Standard essential patents: how is the proposed EU Regulation progressing?

As we discussed last time, three committees were appointed: the Committee on Legal Affairs (JURI), the Committee on International Trade (INTA) and the Committee for the International Market and Consumer Protection (IMCO), with JURI being the committee responsible.  

In January 2024, JURI voted on the changes that had been put together and these were passed (by 13 votes in favour and 10 abstentions). The EU Parliament then voted on this version in February 2024 and it was approved (with 454-to-83 to adopt the legislation, with 78 abstentions).  

As with the Regulation in its original form, if the Regulation was adopted in the latest form, this would severely curtail a patent holder’s rights in the EU. A SEP holder would be unable to enforce its patent rights if the SEP involved was not registered with the EUIPO. In addition, a FRAND determination must have been initiated before the EUIPO before a SEP holder is able to start infringement proceedings before a court.

The key areas of interest in the version approved by Parliament are:

Subject matter and scope (Article 1 and new Articles 65a, 65b & 65c)

The Regulation has been amended to refer from the outset to existing standards, as well as ones published after the Regulation has come into force.  

The Regulation is said to apply to a patent “that a SEP holder claims to be essential to a standard that has been published by a standard development organisation, after entry into force of this Regulation” (Article 1(2)).  

However Aggregate Royalty Rate determination of Art 17 and 18 and FRAND determination of Art 34 will not apply “where there is sufficient evidence that SEP licensing negotiations on FRAND terms and conditions do not give rise to significant difficulties or inefficiencies affecting the functioning of the internal market as regards identified implementations of certain standards or parts thereof” (Article 1(3)). 

In addition, the Regulation also applies to patents “that a SEP holder claims to be essential to a standard published by a standard development organisation before the entry into force of this Regulation, where the functioning of the internal market is severely distorted due to significant difficulties or inefficiencies in the licensing of SEPs for certain implementations, standards and parts thereof” (Article 1(4)).

New Articles 65a, 65b & 65c provide for a SEP holder or a SEP implementer to submit a reasoned request to the Commission to determine whether there is “sufficient evidence” (for standards published after the Regulation comes into force) or “significant difficulties or inefficiencies in the licensing of SEPs for certain implementations, standards and parts thereof” (for existing standards).  How in practice this is to be determined is an open question, but one that can be expected to take significant time and money.  

Suspension if a SEP holder fails to provide correct information for a SEP registration (Art 22 and Art 23) and effects of absence or suspension of registration (Art 24)

The Regulation sets out a process that starts with the EUIPO creating an entry in the register for a standard and publishing a notice to this effect (Article 19). A SEP holder must then file a request for registration of a patent that is essential for the standard within 6 months of this notice. The SEP holder must also pay a fee (as yet unspecified) (Article 20). 

Article 22(4) as approved by Parliament now gives a SEP holder a grace period of one month to provide “correct and complete information” if, after a check by the EUIPO, the EUIPO considers that the information in the register is not “correct and complete”.  Similarly, Article 23 allows a third party or a court of an EU member state to inform the EUIPO of necessary changes and for the EUIPO to notify the SEP holder of these.  

In either case, if the SEP holder does not provide this information, the result is that the registration will be suspended.    

What constitutes “correct and complete information” (even with reference to Articles 4 and 5) will no doubt lead to much debate..  

Art 24 as approved by Parliament no longer includes the first subsection, which stated that a SEP that is not registered “may not be enforced in relation to the implementation of the standard for which a registration is required”. That is good news.  However, subsections 2 to 5 remain, which mean that a SEP holder cannot bring a claim for infringement until a SEP is registered or while registration of a SEP is suspended.   

The EU Parliament therefore seems to be unconcerned  about this fundamental change to patent holder’s rights in the EU and we wait to see if any challenges come during the EU Council procedure.

Initiation of the FRAND determination (Art 34), suspension of the time barring of claims before a court during FRAND determination (Art 37(2) and Art 56(4)) and allowing for a provisional injunction comprising seizure of goods (Art 34(4))

Art 34 means that a FRAND determination must have been initiated at the EUIPO before a SEP holder is able to start infringement proceedings before a court or an implementer may start proceedings before a court for FRAND rate determination.

Art 56(4) means that a court in the EU is barred from determining FRAND terms and conditions or a SEP infringement claim until it has been served with a notice of termination of the FRAND determination by the EUIPO.  

