’ royalty base, or investments in the final product maker’s brand that drive consumer demand independently of SEPs’ technical contribution.
These excessive SEP royalties discourage patent implementation, limit products available to consumers, and reduce the rewards to innovation. Hence, the EU needs to embrace a more balanced approach to SEP licensing that prevents both under and overcompensation of patent owners. At a time when the spiralling cost of EU regulation is making it increasingly more difficult to innovate, fair royalty rates would benefit everyone.
More Transparent SEP Licensing Long Overdue
More openness in the licensing of standard essential patents is long overdue. It will promote fair compensation and foster innovation in the European Union. Increased transparency on SEP royalty rates will help reduce transaction costs, increase market efficiencies, and encourage innovation, for example.
To strike the right balance, the EU’s new SEP regime needs to make sure royalty rates consider technical contributions, market structure, and transaction costs. Only this way the EU can help make sure that SEP owners get fair compensation for the innovations they bring, without hurting everyone else.
