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Europaudvalget 2023
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EUROPEAN

COMMISSION

Brussels, 27.4.2023

SWD(2023) 124 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT REPORT

Accompanying the document

Proposal for a Regulation of the European Parliament and of the Council on standard

essential patents and amending Regulation (EU) 2017/1001

{COM(2023) 232 final} - {SEC(2023) 174 final} - {SWD(2023) 123 final} -

{SWD(2023) 125 final}

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Table of contents

INTRODUCTION ................................................................................................................................ 4

PROBLEM DEFINITION .................................................................................................................... 8

WHY SHOULD THE EU ACT? .........................................................................................................27

OBJECTIVES: WHAT IS TO BE ACHIEVED? ................................................................................28

WHAT ARE THE AVAILABLE POLICY OPTIONS? .....................................................................29

WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ............................................................35

HOW DO THE OPTIONS COMPARE? .............................................................................................51

PREFERRED OPTION .......................................................................................................................57

HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?...................................59

ANNEX 1: PROCEDURAL INFORMATION .............................................................................................61

ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) .................................................63

ANNEX 3: WHO IS AFFECTED AND HOW? ...........................................................................................73

ANNEX 4: ANALYTICAL METHODS ......................................................................................................76

ANNEX 5: ADDITIONAL INFORMATION IN SUPPORT OF PROBLEM SECTION ...........................77

ANNEX 6: ADDITIONAL INFORMATION ON OPTIONS DISCARDED AT AN EARLY STAGE .....89

ANNEX 7: ADDITIONAL INFORMATION IN SUPPORT OF IMPACT ANALYSIS ............................97

ANNEX 8: SMES AND SEPS ....................................................................................................................123

ANNEX 9: PUBLIC CONSULTATION – DETAILED SUMMARY .......................................................149

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Glossary

Term or acronym

3GPP

Arbitration

Meaning or definition

3GPP – The Mobile Broadband Standard Partnership

Project

A structured process in which the parties submit their

dispute for adjudication to a trained arbitrator or panel of

arbitrators resulting in a binding decision.

Alternative Dispute Resolution

Charter of Fundamental Rights of the European Union

Court of Justice of the European Union

European Commission

A structured process in which the parties submit their

dispute for negotiation and resolution with the assistance

of a neutral person, who may issue a non-binding

opinion if the parties are unable to resolve their dispute.

Council of the European Union

European Patent Office

European Parliament

European Telecommunications Standards Institute

European Union Intellectual Property Office

Fair, Reasonable and Non-discriminatory

ADR

EU Charter

CJEU

Commission

Conciliation

Council

EPO

ETSI

EUIPO

FRAND

FRAND determination process A structured process initiated at the request of one party,

(conciliation +)

in which a neutral person assists the parties to determine

FRAND royalties, may request evidence from the parties

and will issue a non-binding opinion, if the parties are

unable to resolve their dispute.

ICT

IEEE

IoT

IPR

ITU-T

Mediation

Information and Communication Technologies

Institute of Electrical and Electronics Engineers

Internet of Things

Intellectual Property Rights

International Telecommunications Union –

Telecommunications Sector

A structured process in which the parties submit their

dispute for negotiation with the assistance of a mutually

selected impartial and neutral person.

Non-Disclosure Agreement

NDA

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NPE(s)

NPO

Patent claims

Non-Practicing Entity(ies)

National Patent Office

Under the European Patent Convention (EPC), a claim

must define the matter for which the protection is sought

in terms of technical features.

A patent family is a collection of patents that cover the

same technology (invention) and are granted indifferent

countries.

Means an agreement between two or more SEP holders

to license one or more of their patents to one another or

to third parties.

Research and Development

Standards Development Organisation

Standard Essential Patent(s)

Small and Medium-sized Enterprise(s)

Trade-Related Aspects of Intellectual Property Rights

World Intellectual Property Organisation

World Trade Organisation

Patent Family

Patent pool

R&D

SDO

SEP(s)

SME(s)

TRIPS

WIPO

WTO

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NTRODUCTION

1.1.

Political and legal context

Standard Essential Patents (SEPs) are patents that protect technology that is incorporated in a

standard.

SEPs are “essential” in the sense that implementation of the standard requires use of the

inventions covered by SEPs.

SEPs are a combination of two seeming contradictions. Standards ensure compatibility and

functionality of complex technology, as well as enable interoperability between devices. The success

of a standard depends on its wide implementation and as such every producer should be allowed to

use a standard. On the other hand, the goal of a patent is protection of the technology of the patent

owner who has the right granted by law to limit, or prevent, the usage of that technology and profit,

or not, from it, by choosing how and to whom to license/sell patents, whether or not this is for

remuneration. To deal with these contradictions, Standards Development Organisations (SDOs) ask

the patent owners who participate in standard development to promise to license their patented

technology (i.e., SEPs) on “fair reasonable and non-discriminatory” (FRAND) terms

to any

implementer

that chooses to use the standard. If a patent owner makes this promise (called FRAND

commitment)

, it cannot refuse to license its SEPs to a party who is willing to agree to FRAND terms.

SEP licensing issues arise primarily in the context of standards where the SEP holders have made a

promise to the relevant SDO to license their SEPs on FRAND terms for remuneration. Such standards

are, for example, communication standards (e.g. 3G, 4G, 5G, WiFi, NFC), audio/video compression

and decompression standards (MPEG, HEVC), as well as standardized technologies for data storage

and exchange (CD and DVD), photo formats (JPEG), and Home Audio/Video Interoperability

(HAVi). The users of these standards are traditionally producers of telecommunication equipment,

mobile phones, computers, tablets, TV sets, etc. With the recent rise of the Internet of Things (IoT)

including connected cars, drones, payment terminals, tracking devices, smart meters and other smart

devices, the standards listed above are increasingly implemented by a growing number of companies,

often SMEs.

Standard setting and the related FRAND obligation are guided by the Horizontal Guidelines

and the

CJEU landmark ruling from 2015 in

Huawei v. ZTE.

The summary of the judgment can be found

A patent that is essential to a standard established by a standardisation body renders its use indispensable to all

companies who envisage manufacturing products that comply with the standard to which it is linked. That feature

distinguishes a SEP from a patent that is not essential to a standard and which normally allows third parties to manufacture

competing products without recourse to the patent concerned and without compromising the essential functions of the

product in question (see Judgment of the Court of Justice of 16 July 2015,

Huawei Technologies Co. Ltd v ZTE Corp.

and ZTE Deutschland GmbH,

C-170/13, ECLI:EU:C:2015:477,

https://e-justice.europa.eu/ecli/ECLI:EU:C:2015:477).

According to para. 285 of the Communication from the Commission – Guidelines on the applicability of Article 101 of

the Treaty on the Functioning of the European Union to horizontal co-operation agreements, OJ C 11, 14.1.2011, p. 60,

CELEX:

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52011XC0114(04),

FRAND can also cover

royalty-free licensing.

‘Implementer’ is any legal person that implements the standard in a product or service.

The FRAND commitment is a voluntary contractual commitment given by the SEP holder to the benefit of third parties.

Each commitment may be different, depending on each Standard Development Organisation’s policy.

Communication from the Commission – Guidelines on the applicability of Article 101 of the Treaty on the Functioning

of the European Union to horizontal co-operation agreements, OJ C 11, 14.01.2011, pp. 1-72, CELEX:

https://eur-

lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52011XC0114(04).

Judgment of the Court of Justice of 16 July 2015,

Huawei Technologies Co. Ltd v ZTE Corp. and ZTE Deutschland

GmbH,

C-170/13, ECLI:EU:C:2015:477,

https://e-justice.europa.eu/ecli/ECLI:EU:C:2015:477.

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under the link below.

The CJEU recognized the right of the SEP holder to seek to enforce its patents

in national courts subject to certain conditions that must be fulfilled to prevent an abuse of a dominant

position by the SEP holder. Since a patent confers on its holder the exclusive right to prevent any

third party from using the invention without the holder’s consent only in the jurisdiction for which it

is issued (e.g., Germany, France, the US, China etc.), the patent disputes are governed by national

patent laws and civil proceedings/enforcement laws.

In case of unlicensed imports, SEP holders can rely on Regulation (EU) No 608/2013 concerning

customs enforcement of intellectual property rights

by requesting detention of goods by customs,

although that Regulation does not provide specific provisions with regard to applications for customs’

action concerning goods infringing SEPs.

Jurisprudence seems to suggest that the parties have to

comply with the conditions described under

Huawei

ZTE

before requesting such seizure or asking

for the release of impounded goods on the part of the implementer.

In 2017, the Commission’s Communication

“Setting out the EU approach to Standard Essential

Patents,” called for a comprehensive and balanced approach to SEP licensing to incentivise the

contribution of the best technology to global standardisation efforts and foster efficient access to

standardised technologies. The Commission acknowledged the need for increased transparency

(regarding, among others, existence of SEPs, SEP ownership, and FRAND royalties) and addressed

certain aspects of FRAND licensing and SEPs enforcement. The Commission’s views were

supported by Council Conclusions 6681/18

, with the Council stressing the importance of increased

transparency.

The bringing of an action for a prohibitory injunction against an alleged infringer by the proprietor of a standard-

essential patent which holds a dominant position may constitute an abuse of that dominant position in certain

circumstances (europa.eu)

Harmonised by Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the

enforcement of intellectual property rights (‘IPRED’), OJ L 157, 30.4.2004, pp. 45-86,

http://data.europa.eu/eli/dir/2004/48/oj.

Regulation (EU) No. 608/2013 of the European Parliament and of the Council of 12 June 2013 concerning customs

enforcement of intellectual property rights and repealing Council Regulation (EC) No. 1383/2003 (‘Regulation

concerning customs enforcement of IPRs’), OJ L 181, 29.6.2013, pp. 15-34,

http://data.europa.eu/eli/reg/2013/608/oj.

Customs enforcement of patents is regulated by Regulation concerning customs enforcement of IPRs. Taking into

account the broad definition of patents in this Regulation, in particular Article 2(1)(e): “a patent as provided for by

national or Union law”, it is understood that it already encompasses SEPs.

Hague District Court, decision of 24 October 2014,

ZTE v. Vringo,

C/09/470109 / KG ZA 14- 870,

https://slidelegend.com/judgment-hoyng-rokh-monegier_59ec9d4e1723dd6d9a764540.html;

Regional

Court

Düsseldorf,

decision

November

2017,

Sisvel

Samsung,

14d

13/17,

http://www.justiz.nrw.de/nrwe/lgs/duesseldorf/lg_duesseldorf/j2017/14d_O_13_17_Urteil_20171109.html.

Communication from the Commission to the European Parliament, the Council and the European Economic and Social

Committee on Setting out the EU approach to Standard Essential Patents, COM(2017)712 final, 29.11.2017,

https://ec.europa.eu/docsroom/documents/26583.

Council conclusions on the enforcement of Intellectual Property Rights, 6681/18, 1.3.2018,

http://data.consilium.europa.eu/doc/document/ST-6681-2018-INIT/en/pdf.

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Since then, the Commission has conducted several studies

and a series of webinars

, has

established a group of experts on the licensing and valuation of SEPs

, and has actively monitored

the market situation. On 10 November 2020, by Council conclusions 12339/20

, the Council invited

the Commission to present proposals for a future EU IP policy. The Council encouraged the

Commission to swiftly present the announced IP action plan, with initiatives to make IP protection

more effective and more affordable, especially for small and medium-sized EU enterprises

(“SMEs”),

and to promote effective sharing of IP, in particular critical assets such as SEPs, whilst

ensuring adequate and fair compensation to technology developers.

On 25 November 2020, the Commission published its intellectual property action plan (‘the IP action

plan’)

, where it announced its goals of promoting transparency and predictability in SEP licensing,

including by improving the SEP licensing system, for the benefit of EU industry and consumers, and

in particular SMEs. The IP Action plan noted increases in SEP licensing disputes in the automotive

sector and the potential for other IoT sectors to become subject of such disputes, as they begin using

connectivity and other standards. The IP Action plan was supported by Council Conclusions of 18

June 2021

and by the European Parliament (EP) in its Resolution

. The EP acknowledged the need

for a strong, balanced and robust IPR system and agreed with the Commission’s position that the

transparency necessary for fair licensing negotiations depends in large part on the availability of

information about the existence, scope, essentiality, ownership, and stipulated royalties of SEPs. The

European Commission, Joint Research Centre, Bekkers, R., Henkel, J., Tur, E. M., et al.,

Pilot study for essentiality

assessment of standard essential patents,

Publications Office of the European Union, 2020,

https://data.europa.eu/doi/10.2760/68906;

European Commission, Joint Research Centre, Bekkers, R., Raiteri, E.,

Martinelli, A., et al.,

Landscape study of potentially essential patents disclosed to ETSI: a study carried out in the context

of the EC ‘Pilot study for essentiality assessment of standard essential patents’ project,

Thumm, N. (editor), Publications

Office, 2020,

https://data.europa.eu/doi/10.2760/313626;

European Commission, Joint Research Centre, Baron, J.,

Pentheroudakis, C., Thumm, N.,

Licensing terms of standard essential patents: a comprehensive analysis of cases,

Thumm, N. (editor), Publications Office, 2018,

https://data.europa.eu/doi/10.2791/32230;

CRA, Régibeau, P., De

Coninck, R. and Zenger, H.,

Transparency, Predictability, and Efficiency of SSO-based Standardization and SEP

Licensing: A Report for the European Commission,

2016,

https://ec.europa.eu/docsroom/documents/48794?locale=en;

European Commission, Directorate-General for Enterprise and Industry,

Patents and standards: a modern framework for

IPR-based standardization: final report,

2014,

https://data.europa.eu/doi/10.2769/90861.

See webpage

https://ec.europa.eu/growth/content/webinar-series-standard-essential-patents_en.

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs

Expert

Group’

(E03600):

Contribution

the

Debate

SEPs,

2021,

https://ec.europa.eu/docsroom/documents/45217.

Council conclusions on Intellectual property policy and the revision of the industrial designs system in the Union,

12750/20, 10.11.2020,

https://www.consilium.europa.eu/media/46671/st-12750-2020-init.pdf.

SME definition:

https://single-market-economy.ec.europa.eu/smes/sme-definition_en.

Communication from the Commission to the European Parliament, the Council, the European Economic and Social

Committee and the Committee of the Regions on making the most of the EU’s innovative potential: An intellectual

property action plan to support the EU’s recovery and resilience (‘IP action plan’), COM(2020) 760 final, 25.11.2020,

https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52020DC0760.

This proposal along with two others announced in the IP action plan on Supplementary Protection Certificates and

Compulsory Licensing are scheduled for adoption as a package in the first half of 2023. These three initiatives share

similar goals of increasing legal certainty and transparency as well as reducing fragmentation and transaction costs. All

three initiatives take into account the introduction of the Unitary Patent. Beyond the common objectives the two other

initiatives are not tackling issues specific to SEPs.

Council

conclusions

intellectual

property

policy,

9932/21,

18.6.2021,

https://www.consilium.europa.eu/media/50529/st-9932-2021-init.pdf.

European Parliament resolution of 11 November 2021 on an intellectual property action plan to support the EU’s

recovery and resilience (2021/2007(INI)), OJ C 205, 20.5.2022, pp. 26-36, CELEX:

https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX:52021IP0453.

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EP also asked the Commission to provide more clarity on various aspects of FRAND, and to consider

possible incentives for more efficient SEP licensing negotiations and reducing litigation.

In parallel with this initiative, the Commission has updated its Standardisation strategy

(EU

Strategy) and is revising the Horizontal guidelines

. The new EU Strategy, published in February

2022, aims to strengthen the EU's global competitiveness, preserve the high quality of EU standards,

and enable a resilient, green and digital economy. The present SEPs initiative is complementary to

this EU Strategy and to the ongoing work to revise the Horizontal Guidelines.

Furthermore, this initiative is important in the context of global developments. For example, certain

emerging economies are taking a much more assertive approach, not only in promoting home-grown

standards, but also by actively supporting participation by domestic companies in global

standardisation efforts, providing their industries with a competitive edge in terms of market access

and technology roll-out. Moreover, courts in the UK, US and China have, with their own specificities,

decided that they have jurisdiction to determine global FRAND terms in specific cases, which may

impact the EU industry.

Some countries have released

or are considering guidelines governing

SEP licensing negotiations as well.

Communication from the Commission to the European Parliament, the Council, the European Economic and Social

Committee and the Committee of the Regions on an EU Strategy on Standardisation: Setting global standards in support

of a resilient, green and digital EU single market, COM(2022) 31 final, 2.2.2022,

https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX%3A52022DC0031&qid=1675955640882.

https://ec.europa.eu/competition-policy/public-consultations/2019-hbers_en.

United Kingdom’s Supreme Court, Judgment of 26 August 2020,

Unwired Planet v. Huawei,

UKSC 2018/0214, [2020]

UKSC 37,

https://www.supremecourt.uk/cases/uksc-2018-0214.html;

Decision of the United States District Court for the

Central District of California,

TCL v Ericsson,

Case No. 8:14-cv-00341-JVS-DFM with consent of both parties; Chinese

Supreme Court, ruling of 19 August 2021,

OPPO v Sharp,

Zui Gao Fa Zhi Min Xia Zhong No. 517; Order of the Wuhan

Intermediate Court of 23 September 2020,

Xiaomi v. Interdigital,

(2020) E 01 Zhi Min Chu 169 No. 1,

https://patentlyo.com/media/2020/10/Xiaomi-v.-InterDigital-decision-trans-10-17-2020.pdf;

Order of the Wuhan

Intermediate Court,

Samsung v Ericsson,

(2020) E 01 Zhi Min Chu No. 743. Due to concerns about the compatibility of

China's policy in this area with its WTO obligations, the EU has challenged certain measures before the WTO and initiated

dispute settlement proceedings (China – Enforcement of intellectual property rights DS611). The EU seeks to ensure that

its high-tech industry can effectively protect its patents before courts outside China. The EU internal initiative aims at

increasing transparency and improving the licensing environment for SEPs within the EU.

Japanese Patent Office Guide to Licensing Negotiations Involving Standard Essential Patents,

https://www.jpo.go.jp/e/system/laws/rule/guideline/patent/document/rev-seps-tebiki/guide-seps-en.pdf;

South Korean

Guidelines

unfair

exercise

Intellectual

Property

Rights,

https://ftc.go.kr/eng/cop/bbs/selectBoardList.do?key=2855&bbsId=

BBSMSTR_000000003632&bbsTyCode=BBST11;

Singapore’s Competition & Consumers Commission Guidelines on

the treatment of Intellectual Property Rights,

https://www.cccs.gov.sg/-/media/custom/ccs/files/legislation/ccs-

guidelines/revised-guidelines-jan-2022/9-cccs-guidelines-on-the-treatment-of-

ip.pdf?la=en&hash=4B788CFD35E23E6E6D680F898C3A339FD3B43E0A.

The United States of America withdrew its Policy Statement on Licensing Negotiations and Remedies for Standards-

Essential Patents Subject to F/RAND Commitments and concluded a Memorandum of Understanding with the WIPO

Arbitration and Mediation Centre. The UK has launched a process in 2021 on SEPs and innovation, which is ongoing.

India’s Department of Telecommunications is discussing a proposal to set up a Digicom Intellectual Property

Management Board to facilitate IPR licensing and IP management in the telecommunication sector. China has consulted

on the draft amendments to the implementing regulations of its Anti Monopoly Law. Japan’s Patent Office is revising its

guidelines and METI launched a Study Group on Licensing Environment of SEPs.

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ROBLEM DEFINITION

2.1.

Market description

SEPs represent approximately 2% of the population of the patents that are currently in force.

Standards to which FRAND commitments are made and SEPs are declared include communication

standards (e.g. 4G, 5G, WiFi) (90% of declared SEPs), computer technology (5% of declared SEPs),

audio/visual field (e.g. codecs) (2% of declared SEPs). The remaining 3% cover machinery,

measurement, semiconductors, optics or medical technology. The number of declared SEPs was

estimated at around 75 000 (patent families) worldwide in 2021 following a six fold increase over

the last decade. They are owned by approximately 260 companies (companies with at least 10

SEPs).

One third of all SEPs is owned by Chinese companies, doubling their share in just seven

years. Also shares of Korean and Taiwanese SEPs increased over that period to respectively 19% and

1.2%. On the other hand, both the EU and the US shares in SEPs decreased from 22% to 15% and

from 26% to 19% respectively. The share of Japanese companies remains stable at around 11% (see

figure below). Around 80% of all SEPs held by EU companies are owned by just two companies,

Nokia and Ericsson, and a further 10% by Philips and Siemens. The remaining 10% are shared by

around 27 firms including telecoms (e.g. Orange, KPN, Deutsche Telekom, Teliasonera, Telecom

Italia, T-Mobile, Alcatel), engineering firms (e.g. Bosch), or research institutions (e.g. Fraunhofer

Gesellschaft) to name just a few.

It has to be noted that the number of declared SEPs may not

provide information on the strength of the SEPs portfolio of the different companies. The latter would

depend

inter alia

on which of those declared SEPs are actually essential, which features of the

standard they cover and what is their quality.

Figure 1: SEP ownership share by year and country (top 50 owners)

30%

25%

22%

20%

15%

10%

USA, 19%

Korea, 19%

EU, 15%

Japan, 11%

China, 30%

Taiwan, 1%

2014

2015

2016

USA

2017

Japan

2018

2019

Korea

2020

China

2021

Taiwan

Note: Based on top 50 owners representing from 88% (2014) to 95% (2021) of all SEP families

Source: IPLytics database

The FRAND commitment underlies the SEP owners’ approach to licensing SEPs to implementers,

which may be done either free of charge or for royalties. For instance, SEPs in the area of internet

(e.g. URL, HTML, XML, TCP, Java Script) are predominantly licensed royalty-free. Cellular

standards (e.g. 4G, 5G) are subject to royalty payments, similar to short range communication

standards WiFi and NFC, with the exception of Bluetooth, which is royalty-free but requires a small

annual membership fee. SEPs related to CD, DVD, digital image formats (JPEG) and most

The number of patent families presented. - Baron, J., Arque-Castells, P., Leonard, A., Pohlmann, T., Sergheraert, E.,

Empirical Assessment of Potential Challenges in SEP Licensing, European Commission, DG GROW, 2023; Figure 4

and 5, p. 17 (chapter 2.1.1. Potentially large numbers of declared SEPs per standard).

The statistics concern firms with 10 or more SEP patent families.

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audio/video compression technologies (MPEG, AAC, HEVC) are also subject to royalty payments.

Royalty bearing SEPs can be licensed through bilateral arrangements or via joint licensing

programmes, including “patent pools” (consortia of patent owners created to license their patents

jointly, through a single transaction). SEP holders are expected to license their patents on FRAND

terms

so as not to abuse their monopoly position.

An empirical study (Biddle et al., 2010) identified 251 technical interoperability standards

implemented in a modern laptop computer. The intellectual property rights policies associated with

197 of the standards were assessed. The results show that 78% were developed under “FRAND”

terms and 22% under “royalty free” terms.

The largest share of royalty payments for SEP licenses comes from the mobile telecommunications

industry, which generates an estimated patent royalty yield of EUR 14 – 18 billion per year

with

additional EUR 4 billion of non-monetary benefits from cross-licensing.

The EU’s share could be

estimated at around EUR 3 billion per year.

One standard can consist of thousands of technical contributions protected by patents owned by

dozens or even hundreds of SEP holders (for example, in the case of 5G, major SEP holders include

Ericsson, Huawei, Intel, Nokia, Qualcomm, Samsung, and ZTE, just to name a few). Moreover, a

single product (e.g. a car) can implement multiple standards (see figure below).

Figure 2: Standards with FRAND commitments implemented in a modern connected car

Source: Tim Pohlmann, Intellectual Asset Management, May/June 2017, pp. 22-27

Historically, with regard to SEPs in communications technologies, SEP licensing occurred in large

part between phone and network equipment companies who licensed their SEPs to each other (i.e.,

See: Annex 5. ‘SEP – free or royalty bearing’.

The FRAND commitment is a voluntary contractual commitment given by the SEP holder to the benefit of third parties.

Each commitment may be different, depending on each Standard Development Organisation’s policy.

Galetovic et al. produce an estimate of the cumulative patent royalty yield in the mobile telecommunications industry,

which they estimate to reach USD 14.2 billion in 2016, see Galetovic, A., Haber, S., and Zaretzki, L., ‘An estimate of the

average cumulative royalty yield in the world mobile phone industry: Theory, measurement and results’,

Telecommunications

Policy,

April

2018,

Vol.

42,

Issue

pp.

263-276,

https://www.sciencedirect.com/science/article/pii/S0308596117302240?via%3Dihub,

quoted in Baron, J., Arque-

Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission,

DG GROW, 2023. Régibeau et al. cite an estimate of the yearly SEP royalty yield generated by 2G, 3G, and 4G

technology of EUR18 billion per year, see CRA, Régibeau, P., De Coninck, R. and Zenger, H.,

Transparency,

Predictability, and Efficiency of SSO-based Standardization and SEP Licensing: A Report for the European Commission,

2016,

https://ec.europa.eu/docsroom/documents/48794?locale=en.

Converted to EUR using EUR1:USD1 rate.

Sidak, G. ‘What aggregate royalty do manufacturers of mobile phones pay to license standard-essential patents?’,

The

Criterion

Journal

Innovation,

2016,

Vol.

pp.

701-711,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3178336.

Under assumption that it is proportional to EU’s share in the world GDP (roughly 1/6).

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“cross licensing”)

, because they all had products using the standards. With the market entry of pure

SEP holders and pure SEP users, divestiture and licensing of SEPs for monetization purposes, lead

to the rise of patent assertion entities (PAE).

More recently, the rise of the Internet of Things (IoT)

is resulting in more and more devices using connectivity and the landscape of SEP licensing is

shifting even more. Today, (i) some companies incorporate standards into their products while not

owning SEPs covering such standards, (ii) others own and license SEPs without using them in any

products, and (iii) major SEP holders have significantly reduced their product businesses and focus

more on licensing their SEPs. Whereas over the last two decades most high-stakes SEP disputes have

centred around mobile communication devices (i.e. smartphones), we are already witnessing more

disputes in the automotive sector and expect other IoT sectors to be similarly affected.

See Annex 5 for more explanations on SEP market and SEP licensing.

McKinsey

estimates that by 2030 IoT could enable USD 5.5 trillion to USD 12.6 trillion in value

globally

, including the value captured by consumers and customers of IoT products and services.

The total number of IoT connected devices

is estimated to grow rapidly from 13 billion in 2022

to 30 billion by 2030

, with the share of devices connected to cellular networks gradually

increasing

. The total number of cellular IoT connected devices is expected to grow from 1.7

billion in 2022 to 5.4 billion in 2030 (representing 18% of all IoT connected devices).

98% of

these will be using either 5G or 4G standards.

At the same time, the number of mobile phones is

expected to grow moderately from 8.4 billion in 2022 to around 9.5 billion in 2030.

The largest SEP licensing market continues to be mobile phones, in which the top ten phone makers

are Samsung, Apple, and 8 Chinese companies, including OPPO, Xiaomi and Vivo. SEP licensing,

however, is now moving more towards the growing IoT market, including automotive, smart energy

(smart meters and smart grids), payment terminals, tracking devices, drones, medical devices,

wireless charging stations and other products.

Sidak estimated the implicit value of cross-licenses of large implementers, i.e., the licensing revenue that firms like

Samsung, Huawei or Apple would have obtained had they not engaged in cross licensing deals but charged royalties to

one another. Sidak's estimates imply an additional USD 4 billion in non-cash value of cross licenses in 2013 and USD

3.7 billion in 2014 (roughly one percent of mobile phone sales in each year). See Sidak, G. ‘What aggregate royalty do

manufacturers of mobile phones pay to license standard-essential patents?’,

The Criterion Journal on Innovation,

2016,

Vol. 1, pp. 701-711,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3178336,

cited in CRA, De Coninck, R., von

Muellern, C., Zimmermann, S., and Mueller, K.,

SEP Royalties, Investment Incentives and Total Welfare,

2022, p. 6.

Companies that acquire a patent or patent rights but do not practice the patented invention.

McKinsey & Company, Chui, M., Collins, M. and Patel, M., ‘The Internet of Things: Catching up to an accelerating

opportunity’, November 2021,

https://sitic.org/the-internet-of-things-catching-up-to-an-accelerating-opportunity/.

See also IHS Markit, Campbell, K., Cruz, L., Flanagan, B., et. al., ‘The 5G Economy: How 5G will contribute to the

global

economy’,

November

2019,

https://www.qualcomm.com/content/dam/qcomm-martech/dm-

assets/documents/the_ihs_5g_economy_-_2019.pdf?mod=article_inline.

Transforma Insights defines IoT connections as connections to remote sensing and actuating devices and includes

associated aggregation devices.

Number of Internet of Things (IoT) connected devices from 2019 to 2030 calculated by Transforma Insights. Retrieved

from Statista:

https://www.statista.com/statistics/1194677/iot-connected-devices-regionally/.

https://www.statista.com/statistics/1194688/iot-connected-devices-communications-technology/.

Current IoT Forecast Highlights - Transforma Insights:

https://transformainsights.com/research/forecast/highlights.

Connection numbers will be dominated by 5G mMTC (massive Machine Type Communications, which includes the

NB-IoT and LTE-M technologies) and 4G, driven to a great extent by 2G and 3G network switch-off.

CRA, De Coninck, R., von Muellern, C., Zimmermann, S., and Mueller, K.,

SEP Royalties, Investment Incentives and

Total Welfare,

2022, p. 19. Using: “Mobile phone units are approximated using SIM connections (excluding licensed

cellular IoT). SIM connections are reported in GSMA’s report ‘The Mobile Economy 2022’, available at

https://www.gsma.com/mo-bileeconomy/wp-content/uploads/2022/02/280222-The-Mobile-Economy-2022.pdf”.

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Based on the Orbis

database, in 2022 there were around 47 500 potential manufacturing firms

worldwide that may implement standards that are subject to FRAND commitments. Around 3 800

(8%) were located in the EU. Among those EU firms, 16% were large and 84% were SMEs (based

on employment figures). They employed 2.2 million persons. The combined turnover of these firms

for the last available year amounted to around EUR 600 billion. 88 of the companies reported a total

R&D spending of EUR 26 billion in the last available year, on average 7% of their turnover.

Furthermore, we estimate that each year around 600 SEP license agreements are signed with

approximately 230 EU based implementers (including 80 SMEs) and around 190 non-EU based firms

with subsidiaries in the EU. For more information on the implementers’ landscape, please see

Annex 5.1.

2.2.

What are the problems?

In this section we will present the current problems of SEP licensing, in a situation when a SEP holder

makes a FRAND commitment to an SDO, from the point of view of SEP holders and implementers.

As SEP licensing concerns commercial deals between two parties and is often subject to non-

disclosure agreements, there is only limited public information available (for instance when there is

a court dispute). Hence the information below is based on evidence obtained through public

consultations, numerous interviews with stakeholders and dedicated studies. The examples provided

below are anonymised and aggregated versions of evidence the Commission obtained from

testimonies, but which are subject to commercial secrecy. The figure below outlines the

argumentation logic of this chapter.

Figure 3: Problem tree

Drivers

Insufficient transparency

SEP ownership and essentiality not

clear

Limited information on SEP price

(FRAND royalty)

Dispute settlement

mechanisms not

adapted to resolve

FRAND disputes

Out of scope:

- Global forum

shopping for

favourable

court

- New business

models of

firms involved

in SEPs

- Specificities of

industrial

sectors,

including the

Internet of

Things.

Problems

Uncertainty and High transaction cost

For implementers

Firms cannot assess SEP exposure

Firms unable to incorporate SEP cost into product price

Especially (but not limited) to SMEs:

- Reduced ability to innovate

- Impaired global sustainable competitiveness

- Frictions in technology diffusion

- Risks to supply chain security

For SEP owners

Uncertain and delayed SEP revenue

Consequences

Reduced ability to innovate

Impaired global sustainable competitiveness

Frictions in technology diffusion

Weaker participation in standardisation

The overarching problematic issues are uncertainty and high transaction costs, which affect

differently the behaviour of SEP implementers and owners (this may not be the case when an

implementer also owns SEPs as e.g. in case of mobile phone companies, but increasingly with the

rise of IoT, the two groups are distinct).

2.2.1. SEP owners’ perspective

In order to participate in standard creation, prospective SEP holders had to invest considerable

resources and time in R&D activities to first develop new technology and then to patent it worldwide.

ORBIS is a private global database which has information on almost 60 million companies.

It should be noted however, that we cannot attribute neither the share of revenue, employment nor R&D expenses to

products embedding SEPs.

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CRA (2022) estimates R&D amounts of between USD 2 and 9 billion annually for standards used in

a smartphone.

All that is done without guarantee that first, the inventor’s patents will be used by

the standard, and second, that the standard will be accepted by the market.

Even if a standard is

accepted, it takes years before it is widely used while an invention is patented for maximum 20 years.

As a result, SEP holders have limited time to generate a return for their R&D investments through

royalties for the use of the patents.

A SEP owner, as any patent owner, may license implementers for the use of the protected technology

and request remuneration. In contrast to other patents, a SEP holder has to license subject to the

FRAND commitment. According to the public consultation

, in order to be able to better assess the

value that their technology brings to the standard implementations, a SEP holder would wait a few

years (around 2 to 4 years)

until the standard is implemented in the market and then approach

companies in specific markets to offer them licences. This is followed by negotiations, which take

on average 3 years

, and potentially litigation in case parties cannot reach an agreement (adding

another 1 to 2.5 years).

Work on the 4G standard began in 2002 with the first commercial use in 2009

, by 2021 around

60% of phones used this technology. Work on 5G started in 2008,

and phones with this

technology only now emerge on the market. One of the leading SEP holders told the Commission

it spends around 20% of its annual sales on R&D.

The Avanci platform was created in September 2016 to license 2G, 3G and 4G technology to

vehicle producers. Even though it included only a few SEP holders at the outset, once its first

licence was concluded with a German automotive manufacturer at the end of 2017, more SEP

holders joined the platform, and it now represents about 52 SEP holders in these technologies

(about 60% of SEP).

In September 2022 it announced that more than 80 automotive brands

selling 100 million connected vehicles are covered by its licence. Prices range from USD 3 (eCall)

to USD 20 (2G, 3G and 4G) per vehicle.

The figure below illustrates progress in license coverage

of connected vehicles. Most OEMs took a licence before the announced increase in the price of the

CRA, De Coninck, R., von Muellern, C., Zimmermann, S., and Mueller, K.,

SEP Royalties, Investment Incentives and

Total Welfare,

2022, pp. 3-5, data for 2020, lower bound based on relation of R&D to SEP royalties, upper based on SEP

royalties. Based on the lower bound, the largest estimated smartphone R&D are Qualcomm (USD1.1bn in 2020), Nokia

(USD256m) and Ericsson (USD159m). Other upstream innovators are estimated to have invested USD 406 million in

smartphone related R&D.

Not all R&D expenses targeted at a certain standard (or a certain field of innovation more generally) lead, in the end,

to usable contributions to this standard. This reflects the generally risky nature of innovation.

Public consultation, see summary of comments to “Access to all” and “licensing in the value chain”.

OPC results, Q9 9. How much time after the first implementation of a standard in your products are you, on average,

contacted by a SEP holder with an invitation to take a licence?

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 145: “We observe significant heterogeneity in the duration of negotiations

prior to litigation, ranging from 0 to almost 9 years; with a median duration of 2.1 years (mean duration 2.9 years) from

the first contact to the filing of the (first) lawsuit”.

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 148: Once a complaint has been filed, the average duration of SEP litigation

cases (the period from first filing date to resolution) range from 14.4 months in Germany, 15.8 months in the Netherlands,

to 32.2 months in France (only first instance).

https://en.wikipedia.org/wiki/4G.

https://en.wikipedia.org/wiki/5G.

Companies missing from Avanci include among others Huawei, Samsung, Apple, Google, ETRI. Source of % IPlytics.

https://www.avanci.com/2022/09/21/avanci-expands-4g-coverage-to-over-80-auto-brands/;

USD prices converted to

EUR using EUR1:USD1 rate.

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licence from USD 15 to USD 20. According to major SEP owners, the process of licensing the

automotive industry is about 10 years.

Figure 4: Estimated accumulated sales of licensed and unlicensed connected vehicles based on

Avanci announcements

* Including licenses signed up to August 4, 2022

Source: - Baron, J., Arque-Castells, P., Leonard, A., Pohlmann, T., Sergheraert, E., Empirical Assessment of Potential Challenges

in SEP Licensing, European Commission, DG GROW, 2023;, using estimates, p. 156

In the public consultation, SEP holders identified their most important problem to be the various

reasons used by the implementers to delay the taking of a licence.

Examples are provided in

Annex 2.

The costs related to SEP licensing are also significant for both SEP holders and implementers. The

average bilateral negotiation cost per licence for both the SEP holder and the implementer is

estimated at EUR 2 million to EUR 11 million (see Table 1 and examples in Annex 2). Such high

cost (both, in terms of time and money) also explains why major SEP holders usually have licensing

deals signed with only around 100-200 implementers

, that have a sufficiently high volume and/or

value of sales that would allow for absorbing these costs. There are also SEP holders whose main

source of income is licensing. They constitute a very heterogeneous population, including R&D

specialist firms (e.g. InterDigital), public or semi-public research institutes (e.g. Fraunhofer, CSIRO,

ETRI), universities, and different types of patent assertion entities (PAE).

PAEs are entities whose

business model is the licensing and assertion of patents acquired from other parties. They usually

conclude below 100 licenses, yielding a modest revenue. Finally, patent pools are platforms through

which multiple SEP holders offer a single license to multiple licensees, promoting more efficient

licensing. For an overview of licensing practices see table below:

Table 1: Licensing cost and revenue for different SEP holders (worldwide)

Patent Assertion

Entities/Non practicing

entities

< 100

Large and medium-size

firms

# SEP Licenses per year (Total)

Licensees (types)

Major net licensors

100-150

Large multinationals

SEP Pools

1 000-2 000

Large, medium-size and

smaller firms

Major SEP holders reported approaching the automotive industry for licences already in 2013.

Public consultation – responses to question 19.

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, Section 6.2.3.1. SEP licensing by major net licensors.

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 114: “NPEs constitute a very heterogeneous population, including R&D

specialist firms (e.g. InterDigital), public or semi-public research institutes (Fraunhofer, CSIRO, ETRI..), universities,

and different types of patent assertion entities (PAE)”.

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Average yearly royalty value

(royalty revenue per license)

Duration of license

Negotiation cost

Dispute cost per license

Average cost per license

EUR 15M

6 years

>1M EUR

EUR 500k

EUR 2M-11M

EUR 300k

6 years

<500k EUR

EUR 900k

EUR 1.75M

6 years

small

< EUR 25k

EUR 300k-600k

Source: - Baron, J., Arque-Castells, P., Leonard, A., Pohlmann, T., Sergheraert, E., Empirical Assessment of Potential Challenges in

SEP Licensing, European Commission, DG GROW, 2023;, Table 16, pp. 138-139

Consequently, SEP owners, in particular those who pursue bilateral licensing, face two main

challenges: long negotiations and high cost of SEP licensing. This could potentially reduce their

income base and might reduce incentives for participation in development of new standards,

especially where strategic licensing markets stagnate and/or move to low-cost business models.

Stakeholders reported that the royalty rates earned by the firms that specialise in technology

development have been steady for years in the mobile phone market.

It appears that the income

uncertainty is currently mitigated by relatively high SEP prices charged to those who are licensed

(first example below). And the rate of standard development does not appear to have been affected

(second example below).

There are indications that investment in the development of SEPs, certainly for cellular standards,

is commercially attractive. For instance, while Bekkers et al. (2002) count 14 different SEP holders

for 2G

, more than 100 parties had declared 5G SEPs as of February 2021 according to IPlytics

(2021).

In 2013 and 2014, royalties requested by SEP holders for patents essential to the 802.11 Wi-Fi

standard were slashed in multiple bench trials and jury verdicts in the United States, in some cases

considerably, by up to 90%. Yet incentives for innovation remained strong and the contributions

to the next generations, Wi-Fi 6 and Wi-Fi 7 – whose development began in 2014 and 2019,

respectively, are significantly larger than the contributions to Wi-Fi 4 and Wi-Fi 5.

The ability of the SEP holder to seek royalties is likely to be put under pressure in the future. Some

phone manufacturers reported to the Commission that they adopted a low-cost business model to

serve lower income consumers, and the royalty demands are not commensurate with their business

model. An IoT supplier and an IoT mid-cap

reported that the IoT market is very fragmented,

competitive and cost sensitive.

Average licensing cost = marginal cost of licence + (licensor fixed costs/ # licences/programme) + (implementer fixed

cost/ #licences/product).

Submission by the 4iP Council to the European Commission Call for evidence for an impact assessment.

Bekkers, R., Duysters, G., Verspagen, B., ‘Intellectual property rights, strategic technology agreements and market

structure: The case of GSM’,

Research Policy,

2002, No. 31, pp. 1141-1161, DOI:10.1016/S0048-7333(01)00189-5,

https://www.researchgate.net/publication/239904150_Intellectual_Property_Rights_Strategic_Technology_Agreements

_and_Market_Structure_The_Case_of_GSM.

IPlytics, ‘Who is leading the 5G patent race?’, February 2021, p. 4,

https://www.iplytics.com/de/report/5g-patent-race-

02-2021/.

CRA, De Coninck, R., von Muellern, C., Zimmermann, S., and Mueller, K.,

SEP Royalties, Investment Incentives and

Total Welfare,

2022, pp. 15-16., quoting: IPlytics:

https://www.iam-media.com/article/whos-ahead-in-the-wifi-6-patent-

race.

Mid-cap (or mid-capitalisation) is the term that is used to designate companies with a market cap (capitalization) – or

market value – between USD 2 and USD 10 billion,

https://www.investopedia.com/terms/m/midcapstock.asp.

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These developments, together with the fact that many SEP holders are no longer implementers, or

implementers on a much smaller scale (in particular in the IoT), is likely to have an impact on the

FRAND royalty negotiations as the disagreements about the FRAND royalty determination are likely

to become more pronounced. This in turn will have a negative impact on both the length and the cost

of the negotiations.

2.2.2. Implementers’ perspective

While SEP holders need time to assess the value of the technology in standard implementations and

make decisions about who and how to license, and for how much, in particular in new markets,

implementers encounter great uncertainty and prospects of much higher than anticipated costs

associated with the use of standards, potentially discouraging the implementation of these new

technologies.

In principle, goods sold should be free from any right or claim of a third party based on intellectual

property, if known to the seller or the seller “could not have been unaware”.

If a company discovers

that it may be infringing a patent

, it has the choice, among other things, to (i) “work around”, using

a solution that does not result in patent infringement; or (ii) stop the product development unless the

company is able to secure a license from the patent owner for the use of the patented technology.

The rationale is to respect the law by ensuring first, that a company does not infringe on another

person’s property rights, and second, anyone who buys such a product has legal certainty. The same

rules apply to exports.

50% of the companies who replied to the public consultation claimed that they have proactively

sought SEP licences.

Not infringing a SEP, having legal certainty over costs and an enhanced ability

to plan business activities were mentioned as the top reasons for seeking a license by around three

quarters of respondents to the public consultation.

Some of those who sought licences did not obtain

such licences, mainly because of disagreement on a FRAND royalty (especially in new markets

where the SEP holder has not yet decided on its licensing policy and where the SEP holder prefers

licensing at end-product level). 17% of the companies who replied to the public consultation reported

not to have requested a licence proactively. 33% expressed no opinion. There are various

considerations in the decision not to proactively seek a licence.

A manufacturer of medical devices for the treatment of various critical health disorders wishes to

implement cellular connectivity in its product to enable remote patient health monitoring and

enhancing patient adherence to prescribed treatments. Development, clinical trials and regulatory

Pursuant to Article 42 United Nations Convention on Contracts for the International Sale of Goods “The seller must

deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual

property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware…”, “The

obligation of the seller … does not extend to cases where: (a) at the time of the conclusion of the contract the buyer knew

or could not have been unaware of the right or claim”

United Nations Convention on Contracts for the International Sale

Goods,

2010,

12,

https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-

09951_e_ebook.pdf.

Whether or not a product infringes a patent is established with legal certainty only through court proceedings, where

the validity and enforceability of a patent is also examined. A product developer may preliminarily assess whether it

could be infringing a patent to determine what course of action may be appropriate.

See Annex 9, Q12 “What is the main effect for SEP implementers, in particular start-ups and SMEs, of the costs

involved in licensing SEPs (search, negotiation and litigation costs)?”: “I look for alternatives (e.g. not using standardised

technology or royalty free standards)” – 38% all, 52% implementers; “I go out of business/change business” – 20% all,

38% implementers.

See Annex 9, Q7.

See Annex 9, Q10 “What would be the main reason for you to request a licence?”: “Not to infringe a SEP without a

licence” (72% all, 82% implementers); “To have legal certainty over my costs and plan my business activities” (60% all,

73% implementers).

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approvals for a medical device take years (up to 10 years or more). Thus, the company needs

certainty at an early stage about the cost of cellular SEP licenses, as this must be taken into account

to consider total costs and alternative technologies. Moreover, once the company enters into

licensing negotiations, it faces the prospect of an injunction order potentially affecting patients’

access to telehealth services and derailing its product financially. With no indication of an

aggregate royalty for implementing the standard and given the large number of SEP owners,

evaluating the patents and negotiating the necessary licenses is beyond the firm’s capability.

In practice, it is impossible to sign a SEP licence with all SEP holders whose standardised technology

the firm uses. For example, Avanci represents 52 SEP holders of 2G, 3G and 4G but does not include

certain large SEP holders such as Huawei, Samsung and others in their membership. SEP holders

with whom a company did not sign a licence may ask the firm to enter into a licence at any time (and

some may never seek royalties).

Standards are in most cases embedded into components that are used in an end-product sold to the

consumer. Suppliers of such components may not have the necessary SEP licenses when they sell

such components to the end-product manufacturers. As a result, such end-product manufacturers

could be subject to a demand for SEP licenses. For example, in the automotive industry, while

component manufacturers were buying their chips licensed for 2G and 3G, they were not licensed

for 4G.

With the adoption of the 4G standard, SEP holders chose not to license component

manufactures but to license the car manufacturers. Component suppliers are not able to pay the

royalty requested from the OEMs and pass the cost downstream. Some European suppliers chose to

exit the market

, others are still litigating

The likelihood of SEP holders asserting their SEPs in courts is greater in regions with more efficient

judicial systems and large markets. During the webinar on enforcement, to which 893 persons

registered for participation

, 51% of the participants indicated that they prefer to litigate in Europe

against 30% who preferred the US. To the question in which jurisdiction they have litigated, 58% of

the participants indicated Germany, 7% indicated France and 4% indicated the Netherlands. 31%

specified jurisdictions outside of the EU. Using the number of court cases as a proxy, we can estimate

that implementers are targets of court actions in the EU primarily in Germany (around 44 court cases

per year), France (around 2) and the Netherlands (around 1).

Note that not every SEP holder decides

to litigate, but only court cases are observable.

An EU small SME reports: “European companies are at a disadvantage compared to foreign

producers that might fly under the radar.”

As the threat of a court injunction/cessation of production means income loss and loss of market

share to competitors and switching to another technology is costly or impossible (because of standard

implementation), implementers can engage in court procedures that are cost- and time intensive,

attempt to negotiate, or agree to licence agreements at any price (especially SMEs, if they are

targeted). This holds true especially for licensing in the IoT, where there is continuous entry of new

start-ups that implement standardised technologies in their IoT devices. 82% of SMEs in the targeted

If the supplier is licensed for all patents (SEPs), the downstream user does not need a licence. Otherwise, the SEP

holder will receive the price twice, the so called ‘double dipping’.

Bury, Thales and U-Blox.

Continental and partially Thales (for damages).

GROWTH, Webinar series on Standard Essential Patents,

https://ec.europa.eu/newsroom/growth/items/701874/en.

Baron, J., Essentiality Checks for Potential SEPs – Framework for Assessing the Impact of Different Policy Options,

European Commission, DG GROW, 2023, p.133, Table 15.

See Annex A8.3 SME survey.

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survey stated that they do not have resources to negotiate with SEP holders or engage in court

proceedings.

Start-ups and SMEs lack not only the resources but also the SEP and licensing expertise.

Two thirds

of SMEs replying to the Commission’s targeted survey stated that there is uncertainty regarding SEPs

and that royalty payments affect their competitive position.

Currently, there is no public support

available to start-ups and SMEs for handling SEP licensing negotiations. So, the majority are

de facto

not licensed. One third of the SMEs replying to the targeted survey believe that it is unlikely they

will be invited to take a licence by a SEP holder (small size and insufficient volume of sales). Another

third of the replying SMEs thought otherwise.

In principle, nothing prevents a SEP holder from

demanding that an SME take a licence.

EU SME: It is said that large SEP holders ‘do not target SMEs’, our case shows that this is not

entirely accurate. Even if some do not, the financial uncertainty SMEs face is unreasonable and

unfair: an SME has to wait and fear that any SEP holder can approach it at any time (perhaps when

the SME becomes larger) and ask for payment of past royalties.

An SME reported: We received multiple SEP licensing requests. Some SEP holders have litigated

(one litigation cost amounted to tens of thousands of Euros, more than the few thousand Euro value

of the licence it concerned). We have taken several licences, but we know we have unfairly paid

much more than others.

Another SME noted: “As we are a small company, we often do not even have the option to

negotiate.”

Whether big or small company, this uncertainty makes business planning more difficult.

We will

elaborate in the next section on the problem drivers. For more examples of problems that

implementers face, see Annex 2.

2.3.

What are the problem drivers?

The problems above are caused in large part by the following drivers, which this initiative aims to

tackle: insufficient transparency on SEP ownership and essentiality; lack of information about

FRAND royalties; and a dispute settlement system not adapted for FRAND determination. There are

also other drivers affecting the problem, which this initiative cannot solve directly, such as the use of

foreign courts to resolve SEP cases.

See Annex A8.3 SME survey, Q12.

CRA, De Coninck, R., von Muellern, C., Zimmermann, S., and Mueller, K.,

SEP Royalties, Investment Incentives and

Total Welfare,

2022, p. 11: “SMEs – and in particular start-ups - are likely to lack licensing experience, expertise, and

resources to properly evaluate and challenge the demands of SEP holders. For this reason, they could be more intimidated

by the possible consequences of patent infringement (e.g., facing an injunction) and thus be prone to simply accept non-

FRAND royalty demands instead of engaging in further negotiations.”.

65% (17 out of 26) and 64% (18 out of 28) respectively. See Annex 8.3 SME Survey, Q16.

See Annex A8.3 SME Survey, Q16.

See Annex A8.3 SME survey.

In the Public consultation companies estimated their internal costs of assessing SEP exposure before they put a new

product onto market at on average EUR 155 000, with median in range of between EUR 10 000 and 50 000. See Annex

9, Q11.

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2.3.1. Unclear SEP ownership and essentiality

To negotiate a SEP licence, a standard implementer should know which SEP holders license for a

fee, how many

declared

SEPs

each has, and how many of those are actually essential (necessary to

implement a standard).

Information on patent ownership and essentiality is not readily available.

The vast majority of SMEs

replying to the Commission’s survey said they did not know who owns SEPs relevant to a standard

they implement and stated they did not know if all the patents that a SEP holder presented to them

during negotiations were actually essential to the standard.

This is consistent with the results from

the public consultation.

Without such information, the cost and complexity of SEP licensing

negotiations increases. With regard to almost all standards, expert third party analysis is required to

obtain reasonably reliable estimates of the number of actual SEPs. The cost for implementers of

assessing the essentiality of individual patents could be significant from an average cost of EUR 355

to EUR 7 860 per SEP, depending on the evaluation rigorousness.

There are three main reasons for the lack of transparency on the number of essential patents for

different standards:

First, many Standards Development Organisations (SDO) do not provide comprehensive data on self-

declared potential SEPs, as they allow for blanket disclosures. Patent owners may simply declare that

they own potential SEPs and are prepared to license on terms compliant with the SDO’s IPR policy,

without specifically identifying any of these patents or their relevance to the standard(s) in question.

Some estimates indicate that only about 10-20% of all Wi-Fi SEPs are specifically declared at its

SDO: IEEE,

and approximately 20-30% of all High Efficiency Video Coding (“HEVC”) SEPs are

specifically declared at the relevant SDO: ITU-T

. Hence, the large majority of potential SEPs are

not specifically declared at either SDO. As a result, these SDOs’ databases provide no useful

information about the numbers of potential SEPs held by the various owners.

Second, while some SDOs (for example ETSI) require patent owners to identify specific patents

and/or patent applications that they believe are or may become essential to a standard, the disclosure

(also called declaration) process is complex. This process is geared towards standardisation activities

and not adapted for SEP licensing negotiations.

Third, declarations of potential SEPs are often made during the standardisation process (firms

wishing to contribute to a new standard identify their patent assets that may cover the standard,

depending on what contributions are accepted) and hence do not provide reliable information on the

actual SEPs covering the final standard. This is one of the reasons why experts estimate that only

between 25% and 40% of the patents found in the ETSI IPR database are in fact essential to the final

Declared SEPs are patents that the holder declares as either being or likely to be essential to a standard. This is the SEP

holder’s position, largely without any independent evaluation. Some SDOs required such declarations of specific patents

(e.g. ETSI) but most do not. Thus, even the number of SEPs a holder believes to be essential is not available for most

standards.

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12510-Intellectual-Property-Action-Plan.

80% (16 out of 20) and 90% (19 out of 21) respectively. See Annex A8.3 SME Survey, Q12.

Public consultation – responses to Question 19.

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, pp. 38-39, Table 8: SEP evaluation rigorousness level description.

Estimations in Microsoft Corp. v. Motorola, Inc. 2013 U.S. Dist. LEXIS 60233.

Based on comparing ITU-T declaration data with patent lists of MPEGLA’s and Access Advance’s HEVC patent

pools.

kom (2023) 0232 - Ingen titel

published standard

, as supported by empirical research.

In the case of 5G, the essentiality rate can

be as low as 15%.

Depending on the SDO, SEP holders are not required to regularly update the information originally

provided to SDOs, for example by removing non-essential patents or specifying a change in

ownership.

Patent pools provide more transparency

and conduct essentiality checks. Typically, not all SEPs of

an individual SEP holder are checked for essentiality. In addition, the SEP holder chooses which of

its SEPs to submit for essentiality check. The likelihood of those SEPs being confirmed essential is,

therefore, very high. The essentiality check system of the pools is thus not designed to determine the

rate of essentiality in the portfolio of an individual SEP owner. Furthermore, there is no patent pool

that has gathered all SEP holders for a given standard. It follows that patent pools are not capable of

providing sufficient information on the overall SEP landscape.

More readily usable data is available from commercial providers. The cost varies from EUR 5 000

to EUR 25 000.

These private databases are thus available only at high cost, and it is unclear how

reliable their assessments of essentiality are.

80% of SMEs responding to the SME survey said they did not know who owns SEPs relevant to the

standard they use and 90% did not know if patents presented to them during negotiations were

essential to the standard.

2.3.2. What is a FRAND royalty for SEPs?

FRAND refers to the grant of licences on fair, reasonable and non-discriminatory terms (‘FRAND

terms’) in relation to a patent right. Individual patent holders give an undertaking to the SDO that

they are prepared to grant licences on FRAND terms.

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs Expert Group’ (E03600): Contribution to the Debate on SEPs,

2021, Part 2, Section 4.2,

https://ec.europa.eu/docsroom/documents/45217.

Brachtendorf, L., Gaessler, F., and Harhoff, D., ‘Truly Standard-Essential Patents? A Semantics-Based Analysis’,

CEPR Discussion Paper No. DP14726,

May 2020,

https://ssrn.com/abstract=3603956;

estimate that in case of LTE

standards (4G) around 32.3% of SEP in the database are essential, in case of UMTS (3G) - 37.7%; GSM (2G): 38.5%.

IPLytics.

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs Expert Group’ (E03600): Contribution to the Debate on SEPs,

2021, Annex 10,

https://ec.europa.eu/docsroom/documents/45217.

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 30, Section 3.2.1.3. Commercial patent databases.

Professional software solutions provide a fast and easy access to SEP declaration data, allowing to break down patent

counts of self-declared patent families by current patent holder, standards generation, even release or working group

within a few minutes or hours. Some have created designated patent declaration analytics solutions that allow searching

across the full text of patent and standard documents. The solutions vary in terms of quality and scope. See: Baron, J.,

Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European

Commission, DG GROW, 2023, pp. 31-32.

See Annex A8.3, Q12 (16 out of 20), Q12 (19 out of 21) respectively.

According to Horizontal guidelines: Compliance with Article 101 by the standard development organisation does not

require the standard development organisation to verify whether the licensing terms of participants fulfil the FRAND

commitment. Participants must assess for themselves whether their licensing terms and in particular the fees they charge

fulfil the FRAND commitment. Therefore, when deciding whether to commit to FRAND for a particular IPR, participants

will need to anticipate the implications of the FRAND commitment, notably on their ability to freely set the level of their

fees.

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Any SEP holder may demand royalties from an implementer, irrespective of the number of SEPs it

owns. Standards such as 5G can have around 200 SEP holders and each of them may own a different

number of SEPs covering different patented technologies included in the standard. It is, however,

unclear how many truly essential patents each owner has, as explained above. Furthermore, the value

of such patented technologies may be different. Therefore, the number of patents contributed by each

owner could be seen as an imperfect proxy. Finally, the products of the implementers almost always

include many other features and technologies that contribute to the value of their products. This

makes it even more difficult to determine the value of the standardised technology. In addition,

determining the share of royalties for each SEP holder is also a complex process.

When a SEP holder approaches a standard implementer for royalties, the implementer can choose to

engage in in-depth and lengthy negotiations to determine what would be a reasonable royalty (i.e.,

FRAND) or to accept the demanded rate. Engaging in negotiation requires technical competence,

knowledge of patent law and licensing skills, all of which may be less available capabilities in smaller

companies as compared to larger firms. Thus, SMEs for example may tend to accept the SEP holder’s

offered terms fearing an injunction/stop of production. Moreover, if a company (even a large one) is

implementing the standard by using a component supplied by a third party, it will most likely have

no knowledge of the relevant technology and must engage external expertise to assist in the

assessment of the royalty demand.

This comes in addition to the legal resources necessary to

negotiate and finalise a licence agreement.

One way of determining the added value of a standard to a product is to compare its price with and

without the standardised technology. For instance, the price of a phone with and without 5G. The

problem is that any new technology (such as 5G) is first implemented in high end/flagship

products, which are the most expensive. Second, such products incorporate additional features on

top of the standard (e.g. better camera), and the additional value is partly attributable to the

interaction of the new standard with those features. A relatively high FRAND rate determined for

flagship product can then linger on also for cheaper models (unless an adjustment mechanism is in

place), slowing the rate of technology diffusion and adoption.

A SEP owner’s refusal to comply with their FRAND licensing obligation may give rise to liability

under competition law. However, FRAND may be a range and could mean that the royalty rates differ

in different market segments based on the specific use for the standard or parts thereof (e.g. car versus

connected vacuum cleaner) and even between producers of the same product, depending on whether

they are considered to be “similarly situated” (a FRAND rate should be the same for a company in a

comparable situation). SEP holders often disclose their FRAND rate demand at the outset of the

licencing negotiations (they may ask for a non-disclosure agreement to be signed, but many do not),

however they typically refuse to share information about “comparable licences” or are selective about

which comparable SEP deals they will show to the implementer (this kind of information is typically

not public). Some SEP holders announce a SEP price in advance, yet in many cases this is a maximum

price that can be reduced during negotiations. In most cases this is not a price for all relevant SEPs

(of all SEP holders) for a standard (“aggregate royalty”), but a rate the particular SEP owner(s) would

like to get for their share of the total SEPs.

Avanci (52 SEP holders in 2G/3G/4G) prices for connected vehicles range from USD 3 (eCall) to

USD20 (4G) per vehicle. Sisvel’s price for WiFi6 for certain products is from USD 0.5 to USD

3.6 per unit.

Sisvel for DVB-T2 entrance fee of EUR 10 000 and EUR 0.60 to EUR 1 per

Half of SMEs reported that they “did not understand the technology (e.g. of component I use) to engage in meaningful

negotiations”. See Annex A8.3 SME survey, Q12.

Wireless connectivity standard,

https://www.sisvel.com/licensing-programs/wireless-communications/wifi6/patent-

pool/license-terms.

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consumer product.

100

The MPGLA video coding standard AVC/H.264 is royalty free for the first

100 000 units per year, and then USD 0.2 per unit sold with an enterprise cap of USD 9.75 million

per year until 2025.

101

Stakeholders consider that the FRAND licensing concept could benefit greatly from some

clarification, notably with regard to the determination of an aggregate royalty burden, the level in the

value chain at which SEPs should be licensed (e.g. at end product, or component level), or whether

an initial offer by a SEP holder must be FRAND (e.g. guidance in addition to that provided in the

2017 Communication). From our analysis and meetings with stakeholders it emerged that especially

the level of licencing issue is very controversial with no one-size-fits-all solution,

102

and may not be

mandated. It could be recommended, however, that customary industry practices are considered in

this respect.

Issues related to SEP licensing are also regularly raised to competition authorities, including the

Commission’s department responsible for EU competition enforcement. SEP holders raise concerns

regarding implementers unduly delaying negotiations. Implementers complain mostly about SEP

holders not following the

Huawei v. ZTE

process, offers that are not on FRAND terms or about SEP

holders refusing to licence at a certain level of the value chain.

103

Almost all SMEs reported that in negotiations they do not know what a fair price for the SEPs would

be.

104

2.3.3. Dispute settlement not adapted to resolve FRAND rate disagreements

SEP holders and implementers often disagree about what constitutes FRAND terms and conditions

(primarily royalties) for a SEP licence. If parties cannot agree on a FRAND rate, SEP licensing

disputes can turn into patent infringement proceedings before national courts (around 35 per year in

the EU)

105

in which SEP holders usually seek injunctions. On average, the annual costs of SEP related

court proceedings in the EU are estimated at around EUR 6 million. However, already the costs of a

complicated case alone can reach millions of euros.

106

Digital Video Broadcasting – Terrestrial 2 (“DVB-T2”) is a standard for broadcasting digital television on terrestrial

networks available since 2009.

https://www.sisvel.com/licensing-programs/digital-video-display-technology/dvb-

t2/license-terms.

101

https://www.mpegla.com/wp-content/uploads/avcweb.pdf.

102

It should be noted that implementers, especially SMEs (see Annex A8.3 SME Survey, as well as survey to SMEs

conducted by Apple) opt for component level licensing. On the other hand, SEP holders are adamant that they should

remain free as to the level they license. See Annex 9 “Questions on FRAND”, for instance see Q36: “Licensing could

take place at every level of the value chain” 93% of implementers and only 13% of SEP holders agree; or Q37 “Licensing

should take place at the most upstream level of the value chain” 69% of implementers and 0% of SEP holders agree. See

also Annex 5.4 for extended discussion on level of licensing.

103

Without taking any position on the merits of complaints, by way of example, one company has recently made public

its complaint: “HMD has now also filed competition law complaints against VAEVS before the European Commission

in order seek the authorities to intervene in issues such as over-standardization, requirements for open standards and

apparent non-FRAND demands and behaviour.”, see

https://www.hmdglobal.com/evs-substandard-of-4g-press-

release#id-2hm0baKaAwcCJlKW0dRYY3-0.

104

See Annex A8.3 SME survey, Q12.

105

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, Table 15, p. 133.

106

During the public consultations we received a limited number of replies on cost of court disputes. Among eight

respondents who replied to Q51 on cost of FRAND disputes, the median amount was between EUR 3 and 6 million.

Among five who provided estimates on the costs of essentiality related disputes, the median amount was between EUR

1 and 2 million. According to Baron (2023) (see footnote 105) the average cost of a SEP related dispute in the EU

amounts to EUR 170 000 for around 70 cases per year (this figure however also includes for instance EPO opposition

proceedings). It is estimated that around half (35) are court cases, hence the EUR 6 million cost reported. For subsequent

100

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An EU SEP holder reached out in 2016 to a car producer who was using cellular connectivity in

its cars. The SEP holder made several offers to the implementer which were rejected (for instance

the implementer was directing the SEP holder to license its suppliers instead). The SEP holder

spent tens of millions euros on legal counsels and litigation – resources that could have been spent

on R&D. The two firms signed a licence agreement in 2021.

It is very difficult to properly determine FRAND rates in patent infringement proceedings before a

national court, because the SEP holder selects a limited number of SEPs from its national portfolio

to adjudicate, but seeks to license all of its SEPs for the particular technology (e.g., 4G or HEVC),

including those in other jurisdictions (global FRAND licence).

The CJEU judgment in

Huawei

ZTE

established that the SEP holder’s offer, and the potential

licensee’s counteroffer must be FRAND and left it up to national courts to assess whether the parties

observed the process before granting an injunction. National courts in the EU typically focus on

establishing whether the good faith negotiation process has been complied with and have so far not

been involved in global FRAND determinations. Thus, potential remedies tend to focus primarily on

the availability of an injunction, as well as on damages for the past infringement of the asserted

patents and only in the relevant jurisdiction. Thus, the parties are still left with little certainty

regarding FRAND royalties for future sales.

To deal with this uncertainty, a number of courts outside the EU have declared to have jurisdiction

to determine a global FRAND rate, if the parties do not themselves reach agreement on global

FRAND royalties (e.g., UK

107

and China

108

). Courts in the EU have so far refrained from making any

FRAND royalties determinations at a national or global level.

While traditional alternative dispute resolution (“ADR”) mechanisms are available to SEP holders

and implementers and could potentially result in broader FRAND determinations, ADR is rarely used

to settle FRAND-related disputes.

109

Among the key concerns are that (i) implementers may not be

able to obtain information regarding comparable licenses and other relevant data from SEP holders

(available through discovery proceedings in certain judicial proceedings), and (ii) the proceeding

itself as well as the resulting decision are kept confidential and are not publicly available, so they

have limited precedential value for future FRAND-related cases.

110

In response to the public consultation, however, a number of respondents acknowledged the potential

for ADR processes to help resolve global SEP disputes, provided that the above concerns are

addressed.

calculations and in order to remain prudent we have used the lower figure from the study rather than figures reported

during the public consultations. See Annex 9, Q51.

107

Judgment of the United Kingdom’s Supreme Court of 26 August 2020,

Unwired Planet v. Huawei,

UKSC 2018/0214,

[2020] UKSC 37,

https://www.supremecourt.uk/cases/uksc-2018-0214.html.

Note that UK courts allow also different

prices per region.

108

Chinese Supreme Court’s ruling of 19 August 2021,

OPPO v Sharp,

Zui Gao Fa Zhi Min Xia Zhong No. 517. China's

Supreme People's Court has decided that Chinese Courts can set global FRAND rates at the request of one party, but so

far no court has made such a determination.

109

375 persons registered for a Webinar on Enforcement which took place on 4 May 2021 and responded to a survey

during the registration process. To the question in what type of dispute settlement the respondents were involved, 65%

indicated to have been involved in litigation before a court, 20% in settlements between the parties and 4% in mediation.

None indicated to have been involved in arbitration. The responses to the public consultation also revealed that those

mechanisms may be useful subject to conditions.

110

The responses to the public consultation identified this lack of information and transparency as an important obstacle

– see comments to responses to questions 53 to 55. Response of Continental to the Call for Evidence.

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There is also no mechanism enabling the use of the customs enforcement regulation

111

by SEP holders

because the regulation does not require that the negotiating steps set out in

Huawei v ZTE

be followed.

Customs authorities do not have the competence, resources and expertise to establish whether the

negotiating steps set out in

Huawei v ZTE

were conducted (for more explanation see Annex 5.4)

2.3.4. Drivers out of the scope of this initiative

There are also other factors that may contribute to the uncertainty and high transaction costs for both

SEP holders and implementers. These factors include, without limitation, the global nature of

standards and products; changes in the business models such as low-cost smart phones; specificities

of the IoT markets, which are fragmented, competitive and often a low margin market; and the fact

that SEP licensing is sector-specific depending on the nature of the use of the standards. Furthermore,

because both SEP holders and implementers typically operate globally, SEP disputes can be

adjudicated in different jurisdictions including outside the EU. As such, SEP holders and

implementers alike are free to exploit jurisdictional differences to their benefit.

2.4.

What are the consequences?

As new standards are developed, additional contributors participate in the standardisation process

(particularly from Asia), putting more pressure on existing SEP holders due to further fragmentation

of the SEP landscape. Existing SEP holders also face increased challenges to their pricing policies

from their main licensing market, mobile devices (primarily for cellular standards). Chinese phone

makers are increasing their market share and are focusing on low-cost business models to serve lower

income populations. SEP holders need to adapt their licensing model to the realities of these new

emerging markets, especially the price pressures.

The IoT market presents additional challenges. It is a market that is growing at a high speed but is

fragmented. Volumes for certain applications may be small and profit margins seem tight.

112

Licensing may prove difficult and expensive as those industries are not familiar with SEPs (see

Annex 2). The combination of all these factors is likely to deepen the disagreements about FRAND

royalties, which is likely to cause more delays in negotiations and to increase the parties’ licensing

costs, potentially impacting SEP holders’ revenues. This uncertainty about future revenues could

impact the decisions of SEP holders to invest into R&D and may in turn have an impact on

participation in standardisation.

On the other hand, the lack of transparency and unpredictability of royalty demands, plus the cost of

negotiation and disputes also puts pressure on the costs of products by implementers that are entering

the market. This is likely to put pressure on the innovation capacity of implementers as well.

CRA(2022) noted that there is a trade-off between high SEP royalties and more innovation upstream

(by SEP owners), on the one hand, and less innovation downstream (by implementers) as a result of

high SEP royalties, on the other hand.

Both SEP holders and implementers are likely to (i) lose incentives to innovate; (ii) reduce sustainable

competitiveness; and (iii) adversely affect supply chain security.

Incentives to innovate. Uncertainty regarding SEP licensing, price and conditions, with the risk

of litigation may impact investment and R&D decisions as explained above.

