On 28 February 2024, Members of the European Parliament adopted their position on the draft regulation on standard essential patents (hereinafter “the draft regulation”). Despite a number of last-minute amendments tabled by different political groups of the European Parliament, the plenary approved the version of the report that the Legal Affairs (JURI) committee approved roughly a month ago without adopting any of the last-minute changes.
After the European Commission published its proposal for the draft regulation and accompanying materials in April 2023, the European Parliament has moved much faster in the legislative process than the Council of the EU. It remains to be seen whether Belgium, which took over the rotatory Council Presidency in January 2024, will move forward on this file before the end of its six-month mandate in order to pave the way for interinstitutional negotiations (the so-called trilogues) to commence in the next legislative mandate, which will kick off after the EU elections have taken place in June 2024.
While trilogue negotiations can only start once the Council has reached a common position (the so-called General Approach) on the draft regulation, yesterday’s plenary vote, was a major step forward on the negotiations. Thus, the following post takes a look at what would change for SEP litigation in EU member states (and at the UPC) if trilogues were to confirm the draft regulation as passed by the European Parliament:
Does the asserted patent have to be registered prior to filing an SEP infringement action?
SEP litigation in EU member states is mostly infringement litigation. Asserting claims for injunctive relief (as well as recall and destruction), is the main “tool” that SEP holders resort to before EU member state courts, especially German and Dutch courts, in order to impact SEP negotiations. First filings at the UPC indicate that the development before the UPC could be similar.
Huawei v ZTE and ensuing member state case law such as FRAND-Einwand I and II (also referred to as Sisvel v. Haier I and II due to the parties involved) from the German Federal Court of Justice (BGH), have defined a number of obligations that the parties (and in theory that includes the SEP holder and not just the licensee) have to fulfil prior to filing an infringement action seeking an injunction.
The draft regulation adds further obligations to that list. According to the draft regulation SEP holders will have to register the patent in a new register to be created at the EUIPO (Art. 19 et seqq.[1]). The registration will have to include certain information such as on the relevant standard and technical specification, published licensing terms in case they exist, the availability of licenses through patent pools and known implementations of the standard (Art. 20 (4), 4 (3), 5 (2) lit. a, b, d, e). Some have argued that the additional bureaucracy that comes with the respective provision would be unnecessary and burdensome. Others have replied that any SEP holder who has set up a licensing program and is looking to license its patents would have that information easily available and a prior registration would be a mere formality for them (as intended by the legislator).
Does the entire patent portfolio that the SEP holder seeks to license has to be registered prior to filing an SEP infringement action?
The draft regulation differentiates between collecting royalties and enforcing the patent in court. In order to create incentives for registration of SEPs, the draft regulation provides that SEP holders must register patents to bring a claim for infringement (Art. 24 (1)). However, SEP holders can still collect royalties for non-registered patents (Recital 19) according to the draft regulation. The Commission’s proposal had been stricter and had suggested to strip SEP holders of the right to collect royalties in case they did not register their SEPs. According to the European Parliament’s proposal, SEP holders can, thus, seek licenses for patent portfolios including non-registered and registered patents. Yet, they can only sue for infringement of a particular SEP that is registered. It is not necessary to register other portfolio SEPs that are not asserted in court prior to filing an infringement action based on an individual registered SEP.
Is it mandatory for the patent in suit to have passed an essentiality check in the new system of essentiality checks?
The draft regulation introduces a new system of essentiality checks that the competence centre at the EUIPO will oversee (Art. 28 - 33) While the ultimate decision whether a patent is truly essential will be for the member state courts or the UPC, both the Commission and the European Parliament consider that more information about the essentiality (rate) of portfolios will be helpful information for licensing negotiations, and could help make SEP licensing more efficient.
Essentiality checks shall only be conducted for “a sample of registered SEPs” for the standard for which they are registered. The sample of patents will be selected by the competence centre in a fair and statistically valid manner in order to produce sufficiently accurate results about the essentiality rate (Art. 29 (1)). Both SEP holders and implementers may each propose up to 100 registered SEPs annually to be assessed (Art. 29 (5), (6)). With that mechanism the draft regulation aims to ensure that a large share of alleged SEPs is checked for essentiality in order create the necessary transparency while at the same time recognizing that time- and cost-restraints do not allow for every single registered SEP to be assessed. Under the draft regulation it is not necessary that a patent asserted in court has been subject of an essentiality check (Art. 28 (4)). Thus, it might well be that EU member state courts will be tasked with assessing essentiality and infringement without any prior indication on essentiality from an evaluator – similar to what is the norm in SEP infringement litigation in EU member states today.
Is it mandatory to go through the FRAND determination in order to file an SEP infringement action?
