The EU’s SEP regulation: key changes and outlook

On April 27 2023, the European Commission presented a draft regulation on standard-essential patents (the SEP Regulation). The European Parliament approved the draft on February 28 2024. While the approved version contained several changes (proposed by the Committee on Legal Affairs), there is still substantial criticism of the draft in its current form; in particular, from SEP holders and the EPO.

For example, António Campinos, the president of the EPO, said he “is not convinced that the proposed measures are proportionate, or indeed necessary”. He has also claimed that the proposal failed to meet the European Commission’s procedural ‘better regulation’ standards; “namely legislation that is evidence-based, and built on transparent consultation of all stakeholders and thorough impact assessments”.

Now, the Council of the EU must agree to the proposal or start a trialogue between the European Commission, the council, and the European Parliament.

The draft regulation, as approved by the European Parliament, aims to create a more transparent and efficient SEP licensing framework within the EU; inter alia, by imposing a substantial number of duties on SEP holders, such as:

• The establishment of a central electronic SEP register managed by the EUIPO;

• A registration requirement – SEP holders must register their patents within six months of a new standard being entered in the register to enforce their SEPs;

• Fair, reasonable, and non-discriminatory (FRAND) determination – the SEP holder must initiate the FRAND determination procedure with the EUIPO before bringing a lawsuit before the competent court of an EU member state; and

• An essentiality check – independent evaluators will conduct random checks on the essentiality of patents, and SEP holders can voluntarily submit their patents for these checks.

When comparing the original draft of the regulation with the version adopted by the European Parliament, the following changes are noteworthy.

Now, the regulation shall apply only to patents that are in force in one or more member states and that a SEP holder claims to be essential to a standard that has been published by a standards development organisation after entry into force of the regulation, and regardless of whether the SEP holder has made a commitment to license its SEPs on FRAND terms. Application to SEPs that have been declared essential to a standard before the regulation’s entry into force is limited to cases 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”. What that means in practice is unclear and will most likely be highly debated (at significant cost, and for a considerable time, for the parties involved).

All SEP holders are required to register their SEPs within six months (following notice of the EUIPO that a standard has been registered), which can now be extended by a grace period of one month. The new draft removed the provision that excluded the enforcement of any unregistered SEP (Article 24, paragraph 1). However, the new Article 24, paragraph 1, provides that, in the absence of a registration, any “claim for infringement” (prior version: “receive royalties or seek damages”) is excluded.

The new draft makes clear that a FRAND determination shall not apply to existing licensing agreements. Also, the new draft (Article 34) eliminates the requirement of a FRAND determination “prior to the court proceedings”. Although the obligation to initiate a FRAND determination is without prejudice to the possibility to request, pending the FRAND determination, the competent court of a member state to issue a provisional injunction of a financial nature against the alleged infringer, the provisional injunction shall exclude the seizure of property of the alleged infringer and the seizure of the products suspected of infringing a SEP. In proceedings on the merits, the parties shall request a stay.

The “whole range of measures” – including provisional, precautionary, and corrective measures – shall be available to the parties only after termination of the FRAND determination.

What remains unchanged is that the EUIPO will terminate the FRAND determination (upon a request by “any other party”) if parallel proceedings in third countries (e.g., the UK, the US, China) are started before or during the FRAND determination. This may be a significant incentive for SEP holders to start proceedings abroad to avoid the burdensome procedure before the EUIPO and cuts against the goals of “promoting transparency and predictability” in the licensing of SEPs.

What is the outlook?

The rather minor changes that were adopted by the European Parliament do not reduce the administrative burdens imposed on SEP holders. The current draft still allows the potential for increased litigation, as parties will battle over numerous unclear provisions (e.g., relating to a “distortion of the functioning of the internal market”), and it puts one of the most complex areas of patent policy into the hands of the EUIPO, which has no experience with patents (but was considered as having “extensive experience with managing databases”).

Also, the impact on SEP litigation before the Unified Patent Court and/or the member states will be significant, should the Council of the EU pass the draft regulation in its current form. The council will vote on a ‘qualified majority’ basis and not unanimity. The German federal government, for one, seems to support the proposal in its current version.