111

Regulation (EU) No. 608/2013 of the European Parliament and of the Council of 12 June 2013 concerning customs

enforcement of intellectual property rights and repealing Council Regulation (EC) No. 1383/2003 (‘Regulation

concerning customs enforcement of IPRs’), OJ L 181, 29.6.2013, pp. 15-34,

http://data.europa.eu/eli/reg/2013/608/oj.

112

According to testimonies from an IoT supplier and an IoT end-product manufacturer.

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Sustainable competitiveness

Global competitiveness

SEP holders often face challenges to the royalty rates offered. Although some implementers may

push to obtain lower rates without consideration of what constitutes FRAND, there is also a lack of

certainty and transparency with regard to factors that would support a determination of FRAND rates.

Uncertainty about which SEPs are essential and the inability of implementers (large and small) to

determine the overall essentiality and validity of the SEP owner’s portfolio through technical

discussions (which are often limited to one or two dozen SEPs) lead to questions whether the value

of the SEP owners’ portfolio is overestimated. The testimonies listed in Annex 2 all refer to a lack of

trust in the system and regarding the FRAND-ness of the SEP owners’ offers.

Implementers are typically challenged at courts in the EU first, particularly if they have important

sales in the EU. Those that take a licence first face competition from unlicensed competitors.

A European IoT device manufacturer who uses 3G/4G standards for connectivity was approached

by a SEP holder to pay royalty. The proposed licence would increase the product price by 3%. At

the same time, a Korean manufacturer sells similar products without a licence, as it has not yet

been approached by the SEP owner. The EU manufacturer fears losing its market share.

EU semiconductor firm: Not having a SEP license adds to uncertainty, both for us and for our

customers. If we make a provision for estimated royalties and our competitors do not, we are at a

disadvantage. Our module customers generally do not understand the technology and want a

solution with SEP indemnification as they feel unable to navigate the licensing process. If we do

not offer such indemnification and our competitors do, we are at a disadvantage.

Furthermore, EU companies implementing more expensive standards face difficulties to effectively

compete in markets which have adopted their own competing standards. For example, China

promoted the creation of a Chinese patent pool for its audio-visual standards (AVS) and standard

contributors accepted to contribute patented technologies for an aggregate fee of one yuan

(approximately EUR 0.14) per hardware device.

113

EU implementers of the competing AVC standard

may not be able to compete in that market.

The public consultation confirms that if European companies in the IoT sector, such as smart meters,

wireless charging stations and payment terminals, are licensed first at rates that their competitors in

other jurisdictions would not pay, they are likely to lose competitiveness.

114

More testimonials are

available in Annex 2.

Technology diffusion

There are risks that standards’ take-up will be slower or implementation will be delayed in the EU

until applicable SEP royalty rates become more affordable.

Royalty free Bluetooth gained 100% phone market coverage in 8 years, while royalty bearing NFC

gained only 36% coverage in the same period.

115

Companies may also try to work around the SEP technology by creating their own (not standard)

solutions or develop a competing standard on a royalty-free basis, where investment cost permits it.

AVS-Audio and Video Coding Standard Workgroup of China

and Webinar on Patent Pools – 20 April 2021, Summary

report, p. 9,

https://ec.europa.eu/docsroom/documents/45814/attachments/1/translations/en/renditions/pdf.

114

Public consultation, answers to Questions 8, 13 and comments on non-discrimination.

115

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 180.

113

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It is also possible that older/less efficient, but lower-royalty or royalty-free technology will be used

to avoid high SEP royalty exposure. Half of the SMEs stated they try to use free or older technology

in order not to pay for SEPs, while one in five stated that they would try to develop in-house

alternatives.

116

Royalty bearing FireWire (at least initially) was superior to the royalty-free USB standard, but

USB became the dominant one.

117

Although the study commissioned to support this IA concluded that at least currently there is no

systematic evidence of mass scale occurrence of slower than expected or delayed implementation of

standards,

118

the public consultation and several testimonies show that the IoT sector is adopting the

newest standards slower than the mobile phone market.

119

Many IoT devices can operate on older

standards such as 2G (patents expired) and 3G (which is cheaper) but the 2G and 3G infrastructure

will be removed in the near future.

120

Both EU SEP holders and implementers are set to lose from this situation.

Supply chain security

Delays in the negotiations and increasing costs of licensing, may disincentivise EU SEP holders to

continue their participation in standardisation. This would benefit non-EU contributors to the

standards. The EU would thus lose its ability to contribute European technology to the global market,

also related to critical infrastructure.

There is already proof in the automotive industry that because of SEP royalties, European suppliers

are no longer able to compete and exit the automotive supplier market. In a submission to the

Commission, the automotive manufacturers’ organisation ACEA reported a shortage of supplier

offers and a growing dependence on Chinese suppliers.

2.5.

How likely is the problem to persist?

With an increasing demand for connectivity (particularly for IoT) and other standards that promote

interoperability, the problem of SEP licensing is set to gain prominence and affect a much larger

number of companies. About 70% of surveyed SEP experts

121

as well as conclusions from the Expert

Group Contribution confirm that the licensing of SEPs for IoT applications is expected to be more

challenging. This is because of current trends in standard development, including the increasing

complexity of new standards, the high number of SEP holders with varying interests and business

models, a lower volume of products for a larger number of implementers, and increased use of

standards across different sectors of the economy. These factors in combination are likely to amplify

frictions in the SEP licensing environment, further spotlighting the need for more certainty and

transparency.

116

117

48% (12 out of 25) and 19% (5 out of 26) respectively. See Annex A8.2 SME survey, Q16.

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 176.

118

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 179.

119

See Annex 9, Q12.

120

Michael Bosson, 2G and 3G sunsets and how to prepare, Onomondo, 2022,

https://onomondo.com/resource-hub/2g-

3g-sunset/#Europe.

121

Results of a Survey conducted with SEP industry experts by the Technical University of Berlin in October 2020. See

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 24.

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On the other hand, the level of information on SEP ownership and essentiality is not expected to

improve absent a push from outside sources. The Commission has been trying to stimulate voluntary

industry solutions since its Communication in 1992 on Intellectual Property Rights and

Standardisation

122

, and most recently in 2017 when the Commission issued a Communication on

SEPs

123

. Attempts to improve the quality of SEP declarations at SDOs since then show little

progress.

124

The polarised responses to the many surveys, webinars, conferences and the Public

Consultation have made it clear that the industry will not act on its own.

SEP holders will continue to selectively approach successful SEP implementers for royalty payments

(70% of SEP holders in the public consultation answered that they do not contact all known

implementers).

125

Although patent pools are likely to emerge for certain IoT applications, such as

Sisvel pools for Wi-Fi 6 products,

126

smart meters and tracking devices,

127

such pools will not

represent all SEP owners. Consequently, most implementers will not be fully licensed and will

operate under the threat of an injunction (particularly if they become successful with higher volumes).

Furthermore, due to the increasing number of SEP implementers in an increasingly connected world,

SEP holders could choose to outsource SEP licensing (and resulting litigations) to specialized patent

assertion entities

128

in the future.

About 70% of the implementers take a licence without litigation according to the results from the

public consultation.

129

There is no indication that traditional alternative dispute resolution

mechanisms currently available to SEP holders and implementers will be used more often going

forward to settle FRAND-related issues.

130

Respondents to the public consultation considered

mediation insufficient as the mediator has no authority to request information and no authority to

make a price recommendation.

131

The newly established Unified Patent Court

132

is not yet

operational, and it remains unclear how the court will assess and grant injunctions in the context of

SEPs and whether it will engage in the assessment of (global) FRAND rates.

No other initiative by the Commission or Member States is going to help provide solutions for these

SEP issues.

133

At the same time other jurisdictions already have (Japan, South Korea, Singapore) or

122

Communication from the Commission on Intellectual Property Rights and Standardisation, COM(92) 445 final,

27.10.1992,

https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:1992:0445:FIN:EN:PDF.

123

Communication from the Commission to the European Parliament, the Council and the European Economic and Social

Committee on Setting out the EU approach to Standard Essential Patents, COM(2017)712 final, 29.11.2017,

https://ec.europa.eu/docsroom/documents/26583.

124

For example, ETSI has taken some incremental steps to improve its database and to make it more user-friendly. CEN-

CENELEC improved its declaration system. Other industrial associations, like the Next Generation Mobile Networks

(which brings together mobile network operators and their suppliers) are working on proposals to improve transparency.

125

See Annex 9, Q15. Do you contact all known SEP implementers from the selected category?

126

https://www.sisvel.com/news-events/news-events/news/sisvel-launches-a-patent-pool-on-wi-fi-6.

127

https://www.sisvel.com/news-events/news-events/news/sisvel-launches-its-cellular-iot-patent-pool.

128

This includes state-owned entities (such as Japanese IPBridge or FranceBrevets), ‘privateering’ spinoffs from large

operating companies (e.g. Unwired Planet from Ericsson, Panoptis from Panasonic etc), former operating companies who

have ceased other activities to concentrate on patent licensing (e.g. Sisvel), and private companies acquiring patents from

a variety of predecessors (e.g. IPcom, Uniloc, etc.). PAEs contribute to further fragmentation of the SEP holders market.

129

See Annex 9, Q17. What percentage of the SEP implementers that reply take a license without litigation?

130

WIPO arbitration and mediation centre has reported an increased interest in mediation and referrals by national courts

to WIPO for mediations on FRAND terms and conditions by non-EU courts. There is no public data as to whether EU

courts use this possibility.

https://www.wipo.int/amc/en/center/caseload.html.

131

Public consultation – responses and comments to question 53.

132

https://www.unified-patent-court.org/en.

133

The

Commission

currently

reviewing

Horizontal

Guidelines

(https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1371). However, the revised draft Horizontal Guidelines

address issues in the context of standardization agreements, but do not tackle issues related to license negotiations,

litigation and lack of information on SEPs once the standard is adopted. The Horizontal Guidelines also remain voluntary.

kom (2023) 0232 - Ingen titel

are considering SEP related initiatives (including China, India and the UK). If the EU does not take

the initiative, it will have to follow developments in other jurisdictions, which will affect EU

companies as well as the EU-related businesses of global companies.

HY SHOULD THE

ACT

3.1.

Legal basis

The initiative concerns standards to which a patent holder has contributed a patented technology and

which it has committed to an SDO to license on FRAND terms and conditions. Standards for which

patent holders make FRAND commitments are applied cross-border among Member States and

globally. SEP licensing is also seldom national. Usually, licensing contracts are global and may take

into account certain regional aspects. The international standards in question cover technologies such

as 4G, 5G, Wi-Fi, HEVC, AVC, DVB and others that ensure interoperability of products worldwide.

Article 114 TFEU constitutes the appropriate legal basis as the objective is to improve the conditions

for the establishment and functioning of the internal market. The initiative seeks to ensure the

efficiency of SEPs licensing, facilitating lawful access to the standards and promoting wider adoption

of standards. There are no specific EU or national rules on SEPs and it has been left to competition

law to regulate.

134

In addition, as acknowledged by the CJEU in

Huawei v ZTE,

apart from common

rules relating to the grant of a European patent, a European patent remains governed by the national

law of each of the Contracting States for which it has been granted as is also the case of national

patents.

The CJEU has confirmed

135

that recourse to Article 114 TFEU is possible, if the aim is to prevent the

emergence of obstacles to trade between Member States resulting from the divergent development of

national laws. However, the emergence of such obstacles must be likely and the measure in question

must be designed to prevent them. Dutch

136

, French

137

and German

138,139

courts have been

considering FRAND-related issues in national litigation, based on the laws of the Member states and

the specificities of the disputes brought before them. Those cases show different approaches (not

necessarily different results) with regard to FRAND determinations concerning SEPs covering

regional or global standards. It is difficult for EU national courts to handle SEP-related cases and

make detailed and consistent FRAND determinations. This is in large part due to the lack of

transparency and complexity of the issues that are central to such determinations, such as essentiality

of patents, comparable licences and compliance with FRAND requirements. While the initiative will

neither interpret the CJEU case-law nor dictate methodologies for FRAND determinations per se, it

will establish mechanisms that promote the necessary transparency, increase certainty and reduce the

Communication from the Commission – Guidelines on the applicability of Article 101 of the Treaty on the Functioning

of the European Union to horizontal co-operation agreements, OJ C 11, 14.01.2011, pp. 1-72, CELEX:

https://eur-

lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52011XC0114(04)

and competition case-law.

135

Judgment of the Court of Justice of 12 December 2006,

Germany v Parliament and Council,

Case C‑380/03, [2006]

ECR I‑11573, para. 38 and the case-law cited, and Judgment of the Court of Justice of 10 February 2009 ,

Ireland v

Parliament and Council,

Case C‑301/06 [2009] ECR I-593, para. 64; see also, to that effect, Judgment of the Court of

Justice of 2 May 2006,

United Kingdom v Parliament and Council,

Case C-217/04, [2006] ECR I‑3771, paras. 60 to 64.

136

Court of Appeal of The Hague, judgment of 2 July 2019, Philips v Wiko, Case number : C/09/511922/HA ZA 16-

623; Hoge Raad, Judgment of 25 February 2022, Wiko v Philips, Nummer 19/04503, ECLI:NL:HR:2022:294; District

Court The Hague, Judgment of 15 December 2021, Vestel v Access Advance, ECLI:NL:RBDHA:2021:14372.

137

Paris Court, order of the pre-trial judge of 6 February 2020, TCT v Philips, RG 19/02085 – Portalis 352J-W-B7D-

CPCIX; TJ Paris, 3.3, judgment of 7 December 2021, Xiaomi v Philips and ETSI, RG 20/12558.

138

German Federal Court of Justice (‘Bundesgerichtshof – BGH’), judgement of 5 May 2020, Sisvel v. Haier, KZR

36/17, and German Federal Court of Justice, judgment of 24 November 2020, FRAND-Einwand II, KZR 35/17.

139

Order of the President of the Court of 24 June 2021, Nokia Technologies Oy v Daimler AG, Request for a preliminary

ruling from the Landgericht Düsseldorf, Removal from the Register, Case C-182/21, ECLI:EU:C:2021:575.

134

kom (2023) 0232 - Ingen titel

potential for inconsistent rulings. This will be a significant improvement in these courts’ abilities to

handle SEP disputes.

EU-wide rules on transparency regarding SEPs and FRAND terms would have a harmonising effect

within the EU, which would facilitate the work of national courts and the future Unified Patent Court.

The instrument to implement this initiative should be a regulation. A regulation would be directly

applicable, including by empowering an EU agency with the tasks of managing a register of SEPs,

and establishing a common FRAND determination procedure that would ensure uniformity across

the EU and provide greater legal certainty. These outcomes cannot be achieved by means of a

Directive.

3.2.

Subsidiarity: Necessity of EU action

Measures taken at national, regional or local level aiming at increasing transparency and facilitating

licensing of SEPs may not be efficient for the following reasons. First, instead of one EU-wide

solution for SEPs, there might be different national solutions for the SEPs on one specific standard.

Second, under an EU-wide approach, it will not be necessary to conduct more than one essentiality

check per patent family to find that patents are indeed truly essential to a standard. The check would

be done based on a single EU-wide methodology. Third, non-centralized alternative dispute

resolution processes may come to different results for the same SEP portfolio, opening the door to

“forum shopping” within the EU. An EU-wide approach can help avoid these problems.

3.3.

Subsidiarity: Added value of EU action

Action at EU level is expected to save costs for stakeholders, both SEP holders and implementers,

and for Member States. For instance, there would be one register, one essentiality check per patent

family, one common methodology for the conduct of such checks, and a streamlined and transparent

conciliation (FRAND determination) process. SEP holders and implementers would not have to incur

the same costs in each EU Member State which would be the case with national solutions, especially

in a situation where most standards are regional or global.

BJECTIVES

: W

HAT IS TO BE ACHIEVED

4.1.

General objectives

This initiative aims at:



Ensuring that end users, including small business and EU consumers benefit from products

based on the latest standardized technologies at reasonable prices.

Making the EU an attractive place for innovation and standards development (including for

global participants).

Ensuring that both EU SEP holders and implementers innovate in the EU, make and sell

products in the EU and are competitive on global markets.

In particular, the goal is to facilitate SEP licensing negotiations for both SEP holders and

implementers, by reducing current uncertainties as to the level of SEP exposure (implementers) and

return on research and development activities (SEP owners) thereby also lowering the transaction

costs.

4.2.

Specific objectives

This initiative has three specific objectives:



Provide more clarity on who owns SEP and which SEPs are truly essential.

Provide clarity on FRAND royalty and other terms and conditions

kom (2023) 0232 - Ingen titel



Facilitate SEP dispute resolution.

Figure 5: Objectives tree

Ensure that EU customers have access to the latest technology at reasonable price

Ensure that EU firms innovate and produce in the EU and are competitive on global markets

General

Facilitate SEP negotiations (reduce uncertainty and transaction costs)

For implementers:

Facilitate assessment of SEP exposure

Provide information on SEPs

ownership and essentiality

For SEP owners:

Facilitate reasonable return on SEP innovation

Specific

Provide clarity on FRAND

royalty

Facilitate dispute resolution

HAT ARE THE AVAILABLE POLICY OPTIONS

5.1.

What is the baseline from which options are assessed?

The baseline was described in section 2.5 above. In essence, SEP holders will continue to selectively

approach implementers, and both will bear the costs of protracted negotiations and court disputes.

The information asymmetry between SEP holders and implementers will remain, with the latter

having to bear additional costs either by committing resources to long negotiations (including own

essentiality checks) or by accepting the SEP owner’s offer and paying potentially higher fees to

continue production. With time, patent pools offering more efficient licensing solutions for selected

applications may emerge and facilitate licensing, if they gain acceptance in the market. This is not

likely to happen because the new emerging pools gather SEP holders who do not implement the

technology, for example in the IoT. The FRAND royalty expectations are likely to be higher than the

market would suggest.

140

None of the other patent related initiatives announced in the IP action plan of 2020 (i.e.

Supplementary Protection Certificates

141

and Compulsory Licensing

142

) is tackling nor affecting

development of SEP specific problems identified in this impact assessment.

5.2.

Description of the policy options

The options concern international standards for which a patent owner has made a FRAND

commitment and SEPs are in force in one or more EU Member State(s). The initiative will exclude

national standards and standards with royalty free licensing policies. The options are constructed

following an incremental approach from the least to the most ambitious. More details on options are

provided in Annex 6.

140

For example, Sisvel launched a new IoT pool with 20 licensors who claim to represent about 30% of all SEPs. The

price for a smart meter is announced at USD 2, so the total aggregate royalty would be around USD 7 (EUR 6.7 on 15

February 2023). The value of a consumer smart meter is reported to be around EUR 65.

141

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13353-Medicinal-&-plant-protection-

products-single-procedure-for-the-granting-of-SPCs_en

142

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13357-Intellectual-property-revised-

framework-for-compulsory-licensing-of-patents_en

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5.2.1. Option 1 (PO1): Voluntary guidance

This option consists of non-binding guidance that provides further clarification of FRAND concepts

and conditions such as, for example, i) the economic value of patented technology should not be

conditional on market success of a product that implements it, ii) the value may depend on actual

functionalities of the standard used, iii) similarly situated entities using the same functionalities of a

standard in similar applications should receive similar terms and conditions; iv) an aggregate royalty

must be “reasonable”; v) promote the use of FRAND rate discounts for early standard adopters; vi)

differentiation of FRAND terms and conditions between sectors and over time; vii) a

recommendation that SEP licensing takes place at the level (component or final product) where

intellectual property is customary licensed in an existing industry; viii) an explanation of the legal

rules on liability for infringement of third-party intellectual property in commercial contracts and

their application in the context of SEPs (e.g. indemnification obligations, passing the cost of the SEP

licence downstream; ix) clauses in arbitral agreements that should be avoided (e.g. a prohibition to

challenge the validity of a patent). The guidance will also recommend measures to facilitate SEP

license uptake by SMEs. Additionally, the Commission may recommend to (or require) SEP holders

to adopt existing SEP pool practices addressed to SMEs, such as royalty-free licences for small

volume production or discounts. The guidance will be reviewed and updated regularly to take account

of legal (e.g. CJEU jurisprudence, other case law) and market developments.

An EU Competence Centre on SEPs will be created within the European Union Intellectual Property

Office (EUIPO). Its tasks will include monitoring of the SEP licensing landscape, gathering and

providing easy access to SEP-related policies from key jurisdictions globally as well as case-law

summaries (including arbitrations) related to FRAND issues, also for foreign jurisdictions,

supporting EU SEP policy making (e.g. via studies). The Competence Centre would also seek to sign

an agreement with the World Intellectual Property Organization (WIPO) to promote the use of the

WIPO Arbitration and Mediation Centre for SEP disputes in the EU and to exchange information.

143

Additionally, the centre will become an SME

144

SEP licensing assistance hub. It will offer European

SMEs free SEP advice, both for SME SEP holders and SME implementers, provide trainings on SEP

licensing/FRAND negotiations and conduct studies concerning SEP-related issues. These activities

will be available at least in English, free of charge and may be funded from the existing SME support

mechanisms such as the SME Fund or the IP Helpdesk.

145

5.2.2. Option 2 (PO2): SEP register with essentiality checks

PO2 builds on PO1 and establishes a SEPs register

146

where SEP holders that seek to license their

SEPs in the EU will specify which patents they consider to be essential to a particular standard.

Registration will be mandatory for enforcement purposes, such that if a SEP is not registered, the

SEP holder will not be able to assert it in court and/or it will not be able to collect royalties or past

damages for any use of a SEP prior to the date of registration. This condition will apply to patents

for standards (or new versions of existing standards) adopted after the entry into force of the rules

implementing this option.

147

A number of standards, however, rely on older technical documents in

143

Similar to the agreement signed between USPTO and WIPO in mid-2022:

https://www.uspto.gov/about-us/news-

updates/uspto-and-wipo-agree-partner-dispute-resolution-efforts-related-standard.

144

SMEs as defined by the EU recommendation 2003/361,

https://single-market-economy.ec.europa.eu/smes/sme-

definition_en

145

https://euipo.europa.eu/ohimportal/en/online-services/sme-fund.

146

This register would provide an interface for SEP holders to submit their patents.

147

It will also not affect ongoing license agreements, only the new ones, or renewal of existing agreements (if it concerns

patents in the SEP register).

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order to function (for example, a 4G phone should be able to also support 3G) and many IoT

applications rely on 4G. Therefore, it will be possible to determine the scope of the standard by listing

the relevant technical documents. All SEPs relevant to those documents will have to be registered.

SEP holders can register their SEPs anytime following the publication of the relevant standard or the

granting of their patents which are declared SEPs. Once a registration is done, any changes, such as

ownership, invalidation or other court judgments should be updated within 6 months.

148

For the registration, SEP holders will be requested to submit: i) full details regarding their patents

protected in the EU claimed to be essential, including the patent office that granted the patent; ii)

proof of their ownership; iii) identification of the commercial name of the standard for which the

patent is essential; iv) information that helps to link the patent to the standard such as the specific

section(s) of the standardisation document(s) for which the patent is potentially essential

149

and an

identification of which features of the standard are normative or optional; v) evidence of the SEP

owner’s FRAND commitment and any other relevant information, such as links to standard licensing

terms and conditions as well as contact details. SEP holders will have to update the information in

the register to reflect relevant changes (including e.g. validity of a patent).

The essentiality checks on SEPs included in the register

150

will be performed in accordance with a

pre-determined EU methodology to be developed by industry experts under the auspices of the

Commission. Essentiality checks could concern either: sub-option i) all SEPs in the register or sub-

option ii) up to a fixed number (e.g. 50 or 100)

151

of patents selected by a SEP holder (or implementer)

and a representative random sample of all SEPs in the register conducted annually to ensure the

quality of the register. No SEP holder or other interested party will be able to choose the evaluator

for any given essentiality check. The SEP holder will have an opportunity to submit a claim chart (a

detailed document that links a standard to the claims of a patent) for each SEP that is checked. The

SEP holder will receive the preliminary results of the essentiality checks and have the opportunity to

comment before the opinion is issued.

The results of the non-binding essentiality checks will be published in the register (for each essential

patent of the “up-to-100” group, and information on the percentage of essential patents for a given

SEP holder based on random sampling). After the annual essentiality check process is completed, a

SEP holder may request the cancellation of a SEP registration, if the result is negative. A certain

number of the essentiality checks will be the subject of a peer evaluation, to be performed annually

by a group of evaluators with significant experience. This will ensure the quality and consistency of

the essentiality checks. Essentiality checks conducted by an independent person prior to the

publication of the standard in the context of pools and essentiality determinations in courts will be

reflected in the register. Those SEPs will not be re-checked for essentiality. Any court decision

determining the essentiality or lack thereof will be reflected in the register.

Both register and essentiality checks will be managed by the Competence Centre

152

created under

PO1. The persons that will conduct the essentiality checks (evaluators) will have to satisfy pre-

determined criteria regarding competence and independence and will be designated and remunerated

148

There could be a mandatory rule that the FRAND commitment must be transferred with the SEP ownership. This is

currently in the Horizontal Guidelines as a guiding principle but could be reinforced in a Regulation as Canada did.

Technically some changes could be automatically updated by connecting the SEP register to patents registers/databases.

149

Such as ‘ETSI TS 125 215’, Section ‘claim charts’.

150

This register will provide an interface for subject evaluators to chart patents and submit the results to this register.

151

The public consultation revealed that in most cases no more than 50 SEPs will be discussed individually in SEP

licensing negotiations, even if the number of SEPs licensed may be significantly higher. The number could be doubled

to facilitate/encourage SEP holders to join patent pools, some of which conduct essentiality checks.

152

Its main tasks would be: (i) creating and maintaining the register; (ii) setting up a scheme that would ensure that the

assessing bodies are able to perform the assessments in a harmonised manner and meet the requirements for reliability,

impartiality, quality, and performance; (iii) administrating the essentiality checks, etc.

kom (2023) 0232 - Ingen titel

by the EUIPO. The essentiality check methodology and criteria for the selection of evaluators will

be adopted as an implementing act under the Regulation.

There will be an administrative fee for SEP holders to enter SEPs into the register and to cover the

costs of essentiality checks. Interested stakeholders will be able to access certain basic information

in the register for free (for example the list of SEP owners). Fees will be required, however, from

implementers and any other interested stakeholder to access detailed information from the register.

SMEs (both SEP holders and implementers) will benefit from reduced fees.

5.2.3. Option 3 (PO3): SEP register with essentiality checks and conciliation

procedure

This option adds a conciliation (bilateral FRAND determination) process to PO2. Conciliation aims

at assisting parties in negotiations of a SEP licence with the FRAND royalty determination designed

for their needs.

The Competence Centre will administer the conciliation procedure. It will create a “roster” of

conciliators that satisfy the requirements of competence and independence, as well as a repository of

conciliation reports, the confidential version of which would be accessible only to the conciliators.

The conciliator would be a neutral party with extensive experience in dispute resolution and

substantial understanding of the economics of FRAND licensing to be credible. The parties will be

given an opportunity to agree on (a) conciliator(s) from that roster and failing to do so will empower

a representative of the EU Competence Centre to choose the conciliator(s).

The conciliation procedure would have to be initiated by either the SEP holder or the implementer

and concluded within nine months. Neither party would be able to initiate an action in a court of any

EU Member State (either patent infringement or FRAND determination) until the conciliator has

issued a report

153

(or optional: the procedure has been initiated).

The conciliator would examine the parties’ offers/counteroffers and consider the

Huawei v ZTE

negotiation steps among other relevant factors. The conciliator would have the power to request and

receive information necessary to conduct the task (including access to the SEP register, essentiality

checks and past conciliation reports), observing the level of confidentiality attributed to the relevant

information in the proceedings. However, the parties would be free to engage in the proceedings and

would not be prevented from leaving the process at any time or even not engaging at all. At the

conclusion of the procedure, the conciliator would issue a report recommending a FRAND rate.

Either party would have the option to accept or reject the conciliator’s report and/or recommendation.

The conciliation procedure would be confidential, as well the report the parties would receive at the

end, unless they settle beforehand. A non-confidential version of the report containing the FRAND

rates and the methodology used (excluding any confidential information) will be provided to the

Competence Centre for further publication. The SEP holder would also have to use the report or a

notice of termination of the procedure before customs to support a request for customs action with

regard to goods infringing SEPs.

The conciliation procedure would be conducted in English, unless parties decide otherwise. All costs

of the conciliation process would be in principle shared equally between parties. Each party would

bear its own costs in the process. As a support measure for SMEs, the EU Competence Centre would

provide free advice to SMEs on SEPs licensing, the conduct of the conciliation and how the SME

can best represent itself. SMEs would also be able to benefit from a reduced administration fee for

the conciliation and potentially a discount or financial support from e.g. the SME Fund to cover the

conciliator’s fees.

153

Except if one party is not participating or has started parallel court proceedings in a third country, the other party can

terminate the conciliation without a report.

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5.2.4. Option 4 (PO4): Aggregate royalty for SEP

This option adds to PO3 a process for determining (ex-ante) an estimated maximum aggregate

royalty.

Ex-ante

i.e.,

before (or shortly after) the publication of a standard, contributors to a standard should

inform the Competence Centre about the maximum aggregate royalty for all SEPs essential to that

standard. For complex standards with multiple implementations there may be a need for different

aggregate royalties depending on the implementations known at the time of the publication of the

standard.

154

It would be possible, however, to reassess the aggregate royalty after a reasonable period

of time following the adoption of the standard. Standard contributors would have the right to ask the

Competence Centre to appoint a neutral party (a conciliator from the roster set in PO3) to assist them

in setting an aggregate royalty.

155

Additionally, a group composed of contributors to a standard and/or

(potential) implementers would be able to ask the Competence Centre within a predefined time after

the publication of a standard or after a new implementation becomes known, for an expert opinion

on the aggregate royalty. An expert opinion would be delivered by a panel of three conciliators,

following an open process where any party demonstrating a legitimate interest in the standard (and

upon paying a participation fee) will be able to provide information to the panel. There will be a fixed

time for the panel to deliver its opinion.

In case an aggregate royalty is not set by any of the methods described above, during the first bilateral

FRAND determination (conciliation) procedure related to the relevant standard, the conciliator may

make a recommendation for an estimated aggregate royalty (in addition to the determination of a

FRAND rate for the parties’ specific dispute). Whether the conciliator makes such a recommendation

would depend on the methodology it uses for the determination of the FRAND rate for the specific

dispute at hand. Such an aggregate royalty will be specific to the dispute at hand. An aggregate royalty

can also be determined or updated during any subsequent conciliation(s).

An aggregate royalty set by any of the above methods will be published in the register and will be

non-binding on the negotiating parties. Under this Option there will be no determination of the

allocation of the aggregate royalties among different SEP owners.

5.2.5. Option 5 (PO5): SEP clearing house

This option adds to PO4 a one-stop-shop facility for implementers. The aggregate royalty determined

under the procedure under PO4 will become a binding aggregate royalty for those using the one-stop-

shop. Once the aggregate royalty is determined, any implementer will be able to request a licence

from all SEP holders by informing the Competence Centre and depositing in an escrow account either

the full amount of the published aggregate royalty (in case of lump sum payment) or the amount

corresponding to at least an estimated monthly sales volume of a product concerned (in case of per

unit royalty payment). At fixed intervals (at least once a year) the implementer should deposit further

royalty payments to the escrow account, provide evidence on real sales volumes (e.g. VAT, financial

statements) and correct past royalties to actual sales. Any royalties not collected by SEP holders

within a year from the deposit shall be returned to the implementer. The Competence Centre will

charge fees to cover the costs of the “clearing” service.

The Competence Centre will notify all SEP holders who have registered, checked and confirmed

SEPs in the EU register, so that they may conclude a licensing agreement with an implementer. SEP

holders should also inform the Competence Centre how to allocate the aggregate royalty among them.

154

Once new implementations become known at a later stage, contributors will again have an opportunity (within a fixed

time period) to inform the Competence Centre on the aggregate royalties for those implementations.

155

Those requesting will have to bear the cost of such service.

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Until they do so, they will not be able to collect royalty payments from the escrow account. Should

SEP holders fail to agree on such method, the Competence Centre upon request from any SEP holder

involved will appoint a conciliator from the roster set in PO3 to recommend an allocation method

(the cost of the facilitator will be borne by all SEP holders involved). Once an allocation is

established, any implementer will be expected to deposit in the escrow account the aggregate royalty.

Each SEP holder will have a period of time to conclude a licensing agreement. The implementer will

be reimbursed the part of those SEP holders that do not conclude licensing agreements. Following

notification, SEP holders may not start infringement proceedings in any EU court against an

implementer who deposited security for an aggregate royalty in the escrow account.

An implementer may choose not to use the one-stop-shop and to have bilateral licensing with SEP

owners.

5.3.

Logic of options construction. Could options be standalone?

The options are constructed following an incremental logic proposed already in the Call for

evidence.

156

PO1 is voluntary and thus the least ambitious option. PO2 adds to PO1 a SEP register

with essentiality checks. PO3 adds conciliation to the register. Conciliation could be a standalone

option. However, in that case a conciliator will not be able to use the register and the databases of

case-law and other information to complete its analysis. This means that if only one party engages in

the conciliation in good faith, the conciliator will be compelled to use only the information provided

by that party and any other public information it may find but not on the information available to it

under PO1 and PO2. This will significantly reduce the value and credibility of its report. This is why

it is important that a conciliator can benefit from the SEP register in making recommendations. This

way (s)he can at least check which patents a SEP holder has and what share is essential. PO4 adds

aggregate royalty to PO3. SEP holders can benefit from the help of the Competence Centre’s

conciliators to propose an aggregate royalty. Stakeholders will also have the right to request a non-

binding expert opinion on the aggregate royalty by a panel of three conciliators. If no aggregate

royalty is announced or proposed by the panel of conciliators, an aggregate royalty may be

determined by any conciliator who decides to use this methodology for FRAND determination in a

bilateral process (as explained in PO3). Finally, PO5 can only work when both aggregate royalty (set

in PO4) and SEP holders eligible to get a share of that royalty (PO2) are known.

5.4.

Options discarded at an early stage

The following sub-options to those presented above were discarded following an initial assessment.

For details see Annex 6.

In case of PO1, determination of the level of licensing by the Commission was discarded as currently

there are different practices with different standards and there does not seem to be a one size fits all

solution. Therefore, such an intervention in the contractual freedom would be disproportionate.

157

156

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-

framework-for-standard-essential-patents_en.

157

Competition law (Article 102 TFEU) does not imply a preferred licensing level. SEP holders argue that any

intervention undermining a SEP holder’s discretion over licensing level would likely contravene Articles 30 and 31 of

the TRIPS Agreement. Furthermore, some respondents explain that courts in Europe and other jurisdictions have rejected

the contention that SEP holders are required to grant licenses to component and chip makers (see, District Court

Mannheim, decision of 18 August 2020,

Nokia v Daimler,

2 O 34/19,

http://eplaw.org/wp-content/uploads/2020/10/DE-

2-O-34_19-URT-Allgemeines-Urteil-FINAL_ANONYMISIERT.pdf;

District Court of Munich, judgment of 10

September 2020,

Sharp v Daimler,

7 O 8818/19,

https://www.gesetze-bayern.de/Content/Document/Y-300-Z-GRURRS-

B-2020-N-22577?hl=true;

US Court of Appeal for the Ninth Circuit, decision of 11 August 2020,

Federal Trade

Commission v Qualcomm Inc.).

See also US Court of Appeal,

HTC v Ericsson.

The US Court of Appeals for the Fifth

kom (2023) 0232 - Ingen titel

case of PO2, a creation of up to 27 national SEP registers was discarded as a more expensive and

cumbersome option. A SEP register without essentiality checks on a sampling basis to control the

quality of the register was also discarded because it would have only helped to create some

transparency with regard to standards to which blanket declarations are made but would not resolve

the issue of over-declaration in existing databases. In case of PO3, a voluntary conciliation was not

considered as already existing voluntary alternative dispute resolutions are not frequently used by

stakeholders

158

and there are usually no negative consequences for non-participation. In case of PO4,

a mandatory aggregate royalty determination after adoption of a standard was rejected as by that time

products incorporating the technology are already placed on the market and the price uncertainty

problem would not be solved. Moreover, SEP holders would then be in a stronger negotiating position

vis-à-vis implementers, shifting the negotiation power to the benefit of the SEP owner. A royalty-

free SEP licensing obligation was rejected because from an economic perspective whether or not a

standard should be royalty-free depends on the economic interest of standard contributors to be

subject to such IPR policy and there cannot be general rules that would determine that. Similar

concerns could be raised in case of a uniform SEP royalty per standard irrespective of how the

standard is implemented. This applies because a too high price could limit the usage of the standard

by certain lower value implementations, while a too low one would reduce incentives to participate

in standard setting for SEP holders. For options 1 to 5 a sub-option to cover all past standards (e.g.

3G) was discarded as too costly, because of the large number of patents that would need to be

registered, and having the effect of reducing legal certainty for existing contracts. Finally, regarding

the choice of an organisation to run the Competence Centre, the EPO was not chosen as changing its

mandate would require consent of all 39 member countries, including 12 non-EU countries which

are not bound by the EU SEP policy goals. SDOs were not selected as this would mean a dispersed,

rather than centralised register, as well as because the EU does not have jurisdiction over non-EU

based SDOs.

HAT ARE THE IMPACTS OF THE POLICY OPTIONS

This chapter presents impact of the options considered as viable. The analysis is qualitative and to

the extent possible quantitative. As options build on each other and to avoid double counting we

present only quantification of additional features of each option. Quantifications are based on several

assumptions and estimations since data on SEP licensing is largely not observable (as explained in

the problem definition). The purpose of quantifications is to allow comparison of options and to

present relative impacts on affected groups rather than to provide an accurate figure. The fees

presented below are just an indication of the fees that would cover the costs of the Competence Centre

(based on an initial cost prognosis by the EUIPO). Details on quantitative analysis as well as all the

assumptions used for calculations are presented in Annex A7.1.

6.1.

PO1: Voluntary guidance

SEP guidelines are necessary to provide clarity on the most problematic and contentious issues in

SEP negotiations. Those proposed under PO1 will be voluntary, thus not limiting the negotiating

flexibility and customisation of terms and conditions to the specific needs of both parties. At the same

time, they will shed light on current best practices and solutions, and can thus serve as a reference

Circuit ruled on 28 February 2022 that the supplier does not have a legal right to a licence and that Avanci and its licensors

have not breached their FRAND obligations, No. 20-11032. See Questions on FRAND in Annex 9.

158

During the webinar on enforcement from the 463 registered participants only 4 responded that they were involved in

arbitration and only 3 responded to have been involved in mediation. 20% were involved in settlements and 65% in court

cases.

GROWTH,

Webinar

series

Standard

Essential

Patents,

https://ec.europa.eu/newsroom/growth/items/701874/en.

kom (2023) 0232 - Ingen titel

point especially for less experienced parties in negotiations (e.g. SMEs). The Guidelines could also

be relatively easily and frequently updated to reflect e.g. new court rulings, or market developments.

The Competence Centre will centralise information from diverse public sources (e.g. different

licensing policies, published or otherwise revealed (e.g. in court judgements), FRAND terms,

conditions and SEP rates/royalties, SEP judgements etc.), produce

ad hoc

studies to identify SEP

holders and their share in different standards, promote WIPO Alternative Dispute Resolution

mechanisms,

159

give trainings and advise SMEs on SEP negotiations (e.g. around 80% of SMEs in

our survey noted that they do not know strategies to defend themselves in SEP negotiations).

160

Therefore, it may become the first place to be visited by potential SEP implementers, especially

SMEs, who are not experienced with SEPs.

In order to limit operational costs, it is proposed that all activities are carried out in English only. The

technology firms applying modern standards are most likely already dealing with most of the

technical specifications in that language, consequently using only one language is not expected to

become an access barrier.

It is estimated that around 400 firms (including up to 80 EU based SMEs), 261 SEP holders and up

to 500 other users (e.g. judges, legal counsels) would use services of the Centre each year. The annual

costs of operating the centre are estimated at EUR 0.6 million per year. The benefits users could

derive from the centre’s activities such as trainings or studies are estimated at EUR 5.9 million (based

on cost of buying such services commercially).

161

While guidance will be important and will help to improve transparency and knowledge about SEP

licensing, including by providing specific advice to SMEs, it will not be sufficient to help resolve

disputes around FRAND royalties.

The public consultation clearly revealed several major issues: e.g. lack of transparency about the

FRAND royalties (68% of all respondents, 100% of implementers and 19% of SEP owners), lack of

transparency about the SEP landscape (67% of all respondents, 97% of implementers and 13% of

SEP owners) or no guidance on FRAND concepts (57% of all, 93% of implementers and 19% of SEP

owners).

162

The Competence Centre can gather all public information about pricing but much of it is under non-

disclosure agreements. A guidance is not capable of promoting more transparency in this respect.

The Competence Centre may also commission SEP landscape studies on a regular basis, but it will

need to use existing third parties’ commercial solutions with their limitations. The limitations concern

both the information available to these third parties (e.g. missing data and over-declaration mentioned

above) and the different methodologies they use. Such methodologies are deemed commercial

secrets, have a different level of robustness, and thus may lead to different results.

Finally, while the WIPO Arbitration and Mediation Centre is reporting some positive results, the

public consultation revealed that only 35% of all respondents consider mediation useful. Two key

concerns are (i) implementers may not be able to obtain information regarding comparable licenses

and other relevant data from SEP holders (available through discovery proceedings in certain judicial

proceedings), and (ii) the proceeding itself as well as the resulting decision is maintained as

159

WIPO informed us that since 2021 there have been 65 SEP related mediation cases and over 60% of parties to WIPO

SEP ADR proceedings are companies based in the EU. As of January 2023, most of these cases were still pending. In

many other cases, requests for WIPO Mediation prompted renewed licensing negotiations between parties with potential

settlement outside the mediation procedure. Source: WIPO Arbitration and Mediation Centre.

160

See Annex A8.2: Q12 (16 out of 19 replies).

161

See Annex A7.1.

162

See Annex 9, Q19.

kom (2023) 0232 - Ingen titel

confidential and is not publicly available, so it has limited precedential value for future FRAND-

related cases.

In order to offer valuable information to interested parties on the SEP landscape, FRAND licensing

and royalties, the Competence Centre would need to develop its own data on the basis of

independently conducted essentiality assessments and FRAND determination procedures, which this

option is unable to achieve.

This option bears similarities with SEP Expert Group Proposal 28 on three licensing principles.

163

6.2.

PO2: SEP register with essentiality checks

This option is expected to bring more clarity to the SEP landscape. The register under this option will

not replace SDO databases, the purpose of which is to create transparency ex-ante during the

standardisation process. It will be created ex-post, after the publication of the standard for the purpose

to facilitate licensing negotiations and will be updated regularly. As such it is complementary to the

activities of the SDOs.

SEP holders will have to register their SEP(s) in order to be able to enforce their patents and/or collect

FRAND royalties for the past. This is reasonable given that on average the SEP holder invites the

implementer to conclude a licensing agreement within 2 to 4 years after the publication of a given

standard. The registration will be simple (comparable to the declarations at ETSI) and provide

information to implementers about the identity and contact details of SEP owners. Moreover, details

provided (e.g. link between standard and patent) should help an implementer to judge if the patents

cover the functionality/technology it uses (as not all implementers are using the full potential/all

functionalities of a standard).

164

The initial stock of patents that could be registered is estimated at maximum up to 72 000 patent

families.

165

Some of the new standards may need to include older technical documents (for example

a 5G mobile phone will need to also support 4G). So, all SEPs relating to those older technical

documents will also have to be registered. The register will serve a dual purpose. First, the register

will be used to prove that a SEP holder has true SEPs. Second, the register will provide additional

information regarding the size and value of the SEP owner’s portfolio, if the SEP holder registers all

its SEPs.

Since the register may include patents that are not truly essential to the standard, it is necessary to

have a mechanism for essentiality checks to ensure the quality of the register. With regard to 4G,

experts claim that only between 25% and 40% of SEPs declared to ETSI are truly essential.

166

It is

unlikely that the essentiality rate of the new register will be so low. This is because the ETSI database

includes patents and patent applications made during the standardisation process. Some of those

technologies were not accepted in the standard and some of those patents were not granted or their

scope was reduced so that they do no longer fall under the scope of the standard.

163

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs

Expert

Group’

(E03600):

Contribution

the

Debate

SEPs,

2021,

https://ec.europa.eu/docsroom/documents/45217.

164

Between 70 and 80% of all respondents to the public consultation considered that the following information should

be provided publicly: Patent and application number; contact details of the SEP holder; the relevant standard, version,

section of the standard; transfer of ownership, if any; licensing programs; Standard FRAND terms and conditions.

165

This is a generous estimate which includes an estimate of 60 000 patent families and a 20% increase in SEP patenting

rate.

166

Expert Group on Licensing and Valuation of SEPs, Contribution to the Debate on SEPs, Section 4.2.

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The new register will be created after the publication of the standard and will require that the SEP

holder indicates the section of the standard to which its patented technology refers. The rate of

essentiality would thus be higher. However, it cannot be excluded that patents that are not essential

are also included. One should note that no assessment can give 100% assurance that a patent is truly

essential until a court has ruled on the essentiality (even then, the court would rely on experts). A

recent JRC study found that assessors correctly identify as essential or not around ¾ of patents they

check. However, the authors also explain that this share will be higher in practice due to improving

routines, and because identifying non-essentiality of the patents in the experiment was particularly

difficult (the examiners had a lot of limitations, including no access to support tools and support

group).

167

The cost of an essentiality check is estimated at EUR 5 000 per one patent from a patent family.

168

There is no need to check the other members of the family as most European patents have the same

claims being examined by the European Patent Office. The cost should also cover the peer evaluation

process for some of the patents already checked for essentiality.

A SEP holder will be given the opportunity to submit a claim chart (a document linking the standard

to the patent), if a registered SEP is selected to be checked for essentiality.

169

According to experts,

all SEP holders who proactively license or cross-license their SEPs have claim charts or internal

expertise to create them. The most impacted will be the patent assertion entities that buy the patents

from others solely to license for revenue. We estimate that for about half of the patents selected for

random essentiality checks, SEP holders will decide to update or produce new claim charts at a cost

similar to the one indicated above.

In sub-option (i) all registered SEPs will be checked for essentiality. This will result in the most

accurate SEP landscape analysis (subject to the uncertainties mentioned above, including the portion

of SEP patents registered by owners). 72 000 patent families are likely to be checked in the first

year(s) (registering only those of the family members that are in force in the EU). Following a

negative assessment, SEP holders are likely to request re-check for up to 40% of patents.

170

In the

following years, the number of patents registered and checked is expected to drop to 10% of the initial

numbers.

To implement this option the back-office costs of the Competence Centre are estimated at around

EUR 5 million initially and EUR 1.5 million in subsequent years. In order to cover this cost SEP

holders will be charged a registration fee of around EUR 140 per patent family registered.

The average total cost to SEP holders of registration and essentiality checks is estimated at EUR 1.9

million and EUR 94.5 million per year respectively. Additional indirect cost of filling the forms and

production/update of claim charts is estimated at EUR 2.7 million and EUR 34 million respectively

167

According to experiments by Bekkers et al., 74% of patents with claim charts checked by examiners working for

patent offices were consistent with checks done by a patent pool. Regarding different types of possible errors: an essential

patent has 17% probability of not being found essential in a check, and a non-essential patent has 38% probability of

being found essential. See Bekkers, R., Henkel, J., Tur, E. M., et al.,

Pilot study for essentiality assessment of standard

essential patents,

Publications Office of the European Union, 2020, pp. 76-78,

https://data.europa.eu/doi/10.2760/68906.

168

The evaluators will be remunerated by fees established by the Commission through an implementing act. Assessment

of one SEP per patent family was supported by two thirds respondents to public consultations (54% of implementers and

71% of SEP owners). See Annex 9, Q32.

169

Many or most existing claim charts may relate to foreign, in particular US members of global potential SEP families.

In such cases claim charts would have to be produced/updated for European patents.

170

Baron, J., Essentiality Checks for Potential SEPs – Framework for Assessing the Impact of Different Policy Options,

European Commission, DG GROW, 2023.

kom (2023) 0232 - Ingen titel

per year.

171

Around 15% of that cost will be borne by SEP holders based in the EU. As indicated in

the market description almost all EU based SEP holders are large companies.

The register is expected to give a fairly accurate overview of the number of true SEPs and their

ownership.

In sub-option (ii), the same number of patent families will be registered but not all will be checked

for essentiality. The checks will be done based on two complementary steps. First, the SEP holders

may select up to 100 patent families of which one patent from a family will be the subject of an

essentiality check. These are expected to be patents they use often in licencing negotiations (typically

up to 15 patents are discussed according to experts, an average of 49 SEPs was indicated by SEP

holders in the public consultations).

172

Having checked patents might also facilitate/encourage

participation in patent pools as some require essentiality checks. Under this step, it is expected that

up to 3 550 patents will be initially submitted with 355 added each year. Following negative

assessment around 25% re-check requests are expected (lower percentage than in sub-option i)

reflects better quality of SEPs used in negotiations). Second, the Competence Centre will select a

random sample from all SEPs registered by each SEP owner, including those designated by the SEP

holders under the first step. This is necessary to ensure a statistically valid sample. The Commission

will commission a study to develop the sampling methodology that would render the most optimal

results. If the sampling includes a patent also selected by the SEP owner, there will be only one

essentiality check. Our study

173

finds that the effects of checks conducted based on sampling from

the register will be similar to those discussed under sub-option (i) with an acceptably low margin of

error. However, sub-option (ii) will limit the number of checks to around 10 000.

To implement this option the back-office costs of the Competence Centre are estimate at around EUR

3.7 million initially and EUR 1.1 million in subsequent years (figures lower than in i) due to lower

workload). In order to cover this cost SEP holders will be charged a registration fee of around EUR

100 per patent family registered.

The average total cost to SEP holders of registration and essentiality checks is estimated at EUR 1.35

million and 13.7 million per year respectively. Additional indirect cost of filling the forms and

production/update of claim charts is estimated at EUR 2.7 million and EUR 6.4 million respectively

per year.

174

Around 15% of that cost will be borne by SEP holders based in the EU.

The register is expected to give as accurate overview the number of true SEPs as in sub-option i).

However, except for patents in the “up to 100” list only a percentage of essential patents in a SEP

holder’s portfolio will be indicated.

175

Additionally, the register will reflect any decisions of

essentiality by courts and for patents that are examined by an independent examiner of a patent pool

prior to the creation of the register. This is however sufficient to allow comparison between portfolios

of different SEP owners.

Since sub-option i) is ten times more expensive than sub-option ii) and provides only a marginally

more accurate picture, the preferred choice should be sub-option ii).

171

Average cost over ten years: including initial year with a higher number of patent registrations/essentiality checks and

subsequent nine years with the number of registrations/essentiality checks at 10% of the initial figures. For more details

see Annex A7.1

172

See Annex 9, Q6.

173

-Baron, J., Essentiality Checks for Potential SEPs – Framework for Assessing the Impact of Different Policy Options,

European Commission, DG GROW, 2023.

174

See footnote 171.

175

The percentage will indicate the date on which it was produced and the number of patents checked and in the register

at that time. This is to avoid a situation when a SEP holder registers initially only its best patents to obtain a high

essentiality percentage and subsequently adds more patents of potentially lower quality.

kom (2023) 0232 - Ingen titel

Implementers and interested stakeholders will have free access to some basic information (for

example the list of SEP owners, number of registered SEPs, etc.) but they will be required to pay a

fee to access detailed SEP information in the register and the various databases of the Competence

Centre. This requirement has two objectives. First, it will enable the development of high-quality

data that can be used for aggregate royalty and bilateral FRAND determinations. Second, it will give

SEP holders the reassurance that the data they provide is accessed by persons interested in SEP

licensing and their representatives, and to specialised professionals. We estimate that at least 380

firms that conduct license negotiation per year will buy access. The fees will cover cost of activities

of the Competence Centre described in PO1 and at minimum should amount to around EUR 1 700

for large firm and EUR 850 for an SME for an annual subscription.

SEP holders are likely to withdraw non-essential patents from the register following negative checks

and save on patent maintenance fees. This should be considered beneficial to all parties – SEP

implementers will have more certainty in negotiations in which only essential patents are presented

to them. On the other hand, if the register will be perceived by SEP holders as a means of indicating

portfolio strength (and e.g. used in negotiations to determine the share of aggregate royalty applicable

to them), they may increase the number of registered patents.

176

Under sub-option i) as all patents are

checked, the withdrawals are likely to be higher than new registrations. This is expected to produce

net savings for SEP holders of EUR 11.6 million per year (15% applicable to the EU based SEP

holders). The savings to SEP holders are losses to the EPO and EU patent offices. In case of sub-

option ii) in which a lower number of patents is checked, the opposite is expected. SEP holders are

likely to patent more than to withdraw, with a net impact of EUR 29 million in new patent

registration/maintenance fees to the benefit of the EPO and EU patent offices. Nevertheless, the

impact on the number of patents is uncertain and may not materialise (see also common impacts on

patent offices below).

The costs mentioned above should be seen in comparison to an average license revenue a SEP holder

gets on its patents. An average worth (net present value) of a positively assessed patent family would

be approximately EUR 6 to 10 million (EUR 1 to 1.7 million net present value if the effect of the

checks is limited to the EU only).

177

The objective of the register is to have all SEPs in force in the EU registered, irrespective of who the

SEP holder is. With the help of essentiality checks, implementers will know approximately what

share of the registered SEPs are truly essential. This will determine the scope of the negotiations.

SEP holders will receive a powerful argument when approaching implementers with a licence offer

that they have truly essential SEPs and are thus more certain to have the right to ask for royalties.

The evidence from the register will allow a SEP holder to justify the FRAND rate demand, and the

implementer can better determine whether the offered rate is FRAND. SEP holders with smaller

portfolios, who could not afford the costs of licensing until now, would be able to license.

176

177

This does not necessarily mean new innovation though.

Study estimates that there currently are approx. 60 000 potential SEP families, generating approx. EUR 18bn annual

royalty revenue (EUR 300 000 per patent family). If, on average, a potential SEP family will generate significant royalties

for approx. 10 years, the net present value of a potential SEP family early in life would be approx. EUR 2.5 million. If

FRAND royalties are determined by apportionment among confirmed SEPs only, and 25 to 40% of the potential SEPs

are confirmed essential, the average NPV of these confirmed SEP families would be EUR 6 to 10 million (whereas non-

confirmed potential SEPs have no value). Proportional to the EU’s share in world GDP, we estimate that approx. one

sixth of that value is attributable to the licensed use of SEPs within the EU. See -Baron, J., Essentiality Checks for

Potential SEPs – Framework for Assessing the Impact of Different Policy Options, European Commission, DG GROW,

2023.

kom (2023) 0232 - Ingen titel

The option also provides efficiency gains as implementers will no longer need to assess essentiality

on their own or negotiate without that knowledge. With an estimated around 575 new SEP licensing

agreements signed per year (and associated negotiations), the value of information in the register to

implementers and SEP holders is estimated at EUR 6.2 million each.

178

These benefits could increase

if the number of SEP licensing contracts is going to accelerate due to, among others, a growth in

importance of IoT. Almost two thirds of respondents to public consultations (93% implementers and

24% SEP owners) considered that a system of essentiality checks would be useful if assessors are

independent.

179

Moreover, it is expected that the registered SEPs will reflect better the size of the SEP holder portfolio

than currently. This is because the SEP holders will have to review their declarations to ETSI or

review their portfolio if they made a blanket declaration and register only those SEPs whose claims

can be linked to the standard. Since the registration will require them to also indicate the section and

features of the standard to which the SEP relates, it will make it easier to determine which SEPs

pertain to core features of the standard and which to optional parts of the standard. This will help

level the playing field among SEP holders.

Finally, conditioning patent enforcement or licensing on registration (with no possibility to collect

royalty for the period before registration) might be considered an encroachment on property rights.

This is, however, a justifiable and a very limited restriction. First, the main problem is that either SEP

holders do not declare each of their SEPs to the SDO or they over-declare. The choice is made based

on the individual business strategy of the SEP owners, but it is detrimental to the SEP licensing

system as a whole. Because of the lack of transparency, some SEP owners’ portfolios are devalued,

and others are over-valued; furthermore, implementers face business uncertainty. The lack of

predictability has a direct impact on both contribution to a standard and standard implementation.

Second, the registration is simple and corresponds to what the SEP holders already committed to

declare in the ETSI database but do so with a various degree of rigorousness. The registration will

normally not impact on any negotiations as it can be done much earlier than the start of the

negotiations. Pursuant to the public consultation, negotiations start on average 2 to 4 years after the

publication of the standard and last for an average of 3 years.

This option will benefit SEP holders by reducing delays resulting from implementer requests for, or

need to obtain their own, essentiality checks and technical documents. This in turn reduces the

amount of negotiation time resulting in SEP holders starting to collect royalties earlier.

Around two thirds of all respondents (around 85-89% of implementers, and between 24 and 41% of

SEP owners) named the following benefits of a system for essentiality checks: better information

regarding the actual SEP exposure of a given product; reduction of the resources spent on licensing

of SEPs; it may help to smoothen licensing negotiations; easier negotiations of a fair royalty

(preventing over-pricing); trustworthy and reliable overview of the share of each SEP holders’

essential patents.

180

This Option bears similarities with SEP Expert Group Proposals 7, 8, 11, 13 and 14 on introducing

essentiality checks by an independent body for those SEPs that SEP holders intend to commercialise.

All those proposals received support with 4 out of 5 stars by the experts. It also bears similarities

with Proposals 50 and 51 that when a SEP holder asserts its SEP, it should disclose certain

178

Value per licensing negotiation estimated as cost of essentiality checks of 15 patents (number typically negotiated

according to experts) – and amounts to EUR 60 000. Those typically negotiated patents are likely to be among the “up to

50” group of patents registered by the SEP holder under sub-option ii).

179

See Annex 9, Q30.

180

See Annex 9, Q31.

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information on those SEPs and high-level claim charts.

181

Those proposals were supported with 4.5

out of 5 stars by the experts.

6.3.

PO3: SEP register with essentiality checks and conciliations

Conciliation is a process for a FRAND rate determination between a SEP holder and an implementer

(prospective licensee). The objective of the conciliation is to facilitate a settlement between the

parties before resorting to court. For example, WIPO reports that 70% of its mediations and 33% of

arbitrations end up in settlement.

182

53% of the respondents to the public consultation considered arbitration useful and 35% of the

respondents considered mediation useful. Some of them explained that the problem with arbitration

and mediation is that the results are not published. For mediation, an additional disadvantage was

that the mediator has no authority to request information and no authority to make a price

recommendation.

183

The conciliation thus has all the additional features that have the potential to address those concerns.

It provides powers to the conciliator to (i) request relevant information and documents from the

parties, (ii) propose a recommendation for a FRAND rate and (iii) to issue a non-confidential report

(containing the methodology for the calculation of the FRAND rate).

EU phone producing SME: “For an SME it is difficult to estimate whether the offered terms are

FRAND, particularly if the terms are not published.”

184

Since conciliation will likely take place before concluding a licence agreement, and it will be a

mandatory step before initiating a patent infringement proceeding or a FRAND assessment before a

court, it can be even a more effective tool in limiting the number of court cases. The ability to

negotiate a FRAND rate with the assistance of an independent conciliator without the threat of an

injunction is important for any implementer. Conciliation can also help SEP holders (e.g. when

negotiating with large multinationals). The SEP holder who has made a FRAND offer confirmed by

the conciliator will increase its credibility also for future negotiations. Credibility is important as

evidenced by this example: The WIPO Centre has seen one party make systemic use of WIPO

Mediation – filing numerous requests for WIPO Mediation as one way of demonstrating its

willingness to take a licence.

185

Moreover, the conciliation would be more acceptable than arbitration to the parties (where a decision

is final) as a conciliator only issues a non-binding suggestion and report on FRAND terms and

conditions. The conciliation report will contain a factual summary of the process before the

conciliator and include information whether the SEP holder has made a FRAND offer and whether

the implementer has responded to that offer. This summary will

de facto

also cover the information

needed to assess whether the SEP holder engaged in the

Huawei v. ZTE

process with an implementer.

The conciliator’s suggested FRAND royalty could also be used by both SEP holders and

implementers to determine the appropriate amount of the security that the implementer needs to

provide under the

Huawei v ZTE

process. The non-confidential report (or notice of termination of the

181

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs

Expert

Group’

(E03600):

Contribution

the

Debate

SEPs,

2021,

https://ec.europa.eu/docsroom/documents/45217.

182

Out of 900 mediation, arbitration and expert determination cases during 2012-2021 concerning patents, copyrights,

trademarks.

183

Public consultation – responses and comments to questions 53 and 54.

184

See SME survey in Annex 9.

185

https://www.wipo.int/wipo_magazine/en/2022/04/article_0007.html?utm_source=WIPO+Newsletters&utm_campaig

n=a4eeca0fb5-DIS_MAG_EN_201222&utm_medium=email&utm_term=0_-a4eeca0fb5-%5BLIST_EMAIL_ID%5D.

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procedure) could also be used before customs to support a request for customs action with regard to

goods infringing SEPs.

186

Although the conduct or commencement of the conciliation will be obligatory before initiating a

court action, it will be up to the parties to decide on their level of engagement (e.g. participation in

meetings, providing supporting documents on request by the conciliator). In an extreme case, the

conciliator could draw up an opinion based on input from just one party if the other decides to

‘boycott’ the process. This is why it is important that a conciliator has access to the SEP register, the

databases of the Competence Centre and confidential reports from other conciliations, so (s)he can

receive information on the concerned patents in any event.

187

During the webinar series on SEP enforcement, it was underlined that parties prefer to agree on

FRAND terms rather than having a third independent party determining the FRAND rate for them,

even if it would be not binding. Furthermore, the participants in the webinar noted the need of

specialised knowledge for FRAND determinations.

Mandatory conciliation should benefit both SEP holders and implementers in reaching a licence

agreement faster without costly court proceedings. Since the procedure would be limited to maximum

nine months, it would expedite the negotiation process thus making delaying tactics on either side

less attractive. This should be especially useful for SMEs (according to WIPO in 94% of SEP ADR

at least one party was an SME).

188

On the other hand, the procedure may potentially lead to delays in licence payments. However, past

payments are either resolved in the license agreement or the SEP holder can request damages for past

use before the court, albeit depending on national laws requiring commencements of national

proceedings before Member States’ courts of choice.

An indicative hourly wage of a conciliator is about EUR 500.

189

We estimate that a conciliator would

spend on average around 40 hours per case (e.g. as a conciliator may need to come to a conclusion

and draw up a report in case the parties do not settle). With estimated around 70 conciliation cases

per year (35 based on the current number of FRAND related court cases in the EU and another 35

not related to court proceedings), the cost of back-office support to conciliation is estimated at EUR

800 per case. Thus, the total cost of a conciliation should amount to around EUR 20 800. This is eight

186

If a note of termination of conciliation were required to be submitted to customs to effectively request customs' action

with regard to SEPs, this would require:

1. An amendment of the Implementing Regulation 1352/2013 establishing the forms provided for in Regulation (EU)

No. 608/2013 of the European Parliament and of the Council concerning customs enforcement of intellectual property

rights (OJ L 341, 18.12.2013, p. 10);

2. IT developments in the following IT systems: - anti-Counterfeit and anti-Piracy Information System (COPIS) used to

process, store and manage information from applications for action (AFAs) and decisions between right holders, the

Commission, the European Union Intellectual Property Office (EUIPO) and customs authorities of the Member States; -

IP Enforcement Portal (IPEP); national IT systems of DE, ES, IT, PL, CZ, NL.

3. Additionally, the EU anti-Counterfeit and anti-Piracy Information System COPIS (established by Regulation

608/2013) used for the processing and management of all AFAs would need to be adapted accordingly, as well as the

national systems linked to COPIS used by certain Member States. The EUIPO database IPEP (Intellectual Property

Enforcement Portal), which is one of the trader portals offered to right holders to lodge electronic AFAs would also be

impacted and would need to be adapted accordingly.

187

Conciliation could also be introduced without SEP register, in that case however the conciliator could end up with no

information to draw an opinion in case one party is unwilling to provide documents.

188

Source: WIPO Arbitration and Mediation Center.

189

“The WIPO Center often sees mediations where a mediator spends approximately 15 hours on a case. With indicative

mediator fee rates between USD 300 and USD 600 per hour split between the parties”,

https://www.wipo.int/wipo_magazine/en/2022/04/article_0007.html?utm_source=WIPO+Newsletters&utm_campaign=

a4eeca0fb5-DIS_MAG_EN_201222&utm_medium=email&utm_term=0_-a4eeca0fb5-%5BLIST_EMAIL_ID%5D.

kom (2023) 0232 - Ingen titel

times lower that the average SEP court cost in the EU of EUR 170 000.

190

Based on WIPO experience

(70% settlement rate) we estimate that up to 24 court cases could be avoided. Additionally parties

could receive help on FRAND terms determination in at least 35 cases per year. Altogether the

additional benefits of this option are conservatively estimated at EUR 6 million and could increase

further as the mechanism becomes more known and used.

This Option bears similarities with the Expert Group Proposals 68 and 70 on establishing an

independent board of experts for determining FRAND royalty upon request and a specialised

mediation institute for FRAND licensing disputes.

191

Proposal 68 was supported with 4.5 out of 5

stars and Proposal 70 was supported with 4 out of 5 stars by the experts.

6.4.

PO4: Aggregate royalty for SEPs

Aggregate royalty can be considered a total potential cost of licensing a standard.

192

Economically,

an aggregate royalty makes sense because implementers value the standard as a whole, not a

collection of inventions represented by an incomplete portfolio of SEPs. It may also help to overcome

problems of royalty stacking, a modern version of Cournot’s (1838)

193

well-known problem that the

independent pricing of complementary goods – here: licenses to different SEP portfolios on the same

standard – leads to excessive prices, above those that a single party offering all those goods jointly

would charge. As Contreras (2017)

194

notes, “[t]op-down approaches [i.e. aggregate royalty] avoid

many drawbacks associated with bottom-up approaches in which royalties for individual SEPs are

assessed, often in an inconsistent and piecemeal manner, without regard for the other SEPs that cover

the standard.”

70% of all respondents to the public consultation and 100% of implementers considered that it is

important to know the aggregate royalty. Views of SEP holders were mixed, with more (40%)

considering it not important, than those who thought it was (20%). Moreover, 70% of all, 93% of

implementers, and 25% of SEP holders considered it important to have a transparent process for

aggregate royalty determination (38% of SEP holders disagreed).

195

Knowing it for different applications would simplify cost planning for SEP implementers and

assessment, if their business model is profitable. As

Henkel

(2022, Section 4.1) shows, these are very

real concerns for SMEs implementing SEPs: “During the development of an IoT device, it is

unknown which demands for SEP royalties will surface later, so innovators cannot make reliable cost

calculations.” For SEP holders it will allow to decide if they wish to contribute their technology to a

standardisation process and help estimate potential future revenues.

Under this option standard contributors may announce jointly an aggregate royalty to the Competence

Centre. Finding an agreement among contributors might however be a challenging task due to often

opposing interests of contributors. Some may also be implementers and thus are likely to favour

lower royalties, while others are “pure” SEP holders whose primary source of income is licensing

190

Please note this is an average court cost, but there are court cases where one party costs can approach millions of euros

(See example in Annex 2).

191

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs

Expert

Group’

(E03600):

Contribution

the

Debate

SEPs,

2021,

https://ec.europa.eu/docsroom/documents/45217.

192

An implementer is unlikely to pay the full aggregate rate since not all SEP holders will be seeking royalties, or it may

enter into cross-licenses.

193

Cournot, A. A.,

Recherches sur les principes mathématiques de la théorie des richesses,

L. Hachette, 1838,

https://gallica.bnf.fr/ark:/12148/bpt6k6117257c.texteImage.

194

Contreras, J. L., ‘Aggregated royalties for top-down FRAND determinations: revisiting “joint negotiation”’,

The

Antitrust Bulletin,

2017, Vol. 62, Issue 4, pp. 690-709,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3051502.

195

See Annex 9, Q44 and Q45 respectively.

kom (2023) 0232 - Ingen titel

and who are interested in higher aggregate royalty levels. To help contributors in reaching an

agreement, the Competence Centre upon request may appoint a conciliator to facilitate their

discussions. Finally once royalty is set, it will not be for ever, there will be a mechanism to adjust the

aggregate royalty to reflect changing market conditions (e.g. the fact that a standard ages with time).

The aggregate royalty could be irrespective of the level of licensing

196

, and it should be possible to

pass the cost of the licence downstream without a mark-up (the commission usually charged by the

various levels in the value chain on top of the price). As per PO1 guidelines, the industry is expected

to figure out the appropriate level of licensing to avoid the so called “double dipping” (collecting

royalties twice for the same SEPs).

From the point of view of an implementer, one risk could be that the aggregate royalty announced by

the standard contributors is too high. SEP holders might set it high strategically in order to have room

for negotiation.

SEP holders publish maximum expected royalties in order to be able to negotiate. Stasik (2010)

found that the sum of individually published handset royalty rates for 4G amounted to 14.8% of

the sales price – representing only 60% of declared SEPs.

This may, however, dissuade implementers from taking a licence, which should have a self-limiting

effect on SEP holders, as wide implementation of the standard is of interest to the SEP owners.

Nevertheless, in order to cater for such situations, a group composed of standard contributors and/or

implementers may ask the Competence Centre for a non-binding expert opinion on the aggregate

royalty. The process will be inclusive where any interested party would be able to submit its views.

We estimate that around three such requests will be coming each year and that the cost of delivering

one expert opinion (consisting of approximately 240 working hours of experts’ time and Centre’s

back-office support) is estimated at around EUR 135 800. The costs would be shared by requesting

parties.

Besides predictability, this option is also expected to facilitate SEP license negotiations. Asked about

problems in negotiating with SEP owners, 90% of respondents to the SME survey rated a fair price

for SEPs as either a “very important” or an “important” issue.

197

In fact, SEP licensing negotiations

are mainly about royalty rates. By combining an aggregate royalty with a SEP owner’s share in all

essential patents for a standard (from PO2), one obtains a proxy (albeit imperfect) of a royalty level

to be expected. This could establish a reference point to help negotiating parties in reaching an

agreement. It might be especially useful for smaller and SME implementers (who have limited

resources to conduct own research or gather evidence), but also for (smaller) SEP holders who could

underpin their FRAND offer with additional, publicly available evidence.