The simple answer is “Yes”. The draft regulation provides that the SEP holder shall initiate the FRAND determination prior initiating an SEP infringement lawsuit before a competent court of a member state (Art. 34 (1) (a)). Thus, if the SEP holder wants to assert its patent in a court of a EU member state, that patent will need to (i) be registered and (ii) the SEP holder must have initiated the FRAND determination. As an exception to that rule, the draft regulation allows courts to grant “injunctions of a financial nature” against the alleged infringer, which excludes seizure and delivery up of products (Art. 34 (4)). This provision seems to refer to provisional measures under Art. 62 (1) UPCA and member state laws adopted according to Art. 9 of the Enforcement Directive. Under these provisions, which are foreign to German SEP litigation, a court could order the defendant to provide security (by posting guarantees) in preliminary proceedings while allowing the defendant to continue the infringing acts.
Does the FRAND determination have to be finished before an SEP holder can file an SEP infringement action?
This one is a bit trickier. The draft regulation lacks a clear provision as we can find it in similar context in some member state laws (e.g., in German law on employee remuneration ruling that specific complaints are inadmissible before mandatory conciliation proceedings are finished). Art. 34 (1) and (4), Recital 33 seem to indicate that the FRAND determination which can last up to 9 months (Art. 37 (1)) has to be completed prior to filing the infringement case in court[2] but of course not all FRAND determinations necessarily will end with a proposal from the conciliator(see e.g. Art. 45 (5)). However, Art. 56 (4) in contrast only states that the competent court of a member state “shall not proceed with the examination of the merits of that claim, unless it has been served with a notice of termination of the FRAND determination”. This appears to leave the door open for courts to set regular briefing deadlines in infringement cases and have the parties brief the case at least partly or even in full (given that civil proceedings in key member state jurisdictions and also before the UPC are heavily frontloaded and mainly written proceedings), and only wait for the outcome of the FRAND determination before going through the oral hearing. This would resemble the approach litigators are currently seeing in SEP infringement proceedings before the Regional Courts of Munich and Mannheim in terms of comparables. Both courts have essentially adopted an approach of considering the production and disclosure of comparables that the SEP holder does not want to disclose voluntarily only at the end of the oral hearing.
Regardless of how Art. 56 (4) will be construed by EU member state courts, there is no risk that the patentee’s claims e.g., for damages, might become time-barred while the parties are waiting for the FRAND determination to be completed. According to the draft regulation, the limitation period is suspended for the duration of the FRAND determination (Art. 37 (2)).
Is the outcome of the FRAND determination binding on the parties and the Court?
Although it is mandatory to conduct the FRAND determination prior to starting infringement litigation (and rate-setting cases) according to Art. 34 (1) with the exception set out above, the conciliator’s proposal will not be binding. The draft regulation, in principle, seems to consider it most likely that the parties finish the FRAND determination either by entering into a settlement or with the conciliator providing its reasoned proposal (Art. 55 et seq.), unless of course either side seeks to block or evade the FRAND determination altogether. However, neither party is forced to accept the reasoned proposal (Art. 56 (1) lit. c, d.) or provide an upfront undertaking that it will comply with the outcome of the FRAND determination similar to what is required in SEP litigation in the UK. The Commission’s proposal differs on that vital point. Despite being non-binding, the parties to the FRAND determination, however, are free to submit the report on the FRAND determination to the court (Art. 57 (2), (4)) in ensuing proceedings, and will remain free to draw their conclusions from the proposal to support their case in court.
Does all of that apply to every SEP, also for current standards?
The short answer is “No” and the scope of the draft regulation was one of the most controversial issues for the European Parliament. Last-minute amendments tabled shortly before the plenary vote, sought to limit the scope of the application, quite drastically. However, the European Parliament essentially opted for a broader scope of the draft regulation: The draft regulation starts with outlining that it only applies to patents that are in force in one or more EU member states (Art. 1 (2)). The addition by the European Parliament seems self-evident, given that the EU does not have jurisdiction over non-EU patents, but brings needed clarity.
When it comes to current or future standards, the draft regulation leans towards a “future-standards-only” approach (Art. 1 (2)). Patents allegedly essential for standards published by an SDO prior to the draft regulation coming into force, i.e. SEPs for past and current standards, can be made subject of the draft regulation by delegated acts of the Commission after appropriate consultation (Art. 1 (4), Art. 65c), but only “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”. A similar mechanism will allow the Commission to decide that specific standards should not be subject to the FRAND determination (Art. 34 (1)) and the process for facilitating agreements on aggregate royalty determinations (Art. 17) or the option to obtain non-binding expert opinions on an aggregate royalty (Art. 18). That option for the Commission to exclude certain standards from central mechanisms of the draft regulation through delegated acts only exists “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” (Art. 1 (3), Art. 65b).
[1] All articles without further specification in this post refer to the draft regulation.
[2] Except for the case outlined in Art. 38 (3)(b), 56 (5), 34 (5).