IP Insights: Draft SEP Regulation of EU Commission

08/02/23 • 5 min

Read our IP Report on the Draft SEP Regulation: https://www.bardehle.com/en/ip-news-knowledge/ip-news/news-detail/updated-ip-report-on-draft-sep-regulation

Today, Tilman Müller from our Hamburg office and I, Ronja Schregle, will discuss the EU Commission’s draft SEP Regulation. The draft was first leaked at the end of March, and on April 27th, the Commission then published the official version. Both documents triggered a lot of criticism by industry stakeholders and immediately became a hot topic in the patent community. But, before we dive into details of the criticism, Tilman, could you maybe give us a short overview of the content of the draft SEP Regulation?

Sure. There are basically two key elements: First, an SEPs register is supposed to be set up at the EUIPO and the draft regulation provides that an SEP can only be enforced in the EU if a family member is listed in that registry. The second key element is a procedure to determine FRAND terms and conditions between two parties. So, both the implementer and the patent holder can request such a procedure at the EUIPO. The SEP Regulation provides that this procedure is mandatory before an SEP can be enforced in court. Any claim brought before the UPC or a national court is inadmissible, unless a “notice of termination” for such a procedure can be shown.

The first pillar, the SEP register, caused a lot of controversy. And I can see why: A key element of this register is that there shall be regular checks whether the patents contained therein are indeed standard-essential. What strikes me as a patent litigator is that this question whether a patent is standard-essential or not is a highly complex issue. So, not only does it require a deep technical understanding in the relevant field, but on top of that, it involves complex legal questions which can be handled differently in different jurisdictions. When you think about the number of patents that would have to undergo this essentiality check vs. the number of experts suitable to do this essentiality check, it becomes obvious that it's hardly practicable in a meaningful way.

And the second pillar, the FRAND determination, is obviously at the center of every SEP litigation. Let’s not forget that in most cases, the parties are able to agree, but in those cases that go to court this is really the key element.

And in cases that do go to court, however, parties do not ask the court to determine FRAND terms. Why do you think that is?

I think it’s because the parties realize how difficult that is. If you look at recent cases such as Interdigital vs Lenovo, you realize how time-consuming and cumbersome this is, including economic expert reports, analysis of dozens of license agreements and so on and so on. And, in the end, no-one knows what result you are going to obtain. Also: If FRAND is a range, as at least the German courts see it, how can you determine one single set of conditions to be FRAND?

Given that having a third party, namely the court, determine FRAND terms is already an option now, but that option is hardly ever – in Germany one could say never – used in practice, makes me wonder whether SEP holders or implementers will be happy to have the EUIPO, an organization which so far has no patent expertise, decide on FRAND terms.

Yes. I think, this is one of the key questions this draft raises: Why is a FRAND determination procedure made mandatory, although neither implementers nor SEP holders have shown much interest in this option in the past? But I generally wonder why the Commission believes that such a massive regulatory intervention is needed. In the empirical assessment report published by the Commission in parallel to the Regulation, it is expressly stated that there is no empirical evidence that implementers are discouraged from developing products or SEP holders are discouraged from participating in standard setting by the current legal environment. Also, there is no empirical evidence that there is any negative effect on consumers. So, the question is: Which problem is the Commission actually trying to fix here?

Well, it is still a long way from this draft to a final regulation. And this will certainly stay a hot topic in the SEP community.

Read our IP Report on the Draft SEP Regulation: https://www.bardehle.com/en/ip-news-knowledge/ip-news/news-detail/updated-ip-report-on-draft-sep-regulation

And in cases that do go to court, however, parties do not ask the court to determine FRAND terms. Why do you think that is?

Well, it is still a long way from this draft to a final regulation. And this will certainly stay a hot topic in the SEP community.

Previous Episode

IP Quick Tip: National prior rights

Visit our dedicated UPC webpage.

To dive into the mentioned and alluded legal texts, please refer to: https://new.epo.org/en/legal/epc/2020/a54.html https://new.epo.org/en/legal/epc/2020/a56.html https://new.epo.org/en/legal/epc/2020/a139.html https://new.epo.org/en/legal/epc/2020/a153.html https://new.epo.org/en/legal/epc/2020/r165.html https://new.epo.org/en/legal/epc/2020/r159.html https://new.epo.org/en/legal/guidelines-epc/2023/giv5_2.html

As a general principle, any document published after the filing date of a patent or patent application is not prior art.

One exception are so-called prior rights. A prior right is a patent application filed earlier but published later than the patent or application-in-suit. For European patent applications, an earlier European patent application, or an earlier PCT application that has validly entered the European phase may qualify as a prior right. A national prior right, on the other hand, for example a national German patent application, is not prior art for a European patent application.

However, once a European patent has been granted, a national prior right becomes prior art in the jurisdiction of the prior right.

For example, for a traditional European bundle patent validated in Germany and France, a German prior right becomes prior art only for the German part of the bundle patent but not for the French part.

For a European patent with unitary effect, a national prior right in any member state of the UPC is prior art to the unitary patent as a whole. Therefore, a national prior right in a single member state of the UPC could lead to the invalidation of the unitary patent for all UPC member states. However, the effect of any prior right is limited insofar that the claimed subject-matter only needs to be novel over the prior right; an inventive step is not required.

Applicants should bear this in mind for their strategic decision whether to file a request for unitary effect.

Next Episode

IP Quick Tip: Alternative Dispute Resolution

Connect with Pascal Böhner: https://www.bardehle.com/en/team/boehner-pascal

Alternative Dispute Resolution or “ADR” – hence, arbitration or mediation procedures instead of traditional civil court proceedings – has gained momentum in the IP world.

For domain names, for example, there is a well-established practice of resolving disputes in arbitration. But nowadays, ADR has become a hot topic in the patent field, as well. The UPC will have a dedicated Patent Mediation and Arbitration Centre. And arbitration is also a substantial – but maybe one of the most controversial – part of the recently leaked Draft Regulation of the European Commission on Standard Essential Patents. The draft provides for a mandatory but non-binding determination of FRAND terms by the EUIPO in a procedure which seems similar to arbitration.

We may therefore expect that ADR may become more and more important, because it offers quite some advantages over traditional court proceedings: confidentiality, speed, expertise, flexibility, cost, and international enforceability.

But let me address a few key issues when getting involved in mediation or arbitration:

Prepare thoroughly: ADR proceedings need as much preparation as court proceedings. All facts and arguments supporting your position need to be well prepared.
Be clear: what is the actual issue to be resolved? Think about narrowing the scope of discussions. An option is to involve an expert both sides agree on who may then give an opinion on specific questions – for example infringement.
Create a proper atmosphere: arbitration and mediation are not a battle. You want to reach a solution. So don’t be combative or confrontational, listen to the other party's concerns or arguments and be honest.
Think out of the box: a dispute is often about more than one patent. Be flexible and open to creative solutions and compromises that may not have been considered before, so you can reach a win-win solution for both.