With an estimated 575 SEP licensing negotiations taking place in the EU each year, we

conservatively estimate the value of publicly known aggregate royalty rates at approximately

EUR25.3 million per year.

In case licensing negotiations fail, an aggregate royalty would also facilitate the work of conciliators

and judges by providing a clear reference maximum price for using a standard. This will not prejudice

the use of other valuation methods in bilateral FRAND determination processes. For instance, during

any conciliation process, the conciliator may choose the methodology (s)he uses to propose a FRAND

rate and may also choose to look at the aggregate royalty. The non-confidential version of the report

will be published and will inform any future discussion on an aggregate royalty.

196

68% of the respondents to the public consultation consider that the fair and reasonable terms should not depend on the

level of licensing – see question 40.

197

See Annex A8.2, Q12.

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The publication of aggregate royalties is not expected to impact on innovation by SEP owners, as

exemplified by the following research:

In 2007, the patent policy of VITA

198

(SEP on critical embedded computing architectures) was

revised to require ex-ante disclosure of maximum patent royalty rates. Contreras (2011) finds that

this policy change had no detrimental effect on the output and participation at VITA. As measures

of output and participation, Contreras looked at the number of disclosures, the number of new

standards-development activities that were initiated, the number of standards that were approved,

the average time between the introduction of a draft standard and its final approval, the number of

members participating in VITA, and the number of citations for newly approved standards.

199

For a more developed analysis of economic rationale for an aggregate royalty please consult Annex

A7.2.

This Option bears similarities with SEP Expert Group Proposals 38 and 42 on encouraging SEP

holders to announce ex-ante most restrictive licensing terms and determine a reasonable aggregate

royalty.

200

Both proposals received support with 4 out of 5 stars by the experts.

6.5.

PO5: SEP clearing house

This option depends on an aggregate royalty established above, and adds a clearing house facility, or

one-stop-shop for implementers to acquire SEP licenses with a single (annual) payment and without

any negotiations.

PO5 would be most helpful for mid-caps and SMEs developing solutions in the IoT as it will enable

them to simply deposit the aggregate royalty in an escrow account and then just sign standard deals

with SEP holders.

201

One third of respondents to the SME survey quoted too much efforts to enter

license agreements with all SEP holders as a reason for not obtaining a license; and around 80%

complained they did not have sufficient resources to negotiate with SEP holders.

202

However, any

implementer may always choose not to use the clearing house and negotiate with SEP holders

bilaterally instead, to receive better conditions.

The initial escrow account would be based on the estimated volume and value of sales by the

implementers. Once SEP holders are informed by the Centre, those that are interested in a licence

will reach out to the implementers concerned to conclude a licensing agreement on standard terms.

This agreement will detail the sales and the monitoring mechanism and will regulate the relationship

between the SEP holder and the implementers. The amount allocated to SEP holders that chose not

to conclude a licensing agreement will be returned to the implementer within one year of the deposit.

Given the fragmentation of the IoT and the large number of potential licensees this option should

also benefit SEP holders. In particular, those SEP holders with small portfolios (e.g. SMEs) who have

limited resources to engage in bilateral negotiations with many (or larger) implementers. The clearing

198

199

VITA is accredited as an American National Standards Institute (ANSI) developer. Website:

VITA - Home.

CRA, De Coninck, R., von Muellern, C., Zimmermann, S., and Mueller, K.,

SEP Royalties, Investment Incentives and

Total Welfare,

2022, p. 16, quoting: Contreras, J.,

An Empirical Study of the Effects of Ex-ante Licensing Disclosure

Policies on the Development of Voluntary Technical Standards,

National Institute of Standards and Technology, GCR

11-934, 2011,

https://www.nist.gov/system/files/nistgcr_11_934_empircalstudyofeffectsexantelicensing2011_0.pdf.

200

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs

Expert

Group’

(E03600):

Contribution

the

Debate

SEPs,

2021,

https://ec.europa.eu/docsroom/documents/45217.

201

It should be noted that 75% of all, 73% of implementers and 88% of SEP holders indicated that “Providing a security

at a fair and reasonable amount” is a relevant behaviour of an implementer, which indicates willingness to take a license.

See Annex 9, Q49.

202

See Annex A8.3: Q8 (9 out of 26 answers) and Q12 (18 out of 22 answers) respectively.

kom (2023) 0232 - Ingen titel

house would allow them to reach a wider audience of implementers at limited cost. All money

transfers will be dealt with by the Competence Centre.

There are two main challenges regarding this option. First, the aggregate royalty from PO4 would

have to become binding on the parties. Consequently, a mechanism should be established to allow

both updates and challenges of this royalty (e.g. in case it is set at too high level, or when the standard

ages). However, changes to the aggregate royalty levels should not occur too often, as this would be

rather disruptive to the licensing process, especially as regards predictability.

Second, the problem is how to incentivise SEP holders to agree on the allocation of the aggregate

royalty between them as they will be able to access escrow deposits only after doing so. In practice,

it may not be possible for the SEP holders to agree on allocation methods because not all SEP holders

license their SEPs for remuneration, and they may have diverging commercial interests. For some

licensing is a business model, for others this is just a gateway for building business relationships. To

get to an agreement SEP holders may use services of Centre’s facilitator. We estimate that on average

there would be three such request per two years. Remuneration of facilitator(s) is estimated at EUR

120 000 per case and will be borne by the requesting parties. In any case however, it is likely that at

least some SEP holders will be dissatisfied either with the level of binding royalty or allocation

method. This can result in numerous legal challenges against both the Commission and the

Competence Centre.

Nevertheless, if the allocation is agreed upon, the transfer of royalties should be automatic without

the need for individual negotiations. We estimate that the majority of implementers will want to use

the clearing house for at least some of the standards they use. We estimate that this option has the

potential to eliminate the need for up to 500 negotiations per year, producing net benefits of up to

EUR 76 million annually. Fees for using the service and covering cost of the Centre are estimated at

just below EUR 100 per payment.

203

A potential drawback of this option from the point of view of implementers is that more SEP holders

(also those who did not actively seek royalties in the past) might register to get their share of royalties.

So, it is likely that more SEP holders will decide to license their SEPs, e.g. once Avanci became

known and used by vehicle manufacturers, the number of SEP holders grew from an initial five in

2016 to around 20 in 2018).

204

In practice this could mean that the implementers will pay (almost)

the full aggregate royalty. Currently not all SEP holders seek royalties, so the implementers are likely

to pay only to those who proactively request royalties. Second, it may happen that due to ease of

licensing under the new system, standards that thus far were in practice royalty free could become

royalty bearing.

This option bears similarity (but is different from) Proposal 74 from SEP Expert Group “On demand

collective licensing agencies”.

205

This proposal received 2 of 5 stars support from the experts. To the

extent that it bears similarities, the objections to that proposal would apply. Those include that

mandatory patent agencies would create strong disincentives for companies to participate in standard

setting and mandatory patent agencies would result in that SEP holders only licensing their SEPs

defensively, would collect licence fees through the agency, contrary to their policy not to seek licence

fees from other users of a standard.

Fee based on an average number of payments per year during a ten year period, assuming that each year there’s also

payment for licenses taken in previous year(s). See Annex A7.1 for details.

204

https://en.wikipedia.org/wiki/Avanci.

205

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs

Expert

Group’

(E03600):

Contribution

the

Debate

SEPs,

2021,

https://ec.europa.eu/docsroom/documents/45217.

203

kom (2023) 0232 - Ingen titel

6.6.

Common impacts

The general objectives are to ensure that end users, including small businesses and EU consumers

benefit from products based on the latest standardized technologies at reasonable prices; and to make

the EU an attractive place for innovation and standards development. Ultimately, the initiative wants

to ensure that both EU SEP holders and implementers innovate in the EU, make and sell products in

the EU and are competitive in non-EU global markets.

Specifically, the initiative aims at providing the tools for the parties to negotiate and conclude a

FRAND license agreement successfully. All options aim at facilitating SEP licence take-up in the

EU by reducing information asymmetries and redundant transaction costs. The initiative is thus likely

to balance the negotiating power between SEP holders and implementers. It should provide SEP

implementers with predictability as to their SEP exposure, allowing for proper business planning and

usage of the latest technology in the EU. It should also ensure sustainable licensing income for SEP

holders thus enabling them to continue participating in standard development. It would promote a

level playing field for SEP holders with good quality SEP portfolios.

A SEP holders has been negotiating the renewal and extension of its existing patent license

agreement with a Chinese implementer that is also a SEP holders. The Chinese company did not

accept FRAND offers and did not make a FRAND offer to the SEP holders. The Chinese company

provided very limited material on its own SEP portfolio and it sought a significantly higher

valuation, which was also inconsistent with a third-party analysis. The SEP holders offered to

engage in neutral mediation or arbitration to agree on FRAND rates, but the Chinese company

rejected those offers.

The precise impact of the options on SEP holders and on costs of implementers is difficult to predict.

As transaction costs go down (progressively with each option) it will be easier for implementers to

take a licence (options mainly reduce information asymmetry that implementers currently face) and

thus, not to infringe on patents. SEP holders would also benefit from such wider market increasing

their licensing income base.

Impact on fundamental rights

This initiative may impact the right to intellectual property of patent holders (article 17(2) of EU

Charter), if it is viewed as a restriction on the ability to enforce individual patents within a standard

for which a FRAND commitment was made, but that has not been registered. The same may apply

to the requirement to conduct a conciliation procedure before enforcing individual patents. IP rights

are not absolute rights and limitations to the exercise of these rights are allowed under the EU Charter,

provided that the proportionality principle is respected. According to settled case-law, fundamental

rights can be restricted, provided that those restrictions correspond to objectives of general interest

pursued by the European Union and do not constitute, with regard to the aim pursued, a

disproportionate and intolerable interference, which infringes the very essence of the rights

guaranteed.

206

In that respect, this initiative is in the public interest in that it provides uniform, open

and predictable information and outcome on SEPs for the benefit of SEP holders, implementers and

end users, at EU-wide level, and in that it aims at promoting technological innovation and the

dissemination of technology to the mutual advantage of the SEP holder and implementers.

206

Case C-44/79

Hauer

of 13 December 1979, para. 32; ECJ Case C-265/87

Schräder

of 11 July 1989, para. 15, and

Case C-5/88

Wachauf

of 13 July 1989, paras. 17 and 18.

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Furthermore, the rules concerning the conciliation procedure and the determination of the aggregate

royalty are aimed at improving and streamlining the process, but are not ultimately binding.

207

The initiative should also improve the conduct of business for both SEP holders and implementers,

and ultimately other businesses downstream (Article 16 of the Charter).

The initiative is also entirely consistent with the right to an effective remedy and to access to justice

(Article 47 of the Charter), as the implementer and the SEP holder fully retain that right. In case of

failure to register, the exclusion of the right to effective enforcement is

limited

and necessary, and

genuinely meets objectives of general interest, described above (see the first paragraph of this

Section).

208

Impact on innovation

Reducing uncertainty about costs and legal exposure will have a positive effect on implementer-level

innovation. Reasonable SEP licensing costs and a reduction of negotiation delays will have a positive

impact on SEP holder innovation. Both SEP holders and implementers may experience negative

impact if a balance is not achieved in the determination of the FRAND terms.

A more sustainable standardisation system and the availability of open standards to a wider range of

implementers will have a positive effect on innovation that builds up on those standards.

SEP licensing is expected to remain a profitable business after the options considered are

implemented. For instance, the total costs (including indirect costs and excluding benefits) for SEP

holders of PO2 of EUR54 million annually account only for 0.3% of the estimated global royalty

payments on cellular standards alone (EUR 18 billion).

209

Thus, incentives to innovate are likely to

continue.

210

Two thirds of respondents to the public consultations considered that efficient SEP

licensing would foster innovations by implementers, including start-ups and SMEs.

211

Social and environmental impacts

The options have no direct social impacts. Indirectly by facilitating take-up of new technologies they

can help in the digital transition such as e.g. smart cities, connected cars, telework, etc. More jobs

could emerge in the new technology sectors.

The options have no direct environmental impacts. They comply with the “do no significant harm”

to the environment principle. Indirectly, by facilitating application of new technologies they can help

in the green transition e.g. by contributing to a reduction of energy usage (via smart grid, smart

meters) or air pollution (e.g. connected cars avoiding traffic jams).

207

The conciliation procedure follows the conditions for mandatory dispute settlement outlined in the CJEU judgments;

Joint Cases C-317/08 to C-320/08

Alassini and Others

of 18 March 2010, and Case C-75/16

Menini and Rampanelli v.

Banco Popolare Società Cooperativa

of 14 June 2017, taking into account the specificities of SEP licensing.

208

Since the alternative of excluding the right to collect past royalties absent a registration or the alternative to only

require the initiation of the conciliation procedure before being able to enforce patent rights weighs less than the exclusion

of enforcement,

argumentum a maiore ad minus,

would also be compliant with fundamental rights.

209

CRA converted to EUR using EUR1:USD1 rate, see CRA, Régibeau, P., De Coninck, R. and Zenger, H.,

Transparency, Predictability, and Efficiency of SSO-based Standardization and SEP Licensing: A Report for the

European Commission,

2016, Section 3.2, p. 57,

https://ec.europa.eu/docsroom/documents/48794?locale=en.

210

Baron, J., Essentiality Checks for Potential SEPs – Framework for Assessing the Impact of Different Policy

Options, European Commission, DG GROW, 2023: “Essentiality checks may accentuate the difference between the

returns to essential and non-essential patents; thus increasing SEP holders’ efforts to produce truly essential patents. In

the theoretical analysis of Wipusanawan and Schuett (2022), increasing the differential between the value of essential

and non-essential patents increases potential SEP owners’ incentives to contribute to standards development”.

211

See Annex 9, Q64.

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Two thirds of respondents to the public consultation considered that efficient SEP licensing would i)

increase employment and keep a high level of competence in the EU and ii) foster the EU’s transition

to the green economy.

212

Impact on SEP

holders’

royalty income and availability and cost of products to customers

Many implementers currently use standards without having a license. Thus, the effect on availability

of SEP embedding products is unknown. We expect that lower transaction costs will promote license-

based applications and more implementers will take a license. It may be just a shift from unlicensed

products to licensed products, or real increase in technology take-up resulting in more SEP

embedding products on the market (also due to expected increase in IoT applications).

The impact on SEP prices (royalties paid by implementers) is also unknown (see Annex A7.1).

Announcements of aggregate royalties and FRAND determination processes may (but do not have

to) contribute to lowering the royalties paid by implementers.

Consequently, we have two effects working in different directions: i) potentially more firms taking a

license (increasing implementers costs, and income of SEP holders) and ii) potentially lower royalties

paid (decreasing implementers cost and income of SEP holders). Finally, the impact on prices for

customers will depend on the competition on a given product market. Any change in royalties paid

by producers may be internalized by a firm or passed on to final customers.

Impact on national patent proceedings

The additional information on essentiality shares, on aggregate royalty as well as information from

conciliator reports are likely to facilitate judgements in SEP related cases. Moreover, mandatory pre-

trial conciliations are expected to reduce the number of SEP litigation by up to 70%. The benefits for

the national judiciary are estimated at EUR 2.8 million in terms of access to information, and at EUR

4 million in terms of reduction of the number of court cases. In the analysis these benefits were

attributed to SEP holders and implementers.

Impact on patent offices

Options starting from PO2 may create additional demand for European patents, in case the share of

SEPs in the register will become a reference point for aggregate royalty allocation. Especially larger

stakeholders may take advantage of the fact that there is certain probability that a non-essential patent

will be considered essential by evaluators.

213

This effect however is likely to diminish as evaluators

gain experience. Thus, an increasing number of SEPs in the register may improve SEP holders

position vis-à-vis other holders. We estimate that in case this effect occurs, it may result in additional

income to EPO/national patent offices of around EUR 29 million annually (in case PO2 sub-option

ii) is chosen).

Impact on SEP patent pools

All options will have positive impacts on patent pool formation and patent pool licensing.

First, all patent pools conduct essentiality checks for some or all patents included in the pool. In the

future, SEP holders may include in the pool SEPs that were found essential under PO2.

214

Merges

and Mattioli (2016) e.g. estimate that the cost of these essentiality checks related to the MPEG Audio

212

213

See Annex 9, Q65 and Q66 respectively.

JRC found through experiment that the probability of marking a non-essential patent as essential stands at 38%. The

study noted however, that errors in assessment are likely to diminish as assessors gain experience, see European

Commission, Joint Research Centre, Bekkers, R., Henkel, J., Tur, E. M., et al.,

Pilot study for essentiality assessment of

standard essential patents,

Publications Office of the European Union, 2020,

https://data.europa.eu/doi/10.2760/68906.

214

It should be noted however that pools do not license just the evaluated patents – they license the licensors’ entire

portfolios of relevant SEPs (without having identified what or how many there are), but uses the evaluated patents as an

proxy for showing licensees the composition of the licensor portfolios and the pool portfolio as a whole.

kom (2023) 0232 - Ingen titel

pool represented USD 5 250 000, approximately two thirds of the total set-up cost of this patent pool.

Patent pools may continue to do their own essentiality checks.

Second, the requirement to announce an aggregate royalty is likely to promote patent pool formation

as independent patent pool administrators have significant experience in pool formation. They also

have internal revenue allocation mechanisms, which may increase transparency with regard to the

share of the various SEP holders and facilitate their business planning.

Finally, if a patent pool comprising all SEP holders relating to a given standard would be formed, it

would replace the use of PO5.

Impact on commercial database providers

Providers of commercial solutions include companies such as LexisNexis Patentsight, Clarivate

Derwent Innovation, Questel Orbit, Patsnap, Minesoft Patbase and many others. Recently such

companies have integrated SEP declaration information in their databases; i.e. patent datasets include

a flag whether or not a patent has been declared. Some solution providers such as IPlytics,

PatentCloud Inquartik, Patently or Unified Patents have created designated patent declaration

analytics solutions that allow searching across the full text of patent and standard documents.

215

These providers may have access to the register, use it in their commercial offers and build services

on top of that data. There may be new users and thus enhanced competition. Providers that are

currently focused on collecting and curating the currently missing or imperfect data available are

likely to lose that part of their business. The companies above, however, all offer additional services.

While users may no longer need to purchase commercially produced reports on the SEP landscape,

they may benefit from the price decrease and quality increase in new analytical commercial reports

induced by the free availability of the Competence Centre’s information on essentiality rates or

aggregate royalty.

Digital impacts

The SEP database may be used for research purposes, and/or to train machine learning (ML)

algorithms to recognize “true” SEPs among larger populations of potential SEPs. These methods are

expected to significantly improve over the next years, and the policy options may further contribute

to this evolution. The causal effects of improved ML approaches to essentiality determinations are

complex, but potentially significant. Among others, it may limit significantly the costs of essentiality

checks.

OW DO THE OPTIONS COMPARE

Guidelines and support measures created under PO1 will support SEP license negotiations and

improve the SEP licensing environment mainly by increasing transparency and reducing some costs.

Their impact, however, may be limited. The assistance package for SMEs can be seen as the biggest

advantage of this option. As explained under PO1, much of the public information about pricing is

under non-disclosure agreements. A guidance is not capable of promoting more transparency in this

respect. Any SEP landscape study will suffer from natural limitations such as missing data and over-

declaration, and the use of different methodologies to produce them, which may lead to different

results. WIPO mediation will not address the key concern about transparency of the results of the

mediation that are to benefit future comparable situations. In order to offer valuable information to

interested parties, the Competence Centre would need to gather its own quality data through unbiased

and transparent processes. This option is unable to achieve this.

215

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 30, Section 3.2.1.3. Commercial patent databases.

kom (2023) 0232 - Ingen titel

By making registration in the EU register mandatory, and enforcement and/or collection of past

royalties conditional on registration, PO2 will create transparency about the SEP landscape

(improving on objective 1). In addition, regular essentiality checks will guarantee the quality of the

SEP holder. With time this might lead to creating a register of ‘truly’ essential patents. Implementers

will have a (comparative) proxy of the shares that each SEP holder has in the respective technology.

There will be benefits for both the SEP holders and the implementers. The SEP holders that register

will demonstrate the legitimacy of their claims and see reduction of some costs related to the technical

discussions plus shorter negotiation periods. The implementers will be able to see who the SEP

holders are who may have legitimate claims on SEPs, what the potential strength of those claims is

and how those may impact on its business.

216

They will economise on their own essentiality

assessments which should aid in negotiations – improvement on objective 2. Nevertheless,

implementers will still have to negotiate licence and royalties individually with each SEP holder with,

in most cases, no aggregate royalty available as a reference. PO2 also includes all impacts of PO1.

By adding an obligatory pre-litigation conciliation, PO3 is expected to speed up dispute resolution

and lower its cost as compared to court proceedings, thus significantly improving on objective 3. A

conciliator would also propose FRAND conditions including royalty, thus further helping especially

implementers and improving on objective 2.

PO4 is going to solve one of the key issues in SEP licensing negotiations by adding an aggregate

royalty to the SEP register and providing a reference price for using a standard – thus significantly

improving on objective 2. It should speed up license negotiations and dispute resolution, thus further

improving on objective 3. It will especially help smaller SEP implementers, facilitate production cost

planning and profit calculations. It will also restrict room for exploitation by SEP holders by setting

reasonable maximum royalty rates.

By creating a one-stop-shop for obtaining SEP licences, PO5 eliminates the business uncertainty

about the aggregate royalty. It gives the opportunity to implementers to sign licence deals with many

SEP holders. For SEP holders it gives clarity about their share of the aggregate royalty and facilitates

licensing with implementers who choose to use the one-stop-shop. This option will reduce the

licensing costs in a similar way as for pools. Given that all SEP holders will be covered by this option,

it would represent an improvement in comparison to a pool. This option radically improves on

objective 2 and could eliminate the majority of disputes, thus improving on objective 3. However,

the SEP burden on implementers might increase as transaction costs get very low, more SEP holders

than currently might want to participate in SEP licensing (including those that were not licensing thus

far, or even those that had a royalty free policy might change to royalty bearing licensing). PO5 would

eliminate the issue of licensing in the value chain as any implementer may use the one-stop-shop and

its customers will be licensed. Finally, for PO5 to work, SEP holders have to be incentivised to agree

on a mechanism for royalty allocation. This is a very complex exercise because of the many diverging

interests of SEP holders (those whose main business is using the standard, those whose main business

is SEP licensing and those who do both). It is very likely that they will fail to agree, and the issue

will be referred to the FRAND determination process. This option has an impact on the freedom to

conduct business.

216

As with time new SEP holders might register, it may be necessary to check the register regularly to have up-to-date

picture on the SEP holder landscape.

kom (2023) 0232 - Ingen titel

Table 2: Comparison of policy options against the effectiveness and efficiency criteria

Options

Provide information on

ownership and essentiality

Baseline

PO1 Voluntary guidance

PO2: SEP register + essentiality check

(on up to 100 patents + random

sample)

SEPs

Effectiveness

Provide clarity on FRAND royalty

Facilitate dispute resolution

(0/+) promotion of WIPO ADR tools.

Cost efficiency (EUR)

only quantifiable costs and benefits

for all stakeholders

(see next table for details)

Net effect (+)5.3 million

Benefits 5.9 million

Cost 0.6 million

Net effect (-)12.3 million

Benefits 41.5 million

Cost: 53.8 million

Net effect (+) 6 million

Benefits 7.5 million

Cost 1.5 million

PO3: Register and conciliation

(0/+) clarification of key issues in SEP negotiations in guidelines, effectiveness

depending on market uptake.

(+) Competence Centre landscape studies, collection of case-law and rules

worldwide, and help/training to SME implementers.

(++) Clarity on which SEPs can be (+) as in PO1 + proxy of SEP shares

enforced and (optionally: which of each SEP holder based on patent

damages for past use can be collected) count

(those in the register only), who owns (++) as in PO2 + conciliator’s opinion

them and how many essential patents on royalty facilitates negotiation and

there are per SEP holder.

conclusion of SEP licence (potentially

global).

(0/+) as above + register is another

source of evidence in WIPO ADR.

(+)

Mandatory

conciliation

(optionally:

commencement

procedure) should limit costly court

cases by up to 70%

Additional evidence for SEP holders

in case of an application for customs’

action.

(++) as in PO3 but conciliation/licence

negotiations should be faster when

aggregate royalty is available.

(+++) can substantially reduce

disputes, otherwise as in PO4.

PO4: Aggregate royalty for SEP

(+++) as in PO3 + clarity on total SEP

cost (aggregate royalty).

(++++) as in PO4 + clarity on split of

aggregate royalty between SEP

holders.

(--) implementers may face higher

PO5: SEP clearing house

SEP cost if more SEP holders than

currently decide to license for royalty.

(--) SEP holders could likely disagree

with the mandatory aggregate royalty

and apportionment method

Note: Only additional quantifiable costs and benefits of each option presented. Options build on each other thus for instance impact of PO3 consist of impact of PO1, PO2 and PO3.

Quantifications are only indicative based on several assumptions. Not all impacts are quantifiable, notably impact on SEP licensing revenue. See annex A7.1 for details.

Net effect (+) 24.9 million

Benefits 25.3 million

Cost 0.4 million

Net effect (+)75.2 million

Benefits 75.6 million

Cost 0.4 million

kom (2023) 0232 - Ingen titel

Table 3: Comparison of the impacts of policy options on stakeholders (including quantifiable costs and benefits)

SEP implementers

No. affected

Around 230 EU based implementers and around

190 non-EU based implementers with

subsidiaries in the EU

(+) Guidelines will provide definition and

interpretation on issues posing most problems in

SEP negotiations – though they remain

voluntary

Competence Centre will do landscape studies on

SEPs, have a repository of cases, and rules

worldwide that should facilitate negotiations

SMEs will benefit from free advice

0 (0.6 million, cost covered by fees of PO2)

3.4 million

(++) clarity on which SEP holders may enforce

and (optionally only) collect royalties for past

damages in the EU and share of essential patents

they have.

Likely to reduce cost of internal investigations

of each implementer engaged in licence

negotiations; provides indication on the share of

SEP royalty based on patent count, but also gives

an indication of value as the register will create

transparency as to how the patent relates to the

standard.

0.6 million (access fee: €1 700 for large and

€850 for SME)

6.1 million

5.5million

(+++) as in PO2 + up to 70% of SEP conflicts

could be solved without court involvement (due

to mandatory pre-trial conciliation).

Especially smaller implementers could benefit

from help conciliator provides in negotiations

with SEP holder.

SEP holders

Altogether around 260 with more than 10 SEP families.

Around 31 from the EU (owning 15% of potential SEPs)

(+) Guidelines could smoothen negotiations

(+) Access to landscaping studies

(-) Implementers due to information/resources from the

Competence Centre can become more assertive

negotiators

Courts / lawyers

Around 35 FRAND related court

cases per year

(0/+) guidelines, database of case

law and landscape studies can be

used in court judgements;

Patent Offices (PO) and commercial

data providers

EPO, 27 NPOs and about 20 data

providers (including 4 main patent

and 4 main SEP specific)

(0) No impact on patent offices

(0/+) Case law database of the centre

and produced studies are not

expected to impact on database

providers but can be another free

source of analysed information.

Baseline

PO 1:

Costs (€)

Benefits (€)

Net (€)

PO 2:

Sub-option

ii) up to 50

checks +

sampling

2.5 million

(0,-) SEP holder risks that (some of) its patents will be

assessed as non-essential to a standard. Patents in the

might lead to weakening of SEP holder’s patent portfolio.

(+) SEP holder will gain credibility that it has essential

patents which should facilitate approaching implementers

for a licence.

(+) SEP holders with a higher essentiality rate from their

registered SEPs will improve their negotiating position in

all SEP negotiations (also cross-licensing)

53.2 million (including 38 million of indirect costs) (filing

fee 100 per patent, essentiality check 5 000 per patent)

6.4 million

-46.8 million

(++) as in PO2 + up to 70% of SEP conflicts could be

solved without court involvement (due to mandatory pre-

trial conciliation [optionally commencement of

procedure])

0 (benefit of 2.4 million)*

0 (2.4 million)*

(+) information on registration and

essentiality should facilitate SEP

judgements

(0,-) increased number of patent

invalidation claims

Costs (€)

Benefits (€)

Net (€)

PO 3:

0 (benefit of 0.4 million)*

0 (0.4 million)

(++) Reduction of SEP court cases

by up to 70%.

(+) In case of a trial, courts can use

the non-confidential report of the

conciliator (on e.g. FRAND rate

assessment) in SEP judgements.

(0,-) Patent Offices may face

increased

number

opposition

procedures

(+) providers may have access to the

offers and build services on top of

that data. There may be new users

and thus enhanced competition.

(-) providers that are currently

focused on collecting and curating

the currently missing or imperfect

data available are likely to lose that

part of their business.

29 million in additional patent fees

29 million

(0) No impact on patent offices

(+) Providers may re-use public

outcomes of conciliation procedures

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SEP implementers

SEP holders

(+) Conciliation report would be used to support an

application for customs’ action with regard to goods

suspected of infringing SEPs.

(-) Obligatory conciliation [optionally commencement of

procedure] might delay SEP holder’s going to court.

0.7 million

3.7 million

3 million

as in PO3 but

(-) Freedom to negotiate SEP royalty will be reduced by

the announced maximum SEP royalty. Implementers are

likely to try to negotiate price down

(+) SEP holder will still be able to claim it has the most

important patents and should get the largest chunk of the

aggregate royalty

(+) Depending on the mechanism by which the aggregate

royalty is set, the aggregate royalty may in the end be

higher than under the current system.

(-) potential dissatisfaction with the aggregate royalty set

might trigger more conciliation requests

0.2 million

12.7 million

12.5 million

(+) Potential for smooth licensing without negotiations or

disputes, i.e. increase of licensing base

(-) potential disagreements on aggregate royalty allocation

method

(-) In case negotiations take place, impacts as in PO3 but

freedom to conduct business limited by published

aggregate royalty and allocation shares

Courts / lawyers

The court can also use the

confidential report, if the parties

agree.

Patent Offices (PO) and commercial

data providers

Costs (€)

Benefits (€)

Net (€)

PO 4:

0.7 million

3.7 million

3 million

(++++) as in PO3 + Implementers will know

maximum price of a standard (aggregate royalty)

(0/-) Risk that aggregate royalty announced will

be too high,

(+) mitigated by possibility to request an expert

opinion, with resulting aggregate royalty

published in the register

(0/-) Risk that each SEP holder approaching an

implementer will demand a bulk share of the

aggregate royalty, which might increase need for

conciliations/trials

0 (4 million)*

(+) Courts can benefit from the

publicly announced aggregate

royalty

(0) No impact on patent offices

(+) Providers may use the data to

offer

additional

solutions to

customers.

0.2 million

12.7 million

12.5 million

(++++) as in PO3 +

(+) Potential to reduce most of (0) No impact

+ One stop shop will allow taking a licence

SEP court cases.

without negotiating with individual SEP holders

(+) Courts can benefit royalty

+ any implementer can take a licence regardless

allocation between SEP holders in

of its level in the value chain

addition to the benefits listed

(0/-) Risk that aggregate royalty announced will

under the previous POs.

be too high.

(-) SEP holders may challenge the

(--) Risk that more SEP holder holders will join

allocation

method

before

“public pool” and seek royalties, risk that royalty

conciliators

free standards will become royalty bearing

Costs (€) 0.3 million

0.2 million

Benefits (€) 37.8 million

37.8 million

Net (€) 37.5 million

37.6 million

* added in equal shares to benefits of SEP implementers and holders

Note: Only additional costs and benefits of each option presented. Options build on each other thus for instance impact of PO3 consist of impact of PO1, PO2 and PO3.

Quantifications are only indicative based on several assumptions. Not all impacts are quantifiable, notably impact on SEP licensing revenue. See annex A7.1 for details.

Costs (€)

Benefits (€)

Net (€)

PO 5:

kom (2023) 0232 - Ingen titel

7.1.

Compliance with the proportionality principle

None of the options goes beyond what is necessary to achieve the identified objectives. The options

are characterized by progressively increasing market intervention, which is justified to balance the

distorted balance of power and information asymmetry, and to reduce unnecessarily high transaction

costs in licensing negotiations between SEP holders and implementers, especially with smaller

(including SMEs) implementers and ensure that the principle of FRAND licensing is implemented.

7.2.

Coherence with other EU legislation

The options are coherent with the application of EU competition policy as regards the enforcement

of the FRAND obligation arising from Article 102 TFEU. Other instruments in the area of

enforcement of intellectual property rights are not impacted by this initiative.

Possible legal instruments for implementing the policy options are in case of PO1 an EU

recommendation for setting the guidelines and a regulation to create the Competence Centre (e.g.

adding new tasks to the EUIPO). In case of PO2 to PO5, an EU regulation would be required,

supplemented by delegated or implementing acts (e.g. establishing the methodology for essentiality

checks, criteria for essentiality assessors, criteria for aggregate royalty determination, rules for

conciliation).

7.3.

Coherence with international obligations (WTO rights)

Certain proposed limitations on the rights of a SEP holder, including requirements to (i) register its

patents in a designated register, and to (ii) conduct a specified FRAND determination process

(conciliation) in order to be able to enforce their patents and/or collect FRAND royalties for the past,

could be considered a legitimate limited exception as stipulated in Article 30 TRIPS to the exclusive

rights conferred on SEP holders under Article 28 TRIPS (a more detailed assessment is provided in

Annex 8).

217

There is only limited guidance on Article 30 TRIPS, which on the one hand seems to

allow only a narrow curtailment of the legal rights of a patent holder, but on the other hand suggests

that public interest objectives stated in Articles 7 and 8(1) TRIPS, are legitimate objectives permitting

encumbrance on the use of intellectual property.

218

The temporary exclusion of the right to effective enforcement of exclusive rights may be considered

to be

limited.

The inclusion of a patented technology in a standard gives the SEP holder dominant

market power over an implementer of the standard, as they cannot design their products around SEPs

because the technology is essential for implementing the standard. SEPs holders benefit from the

adoption of the standard and therefore usually tolerate the infringement of their patents to ensure the

standard is widely used in products. When SEP holders commit to FRAND licences in order to

promote adoption of the standard, their objective is not to stop the sale of infringing products but to

collect royalties from such sales. The exceptions to the exclusive rights of SEP holders are thus

consistent with the objectives of the TRIPs agreement to promote technological innovation and the

dissemination of technology to the mutual advantage of the SEP holder and the user of the technology

(Article 7). It would also be consistent with its principles of preventing the abuse of intellectual

property rights and adopting measures for public interest reasons (Article 8).

219

217

The registration of patents in a designated register could also qualify as a procedure concerning the maintenance of

intellectual property rights under Article 62 of the TRIPS Agreement.

218

The detailed assessment of the permissibility of the exceptions under Article 30 of the TRIPS Agreement and the

interpretations by WTO adjudicating bodies is set out in Annex 8 WTO/TRIPS compatibility.

219

The temporary exclusion of the right to effective enforcement also reflects the FRAND commitments of the SEP

holders that involves a period of negotiation with potential licensees during which it is premature for the SEP holders to

launch enforcement procedures.

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The exception to the exclusive right would

not conflict with the normal exploitation of the patent.

The normal exploitation of the patent in the context of standard-compliant products is to be able to

collect FRAND royalties. Thus, exploitation rights should be more strictly defined or limited because

of concerns regarding potential restrictions to fair competition and discrimination.

Furthermore, the legitimate interests of the patent holder would

not be unreasonably prejudiced

either

since enforcement would be possible following registration and would also include royalties due for

the conciliation period. Conciliation would only temporarily suspend the enforcement and neither the

conciliation result nor the published aggregate royalty would be binding upon the parties. Moreover,

the proposed initiative takes full account of the legitimate interests of third parties, notably

implementers and end users.

Article 40 of the TRIPS Agreement on the Control of Anti-competitive Practices in Contractual

Licences provides that the TRIPS Agreement does not prevent Members from specifying in their

legislation licensing practices or conditions that may in particular cases constitute an abuse of

intellectual property rights having an adverse effect on competition in the relevant market. The

proposed FRAND determination process (conciliation and aggregate royalty setting) is intended to

address, among other issues, concerns about whether the demanded royalty is truly FRAND, which

may have potential anti-competitive effects. Such anti-competitive effects may impede the adoption

of the standardised technology mainly by new entrants and SMEs that lack the resources to deal with

such demands or pay potentially non-FRAND royalties. Any potentially abusive practices in the

licensing of IP rights may result in harm to the consumer and public interest. Therefore, the proposed

registration of SEPs in a designated register prior to enforcement and the FRAND determination

process are likely to fall under Article 40 of the TRIPS Agreement.

Furthermore, the introduction of a conciliation is not unreasonably expensive or burdensome, given

the specific SEP practices, and is thus in line with the obligation in Article 41(1), (2) TRIPS, which

requires WTO members to ensure that the different types of proceedings relating to IP enforcement

shall be available under the respective national laws. SEP holders benefit from the adoption of the

standard and therefore usually tolerate the infringement of their patents to ensure that the standard is

widely used in products. When SEP holders commit to FRAND licences in order to promote adoption

of the standard, their objective is not to stop the sale of infringing products, but to collect royalties

from such sales. As such, the FRAND determination (conciliation) process cannot be considered

a restriction of the SEP holder’s right to enforce its patent against an implementer

220

REFERRED OPTION

Option 4 is the preferred option – a mandatory register for SEPs with essentiality checks, a process

for determining an aggregate royalty, and a mandatory pre-trial conciliation, combined with

voluntary guidance on SEP licensing and a central Competence Centre offering, among other

services, also assistance to SMEs.

This option is expected to strike the right balance between negotiating powers of SEP holders and

implementers and at the same time allow sufficient room for private negotiations between them, with

more relevant information at hand. The option reduces information asymmetry between a SEP holder

and an implementer by providing the latter with information who the relevant SEP holders are, how

many patents they have registered in the register and what their essentiality rate is (derived from a

representative random sample of all registered SEPs) and what the potential [or maximum] total cost

of using a standardised technology (aggregate royalty) is. A pre-trial obligatory conciliation is likely

to reduce SEP dispute settlement costs to about 1/8 as the conciliator will assist both parties in

220

Since the alternative of excluding the right to collect past royalties absent a registration or the alternative to only

require the initiation of the conciliation procedure before being able to enforce patent rights weighs less than the exclusion

of enforcement, thus,

argumentum a maiore ad minus,

this would also be coherent with WTO/TRIPS obligations.

kom (2023) 0232 - Ingen titel

reaching an agreement. A Competence Centre will provide objective information, guidance, trainings

and support to SMEs in relation to SEPs and SEP licensing. Moreover, SMEs will benefit from

reduced administrative fees and/or financial support from existing facilities such as the SME Fund to

cover e.g. conciliation costs.

The option is likely to reduce the time for negotiation and the cost of the negotiation for both parties.

Transparency will inject trust into the system. SEP holders are likely to reach a wider set of

implementers therefore securing adequate remuneration on their innovation, and incentivising

participation in future standard setting. Implementers (especially smaller ones) will be able to plan

their business costs and make their risk assessments.

Finally, the initiative will cover future standards (or generations of standards) and there may be a

possibility to request the inclusion of older versions of the standards, such as LTE, of particular

importance to the roll-out of the IoT. The option will complement and not replace the

Huawei v ZTE

process. It is expected not to impact licences that are already in force.

As far as quantification is possible, and under several assumptions, the net benefits of the preferred

option are estimated at around EUR 24.5 million per annum. In terms of distribution of costs and

benefits, the majority of net benefits (estimated at around EUR 24 million) will be directed to SEP

implementers localised in the EU (split almost equally between firms with headquarters in the EU or

non-EU firms with subsidiaries on the territory of the EU). With an approximate number of less than

600 new SEP licensing contracts signed per year in the EU, net benefits are estimated on average at

around EUR 40 000 per negotiation. SEP holders are expected to bear the brunt of costs of this

initiative mainly due to the cost of SEP registration and essentiality checks. The costs for this group

amounts to EUR54 million, with 85% of these costs applicable to non-EU based SEP holders. The

estimated benefits to this group account for around half of costs, so the net effect is negative (EUR

29 million). It should also be noted that a large part of SEP holders’ costs (EUR 29 million) is due to

an expected increase in patent fees due to an expected increase in number of patents. This impact is

uncertain and thus may not materialise, in which case the overall impact on SEP holders would be

neutral. However, if it were to happen, it would constitute a new income to the European and National

Patent Offices. In terms of geographical distribution of impacts in the EU, it is expected that firms

from all but three (FI, SE and LU) Member states are likely to experience net benefits, with DE, IT

and FR accounting for 75% of benefits. Finally, it should be noted that certain impacts, such as e.g.

a change in SEP licensing revenue are difficult to predict, thus are not included in the cost/benefits

calculation. For discussion of those impacts as well as for details on all calculations see Annex A7.1.

The table below summarises costs and benefits of the preferred options:

Table 4: Ten-year-average total approximated annual costs and benefits of the preferred option per

affected party and localisation (EUR million)

Costs

Benefits

SEP implementers

Net

Costs

SEP holders

Benefits

Net

Subtotal (net effect for implementers and holders)

EPO/NPO benefit

Total net benefit

-0.77

12.89

12.11

-8.13

3.79

-4.33

7.8

29.0

36.8

-12.3

24.5

non-EU

-0.77

13.03

12.26*

-46.04

21.50

-24.54

-12.3

Total

-1.5

25.9

24.4

-54.2

25.3

-28.9

-4.5

29.0

* concerns non-EU implementers with subsidiaries in the EU

Note: numbers rounded which may affect totals

Source: Own assessment based on studies and assumptions. See annex A7.1 for more explanations

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8.1.

REFIT and One-in-one-out

This initiative is not part of the REFIT simplification effort as there are currently no EU rules on

SEPs that could be simplified or made more efficient. The administrative costs of filing the forms

necessary for SEP registration, estimated at EUR 200 per patent or around EUR 2.7 million annually

over a decade are considered eligible for one in one out calculations.

OW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED

The legislation to be proposed would include a provision requiring evaluation every five years.

Table 5: Monitoring indicators

Research question

Indicators

Specific Objective 1. Provide information on SEPs ownership and essentiality

Has access to

- Number of standards with SEPs registered in the database

information on

- Number of SEP holders registered

SEPs improved?

- Number of essentiality checks conducted (overall, per SEP holder, per standard)

- Is database up to date (when SEP is registered, is information updated)

- Number of times database is used (access rate) and how it is used (e.g. new private services

built on these data)

- Perception of quality of register and essentiality checks

- Results of peer evaluations (number of confirmed essentiality checks)

- Cost/quality of the central system in comparison to available private solutions

Specific Objective 2. Provide clarity on FRAND royalty

Has information on

- Number of studies done by Competence Centre

FRAND price,

- Number of SMEs receiving assistance

terms and

- Perception of quality of studies, assistance

conditions

- Number of standards, and their applications

improved?

- Number of aggregate royalties announced, or expert opinions provided

- Perception of the aggregate royalty rate setting process/and rate itself by implementers and

holders; use in court cases/judgements

- Frequency of changes of the aggregate royalty

- Cost/quality of the Competence Centre services in comparison to available private solutions

Specific Objective 3. Facilitate dispute resolution

How the new

- Usage of conciliation (number of cases per year, duration, quality assessment by courts, usage

systems changed

in court proceedings and in judgments; usage in support of applications for customs’ action)

- Change in SEP litigation cost/duration due to conciliation

dispute resolution

- Usefulness of guidelines (perception by stakeholders, usage in court cases,)

Sources of information: Competence Centre database; Feedback/Surveys of new system (Competence

Centre/register/conciliation/guidelines) users such as e.g. SEP holders and implementers, judges, essentiality checkers;

Court cases/judgements/injunctions analysis; dedicated evaluation studies; public consultations; desk research

General objectives

Impact on SEP

- Number of SEP holders based in the EU

owners

- Number of SEPs registered by SEP holders based in the EU

- Length of licence negotiations, number of licensors

- Contribution of EU firms in standard development activities

- Localisation of production/R&D of such products/services (EU/third countries)

Impact on SEP

- Cost of SEP licence for EU firms, effort of obtaining a license

Implementers

- Percentage of SEPs covered through licensing.

- Competitiveness of EU firms making SEP implementing products/services in the EU and third

countries.

- Localisation of production/R&D of such products/services (EU/third countries)

- Contribution of EU firms in standard development activities

Impact on EU

- Time of introduction of new products/services using latest standards in the EU in comparison

customers

to other countries, price of such products

Sources of information: Surveys, official statistics (e.g. Eurostat’s “Enterprises using IoT”, isoc_eb_iot), dedicated

evaluation studies; public consultations; desk research.

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NNEX

1: P

ROCEDURAL INFORMATION

1) Lead DG, Decide Planning/CWP references

DG for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW).

2) Organisation and timing

This proposal is scheduled for adoption by the Commission in the second quarter of 2023.

Inter-service group meetings took place on 23.09.2021, 12.10.2021, 23.11.2021, 09.12.2021,

20.06.2022, 19.09.2022, 11.10.2022 and 27.01.2023.

The following Commission services were invited to participate: DG AGRI, CNECT, COMP, ENER,

JRC, MOVE, RTD, SJ, SG, TAXUD, TRADE, and GROW. DG JUST was consulted on specific

issue with regard to mediation. The EUIPO was also involved with regard to the institutional aspects.

Those services were actively consulted throughout the project, including in discussions with

consultants.

3) Consultation of the RSB

A meeting with the RSB took place on 15.03.2023. On 17.03.2023 the RSB delivered a positive

opinion. The table below shows RSB comments and how they were addressed in the revised text.

RSB comments

(1) The report does not provide a clear overview of

all the measures to minimise the negative impacts on

Small and Medium Enterprises (SMEs) nor their

combined impact.

(2) The report does not sufficiently disaggregate the

costs to allow the administrative costs to be

identified for the purpose of the One In, One Out

approach.

DG GROW replies

Overview of SME measures was added to the SME

test (annex A8.2). It is now more prominent in the

main text including in options description and in the

chapter on the preferred option.

Disaggregation of costs with a view to identify one-

in-one-out costs was added (to the main text, and

annex 3). Additional tables with more details on

costs and benefits were added to annex A7.1.

4) Evidence, sources and quality

The analysis presented in this impact assessment is based on the following key sources:

Baron, J., Arque-Castells, P., Leonard, A., Pohlmann, T., Sergheraert, E.,

Empirical Assessment of

Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023;

Baron, J.,

Essentiality Checks for Potential SEPs – Framework for Assessing the Impact of Different

Policy Options,

European Commission, DG GROW, 2023;

Charles River Associates,

Transparency, Predictability, and Efficiency of SSO-based Standardization

and

SEP

Licensing,

European

Commission,

GROW,

2016,

https://ec.europa.eu/docsroom/documents/48794;

Commission webinar series on Standard Essential Patents

(2020 – 2021);

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard

Essential Patents ‘SEPs Expert Group’ (E03600): Contribution to the Debate on SEPs,

2021,

https://ec.europa.eu/docsroom/documents/45217;

European Commission, Joint Research Centre, Bekkers, R., Henkel, J., Tur, E. M., et al.,

Pilot study

for essentiality assessment of standard essential patents,

Publications Office of the European Union,

2020,

https://data.europa.eu/doi/10.2760/68906;

Number of other studies and research papers are used and references are provided in the footnotes;

Submissions to the call for evidence, the public consultation, the survey of SMEs and numerous

interviews with stakeholders and papers submitted in confidential and non-confidential format to the

Commission;

The Options considered all contributions of the Expert Group, the suggestions made during the

webinar series and contributions by practitioners, academia and judiciary.

Additionally, the following data sources were used in order to perform in-house analysis:

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

IPLytics Platform – data extracted in 2022;

Experts analyses based on contracts with the Commission.

The remaining sources are provided in the footnotes, whenever they are referred to in the text.

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NNEX

2: S

TAKEHOLDER CONSULTATION

YNOPSIS REPORT

)

The public consultation took place between 14 February 2022 and 09 May 2022. During that period

74 replies were submitted using the EUSurvey tool.

This annex presents summary of results, a detailed question by question analysis is presented in

Annex 9. All received responses are published.

221

1) Respondents’ characteristics

Respondents were asked to provide basic information about themselves, such as country of origin,

area of activity, and registration in the transparency register.

Two thirds of the replies came from the European Union. The highest number of EU replies came

from Germany. The remaining one third of the replies came from third countries, with the highest

number coming from the USA. The graph below (Figure 6) presents responses per country of origin.

Six out of ten replies came from companies (39 replies) or business associations (7). Followed by

seven replies from academia, two from public authorities, one from a non-governmental organisation

(NGO) and one from trade union. Six replies came from EU and non-EU citizens (see Figure 7).

Among the 39 companies, 77% were large entities and 23% were small and medium-sized entities

(SMEs).

30% of the respondents identified themselves as both SEP holders and implementers, 13% as only

SEP implementers and 4% as only SEP owners. Around 50% identified themselves as “other” (which

consists of for instance attorneys, advisers, academia…).

Around half of the respondents (35) are registered in the transparency register.

222

The transparency

represents.

Figure 6: Distribution of responses per country of origin of respondent

Source: Commission own analysis

221

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-

framework-for-standard-essential-patents_en.

222

https://ec.europa.eu/transparencyregister/public/homePage.do.

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Figure 7: Distribution of responses by type of respondent

NGO, 1%

Public authority, 3%

other, 7%

Non-EU citizen, 8%

Trade union, 1%

EU citizen, 8%

Company/business

organisation, 53%

Academic/research

institution, 9%

Business

association, 9%

Source: Commission own analysis

2) Summary of replies

Participants to this consultation were invited to provide answers on the following blocks of questions:

general questions, questions on the licensing process and related problems, questions on transparency

of SEP licensing, on essentiality of SEPs, on fair, reasonable and non-discriminatory (FRAND)

licensing terms and finally questions on SEP enforcement. Below is a short quantitative summary of

the responses based on selected questions per block.

Replies to general questions.

Around 60% of the respondents considered that the current legal framework sufficiently protects

against implementers “hold-out” (e.g. unreasonably delaying the conclusion of a licence by an

implementer). Around 30% had opposing views. The responses showed a similar pattern across

different stakeholders’ groups (companies, associations, academia, respondents from the EU and

non-EU countries).

Respondents were divided on the issue whether the current legal framework provides sufficient

protection against SEP holders “hold-up” (broadly opportunistic behaviour by SEP holders, such as

using their market power to extract excessive rents or terms from implementers) with 43% agreeing

and 48% disagreeing. Companies, citizens, and non-EU respondents mainly disagreed. While

academia/authorities/NGOs/others, and EU based respondents tended to agree with that the current

legal framework provides sufficient protection against SEP holders “hold-up”.

The final question in this section asked about the impact of the current SEP licensing framework on

SMEs and start-ups. Around half of all respondents assessed the impact as negative, a third thought

there is no impact, and around 5% deemed it positive. Responses showed similar patterns for all

analysed groups, except for associations, implementers and SEP holders. Around half of the

associations and SEP holders considered that there was no impact, while around 80% of implementers

thought that the impact is negative.

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Questions on the licensing process

SEP implementer perspective:

Around half of the respondents reported seeking a licence before a

SEP holder approaches them. SEP holders usually contacted the respondents around 3 years after the

first implementation of a standard in a product. Licence negotiations with a large SEP holder on

average concerned around 60 patents.

Almost three quarters of the respondents request a licence in order not to infringe a SEP and 60% to

be able to plan production and costs.

Reported costs of estimating SEP exposure per product amounted to on average around EUR

230 000.

In terms of consequences of the current SEP licensing practices: Two thirds of all respondents and a

majority of implementers try to share SEP cost/risks with their suppliers. Around 40% of all

respondents, and two thirds of the implementers will try to settle with the SEP holder as quickly as

possible to avoid litigation or will search for an alternative to SEP (another technology or royalty free

standard). Around a third of the respondents (and half of the implementers) will increase prices and

may become less competitive.

SEP holder perspective:

The main reasons for licensing/having SEP are securing the return on

investment (70% of answers), followed by use of SEP for defensive/bargaining purposes (60%) and

participation in the standardisation process in the future (40%).

On average SEP holders said they start contacting implementers two years after the publication of a

standard. Around 70% do not reach out to all SEP implementers though. On average around 60% of

the contacted implementers reply within one year. Around 70% take a licence without any litigation.

It takes on average 3 years and 3 months to conclude a licence.

Questions on the problems related to SEP licensing

Lack of transparency on the FRAND royalty rate, on the SEP landscape (who owns SEP) and

divergent court rulings were named as the key problems by three quarters of all respondents (and

almost all implementers). From the SEP owners’ point of view the main problems were hold out and

anti-suit injunctions.

Questions on SEP transparency

Respondents asked for more public information on SEP as regards “patent and application number”

(88% of all responses), “relevant standard, version, section of the standard” (80%), “contact details

of SEP owner” (80%), “transfer of ownership” (77%), “licensing programs” (76%) and “standard

FRAND terms and conditions” (72%).

Patent pools should disclose “standards subject to pool licensing” (100%), “product royalties per

programme” (94%) and “list of SEP owners” (87%).

Around 70% of the respondents considered that a confidential repository of licensing agreements

could help judges and arbitrators to determine a FRAND rate. Such repository should contain

information on “licensed SEPs” (96%), “royalties” (96%) and “methodology used to calculate the

royalty” (94%).

Questions on essentiality

Around 60% of all respondents and 90% of the implementers supported third-party essentiality

checks as long as independent experts do them. Only 24% of the SEP holders supported such a

solution. A third of all respondents considered that essentiality checks should serve only an advisory

role with no legal consequences.

Around two thirds of all respondents and around 80% of the implementers thought that essentiality

assessment might help in assessing SEP exposure of a product and deciding whom to negotiate with,

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smoothen licensing negotiation and prevent over pricing. More than half of the SEP holders disagreed

with these impacts but agreed that checks might provide a reliable overview of the share of each SEP

owners’ essential patents.

As regards practical implementation, the respondents preferred that the European Patent Office

(EPO) conducts the checks (63% of all replies) on just “one SEP per SEP family” (63%).

Questions on FRAND

Between 55% and 75% of all respondents and between 85% to 100% of the implementers, consider

that SEP holders cannot refuse a licence following a request from an implementer. The majority of

SEP holders were of the opposite view.

60% of all respondents and 93% of the implementers consider that licensing could take place at any

level of the value chain. Around 70% of the SEP holders consider that it should be at one level only

(level allowing for the best monitoring of applications).

Around three quarters of respondents (93% of SEP owners) agreed that fair and reasonable terms and

conditions might depend on functionalities of the standard implemented in a product. Around 70%

thought these terms could depend on the level of licensing.

For non-discrimination assessment, it matters if companies that use the same functionalities of the

standard in similar applications are put at a competitive disadvantage (around 75% of all answers,

and 94% of holders’ answers).

SEP holders considered that discounts between 28% and 40% do not cause discrimination. For

implementers reasonable discounts amount to between 5% and 10%.

70% of all respondents and 100% of the implementers argued that it is important to know the

reasonable aggregate royalty rate for a product. Only 20% of SEP holders shared that view.

Questions on enforcement

Respondents estimated that court costs could range from approximately EUR 2.1 million for

essentiality, EUR 6.6 million for injunction and EUR 7.1 million for FRAND disputes.

Arbitration (53% of all answers) was deemed more useful than mediation (35%) for FRAND

assessment, especially by SEP holders and academia/authorities/NGOs.

Two thirds of the respondents were of the opinion that efficient SEP licensing would foster innovation

by implementers, increase employment and allow for keeping high level of competence in the EU as

well as foster transition to the green economy.

3) SMEs survey

Internet survey targeting SMEs was active from 25/10/2022 until 27/12/2022. It used EUSurvey tool.

It is not representative but gives an impression of the issues start-ups and SMEs face in the context

of SEP licensing. A summary of replies is presented below, a detailed question by question analysis

can be found in Annex A8.3 – SME survey.

The sample is quite diverse with respect to geography, sectors, and standards used.

In total, 39 firms responded to the survey. They are mostly start-ups and SMEs (37), from 17 different

countries, mostly from the EU (30). They are active in ICT (24) and various other ICT- and IoT-

using industries. In the sample, cellular standards are the most widely used or developed (by 24

firms), followed by Wi-Fi (21), LPWAN (15), NFC (12), and video/audio codecs (10).

Implementers dominate the sample; standards are very important for them.

Most firms (35) are implementers of existing standards, e.g. by producing or buying components that

incorporate a standard. 12 stated that they participate in standard setting. Asked about the importance

of the respective standard, 24 out of 30 responding considered the standard very important for their

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business. Seven firms are SEP licensees, for cellular standards (4), video and audio codecs (4), Wi-

Fi (3), and other technologies.

SEP licensing is difficult for SMEs, due mostly to resource constraints, lack of expertise, uncertainty

about infringement, and the fragmentation of SEP ownership.

Most respondents have, when buying or importing components that incorporate standardized

technologies, a clear preference for components with all IP rights fully licensed (25 out of 34 prefer

this solution “in most cases”). One respondent described it as “ridiculous that patent pools should

come after each company doing some modern radio technology, rather than settle cost per module

with manufacturer.” The main stated reasons not to take a SEP license are: (i) the assumption that

purchased components are fully licensed (15); (ii) difficulties to find out the SEP holders (10); and

(iii) an excessive effort to enter license agreements with all SEP holders (9). Related, the main stated

problems in negotiating with SEP holders are: (i) lack of knowledge what would be a fair (FRAND)

royalty (15); (ii) lack of resources to negotiate or engage in court proceedings (14); (iii) uncertainty

if own product infringed the patents at hand (13); and (iv) the firm’s ignorance how to defend against

SEP holders (13). Few (8) have in-house patent specialists.

For SMEs, device-level licensing was acceptable only if it was efficient (ideally one-stop), at publicly

known royalties, and consistent across all implementers (which given their fragmentation seems

difficult to achieve). Respondents consider the best solution for SMEs to be upstream SEP licensing,

to module or component makers.

Respondents stated that the uncertainty about SEP licensing would affect their business in various

ways. Most frequently, they stated: Royalty payments will affect the firm’s competitive position on

the market (18); potential future SEP payments may make the firm unable to compete (13) – however,

if competitors pay the same royalties, licensing will not affect the business significantly (13); the firm

tries to use alternatives available on the market in order not to pay for SEPs (e.g. older or free

technology) (12). In open comments, respondents expressed wishes among others for licensing to

component makers. Failing this, efficient licensing through pools, ideally one-stop, rather than having

multiple licensors per standard and even portfolio split-ups to several NPEs. Publicly known royalty

rates that are paid consistently by all and protection from abusive licensors.

About 40 percent of firms in the sample contribute in some way to standard development, though

very few own SEPs. The majority does not contribute, mostly for lack of resources.

Of the respondents, 15 participated in standard setting, though mostly not to complex ICT standards,

such as cellular and Wi-Fi. Only 2 firms own SEPs. Motives to contribute to standard development

comprise improving the standard, influencing the direction of standard development, facilitating

adoption of the firm’s own technology, learning, and networking. Reasons not to contribute to

standard development comprise a lack of resources and expertise, and the domination of SDOs by

large firms.

4) Interviews with stakeholders

During the course of 2021-2022, the Commission services met with various SEP holders and SEP

implementers in order to assess the problems they face with SEP licensing. As these meetings

concerned confidential information based on licensing negotiations, below we present selected

stylised summaries of issues raised that combine the experience of several parties we interviewed.

Problems faced by SEP implementers

A manufacturer of medical devices for the treatment of critical health disorders may wish to

implement cellular communication functionality in its products to enable remote patient health

monitoring and efficiently improve patient adherence to treatment. Considering the multi-year (e.g.

5-10 years) medical device development process for homologation and certification from network

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operators, the company needs certainty at an early stage regarding the aggregate FRAND royalty

for SEP licenses as it must take such factors into account during the development and

commercialization phase and as it considers total cost and alternative technologies. In addition, the

inability to negotiate with dozens of SEP holders individually and the prospect of being excluded

from the market for an infringement of a single SEP is a further disincentive for using the

connectivity standards risking the continued access of patients to telehealth services which are

crucial for public health.

A smart meter manufacturer is invited to take a licence from a SEP holder not only for the future

but also for 5 years back. The smart meters are purchased by utility companies by public

procurement contracts in order to promote the reduction of energy consumption under the EU Gas

and Electricity Directives. The smart meter manufacturer buys communication components, which

it integrates in its products. It directs the SEP holder to its supplier and the SEP holder prefers to

negotiate with the smart meter manufacturer as it is its understanding that it can choose who to

license. The smart meter manufacturer requests its supplier to indemnify it for the SEP royalties as

per supply contract. The royalties are higher than what the supplier is willing and able to pay. The

supplier expresses its wish to take the licence itself as it used to have such licences in the past.

However, it is unable to get such a licence at the conditions that are acceptable to it. Its (non-EU)

competitors continue promising indemnifications to their customers. The supplier is pressured by

all its worried customers manufacturing not only smart meters but also payment terminals, wireless

charging, medical devices, tracking devices, etc. to keep the indemnification clauses and bear the

risk of SEP licensing.

An EU SME developed a robot assisting in construction works. It is innovative due to an inventive

electro-mechanical structure of the robot arm, wheel drive and motion control. The user controls

this robot with a tablet comprising a specific Human-Machine-Interface. The communication

between tablet and robot could be wired or preferably wireless. The most desired option would be

WiFi, but due to the SEP license, Bluetooth fully licensed at chip level will be implemented.

Another option is a wired USB connection, which also works but does not meet customers’

expectations.

An EU SME developed a smart home appliance for energy consumption control in a household. It

can lower energy cost and optimise usage of renewable energy (solar, wind…). Collected data is

sent to the company’s central server for analysis. Initially WiFi was considered to connect to a

router in a household. The company was not aware that WiFi is subject to a SEP licence. To avoid

SEP costs/litigation they chose a wired connection to a router instead.

An EU SME developed a smart meter which is now implemented in hundreds of projects. Data

between meters is sent using mostly Bluetooth, but for remote locations a chip with WiFi and 4G

functionality was embedded. The company was not aware that the chip was not licensed for WiFi

and 4G. If faced with litigation it will disable this chip in all its devices.

An EU SME developed a product to help individuals track their health metrics and report results

to their doctors in real-time. The SME and its competitors had a choice of technologies to choose

from when developing their product regarding wireless connectivity. After unsuccessful attempts

to license various wireless technology directly from known patent holders, the company built the

product. After a robust and successful market developed, and after the point in time when the

product design was “locked” in and could not be changed, numerous wireless patent holders

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approached the company and demanded they take a license. This effectively deprived the SME of

choosing an alternative wireless technology and the patent holder did not consider other wireless

technology that could have been used as a comparable value when deciding the royalty rate that

was demanded.

An EU Global Navigation Satellite System (GNSS) receiver designer and wireless cellular modem

designer was asked by customers to reduce the “footprint” of their modules that were used in an

end product. The EU design company could not accommodate the request because it could not

directly license patents from the patent holders and the “have made” rights held by the end product

company did not allow the designer to innovate. It could only “make” the product design given to

it by the end product company. A non-EU competitor of the GNSS receiver and wireless cellular

modem designer seized the opportunity.

An EU Global Navigation Satellite System (GNSS) receiver designer and wireless cellular modem

designer was asked by its EU customers to reduce the “footprint” of their modules that were used

in an end product. The EU design company had a license with several cellular patent holders and

took on the project. However, the EU end product company was warned there would be a

significant price increase because their cellular patent license royalties were based on the average

sales price of the module/modem and the combined GNSS/cellular module average sales price

would be 3X higher. The EU end product company asked why the GNSS function was considered

when determining cellular royalty owed and not removed from the average sales price. They

learned it was standard practice in wireless licensing. The EU end product company abandoned

the design improvement request.

An innovative EU IoT wireless module company that had been licensed for years by cellular

wireless patent holders is now being denied licenses. The patent holders are changing to licensing

only at the end product level. The patent holders claim the value of the patents they hold has

increased by 4-6 times what the previous licenses demanded in royalties although many of the 3G

and 4G patents have expired/are expiring and new high-speed 4G patents are not needed by the

EU IoT company. The patent holders are demanding that the EU IoT companies license patents

from their patent pool and that the EU IoT company acts as an agent between their customers and

the patent pool, receiving a “kick-back” for doing so.

Supplier explained that its sales teams regularly get questions from prospective Cellular and Wi-

Fi IoT customers about “patents”, “IP rights” and “indemnification”. They consider themselves in

a vacuum because there is no easy way to obtain a licence or to even know the price of such licence.

It is unable to sell its products with all IP rights included, nor is it able to indemnify its customers

should they receive an infringement or license claim in the future. The company has lost several

Cellular IoT business opportunities to both EU and non-EU competitors making misleading or

false statements with regards to “selling a licensed product” or “providing full indemnification”.

Supplier: “Our company has seen several potential Cellular IoT module customers either choose

other wireless technologies, delay or even cancel development projects, because the license cost

for using the standards (LTE-M / NB-IoT) is totally unknown and also impossible to estimate.

Unless you sell high price products, like smartphones or automobiles, how are you going to build

a business case for a sensor device priced at EUR 15 when you have an unknown licence fee?”

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Supplier: Not having SEP license adds to uncertainty both for us and for our customers. If we make

provision for estimated royalties and our competitors do not, we are at a disadvantage. Our module

customers generally do not understand the technology and want a solution with SEP

indemnification as they feel unable to navigate the licensing process. If we do not offer such

indemnification and our competitors do, we are at a disadvantage.

EU electric vehicle equipment manufacturer told us “Complex and often lengthy SEP negotiations

lead to delays and uncertainty in the development phase of our products as well as to legal

uncertainty which artificially inflates the product costs.”

Smart electric vehicle chargers of an EU SME need to communicate with cars, phones and

electricity networks to increase energy savings. Threats from one SEP holder are causing further

concerns to the firm that there may be other SEP holders claiming royalties. The company is now

reconsidering whether to include cellular functionality in its future accessories or products. The

firm says that SEP uncertainty is delaying technology adoption, hindering innovation and engaging

resources that could be productively used.

EU SME: It is said that large SEP holders ‘do not target SMEs’, our case shows that this is clearly

inaccurate. Even if some do not, the financial uncertainty SMEs face is unreasonable and unfair:

an SME has to wait and fear that any SEP holder can approach it at any time (perhaps when SME

becomes larger) and ask for payment of past royalties.

During negotiations for a FRAND licence for SEPs, a potential licensee offered binding arbitration

to the SEP holder for a global FRAND SEP cross-licence. The SEP holder, however, refused to

substantively engage in discussions over arbitration terms.

In 2020, a non-practicing entity (NPE) asserted 4G standard-essential patents against a potential

licensee. The NPE had acquired its 4G portfolio from another SEP holder, which had split its

portfolio and divested a small portion of its patents to the NPE. The NPE demanded more than 12

times the amount of royalties as the original SEP holder – even though the NPE held only a tiny

fraction of the number of patents that the original SEP holder retained. Despite ongoing licensing

negotiations, the NPE filed a series of patent infringement actions in Germany, seeking injunctions

on various SEPs in an effort to force the potential licensee to accept a non-FRAND licence. During

the litigation, it was revealed that the NPE was actually a trust that had acquired its patents from

the original SEP holder at a symbolic price and had assigned back the beneficiary share in the trust

to the very same SEP holder.

The Fair Standards Alliance (FSA) collected confidential testimonies from their members

Below is a summary by FSA about

some

of the reported issues:

Refusal to license

The practice of refusing to license willing licensees higher in the value chain is a recent phenomenon

and was not the industry practice when 2G and 3G were developed. The refusal to offer licenses in

the value chain is damaging innovation in sectors using telecommunications standards – it is not a

kom (2023) 0232 - Ingen titel

prevalent practice in relation to other standards. When licenses are offered to component suppliers,

these deals are incredibly efficient and meet the future needs of growth sectors, such as in the Internet

of Things.

Non-Disclosure Agreements

The use of non-disclosure agreements (NDAs) to protect confidential information in commercial

discussions is standard business practice. However, the experience of FSA members is that NDAs by

licensors in licensing negotiations are overly restrictive, and rather than protecting truly confidential

information are oftentimes used as an excuse not to share important information that should be

available or to refuse to respond to FRAND (counter) offers. The use of overly restrictive NDAs

allows licensors to exploit information asymmetries in negotiations to lock licensees into unbalanced

processes that lead to unfair outcomes. This in turn locks in unfair licensing terms that other potential

licensees are later compelled to accept. What is evident from members’ testimony is that NDAs

should not be used to redact information, both from a pricing as well as a technical perspective, that

potential licensees require to assess whether an offer is FRAND. It is evident from the testimony

provided that NDAs are used so that patent holders can unfairly discriminate between licensees. It

must be possible to share technical information within a supply chain so that companies are better

able to assess the technical merits of the patent claim.

Problems faced by SEP owners

An EU SEP holder reached out in 2016 to a car producer who was using cellular connectivity in

its cars. The SEP holder made several offers to the implementer which were rejected (for instance

the implementer was directing the SEP holder to license its suppliers instead). The SEP holder

spent tens of millions of euros on legal counsels and litigation – resources that could have been

spent on R&D. The two firms signed a licence agreement in 2021.

A smart meter producer began incorporating cellular technology in its products in 2014. A SEP

holder first contacted the company in 2017 to suggest the need for a SEP licence. While the

implementer raised the issue of licensing its suppliers, the main point of discussion was reducing

the price. The offer-counteroffer phase of discussions took two years. A license agreement was

concluded in 2022.

A SEP holder contacted in 2015 a producer of mobile payment terminals which uses cellular

connectivity. The implementer refused to enter negotiations for a cellular license and indicated that

SEP holder should speak to its suppliers. The SEP holder reached out several times to the

implementer with little success. Only in 2022, under threat of litigation, the implementer began

serious negotiations.

Since 2017, a SEP holder has been in discussions with X. Despite countless emails,

meetings/telephone conferences and a confidential third-party process X has not taken a licence.

