On 28 February 2024, the European Parliament (EP) approved the European Commission's proposal for a new regulation on Standard Essential Patents (SEPs). Despite substantial criticism (see, for example, our article), the EP left the core elements of the Commission's proposal unchanged. The draft SEP Regulation will now need to be reviewed by the EU Council, with the overall duration of the further legislative process mostly depending on whether the Council will move forward with this before the European elections in June 2024. Considering the probable upcoming shifts in the SEP landscape, this article outlines the potential ramifications of the current draft SEP Regulation (as amended by the EP) once it has been enacted.

Background

Under current law, SEP holders are (in short) obliged to inform an alleged infringer of the alleged infringement and to offer to license the SEP concerned on fair, reasonable and non-discriminatory (FRAND) terms before pursuing injunctive relief in court (see the CJEU's 2015 Huawei/ZTE ruling for more details). The Commission, however, believes that the approach to FRAND determinations is not uniformly applied among national courts (Explanatory Memorandum, p. 4-5). By advocating a more regulated approach, the Commission seeks to enhance transparency, certainty and a reduction of the potential for inconsistent rulings.

Some key aspects of the proposed SEP Regulation

Scope
The scope of the proposed SEP Regulation is confined to patents granted within EU member states for which a SEP holder asserts essentiality to a standard published by a standard development organisation. This excludes non-EU patents, as well as EU SEPs for standards under royalty-free or open-source licensing commitments. As to timing, the proposed regulation applies to all of these standards published after the regulation enters into force. In addition, the Commission has delegated power to retroactively impose specific obligations for existing standards if difficulties or inefficiencies in the licensing of SEPs for these standards severely distort the internal market. However, the assessment of whether this test has been met remains unclear.

Registration of SEPs
A crucial aspect of the proposed SEP Regulation involves the establishment and maintenance of a public register for SEPs, overseen by a competence centre within the EUIPO. It will be mandatory for SEP holders to enter their SEPs into this register and to provide the required information, including their royalty and discount policies; the availability for licensing through patent pools; any final decisions on essentiality by a competent court of an EU member state or the UPC; and any essentiality checks by an independent evaluator. Moreover, when SEP holders engage in alternative dispute resolution proceedings, non-confidential information must be disclosed to the competence centre once the proceedings have ended. This information will be included in the database. Similarly, courts of EU member states and the UPC will have to inform the competence centre of all final court rulings issued on SEPs. A SEP can only be removed from the register at the SEP holder's request if the patent has expired, or has been invalidated or found non-essential.

It is important to emphasise that the enforcement of a SEP and the pursuit of an infringement claim are dependent on the patent's registration with the EUIPO, and on payment of a fee. Courts will assess whether the conditions for admissibility of an action, as outlined in the SEP Regulation, have been met.

Essentiality checks
The EUIPO will annually select a sample of registered SEPs to check on essentiality. SEP holders and implementers can also both propose up to 100 SEPs each year, subject to a fee, for an essentiality check.

SEP holders will be notified if one of their SEPs has been selected and will have the opportunity to submit a claim chart and any additional technical information that may facilitate the essentiality check. Stakeholders are also allowed to submit technical observations regarding the essentiality of the selected SEPs, and the SEP holder may respond to those observations. After this, an evaluator chosen by the EUIPO (whose identity is not disclosed during the examination) conducts the essentiality check and issues a non-legally binding opinion. If the evaluator deems the SEP non-essential to the standard, the SEP holder can request a peer evaluation. This subsequent essentiality assessment can be appealed before the EUIPO Boards of Appeal. In the event of a negative result on essentiality, the SEP holder may request the removal of the SEP from the register after the annual sampling process has been completed. The result of the essentiality check will be valid for all SEPs from the same patent family.

Although the essentiality check outcome is not legally binding, it will be entered into the public database and may serve as evidence before courts and arbitrators, among others.

Aggregate royalty
The proposed SEP Regulation also includes provisions on the aggregate royalty rate (that is, the maximum amount of royalty for all patents essential to a given standard). First, SEP holders may jointly notify the competence centre of the aggregate royalty, which will subsequently be entered in the public register. Second, SEP holders representing at least 20% of all SEPs of a standard may request the EUIPO to appoint a conciliator to mediate discussions for a joint submission of an aggregate royalty. The proposal also provides for an optional procedure for a non-binding expert opinion on an aggregate royalty.

FRAND determination procedure
A major, and the most controversial, element of the proposed SEP Regulation is out-of-court determination of FRAND terms and conditions that can be requested by a SEP holder or an implementer. This resolution process will be facilitated by a three-member panel of conciliators, with one conciliator appointed by each of the responding and requesting parties, and the third by the competence centre. The request must be made prior to any initiation of a SEP infringement claim or any request for FRAND determination of a SEP licence by a member state's court or the UPC. The resulting FRAND terms will only be binding if the determination is accepted by both the requesting and responding party.

The parties can only go to court after completion of the FRAND determination procedure, which must be concluded within nine months. There is an exception to this rule for 'provisional injunctions of a financial nature'. However, the FRAND determination procedure, and so the bar on access to courts for the requesting party, ends if the responding party indicates that it does not want to participate, or to comply with the outcome. Moreover, if parallel proceedings are initiated in a non-EU member state before or during the FRAND determination, any party can request that the FRAND determination be ended.

The determination of FRAND terms and conditions will be kept confidential by the EUIPO. Only a non-confidential version of the report will be entered in the public register.

Reasoned request
SEP holders or implementers can request the Commission to assess if SEP licensing negotiations do not pose significant difficulties or inefficiencies for the internal market. Based on this, the Commission may establish a list of standards or implementations for which such negotiations may proceed without some of the requirements set out in the regulation applying; it mainly affects provisions related to non-binding expert opinions, the facilitating of agreements on royalty determinations, and the bar on court actions before and during FRAND determination.

What next

The proposed SEP Regulation introduces several new requirements for SEPs. These requirements include the establishment of a public register for SEPs, overseen by a competence centre within the EUIPO; essentiality checks conducted by an evaluator appointed by the EUIPO; and the imposition of out-of-court FRAND determination procedures before court proceedings.

However, the extent to which the EU Council will preserve the proposed SEP Regulation's key features during its upcoming review remains uncertain. The further timing of the legislative process is also unknown. We therefore advise stakeholders to closely monitor developments.