Impact of EU’s Proposed SEP Regulation Changes on Innovators

The Potential Impact of EU’s Proposed SEP Regulation on Innovators

By The Fatty Fish Editorial Team - April 8, 2023

Recently, a leaked document has raised significant concerns among innovators and industry experts in the European Union (EU). The document is supposedly a draft regulation from the European Commission (EC) detailing proposed changes to the rules governing standard essential patents (SEPs). Although the aim of the regulation is to promote fairer licensing practices and reduce litigation, early expert analysis suggests that it could have the opposite effect. One of the key criticisms of the SEP regulation is that it would impose additional costs on innovators. SEPs cover technologies that are necessary for the implementation of industry standards. By making these patents widely available under fair, reasonable, and non-discriminatory (FRAND) terms, innovators can incorporate standardized technologies into their products without facing excessive licensing fees. However, the proposed regulation would introduce more stringent rules, potentially forcing patent holders to offer licenses at lower rates. This could significantly diminish the economic incentives for inventors to invest in R&D, ultimately stifling innovation in the EU.

By placing additional burdens on SEP holders and potentially reducing their returns, the regulation could disincentivize companies from investing in new technologies and discourage them from bringing their innovations to market. This disincentive would have a detrimental impact on the EU’s ability to compete on a global scale and keep pace with other major economies. Another concern is that the proposed regulation might not achieve its intended goal of reducing litigation, as the current draft fails to provide clear guidance on achieving these goals. By imposing stricter regulations on patent holders, the risk of legal disputes could actually increase, as companies may resort to litigation to protect their interests or challenge the terms of the proposed regulation.

The draft SEP regulation from the EC raises significant concerns among innovators, industry stakeholders, and experts. If implemented in its current form, the regulation could increase costs for innovators, harm EU competitiveness, and fail to reduce litigation. Here are a series of opinion pieces we found of interest relating to the EC’s SEP regulation.

Entrusting SEP/FRAND to EUIPO Is Fraught with Challenges

In an opinion piece for IAM Media, “Entrusting SEP/FRAND to EUIPO is fraught with challenges,” Trevor Little, managing editor of IAM and WTR, discusses the challenges the European Union Intellectual Property Office (EUIPO) faces when dealing with SEPs and FRAND licensing. He argues EUIPO’s move into SEPs represents a significant expansion of the EUIPO’s responsibilities; the office already has oversight of trademarks, designs, and other rights, and will require new competencies, as it does not currently have patent experience.

Little points out that the SEP world is far more divided, complex, and nuanced than trademarks. SEPs are a particularly intricate IP right, and the discussion over royalty rates is as much a commercial decision as a legal one. He adds that entrusting the EUIPO with responsibility for managing a procedure to determine FRAND rates is a significant hurdle in SEP and FRAND licensing.

The EUIPO’s role in addressing these challenges is crucial, requiring careful consideration of legal frameworks and industry practices. Effectively managing SEPs and FRAND licensing can promote innovation and competition while fostering a fair and competitive market for essential technologies. Read the full article on IAM Media.

How the EC’s SEP Licensing Regulation Will Harm SMEs

In an opinion piece for IAM Media, “How the EC’s SEP licensing regulation will harm SMEs,” Joff Wild, IAM creator and its former editor in chief, discusses the EC’s proposed regulation on the use of SEPs, which is generating significant interest and concern among small and midsize enterprises (SMEs). SEPs are crucial for implementing technical standards, and their use has become increasingly important in the digital economy. The proposed regulation aims to address the issue of SEP owners abusing their market power by imposing unfair licensing terms on implementers. It seeks to create a more balanced and predictable environment for licensing negotiations, ensuring fair access to SEPs for all parties involved.

However, SMEs argue that the proposed rules might favor larger companies with greater resources and bargaining power, potentially leading to unequal licensing terms and stifling innovation for smaller players. Wild adds that SMEs express concerns about the potential administrative burden and costs associated with the regulation’s requirements. Compliance with the proposed rules, such as the obligation to provide detailed information about their products and negotiations, could be particularly challenging for smaller businesses with limited resources.

To address these concerns, SMEs are calling for safeguards and flexibility within the regulation. They argue for clear criteria to determine fair and reasonable licensing terms and a mechanism to resolve disputes efficiently and cost-effectively. Additionally, as the EC designs and implements the regulation, SMEs emphasize the importance of considering the specific needs and challenges they face. Read the full article 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.