X has engaged in various delay-tactics, including arguing that it should not pay royalties for its

past sales (meaning that X has a financial incentive to delay in concluding a licence for as long as

possible). The SEP holder understands that X operates without having taken a licence from any

European or Western SEP owner.

kom (2023) 0232 - Ingen titel

A SEP holder has been negotiating the renewal and extension of its existing patent license

agreement with a Chinese implementer that is also a SEP owner. The Chinese company did not

accept FRAND offers and did not make a FRAND offer to the SEP owner. The Chinese company

provided very limited material on its own SEP portfolio and it sought a significantly higher

valuation, which was also inconsistent with a third-party analysis. The SEP holder offered to

engage in neutral mediation or arbitration to agree on FRAND rates but the Chinese company

rejected those offers.

IP Europe collected a non-exhaustive list of negotiation delaying strategies based on case-law

•

Strategy 1: Ignore notifications and other communications for months or years.

223

Strategy 2: Express willingness to take a FRAND licence – but only for each individual patent

for which infringement and validity is confirmed by the courts.

224

Strategy 3: Insist on obtaining unreasonable amounts of information (e.g. a claim chart for

every SEP in a portfolio) without appropriate confidentiality arrangements in place, and/or

refuse or delay signing an NDA agreement as a hold-out tactic.

225

Strategy 4: Claim to lack information or to not understand the licence offer, or repeatedly ask

for information that the SEP holder has already provided.

226

Strategy 5: Table counteroffers that are obviously unreasonable and unacceptable for the

rights holder (e.g. a licensing rate of just 0.001 per cent per patent family), or table a counter-

offer only once litigation has been initiated.

227

Strategy 6: Refuse to enter into a global licence agreement despite having a global business

for products that use standards.

228

Strategy 7: Direct the SEP holder to suppliers, or to a subsidiary or holding company, for

licences.

229

Strategy 8: Insist repeatedly that the licence offer is not FRAND without providing

substantive arguments to demonstrate why.

230

•

223

For examples of this delaying strategy in practice, as evidenced in European case law, see

Saint Lawrence v Deutsche

Telekom; Sisvel v ZTE; Tagivan (MPEG-LA) v Huawei; Philips v Wiko NL; Philips v Wiko DE; Sisvel v. Wiko; Sisvel v

Xiaomi; Sisvel v Haier.

224

See

Sisvel v Haier; Nokia v Daimler.

225

See

Pioneer v Acer; Philips v Acer.

226

See

HEVC (Dolby) v MAS Elektronik.

227

See

Archos v. Philips; Fraunhofer-Gesellschaft (MPEG-LA) v ZTE; Tagivan (MPEG-LA) v Huawei; Philips v Wiko

NL; Nokia v Daimler; Unwired Planet v Huawei; Sharp v Daimler.

See

Philips v Wiko,

the Court analyzed Wiko's

counteroffer to Philips, involving a licensing rate of just 0.001 per cent per patent family, based on the proportion of SEPs

owned by Philips.

228

See

Saint Lawrence v Deutsche Telekom; Pioneer v Acer; Philips v Acer; Unwired Planet v Huawei.

229

See

Nokia v Daimler; Sharp v Daimler; Fraunhofer-Gesellschaft (MPEG-LA) v ZTE; Philips v Wiko NL.

230

See

Philips v Wiko NL; Unwired Planet v Huawei; Sharp v Daimler.

kom (2023) 0232 - Ingen titel

NNEX

3: W

HO IS AFFECTED AND HOW

1) Practical implications of the initiative

This initiative introduces a register for SEPs with essentiality checks, a process for determining an

aggregate royalty, and a mandatory pre-trial conciliation, combined with voluntary guidance on SEP

licensing and a central Competence Centre offering, among other services, also assistance to SMEs.

It is likely to reduce duration of license negotiations and the costs of the negotiation for both parties.

Transparency will inject trust into the system. Conciliation should limit the need for court trials.

Implementers are going to gain more predictability as regards their SEP exposure, allowing for proper

business planning. SEP holders are likely to reach a wider set of implementers therefore securing

adequate remuneration on their innovation.

Cost and benefits quantifications presented below are based on several assumptions and estimations

since data on SEP licensing is largely not observable (as explained in the problem definition). The

purpose of quantifications is to allow comparison of options and presenting relative impacts on

affected groups rather than provide an accurate figure. Details on quantitative analysis as well as all

the assumptions used for calculations are presented in Annex A7.1.

2) Summary of costs and benefits

I. Overview of Benefits (total for all provisions) – Preferred Option

Description

Direct benefits

Services provided by the EUR 5.9 million

231

Competence Centre (e.g.

SME

assistance

and

trainings, studies, case-law

repository)

Access to SEP register with EUR 12.5 million

232

information on essentiality

of patents and SEP owners’

portfolios

Information provided for free.

Free trainings and assistance to SMEs.

Information of interest of both parties to license negotiations.

Amount

Comments

Free access to basic information (e.g. SEP holders contact details,

number of SEP registered). Fee based access to information on

essentiality of individual patents, and essentiality rate of owners’

portfolio.

Information of interest of both parties to license negotiations.

Savings due to conciliation

EUR 7.4 million

233

Includes potential of up to 70% decrease in court cases; as well as

value of advice on FRAND rate.

Both parties to license negotiations are likely to benefit.

Saving in negotiation costs EUR 25.4 million

234

due to published aggregate

royalty

Indirect benefits

EPO/NPO

EUR 29 million

Published aggregate royalty should facilitate license negotiations.

Both parties to license negotiations are likely to benefit

Potential additional income from new patents (uncertain if it will

materialise)

231

232

Sum of benefits of PO1 for SEP implementers and owner. See

Table 3.

For disaggregation see

Table 13.

Sum of benefits of PO2 for SEP implementers and owner. See

Table 3.

233

Sum of benefits of PO3 for SEP implementers and owner. See

Table 3

234

Sum of benefits of PO4 for SEP implementers and owner. See

Table 3

kom (2023) 0232 - Ingen titel

Administrative cost savings related to the ‘one in, one out’ approach*

n/a

SEP licensing is not regulated in the EU. Hence there are no

administrative cost savings

II. Overview of costs – Preferred option

Citizens/Consumers

One-off

Direct adjustment

costs

Direct

administrative

costs

Action (a) Direct regulatory

fees and charges

Direct

enforcement costs

Indirect costs

EUR

38.1 million

236

EUR

17.6 million

235

Recurrent

Businesses

One-off

Recurrent

Administrations

One-off

Recurrent

Costs related to the ‘one in, one out’ approach

Direct adjustment

costs

Indirect

adjustment costs

Administrative

costs

(for

offsetting)

EUR

million

237

2.7

Total

3) Relevant sustainable development goals

III. Overview of relevant Sustainable Development Goals – Preferred Option(s)

235

Consists of the following average annual costs: Register access fee for implementers (EUR 0.6); fees for SEP

registration (EUR 1.4 million) and essentiality checks (EUR 13.7 million); cost of conciliations (EUR 1.5 million); cost

of aggregate royalty expert determination (EUR 0.4 million). For details see tables in Annex A7.1.

236

Consists of the following average annual costs for SEP owners: Cost of updates/preparation of claim charts for SEP

registration/essentiality checks (EUR 6.4 million); cost of filling the registration forms (EUR 2.7 million); potential

(uncertain) cost of registering and maintenance of additional patents (EUR 29 million). Cost in the initial year expected

to be higher, while in subsequent years lower, hence an average annual cost over a decade presented. For details see

tables in Annex A7.1.

237

Consists of the following average annual costs for SEP owners: cost of filling the registration forms (EUR 2.7 million).

Cost in the initial year expected to be higher, while in subsequent years lower, hence an average annual cost over a decade

presented. For details see tables in Annex A7.1.

kom (2023) 0232 - Ingen titel

Relevant SDG

Expected progress towards the Goal

Comments

Two thirds of respondents to the public

consultation considered that efficient SEP

licensing would i) increase employment and

keep a high level of competence in the EU

and ii) foster the EU’s transition to the green

economy. See Annex 9, Q66.

SDG no. 7 - affordable and This initiative has no direct environmental

impacts. Indirectly, by facilitating application of

clean energy, 13 - climate

new technologies it can help in the green transition

e.g. by contributing to a reduction of energy usage

(via smart grid, smart meters) or air pollution (e.g.

connected cars avoiding traffic jams).

kom (2023) 0232 - Ingen titel

NNEX

4: A

NALYTICAL METHODS

This impact assessment is not using any econometric models.

All the assumptions are presented either in the annexes where they are used (for instance assumptions

on cost/benefit analysis are presented in Annex A7.1).

Assumptions used in supporting studies are not repeated in this document.

kom (2023) 0232 - Ingen titel

NNEX

5: A

DDITIONAL INFORMATION IN SUPPORT OF

ROBLEM

ECTION

A5.1 Market description

SEP owners

The number of companies that declared to own 10 or more patent families including potential SEPs

was, in 2021, around 261 based on search in IpLytics database.

238

There were around 31 companies

from the EU.

239

It was possible to match 27 of these companies to ORBIS database to obtain company

characteristics. Information on employment was available for 16 firms and on revenue for 18 firms,

out of which 3 were SMEs. Unfortunately, among these companies there are firms with huge turnover

that seems to be from other activities than SEP licensing (for firms such as Bosch, Deutsche Telekom

or Siemens), while for others with main activity in SEP licensing no data is available (e.g. Sisvel).

Therefore, below we present information only on two companies Nokia (FI) and Ericsson (SE).

Although licensing SEP is not the main source of their income, they are the largest SEP holders of

declared SEPs in the EU (responsible for around 80% of declared SEP). The two firms employed in

2021 around 190 000 persons, sold goods and services totalling EUR 45 billion and invested in R&D

around EUR 8 billion.

Figure 8: Share of declared SEPs by EU firms by country

Finland

50%

33%

0.2%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Sweden

Germany

Netherlands

France

Luxembourg

Ireland

Italy

0.0%

Source: Commission own analysis based on IPLytics database (SEP holders with 10 SEPs or more only)

It is estimated that approximately 1 700 SEP licenses are concluded worldwide every year (the

approximation is based on several assumptions as information on number of licensing deals is not

observable).

240

SEP implementers

There are no detailed statistics on the number of companies implementing SEPs into their products.

In order to approximate the number of firms potentially affected, we have used Orbis database – a

238

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 17, Figure 5. Not all declared potential SEPs are standard-essential. This

number does not include potential SEPs subject to blanket disclosures.

239

Identification of headquarters of all companies was not always possible due to generic or ambiguous name available

in the database.

240

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023, p. 138, Table 16.

kom (2023) 0232 - Ingen titel

database containing information on companies worldwide. We have searched the database for

keywords that can describe a potential SEP using company,

241

and selected only manufacturing firms

(NACE2 section C).

The result was that in 2022 there were around 47 500 potential SEP implementers worldwide, and

around 3 800 (8%) were located in the EU. Around a quarter of the companies were from DE, 13%

from IT, 11% from FR, 8% from ES and NL, and 5% from PL.

Among EU firms 16% were large and 84% were SMEs (based on employment). They employed 2.2

million persons. Average employment for large firms was around 4 200 persons (median 650), and

for SME – 50 persons (median 26). The combined turnover of these firms for the last available year

amounted to around EUR 600 billion (numbers based on the last available year). Average turnover

for large firms was around EUR 1.2 billion (median EUR 140 million) and for SMEs – EUR 21.5

million (median EUR 6.5 million)

For around 200 firms financial information on R&D expenses was available. Less than half (88 firms)

of these firms had been spending on R&D (in the last available year). Together they spent EUR 26

billion, on average 7% of their turnover, or around EUR 300 million per firm (median EUR 23 000).

It should be noted however, that we cannot attribute neither the share of revenue, employment nor

R&D expenses to products embedding SEP.

Figure 9: EU SEP implementers by country (share of total number of firms)

27%

13%

11%

0.5%

0.4%

0.3%

0.2%

0.1%

10%

15%

20%

25%

30%

241

We have searched for '"IoT" or "Internet of things" or "smart meter" or "connected device" or "phone" or "mobile

phone" or "TV" or "television" or "TV decoder" or "DVD player" or "connected car" or "connected lorry" or "connected

truck" or "tracking device" or "connected machinery" or "connected medical device" or "payment terminal" or

"semiconductor" or "ICT" or "4G" or "5G" or "LTE" or "Wi-Fi" or "WiFi" or "NFC" or "HEVC" or "MPEG"' in the

following fields describing a company: Description and history, Full overview, Main activity, Primary business line,

Product and services, Secondary activity, Secondary business line, Trade description.

kom (2023) 0232 - Ingen titel

Note: Approximation based on key words search results. Total number 3 781 firms in the EU

Source: ORBIS database

Having an approximate estimate of the potential number of SEP implementers, we also wanted to

estimate the number of firms that actually takes a SEP license per year.

Based on public licensee lists of SEP patent pools we can estimate that around 20% of SEP licensees

are firms with headquarters in the EU, and another 17% are non-EU firms with subsidiaries in the

EU.

242

This allows us to estimate that EU based firms conclude around 340 new SEP related licensing

agreements per year and non-EU based firms with subsidiaries in the EU conclude around 290 such

agreements. Subsequently, we assumed that among these firms, on average, per year one firm takes

1.5 new licenses

243

(this is a very strong assumption and generalisation of complex reality which

includes large and small implementers producing devices implementing different number and type

of standards and taking licenses not every year) which would mean that approximately 230 EU based

firms and 190 non-EU based firms with subsidiaries in the EU conclude new license agreement per

year. Furthermore, we estimate that around 33% of EU based firms taking a new license are SMEs

244

– resulting in around 80 EU SME. Many patent pools charge no royalty for small implementers,

245

thus we assume that half of those SMEs will take a license but not be liable for any royalty.

Consequently, the number of new licenses granted per year to EU based firms is estimated at 285 and

the number of EU firms taking new license per year and paying royalties is estimated at 190

(composed of 150 large and 40 SMEs). It is important to stress that the figures presented in this

paragraph are approximations based on several assumptions and should be treated with caution.

A5.2 How standards are developed

Baumol and Swanson (2005) noted that “standard-setting exercises normally arise only when there

are technological alternatives to select among, and so, almost by definition, are likely to occur in

competitive – perhaps very competitive – technology markets. Even when conditions are competitive

before the selection of a standard, however, the act of selection may lead to increased ex-post market

power for owners of the IP necessary to practice the winning standard”.

246

“[…] standards are set (and regularly updated) by Standard Setting Organisations (SSO). SSOs

include large established organizations – such as the European Telecommunications Standards

Institute (ETSI) for communications or the Institute of Electrical and Electronics Engineers (IEEE)

for electronics – but also a variety of

ad hoc

informal organizations – or industry consortia – that

have the same purpose but focus in general on complementary topics […]. They are open to all

242

The contractor compiled the current licensee lists of nine SEP patent pools (2790 firms), and drawn a quasi-random

sample from that list of 220 firms (quasi-random, as small pools were over-sampled, so that the sample is not dominated

by the codec pools with very large number of licensees). The sample was matched with ORBIS firm database to produce

a geographic distribution. This resulted in 199 (best) matches. It should be noted that best match may or may not be the

global ultimate owner of a corporate group. The estimated EU share among pool licensees is around 19.6%. Pool licensees

are smaller firms than other SEP licensees, and may or may not be representative of SEP licensees more generally.

However as systematic data on licensees of bilateral SEP licenses is not available, this is the best possible estimate of the

geographic distribution of SEP licensees.

243

Based on expert judgement.

244

In the sample of EU firms, 38% met SME definition (combination of employment below 250 and turnover below or

equal to EUR 50 000). As share of pool licenses is estimated at around 87%, and SMEs are unlikely to take part in

bilateral licence negotiations of major SEP holders, the share is reduced to 33%.

245

E.g. use of video coding standard AVC/H.264 for the first 100 000 units, or first 100 000 subscribers per year is

royalty-free. See

https://www.mpegla.com/wp-content/uploads/avcweb.pdf.

246

Baumol, W. J. and Swanson, D. G., ‘Reasonable And Nondiscriminatory (RAND) Royalties, Standards Selection,

And

Control

Market

Power’,

Antitrust

Law

Journal,

2005,

Vol.

73,

pp.

1-58,

https://www.jstor.org/stable/40843669#references_tab_contents.

kom (2023) 0232 - Ingen titel

relevant stakeholders, have open and published processes, and typically publish and make standards

documentation available for use by all without discrimination. […]

Participants follow the standard setting process by regularly meeting in SSO working groups. They

may develop proprietary (usually patented) technology ahead of these meetings, in order to submit it

for inclusion in the standard […]. SSO members then discuss the technical merits of available

solutions and decide by consensus which one shall become a specification in the standard.

The Standard Essential Patents (or SEPs) that cover established standard specifications play an

important role in companies’ incentives to invest in standardization activities […]

FRAND commitments are voluntary contracts between each SEP holder and the SSO, with standard

implementers as third-party beneficiaries. Some SSO IPR policies tie the commitments with SSO

membership while others request that participants disclose the patents, they believe are standard-

essential along with a FRAND licensing commitment for each disclosure. […]”

247

The table below explains the process in a basic manner.

Table 6: SEPs: from development to adoption

For 1 SEP

Before

standard

development

Invest in R&D

During standard development

After standard adoption

Innovator 1

Innovator 2

SDO

Implementer

Contribution

SDO

Contribution

SDO

Select

contribution 2

Implement

contribution 2

Nothing

May ask for

FRAND licence

May

need

FRAND licence

Original source: Putnam, J. L., Economic Determinations in “FRAND rate” – Setting: A guide for the Perplexed, 2018, Fordham

International Law Journal, Volume 41, Issue 4 (modified)

ETSI standard development process and SEP:

During the proposal or development of a standard, ETSI members must inform in a timely fashion

if they are aware that they hold any patent that might be essential. SEP holders are requested to

provide an irrevocable undertaking in writing that they are prepared to grant irrevocable licenses

on Fair, Reasonable and Non-Discriminatory (“FRAND”) terms and conditions. The ETSI

database allows, for information, public access to patents which have been declared as being

essential or potentially essential.

248

In its Contribution to the Debate on SEPs, the SEPs Expert Group explains as follows: “Currently,

there is a lack of transparency as to the ownership and number of true SEPs covering an adopted

standard, which makes it difficult for implementers to determine what SEP licences they need for

their standard-compliant products or services. Some standard development organization (“SDO”)

declarations provide virtually no data with regard to specific SEPs. Other SDOs, such as the European

Telecommunications Standards Institute (“ETSI”), require declarations that are more detailed but

these are not regularly updated to reflect changes in the SEP landscape. Patent applications may be

247

Joint Research Centre, Institute for Prospective Technological Studies, Ménière, Y.,

Fair, Reasonable and Non-

Discriminatory (FRAND) licensing terms: research analysis of a controversial concept,

Thumm, N. (editor), Publications

Office, 2015, pp. 9-10,

https://data.europa.eu/doi/10.2791/348818.

248

https://www.etsi.org/intellectual-property-rights.

kom (2023) 0232 - Ingen titel

rejected, patents may be invalidated or expire or lose their essential character, as standards are

approved, supplemented or amended, affecting the accuracy of already-filed declarations.”

249

A5.3 Trends in standards development

Standards are developed through the R&D efforts of a large and diverse set of companies

participating in the process.

250

Historically, standards have been used extensively in the information

and communication technologies (“ICT”) sector, but they cover a variety of technology areas. The

figure below provides an overview of key technology categories for which SEPs are declared and

illustrates that such SEPs are by far more prevalent in the digital communication and computer

technology areas, followed by audio and visual technologies. This is not surprising considering the

need for interoperability to allow for (i) communication among devices and within networks, and (ii)

use of audio and visual content across a broad spectrum of devices. New and upcoming areas where

standards will be employed include medical technology, security and transportation, just to name a

few.

Figure 10: Number of declared SEPs as to technology category (IPlytics, 2022)

According to IPlytics, (a third-party source of aggregated data and information from the

ETSI IPR Database), the cumulative number of self-declared information and telecommunication

(ICT) SEP families

251

surpassed 74 000 in 2021, indicating a five-fold increase in just 10 years

249

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs Expert Group’ (E03600): Contribution to the Debate on SEPs,

2021, Section II. Analysis of key issues and

proposals for improvement,

https://ec.europa.eu/docsroom/documents/45217.

250

For example, the 3rd Generation Partnership Project (3GPP) was established in 1998 to offer a platform for seven

telecommunications SDOs (ARIB, ATIS, CCSA, ETSI, TSDSI, TTA, TTC) to jointly develop protocols for mobile

communications. As of April 2021, 3GPP had almost 700 individual members. Each year more than 3 000 delegates meet

nearly 100 times in different working group configurations and engage in standard development activities which result

in the submission of more than 84 000 technical documents annually.

251

A patent family is a set of patents obtained at different patent offices, but which cover the same invention.

kom (2023) 0232 - Ingen titel

(Figure above).

252

The number of SEP holders included in the ETSI IPR Database has also risen from

99 in 2010 to 261 in 2021.

253

Figure 11: Trends in SEP landscape

Note(s): Number of owners indicate number of declaring companies (considering only the highest parent of larger corporate groups)

with at least 10 declared patent families. Source: IPlytics Platform 2022

The implementation of potentially large numbers of SEP-encumbered standards in a single product

is no longer limited to traditional ICT industries. The automotive industry is one of the first sectors

to rely on Internet of Things (IoT) technologies, which connect devices, machines, buildings and

other items with electronics, software or sensors. Interconnectivity across multiple devices and

networks and interoperability of vehicle parts require the use of standards such as 4G, 5G, Wi-Fi,

video compression (HEVC/VVC), Digital Video Broadcasting (DVB) and Near Field

Communication (NFC), just to name a few (Figure below).

Figure 12: Connectivity standards implemented in vehicles

Source: Tim Pohlmann, Intellectual Asset Management, May/June 2017, pp. 22-27

With the introduction of the 5G standard into ICT devices and vehicles, and the expected

implementation in an increasing number of product categories, the need for a more efficient SEP

licensing regime has become more urgent. New issues in SEP licensing have emerged as a result of

252

Because ETSI offers the most detail in its IPR Database, the SEPs data referenced below is limited to information

gathered through that source and relates to cellular connectivity standards only. Similar analysis exists with regard to

other standards but is more questionable with regard to source and accuracy.

253

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023.

kom (2023) 0232 - Ingen titel

the broad applicability of the 5G standard to a wide variety of smart devices in countless industries.

254

Whereas over the last two decades most high-stakes SEP disputes have centred around mobile

communication devices (i.e., smartphones), we are already witnessing more disputes in the

automotive sector and expect other IoT sectors to be similarly affected.

A5.4 Transparency of FRAND rate

The FRAND commitment requires not only fair and reasonable royalties, but also non-discrimination

among licensees. Non-discrimination does not mean that the exact same terms and conditions need

to be offered to every single licensee but has been interpreted as treating similarly situated licensees

similarly.

255

Determining whether terms and conditions are fair, reasonable and non-discriminatory

such that they comply with the FRAND commitment is difficult if not impossible without certain

information.

However, licensing negotiations and resulting license agreements are maintained under strict non-

disclosure agreements (“NDAs”). On the one hand, SEP holders are unwilling to share detailed claim

charts (documents linking the standard to claims in the patents) with implementers without an NDA

for fear that those patents and claims will be examined carefully by other stakeholders with the

objective to destroy either the claim of essentiality or the validity of the patents in question. SEP

holders also need an NDA to share comparable agreements with implementers to justify their

FRAND royalty demands. On the other hand, implementers want to sign an NDA before disclosing

sensitive product information and value and volume of sales.

There is, therefore, very limited publicly available information regarding FRAND terms and

conditions, mainly from the following

256

Leading SEP holders on occasion make

ex-ante announcements

with information on their

intended licensing terms. These announcements aim to provide implementers with some

indication of potential future licensing costs, and to contribute to more predictable and more

transparent royalty rates. These announcements are rather rare, and often do not reflect the

actual royalty rate the SEP holder is willing to offer (see below).

Some SEP licensors offer ‘Standard licensing terms’, which they disclose on their websites.

Again, these may not be the actual terms they ultimately sign with particular licensees.

In the absence of a licensing program with informative standard licensing terms,

implementers may rely on

(limited) publicly available information

as indication of

(FRAND) licensing terms that they are likely to be offered. Publicly available data on

licensing deals are

scarce and incomplete

due to strategic considerations.

257

Publicly

available data may come from compulsory disclosures, e.g. earnings reports to the Securities

Exchange Commission (SEC) and from court cases in the UK and the US.

ii.

iii.

254

In 2019, there existed 7.6 billion Internet of Things (IoT) connected devices worldwide. The overall number of IoT

connected devices is forecast to grow from 7.6 billion in 2019 to 24.1 billion by 2030 with the share of devices connected

to cellular networks gradually increasing. McKinsey estimates that by 2030 IoT could enable $5.5 trillion to $12.6 trillion

in value globally, including the value captured by consumers and customers of IoT products and services.

255

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential Patents

‘SEPs Expert Group’ (E03600): Contribution to the Debate on SEPs,

2021, Part 3.3, Section 6,

https://ec.europa.eu/docsroom/documents/45217.

256

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023.

257

Generally, it is neither in the licensor nor the licensee’s best interest to disclose information on licensing deals.

Licensors may want to preserve their bargaining position and capacity to price discriminate in subsequent negotiations.

Licensees may want to avoid revealing information to competitors on inputs that conform their competitive advantage.

kom (2023) 0232 - Ingen titel

iv.

Implementers can expect to receive a licensing offer at the beginning of SEP licensing

negotiations, in which SEP holders describe proposed licensing terms, and explain why these

terms are FRAND. The level of information that is voluntarily disclosed through bilateral

negotiations may often fall short of the level of disclosure on comparable licences that

potential licensees may achieve through FRAND litigation in a judicial system with pre-trial

discovery (such as the US or UK).

258

Publicly available information is patchy, disaggregated, and of inconsistent quality. Any comparison

of the available data points, let alone aggregation of such information, is challenging due to the lack

of visibility to the varying terms and scope of the underlying licensing agreements.

259

Patent pools may provide more information on FRAND royalties, if such are formed and typically

after standard implementing products are sold on the markets. Whether this information would be

sufficient depends on how many SEP holders participate in the pool. It also depends on whether

implementers have participated in the FRAND royalty determination as pools that do not manage to

offer an acceptable royalty may have difficulties to license.

There are at least two main reasons why it is important to have more information about existing

FRAND terms and conditions:



Stakeholders (both SEP holders and implementers) should be able to estimate the aggregate

royalty, i.e. the sum of all FRAND royalties they would have to pay to SEP holders (individually

or as one or more groups) if they were to obtain rights to all SEPs covering a particular standard.

For example, if there are 10 SEP holders and each of them charges EUR 1, the aggregate royalty

will be EUR 10. Even though implementers would usually not have to pay all SEP holders for a

given technology

260

, the total landscape of SEPs needs to be considered in determining the

aggregate FRAND royalty.

Stakeholders should be able to assess whether the offer is discriminatory or not. Without access

to information on existing licences and licensees, this is difficult, if not impossible.

Declared 5G patent

families (pending and

granted)

6 954

5 051

4 848

4 141

3 747

Declared 5G patent

families (granted in

at least one office)

5 717

3 559

3 487

3 040

1 911

Price

Multi-mode

handset

max 2.5 USD

261

max 3.25%

262

Price 5G multi-

mode for 200

USD handset

max 2.5 USD

max 6.50 USD



Table 7: Number of declared 5G patents per SEP owner, with publicly announced royalty levels

SEP holder

Huawei Technologies

QUALCOMM Incorporated

Samsung

Ltd.

Electronics

Co.

LG Electronics Inc.

ZTE Corp

258

As an example of the scope of comparable licenses information available during a FRAND trial in the US, the Court

of Appeal of the Federal Circuit rejected the District Court’s decision to unseal the financial terms of 109 licenses between

Uniloc and third parties, which were disclosed to the parties during litigation opposing Uniloc and Apple.

259

Terms that may vary from one license agreement to another, even if generally related to the same technology area,

include royalty structures, the definition and scope of covered technology or technologies, the geographical scope of the

license rights and the definition of licensed patents (e.g., SEPs, non-SEPs, individual patents or families, patent

portfolios).

260

Consider that the implementer may have its own relevant SEP portfolio and therefore will not have to pay itself, and

there may be SEP holders that for various reasons may not seek royalties.

261

Huawei Releases White Paper on Innovation and Intellectual Property 2020 – Huawei.

262

qualcomm-5g-nr-royalty-terms-statement.pdf.

kom (2023) 0232 - Ingen titel

SEP holder

Nokia

Telefonaktiebolaget

Ericsson

CATT Datang Mobile

Guangdong Oppo Mobile

Telecommunications Corp.

Vivo

Mobile

Communication Co. Ltd.

Sharp Corporation

NTT DOCOMO, Inc.

Apple Inc.

InterDigital

NEC Corporation

Total

Declared 5G patent

families (pending and

granted)

2 989

2 544

2 431

2 245

1 827

1 644

1 573

1 280

687

484

42 445

Declared 5G patent

families (granted in

at least one office)

2 192

1 467

1 685

1 591

1 221

1 123

913

598

417

333

29 254

Price

Multi-mode

handset

max 3 EUR

263

2.5 to 5 USD

264

Price 5G multi-

mode for 200

USD handset

max 3 EUR

max 5 USD

max 0.60%

265

max 1.20 USD

max 18.20 EUR

Source: IP Lytics and public statements as per footnotes

The royalty stack of

individual ex-ante announcements

of only 5 SEP holders reported in above is

maximum EUR 18.20 of the sales price of a handset costing 200 EUR, which represents ca. 9% of

the value of a EUR 200 handset. Those 5 SEP holders hold 13.352 declared 5G patent families

(granted in at least one patent office) which represents 46% of all patent families granted in at least

one patent office for 5G Release 15. The fact that the other SEP holders listed in Table above have

not made ex-ante announcements does not mean that they will not license their SEPs on FRAND

terms and conditions. Even if even some of those SEP holders may not ask for royalty payments and

even if the 5 SEP holders who made announcements may claim to have a larger share in the aggregate

royalty than their share in the total number of SEPs, the “aggregate royalty” based on such

announcements appears to be above EUR 30 for a EUR 200 handset.

This issue is exacerbated in situations where a new market using the standard is developed and there

is no historical data available, and where new market entrants, especially SMEs, do not have the

resources to unilaterally obtain the necessary data on FRAND terms and conditions.

The following sources provide limited guidance on the concept of FRAND:

General advisory documents by policy makers. Some more recent guidance documents, for

example in Japan

266

, provide more specific interpretations. There may be inconsistency across

different sources of guidance.

267

Most SDO policy provisions on FRAND licensing commitments are very general.

ii.

263

264

Nokia licensing rate expectations for 5G/NR mobile phones | Nokia.

Ericsson’s FRAND Licensing terms for 5G/NR in 3GPP Release 15.

265

InterDigital – Create. Connect. Live. Inspire.

266

In 2018, the Japanese Patent Office adopted a Guide to Licensing Negotiations Involving Standard Essential Patents,

see

https://www.jpo.go.jp/e/system/laws/rule/guideline/patent/document/rev-seps-tebiki/guide-seps-en.pdf.

Japan is also

the only government that took a position on those issues in its Guide to Fair Value Calculation of Standard Essential

Patents for Multi-Component Products. In July 2021, the Japanese Ministry of Economy, Trade and Industry (METI)

formulated an interim report that indicates the results of the discussion in the Study Group on Licensing Environment of

Standard Essential Patents and the direction of further consideration.

267

Baron, J., Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European Commission, DG GROW, 2023.

kom (2023) 0232 - Ingen titel

iii.

iv.

A number of court decisions address FRAND licensing commitments and more generally

different parties’ FRAND obligations. At the EU level, the existing guidance consists of the

CJEU judgment

Huawei

ZTE

and is focused on the seeking of injunctions and the FRAND

negotiation process rather than interpreting the concept of FRAND in general. Significant

heterogeneity exists in the implementation of this general framework by national courts.

Although an impressive amount of scholarship has analysed or interpreted the FRAND

concept, this scholarship is characterized by persistent differences of opinion on key aspects

of the FRAND concept such as royalty evaluation methods and obligations to license certain

parts of the relevant industry.

The two key aspects i.e., who should take a license and how FRAND royalty rates are determined –

are often the subject of contentious licensing negotiations and litigation among SEP holders and

potential licensees.

268

Those have not been resolved to date.

A5.5 Level of licensing

Royalty structure

269

The terms of a licence agreement governing royalties are one of the primary aspects of the agreement.

royalty

payment can be structured in different ways – for example, as a one-time lump-sum

payment, periodical instalment payments, payments based on reported sales volumes or turnover, or

combinations of any of this.

In principle, a royalty amount may be determined using a

royalty base

and a

royalty rate

applied to

that base. However, in many instances, the final royalty amount is agreed upon by the parties,

possibly using the “base x rate” formula as a guide or starting point.

Royalty Base

A royalty base is the unit-base to which the royalty rate applies. No single methodology is uniformly

agreed upon by SEP holders and implementers. Thus, depending on the circumstances, the base could

range from the value of the entire final product that includes the patented technology,

270

to the value

of the smallest saleable patent practicing unit incorporating the patented technologies (the

SSPPU),

or anything in between.

Royalty

The royalty can be set as a percentage of the royalty base (ad

valorem

royalties)

271

or as a set amount

per unit.

272

In practice, SEP holders and implementers may adopt hybrid royalty schemes, for

example,

ad valorem

royalties subject to (per-unit)

royalty caps.

273

Licensing level

Considerable debate exists regarding the right level of the value chain at which to license SEPs, and

who should pay the royalty. For example, IoT includes a vast variety of products, and each may have

a different value chain structure. For the communications function, as shown below, a chip may be

268

See Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on Licensing and Valuation of Standard Essential

Patents ‘SEPs Expert Group’ (E03600): Contribution to the Debate on SEPs,

2021, Part 3.2 – Licensing in the value

chain,

https://ec.europa.eu/docsroom/documents/45217.

269

Expert group report, Part 3.3, Section 3. The text contains excerpts from the expert group report.

270

The value of sales could in principle be calculated in different ways, depending on whether unit prices are defined as

ex-factory prices, FOB prices, net selling prices (NSP), average selling prices (ASP), retail prices, etc.

271

For example, X% of the unit value of sales of the SSPPU or Y% of the unit value of sales of the end product.

272

For example, €Z per SSPPU or end product unit.

273

For example, X% of the unit value of sales of the SSPPU or Y% of the unit value of sales of the end product subject

to a €Z per SSPPU or end product unit cap.

kom (2023) 0232 - Ingen titel

supplied directly to an end product manufacturer or may be included in a component that is sold by

a supplier to an end product manufacturer. In the automotive sector, the value chain is even more

complicated.

Figure 13: Examples of value chains

Source: Continental AG

The approach used to determine the royalty amount has a direct bearing on the volume of licensed

products captured and the total royalty revenue resulting from licensing the patents. Below is an

illustration of how royalties may differ depending on the level at which the license is granted and

which method is applied.

Table 8: Examples of methods for setting SEP royalties at different value chain levels

Royalty base

Chip

Component

End-product

Royalty base

Chip

Component

End-product

Source: Illustrative example

Price in EUR

274

200

2 000

Price in EUR

200

2 000

Ad valorem royalty

Per unit royalty

Royalty in EUR (per unit)

0,20

2.00

20.00

Expressed as a % of price

50%

0.5%

It is possible to have the same royalty using different royalty bases, i.e. a higher royalty rate applicable

to a larger base or a higher rate applicable to a smaller base may result in the same royalty.

274

These are fictitious prices for the purpose of illustration and have no relation to real prices.

kom (2023) 0232 - Ingen titel

A5.6 SEPs and customs enforcement regulation

Regulation (EU) No 608/2013

275

concerning customs enforcement of intellectual property rights

gives the right to any patent holder to request customs to detain or suspend the release of goods

suspected of infringing its patents. The Regulation contains solely procedural rules for customs

authorities. Accordingly, it does not set out any criteria for ascertaining the existence of an

infringement of an intellectual property right. In that sense, it is different from an infringement

procedure before a court and customs authorities are not in the position to ascertain whether the

mandatory negotiation steps set out in the CJEU judgment in

Huawei v. ZTE

were followed in a

specific case.

Where the customs authorities suspect, on the basis of reasonable indications, that goods under their

supervision or under their control infringe the intellectual property right, they will suspend the release

of or detain the suspected goods. Customs will request the patent holder to confirm whether in his

conviction the patent has been infringed. Customs will notify the declarant or the holder of the goods

of the suspension of release or detention of the goods, requesting its agreement to destruction of

goods suspected of infringing the patent

276

. If the declarant or the holder of the goods oppose to the

destruction or if customs do not deem it to have confirmed its agreement the patent holder has 10

working days to initiate legal infringement proceedings. Otherwise, the goods will be released or

their detention will be put to an end by customs. In case court proceedings are initiated, suspected

goods will remain under customs’ control until their completion of the court proceeding, unless

certain conditions are fulfilled. Additionally, for certain IPR cases (and patents are concerned) where

the customs authorities have been notified that proceedings have been initiated to determine whether

the concerned right has been infringed, the declarant may request customs to release the goods

(subject to the payment of a guarantee) before the completion of the proceedings.

Customs enforcement provided for in Regulation 608/2013 already encompasses Standard Essential

Patent (SEP) taking into account the broad definition of patent in Article 2(1)(e) of Regulation

608/2013: “a patent as provided for by national or Union law”.

The Regulation does not make a distinction between a regular patent and a SEP. A request for a

preliminary injunction was brought to a German court

277

by an importer, whose goods were seized

at customs at the request of a SEP owner. The court examined whether the SEP holder abused its

dominant position by using the customs enforcement regulation. It noted that such an abuse is

possible, if the SEP holder used the customs enforcement regulation in order to circumvent the

negotiating steps set out in the CJEU judgement

Huawei v ZTE.

That would also mean that a SEP

holder should have fulfilled the

Huawei v ZTE

conditions before applying for a customs action under

Regulation 608/2013.

The problem is that the customs enforcement regulation does not require such an examination. Such

an obligation for customs would contradict the character and purpose of Regulation 608/2013 which

establishes only procedural rules for customs authorities and not set out any criteria for ascertaining

the existence of an infringement of an intellectual property right. Customs cannot distinguish between

an essential and a non-essential patent and, most importantly, it is not an appropriate authority to

assess if the guidelines of the CJEU have been complied with since it does not have the competence,

275

Regulation (EU) No. 608/2013 of the European Parliament and of the Council of 12 June 2013 concerning customs

enforcement of intellectual property rights, OJ L 181, 29.6.2013, pp. 15-34,

https://eur-lex.europa.eu/legal-

content/EN/ALL/?uri=celex%3A32013R0608.

276

Regulation 608/2013 solely contains procedural rules for customs authorities. Accordingly, this Regulation does not

set out any criteria for ascertaining the existence of an infringement of an intellectual property right.

277

Regional Court Düsseldorf, Judgment of 9 November 2017,

Samsung v 3G Licensing,

14d O 13/17,

http://www.justiz.nrw.de/nrwe/lgs/duesseldorf/lg_duesseldorf/j2017/14d_O_13_17_Urteil_20171109.html.

kom (2023) 0232 - Ingen titel

se resources and expertise to establish whether the negotiating steps set out on the CJEU judgement

Huawei v ZTE

were conducted.

In practice, this means that the recourse of customs detention, available to other patent holders, would

be available to SEP holders only with the fulfilment of the negotiating steps set out on the CJEU

judgement

Huawei v ZTE.

NNEX

6: A

DDITIONAL INFORMATION ON OPTIONS DISCARDED AT AN EARLY STAGE

A6.1 SEP register without mandatory essentiality check (sub-option to PO1)

The EU may set up a register and build up a system of voluntary essentiality checks. It will also adopt

an EU methodology for conducting essentiality checks. SEP holders will be free to register their SEPs

or not and do voluntary essentiality checks using the EUIPO’s administrative structure. SEP holders

already have all the facilities to make registrations with their SDOs and to conduct essentiality

checks. And currently, the majority are not using those possibilities as explained in the baseline

scenario. There is no reason to believe that this will change, if the register and the essentiality checks

are totally voluntary.

A6.2 Voluntary conciliation (sub-option to PO3)

Under a completely voluntary conciliation there will not be any possibility for any reports and

recommendations without the agreement of both parties. This is currently the situation with regard

to both arbitration and mediation. It is questionable to introduce yet another alternative dispute

mechanism to those already existing, if it does not bring any real added-value. Such an option will

also not help resolve the current difficulty in the implementation of the customs enforcement

regulation. Moreover, currently existing voluntary alternative dispute settlement systems are not

widely used. This is partly because parties need to agree on the procedure of the mediation or

arbitration but also due to the fact that the results are not published and the arbitrators and mediators

have limited powers to request documents. The confidentiality of voluntary alternative dispute

settlement has been identified as particularly detrimental to providing more clarity and transparency

to the FRAND concept. Finally, with regard to costs and duration of the arbitration procedure is not

advantageous compared to court proceedings.

A6.3 Mandatory aggregate royalty after the adoption of a standard SEP (sub-option to

PO4)

The SEP owners’ ex-ante incremental contribution to the product value seems an appropriate upper

bound for the FRAND royalty, for three reasons:

• First, if SEP holders obtained more than their incremental contribution in a scenario of

complementary inputs, downstream innovators will receive a smaller proportion of their incremental

contribution, which may unduly suppress downstream innovation.

• Second, the ex-ante incremental value is relevant, as otherwise there would be a risk that upstream

innovators are over-rewarded: the ex-post incremental value may exceed the ex-ante incremental

value because technologies included in the standard in practice cannot be replaced by alternative

technologies any longer after standardisation. Of course, from a welfare perspective it would be

unreasonable to reward upstream innovators for the loss of competition from standardisation.

• Third, if inventions can be pursued by multiple firms, granting a patent to the first successful firm,

and setting the patentee’s reward equal to the social contribution associated with the invention (taking

competing technologies into account) results in wasteful duplication of effort, and in socially too

strong incentives to innovate. The lesson from the relevant research is that the reward should be

kom (2023) 0232 - Ingen titel

strictly less than the social benefit of an invention in a conventional patent system in which the first

firm to achieve the invention receives a reward in the form of exclusive rights.

278

This insight seems

to be of particular importance for technologies integrated into standards, which are commonly

protected by patents.

It should be noted that before a standard is developed there are different technologies competing on

a market, while after a standard is created usually one technology dominates the market.

279

Ex-post, all patents that are essential to the same standard are complements (at least with respect to

the implementations of that standard). Knowing that their patents are now needed for the standard to

be used, individual patent owners may expect higher royalties and the ex-post stack ends up being

higher than the ex-ante stack as any possibility for substitution has been eliminated.

280

Aggregate

royalty negotiations at this stage will be extremely difficult and therefore, they need to involve the

whole industry.

Ex-post aggregate royalty determination is difficult also because the implementing products began

using the standard without knowing or taking into account the need to pay FRAND royalties. This

means that the FRAND royalties may have to be paid from profit expectations for those implementers

that have not provided for such royalties in their product costs. Such implementers will naturally

want the lowest possible FRAND royalties, whereas SEP holders (especially if not also implementers

liable for paying royalties as well) will try to obtain the highest possible FRAND royalties. In this

situation, it may be extremely difficult to bridge the interests and agree on an aggregate royalty. It is

likely that the establishment of an arbitral panel would become the default option.

A6.4 Oblige SEP holders to license their SEPs royalty-free (Option 6)

Royalty-free patent policies at SDOs may promote and accelerate innovation and competition

upstream, in technology for standards, and downstream, in products and services related to the

standard.

281

Consumers would thus benefit from royalty-free standards because the prices of

downstream products are lower and investment in innovation may be higher.

So why not a mandatory governmental policy for royalty free standards?

From an economic perspective whether or not a standard should be royalty-free really depends on

whether or not standard contributors have an economic interest to contribute based on such IPR policy

and there cannot be general rules that would determine that.

The factors that determine this decision include: (i) whether there is significant investment in R&D;

(ii) whether there are a number of contributors that are not users of the standard; (iii) whether there

may be potential alternatives of the standard and (iv) whether the cost of licensing (and litigation)

would exceed any potential licensing revenue.

See Shapiro, C., ‘Patent Reform: Aligning Reward And Contribution’,

Innovation Policy and the Economy,

2007,

Vol. 8, pp. 115-116,

https://www.nber.org/papers/w13141.

Intuitively, the R&D effort of each innovator imposes a

negative externality on competitors working on a similar innovation, which each firm individually does not take into

account.

279

Baumol, W. J. and Swanson, D. G., ‘Reasonable And Nondiscriminatory (RAND) Royalties, Standards Selection,

And

Control

Market

Power’,

Antitrust

Law

Journal,

2005,

Vol.

73,

pp.

1-58,

https://www.jstor.org/stable/40843669#references_tab_contents.

280

CRA, Régibeau, P., De Coninck, R. and Zenger, H.,

Transparency, Predictability, and Efficiency of SSO-based

Standardization and SEP Licensing: A Report for the European Commission,

2016, Section 3.2, pp. 28-30,

https://ec.europa.eu/docsroom/documents/48794?locale=en.

281

An economic analysis prepared by Charles River Associates (CRA) shows that royalty-free policies induce firms to

reduce prices and sell more units of products and services that use the standard.

278

kom (2023) 0232 - Ingen titel

Examples of royalty free standards are some internet standards, e.g., TCP/IP or HTML published by

IETF, W3C or some OASIS standards; and several data exchange standards such as Bluetooth

282

USB (Intel). These standards are claimed not to be too R&D intensive. For example, USB establishes

specifications for cables and protocols for connection, primarily focused on interoperability. The

USB 3.2 Standard comprises nine documents of about 2 000 pages.

283

Wireless cellular standards, in contrast, are claimed to be extremely complex and require long 10+

year cycles of R&D. Release 15 of the 5G Cellular standard, for example, comprises 1 131 separate

documents totalling tens of thousands of pages and around 100 000 contributions.

284

Table 9: SEP for free or not?

Technology

Internet

Data storage and exchange

Examples

Transmission Control Protocol (TCP); W3C, Extensible Markup Language

(XML); Uniform Resource Locator (URL); Java Script

CD, DVD

USB

Cellular standards

Photo formats

(Short-range) wireless data

exchange

Video

and

audio

compression standards

2G, 3G, 4G, 5G

JPEG

WiFi, Near Field Communication (NFC)

Bluetooth

MPEG, H.264/AVC, H.265/HEVC, H.266/VVC (Versatile

Video Coding)

VP8, VP9, VP10

* Free – free of charge; Royalty – royalty bearing

** Bluetooth requires membership and charges a small fee for its Bluetooth qualification process

Source: Prof. Dr. Joachim Henkel, Adrian Göttfried (TUM) presentation “Royalty-free standards”, May 2022

Status*

Free

Royalty

Free

Royalty

Free**

Royalty

Free

For SDOs to have something to standardize, contributors to the standard must first develop potential

contributions. The SDO technical committee would review all technical contributions and select the

best quality contribution. Table below explains the process in a basic manner.

Table 10: Standard development and usage – actions by different parties involved

For 1 SEP

Before

standard

development

Invest in R&D

During standard development

After standard adoption

Innovator 1

Innovator 2

SDO

Implementer

Contribution

SDO

Contribution

SDO

Select

contribution 2

Implement

contribution 2

Nothing

May ask for

FRAND licence

May

need

FRAND licence

Original source: Putnam, J. L., Economic Determinations in “FRAND rate” – Setting: A guide for the Perplexed, 2018, Fordham

International Law Journal, Vol. 41, Issue 4 (modified)

The initial investment in R&D may be subject to high risk, in particular the risk that the related

contributions are not selected into the standard. This is a simplification that needs to be taken in

282

283

A fee is due under the Bluetooth qualification process.

See

https://www.usb.org/document-library/usb-32-revision-11-june-2022.

284

https://www.3gpp.org/dynareport/SpecList.htm?release=Rel-15&tech=4&ts=1&tr=1.

kom (2023) 0232 - Ingen titel

perspective. For a large contributor, this risk would be somewhat offset since some of its

contributions will be accepted and some others will not.

R&D Investment <= Expected ROI (Product) + Expected ROI (Licensing)

If licensing royalties are zero, then there will be no licensing revenue from contributing technology

to standards. In that scenario, firms contributing to standards – typically product leaders – incur R&D

costs that their competitors – product followers – avoid.

Royalty-free patent policies at SDOs would thus facilitate entry and promote competition

downstream because they reduce uncertainty about royalties and other license terms for SEPs and

would thus benefit SMEs with limited or no SEP licensing experience. However, the product leaders

must be able to gain a sufficient first-mover or other competitive advantage to pay for the R&D

associated with standardization.

Obligatory royalty-free licensing may thus not promote the participation in the standardization

process of companies that do not implement the standardized technology such as research institutes.

Another consideration is whether certain product followers (implementers) of the dominant royalty-

bearing incumbent standard have an interest and ability to develop an alternative cheaper or royalty

free standard to avoid paying royalties (e.g., FireWire).

A decision to forego remuneration could also depend on the ability and cost related to licensing of

SEPs. SEP licensing involves significant cost and successful licensing may depend on a number of

factors such as ability to persuade implementers to take a licence.

A6.5 A uniform SEP royalty per standard irrespective of the use (Option 7)

In the public consultation a number of stakeholders call on the Commission to adopt an approach

based on a uniform FRAND royalty for a commercial standard, irrespective of the use of the

technology.

285

Some stakeholders fear that differentiated royalties on SEPs could allow SEP holders to extract

excessive royalties from certain implementers of complex products, whose value encompasses much

more than just the patented technology under the threat of injunctions.

As end products are complex and include many innovative technologies, there is furthermore a

concern that a differentiated royalty would become a “tax on innovations” carried out by

implementers. If a technology standard constitutes an enabling technology, the value that the standard

adds to different products depends i.a. on the value of the standard-compliant applications developed

by implementers. Suppose that a connectivity technology is implemented by two different end

product makers. One of these implementers develops innovative applications requiring the use of the

connectivity technology. After these R&D expenses are sunk, the connectivity technology adds

greater value to the products that include these innovative applications. Nevertheless, allowing patent

holders to charge the manufacturers of these enhanced products a higher rate reduces implementers’

incentives to invest in innovative implementations of a standard. If the different end product makers

are competing with each other, differentiated rates may furthermore unfairly erode some of the

competitive advantage created by producers’ innovations.

For this reason, some stakeholders consider that the same royalty should be charged for a particular

standardised technology irrespective of its use.

285

See Annex 9, Questions on FRAND.

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The above are valid concerns. On the other hand, price differentiation is, however, the predominant

approach in SEP licensing. Price differentiation and uniform price could be explained with the

hypothetical examples below.

Different market segments have different willingness-to-pay for a SEP license. With price

differentiation, each segment A, B and C (illustration below) could be charged its willingness-to-pay.

The coloured area shows the revenues (600 €).

Figure 14: Example: Price differentiation

Source: Illustrative example

With a uniform price that ensures that all segments are served, revenues would be lower (300 €):

Figure 15: Example: low uniform price

Source: Illustrative example

A uniform price of 2 € maximizes revenues to 400 €, but implies that segment C is not served:

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Figure 16: Example: higher uniform price

Source: Illustrative example

On the one hand, uniform pricing may thus exclude certain implementations of innovative technology

standards, and/or depress SEP owners’ royalty revenue such as to make the development of these

standards unprofitable. On the other hand, differentiating the royalty by the value of the final product

may allow SEP holders to extract the returns from investments undertaken by the upstream and

downstream manufacturers, and thus undermine implementers’ incentives to invest in the first place.

In its 2017 Communication, the Commission stated that FRAND terms and conditions should reflect

the value that the technology brings, should not depend on the success of the product, and may be

different from sector to sector. The public consultation indicated that there is a broad agreement that

the FRAND royalty may depend on the functionalities of the standard that are being implemented so

that a uniform price may not always be justifiable.

A uniform price for a commercial standard may thus not be the optimal option, so that certain form

of price differentiation may be necessary. However, it has to be underlined that licensing on FRAND

terms and conditions is not equal to maximising SEP owners’ revenues. The royalty should be fair

and reasonable to maintain innovation incentives for standard developing firms.

It should be noted that price differentiation increases transaction costs. In the IoT price differentiation

based on licensing to device makers (of which there may be more than 10 000 for cellular standards),

would lead to increased transaction costs in comparison to licensing upstream. Price differentiation

may be achieved not only on the device level but also on component level. Such an approach would

combine the advantages of price differentiation with lower transaction costs of upstream licensing.

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A6.6 Choice of organisation to run the Competence Centre

The Competence Centre plays an important role in all the options considered. It will manage the

procedures and a roster of conciliators (PO3), conduct studies and SME support activities (PO1),

publish aggregate royalties (PO4) and act as one stop shop in PO5. The question arises which

organisation should be tasked with these activities.

Potential candidates include the European Union Intellectual Property Office (EUIPO), the European

Patent Office (EPO) (both of which are specialised in granting IP rights) and Standard Developing

Organisation (SDOs). When vesting an institution with the Competence Centre responsibilities a few

criteria should be considered. First, the body should have the technical capacity to fulfil the role of a

Competence Centre, which includes experience with managing registers and alternative dispute

processes. Second, the body should be accountable to the EU public, in particular the European

Parliament and should be under the jurisdiction of the CJEU. Third, the body needs to be aligned

with the EU’s overarching political values and current policy priorities (e.g. support for SMEs).

The EPO has extensive experience in examining patents. Some of its patent examiners are also

familiar with standard documents and can conduct essentiality checks. While the EPO has the

required expertise in managing registers, it currently builds up its expertise in alternative dispute

resolution. The EPO thus has the technical ability to perform the functions of a Competence Centre.

However, the EPO is not an EU body, it is an international organisation which has not been entrusted

by its members with any competence that would enable it to take the functions of a Competence

Centre and conduct essentiality checks. Such a mandate can only be granted by amending an

international agreement. The process for amendment of an international agreement under Article 218

TFEU is different from the process of adopting a Regulation under Article 114 TFEU. This would

require the consent of all members of the European Patent Organisation (39 countries, including 12

non-EU countries). Being an independent international organisation, the EPO is not directly

accountable to the EU Public and the European Parliament, and its decisions are not the subject of a

review by the CJEU. While it is aligned with overarching political values in the EU, it determines its

own policies. A majority of two thirds of respondents to the public consultation suggested that the

EPO is best placed to conduct essentiality checks, because it has the technical capacity, and it is likely

to produce unbiased results. The public consultation indicated, however, that the key criteria for

selecting EPO were that it is a public body, and it is independent.

Table 11: Which authority/body would be best placed for doing essentiality checks?

The EPO

The national patent offices

Specialised law firms

Other organisation, please specify*

A combination of the bodies listed above. If so, please specify which bodies and why in your view

both should be responsible for this task

No. of replies

* Other suggestions included: WIPO or creation of a board of experts” (BOE) at SDO level

Source: Public consultations results, see Annex 9, Q33

% replies

63%

28%

25%

11%

There are many different SDOs specialising in developing standards in specific field(s), e.g. ETSI

(EU) develops communication standards, IEEE (US) develops the Wi-Fi standards, ITU-T

(Switzerland) develops the codecs standards. Therefore, vesting them with Competence Centre

responsibilities (or some of them, e.g. register with essentiality checks) would mean multiplication

of costs (many dedicated registers), risks for quality (more difficult to maintain the same level of

essentiality checks) and reduced user-friendliness (differently designed databases, implementers of

different standards would have to check several SDOs). The main task of SDOs is standard

development and not SEP licensing. Such organisations have no experience in essentiality checks

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and alternative dispute resolution. They do not have experience in supporting SMEs with trainings

nor negotiations. Except for ETSI, CEN and CENELEC, all other relevant standard development

organisations such as the ITU, ISO or IEEE, are located outside of the European Union. The European

Union does therefore not have jurisdiction over all relevant SDOs and consequently cannot impose

obligations of Competence Centre on them (adoption of such obligation would be a voluntary choice

of non-EU SDO). This means that regulation would not be able to cover all relevant standards.

Finally, decisions of the SDOs are not subject to the review of the CJEU, nor to the scrutiny of the

European Parliament.

When looking at experience in administering IP rights, the EUIPO would be well equipped to take

up the role of the Competence Centre. EUIPO is already responsible, inter alia, for the single filing,

examination, grant and registration of the EU trademark and the registered Community design, two

unitary intellectual property rights valid across the 27 Member States of the EU. It also offers

alternative dispute resolution services such as mediation, conciliation, assisted negotiation and expert

determination.

286

Finally, EUIPO has already in place funding mechanisms to support SMEs, such

as for instance the SME fund. The concerns regarding accountability and courts do not affect EU

agencies such as EUIPO.

Table 12: Merits of potential candidates for the Competence Centre

EU body?

Legal basis

Supervision by

the European

Parliament?

Accountability to

the EU public

EUIPO

Yes

Art. 114

(+) Yes

EPO

Article 218 TFEU

(-) No

SDOs

No legal basis

(-) No

(++) Full, EU agency

(0/+) Some, indirectly, as EU

MS have 70% of the votes

Alignment with

the EU policies

(++) Implements EU

policy/legislation (e.g. EU

Trademarks or Designs)

(++) experience with registers

and ADR

Technical

expertise

Decisions subject

to review of the

CJEU?

Other

considerations

(+) Yes

(0/+) Policy reflects views of

all 39 member states; changes

require the majority of them

to agree

(+) expertise in European

patents and registers, does not

conduct essentiality checks

right now.

(-) No (EPO´s Board of

Appeal, instead)

(+) 63% support in public

consultation

(0/+) Limited for CEN,

CENELEC and ETSI,

(European Commission

cannot vote)

(0/+) CEN, CENELEC and

ETSI develop European

standards, others not

(+) Expertise in technology

and registers, currently do not

conduct essentiality checks

nor ADR

(-) No

(-) functions of the

Competence Centre spread

among many organisations

The table above compares merits of different choices for the central authority. Against such a multi-

dimensional backdrop it seems that the best result in terms of the three criteria identified at the

beginning of this section could be achieved by the EUIPO. The EUIPO is a trusted body with a lot

of experience in managing registers and alternative dispute resolutions. It is an EU body able to build

up a system for essentiality checks that would guarantee lack of bias. It also has experience in

supporting SMEs in managing their intellectual property.

286

https://euipo.europa.eu/ohimportal/en/adr-service.

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NNEX

7: A

DDITIONAL INFORMATION IN SUPPORT OF IMPACT ANALYSIS

A7.1 Cost-benefit analysis

As indicated in the problem definition chapter data on SEP licensing are scarce and rarely observable

(available in public domain) as negotiated license agreements are sensitive corporate information.

Hence, the below cost and benefits analysis is based on available literature, analysis of public

information, interviews, consultations and SEP experts judgements but it also required a large

number of assumptions. To our knowledge such estimates (e.g. as regards affected population size in

the EU) are not available in the literature. The analysis is based on estimated averages which strive

to capture the situation of both large multinational players and small companies, thus standard

deviation from these averages is expected to be large. Providing more granular information would

require even more assumptions, however whenever possible we try to show impact on SMEs. Taking

all the above into account the numbers presented below should be treated with caution. The purpose

of these calculations is to allow for comparison of different policy options rather than precise

estimation of impacts on each company affected.

All assumptions are presented below (more in Annex A5.1 Market descriptions). Presented figures

refer to annual cost and benefits. Setup and running cost of the Competence Centre are based on

EUIPO best possible estimations at this moment in time. EUIPO has vast experience with

management of applications, payments and registers (e.g. for EU Trademark or Registered

Community Designs), studies (European Observatory on Infringements of Intellectual Property

Rights), ADR and support to SMEs (SME Fund). Setup cost is depreciated over ten years period and

proportionally added to the annual running cost.

It is important to note that the regulatory proposal will not set any of the fees. Instead, they will be

established subsequently by an implementing act which will take into account not only calculations

presented in this impact assessment but also political considerations. The fees presented in the IA are

just an indication of the fees that would cover the costs of the Competence Centre (based on an initial

cost prognosis by the EUIPO). SME SEP holders and SEP implementers will both receive a reduction

in administrative fees.

The benefits are calculated as a value of service or information provided to stakeholders (using

average values, e.g. an average negotiation cost). Consequently, they do not necessarily represent

actual cost savings (e.g. in case a company will not engage in negotiations).

It is important to note that not all cost/benefits can be quantified due to uncertainties of outcomes.

For instance, impact on licensing revenue of SEP holders depends on whether this initiative will

trigger/contribute to changes in the level of aggregate royalties for standards and in number of

implementers taking a license. Nevertheless, discussion of potential implications on revenues of SEP

holders and final price for customers is also presented below.

Since options build on each other (each option contains all the elements of an earlier option) the

analysis below looks both at additional and cumulative costs and benefits of each option. Figures are

rounded whenever this does not distort calculated totals.

PO1: Voluntary guidance

Costs:

EUIPO estimates that setup cost of the Competence Centre would include defining scope and

procedures for new activities, including among others preparation of SEP related information and

training materials, design of courses, identification of experts / setting up a framework for launching

studies, screening and gathering existing public terms and conditions, licence agreements and case

law summaries. IT costs would include creation of a database for studies, case law as well as

Competence Centre’s webpage where all the information could be accessed.

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The initial cost is estimated at around EUR 760 000 and IT setup at EUR 50 000.

Annual running cost of the Centre is estimated at EUR 430 000 with IT maintenance cost of EUR 10

000 and annual depreciation of the one-off costs of EUR 81 000. Cost of three studies per year is

estimated at around EUR 30 000 each. Total annual cost amounts to around EUR 611 000.

Since services of the Competence Centre will be free of charge, in case this option is the only

preferred choice a source for financing of setup and running expenses should be secured.

Benefits:

Based on estimated number of potential licensees per year, we expect that from 40 to 80 SMEs will

seek advice, participate in trainings and use dedicated resources. Additionally, up to 230 EU based

implementers and up to 190 non-EU based firms with subsidiaries in the EU, their legal counsels

(380), judges or conciliators (around 35) and both parties to each trial (2x35) involved in SEP court

cases, around 261 SEP holders as well as an unknown number of researchers, academia and other

interested parties might use Centre’s resources. This adds up to an audience of around 1 200 per year.

Value of a SEP licensing/negotiations training can be estimated at around EUR 1 500.

287

Value of

access to around three new studies per year, a database of license agreements and case-law summaries

could be comparable to access cost to lower range commercial patent databases, around EUR

5 000.

288

Thus, the annual benefits to users would amount to around EUR 5.9 million per year.

Table 13: Average incremental annual costs and benefits of PO1

Total

(+ saving, -

cost)

- 611 000

120 000

1 150 000

950 000

1 305 000

2 400 000

- 611 000

5 314 000

no. affected

PO1 (guidelines and Centre)

SME trainings

Implementers EU

Non EU implementers with EU

subsidiaries

SEP owners

judges/legal counsels/other

Competence Centre costs

Total

Source: Own assessment based on studies and assumptions

benefit

230

190

261

480

1 500

5 000

cost

Table 14: Average total annual costs and benefits of option PO1 by main categories of affected

parties and their origin

SEP implementers

SEP owners

Costs

Benefits

Net

Costs

Benefits

1 870 000

375 750

non-EU

1 550 000

2 129 250

Total

3 420 000

2 505 000

For instance cost of “Patent Licensing: Strategy and negotiation” delivered by French European Institute for Enterprise

and Intellectual Property (IEEPI) costs around EUR 1300, while course on “Valuation and exploitation of intangible

assets” costs EUR 2400. See:

https://www.ieepi.org/en/formations/.

288

Baron et al. report cost of access to commercial patent databases of between EUR 5 000 and 25 000, see Baron, J.,

Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European

Commission, DG GROW, 2023, p. 32.

287

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Net

Subtotal (net effect for implementers and owners)

Competence Centre

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

375 750

2 245 750

- 611 000

1 634 750

2 129 250

3 679 250

2 505 000

5 925 000

- 611 000

5 314 000

PO2: SEP register with essentiality checks

Costs:

Competence Centre’s initial costs would include the following tasks: creation and validation of a

pool of SEP evaluators (including tasks such as drafting a call for interest, select candidates, creating

a process for updating the pool of experts, create a process to regularly communicate with the

experts…); setting up a case management/distribution system, management of conflicts of interest;

creating work instructions, templates and check lists; defining and implement quality controls (formal

checks); setting up performance management system (define indicators, define measuring system and

implement automatic measuring); trainings for evaluators (including materials); setting up SEP

examination outcome review mechanism (substantive quality controls); setting up examiners/experts

payment system. IT cost would include a database with interface, e-application and fee payment,

connection to patent databases (e.g. of EPO).

Recurring costs would include: admissibility check/formal checks of patents before registration; fees

management, maintaining a pool/network of active SEP examiners; case management/distribution to

examiners; conflicts of interest check; quality controls; performance management; trainings of SEP

checkers; SEP experts payment; register users management.

Assumptions:

Both setup and running cost of this option will depend on the number of patent families registered

289

and checked for essentiality. In case the register would be only used by SEP holders to prove their

right to enforce SEPs against EU implementers the expected number of registered patents is rather

low and limited to patents most susceptible of being used in licensing negotiations (so called proud

list of patents owned by a SEP holder). In such scenario the number of patents registered is estimated

at 3 550 initially and 10% of it each year after. In case at least some SEP holders will use the register

as an indication of their portfolio strength, while others will not; and neither courts nor other third

parties will compel unwilling SEP holders to use the register to document their portfolio strength

(e.g. as evidence in infringement cases) – the number of patents registered initially is estimated at up

to 30 000 and 10% of that in subsequent years. Finally, in case the register becomes widely used by

all parties in SEP negotiations, including for approximation on royalties allocation by SEP holders

based on patent count, it is expected that nearly all patent families including European potential SEPs

are registered (around 60 000) and companies will further add up to 20% patents in an attempt to

improve their share of patents essential to a standard, resulting in approximately 72 000 patents

registered initially and 10% of that number in subsequent years.

290

. Especially in case this option is

selected in combination with options that follows, there’s higher likelihood that the register will be

289

Even if European patent family consist of patents in several Contracting States, all European patents gives its owner

the same rights as a national patent in each country for which it is granted. A SEP holder can register only one patent per

family and tag the remaining European family members using EPO patent database Espacenet

(https://worldwide.espacenet.com).

290

Baron, J., Essentiality Checks for Potential SEPs – Framework for Assessing the Impact of Different Policy Options,

European Commission, DG GROW, 2023. The study noted that the practice of numerical proportionality for allocating

royalty payments in SEP pools resulted in an increase in number of patents related to the underlying standard.

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used to approximate stake of SEP holder in a standard during license negotiations and infringement

cases, e.g. by conciliators or facilitators (in PO3, PO4 and PO5) and judges. Thus, for the analysis

below we assume the maximum scenario of 72 000 patents registered. In case a lower number of

patent families is registered, the EUIPO back office costs would remain roughly the same while costs

of essentiality checks would be proportionally lower.

Essentiality check by an expert is estimated to take around 10 hours, and the wage of expert is

approximately EUR 500 per hour, making the total cost of assessment EUR 5 000.

291

It is expected that claim charts for patents most susceptible of being used in negotiations are already

available (so called business as usual cost).

292

For the remaining patents we assume that SEP holders

will perform a limited screening of their patents before registration but generally will tend to register

all (potential) SEP they have. Claim charts may (but do not have to) be provided by SEP holder for

the patents selected for essentiality check. Costs of producing a claim chart are assumed to be

equivalent to the costs of the essentiality check itself. We also assume that for roughly half of the

patents selected for essentiality checks SEP holders will decide to produce or update a claim chart.

Other costs of SEP holder including gathering all the information necessary for registration and cost

of filling in the registration form are estimated at EUR 200 per patent. Some information necessary

for registration should be already available to the SEP holders. For instance, some SDOs also require

owners of potential SEPs to identify the patent numbers of potential SEPs and the number of the

specifications to which these patents relate. Some information would also be repeated and some

would be identical for many different patents (e.g. name of the standard or nature of the licensing

FRAND commitment).

Sub-option i) Essentiality checks for all SEPs in the register

One-off costs of the Competence Centre to implement this option are estimated at around EUR

840 000 with associated IT costs of EUR 700 000, bringing total cost to around EUR 1.54 million.

The annual internal cost of the Competence Centre in an initial year(s) is expected to be higher due

to high number of patents that will go through the system. It is estimated at around EUR 5.2 million

(including IT maintenance of EUR 140 000 and depreciation of one-off cost of EUR 154 000).

We estimate that initially 72 000 patents will have to be checked for essentiality and that SEP holders

following negative essentiality outcome will demand recheck of up to 27 500 patents. Altogether

around 99 500 patents will have to be checked, requiring engagement of around 565 assessors. Given

the estimated number of experts in the field in the EU of 1 500 this should be feasible even in one

291

There are different estimates of the essentiality assessment costs. Bekkers et al. report that the typical fee charged by

patent pools for essentiality assessments of a European patent is EUR 5 000-10 000, see Bekkers, R., Tur, E. M., Henkel,

J., et al.,

Overcoming inefficiencies of patent licensing: A method to assess a patent’s essentiality for technical standards,

2021,

https://pure.tue.nl/ws/portalfiles/portal/194804728/BEKKERS_et_al_2021_essentiality_assessments.pdf.

CRA

estimated the cost of a “medium assessment” to be EUR 4 500, and the cost of a “full assessment” to be EUR 9 000, see

CRA, Régibeau, P., De Coninck, R. and Zenger, H.,

Transparency, Predictability, and Efficiency of SSO-based

Standardization

and

SEP

Licensing:

Report

for

the

European

Commission,

2016,

https://ec.europa.eu/docsroom/documents/48794?locale=en.

According to survey by Baron, the average cost of such an

assessment for the remuneration of the expert alone is EUR 4 159. Taking into account mass scale of assessment and

resulting specialisation we have proposed a cost figure at the lower end of the estimates proposed, that is at EUR 5 000.

see -

Baron, J., Essentiality Checks for Potential SEPs – Framework for Assessing the Impact of Different Policy

Options, European Commission, DG GROW, 2023. Additionally we estimate the number of working hours per year at

1760. Meaning that one assessor could check 176 patents per year.

292

Many or most existing claim charts may relate to foreign, in particular US members of global potential SEP families,

and may have to be adapted to European patents. Source: Baron, J., Essentiality Checks for Potential SEPs – Framework

for Assessing the Impact of Different Policy Options, European Commission, DG GROW, 2023.

100

kom (2023) 0232 - Ingen titel

year, but it might take longer as well.

