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PublishedSeptember 19, 2023

What Europe Is Doing Right On SEPs

The European Union (EU) is diving into one of patent policy’s most controversial questions: how should patents on technologies which are essential for wireless connectivity be licensed? As the range of devices with wireless connectivity expands from cell phones to cars, pacemakers, and baby monitors, fights over patents essential to using standard technologies, like WiFi and 4G, are growing in scale and intensity. With the Internet of Things (IoT) promising to expand connectivity further, that trend will only continue. European policymakers are wise to see that the rising tide of litigation threatens everyone who depends on a connected device and act now to protect our lives and livelihoods. 

Technical standards are the foundation of many technologies we rely on every day. Consumers can go to a store and be confident that a new product will work with their home WiFi or that one company’s USB cable will work with another company’s device because those technologies are standards. Standards allow different developers to build products that work together so that they can innovate and compete on other features, like functionality, design, and price. Organizations that develop standards typically ensure access by excluding patented technology or requiring owners of standard-essential patents (SEPs) to offer licenses on fair and reasonable terms. This compromise strives for reliable access to standards as well as reasonable fees for SEP owners.

Unfortunately, the current system is failing on both fronts. Take the automotive sector, for example. A group of SEP holders, which now includes Huawei, joined forces to license patents essential to implementing 3G, 4G, and 5G technology in cars. This might have been beneficial as a one-stop shop, but there was a catch. The group, operating through an administrator called Avanci, refused to license businesses that make components which enable wireless connectivity, instead licensing only carmakers at the end of the supply chain. Why? Because a car is much more expensive than its parts, Avanci could charge carmakers a higher licensing fee than individual component makers.

Initially, most car manufacturers refused, arguing that component makers should handle licensing components they make. In response, Avanci members sued, bringing lawsuits in multiple jurisdictions. Particularly significant was a lawsuit a Japanese patent assertion entity called IP Bridge brought against Ford in Munich, Germany. The court ruled for IP Bridge, ordering a ban on car sales and manufacturing as well as a recall of all delivered cars. Because Ford’s supply chain ran through Germany, the order would have been fatal to its business. Within days, Avanci announced that Ford had taken a license. The message to other carmakers was loud and clear: take a license or risk everything. Carmakers quickly signed agreements with Avanci, which, within months, announced it was raising its fees.

Ultimately, consumers and employees lose the most from these legal battles. Carmakers can pass higher fees onto consumers through prices and employees through payrolls. Changes up the supply chain hurt consumers too. Unlicensed component makers must decide whether to operate at risk of liability (often leading to price hikes), cede their independence, or shut down altogether. Notably, one of Avanci’s founding members, Qualcomm, has gone on an acquisition spree in the car connectivity component (e.g., chip) sector. This consolidation will likely hurt the industry over the long term by stamping out innovation, competition, and consumer choice. 

If major automakers lost to Avanci, smaller companies in less powerful sectors will fare even worse. Without millions to spend on lawyers or extensive licensing experience, they are more vulnerable to unfair licensing demands. Relatively small fee increases could force companies to leave the IoT sector, shut down, or deter them from launching. For people who desperately need connected devices, like heart and glucose monitors, small increases in price or decreases in supply could have life-or-death consequences. 

Something must be done to protect people and businesses who need access to standards. The EU’s current proposal is a step in the right direction. The proposal would create a “Competence Centre” to gather and provide access to information about SEPs, including which and how many SEPs exist for a given standard; allow SEP holders to agree independently or through mediation on the cost of a license to all SEPs for a given standard; enable implementers to ask for an expert determination of the cost of a standard-wide license; and provide mechanisms for resolving licensing disputes through conciliation rather than court. These provisions and others would go a long way in preventing SEP aggregators from wielding undue leverage over small companies and manufacturers while helping small SEP owners collect their fair share of fees without diverting resources from innovation to litigation. 

The details will of course need more work, but critics of the EU’s efforts are not focused on the regulation’s details or trying to improve them. Instead, these critics claim no regulation is necessary. If SEP owners have complaints about the EU’s proposal, they should suggest changes. But if they say the status quo is working, that only means it’s working for them. 

Alex Moss

Executive Director, Public Interest Patent Law Institute

Alex Moss is the executive director of the Public Interest Patent Law Institute. Alex previously worked as a staff attorney and the Mark Cuban Chair to Eliminate Stupid Patents at the Electronic Frontier Foundation and continues to serve as a Special Advisor. Before joining EFF, she was an attorney at Sullivan & Cromwell and Durie Tangri. After graduating from Stanford Law School, she served as a judicial clerk to the Honorable Timothy B. Dyk of the U.S. Court of Appeals for the Federal Circuit. She has argued cases in state, federal district, and appellate courts. In 2019, she spoke at the National Academy of Sciences and testified before the Senate Judiciary Committee on the state of patent-eligibility law in the U.S. Before law school, Alex worked for independent record label Rough Trade.

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