EU Ponders How to Regulate the Internet of Things

Internet-Of-Things: The EU gears up on the approach to standard essential patents

In its new communication dated 29 November 2017, the Commission sets out EU’s approach to SEPs and outlines some key principles “that foster a balanced, smooth and predictable framework for SEPs”. The aim is to incentivize the development and inclusion of  top technologies in standards by preserving fair and adequate return for these contributions and ensuring smooth and wide dissemination of standardized technologies based on fair access conditions. In  other words, the communication offers some much- needed guidance on SEP licensing, and while the communication is not legally binding, it will most likely be cited widely and referred to by parties engaged in SEP licensing negotiations and litigation going forward.

Increased transparency

The Commission recognises that information on the existence, scope and relevance of SEPs is vital for   fair licensing negotiations. Presently, implementers of standards have a difficult time identifying the scale   of their exposure to SEPs and the necessary licensing partners, as the only information on SEPs currently accessible can be found in declaration databases maintained by SDOs and often lacking transparency. In consequence, the Commission considers several structural and administrative changes aiming at improving the accessibility of SEP information recorded in SDO databases and transforming the current declaration system into a tool providing more up-to-date and precise information on SEPs.

These changes may include introducing “essentiality checks” on SEP declarations, i.e. a system where an independent party with technical capabilities checks whether the patented technology is indeed essential for complying with the standard, and modest fees for confirming SEP declarations after standard release and patent grants, to incentive SEP holders to revise and maintain only relevant declarations.

The Commission acknowledges the divergent interests of SEP owners and implementers of standards, especially with regard to the valuation of SEPs. Further, it is affirmed that there is no one-size-fits- all solution to what constitutes ‘fair, reasonable and non-discriminatory’ (FRAND) licence terms, but the Commission recommends the following SEP valuation principles:FRAND licensing of SEPs

  • Licensing terms must bear a clear relationship to the economic value of the patented technology with such value deriving from the technology itself, not its inclusion in a technological

standard. However, in cases where the technology has little market value outside the standard, alternative valuation should be considered.

  • FRAND valuation should take into account the present value added of the patented technology. This value should be irrespective of the market success of the product which is unrelated to the patented technology.

  • FRAND valuation should ensure continued incentives for SEP holders to contribute their best available technology to standards.

  • To avoid royalty stacking (the situation where a licensee must pay royalties to multiple parties in order to commercialise a product), in defining a FRAND value, an individual SEP cannot be considered in isolation. Instead, parties must take into account a reasonable aggregate rate for the standard, assessing the overall added value of the technology.

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