293

The expert remuneration for assessing this amount of patents

is estimated at EUR 498 million.

In the subsequent years as the number of patents subject to checking is expected at 10% of the initial

volume, the costs will also be lower. Centre’s total costs are estimated at EUR 1.5 million (including

IT maintenance and depreciation as above) and remuneration of examiners at EUR 49.8 million.

Consequently, over the course of ten years (initial year plus nine subsequent years) the average annual

cost of this sub-option is estimated at EUR 96.4 million.

An average registration fee for this option that should cover the cost of the Centre is estimated at

EUR 140 per patent. Additionally, SEP holders will have to pay the cost of essentiality checks of

EUR 5 000 per patent (only one per patent family).

Internal costs of SEP holders connected to preparation of information necessary for registration and

filling of forms for all 72 000 patent families is estimated at EUR 2.7 million annually on average

during a decade. Additionally, SEP holders may want to submit claim charts for patents selected for

essentiality check. This cost is estimated at around EUR 34.2 million annually on average over the

course of 10 years.

Sub-option ii) Essentiality checks for up to a fixed number (e.g. 50-100) of patents selected by SEP

holder and a representative random sample of all SEPs.

One-off costs of the Competence Centre to implement this option are estimated at around EUR

710 000 with associated IT costs of EUR 700 000, bringing total cost to around EUR 1.41 million.

Costs are lower than in sub-option i) due to lower number of expected essentiality checks and

associated reduced workload (e.g. selecting/training examiners).

The annual cost of the Centre in an initial year(s) is expected to be higher due to high number of

patents that will go through the system. It is estimated at around EUR 3.7 million (including IT

maintenance of EUR 140 000 and depreciation of one-off cost of EUR 141 000).

We estimate that initially around 13 550 patents will have to be checked for essentiality (3 550 patents

selected by owners and additional 10 000 patents in order to estimate essentiality shares of patent

portfolios per standard and per owner). SEP holders following negative essentiality outcome will

demand recheck of up to 885 patents from the self-selected group (patents selected for random check

will not be rechecked in order to assure reliability of the sample).

294

Altogether in the first year(s)

around 14 500 patents will have to be checked, requiring engagement of around 80 assessors. The

cost of assessing this amount of patents is estimated at EUR 72 million.

In the subsequent years as the number of patents subject to checking is expected at 10% of the initial

volume, the costs will also be lower. Centre’s internal costs are estimated at EUR 1.1 million

(including IT maintenance and depreciation as above) and remuneration of examiners at EUR 7.2

million.

293

Experts assess that in the EU the number of experts qualified in doing such an assessments stands at around 650 patent

attorneys and 800 patent examiners. Based on EPO register of patent attorneys, number of EPO patent examiners and

estimation on the number of examiners in the national patent office weighted by the share of EPO patent application in

the technical field of telecommunication (IPC H04).

294

Allowing for appeals to the assessments of randomly sampled patents produces few benefits, and significant costs –

appeals are likely to correct a significant share of random assessment error, which is a relatively benign and

inconsequential error for purposes of assessing firms’ relative portfolio size (false positive and false negative random

errors tend to cancel each other out). Appeals are however likely to exacerbate, rather than correct over-confirmation

bias, as negative assessments are significantly more likely to be appealed. By reducing random error and increasing bias,

appeals make the assessments of firms’ relative portfolio sizes less reliable. Source: Baron, J., Essentiality Checks for

Potential SEPs – Framework for Assessing the Impact of Different Policy Options, European Commission, DG GROW,

2023.

101

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Consequently, over the course of ten years (initial year plus nine subsequent years) the average annual

cost of this sub-option is estimated at EUR 15.1 million.

An average registration fee for this sub-option that should cover the costs of the Centre is estimated

at EUR 100 per patent. Additionally, SEP holders will have to pay the cost of essentiality checks of

EUR 5 000 per patent.

Internal costs of SEP holders connected to preparation of information necessary for registration and

filling of forms for all 72 000 patent families is estimated at EUR 2.7 million annually on average

during a decade. Additionally, SEP holders may want to submit claim charts for patents selected for

essentiality check. This cost is estimated at around EUR 6.4 million annually on average over the

course of 10 years.

Costs for users of the register

The option assumes free access to the basic information in the register such as names of SEP holders

and their contact details for licensing, the number of SEPs they have registered and the essentiality

rate of all registered SEPs. There will be a fee however, for access to information on essentiality of

concrete patents or portfolios. The fees for accessing the register should at least cover the costs of the

Centre associated with its activities described under PO1 (which is also included in this option). Fees

could for instance take form of an annual subscription. In such case we assume that all implementers

that are likely to take a license will buy access. As described in Annex 5.1 these are expected to be

around 150 large and 40 EU based SMEs, and 190 non-EU firms with subsidiaries in the EU annually.

At this level of demand the minimum prices to cover PO1 costs are estimated at EUR 1 700 for large

firms and EUR 850 for SMEs and total access for all firms per year at EUR 0.61 million.

Benefits:

Implementers taking a license will benefit from information if patents that are presented to them

during negotiations can be more safely assumed to be actually essential. In the same vain, SEP

holders would find it easier to prove essentiality to their negotiating partners (also during the cross-

licensing negotiations).

295

We estimate that essentiality checks may constitute up to 10% of an

average negotiation cost of EUR 108 000.

296

Consequently the average benefits (e.g. cost saved or

value of information provided) amounts to up to EUR 10 800 (due to lower value of licenses entered

by SME implementers we estimated their benefit at half of this value). With implementers and SEP

holders entering an estimated 575 new SEP licenses in the EU per year, respectively, the cumulative

value amounts to a maximum of around EUR 6.2 million per year for implementers and the same

amount for SEP holders (this includes only licensing agreements concluded in the EU). It assumes

that essentiality checks are conducted for every new SEP license that is signed, or that implementers

that thus far were not conducting essentiality checks will use (benefit from having) such information

during their licensing negotiations. Moreover, free access to the database will be given to judges,

with around 35 cases per year concerning SEP licensing in the EU, the savings on expertise on

essentiality can amount to EUR 0.4 million.

SEP holders can eliminate identified non-essential patents from their portfolio and avoid payment of

patent renewal fees. Some patents would also be lost to validity challenges (as can happen to any

other patent). On the other hand, use of patent count for determination of aggregate royalty division

295

Non-monetary benefits of cross-licensing amount to EUR 4 billion per year, on top of monetary royalty income on

cellular standards of EUR 18 billion per year. See Market description.

296

Average negotiation cost for all SEP licenses granted per year (including both bilateral negotiations where costs can

reach millions of EUR and licensing through patent pools where it is close to zero). Own calculations based on Baron, J.,

Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European

Commission, DG GROW, pp. 138-139, Table 16.

102

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is expected to incentivise patenting and increase patent fees.

297

In case of sub-option i) the net effect

is reduction in the number of patents by around 300

298

a year producing over a decade an average

annual savings on patent fees of EUR 11.6 million (which are a loss of revenue to the EU patent

offices). In case of sub-option ii) as only a sample of approximately 14% of patents will be checked,

the number of patents eliminated is lower than the new patents put into the register. Approximately

1 900

299

new patents will be added to register a year producing over a decade an average annual fee

cost of EUR 29 million (which will become a new revenue to the EU patent offices: covering patent

examination cost, and net profit of patent offices).

300

As explained in chapter 6, the materialisation

of these costs/benefits is however, uncertain.

Finally, it should be noted that only around 15% of the SEP holder costs presented above will apply

to firms with headquarters in the EU (based on share of declared SEPs).

Taking cost and benefits together sub-option i) is expected to deliver net costs at around EUR 121

million per year over a decade, while sub-option ii) net cost of EUR 12.3 million. As benefits of both

options (excluding the uncertain impact on the number of patents) are the same, option ii) is selected.

See tables below for details. The first table shows costs and benefits in the initial year, the subsequent

years and a ten-year annual average. The ten-year-average is used in the following tables as well as

throughout this document to describe impact of PO2. This is to facilitate reading and ensure

comparability with the impacts of other options (which are the same for an initial and subsequent

years).

Table 15: Total average incremental annual costs and benefits of PO2 in the initial year and in

subsequent years as well as a ten-year-average (PO1 not included)

PO2 (common)

Implementers large EU

Implementers SME EU

Non EU implementers with EU

subsidiaries

SEP owners

Access fee large implementers (EU and

non-EU with subsidiaries in the EU)

Access fee SME implementers

judges

i) PO2 (all checked)

SEP holder (registration fee)

patents

-5 244 000

-1 494 000

-1 869 000

no. licensing

negotiations

230

290

575

No. of entities

340

- 578 000

- 34 000

378 000

- 578 000

- 34 000

378 000

- 578 000

- 34 000

378 000

Initial year

2 484 000

297 000

3 132 000

6 210 000

Subsequent

years

2 484 000

297 000

3 132 000

6 210 000

10 years

average

2 484 000

297 000

3 132 000

6 210 000

297

It should be noted that increase in patenting is not necessary connected with new innovation, but rather with the

number of patents that cover an invention.

298

Discontinuation of around 2 600 patents after approximately five years of maintaining them and registration of

approximately 2 300 new patents with intention to keep for 20 years (SEPs are kept longer than other patents due to their

value).

299

Discontinuation of around 400 patents after approximately five years of maintaining them and registration of

approximately 2 300 new patents with intention to keep for 20 years.

300

Based on EPO website:

https://www.epo.org/applying/european/unitary/unitary-patent/cost.html

and own

calculations. We estimate that an average annual fee for obtaining a patent in four EU Member States and maintaining it

for 20 years is around EUR 2 000. An average annual saving for discontinuing a patent after five years is around EUR

2 400. In order to assure comparability with other figures in this annex we present average savings over a decade. This

means that e.g. annual cost of a new patent acquired in the initial year applies for ten years, while annual cost of a patent

acquired in the fifth year applies just for half of that period – calculation not presented.

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PO2 (common)

SEP holder (essentiality checks)

SEP holder, savings on patents

maintenance cost

SEP holder claim charts

update/preparation

SEP holder form filling

EPO and NPO change in patent

revenue

total i)

ii) PO2 (50-100+sample)

no. licensing

negotiations

72 000 patent families

registered and checked

initially (+27 500

rechecked), 10% of

that in subsequent

years

Initial year

Subsequent

years

10 years

average

-497 500 000

11 600 000

-49 750 000

11 600 000

-18 000 000

-1 440 000

-11 600 000

-58 795 000

-94 525 000

11 600 000

-34 200 000

-2 736 000

-11 600 000

-121 441 000

50% of patents updated

72 000 in 1st year, 10%

thereafter

-180 000 000

-14 400 000

-11 600 000

-685 255 000

SEP holder (registration fee)

SEP holder (essentiality checks)

SEP holder, cost of patents registration

and maintenance

SEP holder claim charts

update/preparation

SEP holder form filling

EPO and NPO change in patent

revenue

Total ii)

patents

72 000 patent families

registered initially,

10% of that in

subsequent years

13 550 checked

initially (+885

rechecked), 10% in

subsequent years

-3 681 000

-1 091 000

-1 350 000

-72 175 000

-29 000 000

-7 217 500

-29 000 000

-3 387 500

-1 440 000

29 000 000

-1 247 000

-13 713 250

-29 000 000

-6 436 250

-2 736 000

29 000 000

-12 346 500

50% of patents updated

72 000 in 1st year, 10%

thereafter

-33 875 000

-14 400 000

29 000 000

-112 242 000

Source: Own assessment based on studies and assumptions

Table 16: Ten-year-average incremental annual costs and benefits of PO2 (PO1 not included)

PO2 (common)

Implementers large EU

Implementers SME EU

Non EU implementers with EU

subsidiaries

SEP owners

Access fee large implementers (EU and

non-EU with subsidiaries in the EU)

Access fee SME implementers

judges

i) PO2 (all checked)

SEP holder (registration fee)

SEP holder (essentiality checks)

no. licensing

negotiations

230

290

575

No. of entities

340

1 700

1 500

- 578 000

- 60 000

378 000

benefit

10 800

5 400

10 800

cost

Total

(+ saving, - cost)

2 484 000

297 000

3 132 000

6 210 000

10 800

patents

72 000 patent families registered and checked

initially (+27 500 rechecked), 10% of that in

subsequent years

-1 869 000

-94 525 000

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PO2 (common)

SEP holder, savings on patents

maintenance cost

SEP holder claim charts

update/preparation

SEP holder form filling

EPO and NPO change in patent

revenue

total i)

ii) PO2 (50-100+sample)

SEP holder (registration fee)

SEP holder (essentiality checks)

SEP holder, cost of patents registration

and maintenance

SEP holder claim charts

update/preparation

SEP holder form filling

EPO and NPO change in patent

revenue

Total ii)

no. licensing

negotiations

benefit

cost

Total

(+ saving, - cost)

11 600 000

50% of patents updated

72 000 in 1st year, 10% thereafter

5 000

-34 200 000

-2 736 000

-11 600 000

-121 441 000

patents

72 000 patent families registered initially, 10% of

that in subsequent years

13 550 checked initially (+885 rechecked), 10% in

subsequent years

-1 350 000

-13 713 250

-29 000 000

50% of patents updated

72 000 in 1st year, 10% thereafter

5 000

200

-6 436 250

-2 736 000

29 000 000

-12 346 500

Source: Own assessment based on studies and assumptions

Table 17: Summary of ten-year-average incremental annual costs and benefits of PO2 (PO1 not

included): A – sub-option i); B – sub-option ii)

A – sub-option i)

Costs

Benefits

SEP implementers

Net

Costs

SEP owners

Benefits

Net

Subtotal (net effect for implementers and owners)

EPO/NPO benefit

Total net benefit

B – sub-option ii)

Costs

Benefits

SEP implementers

Net

Costs

SEP owners

Benefits

Net

Subtotal (net effect for implementers and owners)

EPO/NPO benefit

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

- 306 000

2 875 500

2 569 500

-19 999 500

2 699 850

-17 299 650

-14 730 150

-11 600 000

-26 330 150

- 306 000

2 875 500

2 569 500

-7 985 325

959 850

-7 025 475

-4 455 975

29 000 000

24 544 025

non-EU

- 306 000

3 226 500

2 920 500

-113 330 500

15 299 150

-98 031 350

-95 110 850

non-EU

- 306 000

3 226 500

2 920 500

-45 250 175

5 439 150

-39 811 025

-36 890 525

Total

- 612 000

6 102 000

5 490 000

-133 330 000

17 999 000

-115 331 000

-109 841 000

-11 600 000

-121 441 000

Total

- 612 000

6 102 000

5 490 000

-53 235 500

6 399 000

-46 836 500

-41 346 500

29 000 000

-12 346 500

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Table 18: Ten-year-average total annual costs and benefits of option PO2 (sub-option ii) by main

categories of affected parties and their origin (including PO1)

Costs

Benefits

SEP implementers

Net

Costs

SEP owners

Benefits

Net

Subtotal (net effect for implementers and owners)

EPO/NPO benefit

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

- 306 000

4 745 500

4 439 500

-7 985 325

1 335 600

-6 649 725

-2 210 225

29 000 000

26 789 775

non-EU

- 306 000

4 776 500

4 470 500

-45 250 175

7 568 400

-37 681 775

-33 211 275

Total

- 612 000

9 522 000

8 910 000

-53 235 500

8 904 000

-44 331 500

-35 421 500

29 000 000

-6 421 500

PO3: SEP register with essentiality checks and conciliations

Costs:

Competence Centre’s initial cost would include creation of a “roster” of conciliators. IT cost would

include creating a secured channel for communication/exchange of documents between conciliators

and parties, creation of an internal secured register of conciliation reports, as well as payment system.

These costs are expected at around EUR 130 000 and EUR 40 000 respectively.

Recurring costs would include management of the choice of conciliators, payment processing and

providing other back-office support to conciliators. Additionally, there would be IT maintenance and

depreciation of one-off costs. These costs are estimated at EUR 30 000 (for around 70 conciliations

per year), EUR 8 000 and EUR 17 000 respectively, bringing the total of EUR 55 000 per year.

On average a conciliation is expected to take 40 hours of conciliator’s time, at hourly wage of EUR

500. The average cost of engaging a conciliator is estimated at EUR 20 000.

We expect around 35 conciliation per year (based on court litigation information) and another 35

conciliations to help in FRAND determination. At such demand, the average cost of conciliation to

cover all cost of the Centre and conciliator is estimated at EUR 20 800.

Benefits:

Based on WIPO experience alternative dispute resolution mechanism can reduce need for court

proceeding by up to 70%. This would mean that around 24 conciliations would result in agreement,

and court costs (first instance, estimated average at around EUR 170 000 in the EU)

301

would be

avoided. While for 30% or 11 cases the matter would still end in court, albeit with additional evidence

from the conciliator’s report. In case of the remaining 35 conciliations the value of assistance in

reaching FRAND terms and conditions is estimated at around EUR 97 000 (accounting for

approximately 90% of an average negotiation cost of EUR 108 000).

302

Taking also costs into account

the benefits delivered by this option are estimated at EUR 6 million per year. See table below for a

summary.

Table 19: Average incremental annual costs and benefits of PO3 (PO1 and PO2 not included)

301

302

There are strong variations around this average, court costs could be much higher.

Average negotiation cost for all SEP licenses granted per year (including both bilateral negotiations where costs can

reach millions of EUR and licensing through patent pools where it is close to zero). Own calculations based on Baron, J.,

Arque-Castells, P., Leonard, A., et al.,

Empirical Assessment of Potential Challenges in SEP Licensing,

European

Commission, DG GROW, pp. 138-139, Table 16.

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PO3

Cases (that will not go to court)

Help in FRAND determination

Fees

total

no. affected

benefit

170 000

97 200

cost

Total

(+ saving, - cost)

4 080 000

3 402 000

-1 456 000

6 026 000

20 800

Source: Own assessment based on studies and assumptions

Table 20: Summary of average incremental annual costs and benefits of PO3 (PO1 and PO2 not

included)

Costs

Benefits

Net

Costs

Benefits

Net

- 364 000

1 870 500

1 506 500

- 109 200

561 150

451 950

1 958 450

non-EU

- 364 000

1 870 500

1 506 500

- 618 800

3 179 850

2 561 050

4 067 550

Total

- 728 000

3 741 000

3 013 000

- 728 000

3 741 000

3 013 000

6 026 000

SEP implementers

SEP owners

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

Table 21: Average total annual costs and benefits of option PO3 by main categories of affected

parties and their origin (including PO1 and PO2 sub-option ii)

Costs

Benefits

SEP implementers

Net

Costs

SEP owners

Benefits

Net

Subtotal (net effect for implementers and owners)

EPO/NPO benefit

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

- 670 000

6 616 000

5 946 000

-8 094 525

1 896 750

-6 197 775

- 251 775

29 000 000

28 748 225

non-EU

- 670 000

6 647 000

5 977 000

-45 868 975

10 748 250

-35 120 725

-29 143 725

Total

-1 340 000

13 263 000

11 923 000

-53 963 500

12 645 000

-41 318 500

-29 395 500

29 000 000

- 395 500

PO4: Aggregate royalty for SEP

Costs:

Competence Centre’s initial costs would be entirely covered by PO3 as conciliators for the aggregate

royalty expert assessment panel would come from the roster created in PO3. IT cost would include

changes to the register web interface to publish aggregate royalties and are estimated at EUR 25 000.

Recurring costs would include back-office support for expert assessment, including publication of

call for interest, reception of position papers, preparation of meetings and management of payments,

all estimated at around EUR 40 000 for three expert determinations per year. Additionally, there

would be IT maintenance and depreciation of one-off costs of EUR 5 000 and EUR 2 500

respectively. Together the average costs are estimated at EUR 47 500 per year.

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With expected up to 3 expert assessments per year,

303

the cost per assessment is estimated at EUR

135 800. It consists primarily of remuneration for an estimated 240 hours of work of conciliators

(hourly wage EUR 500) on each case, as well as a proportion of cost of the Competence Centre.

Benefits:

Publication of an aggregate royalty is expected to facilitate negotiations for all implementers who

currently take license in the EU and pay license fee. As estimated in Annex A5.1 these concern

around 575 new SEP licenses involving EU stakeholders signed per year. The value of information

on aggregate royalty is estimated to save around EUR 22 000 in negotiation costs (accounting for

approximately 20% of an average negotiation cost of EUR 108 000).

304

Taking also costs into account the net benefits delivered by this option are estimated at EUR 25

million per year. See table below for a summary.

Table 22: Average incremental annual costs and benefits of PO4 (PO1, PO2 and PO3 not included)

PO4

Negotiation savings implementer EU

Negotiation savings implementer

non-EU with subsidiaries in the EU

SEP holders

Imp and SEP hold - Expert panel

total

Source: Own assessment based on studies and assumptions

no. affected

285

290

575

benefit

22 000

cost

Total

(+ saving, - cost)

6 270 000

6 380 000

12 650 000

- 407 400

24 892 600

135 800

Table 23: Summary of average incremental annual costs and benefits of PO4 (PO1, PO2 and PO3

not included)

Costs

Benefits

Net

Costs

Benefits

Net

- 101 850

6 270 000

6 168 150

- 30 555

1 897 500

1 866 945

8 035 095

non-EU

- 101 850

6 380 000

6 278 150

- 173 145

10 752 500

10 579 355

16 857 505

Total

- 203 700

12 650 000

12 446 300

- 203 700

12 650 000

12 446 300

24 892 600

SEP implementers

SEP owners

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

Table 24: Average total annual costs and benefits of option PO4 by main categories of affected

parties and their origin (including PO1, PO2 sub-option ii) and PO3)

Costs

Benefits

Net

- 771 850

12 886 000

12 114 150

non-EU

- 771 850

13 027 000

12 255 150

Total

-1 543 700

25 913 000

24 369 300

SEP implementers

303

It should be noted that it is expected that SEP holders will provide ex-ante aggregate royalty themselves in most cases,

and expert panel will be used only in case they did not or when there is a major disagreement on the level announced.

304

Cost savings may result from the fact that the Competence Centre’s guidance on an aggregate royalty reduces the need

for parties to carry out their own assessments of such an aggregate royalty, or from the fact that the availability of

objective benchmarks for a FRAND rate reduces the need for other expenses related to the conduct of SEP licensing

negotiations.

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Costs

SEP owners

Benefits

Net

Subtotal (net effect for implementers and owners)

EPO/NPO benefit

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

-8 125 080

3 794 250

-4 330 830

7 783 320

29 000 000

36 783 320

non-EU

-46 042 120

21 500 750

-24 541 370

-12 286 220

Total

-54 167 200

25 295 000

-28 872 200

-4 502 900

29 000 000

24 497 100

PO5: SEP clearing house

Costs:

Competence Centre’s initial costs would include set up of clearing house’s process, criteria, accounts,

payments system and verification system. IT cost would be also connected to the payment and

royalties’ distribution system. These are estimated at EUR 260 000 and EUR 40 000 respectively.

Running costs of the clearing house would include managing all the payments and license agreements

including handling incoming payments from implementers, transferring proportionate amounts to

SEP holders, handling updates to information (e.g. on expected sales), control and verification of

payments. They are estimated at EUR 220 000 per year. Additionally, there would be IT maintenance

and depreciation of one-off costs of EUR 8 000 and EUR 30 000 respectively. Together the average

costs are estimated at EUR 258 000 per year.

In case SEP holders cannot reach an agreement over allocation of aggregate royalty among them,

they can request assistance of the Centre’s facilitator. Such request is expected to occur on average

1.5 times per year over a decade. Cost of conciliation is borne by SEP holders and amounts to EUR

120 000 (one conciliation, equivalent to remuneration for an average 240 hours of conciliator’s work

at EUR 500 per hour).

With expected average annual number of payments at around 3 000 during a decade,

305

the

transaction processing cost to be borne by the implementer per payment is estimated at around EUR

95.

Benefits:

Clearing house can strongly reduce the need for SEP license negotiations. On top of negotiation

savings/benefits delivered by PO2 and PO4 it is expected to help to reduce the remaining 70% of an

average negotiation cost of 108 000 EUR. While the demand for use of clearing house services will

depend on the implementer’s assessment of its ability to get a better deal in bilateral negotiations, we

estimate that the majority of implementers will want to use the clearing house for at least some of the

standards they have. The reduction in number of licensing negotiations is thus estimated at 250 for

EU based firms and 250 for non-EU based firms with subsidiaries in the EU.

Taking also costs into account the net benefits/savings delivered by this option are estimated at EUR

76 million per year. See table below for a summary.

305

Assuming one payment per year, and that nearly all implementers that is around 300 EU-based and around 250 non-

EU based (with EU subsidiaries) will use this facility for at least some of their license agreements. Note that the number

of payments cumulate as in subsequent years not only new licenses are added but also payments for the existing ones

have to be made.

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Table 25: Average incremental annual costs and benefits of PO5 (PO1, PO2, PO3 and PO4 not

included)

PO5

Negotiation savings for EU

implementers

Negotiation savings for non-EU

implementers with subsidiaries in the

SEP holders savings

Conciliators assistance in SEP

holders’ negotiations on division of

aggregate royalty (not obligatory, on

demand only)

Payment fees per year

total

Source: Own assessment based on studies and assumptions

no. licensing

negotiations

250

benefit

75 600

cost

Total

(+ saving, - cost)

18 900 000

250

500

75 600

18 900 000

37 800 000

1.5

2 750

120 000

- 180 000

- 258 000

75 162 000

Table 26: Summary of average incremental annual costs and benefits of PO5 (PO1, PO2, PO3 and

PO4 not included)

Costs

Benefits

Net

Costs

Benefits

Net

- 129 000

18 900 000

18 771 000

- 27 000

5 670 000

5 643 000

24 414 000

non-EU

- 129 000

18 900 000

18 771 000

- 153 000

32 130 000

31 977 000

50 748 000

Total

- 258 000

37 800 000

37 542 000

- 180 000

37 800 000

37 620 000

75 162 000

SEP implementers

SEP owners

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

Table 27: Average total annual costs and benefits of option PO5 by main categories of affected

parties and their origin (including PO1, PO2 sub-option ii), PO3 and PO4)

Costs

Benefits

SEP implementers

Net

Costs

SEP owners

Benefits

Net

Subtotal (net effect for implementers and owners)

EPO/NPO benefit

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

- 900 850

31 786 000

30 885 150

-8 152 080

9 464 250

1 312 170

32 197 320

29 000 000

61 197 320

non-EU

- 900 850

31 927 000

31 026 150

-46 195 120

53 630 750

7 435 630

38 461 780

Total

-1 801 700

63 713 000

61 911 300

-54 347 200

63 095 000

8 747 800

70 659 100

29 000 000

99 659 100

Competence Centre – summary of costs and fees

Anticipated costs of the Competence Centre were enumerated above for each option, this section

summarises these costs. It also summaries fees that are expected to cover the Centre’s costs.

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Table 28: One-off and recurrent costs of the Competence Centre per option and approximation of

fees to break even.

PO1

PO2 (sub-option ii)

PO3

PO4

PO5

Preferred

option

PO1 to PO4

One-off costs (EUR thousands)

One off

One off IT

Total One off

760

810

710

700

1 410

130

170

260

300

1 600

815

2 415

PO1

Year 1

PO2 (sub-option ii)

Year 2

to 10

10-year-

avg.

PO3

PO4

PO5

Preferred

option

PO1 to

PO4**

Recurrent costs (EUR thousands)

running costs

IT maintenance

depreciation of One-off*

total

430

521

3 400

140

141

3 681

810

140

141

1 091

1 069

140

141

1 350

2.5

47.5

220

258

1 569

163

241.5

1 973.5

Fee calculations (EUR) - to cover Centre’s costs (without external experts costs)

Action

Quantity per year

Fee per case*** (EUR,

rounded)

Free

****

Patent registrations:

72 000

7 200

150

13 680

100

Concili

ations

800

Expert

opinion

15 800

Payme

nts

2 750

* One-off cost depreciated over 10 years; ** PO2 using 10-year-average; *** total recurrent cost divided by quantity per year****

cost of PO1 (including additional external cost of EUR 90 000 for studies) will be covered by fees to access the PO2 register:

estimated at EUR 1 700 for large and EUR 850 for SMEs.

Source: Own assessment based on EUIPO input

Summary of estimated average remunerations of external experts:



PO1: studies: avg. EUR 30 000 per study

PO2: essentiality checks: EUR 5 000 per check

PO3: conciliation: EUR 20 000 per average conciliation

PO4: expert opinion: EUR 120 000 per average opinion

PO5: conciliator to recommend aggregate royalty allocation method: EUR 120 000 per

average recommendation

Impacts difficult to assess – impact on royalties income of SEP holders and on price of SEP

embedding products for EU customers

There are impacts which are difficult to assess, such as whether or not this initiative will have impact

on the average royalties firms will have to pay for implementing standards, the number of SEP

holders actively licensing their SEPs, or the number of implementers paying royalties. Furthermore,

other market developments not related to this initiative (e.g. rise of IoT, new patent pools/patent pools

policies) may influence both royalties and number of implementers. These impacts may further

determine indirect effects, such as effects on firms’ incentives to contribute their innovative

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technologies to standards development, or implement standards potentially subject to SEPs and

innovate at the product level.

Worldwide royalty income on cellular standards is estimated at USD 18 billion in 2015

306

and if the

share of EU licensees in that royalty burden is proportional to the EU GDP in the world

(approximately 1/6) then EU firms pay approximately USD 3 billion (around EUR 3 billion assuming

currency parity) on SEP royalties each year.

In case global royalty levels (income) would go down by just 1% (or number of paying implementers

globally would go down by 1%), the savings for the EU implementers are estimated at EUR 30

million and almost equivalent or slightly lower figure represents losses of the EU SEP holders.

307

case royalty levels increase, the impacts will be reversed. Thus, the impacts of changes to global SEP

royalty rates (or change in number of implementers paying current levels of royalties) on EU based

SEP holders and implementers largely cancel each other out. A different redistribution of economic

surplus may, however, affect innovation and standard implementation incentives in ways that are

difficult to predict.

In case change of royalty levels (or change in number of implementers) is limited only to the EU

based firms, the difference between impacts on the EU based implementers and SEP holder may be

more pronounced. For instance, if the share of SEPs held by EU based SEP holders continues to go

down and/or share of EU licensed implementers will increase, a cumulative negative impact on all

EU implementers will be more significant than the cumulative positive impact on the EU based SEP

holders (especially if the changes are significant, e.g. resulting in double digit change of royalty

income).

Impact on customers

Many implementers currently use standards without having a license. Thus, effect on availability of

SEP embedding products is unknow. We expect that lower transaction costs will promote license-

based applications and more implementers will take a license. It may be just a shift from unlicensed

products to licensed products, or real increase in technology take-up resulting in more SEP

embedding products on the market. Independently of the effects of this proposal, rise of the Internet

of Things (IoT) applications is expected to increase the number of SEP embedding products on the

market.

Impact on SEP price (royalties paid by implementers) is unknow as described above. Announcements

of aggregate royalties and FRAND determination process may (but do not have to) contribute to

lowering the royalties paid by implementers.

Consequently, we have two effects working in different directions: i) potentially more firms taking a

license (increasing implementers costs) and ii) potentially lower royalties paid (decreasing

implementers cost). Finally, the impact on prices for final customers will depend on the competition

on a given product market: any change in royalties paid by producers may be internalised by a firm

or passed on to final customers.

Impacts of the preferred option

The below table presents a summary of quantifiable costs and benefits brought by the preferred

option. The option is expected to produce annual savings of around EUR 24.5 million per year during

a decade.

306

CRA, Régibeau, P., De Coninck, R. and Zenger, H.,

Transparency, Predictability, and Efficiency of SSO-based

Standardization and SEP Licensing: A Report for the European Commission,

2016, p. 57,

https://ec.europa.eu/docsroom/documents/48794?locale=en.

307

Since we estimate revenue of the EU based SEP holder using an approximate share of their SEPs in the total number

of declared SEPs (15%) which is similar to the EU GDP share in global economy used to calculate implementers’ savings.

112

kom (2023) 0232 - Ingen titel

Table 29: Ten-year-average annual costs and benefits of the preferred option PO4 (consisting of

incremental costs and savings of each option it consists of)

Total

(+ saving, -

cost)

120 000

1 150 000

950 000

1 305 000

2 400 000

5 925 000

no. licensing

negotiations

230

290

575

No. of entities

Access fee large implementers (EU and

non-EU with subsidiaries in the EU)

Access fee SME implementers

judges

340

1 700

1 500

- 578 000

- 60 000

378 000

10 800

5 400

10 800

2 484 000

297 000

3 132 000

6 210 000

no. affected

PO1 (guidelines and Centre)

SME trainings

Implementers EU

Non EU implementers with EU

subsidiaries

SEP owners

judges/legal counsels/other

subtotal PO1

230

190

261

480

benefit

1 500

5 000

cost

PO2 (register, 50-100+sample)

Implementers large EU

Implementers SME EU

Non EU implementers with EU

subsidiaries

SEP owners

10 800

SEP holder (registration fee)

SEP holder (essentiality checks)

SEP holder, cost of patents registration

and maintenance

SEP holder claim charts

update/preparation

SEP holder form filling

EPO and NPO change in patent revenue

subtotal: additions of PO2

PO3 (conciliation)

Cases (that will not go to court)

Help in FRAND determination

Fees

subtotal: additions of PO3

patents

72 000 patent families registered initially, 10% of that

in subsequent years

13 550 checked initially (+885 rechecked), 10% in

subsequent years

-1 350 000

-13 713 250

-29 000 000

50% of patents updated

72 000 in 1st year, 10% thereafter

5 000

200

-6 436 250

-2 736 000

29 000 000

-12 346 500

no. affected

170 000

97 200

20 800

4 080 000

3 402 000

-1 456 000

6 026 000

no. licensing

negotiations

285

290

575

22 000

135 800

6 270 000

6 380 000

12 650 000

- 407 400

PO4 (aggregate royalty)

Negotiation savings implementer EU

Negotiation savings implementer non-

EU with subsidiaries in the EU

SEP holders

Imp and SEP hold - Expert panel

113

kom (2023) 0232 - Ingen titel

no. affected

subtotal: additions of PO4

Benefits/Savings of the preferred option PO4

Source: Own assessment based on studies and assumptions

benefit

cost

Total

(+ saving, -

cost)

24 892 600

24 497 100

The majority of quantifiable benefits will accrue to standards implementers, while SEP holders are

expected to face additional costs (mainly due to PO2). The European patent office/national patent

offices are also expected to benefit from new patent revenue. The tables below summarise the effects

of the preferred option i) in the initial year (when there will be significantly more patents registrations

and essentiality checks); ii) in the subsequent years (when the number of patent registrations and

essentiality checks will account for approximately 10% of the initial numbers) and iii) as a ten-year-

average annual costs and benefits – which is used throughout the document.

Table 30: Average annual costs and benefits of the preferred option PO4 in the initial year by main

categories of affected parties and their origin

Costs

Benefits

SEP implementers

Net

Costs

SEP owners

Benefits

Net

Subtotal (net effect for implementers and owners)

EPO/NPO benefit

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

- 771 850

12 886 000

12 114 150

-23 109 405

3 794 250

-19 315 155

-7 201 005

29 000 000

21 798 995

non-EU

- 771 850

13 027 000

12 255 150*

-130 953 295

21 500 750

-109 452 545

-97 197 395

Total

-1 543 700

25 913 000

24 369 300

-154 062 700

25 295 000

-128 767 700

-104 398 400

29 000 000

-75 398 400

Table 31: Average annual costs and benefits of the preferred option PO4 in subsequent years by

main categories of affected parties and their origin

Costs

Benefits

SEP implementers

Net

Costs

SEP owners

Benefits

Net

Subtotal (net effect for implementers and owners)

EPO/NPO benefit

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

- 771 850

12 886 000

12 114 150

-6 460 155

3 794 250

-2 665 905

9 448 245

29 000 000

38 448 245

non-EU

- 771 850

13 027 000

12 255 150*

-36 607 545

21 500 750

-15 106 795

-2 851 645

Total

-1 543 700

25 913 000

24 369 300

-43 067 700

25 295 000

-17 772 700

6 596 600

29 000 000

35 596 600

Table 32: Ten-year-average annual costs and benefits of the preferred option PO4 by main

categories of affected parties and their origin

Costs

Benefits

Net

- 771 850

12 886 000

12 114 150

non-EU

- 771 850

13 027 000

12 255 150*

Total

-1 543 700

25 913 000

24 369 300

SEP implementers

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Costs

SEP owners

Benefits

Net

Subtotal (net effect for implementers and owners)

EPO/NPO benefit

Total net benefit

* concerns non-EU implementers with subsidiaries in the EU

Source: Own assessment based on studies and assumptions

-8 125 080

3 794 250

-4 330 830

7 783 320

29 000 000

36 783 320

non-EU

-46 042 120

21 500 750

-24 541 370

-12 286 220

Total

-54 167 200

25 295 000

-28 872 200

-4 502 900

29 000 000

24 497 100

Analysing geographical distribution of quantifiable impacts of the preferred option in the EU, the

benefits should outweigh the cost in case of companies from all but three (FI, SE and LU) EU

Member States.

Table 33: Ten-year-average annual impact on costs and benefits of the preferred option PO4 by main

categories of affected parties and per EU Member States.

Member State

Total

SEP Owners

- 363 162

- 6 682

- 73 497

- 259 402

SEP Implementers

3 274 007

1 625 624

1 316 755

933 108

916 852

562 466

399 904

256 849

253 597

211 331

201 577

188 572

182 070

169 065

165 814

133 301

94 286

61 774

58 522

52 020

42 266

26 010

13 005

6 502

16 256

487 687

464 928

12 114 150

Net impacts

2 910 844

1 618 942

1 243 258

933 108

657 450

562 466

399 904

256 849

253 597

211 331

194 503

188 572

182 070

169 065

165 814

133 301

94 286

61 774

58 522

52 020

42 266

26 010

13 005

6 502

- 37 589

- 926 052

-1 688 499

7 783 320

- 7 075

- 53 846

-1 413 739

-2 153 427

-4 330 830

Assumptions: Distribution of cost per SEP holder according to estimated share of declared SEPs, distribution of benefits among

implementers according to estimated number of companies affected per country (see Annex A5.1)

Source: Own assessment based on studies and assumptions

The following table summarises the fees and other costs of the preferred option on market

participants.

Table 34: Summary of fees and other cost of the preferred option

Action:

Costs introduced by regulation

Patent registration

Essentiality checks

Approx. cost

€100 per patent

€ 5 000 per check

Total avg. annual cost (€ million)

1.4

13.7

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Action:

Conciliation fees and conciliator

remuneration

Aggregate royalty determination process

Total fees and expert remuneration:

Firms’ internal costs to comply

Filling forms (OIOO eligible cost)

Update claim charts

Total internal costs:

Approx. cost

€800 fee of EUIPO, avg. €20 000

fee of conciliator

€15 800 fee of EUIPO, avg.

€120 000 fee of conciliators panel

€1700 large firms, €850 SMEs

Total avg. annual cost (€ million)

1.5

0.4

0.6

17.6

€200 per patent

€2 500 per patent

2.7

6.4

9.1

Source: Own assessment based on studies and assumptions

Are these costs significant for SEP holders?

Looking at the cost of the preferred option especially on SEP owners, one should put these numbers

into perspective. For instance, analysing just the cost applicable to the EU based SEP owners, which

amounts to around EUR 8.1 million per year (see

Table 32),

the share applicable to the SE and FI

SEP holders amounts to around EUR 6.7 million (as they own approximately 80% of EU SEPs). This

cost will fall on two EU firms, Nokia and Ericsson. As discussed in Annex A5.1 the combined annual

revenue of these firms amounts to EUR 45 billion, and R&D expenditures to EUR 8 billion. The

additional costs due to the preferred option will constitute respectively around 0.015% of the revenue

and 0.084% of R&D budget. Thus, it seems affordable to these firms.

308

As regards other SEP holders also from outside of the EU, the cost of essentiality check amounts to

approximately 11% of the fees that should be paid for maintaining a European Patent for 20 years in

four Member States; 0.4% of the value of an essential patent if its use is limited only to the territory

of the EU and 0.06% when it is used globally.

Table 35: Cost of essentiality check in perspective of other costs or incomes on SEP

EUR

Essentiality check per patent

Cost of maintaining a European Patent for 20 years in four

Member States

Value of an essential patent to SEP holder

(net present value for 10 years of collecting royalties)

Value of an essential patent to SEP holder (limited to EU only)

(net present value for 10 years of collecting royalties)

5 000

44 420

Avg. 8 000 000

(EUR 6 to 10 million)

Avg. 1 350 000

(EUR 1 to 1.7 million)

% of cost of an

essentiality check

100.0%

11.3%

0.06%

0.4%

Source: EPO for European patent:

https://www.epo.org/applying/european/unitary/unitary-patent/cost.html;

Baron, J., Essentiality

Checks for Potential SEPs – Framework for Assessing the Impact of Different Policy Options, European Commission, DG GROW,

2023, p.45 on the value of an essential patent

The next figure compares the total average annual cost of the new SEP system (excluding benefits)

for SEP holders to the total annual estimated revenues on cellular standards.

308

Additionally, these two firms incur large expenditures on SEP related litigations. Thus, they could benefit more than

average firm from lowering of litigation costs brought by the preferred option.

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Figure 17: Total average annual costs (for SEP owners) of the new system in comparison to estimated

annual revenues from cellular standards (EUR million + in brackets: cost of SEP initiative as % of

a value of a given line)

Approximate royalties from cellular standards in the world* +

approximate non-cash value of cross licenses**

22 000 (0.2%)

Approximate royalties from cellular standards in the world*

18 000 (0.3%)

Approximate royalties from cellular standards in the EU***

3 000 (2%)

SEP initiative approximate annual costs for SEP owners

54 (100%)

* CRA(2016), ** Sidak (2016), *** using EU GDP as a proxy (approx. 1/6 of 18 billion)

Note: USD values converted to EUR at 1:1.

Source: Own calculation based on studies

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A7.2 Aggregate royalty

Results of Literature Analysis

An aggregate royalty for a standard is the royalty due for all SEPs on the standard. It is the starting

point in a top-down determination of the royalty to be paid for a given portfolio. Such an approach

was taken in the landmark decision by the U.S. District Court for the Central District of California in

the litigation between TCL Communications and Ericsson, which “offers a strong endorsement of

‘top down’ methodologies for the calculation of SEP royalties” (Contreras, 2017a).

309

As Contreras

(2017b, p. 690)

310

notes, “[t]op-down approaches avoid many drawbacks associated with bottom-up

approaches in which royalties for individual SEPs are assessed, often in an inconsistent and piecemeal

manner, without regard for the other SEPs that cover the standard.”

Economically, an aggregate royalty makes sense because implementers value the standard as a whole,

not a collection of inventions represented by some incomplete portfolio of SEPs. It may also help to

overcome problems of royalty stacking, a modern version of Cournot’s (1838)

311

well-known

problem that the independent pricing of complementary goods – here: licenses to different SEP

portfolios on the same standard – leads to excessive prices, above those that a single party offering

all those goods jointly would charge. Geradin et al. (2008)

312

, in “assess[ing] the case for royalty

stacking within standards […] find the evidentiary support weak at best.” In contrast, Lemley and

Shapiro (2007)

313

“using third-generation cellular telephones and Wi-Fi as leading examples, […]

illustrate that royalty stacking can become a very serious problem, especially in the standard-setting

context where hundreds or even thousands of patents can read on a single product standard.” A clear

illustration of the problem of royalty stacking is provided by the decision of the U.S. District Court

of the Western District of Washington at Seattle in Microsoft Corp. v. Motorola, Inc. in 2013.

Commenting on Motorola’s royalty demands for its SEPs on the Wi-Fi (802.11) standard, the court

noted: “If each of these 92 entities [owners of Wi-Fi SEPs] sought royalties similar to Motorola's

request of 1.15 % to 1.73% of the end-product price, the aggregate royalty to implement the 802.11

Standard, which is only one feature of the Xbox product, would exceed the total product price. The

court concludes that a royalty rate that implicates such clear stacking concerns cannot be a RAND

royalty rate.”

314

Contreras (2015)

315

makes an observation that might reconcile the contradictory

pieces of evidence above: “A relevant factor in determining the incremental value of a particular

patented technology must be the number of additional patented technologies included in the same

product. […] What is less relevant is whether the accused infringer is then paying royalties to other

patent holders, and in what amounts.” This logic is plausible since, if some SEP holders do not

Contreras, J. L., ‘TCL v. Ericsson: The First Major US Top-Down FRAND Royalty Decision. Ericsson: The First

Major

Top-Down

FRAND

Royalty

Decision.

Patently-O,

December

2017,

https://dc.law.utah.edu/cgi/viewcontent.cgi?article=1083&context=

scholarship.

310

Contreras, J. L., ‘Aggregated royalties for top-down FRAND determinations: revisiting “joint negotiation”’,

The

Antitrust Bulletin,

2017, Vol. 62, Issue 4, pp. 690-709,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3051502.

311

Cournot, A. A.,

Recherches sur les principes mathématiques de la théorie des richesses,

L. Hachette, 1838,

https://gallica.bnf.fr/ark:/12148/bpt6k6117257c.texteImage.

312

Geradin, D., Layne-Farrar, A., and Padilla, A. J., ‘The complements problem within standard setting: Assessing the

evidence on royalty stacking’,

Boston University Journal of Science & Technology Law,

January 2008, Vol. 14, Issue 2,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=949599.

The authors acknowledge financial support from

Qualcomm.

313

Lemley, M. A., and Shapiro, C., ‘Patent holdup and royalty stacking’,

Texas Law Review,

2007, Vol. 85, pp. 1991-

2049,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=923468.

314

Microsoft Corp. v. Motorola, Inc., Findings of Fact and Conclusions of Law, 2013 U.S. Dist. W.D. Wash., Apr. 25,

2013, at 456.

315

Contreras, J. L., ‘Standards, royalty stacking and collective action’,

CPI Antitrust Chronicle,

March 2015,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2587954.

309

118

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demand royalties, there is no reason why those should be collected by other SEP holders that do

enforce their patents; rather, consumers should benefit through lower prices that will likely result

from a reduced SEP royalty burden. In any case, no matter if the problem of royalty stacking is weak

or serious, an explicit aggregate royalty should help to mitigate it.

Ex-ante aggregate royalty

As aggregate royalty would be determined before the development of the standard starts potential

contributors could decide whether they would like to contribute their technologies to the

standardisation process knowing the extent to which they may be rewarded if their contribution is

accepted into the standard. Further, having more certainty with such ex-ante aggregate royalty can

help address the issue of royalty stacking

316

and possibly resolve any risks of hold-up, to some extent.

The ex-ante aggregate royalty does not create price competition between technologies competing for

inclusion into the standard (this is an aggregate royalty). Technical contributions will be selected

based on technical merit. There is, thus, less pressure on the individual potential royalties. The

likelihood that individual contributors will be dissuaded from contributing is lower.

“… coordinated pricing of strict complements may allow limiting potentially excessive royalty

requests on the part of individual licensors, thereby leading to lower final consumer prices and hence

more successful commercialization of end products. This mutual benefit is broadly recognised by all

parties.”

317

Defining an aggregate royalty before a standard comes to the market benefits both standard

contributors and standard implementers as it increases business certainty in terms of cost planning

and potential benefits. It is, however, very difficult to establish a fair value for a standard before it is

even developed, and to predict the success, nature and scope of implementations. There may also be

a lack of visibility to future products that may use the standard, as is the case with emerging IoT

segments and their use of connectivity standards, for example. As a result, the ex-ante aggregate

royalty may either overestimate the significance of the technology (in which case the standard will

not be used, unless the aggregate royalty is reviewed and adapted) or underestimate (in which case,

the standards will lose potentially superior technologies which were not contributed because of the

low incentives to do so). A mechanism should therefore exist to adjust such ex-ante aggregate royalty

once the standard is actually being implemented.

316

In the literature on vertically related markets the royalty stacking problem is known as the double marginalization

problem: the pub would mark up on the price at which it buys the beer from brewer without taking into consideration that

this reduces the sales for the brewers. Consequently, beer prices to pub customers should go up when brewers are forced

to divest pubs.

317

For detailed explanation please see CRA, Régibeau, P., De Coninck, R. and Zenger, H.,

Transparency, Predictability,

and Efficiency of SSO-based Standardization and SEP Licensing: A Report for the European Commission,

2016,

Section 5.1.2, pp. 43-45,

https://ec.europa.eu/docsroom/documents/48794?locale=en.

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A7.3 WTO/TRIPS compatibility

To ensure effective IPR protection on an international level, the Agreement on trade related aspects

of intellectual property (TRIPS) is an essential part of the WTO agreement. The specifics of the rights

of the patent holder are outlined in Articles 27, 28, 41 and 44 of the TRIPS agreement. Article 28(1)

TRIPS establishes the basic rights of the patent holder, which is to preclude others without consent

from the acts of making, using, selling, offering for sale or importing the patented product, or using

the patented process (including importing products made with the process).

The imposition of an obligation to condition SEP enforcement upon registration in the SEP register

and to participate in a FRAND determination procedure before court litigation commences

(conciliation) could be seen as limiting the right of SEP holders to prevent the use of the SEP owner’s

patents without their consent.

However, the exclusive rights of the patent owner are not absolute rights, just like other property

rights. According to Article 30 TRIPS, limited exceptions to the exclusive rights conferred by a patent

in Article 28(1) TRIPS may be instituted by WTO Members. An exception to the exclusive rights

conferred by a patent is provided for in Article 30 TRIPS and should comply with three conditions:

(a) it has to be “limited”, (2) it should not “unreasonably conflict with a normal exploitation of the

patent”, and (3) it should not “unreasonably prejudice the legitimate interests of the patent owner,

taking account of the legitimate interests of third parties”. Additionally, TRIPS includes objectives

to promote technological innovation and the dissemination of technology to the mutual advantage of

the patent (SEP) holder and the user of the technology (Article 7) and principles of preventing the

abuse of intellectual property rights and adopting measures for public interest reasons (Article 8).

Interpretations of Article 30 TRIPS exceptions

The scope of permitted exceptions under Article 30 is the subject of some controversy and has been

interpreted only in one WTO dispute. The Panel in

Canada - Patents

318

acknowledged the object and

purpose of the TRIPS in Articles 7 and 8, but it did not apply them to interpret Article 30. The Panel's

assessment focused on whether the exceptions were ‘limited’. The Panel concluded that the term

‘limited exception’ enabled only a ‘narrow curtailment of the legal rights’ of a patent holder. It is

argued that the Panel's interpretation of the term ‘limited’ of Article 30 being a quantitative

assessment, devoid of normative considerations (including reasons justifying the exception)

artificially constrained the scope of Article 30

319

. But, the Panel noted also that "the exact scope of

Article 30's authority will depend on the specific meaning given to its limiting conditions." To this

end, the goals enumerated in Articles 7 and 8.1 are relevant when doing so.

It should be noted that the

Australia - Tobacco Plain Packaging

decisions (Australia-TPP)

320

, where

Articles 7 and 8 TRIPS were relied upon to interpret the term ‘unjustifiably’ in the special measures

provisions on trademarks under Article 20

TRIPS.

The Panel found that public interest objectives

stated in Article 8(1), including public health, are legitimate objectives permitting encumbrance on

trade mark use.

321

Since the Australia-TPP Panel referred to the report in

Canada

Patents

regarding

318

319

Panel Report,

Canada-Patent Protection of Pharmaceutical Products,

WTO WT/DS114/R of 17 March 2000.

Geiger, C., and Desaunettes-Barbero, L., ‘The Revitalisation of the Object and Purpose of the TRIPS Agreement: The

Plain Packaging Reports and the Awakening of the TRIPS Flexibility Clauses’,

Centre for International Intellectual

Property

Studies,

2020,

Research

Paper

No.

2020-01,

36,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3556585.

320

Panel Report in

Australia–Certain Measures Concerning Trademarks, Geographical Indications and other Plain

Packaging Requirements Applicable to Tobacco Products and Packaging,

cases WT/DS435/R, WT/DS441/R,

WT/DS458/R, WT/DS467/R of 28 June 2018; Appellate Body Report, case WT/DS435/R, WT/DS441/R of 9 June 2020.

321

Tesoriero, A.,‘Using the flexibilities of Article 30 TRIPS to implement patent exceptions in pursuit of Sustainable

Development Goal 3’,

The Journal of World Intellectual Property,

2022, Vol. 25, Issue 2, pp. 516-535,

https://onlinelibrary.wiley.com/doi/full/10.1111/jwip.12239#jwip12239-note-0018.

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the interpretation of the terms of Article 30 of the TRIPS Agreement in light of its object and purposes

of Articles 7 and 8, its findings may provide useful context regarding the interpretation of Article 30

TRIPS. The plain packaging measure restricted the use of the trademark, the TRIPS Agreement does

not grant a right to use the trademark. The Panel concluded that the right of the trademark owner to

prevent third parties not having its consent from using the trade mark, which is the right granted by

Article 16 of the TRIPS Agreement, was not limited. This was an important element to consider

whether the measure was TRIPS compliant.

The current initiative restricts the right of the patent owner to prevent use without consent but does

so only for a limited period of time.

In the SEP context

Certain proposed limitations on the rights of a SEP owner, including requirements to (i) register its

patents in a designated register prior to enforcement, and (ii) engage in a specified FRAND

determination process before enforcing its rights, would be consistent with the objectives of the

TRIPs agreement to promote technological innovation and the dissemination of technology to the

mutual advantage of the SEP holder and the user of the technology (Article 7). It would also be

consistent with its principles of preventing the abuse of intellectual property rights and adopting

measures for public interest reasons (Article 8):

Standardisation is necessary to ensure interoperability and to promote the uptake of modern

technologies. Standards promote technological development which is in the public interest (as

acknowledged by Article 8 TRIPs).

Standards, including those that include patented technology, promote the dissemination of that

technology (as formulated in Article 7 TRIPS).

Therefore, it seems to be justified to interpret the findings of the Panel in

Canada - Patents

bearing

in mind the goals and limitations of Articles 7 and 8 and in light of the specific context of SEPs.

An interpretation of Article 30 informed by Articles 7 and 8 would make strike an appropriate balance

between the legitimate interests of patent owners and the right of WTO Members to adopt measures

to promote their public interests in sectors of vital importance to their socioeconomic and

technological development.

The introduction of an enhanced legal approach for assessing FRAND terms and conditions in a

particular context – one which results in more certainty and predictability for the SEP holder and the

user of the standard – is a reasonable element in the effective exploitation of the patent rights of the

SEP owner. Such an exception arguably would not unreasonably conflict with the traditional means

of exploitation of the patent and does not unreasonably prejudice the legitimate interests of the patent

owner. On the other hand, the exception reduces the possibility of a SEP holder abusing its IP rights

in an anti-competitive fashion and results in a more balanced outcome by taking account of the

legitimate interests of the users of the technology and consumers as a whole.

The following factors are relevant to this analysis:

Patent owners benefit from the adoption of the standard and therefore tolerate the

infringement of their patents to ensure the standard is widely used in products (especially if

they also contributed technology to the standard during development);

When the SEP holder commits to license its patents under FRAND terms and conditions in

order to promote adoption of the standard, its objective is not to stop the sale of infringing

products but to collect royalties from such sales (although some SEP holders may choose not

to actively monetize or assert their SEPs);

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The normal exploitation of the patent in the context of standard-compliant products is to be

able to collect FRAND royalties; due to the unique nature of SEPs (i.e., patents cannot be

designed around because the technology is essential for implementing the standard in

products), exploitation rights are more strictly defined or limited because of concerns

regarding potential restrictions to fair competition and discrimination – i.e. behaviour that is

harmful to competition;

Demands for royalties that are unreasonable undermine the objectives of standardisation, lead

to unnecessary litigation and slow down the process whereby patent owners can receive

adequate remuneration for the use of their patents.

Furthermore, pursuant to Article 40 TRIPs, Members may adopt, consistently with the other

provisions of TRIPS, appropriate measures to prevent some licensing practices or conditions

pertaining to intellectual property rights which restrain competition that may impede the transfer and

dissemination of technology. In this instance, the proposed FRAND determination process is

intended to address, among other issues, concerns about whether the demanded royalty is truly

FRAND, which may have potential anti-competitive effects. Such anti-competitive effects may

impede the adoption of the standardized technology mainly by new entrants and SMEs that lack the

resources to deal with such demands or pay potentially non-FRAND royalties. Any potentially

abusive practices in the licensing of IP rights may result in harm to the consumer and public interest.

Taking the above factors into account, it is important that processes be implemented that allow

stakeholders (SEP holders and implementers alike) to establish FRAND terms and conditions in a

reasonable and efficient manner, and to ensure that SEP holders are not abusing their IP rights by

demanding higher-than-FRAND royalties. Further clarity on FRAND also allows assessment of the

multiple demands and offers that may be made during a SEP licensing negotiation by all parties

involved, and to reach a balanced result that promotes continued contribution to and use of the

standard for the benefit of the consumer and in the public interest.

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NNEX

8: SME

S AND

SEP

A8.1 Results of Literature Analysis

Regarding potential problems for SMEs in the licensing of SEPs, a distinction is in place between

SMEs as licensors and as licensees. Their role as licensors is less complex and will be addressed first.

Out-licensing patents is not uncommon for SMEs. In fact, de Rassenfosse (2012, p. 437)

322

finds

based on a survey of SMEs conducted by the European Patent Office that SMEs “exhibit a much

stronger reliance on ‘monetary patents’ than large companies and nearly half of the SMEs in the

sample patent for monetary reasons.” Yet, in the context of SEP licensing a number of challenges

arise from SMEs’ resource constraints. Their managerial capacity may be too limited to engage in

licensing negotiations with several implementers, in particular if those negotiations are lengthy.

Taking legal action may furthermore be difficult or even impossible due to the potentially high cost

this entails. If, as is likely, an SME licensor’s SEP portfolio is small, then potential licensees might

– with some justification – doubt if the portfolio contains even a single patent that is actually essential,

infringed by the respective party (which does not necessarily follow from essentiality), and valid (i.e.,

legally robust). Demonstrating that this is indeed the case may require recourse to the courts, which

– as said above – may not be an option for the SME. As to the technical and patent-related competence

required to out-license SEPs, one may assume that an SME capable of developing SEPs and having

the patented inventions accepted into a standard should have a reasonable good understanding of the

essentiality of its patents. It may lack, however, an overview of the entire standard, and also of the

number of actual SEPs on the standard and of the level of the aggregate FRAND royalty. This might

make it hard for the SME to come up with an appropriate royalty demand for its portfolio (similar to

the problems that SMEs as SEP licensees face in this regard, see below). An option for an SME SEP

licensor to address these issues might be to join a patent pool, provided a suitable pool for the standard

at hand exists.

The role of SMEs as licensees is more complex. The challenges of in-licensing SEPs have been

addressed by various authors (Geradin, 2020, p. 17; Schneider, 2020; Borghetti et al., 2021, p. 4;

SEPs Expert Group, 2021, pp. 42, 158; Henkel, 2022).

323

For SMEs, the in-licensing of SEPs is

particularly problematic, for several reasons. Consider the situation that an SME uses a certain

standard in its product, and that a patent owner offers the SME a portfolio of allegedly standard-

essential patents for licensing – or that, in turn, the SME seeks a license from a firm that claims to

have SEPs on a standard of interest to the SME. In order to negotiate on eye level with the patent

holder, the SME would need to evaluate the licensing offer. It would have to: (a) understand what

share of the portfolio patents are actually essential for the standard; (b) what share of all actual SEPs

on the standard the portfolio covers; (c) what a FRAND aggregate royalty for the standard is; and (d)

De Rassenfosse, G., ‘How SMEs exploit their intellectual property assets: evidence from survey data’,

Small Business

Economics,

September

2012,

Vol.

39,

Issue

pp.

437-452,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1726208.

323

Borghetti, J.-S., Nikolic, I., and Petit, N., ‘FRAND licensing levels under EU law’,

European Competition Journal,

2021, pp. 205-268,

https://www.tandfonline.com/doi/full/10.1080/17441056.2020.1862542.

The authors acknowledge

financial support from 4iP Council. Geradin, D., ‘SEP licensing after two decades of legal wrangling: Some issues solved,

many still to address’,

TILEC Discussion Paper No. DP2020-040,

2020,

https://ssrn.com/abstract=3547891.

Henkel, J.,

‘Licensing standard-essential patents in the IoT – A value chain perspective on the markets for technology’,

Research

Policy,

December 2022, Vol. 51, Issue 10, 104600,

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4050472.

Schneider, M., ‘SEP licensing for the Internet of Things – Challenges for patent owners and implementers’,

CPI Antitrust

Chronicle,

March 2020,

https://www.competitionpolicyinternational.com/sep-licensing-for-the-internet-of-things-

challenges-for-patent-owners-and-implementers/.

Baron, J., Geradin, D., Granata, S., et. al.,

Group of Experts on

Licensing and Valuation of Standard Essential Patents ‘SEPs Expert Group’ (E03600): Contribution to the Debate on

SEPs,

2021,

https://ec.europa.eu/docsroom/documents/45217.

322

123

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what the process and rules of FRAND-licensing are. Furthermore, (e) the ownership of SEPs is for

many standards fragmented, and so the SME would potentially have to deal with a large and unknown

number of licensors. Fragmentation of the licensee industry – which is likely high if SMEs are

important – means that, on the level of the economy under consideration (here, the EU), the dyad-

level transaction costs of licensing need to be multiplied not only by the number of licensors, but also

by a large number of licensees. These points are problematic for SMEs for reasons that partly related

to characteristics of SMEs, partly to those of standards and SEPs, as will be explained in the

following.

Regarding (a), Geradin (2020, p. 17)

324

notes in referring to implementers in general that “while

manufacturers of mobile communication devices have significant knowledge of mobile

communication technologies, it is not the case with respect to manufacturers of other connected

products […]”. This is problematic due to the ever increasing use of ITC standards, and mobile

communication specifically, in such “other connected products”, e.g. in the IoT context. Specific to

SMEs, the SEPs Expert Group (2021, p. 42)

325

notes regarding the use of ICT standards in the IoT

context that “[t]he population of licensees may thus not only be larger and more diverse, but the

number of small and medium-sized enterprises (‘SMEs’) requiring SEP licenses will likely be much

larger than in the industries where SEP licensing has taken place thus far. This is especially important

since SMEs may be less experienced with the complexities of FRAND licensing, and have very

limited resources to deal with such complexities.” In general, SMEs are characterized by a limited

diversity of competences, and it is highly likely that a given SME lacks the technical as well as the

patent-related competence needed to evaluate, even cursory, standard essentiality of a given portfolio.

As Schneider (2020)

326

notes, “many of these SMEs will not have the technical expertise required to

evaluate the viability of a technology owner’s license offer or the quality of value of the IP offered

in the license.” Similarly Bekkers et al. (2022)

327

: “Implementers […] are confronted with dozens of

SEP holders with thousands of patents, and typically have limited or no knowledge about the details

of individual patents claiming to be SEPs.” SMEs as potential SEP licensees will in general also be

ignorant regarding the fact that, for cellular standards (and most likely for other standards as well),

the share of declared SEPs that are actually essential is on average considerably below 50 percent,

and that this share varies strongly between SEP holders (e.g., Bekkers et al., 2022, Section 3.1

328

While large potential licensees that are not active in the standard’s technology field (e.g., device

makers in the IoT space) face the same problems, they can more easily afford to procure the required

expertise externally and can usually find at least some of the needed resources in-house (e.g., legal

expertise); SMEs cannot.

As to (b), also the understanding of what share of all SEPs on the standard the focal portfolio covers,

and how many other licensors there might be, requires competences that an SME typically lacks –

and, in fact, any implementer not active in the standard’s technology field. Commercial studies may

give indications as to the share a certain patent owner has in the standard’s overall SEP stack.

However, these studies tend to be highly priced, are not available for all standards, and may not

accurately capture the current SEP position of a given licensor. Related, “[m]any of these [non-ICT]

manufacturers and potential licensees […] may not be aware of the need to take licenses to specific

SEP portfolios” (Schneider, 2020)

329

since they do not know the full list of SEP holders – a specific

324

325

See footnote 323.

326

See footnote 323.

327

Bekkers, R., Tur, E. M., Henkel, J., et. al., ‘Overcoming inefficiencies in patent licensing: A method to assess patent

essentiality for technical standards’,

Research Policy,

2022, Vol. 51, Issue 10, 104590,

https://research.tue.nl/en/publications/overcoming-inefficiencies-in-patent-licensing-a-method-to-assess-.

328

See footnote 327.

329

See footnote 323.

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instance of the more general problem of finding transaction partners for IP licensing (Arora and

Gambardella, 2010).

330

Again, this will particularly be relevant for SMEs.

Regarding (c), even industry insiders and specialized courts find it typically hard to pin down a

standard’s aggregate FRAND royalty. It is harder still for SMEs that are implementers of a standard

– again for the reasons listed under the preceding points, i.e., limited competences and resource

constraints.

Point (d) is about the competence regarding patent licensing and the dos and don’ts of license

contracts, a subject that most SMEs will have little or no experience with. They will know even less

about the specificities of SEP licensing, which is governed among other things by the FRAND

requirement and, in the EU, the Huawei-ZTE rules. As Schneider (2020)

331

puts it, “[m]any of these

manufacturers and potential licensees […] will be small and medium-sized enterprises (‘SMEs’)

without any licensing experience and perhaps no in-house legal expertise at all […]”. Henkel (2022,

Section 4.1.2)

332

cites an interviewee from an IoT start up, stating “[…] how do you work with

licensing stuff, I don’t even know. We have never done that, we just buy [a module] and create a

system […].”

The final point (e) implies that the problems listed above may recur repeatedly for each SME licensee,

for an unknown and potentially large number of SEP owners. This creates not only cost and time

demands for an SME, but also uncertainty regarding cost and legal aspects. For instance, the SME’s

profit margin may be jeopardized by unexpected license demands (Henkel, 2022, Section 4.1.2).

333

Also, customers may demand product delivery free of third-party rights and then turn to the SME in

case a SEP holder accuses them of infringement (Henkel, 2022, Section 4.4).

334

Large implementers

will face similar issues but are better positioned to deal with them. SMEs lack the required financial

buffers and in-house legal competence.

The above implies that the playing field between a prospective licensor and an SME as licensee is

rather unbalanced. While information asymmetry in favour of the technology seller is a general issue

(Akerlof, 1970; Zeckhauser, 1996)

335

, in the context of SEP licensing to SMEs those information

asymmetries are particularly strong and compounded by resource constraints. In turn, a potential

problem for a licensor is that an SME may simply refuse to take a license, and that – given the

relatively small licensing income that can be expected from an SME – it is not worthwhile to take

legal action. One should note, though, that aggressive licensors may well sue a certain number of

SMEs to create a precedent and build a reputation for “toughness” (e.g., Agarwal et al., 2009)

336

that

subsequently makes other SMEs willing to take a license.

Arora, A., and Gambardella, A., ‘The market for technology’,

Handbook of the Economics of Innovation,

2010, Vol.

1, pp. 641-678,

https://www.sciencedirect.com/science/article/pii/S0169721810010154.

331

See footnote 323.

332

See footnote 323.

333

See footnote 323.

334

See footnote 323.

335

Akerlof, G. A., ‘The market for ‘Lemons’: Quality uncertainty and the market mechanism’,

Quarterly Journal of

Economics,

August

1970,

Vol.

84,

Issue

488-500,

https://www.sciencedirect.com/science/article/pii/B978012214850750022X;

Zeckhauser, R., ‘The challenge of

contracting for technological information’,

Proceedings of the National Academy of Sciences of the United States of

America,

November

1996,

Vol.

93,

Issue

23,

pp.

12743-12748,

https://scholar.harvard.edu/rzeckhauser/publications/challenge-contracting-technological-information.

336

Agarwal, R., Ganco, M., and Ziedonis, R. H., ‘Reputations for toughness in patent enforcement: Implications for

knowledge spillovers via inventor mobility’,

Strategic Management Journal,

2009, Vol. 30, Issue 13, pp. 1349-1374,

https://deepblue.lib.umich.edu/bitstream/handle/2027.42/64300/792_ftp.pdf;sequence=1.

330

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The above problems are not just a theoretical possibility, but they matter in practice. In a study

involving 12 European IoT SMEs, mostly start-ups, Henkel (2022)

337

found that four of them had

been approached by one or more SEP holders to take a license. Among the prospective licensors were

patent assertion entities and patent pools, but also a large, producing SEP holder. Thus, some SEP

holders do – or at least did in the recent past – approach IoT SMEs for SEP royalties. Some SEP

holders state that they would not seek to license SMEs – possibly, they realized that this approach is

not workable after failed attempts to license IoT SMEs (only one of the four SMEs mentioned above

took a license in the end, see Henkel 2022

338

). However, in order to be helpful for SMEs a

commitment not to demand royalties from them would have to be public, legally binding, clearly

defined, and given by all SEP holders. None of these requirements is currently fulfilled. SME would

need legal certainty that they will not be approached by any SME holder up to, e.g., a certain threshold

of revenues or units sold per year. An alternative – in fact preferred by the participants in the SME

survey and also by those studied by Henkel (2022) – would be upstream licensing, which would give

SMEs (which most likely will be on the device, hence downstream level) the option to procure fully

licensed modules incorporating the respective standard. As Kühnen (2019, Section II)

339

explains,

such upstream licensing would create legal certainty not only for the SME implementers on the device

level, but also for the upstream firms that supply the standard-practicing modules.

337

338

See footnote 323.

339

Kühnen, T., ‘FRAND licensing and implementation chains’,

Journal of Intellectual Property Law & Practice,

December 2019, Vol. 14, Issue 12, pp. 964-975,

https://academic.oup.com/jiplp/article/14/12/964/5625119.

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A8.2 SME Test

Step 1/4: Identification of affected businesses

The scope of the initiative comprises firms of all sizes, including SMEs. The initiative does not target

SMEs specifically, but its (positive) impact on SMEs may be more substantial than that on larger

firms. The initiative affects both owners (hence, potential licensors) and implementers (hence,

potential licensees) of SEPs.

As the initiative concerns all SEPs, rather than a specific sector, only qualitative assessment

supplemented by indicative statistics about the distribution of firms by size among the affected

companies (both, for SEP holders and implementers) can be made:

•

Due to the technical and procedural complexities of standard development,

SMEs are

relatively few among the SEP owners/licensors.

