EU Introduces New FRAND Framework for SEP Licensing

EU Introduces New FRAND Framework for SEP Licensing

By The Fatty Fish Editorial Team - January 3, 2024

The European Commission introduced a 2023 FRAND framework for a determination procedure intending to “simplify and speed up negotiations concerning FRAND terms and reduce costs,” according to Reuters. This procedure is to be administered by the EUIPO, which currently focuses solely on trademarks and design rights as through a newly created “competence centre”. The new FRAND determination process “should be concluded within nine months”, as summarized by Reuters, and would be a required step before SEP owners can file any infringement litigation, before national courts or the Unified Patent Court (UPC), which launches on June 1. Per the draft document itself, again as reported, “[t]his is necessary because disagreements about the FRAND terms are the main reason to seek recourse in courts”. Reuters reports the framework asking parties to “agree among themselves on an aggregate royalty, in effect the potential royalties for all SEPs covering a standard.” The parties may ask the EUIPO competence centre for a non-binding expert opinion if they do not agree. To that end, IAM reported that the “suggested FRAND determination process will involve a panel of expert conciliators.”

Here in the US, national-level policy efforts on standard-essential patents (SEPs) have been less extensive so far. The Biden administration put forth a 2021 draft policy regarding SEP licensing and remedies. This draft aimed to find middle ground between the previous 2019 guidance, which largely promoted injunctions in SEP disputes, and the 2013 version that mostly advised against such solutions. However, last year, the administration withdrew the 2019 statement without a replacement. It neither finalized the 2021 proposal nor brought back the 2013 policy, opting instead for a case-by-case approach to enforcement. Similarly, in the United Kingdom, a 2021 reform initiative on this issue seems to still be in progress. Here is an opinion piece we found of interest relating to the European Union’s new FRAND framework for SEP licensing.

Race to the bottom with top-down approach in FRAND rate setting for SEPs

In an opinion piece “Race to the bottom with top-down approach in FRAND rate setting for SEPs” for IAM Media, Keith Mallinson, founder, WiseHarbor, examines the two different approaches the United States and Europe are taking in determining reasonable royalty rates for standard-essential patents (SEPs) in disputes over fair, reasonable, and non-discriminatory FRAND licensing. US authorities are taking an increasingly laissez-faire stance, while proposed European Union legislation seeks to limit SEP enforcement rights and mandate use of a particular valuation methodology. This EU-backed approach was recently utilized by a Chinese court in a manner that substantially and improperly reduced established FRAND royalty levels.

Standard-essential technologies are extensively employed in services and products such as smartphones. These enable interoperability across networks and devices and among different suppliers. They also provide universal and cost-efficient access to the most innovative and valuable new capabilities. According to Mallinson, the top-down approach under-compensates SEP licensors and threatens to drive rates down further as future rates are apportioned from ever-diminishing aggregates.

According to Mallinson, the European Commission’s (EC) stated aim is increasing transparency and predictability. He believes it would be better to increase disclosure on existing licensing than make up figures. Existing royalty rates are largely market-based with reference to established licenses. For new standards and applications, Mallinson feels it is better for parties to establish rates through negotiation. He adds that in absence of any indication of market failure and with abundant evidence of a flourishing and competitive ecosystem, there’s no justification to regulate royalties. Administrative rate setting can be transparent, but that does not make those rates FRAND. Read more on IAM Media.

Disclosure: Fatty Fish is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

The Fatty Fish Editorial Team

The Fatty Fish Editorial Team includes a diverse group of industry analysts, researchers, and advisors who spend most of their days diving into the most important topics impacting the future of the technology sector. Our team focuses on the potential impact of tech-related IP policy, legislation, regulation, and litigation, along with critical global and geostrategic trends — and delivers content that makes it easier for journalists, lobbyists, and policy makers to understand these issues.