It is important to understand how the United States and European Union approach SEP royalties. Increasingly, courts are being asked to resolve disputes concerning the appropriate and equitable royalty rates, designated as fair, reasonable, and nondiscriminatory (FRAND), that owners of patents essential to industry standards, known as standard essential patents (SEPs), can levy on manufacturers of standardized goods. When making these determinations, courts may adopt either a national perspective, focusing solely on SEPs granted within their own jurisdictions (referred to as the “national FRAND approach”), or a global perspective, considering all SEPs worldwide that would hypothetically be covered by a negotiated license among the parties (known as the “global FRAND approach”). One such solution is the proposed US Standards Essential Royalty Act (SERA), which aims to disallow the acknowledgment of FRAND rates established in foreign jurisdictions for US patents. In addition, SERA seeks to institute a US-based tribunal responsible for setting royalty rates for US patents.
The European Union (EU) also has a similar proposal to address these SEPs issues. Under the European Commission’s (EC) proposed regulation, SEP owners would need to get a FRAND determination from the European Union Intellectual Property Office (EUIPO). Under this new proposal, the EC would assign the EUIPO to manage all SEP-related questions, FRAND royalties, and patent disputes. The EUIPO currently manages EU trademarks and design rights but not patents. The EU proposal creates a rate determination structure that is non-binding; thus, parties could seek to convince European courts to deviate from these pre-determined rates. In addition, the confidential nature of the EUIPO’s findings means that other market participants would not be able to use the information developed in their own FRAND negotiations, reinforcing the non-transparent system that currently exists The US SERA proposal overcomes this weakness by proposing an open and transparent binding rate determination.
Some experts claim that the US and EU proposals suffer from a focus on individual party disputes, rather than the overall royalty burden for a particular standard. They believe the most efficient, fair, and transparent approach to global FRAND rate determinations is to involve all concerned parties (SEP holders and stakeholders) in a multilateral, multinational rate-setting procedure that addresses all SEPs covering a particular standard―and then to make that determination publicly available, much like the copyright royalty rates determined by rate-setting boards in the US, UK, and other countries. Here is an opinion piece we found of interest relating to US and EU approaches to addressing SEP and FRAND.
In the Latest 5G Fight, the US Should Support Market-Based Patent Fees
In an opinion piece, “In the latest 5G fight, the US should support market-based patent fees,” for The Hill, Marc L. Busch, Karl F. Landegger professor of international business diplomacy at the Walsh School of Foreign Service at Georgetown University, argues that Congress should support market-based pricing of licensing fees. In the context of 5G technology, there are approximately 100,000 patents deemed “essential” that are referred to as standard essential patents (SEPs). Because the production of 5G phones relies on the utilization of these patents, their technologies are made available through licensing, following the principles of “fair, reasonable, and nondiscriminatory” (FRAND) royalty charges. The primary point of contention in the technological dispute involving China, the EU, and the US lies in establishing these FRAND rates.
In the EU proposal, the plan is for EUIPO to regulate most aspects of SEPs. Despite lacking the expertise in patents, the EUIPO would issue non-binding valuations of FRAND rates and determine the “essentiality” of each standard essential patent. In addition, EUIPO will also maintain a registry, the key being that only registered standard essential patents will be enforceable in Europe. Congress is considering a bill, titled the Standard Essential Royalties Act, that proposes a new federal court to decide FRAND rates where there are inconsistencies across domestic rulings, or where foreign courts hand down verdicts that disadvantage American patent holders. Busch argues that instead, the US needs to insist on market-based pricing of standard essential patents to reward innovation because he believes anything else would be a gift to Huawei and a substantial setback for the future of 6G. Read the full article on The Hill.
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 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.
- The Fatty Fish Editorial Teamhttps://fattyfish.org/author/fattyfish_editorial/
- The Fatty Fish Editorial Teamhttps://fattyfish.org/author/fattyfish_editorial/
- The Fatty Fish Editorial Teamhttps://fattyfish.org/author/fattyfish_editorial/
- The Fatty Fish Editorial Teamhttps://fattyfish.org/author/fattyfish_editorial/