Out of 31 identified EU based SEP holders

with 10 or more patents families (so those most likely to license SEP), information on size

was available for 16 firms, out of which 3 were SMEs.

Depending on the standard under consideration and the level of the value chain,

the number

of SMEs that are implementers of a standard can be very large.

This is the case, e.g., for

cellular standards on the device level of the value chain, where in the IoT context large

numbers of SMEs create a multitude of different applications. Among 3 800 potential SEP

implementers in the EU, 84% were SMEs.

340

•

The impacts on both categories will be described below (under step 3).

Key question:

To what extent is the initiative relevant for SMEs?

This initiative is considered relevant for SMEs and has been included by the SME envoys in the SME

filter.

341

While not being targeted at SMEs specifically, it solves several of the problems that the licensing of

standardized technologies (essentially, their SEPs) creates in particular for SMEs.

SME SEP holders do not currently have the resources to license their SEPs efficiently. The register

will give visibility of and a positive “stamp” on their SEP portfolio, the aggregate royalty would help

justify their royalty demands and the FRAND determination (conciliation) procedure will offer them

an opportunity to seek licensing without entering into expensive litigation (see explanation under

step 3). SME SEP holders will also benefit from reduced fees.

Innovative SMEs have already been creating multiple applications using standards such as cellular,

Wi-Fi, and NFC. Therefore, question of how to license those technologies is relevant for such SMEs.

While the initiative falls short of guaranteeing “one-stop licensing” for downstream implementers

(be it through a comprehensive patent pool or, even simpler, through upstream licensing

342

), it does

address important problems, such as size of SEP portfolios, aggregate royalty, and FRAND

340

341

See Annex A5.1 Market description.

The network of SME envoys was set up in 2011 as part of the review of the small business act. Each EU country has

nominated a national SME envoy to complement the role of the EU SME envoy who chairs the network. The group of

SME envoys makes up an SME policy advisory group that promotes SME friendly regulation and policymaking in all

EU countries. The network of SME envoys filters EU initiatives (SME filter) and signals those that merit attention from

an SME perspective to the Commission. Initiatives that are listed in the SME filter will have to be accompanied by a

proportionate SME test.

342

If a licence to all relevant SEPs is taken by an upstream supplier, the SEPs are “exhausted” at that level and the SME

implementers do not longer need to license SEPs.

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determination. Additionally, the initiative will offer to SME implementers reduced fees for the use

of the services of the Competence Centre and free training and advice on SEPs.

Step 2/4: Consultation of SME Stakeholders

The public consultation (14 February 2022 and 09 May 2022) identified 26 respondents as SMEs out

of 72 respondents who identified themselves. The 26 respondents include nine companies, seven

business associations and five research institutions. The public consultation contained questions

specifically addressed to SMEs. For instance, on the question about the impact of SEP licensing costs

on SMEs and start-ups implementers, many answered that they would settle SEP dispute as quickly

as possible to avoid litigation cost, choose alternative technology, or even go out of business.

343

SMEs

also stated they would not use a standard, if there was an alternative (cheaper) technology, if

negotiation and litigation were too expensive or if the requested royalty was too high. SMEs valued

more transparency about the FRAND royalties over transparency about the SEP essentiality and

ownership.

344

Finally, the majority of SMEs agreed that efficient SEP licensing would foster

innovation by implementers.

345

To gain further insight into views of SMEs the Commission held interviews with several

implementers (including SMEs and mid-caps). Examples of their anonymised accounts on SEP

licensing experiences are reported in Annex 2. In addition, the Commission conducted a targeted

SME survey run between October and December 2022. It was broadly distributed, among others by

the European Commission and EU agencies, the European Digital SME Alliance, various industry

associations, SME associations, and associations of SEP implementers. The survey yielded 39

responses. While it is not representative, it gives an impression of how SMEs perceive their situation

with respect to SEP licensing. It thus allows to infer how the initiative would affect this perception.

Fifteen of the respondents reported to have participated in standard setting, though mostly not for

complex ICT standards. Two reported to own SEPs. Motives to contribute to standard development

comprise improving the standard, influencing its development, promoting the firm’s own technology,

learning, and networking. Reasons not to contribute comprise a lack of resources and expertise, and

the domination of SDOs by large firms. The initiative will likely not affect this situation, neither

positively nor negatively.

Regarding their role as SEP licensees (i.e. implementers), respondents perceive various problems:

Notably, (a) a lack of knowledge what would be a fair (FRAND) royalty, (b) a lack of resources to

negotiate licenses, (c) uncertainty about infringement, and (d) fragmentation of SEP ownership.

Respondents considered device-level licensing acceptable only if it was (e) efficient (ideally one-

stop), at (f) publicly known royalties, and (g) consistently done across all implementers. Most

respondents expressed (h) a clear preference for upstream licensing, so that they could procure

components with all IP rights fully licensed. For details see Annex A8.3 SME survey.

Of these problems and preferences, the initiative will address (a) and (f) (due to the aggregate royalty

and possibly information about what share of a standard’s SEP a given portfolio corresponds to); (b)

indirectly, since license negotiations should become simpler (e.g. due to obligatory pre-trial FRAND

determination (conciliation) or assistance and training to SMEs provided by the Competence Centre);

(c), due to the register of checked SEPs. The initiative will not affect the problem of fragmented SEP

ownership (d).

343

344

See Annex 9, Q12.

See Annex 9, Q20.

345

See Annex 9, Q64.

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The initiative will not affect the points (d) and (e) on licensor fragmentation. It might gradually

improve the consistency of licensing (g), due to the fact that it will simplify licensing in general. It

will not address the preference of most respondents for upstream licensing (h). A guidance will be

given, however, that traditional level of licensing should be considered when deciding on SEP

licensing options.

Step 3/4: Assessment of the impact on SMEs

Impact on SMEs as

owners

of SEPs:



Due to the technical and procedural complexities of standard development, SMEs are relatively

few among the SEP owners/licensors. Hence, considering only the number of firms affected, the

impact of the initiative on SMEs as owners of SEPs will be limited.

Those SMEs that do own SEPs will typically have small portfolios. Licensing out a small

portfolio of presumed SEPs can be challenging because the potential licensee may doubt, with

some justification, that any of the patents in the portfolio are actually essential, legally robust

(i.e., would withstand a validity challenge), and indeed infringed by the potential licensee. Also,

for statistical reasons the share of patents that are actually essential, legally robust, and indeed

infringed will vary more strongly the smaller a portfolio is. Thus,

owners of small portfolios of

presumed SEPs should be positively affected

by the “stamp of approval” that the

essentiality

check

provides to patents that are found to be actually essential (PO2). This positive effect should

be stronger than for owners of large portfolios, since for those there will typically be little doubt

that they own at least some SEPs on the respective standard, and hence that the potential licensee

is indeed obliged to take a license.

Another positive effect

should be that the anchor of the announced

aggregate royalty

(PO4)

should make it easier for small licensors to explain the royalty demanded to potential licensees,

something that without reference to this anchor should be relatively more difficult for small than

for large licensors.

Pre-trial conciliation

(PO3) should

help SME licensors

in particular, since due to budget

restrictions litigation is often not an option for them.

negative effect for SMEs

is that the upfront

costs of registration and essentiality check

(PO2) will be relatively more important for SMEs than for larger firms, both due to budget

constraints and because for small portfolios the share of patents that will be assessed will likely

be higher than for large portfolios. However, the

investment into the essentiality check should

pay off through the simplification of licensing.



Impact on SMEs as

implementers

of SEPs:



Considering the likely number of firms affected, the

impact of the initiative on SMEs as

implementers of SEPs will be substantial.

For all implementer SMEs,

irrespective of their position in the value chain, all aspects of the

preferred option should have a

positive impact.

The

for SEPs

with essentiality checks

(PO2) helps them to assess if a prospective licensor has legitimate demands for royalties. The

aggregate royalty

(PO4) helps to understand and take into account early on the total cost of

licensing the SEPs. In case the essentiality checks are done in such a way that they indicate each

licensor’s share in the overall SEP stack of the standard, then they may also facilitate determining

the share of the aggregate royalty that a licensor can demand.

Mandatory pre-trial conciliation

(PO3), finally, helps to avoid litigation, which would typically be difficult and costly for SMEs.

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

While most of the benefits accrue also to larger firms, those are usually in a better position to

solve the respective problems themselves (e.g., by hiring expert lawyers or technicians).

A distinction applies regarding the

SMEs’ position in the value chain. Downstream firms

(device makers)

will typically have no in-depth knowledge of the internal functioning of the

standardized technology, nor of the patents that might be essential to the standard. Thus,

information on which patents are actually essential on a standard and transparency with regard to

FRAND royalties, in particular, should be relevant for them in their negotiations.

Upstream

firms

are “closer” to the standardized technology (the most upstream implementer turns the

standard specification into technology, e.g. by designing a 5G baseband processor), and thus

understand the technology and its SEPs better. Furthermore, the

number of SMEs that are

downstream implementers will typically be (much) larger than the number of SMEs that

are upstream implementers.

For example, most or all makers of cellular baseband chips are

large firms (due to the high fixed cost involved in the business). Thus,

the biggest impact of the

initiative on SMEs will be on downstream implementers.

potential negative effect

of the initiative is that the simplification of licensing that it entails

may encourage more SEP holders to approach downstream SME implementers for

royalties.

For those, dealing with several or even many licensors of a technology that they do not

understand is difficult, even if the initiative simplifies the process to some extent. However, this

effect depends on SEP owners’ strategies and its potential magnitude cannot be estimated.

Step 4/4: Minimising negative impacts on SMEs

The initiative will have its

biggest impact on SMEs on the implementer side,

more specifically on

downstream implementers (device makers). For those firms, the

impact should largely be positive.

The

potential negative effect

mentioned in Step 3 (i.e., that the simplification of licensing that the

initiative entails may encourage more SEP holders to approach downstream SME implementers for

royalties)

could be mitigated

by encouraging SEP holders to exempt SMEs from paying royalties or

provide discounts to a certain annual production volume (PO1). Additionally, SMEs will benefit from

reduced fees for services provided by the Competence Centre and free training and advice from the

Competence Centre.

Reduced fees for services provided by the Competence Centre for SME SEP holders should lower

their burden as regards PO2.

Detailed overview of measures to help SMEs

The following measures and support will be available to SMEs:

General:



SMEs will receive discounts for all administrative fees related to registration, essentiality

checks and conciliation.

A general recommendation that special discounts for SMEs are considered during essentiality

evaluations and conciliations on a case by case basis.

A general recommendation to SEP holders to provide to SMEs royalty-free licences or

discounts for small volume production (following existing practices of SEP pools).

Services offered free of charge by the Competence Centre to all companies:

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kom (2023) 0232 - Ingen titel



Access to basic information from the SEP register (name and contact details of SEP holders,

number of patents each SEP holder registered and the essentiality rate of all registered SEP

per standard).

Studies concerning SEP-related issues (e.g. best valuation practices or best practices to handle

indemnification clauses) with which SMEs have most problems (based on information from

SMEs provided to the Competence Centre).

Database with SEP-related policy information from key jurisdictions globally as well as case-

law summaries (including arbitrations) related to FRAND issues, also from foreign

jurisdictions.

Services offered free of charge by the Competence Centre to SMEs only:



Advice on SEP licensing, negotiations, and conciliation process (both for SME SEP holders

and SME implementers).

Training on SEP licensing/FRAND negotiations and how an SME can best represent itself

during negotiations/conciliations.

Services for a fee:

NOTE: the regulatory proposal will not set any of the fees. Instead, they will be established

subsequently by an implementing act which will take into account not only calculations presented in

this IA but also political considerations. The fees presented in the IA are just an indication of the fees

that would cover the costs of the Competence Centre (based on initial cost prognosis of the EUIPO).

SME SEP holders and SEP implementers will both receive a reduction in administrative fees.



Implementers: access to detailed information on essentiality of concrete patents or portfolios

of concrete SEP holders at a reduced SME fee of EUR 850 (as opposed to EUR 1 700 for

large firms).

The relatively modest discount is to avoid circumvention of the standard fee by larger

companies through creation of an SME just to access the register.

SEP owners: SEP registration costs for SME SEP holders will be also limited by the fact that

SMEs have a lower number of SEP to register.

346

Implementers and SEP owners: SEP conciliation cost will depend on the complexity of a case.

This impact assessment presents an average cost. It is likely that conciliations for SMEs will

be less demanding and thus the cost will be lower. In any case the final conciliation cost and

how it is shared between parties will be decided on a case-by-case basis with the help of the

conciliator. There will be a recommendation that SMEs receive a discount.



346

The three SME SEP holders with ten of more SEPs, have respectively 10, 11 and 18 SEPs. The initial registration

costs (both fees and internal costs) for these three firms will be no more than 1% of their annual turnover (turnover for

2021 from ORBIS database). Costs in the subsequent years (should they create new SEPs) will be just a fraction of the

initial figure.

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A8.3 SME survey

347

About the survey and the analysis

The survey was distributed by the European Commission, directly and through various other channels

(number of respondents in brackets): European Digital SME Alliance (8); industry associations (8);

European Commission (6); SME associations (5); EU Agencies (4); Associations of SEP

implementers (2); other (6).

The survey was active from 25/10/2022 until 27/12/2022.

It obtained 39 responses in total. It is not representative but gives an impression of the issues start-

ups and SMEs face in the context of SEP licensing.

In the analysis, most responses are reported in detail. Questions with five or fewer responses are

omitted. In two cases, clearly inconsistent responses were corrected. Open comments are reported

verbatim, except for anonymization of company names and careful editing of obvious typos. Open

comments unrelated to the question at hand are omitted.

Demographics of participating firms

Question on Size

Micro (1 to 9 employees)

Small (10 to 49 employees)

Medium (50 to 249 employees)

Large (250 or more employees)

Answers

33%

38%

26%



Country

Figure 18: Number of responses per country

Source: Own analysis

347

Prepared based on contract by Prof. Dr. Joachim Henkel, Technical University of Munich.

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Q. Subsidiary/branch

of a larger company?

Not a subsidiary/branch

Yes, a subsidiary/branch

Answers

90%

10%

Q. Respondent

General manager (e.g. CEO)

Manager dealing with technology/innovation

Company lawyer

Other

Answers

62%

15%

10%

13%

Q. Sector of activity: IoT, other

ICT (Information and communication technologies)

Connected machines within a factory

Smart meters

Fleet management, tracking of containers, etc.

Banking

Medical devices

Smart home

Automotive

Other IoT

Not active in IoT, but in other sector(s)

Note: Multiple choices possible

Answers

62%

26%

23%

21%

15%

13%

23%

10%

Q. In-house specialists for patents, patent licensing

Yes

No, we used external specialist

No, we do not have in-house, nor use external specialists

Answers

21%

67%

13%

Use of ICT communication standards

Q1. Standards that the firm develops, uses or innovates on

2G, 3G, 4G, 5G

Wi-Fi

LPWAN networks (LoRaWAN, Sigfox, NB-IoT, LTE-M)

NFC

Video and audio codecs

Wireless charging

Other

Not developing, using nor innovating on any standard

No. of answers

Note: Multiple choices possible

Answers

59%

54%

38%

31%

26%

15%

33%

Q2. Role of those standards in the firm’s business proposition

Answers

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Our firm buys ready-made components to integrate into our products that use those

standards

Our firm has own unique innovation (IP) on top of the standard

Our firm produces components that use those standards

Our firm implements the standards by itself

Our firm participates in standard setting

Our firm buys a ready-made device to use in our product(s) that uses those standards

Our firm contributes technology (patents) to standards

Our firm exports components or devices that use those standards

Our firm imports components or devices that use those standards

Other (please specify)

Standards do not play any role in my business

No. of answers

Note: Multiple choices possible

56%

41%

31%

28%

23%

18%

Q3. Importance of the standardized technology to the firm’s services / products

Open question. 30 out of 39 respondents provided an answer.

Most answers (80%: 24 out of 30) stated the technologies were very important to the firm (e.g., “very

important”, “critical importance”, “vital”, “key”, “essential”, “indispensable”).

Some answers provided more specific information, highlighting the advantages of fully licensed

chipsets, SMEs’ lack of power to influence standards embedded on chipsets, a lack of standardisation

for edge computing, and the threat of an unknown number of SEP holders approaching implementers:



“Bluetooth is a preferred option due to its availability fully SEP licensed in chipsets by the

implementer.”

“We use Android as an operating system. We have zero say in what standards, or audio or

video codecs, are incorporated in the chipsets or the operating system. We do not have the

power as an SME to change the specifications of off the shelf developed chipset products.

Our in-house technology is valuable to us as our USP.”

“Currently there is no standardisation for edge data centers that support the requirements of

the edge. Legacy data center technology, OCP is not suited for the edge. Europe can play in

important role for setting the standard for edge datacenters 1) since it can be based on

embedded technology 2) it can achieve much higher density and energy efficiencies than

current datacenter technology, 3) it can drive the technology innovation for Europe much

faster than technology set by USA and Chinese large companies. 4) it allows for a fast

integration with distributed intelligent infrastructures (electricity grid, water, transport, etc.)

it allows for a better controlled digital sovereignty and implementing GDPR, explainable AI

in the tactile internet.”

“We need our smart EV chargers to communicate with cars, phones and electricity networks.

We do not have to use wireless or cellular, but we think the system will be better for the

consumer if we do, and there will be energy savings. Threats from [Name of SEP owner] are

causing concern to [firm] that there may be other claims from the hundreds of other SEP

owners, and we are therefore considering whether to even include cellular functionality in

future accessories or products, and what that might mean. That is delaying adoption and

hindering innovation (and costing development resource) in the EV sector – that is the last

thing that the EU needs as it targets Net Zero.”



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The firm’s role as a patent licensee

Preferences regarding licensing of patents implemented in components

Q4. When buying components / importing devices incorporating such technologies do you…

in most sometimes

cases

prefer products/tech with all IP rights in the product fully

licensed?

prefer to deal myself with clearing IP rights?

not worry about IP rights?

in most

cases

prefer products/tech with all IP rights in the product fully

licensed?

prefer to deal myself with clearing IP rights?

not worry about IP rights?

76%

19%

17%

sometimes

24%

22%

never

59%

61%

opinion

answer

No. of

answers

Note: “No opinion” and “No answer” not taken into account for calculation of percentages

Checking the licensing status of purchased components

Q5. If you prefer products/tech with IP rights licensed how do you check that?

oftenti

mes

oftentimes

I assume that since product is put on the market all rights

are cleared

Seller gives me a guarantee that all rights are cleared

Seller offers to give me an IP licence as well

Seller informs me that (some) rights are not cleared and I

have to do it myself

I do my own inquiries

54%

37%

13%

33%

sometimes

27%

41%

57%

39%

42%

never

19%

22%

30%

52%

25%

opinion

answer

No. of

answers

I assume that since product is put on the market all rights

are cleared

Seller gives me a guarantee that all rights are cleared

Seller offers to give me an IP licence as well

Seller informs me that (some) rights are not cleared and I

have to do it myself

I do my own inquiries

Note: “No opinion” and “No answer” not taken into account for calculation of percentages

Awareness of potential need of SEP license

Q6. Are you aware that you may need a licence for standard essential patents for the use of such

technologies/standards?

Yes

No answer

Note: “No answer” not taken into account for calculation of percentages.

Answers

80%

20%

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Has firm taken any SEP license

Q7. Have you obtained any licences for standard essential patents?

Yes

Other

No answer

Note: “No answer” not taken into account for calculation of percentages

Answers

21%

62%

18%

Those seven firms who answered “yes” named the following technologies:

2G, 3G, 4G, 5G

Video and audio codecs

Wi-Fi

LPWAN networks

NFC

Wireless charging

Note: Multiple choices possible

Answers

Reasons not to take a licence for (potential) SEPs

Q8. In case you have not obtained a licence for any (potential) standard essential patents, what are

the reasons for this?

My firm assumes that it does not need to take a license because we purchase

components / device free of any rights of third parties (i.e., seller guaranteed me that

all rights are cleared)

Difficulties to find out who owns the technology

Too much effort to enter license agreements with all SEP owners

To remain competitive (not increase price)

A SEP holder approached me for a licence, but we cannot agree on the FRAND terms

and conditions.

My firm asked for a licence but cannot afford to pay the requested royalty

My firm is waiting to be approached by a SEP holder to take a licence

My firm asked for a licence, but it was refused

Other

No. of answers

Note: Multiple choices possible

Answers

58%

38%

35%

27%

12%

19%

Reasons to take a licence for (potential) SEPs

Q9. In case you have obtained a licence for standard essential patent, what was the reason?

My firm wants to sell SEP cleared products

My clients will buy from me if my product is SEP cleared

My firm was afraid it would be sued for patent infringement later

My firm was approached by a SEP holder and saw a risk of not being able to sell my

products

It will differentiate our products from competitors

Other

No. of answers

Note: Multiple choices possible

Answers

67%

50%

33%

17%

One respondent added: “We have had multiple SEP licensing requests. One license was obtained by

misrepresentation. Some have litigated (one litigation costing tens of thousands of Euros was for a

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few thousand Euros of value). We have taken several licenses but we know we have unfairly paid

much more than others.”

Licensor – Pool or individual SEP owner

Q10. In case you have obtained a licence for standard essential patent, did you obtain the license(s)

through a SEP pool or through bi-lateral licensing negotiation(s) or through a combination of both

approaches?

pool

bilateral

negotiations

combination

of both

approaches

2G, 3G, 4G, 5G

Wi-Fi

Video and audio codecs

Wireless charging

NFC

LPWAN networks

Q11. Experience with SEP licensing negotiations

Seven firms responded:



“My firm negotiated what it felt was a fair license with the SEP owner” (3 answers)

One firm commented: “We did already sign a number of license agreements.

Sometimes the license rates were published then we had the feeling the agreement

fulfils FRAND but often the license rates are not published then it is very difficult to

judge whether the agreements fulfil the FRAND requirements. We are not able to

analyse large portfolios which are usually negotiated.”



“My firm accepted the price and conditions without negotiations” (2 answers)

One firm commented: “As we are a small company we often do not even have the

option to negotiate.”



Other: “NFC licence is part of the membership to the NFC association in which we contribute

to share experiences (not to set the standard)” (1 answer)

Other: “We have had multiple SEP licensing requests. One license was obtained by

misrepresentation/fraud. Some have litigated (one litigation costing tens of thousands of

Euros was for a few thousand Euros of value). We have taken several SEP licenses but we

know we have unfairly paid much more than others. We are discriminated against as an

SME.” (1 answer)

Problems in negotiating with SEP owners

Q12. Was any of the below problems relevant to you when negotiating with SEP owner?

very

impor-

tant

I did not know what would be a fair price for the

SEPs (FRAND)

rather

impor-

tant

neutral

rather

not

impor-

an-

impor-

opinion

tant at all

swer

tant

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I did not have resources to negotiate with SEP

holder / engage in court proceedings

I could not clarify whether my product was actually

using the invention underlying the patent

I am not aware of any strategies how to defend

myself against SEP owners

I saw a threat to my production and sales

I did not know who owns SEPs relevant to my

implementation of the standard

I did not know if all the patents SEP holder

presented to me were essential to the standard

I did not understand the technology (e.g. of

component I use) to engage in meaningful

negotiations

Other

Not

important

11%

28%

Important

I did not know what would be a fair price for the SEPs

(FRAND)

I did not have resources to negotiate with SEP holder /

engage in court proceedings

I could not clarify whether my product was actually using

the invention underlying the patent

I am not aware of any strategies how to defend myself

against SEP owners

I saw a threat to my production and sales

I did not know who owns SEPs relevant to my

implementation of the standard

I did not know if all the patents SEP holder presented to me

were essential to the standard

I did not understand the technology (e.g. of component I

use) to engage in meaningful negotiations

Other

90%

82%

86%

84%

89%

80%

90%

56%

100%

Neutral

10%

15%

17%

No. of

answers

Note: “Important” consist of answers: “very important” and “rather important”, “Not important” consist of “rather not important”

and “Not important at all”; “No opinion” and “No answer” not taken into account for calculation of percentages.

Cost of negotiating an SEP license

Q13. In case you have obtained a licence for standard essential patent, how much did you spend on

negotiating the licence (excluding the royalties), for example spent internal and external resources,

legal advice, as well as other expenses such as access to third party databases?



“full time as legal counsel”

“NFC license was part of the membership [firm] entered in anyhow due to the core technology

of the firm”

“The costs vary but perhaps GBP 20 000 to GBP 40 000. Sometimes the work crosses over

between portfolios and claims (e.g. where the SEP has broken up the portfolio). Much

depends on whether there was litigation.”

“We are permanently negotiating. I assume the negotiation costs are about between EUR

20 000 to EUR 40 000 per year. The negotiations are often very different.”



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Impact of SEP license

Q14. In cases you obtained a SEP licence: What was the impact on…

negative

… profit margin of your products if sold within in the EU?

… profit margin of your products if sold outside of the

EU?

… your innovation?

… legal certainty (e.g. planning your product pricing

strategy)?

neutral / no

impact

positive

negative

… profit margin of your products if sold within in the EU?

… profit margin of your products if sold outside of the EU?

… your innovation?

… legal certainty (e.g. planning your product pricing

strategy)?

43%

29%

neutral /

no impact

29%

57%

14%

positive

29%

14%

57%

No. of

answers

Impact of not obtaining an SEP license

Q15. In cases you did not obtain a SEP licence: What was the impact on…

negative

… profit margin of your products if sold within in the EU?

… profit margin of your products if sold outside of the EU?

… your innovation?

… legal certainty (e.g. planning your product pricing

strategy)?

neutral /

no impact

positive

no opinion

negative

… profit margin of your products if sold within in the EU?

… profit margin of your products if sold outside of the EU?

… your innovation?

… legal certainty (e.g. planning your product pricing

strategy)?

36%

29%

41%

47%

neutral /

no impact

36%

57%

29%

27%

positive

29%

14%

29%

27%

No. of

answers

Note: “No opinion” and “No answer” not taken into account for calculation of percentages

Open comments (answers to “Other, please explain”):



Positive effect: “Multisite certification is very necessary for the new production model based

on the collaborative economy for ‘projects of general interest’ that wish to remotely tele-

manufacture.”

Negative effect: “It adds to uncertainty both for us and for our customers. If we make

provision for estimated royalties and our competitors do not, we are at a disadvantage. Our

module customers generally do not understand the technology and want a solution with SEP

indemnification as they feel unable to navigate the licensing process. If we do not offer such

indemnification and our competitors do, we are at a disadvantage.”



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Impact of uncertainty about SEP licensing

Q16. How does uncertainty about SEP licensing affect your business?

Any royalty payments will affect my competitive position on

the market.

Potential future SEP payments may make me unable to

compete.

If my competitors also pay the same royalties, licensing will

not affect my business significantly.

I try to use alternatives available on the market in order not to

pay for SEP (e.g. older technology, or free technology).

It is unlikely that SEP holders will be interested to license me.

My prices include a certain amount of estimated royalties.

I try to develop in-house alternatives in order not to pay for

SEP.

There is no SEP uncertainty.

agree

neutral

disagree no opinion no answer

No. of

answers

agree

Any royalty payments will affect my competitive position

on the market.

Potential future SEP payments may make me unable to

compete.

If my competitors also pay the same royalties, licensing will

not affect my business significantly.

I try to use alternatives available on the market in order not

to pay for SEP (e.g. older technology, or free technology).

It is unlikely that SEP holders will be interested to license

me.

My prices include a certain amount of estimated royalties.

I try to develop in-house alternatives in order not to pay for

SEP.

There is no SEP uncertainty.

64%

48%

32%

28%

19%

neutral

32%

41%

30%

16%

36%

20%

31%

15%

disagree

11%

22%

36%

32%

52%

50%

65%

Note: “No opinion” and “No answer” not taken into account for calculation of percentages.

Q17. Experience with SEP licensing – open comments

Twelve respondents provided open comments about their experiences with SEP licensing.



“No experience with direct SEP licensing, only discussions with technology suppliers. These

have made us aware of the potential issues / licensing threats.

We have followed recent court cases and announcements from patent pool holders with

interest (and fear).”

“[Firm] has no personal resources to manage SEP licensing, in particular to investigate

potential SEPs and related licensors to ask for a license and to evaluate of the ready

implemented communication cores freely sourced in from suppliers make use of SEP.

[Firm] has no chance of handling SEP licensing and estimating the potential costs with

reasonable costs. SEP management would have to be handled by outside attorneys and would

result in costs that are expected to far exceed the royalties to be paid in view of the sales

numbers.”

“[Firm’s] executive and senior management together have decades long experience in SEP

licensing, from all sides of the SEP licensing equation. This expertise combined with the

company’s independence, allows [Firm] to be a true intermediary able to find licensing

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solutions that can be accepted by the market, SEP holders and implementers alike, no matter

if it concerns a comprehensive solution such as Avanci or a custom arrangement facilitated

via Innovius.

Avanci is an aggregate patent licensing solution that currently licenses the SEP portfolios on

cellular technology (2G, 3G, 4G, and soon 5G) of 52 patent owners to more than 80 auto

brands worldwide. Avanci was created as a solution for the IoT industry and as this sector

continues to develop, Avanci will successively add more licensing programs to its offering as

the IoT industry continues to develop and new, innovative products reach the market.

Aggregate patent licensing solutions are particularly attractive to start-ups and SMEs. SMEs

that are SEP implementers can be assured that their license contains the same terms and

conditions as a license with a much larger company. SMEs that are SEP holders may not have

the capacity to pursue licensing themselves and licensing platforms offer a simple and

efficient solution to generate a return on their investments and enable SME SEP holders to

continue to participate in the standardization process. Avanci thus contributes to creating a

global level playing field and its license provides predictability and certainty.

Having efficient licensing solutions available to SEP holders and implementers can be a factor

in promoting the uptake of standardized technology; vice-versa, inefficient or dysfunctional

licensing eco-systems can inhibit the uptake of standardized technologies and thus inhibit the

integration of, for example, faster and more energy efficient technologies.”

“For an SME it is difficult to estimate whether the offered terms are FRAND, particularly if

the terms are not published. We try to urge the licensors by means of German case law to

provide us some information about already signed agreements. This we could do sometimes

by a third independent attorney who is bound to confidentially and to whom the information

was handed out so that he/she was able to judge whether the offer is FRAND. But this

procedure is not always accepted by the licensors.”

“We have experienced a lot. Examples include but are not limited to:

being lied to by an SEP holder who said ‘everyone paid the same royalties’. This was

untrue, as we later found out in public court case decisions;

refusals to negotiate licenses;

lies by SEP holders in negotiations;

injunction threats when we pointed out we did not even use certain alleged SEP

features in a products;

our distributors being refused SEP licenses when requesting them;

unlawful seizure of products sold to our distributors at Customs based on a patent later

found to be not infringed by a Court, costing millions of Euros in damages and lost

sales (with criminal proceedings against the General Manager personally);

being sued in America on alleged SEPs where the amounts claimed were a few

thousand dollars;

pool administrators telling us that they advise other pools on pricing;

outlandish claims being made as part of an SEP audit – even one where we were

offered a million dollar reduction if we changed lawyers;

multiple NPE licensing requests arising from portfolio fragmentation (splitting up of

portfolios);

NPE litigation in America.”

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

“The issue is completely out of scope. We have been advised by our legal / IP advisor, that

this might become an issue, but we do not really know how to deal with it.

“Most of the small companies my company helps are leveraging patents so it is at the core of

their activities.

The companies I advise that only implement standards to build on top to create their own

services and added value solutions factor in the licensing fees into their pricing.”

“[Firm’s] position is simple. [Name of SEP owner] (and other SEP holders in the future)

should not be harassing SME’s or others for this type of issue, which are not matters within

[Firm’s] expertise. [Firm] believes that [Name of SEP owner] (and other SEP owners) should

be required to grant SEP licenses to module suppliers that want a license like [Name of

supplier] (or their suppliers), so that [Name of supplier] and its distributors can give normal

and standard warranties of non-infringement for their cellular products. [Name of SEP owner]

has, or had, a practice of licensing modules for 2G and 3G and so there is no reason to change

that for 4G. [Name of SEP owner] also has, or had, a practice of licensing at chipset level.

The entire supply chain can be licensed at chipset level, which is where the economic value

of the patents can be realised, so [Name of SEP owner] should take this up with [Name of

supplier] and their suppliers. Licensing at the chipset level will also mean that all of [Firm’s]

competitors (across the globe, not just in the EU) will be paying the same for SEP licenses,

so that there is a level playing field for [Firm’s] market. If [Firm] took a license to [Name of

SEP owner] patents, how would it know whether its competitors were licensed and whether

everyone, including large multinational companies, were paying the same. In Unwired Planet

vs Huawei, Mr Justice Birss made clear that there should be no material difference in the

pricing of SEPs. Asian companies should pay the same as everyone, and that can be achieved

by selling with licenses paid at chipset level.

I have heard it said by various SEP holders and commentators that large SEP holders ‘do not

chase SME’s’, and that is clearly inaccurate. [Firm] has no idea how many similar licensing

requests have been sent out by [Name of SEP owner], and other SEP owners. Even if some

SEP holders did have a practice of leaving SME’s alone, it is unreasonable and unfair for

SME’s such as [Firm] to have the fear of waiting for a ‘tap on the shoulder’ by an SEP owner.

Indeed, if SEP holders did ‘leave SME’s alone’, there would remain a fear that SEP holders

would appear at a later date (perhaps when the SME was a larger company) and then make a

claim for past royalties going back 6 years. It is unfair and unreasonable to put that financial

uncertainty onto SME’s like [Firm]. The UKIPO might consider it appropriate to ask some of

the assertive SEP holders for details of the type of companies they have sent licensing requests

to, and how many have been sent out.

[Firm] takes the view that the solution is for the Commission to take active steps to ensure

that chipset and module suppliers can get SEP licenses, so they can pass the IP rights along

the supply chain to the SME customers.”

“For a small company this type of extras, where patent holders are tying avoid terms with

module manufacturer and come after the end product companies are very bad for small

business:

The amount of productive efforts in negotiations where the patent holder try to get as

much as possible of value, creates a very unpleasant environment, as you don’t have

a choice.

Big companies will gain as they have legal departments that can help out.



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European companies are at a disadvantage compared to foreign producers that might

fly under the radar.

It is ridiculous that patent pools should come after each company doing some modern

radio technology, rather than settle cost per module with manufacturer.”



“Standards should not be a shop-front for royalty payments to others. SEP are a huge break

on innovation and deployment of genuine standards in given areas.”

“The IoT market is very fragmented. By 2025, the market is expected to represent 100s of

millions of units, but in our experience, a very large project is only a million units a year and

most projects we see directly are 100-200k units per year. So you can imagine that there are

thousands of projects and IoT companies with end solutions in this eco system.

i. Even large cellular technology vendors cannot address this number of customers

directly, and we are a small company with a small sales force, so we are partnering

with module vendors, technology partners and distributors to increase our market

reach.

ii. Increasingly we expect sales to go through partner channels, many of which also

sell primarily through distributors, meaning that we will not know who the end

customer is nor what their application is. Even today, we are not aware of all the end

uses of the customers of our module vendor partners.

iii. The end customers that we DO know generally have no idea how to evaluate

patents related to 4G/5G technology and have no idea how to go about licensing the

related SEPs.

In summary, the value chain has a small number of vendors of the cellular technology

solution, whether at the chipset or module level, and a very large number of companies

looking to provide IoT solutions that include cellular connectivity. The efficient solution

would be to license at the module level as the module contains all the technology in the

standard.

It is hard to imagine how we can have licensing rates differentiated based on end use – there

are too many end uses now and there will be new uses invented. And how will the SEP holders

try to capture the thousands of companies using SEP technology? Only the lawyers really

profit from all this.”

“SEP holders should not be able to select the level in the value chain for licensing. This way

they can distort the competition among manufacturers of the same product by selectively

enforcing the patent on the basis of commercial considerations. If only one manufacturer will

pay royalties, this will produce distortion effect: either because it will remain the only lawful

competitor or because the others will have a competitive advantage at price level. In our view

a balanced licensing system should include an obligation for the SEP holder to license any

undertaking which requests it, independently from the level of the value chain they are in.

The appropriate level of licensing should therefore be at the component supplier level. The

component suppliers are able to pass the cost down the value chain, and in this way a level

playing field among manufacturers is preserved. Further, the component suppliers know best

which technology is incorporated and can assess relevant SEPs, thus being in the best position

to negotiate the royalties.

This market distortion is particularly problematic in a market such as technologies for smart

grids, where sales happen through public tendering procedure and where specific technologic

requirements are requested by EU law at reasonable economic costs (e.g. interoperability of

devices). If the SEP holder is allowed to claim royalties from manufacturers of smart energy

devices, it will be even more difficult to pass the cost down to the public undertaking.

Therefore, the royalty payment will cut margins and disincentivise innovation in this strategic

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

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market for the EU. Additionally, in order to preserve the level playing field, if the product is

sold through public tendering, royalty value should be the same for each manufacturer and

shall be disclosed with no confidentiality commitment.”

The firm’s role as a standard contributor and SEP holder

Most questions in this category received less than five answers; they are hence omitted in the analysis.

Participation in standard setting

Q18. Have you participated in standard setting?

Yes

Other

Answers

38%

59%

Ownership of SEPs

Q19. Do you own any standard essential patents?

Yes

Other

Note: No respondent explained the choice of “Other”

Answers

14%

57%

29%

Motivation to contribute to standards

Q20. What were your motivations to make a technical contribution to protocols and technologies in

standards? Or for not doing so?

(Note: The answers were grouped according to themes that emerged from the responses.)



Improving technology:

“Agroblockchain Technology.”

“Improve the Standard.”

“To improve the standard for the good of all, and to ensure that everyone can

implement it without hindrance – to give confidence to all users of the standard that

this is genuinely open to all.”

“Part of our role in the EU projects. It also strengthens the industry. Standards help

and give direction to innovation.”



Facilitating adoption of own technology:

“Since day 1 [Firm] has seen the standard as the only way to reach a massive market

as IoT. We believe that in the coming.”

“Interest in have wide adoption of technology to create larger market for products.”

“Most companies I advise want to contribute their technologies to standards if the IPR

policy of the SDOs is FRAND based. They want to be able to leverage their

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technologies in future cross licensing negotiations and/or monetise their potential

standards essential patents.”

“Influencing the standards according to our technical choices or strategic choices or

IP choices.”



Learning about technology and market:

“Awareness of ongoing activities to proper align internal product development.”

“We want to be abreast of the latest evolutions of the standard so that we can include

this in our product roadmap so we are members of ETSI and are active participants in

the meetings.”

“Technology watch



Networking:

“Create credibility for us and being well identified in the eco-system.

“Participating to SDOs also allow the participants to create their network and have

direct access to the other representatives. This is really useful for SMEs.”

on future RFC and state of the art.

understanding the strategy of the competitors / leading vendors, and especially

trying to understand their underlying strategy on IP / patents.

understanding security agencies’ positions (US mostly).”

Considerations to contribute to standard development

Q21. If you have not yet contributed to standardisation, have you considered contributing to

standardisation? (e.g. by developing patents and declaring them as standard-essential; or

participating in Standard Development Organisation(s) committees and developing a standard?)

Yes

Depends

Answers

32%

64%

Comments:



Firms answering “yes”:

“If we can contribute, we are very much willing to do so!”

“We made some requests of modification of the USD

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standard but are too small to

contribute ourselves.”

“But as a SME it’s hard to get in!”



Firms answering “no”:

(Note: The answers were grouped according to themes that emerged from the responses.)

Lack of resources / expertise:

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USD is a standard for interoperability between 3D software solutions.

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kom (2023) 0232 - Ingen titel



“No personnel and financial resources.”

“We are too small.”

“Too expensive and standardisation is not our expertise. Our expertise is in

ruggedisation, and we work to ruggedisation standards (e.g. military grade

standards).”

“No, we don’t have the resources.”

“We are too small to garner the votes necessary for our patents to be adopted

by the standard setting bodies, which are dominated by the largest companies.”

“In previous companies I have contributed to IETF standard protocols – I have

noted the IETF has a different approach to SEPs than (for example)

ITU/ETSI.”

“We are not communication components developers. We contribute in

standard setting bodies as for mechanical gas products and metering systems

and as for other technical subjects in which we have specific expertise.”

“There are hundreds of standards in EV charging from safety to durability to

automotive. The only standards we are having problems with is cellular.”



Other reasons:



Potential reasons to contribute to standardization

Q22. Why would you think it may be useful for you to contribute to standardisation?

(Note: The answers were grouped according to themes that emerged from the responses.)



Benefits of standards:

“Standards are essential to enable innovation, as they create a larger market e.g. when

a standard infrastructure is available more devices can be brought to market. Generally

this benefits everyone, including those who have invested in the research to drive the

standard, as they are best placed to take advantage for their own products.”

“It is necessary for a sector as AgroTech and sensoric, drone technology for

standards.”

“The standard around Wi-Fi reconfigurability and radio reconfigurability in general,

as well as entrenched cybersecurity aspects, could have the potential to destroy or

foster the transition from a vertically integrated networking market to a horizontal

market. It’s critical that the standard is done keeping this in mind. As most

contributors to the involved standards seem influenced by large global hardware

companies, which are not necessarily interested to foster the transition to a horizontal

market (which should be considered positive for consumers, for the environment, for

SMEs, for European's sovereignty), [Firm], a European Digital SME, feels obligated

to contribute.”

“Standards are necessary to create an ecosystem and finally a choice for the users.”

“Certify the implementation of the standards generates user confidence and helps the

European market surveillance observatory. […]”

“I feel that there is a big gap between what is expected from SME’s and especially

Start-ups and that the Start-up community is not at all aware of the issue.”

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“Part of our role in the EU projects. It also strengthens the industry. Standards help

and give direction to innovation.”

“Participate to the creation of global standards to enable interoperability.”



Improve technology:

“To get the best technological solution.”

“Because we invent a lot of new applications. We build enormous amounts of

knowledge in special areas. We are very creative in solving difficult problems in the

field.”

“Contribute my best technologies to the standards.”

“Improve the Standard.”

“It gives clarity to the market and designs clear responsibilities at any level of the

value chain. It helps ensuring safety and quality.”



Influence technology development:

“Set directions in the market.”

“Generate competitive advantage to our company and limit disadvantages form

unfavourable directions.”

“We are developing a new technology and it can be very useful for us if it becomes a

standard patent. We believe that what we are doing will change the world.”

“The USD

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has become essential in our market and it is important to develop it to

meet our needs.”



Learn about technology developments:

“Awareness of ongoing activities to proper align internal product development.”

“Create a strong network, learn from the other contributors.”

“New experience for our company and new potential market.”

“To know in advance the technology in details.”

Obstacles to contributing to standardisation

Q23. What are the obstacles for you to contribute to standardisation?

(Note: The answers were grouped according to themes that emerged from the responses.)



Resource constraints (time, cost, people):

“Effort and resources.”

“Ability to dedicate time and resources.”

“No personal and financial resources.”

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USD is a standard for interoperability between 3D software solutions.

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“Contributing is a very slow, time-consuming, and complex process. It spans over

multiple years of activity and its results are not tangible in the typical lifetime of a

digital company/startup.”

“We are too small.”

“Time and resources... we are a small startup and we invest much more time on the

subject compared to our size and other EU groups. (Microsoft has a team of 400

people dedicated to this topic...)”

“Money, resource, time.”

“Internal capacity to dedicate to such topics.”

“Efforts needed.”

“Costs related to travels. Face to face meetings are required to allow efficient

negotiations and cannot be replaced by virtual meetings.”

“Resources – just don’t have enough time or people.”

“Time consuming and bureaucracy.”

“Knowledge and experience.”

“Cost”

“Resources and focus.”

“Financial and human resources; not big enough versus Qualcomm, Nokia, etc.”



Standard-setting dominated by big players:

“Closed standards groups (ETSI).”

“Interest for Actors, Knowledge, Time to Participation of Process. Professional

Secrets and Industrial Secrets.”

“Standard owners/developers who want to charge royalty fees do not want others to

participate. Standard developers are often not interested in developing open standards

and open-source their work.”

“Overwhelming number of patents in existence makes it challenging to standardize.”

“All USD

350

contributors are large international companies. We are too small to be

listened to on our own proposals for changing the standard.”

“How to get in against the big ones.”



Complexity:

“For us it is still very new, so we are learning by doing. Sometimes it gets a bit difficult

to understand how all the process work and what are the first steps to do and in which

timings.”

“Don’t know where to start, need guidance to get an overview.”

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USD is a standard for interoperability between 3D software solutions.

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NNEX

9: P

UBLIC CONSULTATION

–

DETAILED SUMMARY

This document should be regarded solely as a summary of the contributions made by

stakeholders to public consultation on the Standard Essential Patents. It cannot in any

circumstances be regarded as the official position of the Commission or its services. Responses

to the consultation activities cannot be considered as a representative sample of the views of the

EU population.

This annex provides a detailed summary of the responses to the public consultations and call for

evidence on potential future European Commission initiative on the Standard Essential Patents

(SEP).

Call for Evidence

The consultation took place between 14 February 2022 and 09 May 2022. During that period 97

replies and 49 position papers were submitted.

All position papers are published

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and they are not susceptible to summary. Among the responses

with important additional elements are the contributions by Apple, Avvika AB, Boehmert &

Boehmert, DVB, InnovUp, Internet Society, National Standards Authority of Ireland (NSAI), Nokia,

Ordine dei Consulenti in Proprietà Industriale and PROSA.

Summary of replies to the Open Public Consultations

The consultation took place between 14 February 2022 and 09 May 2022. During that period 74

replies to the questionnaire arrived. Respondents were asked to provide basic information about

themselves such as country of origin, area of activity, registration in transparency register.

Subsequently they could reply on the following blocks of questions: general questions, questions on

the licensing process and related problems, questions on transparency of SEP licensing, on

essentiality of SEPs, on Fair, reasonable and non-discriminatory (FRAND) licensing terms and

finally questions on SEP enforcement.

Respondents’ characteristics

Two thirds of replies came from the European Union. The highest number of EU replies came from

Germany. The remaining one third of replies came from countries outside the EU, with the highest

number coming from the USA. The graph below (Fig.1) presents responses per country of origin.

Almost 60% of the 74 replies came from companies (39 replies) or business associations (7).

Followed by seven replies from academia, two from public authorities, one from non-governmental

organisation (NGO) and one from trade union. Six replies came from EU and non-EU citizens (see

Fig. 2).

Among 39 companies, 77% were large entities and 23% were small and medium-sized entities

(SMEs).

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https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13109-Intellectual-property-new-

framework-for-standard-essential-patents/feedback_en?p_id=28414115

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30% of respondents identified themselves as both SEP holders and implementers, 13% as only SEP

implementers and 4% as only SEP holders. Around 50% identified themselves as “other” (which

consists of for instance attorneys, advisers, academia…).

Around half of respondents (35) are registered in the transparency register.

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The Transparency

represents.

Figure 19: Distribution of responses per country of origin of respondent

Source: Commission own analysis

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https://ec.europa.eu/transparencyregister/public/homePage.do.

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kom (2023) 0232 - Ingen titel

Figure 19: Distribution of responses per country of origin of respondent

Figure 20: Distribution of responses by type of respondent

NGO, 1%

Public authority, 3%

other, 7%

Non-EU citizen, 8%

Trade union, 1%

EU citizen, 8%

Company/business

organisation, 53%

Academic/research

institution, 9%

Business

association, 9%

Source: Commission own analysis

Methodology

For the purpose of quantitative analysis, responses of stakeholders were grouped into broader

categories (using self-declarations of the respondents):



replies of all respondents (table abbreviation: “All”),

replies of respondents who identified themselves as “company/business organisation”

(abbreviation: “Companies”),

replies of “business associations” together with “trade unions” (abbreviation:

“Associations/trade union”),

replies of “public authorities”, “non-governmental organisations (NGO)”,

“academic/research institutions” and of “others” (abbreviation:

“Academia/Authorities/NGO/other”)

replies of EU and non-EU citizens (abbreviation: “Citizens”)



To simplify presentation, in case of questions with more granular scale of possible answers (Likert

scale), answers pointing to the same sentiment were grouped together (e.g. “Fully agree” and

“Somewhat agree”).

Additionally, we wanted to present a summary of the views of SEP holders in comparison to those

of implementers. However, there is no clear delineation (based on the self-identification) between

those that are SEP holders and those that are implementers – i.e., in a large number of instances the

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submitter identifies as a SEP holder and an implementer

353

. We have, therefore, compiled the views

into two groups based on replies to question two (Q2) and three (Q3) as proxies for Group A and

Group B responses

354

. Using these proxies, we had 29 Group A respondents and 18 Group B

respondents. Group A are responses we perceive as promoting more of an implementer’s views, and

Group B are those that we believe promote primarily the views of a SEP holder. Note that in many

instances, companies may fall into Group A or Group B depending on their response to a particular

question.

For simplicity, we present their replies for each question in tables below under captions

“Implementers” and “SEP Holders” respectively.

Since there was a significant number of replies from outside of the EU, we present tables with replies

of EU and non-EU respondents. Self-declaration of the country of origin was checked and corrected

based on the headquarters localisation of the respondent.

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Replies of EU and non-EU citizens were

not taken into account in these tables. As the result of these corrections there were 40 respondents

from the EU and 22 from outside of the EU.

Finally in case of questions of special relevance to SMEs, replies of all those who identified

themselves as SMEs are presented.

Replies to general questions

Quantitative summary

Around 60% of respondents considered that the current legal framework sufficiently protects against

implementers “hold-out” (e.g. unreasonably delaying the conclusion of a licence by an implementer).

Around 30% had opposing views. The responses showed similar pattern across different

stakeholders’ groups (companies, associations, academia, respondents from the EU and non-EU

countries).

Respondents were divided on the issue whether the current legal framework provides sufficient

protection against SEP holders “hold-up” (e.g. using the threat of injunction to extract excessive

rents) with 48% agreeing and 43% disagreeing. Companies, citizens and non-EU respondents mainly

disagreed. While academia/authorities/NGOs/others, and EU based respondents tended to agree with

that the current legal framework provides sufficient protection against SEP holders “hold-up”.

The final question in this section asked about impact of the current SEP licensing framework on

SMEs and start-ups. Around half of all respondents assessed the impact as negative, a third thought

there is no impact, and around 5% deemed it positive. Responses showed similar pattern for all

analysed groups, except for associations, implementers and SEP holders. Around half of associations

and SEP holders considered that there was no impact, while around 80% of implementers thought

that impact is negative.

Tables with replies per question

353

Based on self-identification, there were only nine implementers (13% of replies) and three SEP holders (4% of replies),

while the remaining respondents identified themselves either as “both implementer and holder” (30% of replies) or as

“other” (52% of replies).

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Those who agreed with Q2 (that current legal framework provides sufficient protection against implementers hold-

out) and disagreed, were neutral or had no opinion on Q3 (that current legal framework provides sufficient protection

against SEP holders hold-up) were included in Group A. Those who disagreed, were neutral or had no opinion on Q2 and

agreed with Q3 where included in Group B.

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There were four corrections from EU to non-EU and one from non-EU to EU.

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Q2. Do you consider that the current legal framework for SEPs

356

provides sufficient legal protection

against “hold-out” (broadly opportunistic behaviour by SEP implementers such as delaying the

conclusion of a licence for as long as possible)?

All

Agree

Neutral

Disagree

No. of replies

59%

12%

29%

Companies

56%

11%

33%

Associations/

trade union

63%

38%

Academia/Autho-

rities/NGO/other

57%

29%

14%

Citizens

70%

30%

Note: Agree composes of “Fully agree” and “Somewhat agree”; Disagree composes of “Rather disagree” and “Fully disagree”;

“No opinion / cannot answer” answers not taken into account.

Implementers

Agree

Neutral

Disagree

No. of replies

100%

SEP

Holders

22%

78%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

Agree

Neutral

Disagree

No. of replies

58%

16%

26%

non-EU

55%

10%

35%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

Summary of comments

There are concerns regarding “hold-out”, some claiming it is a systemic issue and already sufficiently

addressed by the current framework, and others claiming there is no empirical evidence and that it is

an unproven theory that there is hold-out on the market.

Proponents of the current legal framework being sufficient legal protection:

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Communication from the Commission to the European Parliament, the Council and the European Economic and Social

Committee on Setting out the EU approach to Standard Essential Patents, COM(2017)712 final, 29.11.2017,

https://ec.europa.eu/docsroom/documents/26583,

endorsed by Council Conclusions on the enforcement of Intellectual

Property Rights, 6681/18, 1.3.2018,

http://data.consilium.europa.eu/doc/document/ST-6681-2018-INIT/en/pdf;

Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual

property rights (“IPRED”), OJ L 157, 30.4.2004, pp. 45-86,

http://data.europa.eu/eli/dir/2004/48/oj;

Regulation (EU) No.

608/2013 of the European Parliament and of the Council of 12 June 2013 concerning customs enforcement of intellectual

property rights and repealing Council Regulation (EC) No 1383/2003 (“Regulation concerning customs enforcement of

IPRs”), OJ L 181, 29.6.2013, pp. 15-34,

http://data.europa.eu/eli/reg/2013/608/oj;

Regulation (EU) No. 1025/2012 of the

European Parliament and of the Council of 25 October 2012 on European standardisation (“Regulation on European

standardisation”),

316,

14.11.2012,

pp.

12-33,

https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX%3A32012R1025&qid=1676580774315;

Communication from the Commission –

Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-

operation agreements (notably chapter 7) (“Horizontal Co-operation Guidelines”), OJ C 11, 14.1.2011, pp. 1-72, CELEX:

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52011XC0114(04);

Communication

from

the

Commission – Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to

technology transfer

agreements,

89, 28.3.2014,

3-50

https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=uriserv%3AOJ.C_.2014.089.01.0003.01.ENG;

Judgment of the Court of Justice of the European

Union (“CJEU”) of 16 July 2015,

Huawei Technologies Co. Ltd v ZTE Corp. and ZTE Deutschland GmbH,

C-170/13,

ECLI:EU:C:2015:477,

https://e-justice.europa.eu/ecli/ECLI:EU:C:2015:477;

national patent laws and judgments of

national courts.

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Proponents of the current legal framework urge the EC to reject claims that seek to position

appropriate negotiations by a potential licensee when approached by a SEP holder as ‘hold-out’.

According to those opinions, the current FRAND framework for the most part does not support hold-

out behaviour since implementers need to conduct diligence on the essentiality and validity of SEPs

before agreeing to take a licence. This may not constitute delay tactics. Where needed, SEP licensors

always retain the option of responding to perceived delay by accused infringers by asserting SEPs

and seeking a determination from a court regarding a reasonable royalty. European courts provide

sufficient legal protection and are effective against hold-out, but the system could be improved if it

were less expensive and quicker.

Some respondents claim that the national court practice increasingly favours SEP holders. This

particularly applies in Germany after the

Sisvel v. Haier

decisions of Germany’s Federal Court of

Justice. They ask that the New Framework for SEPs bring the licensing negotiations back in line with

the CJEU’s ruling and ensure that injunctions are available only in exceptional circumstances in the

SEP context.

Proponents for current framework not being sufficient for legal protection against hold-out:

Some respondents claim that they face significant hold-out from implementers who refuse to engage

in good faith negotiations aimed at concluding a FRAND licence. Even if the CJEU

Huawei v ZTE

decision has brought some improvements as it reaffirms that there are obligations on both SEP

holders and implementers, there is still hold out according to such respondents, proving that the legal

protections are insufficient.

Respondents claim that hold-out is incentivized when it is difficult for innovators to obtain

injunctions and appropriate damages. In fact, according to some respondents there are no financial

consequences for bad faith implementers, as the worst they can get after years of hold-out is a

FRAND royalty rate determination. Such implementers, however, continue to benefit from

technologies that are covered by patent rights, thus denying the innovators the return on investment

which is necessary for sustaining the innovation cycle. Respondents explain that such behaviour

would disregard the emerging guidance from various courts in Europe cautioning against hold-out

behaviour. They warn against distortion of competition, discrimination against companies that

respect IP by taking a license, and weakening of the incentives for companies to innovate. Such

respondents consider that that EU courts should be able to issue injunctions and award royalties and

damages to incentivize implementers to settle rather than to hold out.

Some respondents caution that excessive protection and regulation could obstruct the competitive

market principles and should not be undertaken lightly. Such new framework should, however,

reduce the motivation for “hold-out” or create incentives for early licensing.

Q3. Do you consider that the current legal framework for SEPs provides a sufficient legal protection

against “hold-up” (broadly opportunistic behaviour by SEP holders such as using their market

power to extract excessive rents or terms from implementers)?

All

Agree

Neutral

Disagree

No. of replies

43%

48%

Companies

38%

14%

49%

Associations/trade Academia/Autho-

Citizens

union

rities/NGO/other

43%

57%

62%

31%

40%

60%

Note: Agree composes of “Fully agree” and “Somewhat agree”; Disagree composes of “Rather disagree” and “Fully disagree”;

“No opinion / cannot answer” answers not taken into account.

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Implementers

Agree

Neutral

Disagree

No. of replies

93%

SEP

Holders

100%

Note: Implementers those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

Agree

Neutral

Disagree

No. of replies

47%

44%

non-EU

38%

14%

48%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

Summary of comments

Proponents for the current legal framework being sufficient:

Some respondents argue that SEP implementers do not need to acquire any technology from the SEP

holder to implement a particular SEP, since the technology is described in a public specification,

which can be implemented without delay.

Some respondents explain that the CJEU guidance in

Huawei v ZTE

and the subsequent decisions

from various courts in Europe provide a clear indication that there is sufficient legal protection against

‘hold-up’. They state that hold-up supposes the use of market power to extract excessive rents. As

noted by the UK Supreme Court in the

Unwired Planet v Huawei

decision, the threat of an injunction

cannot be employed by the claimants as a means of charging exorbitant fees, or for undue leverage

in negotiations, since they cannot enforce their rights unless they have offered to license their patents

on terms which the court is satisfied are fair, reasonable and non-discriminatory. According to such

respondents, there is still no abundant evidence available that establishes the existence of hold-up in

the FRAND context.

Proponents for the current legal framework being insufficient:

Respondents commented that the FRAND obligation is a good tool to protect licensees against hold-

up, but its ambiguity is used by SEP holders to maximize royalties. This harms innovation, SMEs

and the marketplace. According to them, hold-up is the fundamental reason there are so few

companies entering or able to maintain their businesses in this space against SEP holders who may

use SEP hold-up to distort markets, eliminate competition, and harm the European economy.

Some respondents believe that some courts have (mis)interpreted

Huawei v. ZTE

to impose

unrealistic requirements on implementers to prove their willingness [to license], while failing to

scrutinise whether the SEP owner’s licence offer is truly FRAND. This places undue pressure on

negotiations and may force the potential licensee to accept non-FRAND rates that go beyond the

value of the patented invention or pay for patents that are not standard-essential.

Some argue that the framework fails in three ways: (i) it allows injunctions in all cases; (ii) it fails to

require information necessary for FRAND licensing, e.g., full price and license terms; and (iii) it fails

to treat a standard as a whole (the “full stack”).

Some respondents argue that the current legal framework does not deal effectively with the issue that

some SEP holders only want to license manufacturers of “end products” and refuse to grant licenses

to upstream implementers. According to them, this strategy is aimed at maximizing the threat

resulting from injunctions at the level of the most valuable products to extract the highest possible

royalty rates.

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Q4. What is the impact of the current framework for SEP licensing on start-ups and SMEs?

All

It puts start-ups and SMEs at competitive

disadvantage

It does not impact start-ups and SMEs

differently than other stakeholders

It is more favourable to start-ups and

SMEs

Other, please specify

No. of replies

Companies Associations/

trade union

52%

26%

19%

38%

50%

13%

Academia/

Authorities/ Citizens

NGO/other

53%

27%

13%

55%

36%

SEP

Holders

56%

33%

51%

31%

14%

Implementers

It puts start-ups and SMEs at competitive disadvantage

It does not impact start-ups and SMEs differently than other stakeholders

It is more favourable to start-ups and SMEs

Other, please specify

No. of replies

79%

13%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

SME

It puts start-ups and SMEs at competitive disadvantage

It does not impact start-ups and SMEs differently than other stakeholders

It is more favourable to start-ups and SMEs

Other, please specify

No. of replies

48%

40%

12%

Large

52%

21%

Note: SME: those who chose as organisation size: “Micro (1 to 9 employees)” or “Small (10 to 49 employees)” or “Medium (50 to

249 employees)”; Large: those who chose “Large (250 or more)”

It puts start-ups and SMEs at competitive disadvantage

It does not impact start-ups and SMEs differently than other stakeholders

It is more favourable to start-ups and SMEs

Other, please specify

No. of replies

54%

35%

non-EU

41%

18%

35%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

Summary of comments

Positive impact

Some argue that SMEs benefit from standards. For example, in some cases such as the LTE patent

pool, SMEs are given preferential treatment in terms of licensing conditions, etc. SMEs can also be

the developers of standards. And they also benefit from the existence of standards and a balanced

SEP licensing framework.

Other respondents argue that start-ups and SMEs generally are "under radar" and too small for any

bigger licensor to be interested in them. They may continue infringing unnoticed. In practice, there

are hardly any litigation against start-ups/SMEs, as litigation would be inefficient for the SEP holder.

Negative impact

Some respondents explained that the SEP marketplace is not transparent enough for SEPs to be

identified and licences agreed before a product is launched, especially where the technology is time-

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sensitive (e.g., the product life cycle is short), or for SMEs to provide for the accurate costing of SEP

licences in their business plans.

Some respondents claim that there is a negative impact because of power asymmetry and lack of

transparency puts SMEs at a disadvantage. SMEs face the same problems as larger companies;

however, they are less equipped to weather the legal risks, costs, and complexity of transacting with

SEP licensors as they do not have in-house expertise in all three areas of ICT, standardization and

patent licensing and cannot afford to external experts like larger companies. Also, SMEs could

probably not afford an injunction and therefore the mere threat of an injunction forces them to choose

between accepting potentially supra-FRAND rates or being excluded from the market.

A respondent explained that the current legal framework furthermore favours foreign companies

outside the EU. When those located outside the EU face injunction in the EU, they lose access to one

national market. But when start-ups and SMEs located in the EU face injunction in the EU, they may

lose their whole business. This may lead to limited innovation and delaying uptake of for example

IoT.

Questions on the licensing process

Quantitative summary

Around half of respondents reported seeking a licence before a SEP holder approaches them. SEP

holder usually contacted the respondents around 3 years after the first implementation of a standard

in a product. Licence negotiations with a large SEP holder concerned in general between 1 and 50

SEP.

Almost three quarters of respondents request a licence in order not to infringe a SEP and 60% to be

able to plan production and costs.

In terms of consequences of the current SEP licencing practices: Two thirds of all respondents and

majority of Implementers try to share SEP cost/risks with their suppliers. Around 40% of all

respondents, and two thirds of Implementers will try to settle with a SEP holder as quickly as possible

to avoid litigation or will search for other technology or royalty free standard. Around a third of

respondents (and a half of Implementers) will increase prices and may become less competitive.

The main reasons for licencing/having SEP are securing the return on investment (70% of answers),

followed by use of SEP for defensive/bargaining purposes (60%) and participation in standardisation

process in the future (40%).

SEP holders start contacting implementers on average two years after publication of a standard. On

average around 60% of contacted implementers, reply within one year. Around 70% take a licence

without any litigation. It takes on average 3 years and 3 months to conclude a licence.

Q5. What is the impact on your business of recent litigations in courts in different jurisdictions,

including China, Germany, India and the UK?

Summary of comments

Positive impacts

According to some, recent court decisions from the European and US courts can provide useful

guidance for parties negotiating in good faith to come to a licence agreement. Even if there are some

differences between decisions (as they are based on different factual circumstances), they do provide

further guidance.

Negative impacts

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According to others, injunctions for SEPs under FRAND commitment have become more readily

available. Such respondents pointed out in particular to the decision of the Germany’s Federal Court

of Justice

Sisvel vs. Haier.

They claim that the court effectively contradicted the CJEU’s judgment

Huawei v. ZTE

and brought back the

Orange Book Standard.

It re-shifted the main burden of

negotiations on licensees and increased the availability of injunctions. Those respondents explain that

similar trends can be noticed in neighbouring jurisdictions (see, e.g.,

Philips v Wiko

in the

Netherlands). They claim that this can lead to forum shopping since the different jurisdictions have

different opportunities for injunctions.

Furthermore, a litigator specialising in FRAND matters can see a split between the courts which

apply the law of the contract (China, India, US, UK, France) and those which either refuse (Germany)

or avoid the issue (NL). This has a major impact on both licensing-in and licensing-out strategies

because it creates lots of forum shopping strategies, therefore creating more confusion for the

legitimate players (licensors and implementers).

Some respondents see hold-up occur in the broader IT, mobile and automotive industry, and expect

litigation to emerge in the IoT sector soon as well. Those respondents consider potential hold-up

problematic considering the 5G rollout and widespread adoption of IoT devices. They see these issues

emerge in relation to a small set of SEP holders active in the narrow field of wireless communication

and codec standards.

Q6. In your experience, in licensing negotiations, how many SEPs are discussed technically between

an implementer and a SEP holder with a large portfolio?

All

< 20

20-50

50-100

100-200

200-400

> 400

No. of replies

Average*

60%

21%

Companies

53%

27%

Associations/trade Academia/Autho-

union

rities/NGO/other

60%

20%

57%

14%

29%

82%

SEP

Holders

53%

24%

12%

Citizens

* Weighted average calculated using the middle of ranges, for the last open range value of 600 assumed.

Implementers

< 20

20-50

50-100

100-200

200-400

> 400

No. of replies

Average*

68%

14%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

* Weighted average calculated using the middle of ranges, for the last open range value of 600 assumed.

< 20

20-50

50-100

100-200

200-400

> 400

56%

19%

11%

non-EU

53%

33%

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No. of replies

Average*

non-EU

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

* Weighted average calculated using the middle of ranges, for the last open range value of 600 assumed.

Summary of comments

Some respondents claim that it is very difficult to provide a realistic average as there are many

variables that impact the number. In some licensing negotiations claim charts of less than 20 SEP

families are exchanged, in others claim charts of more than 400 SEP families are exchanged.

Different elements may play a role, such as: contract renewal or not, number of standards covered,

the involved products, existence of cross licensing (SEP families of both parties involved), agreement

between the parties, etc. However, technical discussions between SEP holder and implementer

usually only take place based on so-called “proud lists” with claim charts.

UESTIONS FOR

SEP

IMPLEMENTERS

Q7. Have you ever sought a licence before being approached by a SEP holder?

All

Yes

No opinion

answer

No. of replies

46%

20%

35%

Companies

50%

17%

33%

Associations/

trade union

50%

Academia/

Authorities/

NGO/other

40%

20%

40%

Citizens

29%

43%

29%

SEP

Holders

67%

11%

22%

cannot

Implementers

Yes

No opinion / cannot answer

No. of replies

52%

39%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

Yes

No opinion / cannot answer

No. of replies

44%

20%

36%

non-EU

57%

36%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

Summary of comments

Yes

Some respondents underline that pursuant to

Huawei v. ZTE

SEP holders notify a user of a standard

that it is potentially infringing its patents – not the other way around. However, in some instances,

implementers may have proactively sought a SEP license or inquired about FRAND royalty rates,

for example, when required to make product development decisions or to renew a contract.

Furthermore, suppliers may also ask for licenses when their customers request indemnification as

part of the supply arrangement. Some note that if they approach SEP holders, they often do not obtain

a licence.

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According to some respondents, proactively seeking a license works well when the licensor provides:

(1) detailed information about their SEP portfolio, (2) complete proposed license terms, and (3) a

rational price based on the value of the corresponding technology and their share of the patent stack

for the corresponding standard. Such examples illustrate how FRAND licences can, and should, be

transacted.

Some respondents explain that it would be impractical for implementers to seek licences first as there

are too many SEP holders. Because licensing negotiations take time, by time all licences are in place,

the licensed product may be obsolete. In addition, an implementer cannot know how many SEPs have

been declared until several years after the technical specification is published. An implementer would

also rarely know ex-ante the margin it will be able to make on its product. This is why, according to

those respondents, FRAND terms need to be negotiated ex-post.

Others claim that the existing lack of transparency about the SEPs, the royalties and the level of

licensing do not create an environment of trust conducive to a proactive approach from implementers

to SEP holders.

Respondents in the

automotive sector

do not approach SEP holders because they consider that

licences should be in principle acquired by upstream suppliers. Upstream licensing has long been,

and continues to be, the default in the automotive industry for both SEPs and non-SEPs since a single

vehicle can consist of over 10,000 individual parts supplied by specialised suppliers and it is neither

practical nor feasible for them to have detailed technical knowledge of each part. Upstream suppliers

know better the technology they implement than downstream users, and are therefore better placed

to assess the FRAND-ness of a licence offer. Further, implementers cannot evaluate patents owned

by other companies to see if they are valid rights and essential to certain standard.

Q8. If yes, how did that impact on your business?

All

It had no impact

It put me at competitive disadvantage

It caused me delay of the time-to-

market

It gave me competitive advantage

Other, please specify

No. of replies

17%

67%

Companies

27%

13%

47%

Associations

/trade union

100%

Academia/

Authorities/

NGO/other

100%

Citizens

100%

SEP

Holders

33%

17%

50%

Implementers

It had no impact

It put me at competitive disadvantage

It caused me delay of the time-to-market

It gave me competitive advantage

Other, please specify

No. of replies

15%

85%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

It had no impact

It put me at competitive disadvantage

It caused me delay of the time-to-market

17%

non-EU

22%

11%

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It gave me competitive advantage

Other, please specify

No. of replies

67%

non-EU

56%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

Summary of comments

Impact

There are positive and negative impacts from seeking SEP licenses early. Many respondents consider

it provided legal certainty (also to customers) over costs and enabled proper planning of business

activities and no competitive disadvantage assuming other implementers also pay similar royalties.

Some also claims that seeking SEP licenses early can also facilitate market entry at a reduced IP risk

and establish product differentiating features against business competitors.