Articles 34 and 56 further curtail a patent holder’s rights to enforce a patent and represent another fundamental change to patent holder’s rights in the EU. We expected objection from the EU Parliament and committees on this point. However, the EU Parliament has voted for the draft Regulation with these fundamental curtailments in place.  

FRAND determination (Art 38)

The approved text no longer refers to “commitment” to the process.  A party can indicate whether it agrees to the FRAND determination and, in case of disagreement, is supposed to provide the “reasons for declining to participate”.   

There is the new provision that “Each party may, at any time during the FRAND determination process, declare to commit to comply with its outcome. The declaring party may make its commitment to comply subject to the other party's commitment to the outcome. This shall not terminate the FRAND determination process.”  

However, this does not appear to have any substantial effect.  The FRAND determination appears to go ahead, whether or not a party agrees or commits.  

So the EUIPO will go ahead and decide the FRAND terms for a global SEP licence, whether or not a party agrees or commits to the process.  

Registration for existing standards (Art 66)

The European Parliament has approved most of the original wording, which means that the Regulation will apply to existing standards.

This makes sense for, as we previously discussed, it is difficult to see how in practice application of the Regulation to new standards only and not to existing standards would work. As one standard often evolves from an earlier one which one would be considered the ‘new’ one?

However, the process appears to start by the SEP holder or the implementer having 28 months from when the Regulation comes into force to notify the EUIPO of the existing standards.  It is unclear what happens in relation to existing standards if this notification does not happen. Does this mean that, for a standard that has NOT been notified by 28 months from when the Regulation is in force, no owner of a patent essential to the standard can enforce their SEP? 

Aggregate royalty rate (Arts 15-18)

The version approved by Parliament has no substantive changes to these parts of the Regulation, apart from adding that “an implementer may request the competence centre for a non- binding expert opinion on an aggregate royalty” “even if an agreement amongst SEP holders has already been reached” (Art 18(1)).  

As the parts of the proposed Regulation that relate to aggregate royalty rate are not mandatory, this is likely to have little effect on the parties involved. However, this may mean SEP holders could face decisions from the EUIPO on the aggregate royalty rate even after they have reached an agreement, if the implementer is allowed to ask for a non-binding expert opinion on the aggregate royalty even when the SEP holders had thought this was already agreed.  

Essentiality checking (Art 29)

As previously indicated, the exclusion from essentiality checks in relation to registered SEPs of micro and small enterprises does not apply if they are “a patent assertion entity or a subsidiary, affiliate, or owned or directly or indirectly controlled by another natural or legal person that is not an SME itself”.

It is also now stated that “if an evaluator has sufficient reason to believe that a prior essentiality check … might be inaccurate, the evaluator shall have the authority to review the result of that check. If, after the review, the evaluator concludes that the prior essentiality check result was inaccurate, the evaluator shall conduct a new essentiality check for the specific SEP in question” (new Art 29(4a)). 

Whereas the original wording meant that the EUIPO does not undertake an essentiality check if one has already been done, this amendment would mean the duplication of work, with apparently no way for this to be challenged.

Parallel proceedings (Art 47(2))

The version approved by Parliament has no substantive changes to these parts of the Regulation. Therefore, where a parallel proceeding has been initiated before or during the FRAND determination by a party, the EUPIO shall terminate the FRAND determination upon the request of the other party. 

Under Art 47(2), the EUIPO will terminate the FRAND determination should parallel proceedings in a third country be started before or during the FRAND determination by a party to the FRAND determination.  

Consequently, if proceedings are started in the UK or US or China, for example, the EUIPO upon request will step aside and leave FRAND determination to that forum. This seems to undermine the purpose of the Regulation and SEP holders may prefer the strategy of starting proceedings outside the EU and avoiding FRAND determination by the EUIPO altogether.  
It is difficult to see how this achieves a stated aim of the Regulation of “promoting transparency and predictability in licensing of standard essential patents (SEPs), including by improving the SEP licensing system, for the benefit of Union industry and consumers” (Whereas Clause 1).  

What's next?

As we commented before, if the Regulation was adopted in its proposed form, this would severely curtail a patent holder’s rights in the EU. A SEP holder would be unable to enforce its patent rights if the SEP involved was not registered with the EUIPO. In addition, a FRAND determination must have been initiated before the EUIPO before a SEP holder is able to start infringement proceedings before a court.

It is surprising to see that the EU Parliament has not challenged this fundamental change to patent holders’ rights in the EU. We now await the EU Council’s response.  This will be sometime after the EU Parliamentary elections in June 2024 so perhaps the Council will turn their attention to this in the autumn/fall 2024 – we shall see.