Others note that at the same time, seeking SEP licenses early can hinder the ability for a business to

compete in the market when there is no chance for product differentiation and if business competitors

can effectively compete in the same market without having to take a license. Furthermore, some

respondents have experienced some cases in the past as an implementer where the SEP holder took

advantage of the fact that they proactively sought a license and asked for an excessively high royalty.

In such cases, it will take time to conclude the negotiation, and this could lead to a delay for entering

the market. Such behaviour seems less prevalent where the SEP holder is, at the same time, an

implementer of the same standard(s) and has a more balanced approach to royalty demands.

No impact

In other respondents’ opinion, this has had no real impact on the business; access to the standard is

ensured via the FRAND commitment and the exact timing of the start of license negotiations does in

principle not impact such access.

Q9. How much time after the first implementation of a standard in your products are you, on average,

contacted by a SEP holder with an invitation to take a licence?

All

less than 6 months

6 – 12 months

1 – 2 years

2 – 4 years

4 – 6 years

More than 6 years

I was never approached

No. of replies

Average years*

Avg.

for

those

approached**

42%

12%

19%

2.8

3.4

Companies

13%

47%

13%

2.9

3.1

Associations/

trade union

100%

3.0

Academia/

Authorities/

NGO/other

50%

0.4

0.8

Citizens

29%

43%

3.1

5.5

* Weighted average calculated using the middle of ranges, for the last open range value of 8 assumed; ** without “I was never

approached”

Implementers

less than 6 months

6 – 12 months

1 – 2 years

2 – 4 years

17%

33%

SEP

Holders

20%

60%

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Implementers

4 – 6 years

More than 6 years

I was never approached

No. of replies

Average years*

Avg. for those approached**

17%

2.8

3.0

SEP

Holders

20%

3.7

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

* Weighted average calculated using the middle of ranges, for the last open range value of 8 assumed; ** without “I was never

approached”

less than 6 months

6 – 12 months

1 – 2 years

2 – 4 years

4 – 6 years

More than 6 years

I was never approached

No. of replies

Average years*

Avg. for those approached**

15%

46%

15%

2.4

2.9

non-EU

17%

50%

17%

3.0

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

* Weighted average calculated using the middle of ranges, for the last open range value of 8 assumed; ** without “I was never

approached”

Summary of comments

Respondents note that there is no single answer to this question. Some claim that the timing depends

on the relevant standard, the behaviour of the SEP holder as well as the product concerned. Some

consider that the point in time when SEP holders contact can also differ depending on various

elements such as (i) market expansion of products and businesses employing the standard, (ii) volume

of products sold by implementers, and (iii) prosecution status of SEP holders' applications. According

to some, the most typical pattern is for SEP holders to wait until there is significant revenue from the

standard which follows irreversible product strategy and investment decisions from the standards

implementer perspective. Those respondents claim that the implementer therefore has little or no

visibility into royalty cost at the time these product development decisions need to be made. For

them, it follows that the implementation of the standard in products may not always be the ‘triggering’

event for the SEP holder to reach out. The distribution/commercialization of the standard compliant

product seems a more apparent ‘triggering’ event.

Q10. What would be the main reason for you to request a licence?

All

Not to infringe a SEP without a licence

To have legal certainty over my costs and plan my

business activities

To be able to sell my products

To be able to indemnify my customer

To be able to carry our R&D and develop new

products

To be able to compete with other suppliers

Other (please specify)

72%

60%

35%

23%

16%

19%

Associations

Companies

/trade union

71%

68%

32%

21%

25%

14%

18%

80%

60%

40%

20%

Academia/

Authorities/

NGO/other

67%

33%

67%

Citizens

71%

29%

14%

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All

No. of replies

Note: multiple answers possible

Associations

Companies

/trade union

Academia/

Authorities/

NGO/other

Citizens

SEP

Holders

44%

56%

11%

22%

44%

Implementers

Not to infringe a SEP without a licence

To have legal certainty over my costs and plan my business activities

To be able to sell my products

To be able to indemnify my customer

To be able to carry our R&D and develop new products

To be able to compete with other suppliers

Other (please specify)

No. of replies

82%

73%

45%

32%

27%

18%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

Not to infringe a SEP without a licence

To have legal certainty over my costs and plan my business activities

To be able to sell my products

To be able to indemnify my customer

To be able to carry our R&D and develop new products

To be able to compete with other suppliers

Other (please specify)

No. of replies

74%

57%

30%

22%

13%

22%

non-EU

69%

85%

54%

38%

31%

23%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

Summary of comments

Respondents from the automotive industry explain that licences to SEPs are indispensable for the

automotive industry and automotive manufacturers would need to take them if SEP holders refuse to

license anybody else in the supply chain. Such respondents note that any company that decides to

market unlicensed products is exposed to injunctions, damages claims, civil and criminal liability

(for example, see Section 142, German Patent Act). For them, legal certainty is of particular

importance as they assemble thousands of individual parts delivered just-in-time.

Respondents who supply components note further that their customers typically want products free

of defects, including free of third-party rights. If the product is missing a license, the customer might

seek indemnification at a later point in time when the market has already settled. The indemnification

costs could then easily make an established business model unprofitable and wipe out extensive

investments. Planning upfront is also difficult without knowing the potential costs for necessary

licenses.

Some respondents noted that SMEs planning to use open standards request licenses for some or all

the listed reasons in this question. They note that open standards are developed in a spirit of

collaboration and transparency. However, licensing of those standards is “cloaked in secrecy and

obfuscation”. They claim that stopping the practise of requiring non-disclosure agreements to be

signed before licensing terms are received will bring much needed transparency to the process and

allow SME's to have legal certainty over their costs and business activities.

Q11. What are the average costs you incur for estimating your SEPs exposure per product that you

want to bring on the market? These costs include cost for searching patent databases on

enforceability, validity and ownership of the patent, assessing the essentiality of the patents, whether

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there is an infringement, the potential number of true SEPs and the share of the individual SEP

holders in those.

All

< 10.000 euros

10.000-50.000 euros

50.000-100.000 euros

100.000-250.000 euros

250.000-500.000 euros

> 500.000 euros

No. of replies

Average (EUR)*

37%

21%

11%

26%

228,000

Companies

46%

15%

155,000

Associations/

trade union

Academia/

Authorities/

NGO/other

100%

750,000

Citizens

20%

40%

313,000

* Weighted average calculated using the middle of ranges, for the last open range value of EUR 750,000 assumed, rounded to

thousands

Implementers

< 10.000 euros

10.000-50.000 euros

50.000-100.000 euros

100.000-250.000 euros

250.000-500.000 euros

> 500.000 euros

No. of replies

Average (EUR)*

33%

22%

44%

374,000

SEP

Holders

100%

5,000

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

* Weighted average calculated using the middle of ranges, for the last open range value of EUR 750,000 assumed, rounded to

thousands

< 10.000 euros

10.000-50.000 euros

50.000-100.000 euros

100.000-250.000 euros

250.000-500.000 euros

> 500.000 euros

No. of replies

Average (EUR)*

50%

13%

131,000

non-EU

33%

17%

33%

286,000

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

* Weighted average calculated using the middle of ranges, for the last open range value of EUR 750,000 assumed, rounded to

thousands

Summary of comments

Some respondents claim that the costs in relation to ownership, enforceability, infringement etc. are

typically incurred by the SEP holder as it is the SEP holder that provides this information. Some

explain that for a SEP holder, there is a need to analyse the value of its own SEPs. To the extent that

bilateral negotiations are required, the values of both companies’ portfolios need to be analysed so

they can be reflected to achieve a cross-license value.

Some respondents note that they devote significant resources to evaluating SEPs that may be related

to their products, although they do not directly track these costs on a per product basis. These

expenditures include substantial costs for salaries of personnel, for SEP analytics services, for outside

attorneys, and for conducting SEP negotiations, ranging from travel to engaging outside experts to

assess the merits of SEPs.

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According to some, conditions also vary depending on the size of the portfolio, the products, and the

licensing circumstances for the relevant technical standard(s). If a viable patent pool does exist (e.g.,

capturing a significant amount of overall SEPs or potential SEPs), the cost for investigation may be

substantially reduced.

Other respondents note that significant costs may be imposed on licensees to evaluate the SEP

landscape and particularly so when SEP holders are not forthcoming regarding the details of their

SEP portfolios. Some respondents explain that, in theory, because there are some 100,000 patents

declared essential to 5G alone (many of which may not be essential), spending EUR 1000 (1 or 2

hours of attorney fees) to verify if 500 of those patents are valid, essential and infringed, would

already consume the upper limit of EUR 500,000 referred to in this question.

Some respondents explain that it may be impossible to remain a market leader without implementing

the latest technologies in light electronic appliances (such as computers, radios, audio equipment,

and televisions) and products on the IoT market. A new product would require FRAND negotiations.

Because of uncertainties about the scope of a SEP holder’s obligations to provide necessary

information to implementers, implementers must bear the costs of developing arguments for FRAND

negotiations. In addition, such FRAND arguments must be provided within a short time, costs tend

to be higher. According to that respondent, because of those costs, many implementers prefer to get

a license without pushing back on SEP holders’ demands.

Q12. What is the main effect for SEP implementers, in particular start-ups and SMEs, of the costs

involved in licensing SEPs (search, negotiation and litigation costs)?

All

I ask my suppliers to indemnify me for possible

patent infringement

I look for alternatives (e.g. not using standardised

technology or royalty free standards)

I settle as quickly as possible for a SEP licence,

because it is cheaper than litigation

I become less competitive

I increase final price to my business or retail

customers

I go out of business/change business

I take licence only if absolutely necessary

Other, please specify

No. of replies

Companies

Academia/

Associations

Authorities/ Citizens

/trade union

NGO/other

80%

60%

80%

20%

60%

40%

20%

40%

50%

25%

50%

25%

75%

50%

71%

29%

57%

71%

14%

29%

14%

SEP

Holders

25%

13%

75%

65%

38%

33%

20%

18%

38%

63%

38%

25%

29%

21%

42%

Note: multiple answers possible; “No opinion / cannot answer” answers not taken into account.

Implementers

I ask my suppliers to indemnify me for possible patent infringement

I settle as quickly as possible for a SEP licence, because it is cheaper than litigation

I increase final price to my business or retail customers

I look for alternatives (e.g. not using standardised technology or royalty free standards)

I become less competitive

I go out of business/change business

I take licence only if absolutely necessary

Other, please specify

No. of replies

90%

62%

57%

52%

43%

38%

14%

24%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “No opinion / cannot answer” answers not taken into account.

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SME

I ask my suppliers to indemnify me for possible patent infringement

I settle as quickly as possible for a SEP licence, because it is cheaper than litigation

I increase final price to my business or retail customers

I look for alternatives (e.g. not using standardised technology or royalty free standards)

I go out of business/change business

I take licence only if absolutely necessary

I become less competitive

Other, please specify

No. of replies

Note: multiple answers possible; “No opinion / cannot answer” answers not taken into account.

Large

60%

24%

28%

36%

20%

24%

48%

non-EU

67%

56%

44%

67%

44%

56%

22%

67%

75%

63%

50%

38%

25%

I ask my suppliers to indemnify me for possible patent infringement

I look for alternatives (e.g. not using standardised technology or royalty free standards)

I settle as quickly as possible for a SEP licence, because it is cheaper than litigation

I increase final price to my business or retail customers

I go out of business/change business

I become less competitive

I take licence only if absolutely necessary

Other, please specify

No. of replies

63%

33%

29%

25%

17%

13%

33%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “No opinion / cannot answer” answers not taken

into account.

Summary of comments

Some responded that the reason they settle as fast as possible is the high cost of litigation and

injunctions. For them it is better to accept a potentially non-FRAND agreement than pursue litigation.

Some noted that SMEs often do not have the resources to deal with larger enterprises holding

numerous SEPs. As a result, SMEs may face potential litigation with no predictable outcome or may

be forced to accept royalty demands made by the SEP holders. In the worst case, the SME may be

forced to change their product, or abandon their business plan altogether, if they cannot afford the

litigation or the potentially burdensome FRAND SEP licences. However, some responses claim that

SMEs and start-ups are rarely the primary focus of any licensing program.

One respondent suggested that licensing costs should already be included in the financial projections

("bill of licenses") for new products by any responsible SEP implementer, and hence budgeted for in

the final price to be paid by consumers. Provided there is a level playing field, this should not impact

an implementer’s competitive position. Others suggested that measures should be taken to protect

and guide SMEs during the licensing negotiations, e.g. licensing rates transparency and availability

of experts.

UESTIONS FOR

SEP

HOLDERS

Q13. What are top three reasons for licensing/having SEPs?

All

For return on investment in R&D

For defensive purposes/better bargaining power

For continuation of future participation in

standardisation

For cross licensing

It is our main source of income

71%

61%

42%

39%

26%

Companies

72%

60%

44%

36%

28%

Associations

/trade union

67%

33%

Academia/

Authorities/ Citizens

NGO/other

50%

25%

50%

25%

83%

33%

67%

33%

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kom (2023) 0232 - Ingen titel

All

Other, please specify….

No. of replies

Note: multiple answers possible.

Companies

24%

Associations

/trade union

33%

Academia/

Authorities/ Citizens

NGO/other

50%

SEP

Holders

58%

100%

58%

42%

25%

24%

Implementers

For defensive purposes/better bargaining power

For cross licensing

For return on investment in R&D

For continuation of future participation in standardisation

It is our main source of income

Other, please specify….

No. of replies

91%

73%

36%

27%

18%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.; multiple answers possible.

For return on investment in R&D

For defensive purposes/better bargaining power

For continuation of future participation in standardisation

For cross licensing

It is our main source of income

Other, please specify….

No. of replies

78%

56%

39%

28%

22%

33%

non-EU

57%

50%

43%

29%

21%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; multiple answers possible.

Summary of comments

Some respondents explain that the reasons for having/licensing SEPs is a company's strategic choice

towards open innovation i.e. to contribute innovative technologies to standardization and debate

about it in the standardization context. It enables the emergence of open standards on the market

which are much more virtuous than proprietary standards. To enable this virtuous cycle, efficient

protection and enforcement of IP and in particular standard essential patents is necessary in order to

efficiently get an effective return on investment.

Some respondents claim that SEP holders seek to simplify access to technologies by reducing

licensing barriers and by lowering transaction costs. It is their belief that through efficient and

effective IP licensing, the necessary incentives for R&D are created, fostering a self-sustaining cycle

that can fund future R&D activities. Technological progress and the entire society would suffer

should the decision be made to reduce either (i) incentives to innovate or (ii) the comfort given to

innovators by strong IP protection required to fight free riders. In a market-based economy,

companies cannot keep making huge investments unless they make a reasonable return on their

successful inventions

Respondents explain that companies seek to own and maintain SEP portfolios to protect their

business – so they use their SEPs mainly for defensive purposes. Some claims that for some

technology areas, there has been benefit in owning and licensing SEPs to penetrate and drive adoption

of the technology/standard and therefore develop the market. For example, in the case of format

licenses,

there was clarity in the licensing model at an early stage

which led implementers to readily

adopting the technology and as a result the market developed rapidly.

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kom (2023) 0232 - Ingen titel

Q14. On average, how much time after publication of a standard do you first start inviting SEP

implementers to take a license for applications known at the time of its adoption?

All

less than 6 months

6 – 12 months

1 – 2 years

2 – 4 years

4 – 6 years

More than 6 years

Never

No. of replies

Average years*

Avg. for those who start**

13%

17%

13%

25%

2.1

2.8

Companies

19%

13%

19%

13%

19%

2.0

2.5

Associations/

trade union

Academia/

Authorities/

NGO/other

50%

1.1

Citizens

17%

50%

2.7

5.3

SEP

Holders

38%

25%

13%

25%

2.1

* Weighted average calculated using the middle of ranges, for the last open range value of 8 assumed; ** without “Never”

Implementers

less than 6 months

6 – 12 months

1 – 2 years

2 – 4 years

4 – 6 years

More than 6 years

Never

No. of replies

Average years*

Avg. years for those who start**

17%

67%

1.6

4.8

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

* Weighted average calculated using the middle of ranges, for the last open range value of 8 assumed; ** without “Never”

less than 6 months

6 – 12 months

1 – 2 years

2 – 4 years

4 – 6 years

More than 6 years

Never

No. of replies

Average years*

Avg. years for those who start**

25%

13%

25%

2.3

non-EU

10%

20%

10%

30%

1.6

2.3

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

* Weighted average calculated using the middle of ranges, for the last open range value of 8 assumed; ** without “Never”

Summary of comments

The comments vary largely and are not susceptible to summary. With regard to patent pools a

respondent noted that the initial steps to create a patent pool often starts around the time of the

finalization of a standard. The process to create a pool includes understanding the viability of a pool,

engaging with the relevant patent owners, preparing the terms of the pool, evaluating patents and

generating an understanding of the market of the products that implement the standard. This process

may take up to 2 years and needs to be completed before corresponding licenses can be offered to

implementers.

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Q15. Do you contact all known SEP implementers from the selected category?

All

Yes

No. of replies

32%

68%

Companies

31%

69%

Associations/

trade union

100%

Academia/

Authorities/

NGO/other

67%

33%

Citizens

25%

75%

SEP

Holders

30%

70%

Note: “No opinion/ no answer” answers not taken into account.

Implementers

Yes

No. of replies

29%

71%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “No opinion/ no answer” answers not taken into account.

Yes

No. of replies

38%

62%

non-EU

25%

75%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “No opinion/ no answer” answers not taken into

account.

Summary of comments

The comments differ on this question as well. Respondents note that there are significant costs

involved in searching the market to identify the infringing products and there are markets in which

new players come and go at a pace that cannot be fully addressed by any organization. It is not

possible to search the entire market, which - in the SEP ecosystem - is usually global. Typically,

because of this SEP holders leave out start-ups and SMEs.

Some do contact all SEP implementers known to them at a pace that is possible to handle for their

organization. Regarding patent pools, it depends on the individual case, contact would be made by

the patent pool administrator with as many implementers as practical.

Q16. What percentage of these SEP implementers reply within a year after sending the first letter?

All

< 25%

25-40%

40-55%

55%-70%

70-85%

> 85%

No. of replies

Average %*

31%

13%

38%

58%

Companies

18%

36%

64%

Associations/

trade union

100%

93%

Academia/

Authorities/

NGO/other

50%

53%

Citizens

100%

13%

Note: “It depends (please explain)” not presented

* Weighted average calculated using the middle of ranges, for the last open range value of 92.5% assumed.

Implementers

< 25%

25-40%

40-55%

SEP

Holders

33%

17%

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Implementers

55%-70%

70-85%

> 85%

No. of replies

Average %*

33%

67%

88%

SEP

Holders

17%

33%

53%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “It depends (please explain)” not presented

* Weighted average calculated using the middle of ranges, for the last open range value of 92.5% assumed.

< 25%

25-40%

40-55%

55%-70%

70-85%

> 85%

No. of replies

Average %*

43%

14%

29%

52%

non-EU

29%

14%

57%

78%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “It depends (please explain)” not presented

* Weighted average calculated using the middle of ranges, for the last open range value of 92.5% assumed.

Summary of comments

There are differences e.g. between jurisdictions and industries, but overall in one respondent’s

experience, most of the letters they sent are replied within a year after they were sent. However, a

(swift) reply to a letter may not always be a sign of true willingness by the implementer. Respondents

claim that the replies received are often an attempt to postpone discussions as much as possible and

are rarely a clear indication of true willingness to take a license. Recent case-law offers a number of

indicative examples, in which the implementer’s response to a notification letter was not considered

to be an expression of a sincere willingness to obtain a FRAND licence (e.g.

Sisvel v Haier,

German

Federal Court of Justice).

Some argue that the effect from the

Huawei v. ZTE

CJEU judgment is that most SEP implementers

now respond without too much delay. Unfortunately, in many cases this is just stating/ posturing the

position that one is willing to take a license, without making significant further steps towards actual

signing up to a license.

Respondents explain that this works differently with patent pools because licensing negotiations are

conducted by licensing administrators under FRAND obligations. Licensing administrators may

suggest taking legal action if no response is received to their first letter after a certain time, never

exceeding one year. Given that such SEP pools include SEPs of many holders, the negotiation power

of SEP pools may be important.

Q17. What percentage of the SEP implementers that reply take a license without litigation?

All

< 25%

25-40%

40-55%

55%-70%

70-85%

> 85%

No. of replies

14%

50%

Companies

10%

20%

50%

Associations/

trade union

Academia/

Authorities/

NGO/other

50%

Citizens

50%

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kom (2023) 0232 - Ingen titel

All

Average %*

68%

Companies

73%

Associations/

trade union

Academia/

Authorities/

NGO/other

53%

Citizens

63%

Note: “It depends (please explain)” not presented

* Weighted average calculated using the middle of ranges, for the last open range value of 92.5% assumed.

Implementers

< 25%

25-40%

40-55%

55%-70%

70-85%

> 85%

No. of replies

Average %*

33%

67%

88%

SEP

Holders

20%

60%

75%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “It depends (please explain)” not presented

* Weighted average calculated using the middle of ranges, for the last open range value of 92.5% assumed.

< 25%

25-40%

40-55%

55%-70%

70-85%

> 85%

No. of replies

Average %*

33%

17%

48%

non-EU

17%

83%

90%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “It depends (please explain)” not presented

* Weighted average calculated using the middle of ranges, for the last open range value of 92.5% assumed.

Summary of comments

Some respondents consider that the statistics may not be meaningful as even if most of the

implementers take a license without litigation, the ones who do not are almost always the largest

implementers.

Some respondents explain that it is important to take into consideration the impact of litigation in

general on the willingness of implementers to take a license without litigation. The effect of a

litigation against a particular implementer may lead other implementers to take a licence. If patents

were not enforced, the vast majority of implementers would consider that there is no reason to take a

license.

Some respondents say that in their experience the greatest difficulty is with Asian-based companies,

where it has proven difficult to settle without litigation and the threat of injunction.

Q18. On average, how much time after your first letter do implementers take a licence?

All

less than 6 months

6-12 months

1-2 years

2-4 years

4-6 years

26%

53%

11%

Companies

27%

60%

Associations/

trade union

Academia/

Authorities/

NGO/other

100%

Citizens

33%

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All

More than 6 years

No. of replies

Average years*

11%

3.3

Companies

3.1

Associations/

trade union

Academia/

Authorities/

NGO/other

1.5

Citizens

33%

5.3

SEP

Holders

11%

78%

11%

3.1

* Weighted average calculated using the middle of ranges, for the last open range value of 8 assumed.

Implementers

less than 6 months

6-12 months

1-2 years

2-4 years

4-6 years

More than 6 years

No. of replies

Average years*

100%

1.5

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3.

* Weighted average calculated using the middle of ranges, for the last open range value of 8 assumed.

less than 6 months

6-12 months

1-2 years

2-4 years

4-6 years

More than 6 years

No. of replies

Average years*

14%

71%

14%

3.5

non-EU

44%

11%

2.6

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent.

* Weighted average calculated using the middle of ranges, for the last open range value of 8 assumed.

Summary of comments

Experience amongst the respondents with regard to handheld cellular devices shows that licensing

discussions may take up to 6 years, often involving litigation. In general, willingness to enter

meaningful discussions has been extremely low in the past decade. A respondent claimed that it could

be characterized as a “systemic hold-out”.

Respondents claim that there may not be typical timeframe within which a licence is concluded, as

the duration of a negotiation would depend on various factors. They claim that SEP licensing

negotiations are characterized by an information asymmetry. This asymmetry is magnified

significantly when licensees are smaller players and have limited experience and expertise in

negotiating SEP licences. SEP holders may withhold information without an NDA, and often the

negotiation of an NDA is prolonged for a long time due to unreasonable terms proposed by the

licensor (not allowing the potential licensee to verify information with suppliers, for example). SEP

holders may also not provide sufficient information to substantiate their FRAND offer. Licensing

negotiations may also be highly complex, e.g., when including cross licensing arrangements or other

commercial agreements unrelated to the SEPs at issue.

Some respondents explain that technology in brown goods

357

, IoT and automotive is rapidly

advancing so negotiations usually proceed fast. Otherwise negotiated technology will be outdated

already at the time of obtaining a license. They claim that if licensing negotiations cannot be

357

Television sets, audio equipment, and similar household appliances.

172

kom (2023) 0232 - Ingen titel

concluded in a timely manner and no powerful objections are raised by the potential licensee, SEP

holders would resort to litigation, and in this case, almost all of the implementers immediately choose

to take a license, try to keep their costs at a minimum and avoid injunctions. In some cases,

counterclaims are brought, and licensing negotiations almost reach a stalemate because of conflicting

court decisions (which is possible e.g. if different jurisdictions are involved) or the refusal of

decisions by appeal courts. In such cases, the process generally takes 4-6 years.

Also here, respondents believe that the geographical location of the implementer correlates with the

implementer's timeliness in responding to our offer to license. In particular, it is stated that

implementers based in China are very slow to respond. There is a wide range, and as a result an

average figure is not informative; for instance, a respondent had experience with Chinese

implementers which ignored its communications for over a year or wait until other larger OEM’s

take a license or simply file suit in a Chinese court without any notice.

Another respondent indicated that a 6-18 months timeframe is an indicator of a willing licensee.

According to that respondent there could be a presumption that, absent specific circumstances, the

implementer is not willing 18 months after the start of the negotiations.

Questions on the problems related to SEP licensing

Quantitative summary

Lack of transparency on FRAND royalty rate, on SEP landscape (who owns SEP) and divergent court

rulings were named as the key problems by three quarters of all respondents, including all

respondents from “Implementers” group. For “SEP Holders” the main problems were hold out and

anti-suit injunctions.

Tables with replies per question

Q19. What problems do you encounter when it comes to SEP licensing?

“Agree and strongly agree” answers only

Lack of transparency on FRAND royalty rate

Lack of transparency of the SEPs landscape in

general and of the share of the different SEP

holders

Divergent court rulings

Court rulings ordering to take a worldwide

licence

Lack of guidance on the FRAND concept

Lack of clarity on the level of licensing

The licensing process is too expensive

Injunctions

Hold up / Unavailability of a licence

Anti-suit injunctions

Hold out

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

All

68%

67%

Companies

61%

66%

Associations

/trade union

86%

Academia/

Authorities/ Citizens

NGO/other

75%

56%

80%

70%

67%

60%

57%

55%

53%

52%

47%

38%

58-64

the

64%

52%

53%

49%

42%

49%

47%

44%

34%

33-38

table;

“No

86%

71%

86%

57%

67%

71%

29%

6-7

opinion”

answers

50%

75%

50%

38%

50%

75%

67%

8-9

not

taken

into

78%

90%

60%

90%

70%

60%

44%

30%

9-10

account

“Agree and strongly agree” answers only

Lack of transparency on FRAND royalty rate

Lack of transparency of the SEPs landscape in general and of the share of the different

SEP holders

Implementers

100%

97%

SEP

Holders

19%

13%

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“Agree and strongly agree” answers only

Court rulings ordering to take a worldwide licence

Lack of guidance on the FRAND concept

Divergent court rulings

Hold up / Unavailability of a licence

Lack of clarity on the level of licensing

Injunctions

The licensing process is too expensive

Anti-suit injunctions

Hold out

No. of replies*

Implementers

96%

93%

86%

83%

68%

29%

28-29

SEP

Holders

19%

38%

13%

25%

81%

100%

15-17

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

Lack of transparency on FRAND royalty rate

Divergent court rulings

Lack of transparency of the SEPs landscape in general and of the share of the different

SEP holders

Lack of guidance on the FRAND concept

Lack of clarity on the level of licensing

Anti-suit injunctions

Hold up / Unavailability of a licence

Court rulings ordering to take a worldwide licence

The licensing process is too expensive

Hold out

Injunctions

No. of replies*

71%

70%

69%

59%

58%

56%

52%

50%

47%

45%

30-35

non-EU

58%

56%

63%

53%

47%

32%

50%

61%

39%

26%

58%

18-19

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

Lack of transparency on FRAND royalty rate

Lack of transparency of the SEPs landscape in general and

of the share of the different SEP holders

Divergent court rulings

Court rulings ordering to take a worldwide licence

Lack of guidance on the FRAND concept

Lack of clarity on the level of licensing

The licensing process is too expensive

Injunctions

Hold up / Unavailability of a licence

Anti-suit injunctions

Hold out

Other (please specify)

Agree

68%

67%

60%

57%

55%

53%

52%

47%

38%

86%

Neutral

17%

13%

32%

16%

11%

27%

16%

14%

Disagree

27%

17%

22%

30%

32%

15%

31%

36%

27%

46%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies”

Lack of transparency of the SEPs landscape in general and

of the share of the different SEP holders

Divergent court rulings

Lack of transparency on FRAND royalty rate

Lack of guidance on the FRAND concept

Court rulings ordering to take a worldwide licence

Agree

66%

64%

61%

53%

52%

Neutral

17%

21%

Disagree

29%

19%

32%

39%

27%

No.

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“Companies”

Injunctions

Lack of clarity on the level of licensing

Hold up / Unavailability of a licence

Anti-suit injunctions

The licensing process is too expensive

Hold out

Other (please specify)

Agree

49%

47%

44%

42%

34%

75%

Neutral

22%

11%

14%

28%

36%

17%

25%

Disagree

30%

40%

39%

28%

22%

49%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Summary of comments

Some argue that any lack of transparency regarding the aspects identified above are of particular

importance for SMEs and start-ups, as they often do not have adequate knowledge and are unable to

take appropriate action against SEP holders.

Other respondents believe there is no lack of transparency and that the SEPs are accessible through

existing databases. Publicly and commercially available information, case law and government

policy may be relied upon for constructive SEP licensing discussions in good faith. Some consider

that absolute transparency is impossible to achieve.

Some believe that divergence on treatment of SEPs by national government policies and court

decisions, including valuation, availability of injunctive relief and antisuit injunctions render SEP

licensing difficult and costly. Others claim that court rulings within Europe are quite convergent,

however globally, there is still some divergence, particularly as it relates to availability of injunctive

relief.

Some respondents consider that it may be desirable to promote establishment of patent pools where

essentiality check, uniform licensing conditions and one stop-shop efficiency can be achieved.

UESTIONS FOR

SEP

S IMPLEMENTERS

Q20. Under which circumstances would you consider not using a certain standard? Question of

particular relevance for start-ups and SMEs

“Agree and strongly agree” answers only

There is an alternative technology which is

available at better conditions

There is no real need to implement the standard.

The standardised technology is a mere add on.

The requested royalty is too high

Licensing negotiations and litigation are too

costly

The SEP holder refuses to give a licence

It is not clear which patents are truly essential

and require a licence for a particular

implementation

It is not clear which SEPs my products actually

implement/use

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

All

86%

73%

70%

51%

48%

29%

Associations

Companies

/trade union

87%

81%

71%

52%

50%

30%

83%

67%

33%

Academia/

Authorities/ Citizens

NGO/other

67%

33%

50%

100%

33%

67%

33%

29%

31-35

the

30%

20-23

table;

“No

33%

opinion”

answers

33%

2-3

not

taken

into

account

“Agree and strongly agree” answers only

There is an alternative technology which is available at better conditions

Implementers

90%

SEP

Holders

75%

175

kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

The requested royalty is too high

There is no real need to implement the standard. The standardised technology is a mere

add on.

The SEP holder refuses to give a licence

Licensing negotiations and litigation are too costly

It is not clear which patents are truly essential and require a licence for a particular

implementation

It is not clear which SEPs my products actually implement/use

No. of replies*

Implementers

80%

74%

72%

67%

35%

33%

18-21

SEP

Holders

29%

75%

13%

7-8

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

There is an alternative technology which is available at better conditions

There is no real need to implement the standard. The standardised technology is a mere

add on.

The requested royalty is too high

Licensing negotiations and litigation are too costly

The SEP holder refuses to give a licence

It is not clear which patents are truly essential and require a licence for a particular

implementation

It is not clear which SEPs my products actually implement/use

No. of replies*

78%

67%

62%

52%

45%

30%

20-23

non-EU

100%

89%

56%

75%

38%

33%

8-9

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

There is an alternative technology which is available at better conditions

There is no real need to implement the standard. The standardised technology

is a mere add on.

The requested royalty is too high

Licensing negotiations and litigation are too costly

The SEP holder refuses to give a licence

It is not clear which patents are truly essential and require a licence for a

particular implementation

It is not clear which SEPs my products actually implement/use

Other (please specify)

Agree

86%

73%

70%

51%

48%

29%

100%

Disagree

14%

27%

30%

49%

52%

71%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

There is an alternative technology which is available at better conditions

There is no real need to implement the standard. The standardised technology

is a mere add on.

The requested royalty is too high

Licensing negotiations and litigation are too costly

The SEP holder refuses to give a licence

It is not clear which patents are truly essential and require a licence for a

particular implementation

It is not clear which SEPs my products actually implement/use

Other (please specify)

Agree

87%

81%

71%

52%

50%

30%

100%

Disagree

13%

19%

29%

48%

50%

70%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

176

kom (2023) 0232 - Ingen titel

“SMEs answers”

There is an alternative technology which is available at better conditions

There is no real need to implement the standard. The standardised technology

is a mere add on.

Licensing negotiations and litigation are too costly

The requested royalty is too high

The SEP holder refuses to give a licence

It is not clear which patents are truly essential and require a licence for a

particular implementation

It is not clear which SEPs my products actually implement/use

Other (please specify)

Agree

88%

75%

71%

63%

38%

Disagree

13%

25%

29%

38%

63%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account. All respondents who identified themselves as SMEs (please note that only 1 SME that is a company

replied to this question)

Summary of comments

Some respondents noted that it was not unusual for companies, particularly start-ups and SMEs, to

seek to use an alternate standard or abandon plans for a product because of concerns over the amount

of royalties. According to them nearly all examples relate to cellular SEPs (versus other SEPs). The

exponential growth of the cellular ecosystem over the last 30 years underlines its attractiveness,

especially for innovative new businesses (including SMEs and start-ups).

Some respondents explain that OEMs are legally obliged to implement cellular communications

SEPs and must use them regardless of the circumstances described above. Emergency calling

(“eCall”) became a mandatory feature of all vehicles produced after April 2018. If the parts providing

eCall functionality are not supplied, no vehicle can leave the production line. Any injunction

prohibiting the use of connectivity standards in a car may indirectly also prohibit the sale of the car

as such.

Some respondents explain that suppliers are subject to instructions from their customers. In those

cases, inclusion of the standard is already required to market a competitive product.

Furthermore, respondents explain that they have no choice but to use a particular standard if they

want to ensure compliance to the function and cybersecurity of the product. For example, in the

telecommunication industry, it is usually not an option to use non-standard alternative technology.

One respondent explains that standard implementation decisions are made well before patent

licensing becomes an issue and that the question gets the timeline wrong. As an implementer, they

would not know the amount of the royalty, or the patents asserted until years after they make the

decision to implement a standard.

Q21. Which of the following behaviours would you assess as hold-up or opportunistic behaviour by

a SEP holder?

“Agree and strongly agree” answers only

The SEP holder adopts discriminatory or exclusionary licensing

terms or practices

The SEP holder requires implementers to pay royalties for rights

to patents that are not relevant to the implementer’s specific

products

The SEP holder insists on a new licence at a higher price in the

context of a patent pool when the implementer has a licence for

the same patents of the same SEP holder.

All

84%

83%

Associa-

Compa tions/

nies

trade

union

86%

83%

84%

83%

Academia/

Authorities/ Citizens

NGO/other

67%

83%

79%

75%

83%

67%

100

177

kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

The SEP holder requires implementers to pay royalties for rights

to patents that are not essential to the relevant standardized

technology

The SEP holder refuses to license

The SEP holder refuses to disclose the terms of prior licences

with similarly situated companies

The SEP holder attempts to base the royalty owed on prior

licences that were not reasonably comparable (due to differences

in patents, duration, geographic scope, implementer type, etc.).

The SEP holder refuses to license to a certain level in the value

chain

The SEP holder brings the accused infringer’s customers into the

licensing dispute, by either contacting them, threatening to sue

them, or actually suing them

The SEP holder discloses the SEP to the Standard Development

Organisation (“SDO”) after the standard was adopted

The SEP holder refuses to license at a certain price I find

commercially acceptable

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

All

78%

Associa-

Compa tions/

nies

trade

union

74%

83%

Academia/

Authorities/ Citizens

NGO/other

67%

100

83%

100

83%

80%

78%

72%

71%

77%

65%

63%

83%

67%

64%

60%

56%

58%

83%

50%

67%

51%

48%

42-46

“No

48%

41%

28-32

opinion”

67%

answers

not

33%

67%

taken

into

60%

50%

5-6

account

“Agree and strongly agree” answers only

The SEP holder requires implementers to pay royalties for rights to patents that are not

relevant to the implementer’s specific products

The SEP holder adopts discriminatory or exclusionary licensing terms or practices

The SEP holder refuses to license

The SEP holder requires implementers to pay royalties for rights to patents that are not

essential to the relevant standardized technology

The SEP holder insists on a new licence at a higher price in the context of a patent

pool when the implementer has a licence for the same patents of the same SEP holder.

The SEP holder refuses to disclose the terms of prior licences with similarly situated

companies

The SEP holder attempts to base the royalty owed on prior licences that were not

reasonably comparable (due to differences in patents, duration, geographic scope,

implementer type, etc.).

The SEP holder brings the accused infringer’s customers into the licensing dispute, by

either contacting them, threatening to sue them, or actually suing them

The SEP holder discloses the SEP to the Standard Development Organisation (“SDO”)

after the standard was adopted

The SEP holder refuses to license at a certain price I find commercially acceptable

The SEP holder refuses to license to a certain level in the value chain

No. of replies*

Implementers

100%

96%

SEP

Holders

67%

50%

33%

14%

84%

82%

74%

96%

22-25

7-9

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

The SEP holder requires implementers to pay royalties for rights to patents that are not

relevant to the implementer’s specific products

The SEP holder adopts discriminatory or exclusionary licensing terms or practices

The SEP holder refuses to license

The SEP holder requires implementers to pay royalties for rights to patents that are not

essential to the relevant standardized technology

84%

79%

76%

non-EU

80%

93%

79%

73%

178

kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

The SEP holder insists on a new licence at a higher price in the context of a patent

pool when the implementer has a licence for the same patents of the same SEP holder.

The SEP holder refuses to disclose the terms of prior licences with similarly situated

companies

The SEP holder attempts to base the royalty owed on prior licences that were not

reasonably comparable (due to differences in patents, duration, geographic scope,

implementer type, etc.).

The SEP holder refuses to license to a certain level in the value chain

The SEP holder brings the accused infringer’s customers into the licensing dispute, by

either contacting them, threatening to sue them, or actually suing them

The SEP holder discloses the SEP to the Standard Development Organisation (“SDO”)

after the standard was adopted

The SEP holder refuses to license at a certain price I find commercially acceptable

No. of replies*

70%

68%

63%

non-EU

86%

67%

73%

60%

52%

50%

43%

23-25

63%

67%

50%

53%

14-16

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

The SEP holder adopts discriminatory or exclusionary licensing terms or

practices

The SEP holder requires implementers to pay royalties for rights to patents that

are not relevant to the implementer’s specific products

The SEP holder insists on a new licence at a higher price in the context of a

patent pool when the implementer has a licence for the same patents of the same

SEP holder.

The SEP holder requires implementers to pay royalties for rights to patents that

are not essential to the relevant standardized technology

The SEP holder refuses to license

The SEP holder refuses to disclose the terms of prior licences with similarly

situated companies

The SEP holder attempts to base the royalty owed on prior licences that were

not reasonably comparable (due to differences in patents, duration, geographic

scope, implementer type, etc.).

The SEP holder refuses to license to a certain level in the value chain

The SEP holder brings the accused infringer’s customers into the licensing

dispute, by either contacting them, threatening to sue them, or actually suing

them

The SEP holder discloses the SEP to the Standard Development Organisation

(“SDO”) after the standard was adopted

The SEP holder refuses to license at a certain price I find commercially

acceptable

Other (please specify)

Agree Neutral Disagree

84%

83%

79%

11%

12%

10%

No.

78%

72%

71%

11%

18%

24%

18%

64%

60%

11%

30%

29%

51%

48%

86%

14%

23%

35%

30%

14%

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

The SEP holder adopts discriminatory or exclusionary licensing terms or

practices

The SEP holder requires implementers to pay royalties for rights to patents that

are not relevant to the implementer’s specific products

The SEP holder refuses to license

The SEP holder insists on a new licence at a higher price in the context of a

patent pool when the implementer has a licence for the same patents of the same

SEP holder.

The SEP holder requires implementers to pay royalties for rights to patents that

are not essential to the relevant standardized technology

Agree Neutral Disagree

86%

84%

77%

75%

10%

14%

20%

11%

No.

74%

13%

179

kom (2023) 0232 - Ingen titel

“Companies answers”

The SEP holder refuses to disclose the terms of prior licences with similarly

situated companies

The SEP holder attempts to base the royalty owed on prior licences that were

not reasonably comparable (due to differences in patents, duration, geographic

scope, implementer type, etc.).

The SEP holder brings the accused infringer’s customers into the licensing

dispute, by either contacting them, threatening to sue them, or actually suing

them

The SEP holder refuses to license to a certain level in the value chain

The SEP holder discloses the SEP to the Standard Development Organisation

(“SDO”) after the standard was adopted

The SEP holder refuses to license at a certain price I find commercially

acceptable

Other (please specify)

Agree Neutral Disagree

65%

63%

17%

29%

20%

No.

58%

10%

32%

56%

48%

41%

83%

14%

24%

34%

38%

34%

17%

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Summary of answers

Some respondents commented that the statement “The SEP holder refuses to license at a certain price

I find commercially acceptable” should read “The SEP holder refuses to license at a certain price I

find FRAND”.

Mostly agree

Some respondents proposed the inclusion of the following to the list under this question:



SEP holders requiring potential licensees to enter into restrictive NDAs

SEP holders refusing to disclose information necessary to evaluate essentiality, infringement

and validity

SEP holders not explaining how terms are FRAND

SEP holders heavily redacting comparable agreements to prevent comparison

SEP holders seeking a global portfolio rate whilst threatening an injunction

Defensive suspension

Mostly disagree

Some respondents explain that most of the practices listed are not opportunistic. A SEP holder that

refuses to license at all or refuses to license a particular implementer but takes no action to enforce

its patents is not engaging in hold-up. It is simply allowing the implementer to use its technology.

Regarding ‘excessive demands by the SEP owner’ some respondents explain that a royalty demand

by a SEP holder cannot be enforced without court intervention (and thus court

evaluation/adjudication) and as such hold-up is not possible where a FRAND commitment has been

given. Furthermore, a SEP holder can be bound by confidentiality clauses enforced upon demand of

an implementer.

With respect to post-standardization disclosures, IPR policies of SDOs do not require patent searches

and patent prosecution takes time, and therefore it is not uncommon for patent holders to have

insufficient information to make disclosures pre-standardization.

One respondent clarified that they understand the question “The SEP holder requires implementers

to pay royalties for rights to patents that are not essential to the relevant standardized technology” to

be forcing a license combining SEPs with non-SEPs or forcing payment for non-SEPs that are not

used. According to this and other respondents, it is possible that a SEP holder also has non-SEPs that

may be infringed. There is nothing opportunistic about requiring a license for implemented patents,

even if the product also practices SEPs.

180

kom (2023) 0232 - Ingen titel

UESTION FOR

SEP

HOLDERS

Q22. Which of the following behaviours would you assess as hold-out or opportunistic behaviour by

implementers?

“Agree and strongly agree” answers only

Repeatedly ask for information that the SEP holder has already

provided

Insist repeatedly that the licence offer is not FRAND without

providing substantive arguments to demonstrate why

Ignore notifications and other communications for months

Express a willingness to take a FRAND licence - but only for

each individual patent for which infringement, essentiality, and

validity is confirmed by the courts

Refuse to accept licence terms that have been confirmed by an

EU court to be FRAND, and that are relevant and comparable for

that implementer.

Refuse or delay signing a non-disclosure agreement as a hold-

out tactic

Table a counter-offer only once litigation has been initiated

Buy time by professing willingness to engage in constructive

licensing negotiations - even as behaviour suggests otherwise

Refuse to enter into a global licence agreement despite having a

global business for products that use standards

Insist on obtaining unreasonable amounts of information (e.g. a

claim chart for every SEP in a portfolio) without appropriate

confidentiality arrangements in place

Table counter-offers that are obviously unreasonable and

unacceptable for the rights holder (e.g. a licensing rate of just

0.001 per cent per patent family)

Claim to lack information or to not understand the licence offer

Redirect the SEP holder to upstream suppliers for licences

Redirect the SEP holder to a subsidiary or holding company

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

All

80%

78%

76%

63%

Associa-

Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

89%

50%

75%

81%

78%

74%

50%

33%

75%

50%

100

50%

63%

70%

33%

50%

75%

58%

56%

54%

51%

65%

63%

56%

59%

63%

17%

33%

17%

75%

50%

67%

75%

50%

25%

46%

59%

17%

25%

28%

24%

17%

40-41

“No

35%

26%

19%

26-27

opinion”

answers

not

25%

50%

25%

taken

into

25%

3-4

account

“Agree and strongly agree” answers only

Repeatedly ask for information that the SEP holder has already provided

Insist repeatedly that the licence offer is not FRAND without providing substantive

arguments to demonstrate why

Ignore notifications and other communications for months

Express a willingness to take a FRAND licence - but only for each individual patent

for which infringement, essentiality, and validity is confirmed by the courts

Refuse to accept licence terms that have been confirmed by an EU court to be FRAND,

and that are relevant and comparable for that implementer.

Buy time by professing willingness to engage in constructive licensing negotiations -

even as behaviour suggests otherwise

Refuse or delay signing a non-disclosure agreement as a hold-out tactic

Refuse to enter into a global licence agreement despite having a global business for

products that use standards

Table a counter-offer only once litigation has been initiated

Claim to lack information or to not understand the licence offer

Redirect the SEP holder to a subsidiary or holding company

Implementers

56%

50%

44%

28%

17%

SEP

Holders

100%

50%

31%

181

kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

Insist on obtaining unreasonable amounts of information (e.g. a claim chart for every

SEP in a portfolio) without appropriate confidentiality arrangements in place

Table counter-offers that are obviously unreasonable and unacceptable for the rights

holder (e.g. a licensing rate of just 0.001 per cent per patent family)

Redirect the SEP holder to upstream suppliers for licences

No. of replies*

Implementers

17-18

SEP

Holders

100%

46%

12-13

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

Repeatedly ask for information that the SEP holder has already provided

Insist repeatedly that the licence offer is not FRAND without providing substantive

arguments to demonstrate why

Ignore notifications and other communications for months

Express a willingness to take a FRAND licence - but only for each individual patent for

which infringement, essentiality, and validity is confirmed by the courts

Refuse to accept licence terms that have been confirmed by an EU court to be FRAND,

and that are relevant and comparable for that implementer.

Buy time by professing willingness to engage in constructive licensing negotiations -

even as behaviour suggests otherwise

Refuse to enter into a global licence agreement despite having a global business for

products that use standards

Refuse or delay signing a non-disclosure agreement as a hold-out tactic

Table a counter-offer only once litigation has been initiated

Insist on obtaining unreasonable amounts of information (e.g. a claim chart for every

SEP in a portfolio) without appropriate confidentiality arrangements in place

Table counter-offers that are obviously unreasonable and unacceptable for the rights

holder (e.g. a licensing rate of just 0.001 per cent per patent family)

Claim to lack information or to not understand the licence offer

Redirect the SEP holder to upstream suppliers for licences

Redirect the SEP holder to a subsidiary or holding company

No. of replies*

83%

78%

74%

70%

57%

55%

52%

48%

32%

26%

17%

22-23

non-EU

79%

71%

64%

50%

53%

69%

64%

57%

50%

21%

14%

13-15

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

Repeatedly ask for information that the SEP holder has already provided

Insist repeatedly that the licence offer is not FRAND without providing

substantive arguments to demonstrate why

Ignore notifications and other communications for months

Express a willingness to take a FRAND licence - but only for each individual

patent for which infringement, essentiality, and validity is confirmed by the

courts

Refuse to accept licence terms that have been confirmed by an EU court to be

FRAND, and that are relevant and comparable for that implementer.

Refuse or delay signing a non-disclosure agreement as a hold-out tactic

Table a counter-offer only once litigation has been initiated

Buy time by professing willingness to engage in constructive licensing

negotiations - even as behaviour suggests otherwise

Refuse to enter into a global licence agreement despite having a global business

for products that use standards

Insist on obtaining unreasonable amounts of information (e.g. a claim chart for

every SEP in a portfolio) without appropriate confidentiality arrangements in

place

Agree Neutral

80%

78%

76%

63%

10%

Disagree

12%

15%

27%

No.

63%

58%

56%

54%

51%

10%

15%

17%

10%

27%

35%

28%

27%

37%

39%

182

kom (2023) 0232 - Ingen titel

“All answers”

Table counter-offers that are obviously unreasonable and unacceptable for the

rights holder (e.g. a licensing rate of just 0.001 per cent per patent family)

Claim to lack information or to not understand the licence offer

Redirect the SEP holder to upstream suppliers for licences

Redirect the SEP holder to a subsidiary or holding company

Other (please specify)

Agree Neutral

46%

28%

24%

17%

100%

12%

35%

32%

37%

Disagree

41%

38%

44%

46%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

Repeatedly ask for information that the SEP holder has already provided

Insist repeatedly that the licence offer is not FRAND without providing

substantive arguments to demonstrate why

Ignore notifications and other communications for months

Express a willingness to take a FRAND licence - but only for each individual

patent for which infringement, essentiality, and validity is confirmed by the

courts

Refuse to accept licence terms that have been confirmed by an EU court to be

FRAND, and that are relevant and comparable for that implementer.

Refuse or delay signing a non-disclosure agreement as a hold-out tactic

Insist on obtaining unreasonable amounts of information (e.g. a claim chart for

every SEP in a portfolio) without appropriate confidentiality arrangements in

place

Table a counter-offer only once litigation has been initiated

Refuse to enter into a global licence agreement despite having a global business

for products that use standards

Table counter-offers that are obviously unreasonable and unacceptable for the

rights holder (e.g. a licensing rate of just 0.001 per cent per patent family)

Buy time by professing willingness to engage in constructive licensing

negotiations - even as behaviour suggests otherwise

Claim to lack information or to not understand the licence offer

Redirect the SEP holder to upstream suppliers for licences

Redirect the SEP holder to a subsidiary or holding company

Other (please specify)

Agree Neutral

89%

81%

78%

74%

11%

Disagree

11%

22%

No.

70%

65%

63%

22%

31%

30%

63%

59%

56%

35%

26%

19%

100%

15%

11%

19%

38%

41%

44%

22%

30%

33%

26%

27%

33%

37%

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Summary of answers

Agree

Courts in the EU have confirmed that almost all of the aforementioned examples may constitute hold-

out given the individual circumstances of the specific dispute. (e.g. the German Federal Court of

Justice and the UK Supreme Court indicate that “willingness” requires more than pure statements).

Disagree

Some respondents commented that the scenarios are very broad and subjective, and that the reasons

to such behaviour might be completely justified and acts in good faith (contrary to what is implied in

the questions). Some of the statements in the question (such as ‘buying time’) refer to subjective

assessments. What one party may perceive as ‘buying time’ may be good faith efforts trying to

understand and assess whether an offer is FRAND.

While no empirical evidence base points to their occurrence being widespread/systemic, some

respondents note that such instances are already fully addressable via judicial mechanisms under

today's system in the EU.

Questions on transparency

183

kom (2023) 0232 - Ingen titel

Quantitative summary

Respondents asked for more public information on SEP as regards “patent and application number”

(88% of all responses), “relevant standard, version, section of the standard” (80%), “contact details

of SEP holder” (80%), “transfer of ownership” (77%), “licensing programs” (76%) and “standard

FRAND terms and conditions” (72%).

Patent pools should disclose “standards subject to pool licensing” (100%), “product royalties per

programme” (94%) and “list of SEP holders” (87%).

Around 70% of respondents considered that a confidential repository of licensing agreements could

help judges and arbitrators to determine a FRAND rate. Such repository should contain information

on “licensed SEPs” (96%), “royalties” (96%) and “methodology used to calculate the royalty” (94%).

Tables with replies per question

Q23. In your view, which of the information below should the SEP holder provide publicly?

“Agree and strongly agree” answers only

All

Compa-

nies

84%

73%

76%

72%

73%

64%

54%

59%

54%

51%

36%

46%

36-37

“No

opinion”

Associati

ons/

trade

union

86%

71%

86%

71%

29%

43%

answers

Academia/

Authorities/ Citizens

NGO/other

92%

85%

83%

80%

75%

67%

56%

50%

55%

64%

45%

9-13

not

taken

into

Patent and application number

Contact details of SEP holder

Relevant standard, version, section of the standard

Transfer of ownership, if any

Licensing programs

Standard FRAND terms and conditions

High-level claim charts

Information on the enforceability of the patent (e.g.

application, granted, validity)

Product categories that use the SEPs

Essentiality confirmed by an independent third party

List of licensees

Detailed claim charts

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

88%

80%

77%

76%

72%

63%

56%

52%

50%

46%

45%

62-66

table;

100%

89%

78%

89%

67%

56%

67%

44%

account

“Agree and strongly agree” answers only

Patent and application number

Relevant standard, version, section of the standard

Transfer of ownership, if any

Licensing programs

Standard FRAND terms and conditions

Contact details of SEP holder

High-level claim charts

Essentiality confirmed by an independent third party

Detailed claim charts

Information on the enforceability of the patent (e.g. application, granted, validity)

List of licensees

Product categories that use the SEPs

No. of replies*

Implementers

100%

96%

93%

89%

86%

75%

71%

64%

46%

SEP

Holders

65%

53%

38%

50%

41%

71%

25%

13%

19%

12%

50%

16-17

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

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kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

Patent and application number

Relevant standard, version, section of the standard

Contact details of SEP holder

Licensing programs

Transfer of ownership, if any

Standard FRAND terms and conditions

High-level claim charts

Essentiality confirmed by an independent third party

Information on the enforceability of the patent (e.g. application, granted, validity)

Product categories that use the SEPs

Detailed claim charts

List of licensees

No. of replies*

86%

82%

74%

73%

70%

61%

49%

47%

46%

34%

35-38

non-EU

84%

74%

68%

74%

83%

67%

56%

50%

67%

56%

44%

58%

18-19

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

Patent and application number

Relevant standard, version, section of the standard

Contact details of SEP holder

Transfer of ownership, if any

Licensing programs

Standard FRAND terms and conditions

High-level claim charts

Information on the enforceability of the patent (e.g. application, granted,

validity)

Product categories that use the SEPs

Essentiality confirmed by an independent third party

List of licensees

Detailed claim charts

Other (please specify)

Agree

88%

80%

77%

76%

72%

63%

56%

52%

50%

46%

45%

67%

Neutral

14%

18%

25%

22%

17%

16%

17%

Disagree

15%

17%

16%

19%

28%

26%

22%

28%

37%

39%

17%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

Patent and application number

Relevant standard, version, section of the standard

Contact details of SEP holder

Licensing programs

Transfer of ownership, if any

Standard FRAND terms and conditions

Information on the enforceability of the patent (e.g. application, granted,

validity)

High-level claim charts

Product categories that use the SEPs

Essentiality confirmed by an independent third party

Detailed claim charts

List of licensees

Other (please specify)

Agree Neutral

84%

76%

73%

72%

64%

59%

54%

51%

46%

36%

67%

11%

19%

11%

17%

14%

19%

14%

25%

33%

Disagree

19%

16%

22%

19%

27%

32%

27%

30%

41%

39%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Summary of comments

It is very much felt by implementers that most SEP holders do not provide enough information about

the essentiality of their SEPs to substantiate their claims that they are infringing their patents. As is

clear from the percentages above, most implementers would like to have most of the listed

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kom (2023) 0232 - Ingen titel

information to be provided by the SEP holders. For further details as to the information they would

like to receive when evaluating a licence offer, many implementers refer to Annex B “Documentation

Relating to Licensing Negotiations” of Consortium Workshop Agreement (CWA) 95000

358

which

mentions in this regard that the details about the asserted patents (including ownership and validity)

and explanations why these are infringed and how the royalty rate is calculated should be provided

voluntarily and proactively by SEP holders. In addition, a respondent suggested that all such

information should be made available in one place, to allow implementers to compare SEP holders’

portfolios on essentiality, remaining lifetime, geographical scope, implementation levels, etc.

However, SEP holders prefer to keep most information confidential except for the data that is already

publicly available such as the patent number, standard details and details of the licensing program.

The more sensitive and confidential information, such as claim charts, third-party essentiality checks

or list of licensees, they consider better suited for provision under a properly executed non-disclosure

agreement (NDA) in the interest of both parties. It is mentioned that this is recognized as a general

practice in section 4.4 of the ETSI Guide on IPR. It does not alter the normal practice of entering into

a confidentiality agreement covering license negotiations where both parties typically exchange

confidential information. Indeed, they stress that also licensees are keen to maintain the terms and

conditions of the FRAND license strictly confidentiality in fear of being the next "target" for another

SEP holder and have intervened to that effect before the courts. Most SEP holders are particularly

reluctant to publicly disclose claim charts, or third-party essentiality checks. The latter in particular

shouldn’t be imposed without corresponding obligations on implementers to provide assessments of

products’ use of the standard.

As arguments in favour of as much transparency as possible it was mentioned that:

Transparency is the foundation of an efficient market for SEP licences, in which costs are as

low as possible, SEP holders receive FRAND royalty payments as soon as possible, and

implementers have high certainty about the costs of SEP licensing. Information relevant to

setting FRAND rates and other terms should be publicly available, unless its disclosure would

plausibly damage a party. This will allow licensors and implementers to identify each other

and agree licence terms without undue delay.

Transparency is the prerequisite of predictability of the full patent licensing cost of

implementing a standard before making the decision of whether to implement the standard

and it is consistent with the very spirit of the patent system, which is based on disclosure by

inventors of the content of their inventions and public access through patent offices to the

description of inventions and the status of patents.

Detailed claim charts, sufficient information about the license offer and its economic key

points will be of particular relevance to start-ups, because they do not have the expertise in-

house to do in-depth technical evaluations and economic analyses of entire SEP-ecosystems.

The hold-up problem and appearance of hold-out result from a significant lack of transparency, which

creates information asymmetries and excessive leverage. Many of the problems raised in this survey

358

See

CWA95000.pdf (standict.eu).

In 2017, industry players under the auspices of CEN-CENELEC attempted to

establish business-led guidance in the form of a so-called ‘consortium workshop agreement’ (CWA). This Annex

provides a list of information and documents that may typically be required by a potential licensee in order to evaluate a

license offer, including: 1) Basic information that should always be voluntarily and proactively provided by the SEP

holder; 2) Information that should be made available upon request by the potential licensee; 3) Additional information

that should be made available when the asserted SEP’s include patents that are, or have previously been included in a

licensing program or patent pool.

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kom (2023) 0232 - Ingen titel

would be resolved by making the FRAND rate transparent and making it easy for companies to verify

that an offered rate is FRAND and that the SEPs are actually standard essential and infringed.

Q24. In your view, which of the information below should patent pools make publicly available?

“Agree and strongly agree” answers only

Standards subject to pool licensing

Product royalties per programme

List of SEP holders

List of certified SEPs

Standard licence agreement per programme

Duplicate royalty policy

Process for evaluating SEPs to be included in the pool

(essentiality, validity etc.)

List of licensees

Illustrative cross-references to standard explaining why the SEPs

are found to be essential

Pool Administrators’ shareholders / ownership structure

List of independent evaluators

List of licensed products

No. of replies*

Associa- Academia/

Compa- tions/

All

Authorities/ Citizens

nies

trade

NGO/other

union

100% 100%

100%

100

94%

100%

80%

100

90%

89%

100%

78%

87%

86%

100%

73%

100

81%

75%

86%

82%

100

79%

81%

100%

70%

67%

76%

69%

86%

70%

100

75%

86%

73%

67%

74%

72%

86%

70%

78%

70%

63%

48%

56-63

61%

57%

40%

31-36

83%

71%

29%

6-7

89%

64%

70%

9-11

78%

67%

Note: “Other (please specify)” and answers on the footnote to “Duplicate royalty policy” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

Standards subject to pool licensing

Product royalties per programme

List of certified SEPs

Standard licence agreement per programme

Duplicate royalty policy[1]

Process for evaluating SEPs to be included in the pool (essentiality, validity etc.)

Illustrative cross-references to standard explaining why the SEPs are found to be

essential

List of SEP holders

List of licensees

Pool Administrators’ shareholders / ownership structure

List of independent evaluators

List of licensed products

No. of replies*

Implementers

100%

96%

93%

89%

79%

39%

27-28

SEP

Holders

100%

81%

63%

50%

47%

94%

63%

33%

44%

29%

10-16

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No

opinion” answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

Standards subject to pool licensing

Product royalties per programme

List of SEP holders

List of certified SEPs

Duplicate royalty policy[1]

100%

92%

86%

84%

non-EU

100%

94%

83%

75%

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kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

Standard licence agreement per programme

Illustrative cross-references to standard explaining why the SEPs are found to be

essential

List of licensees

Pool Administrators’ shareholders / ownership structure

Process for evaluating SEPs to be included in the pool (essentiality, validity etc.)

List of independent evaluators

List of licensed products

No. of replies*

78%

75%

72%

71%

69%

53%

40%

31-36

non-EU

78%

71%

83%

65%

76%

53%

16-18

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

Standards subject to pool licensing

Product royalties per programme

List of SEP holders

List of certified SEPs

Standard licence agreement per programme

Duplicate royalty policy

Process for evaluating SEPs to be included in the pool (essentiality, validity

etc.)

List of licensees

Illustrative cross-references to standard explaining why the SEPs are found to

be essential

Pool Administrators’ shareholders / ownership structure

List of independent evaluators

List of licensed products

Other (please specify)

Agree Neutral

100%

94%

90%

87%

81%

79%

76%

75%

74%

70%

63%

48%

100%

13%

19%

13%

16%

15%

26%

23%

Disagree

11%

13%

10%

15%

11%

30%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

answers on the footnote to “Duplicate royalty policy” not included in the table

“Companies answers”

Standards subject to pool licensing

Product royalties per programme

List of SEP holders

List of certified SEPs

Duplicate royalty policy[1]

List of licensees

Standard licence agreement per programme

Illustrative cross-references to standard explaining why the SEPs are found to

be essential

Process for evaluating SEPs to be included in the pool (essentiality, validity

etc.)

Pool Administrators’ shareholders / ownership structure

List of independent evaluators

List of licensed products

Other (please specify)

Agree Neutral

100%

94%

89%

86%

81%

75%

72%

69%

61%

57%

40%

100%

16%

11%

14%

22%

25%

22%

37%

26%

Disagree

14%

11%

17%

34%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account answers on the footnote to “Duplicate royalty policy” not included in the table

Summary of comments

In general, respondents consider that patent pool administrators, as the licensing agent of SEP

holders, share the same obligations as the SEP holder and should readily provide necessary

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kom (2023) 0232 - Ingen titel

information in the course of a SEP licensing negotiation. Some respondents are of the opinion that

patent pools may even face higher competition concerns than bilateral licensing due to their combined

market power, and as such it is appropriate for pools to be more transparent.

However, opinions differ as to what information should be made publicly available. For instance,

according to a patent pool administrator, most of the information needed for licensors and licensees

of all sizes to make informed decisions is already available through public means and can be

supplemented as needed through other appropriate channels where confidentiality or other

considerations need to be taken into account. In particular, SEP holders and patent pool

administrators differ of opinion as to access to information concerning the set-up and internal

workings of the pool. Where SEP holders and some patent pool administrators think that this info

should not necessarily be public, some implementers would like to know the details of the share of

patents held by each SEP holder, how royalties are shared amongst pool members and which other

mechanisms exist to compensate SEP holders.

In addition, many implementers stress the importance of disclosure of the royalty rates, together with

the explanation of their calculation and the justification why they are FRAND (by referring to

comparable licences). To avoid double dipping, some implementer respondents would also like

patent pool administrators to be transparent about already existing licenses in the value chain which

cover the products of the licensee.

Q25. Which of the information below should a SEP implementer of the standard provide publicly?

“Agree and strongly agree” answers only

An indication of the standard being used

Contact details of implementer

An indication of the standard and the relevant version of the

standard

An indication of the standard, the relevant version and section of

the standard

An indication of the standard, the relevant version, section and

product category of the standard

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

All

52%

48%

43%

29%

25%

61-63

“No

Associa- Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

44%

14%

67%

100

40%

14%

60%

89%

35%

14%

58%

86%

17%

14%

35-37

opinion”

14%

answers

not

50%

40%

10-12

taken

into

71%

7-9

account

“Agree and strongly agree” answers only

An indication of the standard being used

Contact details of implementer

An indication of the standard and the relevant version of the standard

An indication of the standard, the relevant version and section of the standard

An indication of the standard, the relevant version, section and product category of the

standard

No. of replies*

Implementers

38%

32%

26%

22%

15%

26-28

SEP

Holders

47%

56%

47%

29%

19%

16-17

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

An indication of the standard being used

An indication of the standard and the relevant version of the standard

Contact details of implementer

47%

41%

36%

non-EU

42%

32%

47%

189

kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

An indication of the standard, the relevant version and section of the standard

An indication of the standard, the relevant version, section and product category of the

standard

No. of replies*

28%

24%

33-37

non-EU

16%

17-19

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

An indication of the standard being used

Contact details of implementer

An indication of the standard and the relevant version of the standard

An indication of the standard, the relevant version and section of the standard

An indication of the standard, the relevant version, section and product

category of the standard

Other (please specify)

Agree Neutral

52%

48%

43%

29%

25%

100%

11%

13%

18%

21%

Disagree

37%

39%

44%

53%

54%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

An indication of the standard being used

Contact details of implementer

An indication of the standard and the relevant version of the standard

An indication of the standard, the relevant version and section of the standard

An indication of the standard, the relevant version, section and product

category of the standard

Other (please specify)

Agree Neutral Disagree

44%

40%

35%

17%

14%

100%

14%

17%

14%

19%

24%

42%

43%

51%

64%

62%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Summary of comments

The majority of both SEP holder and implementer respondents do not see a need to publicly provide

detailed information about the use of the standard by implementers other than the standard

implemented (so the public can tell what systems the product will be compatible with) and

appropriate contact information.

Main argument is that the implementer of (certain) SEPs is not necessarily the licensee. For many

standard implementers, the components implementing parts of a standard come from another party

(e.g., an IC supplier), and so the standard implementer has little information beyond the mere fact

that the component purportedly practices the standard. As mentioned by some implementers in the

car sector, automotive OEMs only know the identity of their direct supplier and are unable to provide

contact details of other companies in the design chain. Also, the requirement would be costly, vast

and unwieldy if it extended to every company in a value chain. Moreover, as mentioned by a large

implementer, standards implementers have not made a FRAND commitment, and do not acquire

market power from using a standard. It is of the opinion that product suppliers should not be required

to publicly disclose what standards their products support. Information about the technologies or

standards that a product is implementing may be commercially and competitively sensitive

information. Where needed, sensitive information can be shared in bilateral negotiations, potentially

under NDA.

Another reason given by some respondents is that information about the use of standards in user

products is usually available from publicly accessible sources, e.g. via the internet, product data

sheets or functional descriptions for the product or when an implementer of an ETSI standard

undertakes conformance testing of products vis-à-vis a standard. In addition, experts on the standard

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kom (2023) 0232 - Ingen titel

usually know which applications come into question for the standard. Potential users can therefore

be identified relatively easily through market research.

Q26. How useful would the existence of a confidential repository of licensing agreements be to help

judges and arbitrators determine a FRAND rate?

All

Very useful

Useful

Somewhat useful

Not useful

No. of replies

21%

17%

32%

30%

Companies

24%

15%

29%

32%

Associations/

trade union

29%

43%

Academia/Authorities/

NGO/other

31%

38%

23%

Citizens

22%

33%

22%

SEP

Holders

12%

53%

35%

Note: “No opinion” answers not taken into account.

Implementers

Very useful

Useful

Somewhat useful

Not useful

No. of replies

31%

19%

23%

27%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “No opinion” answers not taken into account

Very useful

Useful

Somewhat useful

Not useful

No. of replies

25%

17%

28%

31%

non-EU

11%

17%

39%

33%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent. “No opinion” answers not taken into account

Summary of comments

Respondents arguing that it would not be useful

Respondents that considered that it would not be useful to have a repository of confidential licensing

agreements could be grouped in four different groups.

The first group claims that effective mechanisms already exist for courts, arbitrators and competition

authorities to obtain information they may require in determining FRAND rates. Those mechanisms

appropriately take into account various national legal considerations (including due process,

confidentiality and relevance).

The second group considers that as a matter of principle, private parties should always be free to

conclude commercial agreements in confidence. There should hence never be an obligation to submit

licensing agreements to a repository. A voluntary repository, however, would not be useful because

it could provide for a skewed data set.

And a third group considers that since everyone should pay the same amount for the same thing, and

that amount should be set in advance before standard implementation. A repository of licensing

agreements is not necessary to achieve this outcome.

Last but not least the fourth group expresses scepticism as to the quality, reliability and the

completeness of such a repository.

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Some respondents explain that as past practice has shown licensing agreements’ information content

is limited. In order to understand an agreement’s rationale and mathematics much more information

is needed as e.g. negotiation history, business history, complementary agreements. An agreement’s

pure numbers (royalty rate) are not good for a reference.

Some respondents claim that a license repository would be open to opportunistic conduct that would

likely make it ineffective. For example, SEP holders can control to which companies they first license

and can opportunistically choose targets more likely to acquiesce to create favourable examples. Such

licenses may not be truly FRAND as they may be concluded under the threat of an injunction or

litigation more generally. There are also dangers that side deals with related transactions (e.g.

agreements to buy goods and services) may not be properly reflected in the repository.

Respondents arguing that it would be useful

Those respondents argued that implementers can only assess whether they are discriminated against

if SEP holders disclose prior licences. SEP implementers need a clear legal framework for claiming

and enforcing disclosure of relevant licences and other agreements. Otherwise, discrimination will

remain the norm rather than an exception.

Some request that information on comparable licences is known at the earliest stage of a product

development by all stakeholders.

According to some respondents, a repository of licensing agreements would increase access to licence

agreements and information that is currently not shared with courts and arbitrators because of

confidentiality considerations. This would translate into better adjudication about FRAND terms and

increasing the level playing field and equal treatment of licensees.

Some argue that such repository should not be confidential at all. Transparency is key for efficient

licensing and the implementation of new technologies. SMEs which plan to upgrade their products

with connectivity must calculate their business case. Licensing costs have a significant impact. For

SMEs lack of transparency is unacceptable.

Finally, a respondent explains that proprietary databases on patent licences already exist but are

fragmented and incomplete since they rely on usually redacted financial disclosures and voluntary

submissions by the contract parties. Examples are KTmine, Royalty Range, RoyaltySource, IPScio,

Questel Orbit etc. Well-funded patent offices, such as the EPO, could be in the right position to

maintain such a confidential repository also because they already (yet ineffectively) impose the

recordation of patent licences and transfers into their official registers.

Q27. If there should be a repository who should have access to such confidential repository of

licensing agreements?

All

Judges

Arbitrators

Mediators

Lawyers

Public authorities

Trustees

Other

(please

specify)

No. of replies

84%

71%

50%

48%

27%

23%

31%

Companies

82%

65%

56%

47%

26%

24%

26%

Associations/

trade union

100%

43%

57%

14%

43%

29%

Academia/

Authorities/

NGO/other

92%

75%

50%

42%

33%

17%

33%

Citizens

67%

33%

56%

33%

11%

44%

Note: multiple answers possible

192

kom (2023) 0232 - Ingen titel

Implementers

Judges

Arbitrators

Lawyers

Mediators

Public authorities

Trustees

Other (please specify)

No. of replies

92%

84%

80%

60%

48%

36%

44%

SEP

Holders

88%

65%

12%

35%

12%

18%

Note: Implementer: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; Holder: those who disagreed,

were neutral or had no opinion on Q2 and agreed with Q3; multiple answers possible.

Judges

Arbitrators

Mediators

Lawyers

Public authorities

Trustees

Other (please specify)

No. of replies

94%

83%

60%

49%

29%

26%

non-EU

72%

50%

39%

44%

22%

17%

33%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; multiple answers possible.

Summary of comments

The opinions on who should have access to the repository vary.

Public

Those that argue that such a repository must be public consider that it will enable willing licensees,

in particular SMEs to identify necessary licences and to determine the FRAND value for such a

licence. Every licensee will be enabled to calculate a business case for the provision of goods and

services it intends to provide. It furthermore will enable any customers to determine at an early stage

whether or not a supplier took all necessary licences. Licensors will not have the burden to search for

and contact every potential licensee. License negotiations will be accelerated as validity, relevance

and licensing terms and conditions will not have to be explained multiple times but just once.

(Partially) confidential

Others who consider that the repository should be confidential argue that when sharing data, it is

important to keep in mind the protection of business secrets and the fact that the data may have a high

market value.

Some consider that to protect the various interests and confidential information only judges,

arbitrators, mediators and public authorities should have access.

Others argue that if such repository is established, it is important to ensure that all parties to a

litigation have access to the information to make sure rights of defence are maintained. It is not

appropriate in an adversarial system for counsel not to have access to documents that the judge or

arbitrator will rely on to make decisions. Accordingly, counsel at least will need to have access which

will present a substantial danger of improper disclosure that will need to be addressed. In-house

counsels should not have access, as these agreements could include sensitive information from

competitors. Clients don't need to have access to the repository, but they should have access to the

anonymised database. Commercially sensitive information can be redacted or sufficiently

aggregated.

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kom (2023) 0232 - Ingen titel

Q28 Under what conditions should access to the confidential repository of licensing agreements be

granted?

Summary of answers

Some respondents explain that the repository could be used for pre-defined purposes, including (i)

assessing the value of SEP licensing offers, (ii) determining the FRAND value of SEP licences, and

(iii) determining whether there is any unjustified discrimination.

According to some respondents access could be granted on the following conditions: (i) only if the

implementer makes an unconditional commitment to take a license once a FRAND rate determination

is made; (ii) only to a limited number of outside attorneys and financial experts who agree to maintain

the confidentiality of the terms.

Other respondents consider that the confidential repository should be accessible to potential licensees

early in the negotiation process to balance information asymmetries and reduce transaction costs. To

protect confidentiality, access should be conditioned on (i) there being a valid negotiation between

two parties, and (ii) parties agreeing to destroy and actually destroying any information received from

the repository once the negotiation is complete. The confidential repository will do little to reduce

negotiating costs and increase transparency if it is only available in limited circumstances. Indeed, it

could increase litigation if that were the only avenue to get access to the confidential repository.

Q29. No licence agreement is the same. They are catered to the needs of the concluding parties and

the agreed terms and rates may be influenced by elements other than merely SEPs. If there were an

obligation to submit licensing agreements to a confidential repository and parties were obliged to

“unpack” the complex licensing agreements, i.e. provide a clear picture of the agreed terms and

conditions, which elements of the agreement would need to be explained in a form to be submitted to

the confidential repository of licensing agreements, summarising those agreements?

All

Associa-

Compa- tions/

nies

trade

union

96%

92%

83%

88%

83%

79%

67%

58%

100%

Academia/

Authorities

Citizens

/NGO/

other

90%

80%

90%

80%

90%

80%

90%

80%

100

78%

89%

78%

67%

78%

Licensed SEPs

Royalties

Methodology used to calculate the royalty

Duration

Licensed product

Geographical scope

Discounts

Grant-backs

Parties

Reciprocity obligations

Defensive suspension (clause that allows a SEP holder to

terminate a licence upon the occurrence of a certain event, like

being sued for patent infringement by a implementer or

implementer’s customer)

Patent related (validity)

Payment conditions (term, interest for late payments)

Legal (applicable law, competent forum/court)

96%

94%

87%

85%

83%

81%

79%

74%

70%

64%

62%

67%

58%

50%

25%

75%

80%

70%

44%

56%

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kom (2023) 0232 - Ingen titel

All

Associa-

Compa- tions/

nies

trade

union

54%

46%

75%

50%

Academia/

Authorities

Citizens

/NGO/

other

70%

60%

56%

SEP

Holders

91%

82%

73%

82%

91%

73%

82%

73%

27%

73%

Non-disclosure requirements

Compliance (reporting obligations and auditing conditions)

No. of replies

Note: multiple answers possible

60%

51%

Implementers

Licensed SEPs

Royalties

Methodology used to calculate the royalty

Discounts

Geographical scope

Duration

Parties

Licensed product

Grant-backs

Reciprocity obligations

Patent related (validity)

Defensive suspension (clause that allows a SEP holder to terminate a licence upon the

occurrence of a certain event, like being sued for patent infringement by a implementer

or implementer’s customer)

Non-disclosure requirements

Legal (applicable law, competent forum/court)

Payment conditions (term, interest for late payments)

Compliance (reporting obligations and auditing conditions)

No. of replies

100%

95%

91%

86%

82%

77%

73%

68%

59%

27%

55%

45%

36%

Note: Implementer: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; Holder: those who disagreed,

were neutral or had no opinion on Q2 and agreed with Q3; multiple answers possible.

Licensed SEPs

Royalties

Methodology used to calculate the royalty

Discounts

Licensed product

Geographical scope

Duration

Parties

Grant-backs

Reciprocity obligations

Patent related (validity)

Defensive suspension (clause that allows a SEP holder to terminate a licence upon the

occurrence of a certain event, like being sued for patent infringement by a implementer

or implementer’s customer)

Legal (applicable law, competent forum/court)

Payment conditions (term, interest for late payments)

Non-disclosure requirements

Compliance (reporting obligations and auditing conditions)

No. of replies

93%

85%

81%

78%

70%

63%

non-EU

100%

91%

82%

100%

91%

82%

100%

91%

82%

63%

59%

52%

41%

64%

82%

73%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; multiple answers possible.

Summary of comments

195

kom (2023) 0232 - Ingen titel

Some respondents explain that first, the comparable licenses have to be identified. Once comparable

licenses are identified, it is necessary to unpack them to identify the one-way royalty paid for a license

to the SEP portfolio at issue. To do so, one must identify and isolate the value of other considerations

included in the license, which may be difficult or impossible. In addition, any “unpacking” rule that

requires only some terms of sometimes complex business arrangements to be disclosed is subject to

being gamed by parties wishing to avoid disclosure.

Some respondents claim that the list only contains elements from the licence agreement and does not

take into account potential interdependencies between elements and their relative importance.

According to those respondents, the list does not contain any element that relates to the general

background against which the licence agreement was signed. According to them FRAND requires

the licence to be considered as a whole (internally) against the circumstances in which it was

negotiated (externally). Such elements can include the overall economic situation (both general and

particular), the product market segment, etc. One example of such external situations can be found

in the decision of the German Federal Court of Justice in the

Sisvel v Haier

case (5 May 2020 - Case

No. KZR 36/17) where the “Court held that Sisvel had not discriminated against Haier by offering

different (higher) rates than those previously agreed with another licensee (allegedly) as a result of

undue pressure by foreign state authorities”. There might also be other commercial considerations

that can be part of the agreement. Given the many different product segments, geographies, and other

commercial and economic considerations, it is impossible to provide an exhaustive list of all the

elements that may be relevant for the unpacking of the agreement. Unpacking’ is a complex activity

that cannot be captured by a defined procedure or in an excel sheet.

Some respondents note that FRAND terms may also differ because the parties might agree on

different forms of monetary consideration which allow them to allocate commercial risk as they deem

appropriate. Parties might also negotiate non-monetary, yet still valuable, terms consistent with

FRAND.

Some respondents claim that an obligation for the parties to each license agreement submitted to the

repository to explain and “unpack” licenses would be complex and would likely result in biased and

incomplete views. It could also impact financial markets or impact other regulatory filings. Two

parties would each unpack the same agreement differently.

Some respondents in favour of a repository consider that such repository should include all listed

marked information, plus the information regarding the scope of the licence.

Should the repository be public or accessible to larger circle of authorised persons, the parties, the

licensed product and royalties should be included in redacted form similar to the ordinary non-

confidential versions of competition law decisions. For instance, instead of the explicit name of a

company, the license repository could indicate its size, turnover, sector, geographical presence and

so on.

The process of unpacking would need to be dynamic over time. It is not possible to represent the

dynamic effects in a form.

Questions on essentiality

Quantitative summary

Around 60% of all respondents and 90% of Implementers supported third party essentiality checks

as long as independent experts do them. Only 24% of SEP Holders supported such a solution. A third

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kom (2023) 0232 - Ingen titel

of all respondents considered that essentiality checks should serve only an advisory role with no legal

consequences.

Around two thirds of all respondents and around 80% of Implementers thought that essentiality

assessment might help in assessing SEP exposure of a product and deciding whom to negotiate with,

smoothen licensing negotiation and prevent over pricing. More than half of SEP Holders disagreed

with these impacts, but agreed that checks might provide a reliable overview of the share of each SEP

holders’ essential patents.

As regards practical implementation, the respondents preferred that European Patent Office (EPO)

conducts the checks (63% of all replies) on just “one SEP per SEP family” (63%).

Tables with replies per question

Q30. The SEPs legal framework does not provide for third party checks outside of court of patents

declared essential to a standard. How useful would be to set up a system of essentiality checks?

All

Useful, but only if the assessors would have the required

expertise and are totally independent

Useful, but only if it would be advisory and have no legal

consequences

Useful. It provides more transparency and reduces licensing

costs

Not useful. It is sufficient to develop private solutions to identify

declared SEPs that are clearly not a true SEP.

Not useful. It is sufficient, if SEP owners were obliged to update

their self-declarations (so as to remove declared SEPs that are no

longer SEPs)

Not useful. It is sufficient, if SEP owners were obliged to submit

claim charts confirmed by an independent third party

Other, please specify

No. of replies

61%

34%

10%

Compa-

nies

66%

34%

37%

11%

Associa-

tions/

trade

union

71%

57%

43%

Academia/

Authorities/ Citizens

NGO/other

54%

31%

38%

15%

44%

22%

11%

33%

19%

18%

14%

31%

11%

SEP

Holders

24%

12%

18%

41%

Note: multiple answers possible; “No opinion” answers not taken into account; “No opinion” answers not taken into account

Implementers

Useful, but only if the assessors would have the required expertise and are totally

independent

Useful, but only if it would be advisory and have no legal consequences

Useful. It provides more transparency and reduces licensing costs

Not useful. It is sufficient, if SEP owners were obliged to update their self-declarations

(so as to remove declared SEPs that are no longer SEPs)

Not useful. It is sufficient to develop private solutions to identify declared SEPs that

are clearly not a true SEP.

Not useful. It is sufficient, if SEP owners were obliged to submit claim charts

confirmed by an independent third party

Other, please specify

No. of replies

93%

64%

46%

Note: Implementer: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; Holder: those who disagreed,

were neutral or had no opinion on Q2 and agreed with Q3; multiple answers possible; “No opinion” answers not taken into account;

“No opinion” answers not taken into account.

Useful, but only if the assessors would have the required expertise and are totally

independent

63%

non-EU

65%

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kom (2023) 0232 - Ingen titel

Useful, but only if it would be advisory and have no legal consequences

Useful. It provides more transparency and reduces licensing costs

Not useful. It is sufficient to develop private solutions to identify declared SEPs that

are clearly not a true SEP.

Not useful. It is sufficient, if SEP owners were obliged to update their self-declarations

(so as to remove declared SEPs that are no longer SEPs)

Not useful. It is sufficient, if SEP owners were obliged to submit claim charts

confirmed by an independent third party

Other, please specify

No. of replies

37%

21%

non-EU

35%

40%

20%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “No opinion” answers not taken into account;

“No opinion” answers not taken into account.

Summary of comments

Proponents for a system of essentiality checks

The majority of all respondents (61%) consider the setting up of a system of essentiality checks as

useful, if the assessors would have the required expertise and are totally independent users of designs.

This is particularly true for those respondents who identified themselves as implementers, where 93%

considered this useful contrary to 24% of SEP holders.

Those in favour of such a system point out that third party essentiality checks would reduce

information asymmetry and make negotiation more efficient. Currently, the discrepancy between

declared and truly essential patents causes legal and commercial uncertainty for potential licensees,

who are unable to assess whether they need to acquire a licence, from whom, and what is the value

of the IPR that they need to obtain. The complex SEP landscape may lead to violations of competition

law, as SEP holders can use their position of unavoidable trading partners with respect to truly

standard essential patents to force SEP licensees to also pay for IPR that they do not need. Under the

current system, licensees need to bear the cost of establishing essentiality of SEPs for each individual

licence negotiation. It is a time consuming and expensive process that slows down licensing

negotiations. Third-party essentiality checks would smoothen SEP licence negotiations. However,

the trust of potential licensees would be essential to achieve these gains. Untrusted essentiality checks

would exacerbate the costs and inefficiencies of the current system. The legal framework must ensure

that the assessors are competent and not subject to capture nor forum shopping and are not funded,

or vetted, by SEP holders.

Proponents against a system of essentiality checks

Those respondents against a system of essentiality checks argue that making essentiality checks

available may not necessarily facilitate SEP licensing. First, a disadvantage of essentiality checks is

that they are not legally binding unless confirmed by courts. But even if essentiality is confirmed in

court, parties may dispute validity, the requested royalty rate and still refuse licenses. Second, it is

mentioned that the essentiality of a patent cannot be determined "objectively”. It is a question of

probability. Third, even if that is possible, determining essentiality ratios would be voluminous, very

costly and determinations will still not be legally enforceable. Finally, the SEP holders that seek to

monetize their portfolios have enough SEPs that at least some are essential to any given standard,

making the question of essentiality less important in the aggregate. In particular, patent pool

administrators point out that private solutions are available and sufficient. With the pool context in

mind, a starting point for a market driven approach may for instance be one that puts in place an

accreditation framework (rather than a single independent institution) where independent, specialised

third parties can seek accreditation based on a determined set of criteria.

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kom (2023) 0232 - Ingen titel

Q31. What would be the main advantage of third-party essentiality checks?

“Agree and strongly agree” answers only

It may help to be better informed about the actual SEP exposure

of a given product

It may help to reduce the required amount of resources spent on

licensing of SEPs

It may help to smoothen licensing negotiations

It may help to negotiate a fair royalty (preventing over-pricing)

It may help to provide a trustworthy and reliable overview of the

share of each SEP holders’ essential patents

It may help in deciding with whom to engage in licensing

discussions

It may facilitate the construction of better benchmarks to be used

in case of disputes

It may make SEP declarants to become more selective in

submitting ‘potentially essential’ or ‘probably not essential’

patents

It may help the SEP holder to meet its obligations as referred to

in Huawei v ZTE

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

All

65%

64%

63%

62%

58%

48%

Associa- Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

65%

71%

62%

63%

68%

62%

59%

62%

59%

57%

46%

71%

86%

71%

43%

54%

69%

62%

60%

62%

63%

50%

43%

41%

59-67

“No

44%

32-39

opinion”

29%

answers

not

42%

10-13

taken

into

38%

7-8

account

“Agree and strongly agree” answers only

It may help in deciding with whom to engage in licensing discussions

It may help to reduce the required amount of resources spent on licensing of SEPs

It may help to smoothen licensing negotiations

It may help to negotiate a fair royalty (preventing over-pricing)

It may help to provide a trustworthy and reliable overview of the share of each SEP

holders’ essential patents

It may facilitate the construction of better benchmarks to be used in case of disputes

It may help to be better informed about the actual SEP exposure of a given product

It may make SEP declarants to become more selective in submitting ‘potentially

essential’ or ‘probably not essential’ patents

It may help the SEP holder to meet its obligations as referred to in Huawei v ZTE

No. of replies*

Implementers

89%

86%

85%

82%

79%

59%

46%

27-28

SEP

Holders

24%

29%

35%

24%

41%

25%

35%

24%

25%

16-17

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

It may help to provide a trustworthy and reliable overview of the share of each SEP

holders’ essential patents

It may help to reduce the required amount of resources spent on licensing of SEPs

It may help to smoothen licensing negotiations

It may help in deciding with whom to engage in licensing discussions

It may help to negotiate a fair royalty (preventing over-pricing)

It may help to be better informed about the actual SEP exposure of a given product

It may facilitate the construction of better benchmarks to be used in case of disputes

It may make SEP declarants to become more selective in submitting ‘potentially

essential’ or ‘probably not essential’ patents

It may help the SEP holder to meet its obligations as referred to in Huawei v ZTE

No. of replies*

70%

68%

66%

65%

63%

59%

49%

41%

34-38

non-EU

55%

60%

62%

60%

65%

68%

60%

50%

41%

17-21

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

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kom (2023) 0232 - Ingen titel

*range, different number of replies per question

“All answers”

It may help to be better informed about the actual SEP exposure of a given

product

It may help to reduce the required amount of resources spent on licensing of

SEPs

It may help to smoothen licensing negotiations

It may help to provide a trustworthy and reliable overview of the share of each

SEP holders’ essential patents

It may help to negotiate a fair royalty (preventing over-pricing)

It may help in deciding with whom to engage in licensing discussions

It may facilitate the construction of better benchmarks to be used in case of

disputes

It may make SEP declarants to become more selective in submitting

‘potentially essential’ or ‘probably not essential’ patents

It may help the SEP holder to meet its obligations as referred to in Huawei v

ZTE

Other (please specify)

Agree Neutral

65%

64%

63%

62%

58%

48%

41%

100%

18%

13%

20%

15%

18%

28%

19%

Disagree

17%

26%

22%

17%

29%

23%

24%

23%

41%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

It may help to reduce the required amount of resources spent on licensing of

SEPs

It may help to be better informed about the actual SEP exposure of a given

product

It may help to provide a trustworthy and reliable overview of the share of each

SEP holders’ essential patents

It may help to smoothen licensing negotiations

It may help in deciding with whom to engage in licensing discussions

It may help to negotiate a fair royalty (preventing over-pricing)

It may facilitate the construction of better benchmarks to be used in case of

disputes

It may make SEP declarants to become more selective in submitting

‘potentially essential’ or ‘probably not essential’ patents

It may help the SEP holder to meet its obligations as referred to in Huawei v

ZTE

Other (please specify)

Agree Neutral

68%

65%

62%

59%

57%

46%

44%

22%

27%

18%

14%

22%

35%

Disagree

27%

14%

11%

21%

27%

32%

22%

19%

47%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Summary of comments

The majority of all respondents consider as important benefits of a system of third party essentiality

checks that it may (i) provide better information on the actual SEP exposure of a given product (65%),

(ii) reduce transaction costs (65%), (iii) smoothen licensing negotiations (64%), (iv) give insight in

the share of each SEP holders’ essential patents (63%), (v) help to negotiate a fair royalty (63%), (vi)

help in deciding with whom to engage in licensing discussions (62%) and (vii) facilitate the

construction of better benchmarks to be used in case of disputes (58%)

As particular advantages for start-ups and SMEs it is mentioned that third party essentiality checks

could be useful for SMEs as they would provide additional transparency and bring down negotiation

costs. Given the sheer size of SEP portfolios, potential licensees generally do not have sufficient time

for carrying out the necessary analyses of SEPs. This would be especially important for start-ups that

do not have the resources for analysing patents and standards. However, the risk of an ex-parte system

would be the lack of resources for start-ups and SMEs to rebut an existing but flawed essentiality

finding. A possible disadvantage of a system of third-party essentiality checks is that SMEs are

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kom (2023) 0232 - Ingen titel

usually not asked to take a license, so that essentiality checks standing alone may give unsophisticated

or unadvised SMEs a false impression of the possible costs to implement a standard.

Q32. If there were a legal obligation to conduct essentiality checks on all declared SEP families that

SEP holders intend to license, how should those be made?

“Agree and strongly agree” answers only

One SEP per family

Only SEPs that are licensed on FRAND terms and conditions,

including cross licensing, excluding SEPs licensed on a royalty

free basis

For worldwide SEPs

Sampling of both ‘Numerator data’ and ‘Denominator data’.

Sampling of ‘Numerator data’ (which is information on the

actual SEPs portfolio of a specific patent owner for a specific

standard).

Sampling of ‘Denominator data’ (which is information on actual

SEPs owned by all relevant patent owners for a specific

standard).

For European SEPs only

One SEP per family that is being licensed on FRAND terms and

conditions

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

All

63%

45%

Associa- Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

71%

67%

30%

71%

43%

71%

56%

14%

40%

37%

35%

41%

30%

39%

33%

14%

38%

50%

20%

50%

71%

57%

33%

30%

29%

20%

71%

26%

24%

46-57

“No

27%

24%

26-34

opinion”

33%

50%

6-7

answers

not

38%

8-10

taken

into

33%

6-7

account

“Agree and strongly agree” answers only

One SEP per family

Only SEPs that are licensed on FRAND terms and conditions, including cross

licensing, excluding SEPs licensed on a royalty free basis

For worldwide SEPs

Sampling of both ‘Numerator data’ and ‘Denominator data’.

Sampling of ‘Numerator data’ (which is information on the actual SEPs portfolio of a

specific patent owner for a specific standard).

Sampling of ‘Denominator data’ (which is information on actual SEPs owned by all

relevant patent owners for a specific standard).

For European SEPs only

One SEP per family that is being licensed on FRAND terms and conditions

No. of replies*

Implementers

54%

60%

57%

44%

39%

48%

40%

18%

20-26

SEP

Holders

71%

31%

23%

20%

27%

13%

15%

31%

13-15

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

One SEP per family

Only SEPs that are licensed on FRAND terms and conditions, including cross

licensing, excluding SEPs licensed on a royalty free basis

For worldwide SEPs

Sampling of both ‘Numerator data’ and ‘Denominator data’.

Sampling of ‘Numerator data’ (which is information on the actual SEPs portfolio of a

specific patent owner for a specific standard).

Sampling of ‘Denominator data’ (which is information on actual SEPs owned by all

relevant patent owners for a specific standard).

71%

59%

41%

38%

32%

non-EU

44%

25%

33%

15%

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kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

For European SEPs only

One SEP per family that is being licensed on FRAND terms and conditions

No. of replies*

32%

29%

28-34

non-EU

25%

12-16

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

One SEP per family

Only SEPs that are licensed on FRAND terms and conditions, including cross

licensing, excluding SEPs licensed on a royalty free basis

For worldwide SEPs

Sampling of both ‘Numerator data’ and ‘Denominator data’.

Sampling of ‘Numerator data’ (which is information on the actual SEPs

portfolio of a specific patent owner for a specific standard).

Sampling of ‘Denominator data’ (which is information on actual SEPs owned

by all relevant patent owners for a specific standard).

For European SEPs only

One SEP per family that is being licensed on FRAND terms and conditions

Other (please specify)

Agree Neutral

63%

45%

40%

37%

35%

33%

26%

24%

75%

16%

11%

20%

21%

27%

11%

22%

Disagree

21%

43%

51%

43%

44%

39%

63%

54%

25%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

One SEP per family

Only SEPs that are licensed on FRAND terms and conditions, including cross

licensing, excluding SEPs licensed on a royalty free basis

For worldwide SEPs

Sampling of ‘Numerator data’ (which is information on the actual SEPs

portfolio of a specific patent owner for a specific standard).

Sampling of both ‘Numerator data’ and ‘Denominator data’.

Sampling of ‘Denominator data’ (which is information on actual SEPs owned

by all relevant patent owners for a specific standard).

For European SEPs only

One SEP per family that is being licensed on FRAND terms and conditions

Other (please specify)

Agree Neutral

71%

43%

41%

39%

30%

27%

24%

12%

10%

11%

18%

23%

30%

24%

Disagree

18%

47%

48%

43%

47%

41%

69%

52%

100%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Summary of comments

The majority of all respondents (63%) would prefer to check one SEP per family if there were a legal

obligation to conduct essentiality checks on all declared SEP families that SEP holders intend to

license. The approach of a SEP per family is best suited for this (although one should think about

selecting the family member from the jurisdiction in which litigation is already taking place or this

is at least foreseeable. The check should be done on a family member that successfully passed a full

examination (pref. with most limited claim) and in the mother application in case of

divisionary/continuation.

Respondents are moderately positive about sampling. Some, mainly “Implementers”, warn against

sampling in essentiality assessments since it would always give an approximate - not accurate - view

of the entire portfolio. If sampling were nevertheless used, it should be random (not selected by the

SEP holder), and large enough to provide a reliable indication of the overall strength of the portfolio

and be done in a statistically transparent manner, so that error margins are clear. Moreover, ex-post

sample-based methodologies have limited influence on over-declarations. Others, mainly “SEP

Holders”, stress that some level of sampling may be appropriate as essentiality checks on all SEPs

are cost-prohibitive and would undermine FRAND licensing. Moreover, essentiality checks on all

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SEPs that SEP holders “intend to license” would make no sense because implementers will demand

a licence to all disclosed SEPs in order to ensure full freedom to operate.

As to the geographical coverage of the patents, in particular SEP holders would be in favour of a

global scope of the essentiality checks since they tend to conclude global licenses for international

standards. Patent pool administrators explain that global checks are achieved within the context of

patent pools by mans of a full evaluation for each patent in certain significant countries and then a

system of certifications to those evaluated claims for family patents in other countries. However,

some argue against a global reach that a mandatory system of essentiality checks would risk taking

on a quasi-extra judicial role and could potentially cause tensions with foreign jurisdictions, even if

the outcome remains for informational purposes only.

Q33. If a system of third-party essentiality checks would be in place, which authority/body would be

best placed for doing such essentiality checks?

All

The EPO

The national patent offices

Specialised law firms

Other organisation, please specify

A combination of the bodies listed in letters a, b,

c or d. If so, please specify which bodies and

why in your view both should be responsible for

this task

No. of replies

Note: multiple answers possible

Companies

64%

27%

30%

18%

Academia/

Associations

Authorities/ Citizens

/trade union

NGO/other

83%

33%

17%

78%

44%

22%

33%

22%

33%

11%

33%

44%

11%

63%

28%

25%

11%

SEP

Holders

60%

13%

47%

Implementers

The EPO

The national patent offices

Other organisation, please specify

Specialised law firms

A combination of the bodies listed in letters a, b, c or d. If so, please specify which

bodies and why in your view both should be responsible for this task

No. of replies

73%

35%

27%

15%

Note: Implementer: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; Holder: those who disagreed,

were neutral or had no opinion on Q2 and agreed with Q3; multiple answers possible.

The EPO

The national patent offices

Specialised law firms

Other organisation, please specify

A combination of the bodies listed in letters a, b, c or d. If so, please specify which

bodies and why in your view both should be responsible for this task

No. of replies

71%

32%

21%

18%

non-EU

64%

29%

43%

29%

14%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; multiple answers possible.

Summary of comments

Of all respondents a majority (63%) consider the EPO as the best placed authority to do the

essentiality checks. Also, among Implementers and SEP Holders this authority is the preferred option

(71% and 64% respectively). As for the other possible assessing entities, more than a quarter of all

respondents (28%) consider the national patent offices and specialised law firms best placed to

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perform the checks. However, where Implementers seem to prefer national patent offices over law

firms (35% versus 15%), SEP Holders do not see a role for NIPOs as possible assessors and but

instead mention the law firms (0% versus 47%) as a second-best option after the EPO.

All respondents agree that the body in charge of the essentiality checks should be impartial and

independent, have the necessary expertise and access to standards and technical specifications

through arrangements with SDOs. For some, this means that the EPO would be their preferred choice,

be it alone or together with national patent offices. Others, however, are of the opinion that the EPO

and national patent offices are not the best authorities for performing the checks, as they lack

competence and their expertise concerns patentability, prosecution or patent validity. Other

arguments raised against patents offices as possible evaluators are that the authority granting a SEP

should not assess a SEP’s essentiality to ensure highest possible objectivity and may not have the

necessary resources to handle these checks.

Nevertheless, those respondents that opted for a combination of bodies, most saw a leading role for

the EPO, which could do the checks together with national patent offices or outsource the checks to

specialised firms under a possible certification framework. In such a case, the EPO should ensure the

quality of the checks, organize the assessment activities internally or with certified institutions and

ensure the independence and quality of engaged certified institutions.

Others see a role for a completely new organisation to be in charge of the essentiality checks. One

respondent suggested that patent offices are not the best in place to do the checks but that a specific

organisation could appoint several specialized law firms to perform these checks. Furthermore, there

was mention of WIPO and the creation of a board of experts” (BOE) at SDO level and a “SEP court”

that unlike the EPO, patent offices or private actors would be able to take decisions between two

positions defended by two adverse parties.

Q34. Please explain what are in your view the main challenges to set up such a system, in terms of

complexity and/or costs.

Summary of answers

SEP holders are mostly concerned by the costs of the system and who would have to pay for the

checks. Requiring the essentiality of each SEP within a portfolio to be subjected to a separate review

would inevitably impose significant costs and raise barriers to entry to effective licensing giving

companies with sufficient financial resources an advantage. It is therefore suggested by some to

establish incentives for patent owners to voluntarily initiate essentiality assessments. As an example,

it is proposed that implementers should agree to accept the findings of third-party essentiality checks

as a basis for signing up to the FRAND license. Translation costs are also to be taken into account.

The cost challenge is also closely linked to that of quality. In particular, some large SEP portfolio

holders stress the importance of high-quality checks. For a new system to be relevant it needs to be

rigorous, transparent and neutral. Less trust in the checks would reduce any benefit towards

improving licensing. However, it would be challenging to create a system of essentiality checks that

keeps the cost at a reasonable level while safeguarding quality.

As to the complexity of the system the respondents raise different concerns, concerning the scope,

neutrality and continuity of the system, the expertise of the checkers, quality and uniformity of the

checks, staffing capacity, possible abuse of the system and timing.

First, an issue of concern raised by all stakeholders, is the integrity of the organisation conducting

the checks, specifically the independence and impartiality of its members. One worry is that it would

be difficult to find staff with the required competencies that is not already engaged by an SEP holder

or SEP implementer. Another is the potential for bias due to the source of funding.

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The stakeholders also point to the choices to be made concerning the scope of the checks. Different

interests are at take concerning questions as to the legal effect of the checks and whether they can be

challenged, appealed or reassessed over time. Other questions that need to be answered are: which

patents (of a family) need to be checked and against which standards? From which regions and

SDOs? At what moment in time? What will be the definition of essentiality? And who decides which

patents are going to be checked?

Another key challenge would be to ensure the required expertise on a continuous basis to be able to

process huge numbers of potential SEPs in a uniform manner. There are not many engineers with

that specific knowledge and building up capacity cannot be done overnight. The number of external

lawyers would be limited, because they would have to meet such strict (predefined) criteria. If this

requires close cooperation and coordination among different IP authorities, a clear, centralised and

uniform procedure will need to be implemented to ensure consistent decisions. Moreover, there will

be challenges in determining the correct staffing level, particularly for smaller or less active standards

areas, as the workload will likely come in waves as new standards or versions of standards are

published.

Finally, a major challenge pointed out by the SEP holders is to design the system in such a way as to

avoid delaying tactics by implementers. Some see a risk of new opportunities of hold-out in case

implementers would decide to challenge the essentiality check. “We don’t want to take a licence yet

because we want to first see the essentiality checks for your Release 18 patents” is one example

mentioned by a major SEP holder association of how an implementer could use coercive essentiality

checks as a delaying tactic. Another SEP holder representative, namely a pool administrator, points

out that a situation where a legal obligation would be put in place with no further obligation put,

conversely, on the SEP implementers, would just generate costs and time waste without any real

benefit.

Questions on FRAND (Fair, Reasonable and Non-Discriminatory) terms and conditions

Quantitative summary

Between 55% and 75% of all respondents and from 85% to 100% of Implementers, consider that

SEP holder cannot refuse a licence following a request from an implementer. Majority of SEP

Holders were of the opposite view.

60% of all respondents and 93% of Implementers consider that licencing could take place at any level

of the value chain. Around 70% of SEP Holders consider that it should be at one level only (level

allowing for the best monitoring of applications).

Around three quarters of respondents (93% of SEP Holders) agreed that fair and reasonable terms

and conditions might depend on functionalities of the standard implemented in a product. Around

70% thought these terms could depend on the level of licencing.

For non-discrimination assessment, it matters if companies that use the same functionalities of the

standard in similar applications are put at a competitive disadvantage (around 75% of all answers,

and 94% of SEP Holders answers).

SEP Holders considered that discounts between 28% and 40% do not cause discrimination. For

Implementers reasonable discounts amount to between 5% and 10%.

70% of all respondents and 100% of Implementers argued that it is important to know reasonable

aggregate royalty rate for a product. Only 20% of SEP Holders shared that view.

Summary of comments

The summary of FRAND-related comments aims at explaining the main positions and pointing out

to some comments that may be helpful to further the discussion.

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Positions based on the principles “access to all”, licensing at only one level in a value

chain and FRAND terms and conditions based on end-use of the standardised

technology

1. “Access to all” and licensing in the value chain

The proponents of the principle “access to all” explain that the FRAND commitment is not an active

obligation to make an offer to license to all third parties. Rather, it requires SEP holders to allow

access to the standards. It is up to an SEP holder how to provide such access.

According to those respondents, patent law bestows exclusive rights on patent holders. Hence, SEP

holders have discretion who to license and at what level of the value chain, unless modified by a

FRAND commitment. Most FRAND commitments do not specify a licensing level. Competition law

(Article 102 TFEU) does not imply a preferred licensing level. Any intervention undermining a SEP

holder’s discretion over licensing level would likely contravene Articles 30 and 31 of the TRIPS

Agreement.

Furthermore, some respondents explain that courts in Europe and other jurisdictions have rejected

the contention that SEP holders are required to grant licenses to component and chip makers (See

Nokia v Daimler, LG Mannheim 18 August 2020 - Case No. 2 O 34/19; Sharp v Daimler, District

Court of Munich, judgment dated 10 September 2020, Case-No. 7 O 8818/19; US Court of Appeal

for the Ninth Circuit in Federal Trade Commission v Qualcomm Inc., dated 11 August 2020.) See

also HTC v Ericsson (US Court of Appeal). The US Court of Appeals for the Fifth Circuit ruled on

28 February 2022 that the supplier does not have a legal right to a licence and that Avanci and its

licensors have not breached their FRAND obligations, No. 20-11032.

One respondent explained that FRAND commitments leave at least four possibilities to ensure access

to standards: (i) concluding a FRAND license; (ii) indirectly benefiting from a license by selling to

licensed end-device manufacturers holding so-called have-made rights; (iii) concluding non-assertion

agreements, or (iv) benefiting from the SEP owner’s policy of non-asserting patents at a certain level

of the production chain. Another respondent added that, within the same value chain, if a license is

provided upstream then lawful downstream access can be enabled via the principle of exhaustion.

The specificities of the different SEP implementing industries call for the preservation of FRAND

licensing flexibility.

A respondent notes that concerns may arise when an SEP holder seeks to enforce its SEPs towards a

specific implementer. Consistent with the CJEU judgment in

Huawei v. ZTE,

a SEP holder cannot

seek to exclude an implementer from the market without first offering a license on FRAND terms.

Thus, even if a SEP holder were to have a practice of licensing at one level of the value chain, parties

at other levels of the chain would have comfort that they would not be subject to a prohibitive order.

Within this constraint, SEP holders are best suited to determine how to license and from whom to

seek a royalty. A ‘refusal to license’ at a certain point in the supply chain, is not necessarily

exclusionary and does not automatically impact the use of the standardized technology.

Some respondents explain that a refusal of a licence by a SEP holder does not in itself deny access

to the technology, and it is therefore not problematic per se. In case a SEP holder is not ready to

license its SEPs for a new application (e.g., when valuation remains unclear), it would not be

unreasonable to not offer licenses until the market has developed. Doing so would prevent potential

over-valuation or under-valuation of a technical standard in a new application. Some respondents

also note that a SEP holder usually prepares a licensing program with an expected level of licensee

in the value chain to avoid double dipping or free riding. This would create certainty and clarity for

both the SEP holder and implementer (and others in the value chain). According to those views,

where a SEP holder is still preparing its licensing programme, it may be reasonable for a SEP holder

to temporarily refuse a request from implementer for a license.

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2. FRAND terms and conditions

Some respondents assert that SEP holders are generally well-suited to determine the best manner, in

which to license and they have the best understanding of their technology and its use in the

marketplace. According to them, making changes to currently accepted industry models would be

difficult to administer and would interfere with the ability of SEP holders to ensure consistent pricing

among similarly situated licensees. This is because the value of a standard as used in the market only

becomes apparent at the end-implementer level. In most cases it is then also logical that the royalties

are paid by the manufacturer/seller of the end-implementer product or service, although in some

markets it can be more practical to license at a different level (e.g. Tier 1 suppliers to automotive

industry). The price would, however, be determined based on the value to the end-implementer.

Those respondents consider that a SEP holder cannot be made responsible for the complexities of

modern opaque supply chains or be bound by agreements between various implementers in the value

chain.

Certain respondents also argue that prices need not to be uniform because terms may differ based on

the technology that is being licensed (based on standard or version of the standard). According to

them the royalties in a FRAND licence should reflect the economic value that the patented technology

adds to the end product.

Some respondents explain that in a market economy, price must be based upon the value conferred.

This means different prices for different applications. Critically, the value of a technology also

depends upon its application/use. 5G can be incorporated in a vending machine to occasionally report

stock levels. It can be used in a self-driving car. In the former, 5G is used occasionally and provides

a moderate benefit. In the car, 5G will be used continuously and will be responsible for mission-

critical safety features that benefit consumers, manufacturers, and society at large. Pricing 5G licence

the same for vending machines and self-driving cars would not be fair and reasonable. A self-driving

car licence would be too expensive for the vending machine provider. And a vending machine licence

applied to self-driving cars would not generate the value to justify investing in the cellular standards.

A respondent explains that the statement “FR TC may depend on the functionalities of the standard

that are being implemented” assumes incorrectly that it is obvious, or easily ascertainable, which

standard functionalities are implemented in which products. For example, the first HEVC license

offered a fixed rate for Main/Main10 implementations, with small additional charges for

implementation of any of the optional “extensions” (Range Extension, Multi-View, and Scalability).

The implementers (business people) often did not know whether their products implemented any of

the optional extensions. Basing FR TC on the “application of the standard” in particular products or

on “the functionalities of the standard that are being implemented” suggest a range of granular prices

specific to each product. The realities of the business require less granular pricing applied to a range

of products, averaged across the various permutations of application and function.

Some respondents note that the level of complexity of the negotiations will increase, if questions

about the products’ main function are included. That would be another obstacle to achieve an

agreement. The licensing negotiations should become easier, not more complex. If a question about

a product’s main function was clarified with one implementer, would it mean that all subsequent

implementers were bound by such finding?

Regarding the “ND” assessment, respondents note that European courts are increasingly aligned. In

the UK (Unwired

Planet v Huawei)

Judge Birss analysed in detail the non-discrimination prong of

FRAND, concluding that there is no requirement for “hard-edged” non-discrimination. Non-

discrimination in the FRAND context does not mean that every licensee is entitled to the same rate,

not even similarly situated competitors. This has been confirmed by the UK Supreme Court.

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Some respondents explain that for the ND assessment, it is relevant whether: (i) the entities are

competitors, and (ii) they would be put at a competitive disadvantage, if treated differently. Hence

the following are generally not determinative: those using the same functionalities of a standard;

those using the technology in the same applications; those using the same functionalities of a standard

in similar or same applications.

Some respondents argue that if entities are at the same level of the value chain ND is relevant,

provided they are competitors. Entities at different levels of the value chain are unlikely to be

competitors and not similarly situated. ND relevance has to be determined on a case-by-case basis

depending on whether they distort competition between similarly situated competitors in the relevant

market.

The aspects of non-disclosure requirements, compliance and patent related issues, none of which are

commercial in nature, seem unlikely to some respondents to distort competition (between

competitors), and thus may have little relevance to the ND part of FRAND.

Some respondents note that ND may also be determined by external factors such as the business

environment, the size of the business and the extent of competition. In the event of license

negotiations, besides the above situations, the negotiation process, such as all relevant reactions

during the negotiation process should be added to the factors in determining ND.

Some respondents argue that early bird discounts, volume discounts, early payment discounts and

annual royalty caps are unlikely to cause discrimination if they are offered to all similarly situated

implementers. As such, it is hard to say that any discount would be problematic. Such discounts serve

as an incentive to conclude a FRAND licence and to avoid litigation. What courts have avoided, and

policy makers should avoid, is a determination that ND operates as a most favoured nation clause

which causes discounts to be applied to all, even those that do not qualify.

3. Arguments against the “license to all” principle

Some respondents believe that compelling licensing at all levels of the value chain would be

inefficient and impracticable. Per the SEPs Expert Group report of January 2021 such a requirement

would significantly increase negotiation costs for SEP holders. To avoid issues such as double

dipping, licenses to component makers at each level would also have to accurately define and

delineate each SEP from others both with respect to scope and with respect to SEPs used. A final

difficulty would be that one would need to figure out the portion of the FRAND royalties that would

be borne for each component. The cost of administering this solution would be significant and,

therefore, the risk of hold-out would also be high.

Some respondents also note that licensing at multiple levels would create further undue

administrative burden for the SEP owner, geographical complications, and severe non-

compliance/under-reporting issues. If multiple parties are made responsible for payment, then usually

nobody does. If SEP holders lose control of who to license it would have profound implications on

efficiency, complexity, and cost of licensing. It will also be much more difficult to comply with the

non-discrimination limb of FRAND. If the SEP holder chooses the licensing level, similarly situated

parties can be licensed similarly.

Respondents warn that there would be a fundamental difficulty to implement this principle in

practice. They note that monitoring can only be achieved via contractual engagements. There may be

multiple end-use applications with potentially different values and the consequential challenge of

anticipating the proper licensing value at the upstream level. In order for such monitoring to work,

contractual engagements need to be in place at different levels granting the SEP holder enforceable

auditing rights. A first level where the licensee/implementer/manufacturer of upstream level

(intermediate) products, agrees with the SEP holder (licensor) that the license agreement will be

subject to the acceptance of auditing rights by the producer of end products to the benefit of the SEP

holder. Then a subsequent agreement whereby the producer of end products enters into a contractual

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arrangement with the SEP holder to provide such auditing rights for the duration of the SEP license

agreement and a reasonable term thereafter (as audit can only occur ex post). This is very difficult to

set up in practice and will increase costs substantially for everyone (incl. consumers), but without it,

monitoring upstream, the downstream activity in a global supply chain is not reasonably possible.

Barriers would include confidentiality and dynamic market factors requiring frequent updates of

supply chain information.

Some add that it also would also be difficult if not impossible for consumer product manufacturers

to track and report each supplier for every component in each product they manufacture.

A respondent notes that the first-to-request scenario could easily lead to different supply chains being

licensed at different levels, so competitors at the same level would not be treated similarly. Where

the choice of licensing level results in uncertainty regarding value or use, the party choosing the level

should bear the cost of such uncertainty.

4. Aggregate royalty

Some respondents argue that for an operating company, the decision to implement a particular

standard into a product is primarily driven by market needs and consumer demand. Thus, not knowing

the reasonable aggregate royalty for a standard, in most cases, would not impact implementation.

Respondents add that whether a consumer is willing to pay €25 or €250 to add connectivity is a

question for the market and such market decisions may not be known at first. Valuation declared ex

ante can over- or under-value standardized technology. Businesses, whether large or small, must be

able to operate without perfect information. But because the aggregate royalty will only be a small

fraction of €25 to €250 value created by the utilisation of the standard, it will not be a primary cause

of concern for businesses.

Respondents explains furthermore that hardly any company pays for all SEPs, thus the aggregate

royalty rate is a hypothetical phenomenon, not a realistic one. Much has been written on theoretical

"royalty stacks" but these are just that - theoretical. Tangible examples of the existence of such stacks

are hard to come by. According to such respondents in practice, a reasonable aggregate royalty has

never been known and this has presented no impediment to licensing or the adoption or

implementation of standards. As a matter of economics, an aggregate royalty acts as an artificial,

arbitrary cap that is advocated because it allows implementers to argue that royalties should be limited

irrespective of the economic value provided by the patented technologies. Since many SEPs holders

obtain returns on their R&D investments in ways other than by licensing their SEPs, such an

aggregate royalty would be purely hypothetical and essentially irrelevant.

Another respondent points to some important challenges to such determination, including who would

make it, when, whether it would be for the worldwide market, whether it would be updated on a

regular basis and what impact would it have on the license agreements.

Some respondents argue that an approach based on aggregate royalty and the apportionment thereof

may not be commercially feasible as it would require costly and time-consuming analysis. Top-down

analysis is only one of SEP valuation approaches. Putting excessive emphasis on top-down places

significant burden on the SEP licensing practice (e.g., requiring third party essentiality on all declared

SEPs). Exclusive reliance on top-down may also hamper innovation incentives.

A respondent notes that past attempts to determine such reasonable aggregate did not lead to a usable

outcomes.

Finally, respondents underlined that the aggregated royalty is just one aspect and has a limited

significance without knowledge of the number of all SEPs, number of licensors, their licensing

programs for a specific standard, ASP of products, volume and so on. If caps or lump-sum payments

are agreed the aggregated royalty is of even less significance.

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II.

Positions in favour of a qualified “Licence to all” principle which may consider price

differentiation and one level of licensing in a particular value chain

1. “License to all” principle

Respondents note that open standards were developed as building blocks to foster innovation and

interoperability. The FRAND commitment, that any willing licensee should receive a license,

supports innovation and interoperability, encourages the take up of open standards. They claim that

the European Commission in its Horizontal Guidelines provide that licences should be available “to

all third parties”. A number of respondents argue that a refusal to offer a licence is contrary to the

purpose of the FRAND commitment, undermines the purpose of standardisation, violates

competition law, and harms innovation.

Respondents also argue that by voluntarily giving a FRAND-commitment, SEP-owners freely choose

to restrict their right to decide to whom they want to license their SEPs. Against this background,

“single point licensing” solutions cannot be imposed unilaterally by the SEP holder but would require

the consent of all affected stakeholders in a value chain who are interested in taking a license.

Moreover, any “single point licensing” solution would have to provide adequate protection against

patent infringement claims to all actors at all levels of the value chain.

According to some respondents, pro-active licensing is the opposite of patent hold-out. A willing

licensee should be able to reach the necessary level of certainty to calculate its business case and to

start providing innovative products to customers. Since the decision to seek a license could be driven

by the desire to enter new product markets using standardized technology and gain legal certainty,

the right to a licence should also not be limited by the licensing practice of the SEP-holder or its

decision to license its SEPs only to certain market-participants.

Some respondents explain that in principle, an implementer must be able to obtain a license for his

products. An implementer cannot be forced to infringe another party's SEP under patent law and

possibly commit a criminal act by doing so in certain jurisdictions, because it cannot take a licence.

It should also be able to sell its products legally within the meaning of Article 42 of the UN

Convention on Contracts for the International Sale of Goods (CISG), irrespective of the level of the

supply chain at which it is located. This applies especially if it wishes to sell its products to other

implementers who have not yet concluded a license agreement. If an implementer cannot request a

licence of its own, it may become dependent on licensed customers. In effect, the refusal to license

may restrict the economic freedom to operate of an implementer.

A number of respondents underline that licensing could take place at ANY level in the value chain,

not at EVERY level (to avoid double-dipping). The market should be able to determine at which level

licensing should take place. For different value chains, this level can be chosen differently. The most

appropriate level of licensing may differ by industry, products and market structure. The outcome

should minimize the effort of licensing, provide certainty to good faith implementers and licensors.

Some note that it has also to guarantee that the value of a license is not marginalized if licensing takes

place on a very low level of the value chain. Some respondents within this group consider that

discussions of this kind should include both SEP holders and implementers, and potentially other

industry stakeholders. Others argue, however, that the power to choose the level of licensing should

be vested in SEP implementers, as they know best the characteristics of a particular industry.

A number of respondents argue that component suppliers are best positioned to evaluate the value of

a SEP given their practical expertise in the standard. Further, component suppliers can centralize

licensing and act as a clearinghouse providing licensed products to disparate companies, enabling

access and furthering the adoption of the standard. If components are already licensed, then SMEs

and other innovators will be free to focus on their own innovations by incorporating standardized

functionalities without the fear of being sued and enjoined by SEP holders.

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Respondents argue that it should be possible to pass the cost of a license downstream just like any

other cost. However, they note two issues related to this. First, royalties are requested retroactively

for products already sold on the market. Second, implementers upstream may not have the negotiation

power to pass the costs downstream. Even if a licence is given downstream and "have made" rights

are granted, the component supplier may be obliged contractually to compensate the end-product

producer for the cost of the SEP royalties. Since the component manufacturer did not negotiate such

price, it cannot economically bear the royalty burden thus generated.

Also here, some respondents caution against introducing a ‘first to request’ approach to determining

the appropriate level of licensing in a value chain because this might open the SEP licensing process

to gamesmanship. If the first entity to ask for a license can determine the level of licensing, the

implementer is in a disproportionally weaker position. SEP holders know first of their SEPs before a

manufacturer can assess whether its product uses a given SEP. They claim that such a right of

determination of another would inadmissibly interfere with the right to obtain one's own license and

thus restrict the freedom of one's own independent economic activity.

2. FRAND terms and conditions

A number of respondents argue that the licensing terms must bear a clear relationship to the economic

value of the patented technology also in conjunction with all the other technologies incorporated in

the company’s products at the selected licensing level.

Some argue that FR TC can be best determined based on the products which main function is that of

the standardised technology. In particular, royalties should not capture the value of downstream

innovation and investment by other undertakings. The role of connectivity SEPs is limited to enabling

technology, they provide the ability of components to connect and transmit voice or data. This

function is exactly the same in vehicles as in mobile handsets. The FR TC should therefore not differ

depending on the application or use of the product.

Respondents argue that FR TC can, however, differ depending on the functionalities of the standard

that are being implemented. R&D investments from SEP holders could then be rewarded if they lead

to functionalities that are specifically relevant for a dedicated application. Definition of

"functionalities" should, however, be clarified and may correspond to a specific set of sections of a

standard.

Some respondents propose that the FR TC, including royalties, may be different depending on the

percentage of implementation of the standard. If the standard is only partially implemented, only the

patents applying to that portion are applicable, implying that the royalty cannot be the same for the

entire SEP portfolio. Some respondents add that the FR TC could be different if the intensity of use

of the standard is not the same. For example, a device that only transmits a few bytes of technical

data in 5G, as opposed to a smartphone that would be used to do 5G intensive video streaming,

downloading, conferencing etc., would not be subject to the same level of royalty.

With regard to the ND aspect of FRAND some respondents explain that it is intended to counteract

a distortion of competition, which by definition is "between competitors." Therefore, a SEP holder

should not discriminate between similarly situated competitors. SEP implementers active in various

regions may be similarly situated. However, ND does not require that license terms offered or agreed

to be identical between similarly situated licensees. Companies using the same functionality of a

standard and those using the technology in the same applications are not necessarily competitors.

Therefore, it is uncertain whether the ND aspect of FRAND applies. Companies at different levels of

value chains are generally not likely to be competitors in the relevant market and therefore unlikely

to be in a similar situation.

Other respondents claim that similarly situated entities are those that use the same functionalities of

the standard. The use of the technology in different applications may not justify different treatment.

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The choice of the level of licensing is neutral for the determination of FRAND terms and conditions.

Such respondents caution against a general conclusion that discrimination is permitted as long as a

company is not similarly situated to another.

Respondents note the following as justification for discriminatory treatment: licences limited to

certain territories and local legal requirements.

Some respondents consider discounts for early bird, volume, etc. reasonable when (i) the

implementers help to promote or contribute to the diffusion of the relevant standard (i.e., drive

widespread implementation of the relevant technology in the market); and (ii) such discounts are

made available in a non-discriminate manner to all implementers in a similar situation around the

same time. The reasonable range of discount should be determined on a case-by-case basis depending

on the market circumstances. When evaluating where discounts can be non-discriminating and/or

anti-competitive, it is important to consider the particular timing and circumstances under which the

discounts are offered to the implementers.

Some respondents note that significant early bird discounts without transparency (i.e., as to duration

and amount) runs the risk of being discriminatory, so cannot speak to discount amount alone. A non-

discriminatory example is the licensor publicly announcing a 20% discount during the first year. In

contrast, the licensor using a secret, sweetheart deal with an early adopter to create adoption and lock-

in would be discriminatory if higher rates are then charged to later adopters, or to future renewals.

According to some respondents, volume discounts and annual royalty caps distinctly favour larger

implementers over smaller ones. Any early payment discount that is not reflective of the risk-adjusted

time value of money favours the more liquid implementers over those less so and thus may be

discriminatory.

3. Arguments on “license to all” principle

Some respondents explain that the doctrine of patent exhaustion provides that the initial sale of a

patented item terminates all patent rights to that item. Once the patent holder sells a product covered

by a patent, that patent can no longer be asserted against a downstream buyer or implementer of the

product. The patent exhaustion doctrine is critical in providing certainty to patent rights, and to

preventing improper ‘double dipping’ in the context of SEP licensing.

Some respondents note that it would be preferable if all parties agreed on the licensing level and

could agree on one level in line with proposals no. 28-33 of the EU expert report. Until such an

agreement has been reached, an implementer should only be able to determine the licensing level for

itself as long as no other license agreement has been concluded for the same licensed product at any

other level. The SEP holder should be able to demand the acquisition of licenses from other

implementers as long as the products manufactured, used or distributed by said implementers are not

completely covered by license agreements of the SEP holder at another level of the supply chain

(upstream = exhaustion, downstream = double dipping or have-made rights) or corresponding license

agreements are requested by implementers at another level. If several license agreements are

nevertheless concluded at different levels in a supply chain, the SEP holder should inform the

licensees belonging to the supply chain and do the necessary to avoid double dipping due to

overlapping licensing.

Some respondents consider that transparency of licensing rules should be sufficient to avoid double

dipping. Furthermore, some respondents believe that SEP holders should provide clear information

about existing licensees (who they are, license scope, license duration, etc.), and provide licensing

mechanisms (e.g., clear sublicense rights in upstream licenses, precise definitions, appropriately

limited audit rights) to accommodate situations where a licensee is paying for only some of the

products they produce because others are already covered through upstream licenses.

Such respondents also note that component suppliers that sell licensed components have an incentive

to make their customers aware that they are receiving licensed components. Developing mechanisms

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to ensure customers avoid the paying unnecessary royalties would quickly become a competitive

necessity for component suppliers.

Some respondents claim that accounting for double dipping would not be a major a concern and

should not be an impediment to licensing upstream in the value chain. SEP holders and pools already

need to account for cross-licenses and other arrangements that result in existing licenses. The SEP

holder knows who it has licensed, or the potential licensee can ask its suppliers. It is common during

negotiations for potential licensees to determine whether an upstream supplier is licensed (e.g., as in

WiFi). Indeed, potential licensees are currently the ones verifying whether licenses already exist and

persuading SEP holders to account for the existing licenses. SEP holders should maintain an auditable

record of licensees so double dipping can be detected and remedied even in hindsight. According to

those statements the burden is manageable (and has been managed) given the sums being paid. Some

respondents note that where complex distribution and retail chains make exact monitoring practically

impossible, the parties may agree on reasonable estimates for the share of sales into different

applications. Respondents also point to proposal No. 35 of the EU Expert Report which provides for

a specific marking of licensed products, which would allow monitoring.

4. Aggregate royalty

A number of respondents consider that it is critical for any company to have realistic estimates of its

costs. Otherwise, it is unlikely to enter a market. SEP royalties are a key cost and thus it is important

for a company using a standard to understand aggregate SEP royalties. Transparency in relation to a

reasonable aggregate royalty is important for SMEs and start-ups wishing to engage in R&D and

innovation of products implementing SEPs. Uncertainty as to the potential overall cost exposure

resulting from licensing demands of SEP-holders against the SMEs/start-ups has a strong deterrent

effect for standard-based innovation.

Some respondents also explain that opacity on costs that can turn a business case into deep red and

royalties which can accumulate over years and have to be paid at one point in time can destroy the

entire company. For start-ups the knowledge of licensing costs can be essential to collect money from

investors. Furthermore, transparency on the reasonable aggregate royalty avoids patent hold-up,

enables a qualified decision on which technology to choose and by that fair competition between

alternative standards.

Some respondents stress that the aggregate royalty is also relevant for the assessment of an offer

provided the SEP owner, which has to reflect his share of the overall stack of the relevant SEP

portfolio accordingly.

Respondents note that the aggregate royalty may be per product, all standards included, or per

standard. In both cases, this allows a SEP implementer: (i) to know his total exposure for a given

standard, or for the totality of the standards implemented in its product, and (ii) to oppose to each

SEP holder a ratio between the number of SEPs that this holder holds on the total of the SEPs of the

standard versus the total amount of royalties attributed to the standard, or to the standards,

implemented.

Respondents also note that by adding up the royalties claimed for the same standard by different SEP

holders, the total amount of royalties may become prohibitive. For example, the aggregate royalty

claimed for Blu-Ray technology was so high that almost none of the implementers had the economic

leeway to implement this technology into their products and the end-implementers continued to use

DVDs and then decided to satisfy their need for data space via HDDs. As a consequence, only

implementers that are also SEP holders implemented this superior standard into their products,

thereby stifling innovation and harming consumer welfare in the sense of access to better products.

Some respondents suggest that the aggregate royalty be determined in a process by both SEP holders

and SEP implementers before individual licences are concluded. Preferably, the process could be led

by a leading patent pool and a licensing negotiation group. Other respondents suggest that there could

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be a mechanism, for example an SEP Royalty Court, that would ensure that the aggregate royalty

burden for an entire standard is adjudicated in a single proceeding. Such a mechanism would reduce

transaction costs and ensure predictability with respect to the cost to implement a particular standard.

These proceedings should be open, transparent, and inclusive, permitting all SEP holders and all

implementers to participate.

Some respondents also note that regulators may not be well suited to determine and impose aggregate

rates for standards because they generally lack the expertise.

III.

“License to all” principle based on a single value of the standardised technology

irrespective of the use and licensing the smallest saleable patent practicing unit

(SSPPU)

Respondents argue that all SEPs should be licensed at the top of the value chain, and patent

exhaustion should apply to subsequent purchases of the licensed technology. If the license is granted

at the level of the SEP implementer manufacturer of the smallest saleable unit implementing the SEP

(case of the IEEE statutes), then there is no need to license downstream implementers in view of the

exhaustion of the right. This will “clean up” the market, avoid abuses and secure the electronic

components industry. The appropriate royalty base would thus be the smallest saleable patent

practicing unit (“SSPPU”). In this context, it is important to note that the necessity to monitor this

data would only arise if and when the parties have agreed to differentiate royalties according to the

end use (‘application-specific licensing’).

Some respondents argue that standards are often not industry-specific or product-specific.

Communication standards, for example, can be implemented in phones, cars, planes, thermostats,

watches, appliances and hundreds or thousands of other devices. All of these very different

downstream devices can incorporate the same components that implement the same standards.

According to those views, SEPs generally cover only discrete aspects of particular components, and

rarely if ever end devices employing the applicable standard. As such, basing royalties on the value

added by others’ downstream innovations would overcompensate SEP holders to the detriment of

other industry participants and customers.

Some respondents refer to the Commission’s SEP Communication stating that licensing terms have

to bear a clear relationship to the economic value of the patented technology. The value primarily

needs to focus on the technology itself and in principle should not include any element resulting from

the decision to include the technology in the standard.

359

According to those views, royalties should

not be based on the market power that a SEP holder obtains from the selection of its technology as

part of the standard.

Some respondents argue that FRAND should not depend on the level of licensing or the value of

products at a certain level of a value chain, but only on the value of the patented technology as such.

Consequently, all standard-implementers that are seeking a license and make use of the patented

technology for the same purposes/functionalities should be considered as similarly situated for the

purpose of the “ND”- assessment.

According to them, the concept of non-discrimination is an important part of a SEP holder’s

commitment to license its SEPs under FRAND terms. SEP licensees have a legitimate expectation

(based on the SEP holder’s commitment) that they will be able to take SEP licenses on terms and

conditions that are similar to other implementers of the standard. FRAND, however, can be a range

and licensing terms need not be identical to be non-discriminatory.

Some argue that it is incorrect to suggest that discrimination is permitted as long as a company is not

‘similarly situated’ to another. For example, it would be inappropriate for a small market entrant to

359

com-2017-712_en.pdf.

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face discriminatory licensing demands as compared to larger, existing competitors, as such

approaches would restrict competition and market entry.

IV.

Qualitative royalty apportionment criteria

With respect to aggregated patent licensing pools and platforms, some respondents explain that there

may be several criteria to determine royalty distribution among licensors. For example, there may be

criteria that measure quality in addition to quantity, such as, inter alia, contributions to standards and

past licensing success. Some respondents explain that perceived market value is the key criteria.

Positive litigation track record and active licensing efforts increase the value of a patent portfolio.

Other criteria that could be considered include comparable licenses, technical importance of the

claimed subject matter to the product, technical contributions to the standard, technical contributions

to key features of the standard. It may also be important to consider whether a SEP holder is actively

licensing/looking to license or enforce their rights or whether they simply hold SEPs for other

strategic reasons. Some respondents note that the age of the portfolio is also an important factor if

the license agreement is valid several years as is typically the case.

Some respondents note that person hours spent on a standard is not connected to the value of patents

and not a proper basis for royalties. Metrics such as forward citation or jurisdictions are generally

subject to manipulation and do not accurately gauge patent value. Forward citations, contribution to

the standard, etc. are no significant criteria.

Comments on the CJEU

Huawei v. ZTE

negotiation process

According to some respondents further detailing of the

Huawei v ZTE

process would not be helpful.

More detail would increase the problem of hold-out through workarounds.

Other respondents consider that ambiguities arise with regard to the availability of injunctions when

the SEP holder has not made a FRAND offer. Such respondents claim that in some cases, courts grant

injunctive relief based on an examination of whether the implementer’s courter offer is FRAND,

without first examining whether the SEP holder's prior is FRAND. Furthermore, they argue that

ambiguities remain as to the amount of the security, if the SEP holder and the implementer make

different offers, each of which is FRAND in its own right.

Most respondents consider that while all steps should be conducted without undue delay, it would be

difficult to provide exact time frames for the individual steps. The appropriate amount of time

required to complete each step would depend in the circumstances of each individual case.

Tables with replies per question

Q35. In your view, can a SEP holder refuse to licence in the following situations?

All

75%

Associa- Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

70%

83%

86%

78%

“No” answers only

An implementer asks for a licence, the SEP holder is already

licensing (or negotiating the licensing of) the application at

another level of the value chain but has not provided “have

made” rights to that implementer

An implementer asks for a licence for an application, for which

the SEP holder has not yet sent any letter inviting any

implementer to take a licence

An implementer asks for a licence for using an optional part of

the standard, for which the SEP holder has not yet sent any letter

inviting any implementer to take a licence

71%

66%

86%

71%

80%

67%

65%

86%

63%

67%

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“No” answers only

An implementer asks for a licence, the SEP holder is already

licensing (or negotiating the licensing of) the application at

another level of the value chain and has provided the so called

“have made” rights to that implementer

An implementer asks for a license for a limited number of

products and the SEP holder prefers to avoid licensing costs by

providing guarantees that it will not enforce its patents.

No. of replies*

“No” answers only

All

61%

Associa- Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

59%

71%

57%

67%

54%

43%

83%

71%

56%

50-57

28-34

6-7

7-8

9-10

SEP

Holders

33%

Note: “No opinion” answers not taken into account; so the residual to 100% is Yes answers.

Implementers

100%

An implementer asks for a licence, the SEP holder is already licensing (or negotiating

the licensing of) the application at another level of the value chain but has not provided

“have made” rights to that implementer

An implementer asks for a licence, the SEP holder is already licensing (or negotiating

the licensing of) the application at another level of the value chain and has provided

the so called “have made” rights to that implementer

An implementer asks for a licence for an application, for which the SEP holder has not

yet sent any letter inviting any implementer to take a licence

An implementer asks for a licence for using an optional part of the standard, for which

the SEP holder has not yet sent any letter inviting any implementer to take a licence

An implementer asks for a license for a limited number of products and the SEP holder

prefers to avoid licensing costs by providing guarantees that it will not enforce its

patents.

No. of replies*

97%

93%

85%

27%

20%

26-29

13-16

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. ““No opinion” answers not taken into account; so the residual

to 100% is Yes answers.

*range, different number of replies per question

“No” answers only

An implementer asks for a licence, the SEP holder is already licensing (or negotiating

the licensing of) the application at another level of the value chain but has not provided

“have made” rights to that implementer

An implementer asks for a licence for an application, for which the SEP holder has not

yet sent any letter inviting any implementer to take a licence

An implementer asks for a licence for using an optional part of the standard, for which

the SEP holder has not yet sent any letter inviting any implementer to take a licence

An implementer asks for a licence, the SEP holder is already licensing (or negotiating

the licensing of) the application at another level of the value chain and has provided

the so called “have made” rights to that implementer

An implementer asks for a license for a limited number of products and the SEP holder

prefers to avoid licensing costs by providing guarantees that it will not enforce its

patents.

No. of replies*

73%

non-EU

75%

65%

61%

56%

80%

69%

46%

69%

28-32

13-16

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; ““No opinion” answers not taken into account;

so the residual to 100% is Yes answers.

*range, different number of replies per question

“All answers”

An implementer asks for a licence, the SEP holder is already licensing (or negotiating the

licensing of) the application at another level of the value chain but has not provided “have made”

rights to that implementer

An implementer asks for a licence for an application, for which the SEP holder has not yet sent

any letter inviting any implementer to take a licence

Yes

No.

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“All answers”

An implementer asks for a licence for using an optional part of the standard, for which the SEP

holder has not yet sent any letter inviting any implementer to take a licence

An implementer asks for a licence, the SEP holder is already licensing (or negotiating the

licensing of) the application at another level of the value chain and has provided the so called

“have made” rights to that implementer

An implementer asks for a license for a limited number of products and the SEP holder prefers

to avoid licensing costs by providing guarantees that it will not enforce its patents.

Note: “No opinion” answers not taken into account

Yes

No.

“Companies answers”

An implementer asks for a licence, the SEP holder is already licensing (or negotiating the

licensing of) the application at another level of the value chain but has not provided “have made”

rights to that implementer

An implementer asks for a licence for an application, for which the SEP holder has not yet sent

any letter inviting any implementer to take a licence

An implementer asks for a licence for using an optional part of the standard, for which the SEP

holder has not yet sent any letter inviting any implementer to take a licence

An implementer asks for a licence, the SEP holder is already licensing (or negotiating the

licensing of) the application at another level of the value chain and has provided the so called

“have made” rights to that implementer

An implementer asks for a license for a limited number of products and the SEP holder prefers

to avoid licensing costs by providing guarantees that it will not enforce its patents.

Note: “No opinion” answers not taken into account

No.

Q36. How would you assess the following statements for the determination of the level in the value

chain for licensing of a SEP?

“Agree and strongly agree” answers only

All

Associa-

Compa- tions/

nies

trade

union

51%

56%

49%

31%

15%

71%

50%

33%

14%

Academia/

Authorities/

Citizens

NGO

/other

56%

25%

38%

33%

50%

90%

30%

22%

50%

Licencing could take place at every level of the value chain

Licensing should take place at one level of the value chain only

The implementers in a value chain should be able to determine

the level of licensing

The SEP holder is the only one who should be able to determine

the level of licensing

Both SEP holders and implementers should determine the level

of licensing

The level of licensing should be determined by the person who

asks for a licence first. If an implementer asks first, implementers

determine the level of licensing. If the SEP holder asks first, it

determines the level of licensing.

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

60%

47%

42%

28%

24%

58-63

“No

34-37

opinion”

6-7

answers

not

8-9

taken

into

9-10

account

“Agree and strongly agree” answers only

Licencing could take place at every level of the value chain

The implementers in a value chain should be able to determine the level of licensing

Licensing should take place at one level of the value chain only

Both SEP holders and implementers should determine the level of licensing

The SEP holder is the only one who should be able to determine the level of licensing

The level of licensing should be determined by the person who asks for a licence first.

If an implementer asks first, implementers determine the level of licensing. If the SEP

holder asks first, it determines the level of licensing.

No. of replies*

Implementers

93%

68%

36%

19%

SEP

Holders

13%

69%

13%

63%

27-29

15-16

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Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

Licencing could take place at every level of the value chain

Licensing should take place at one level of the value chain only

The implementers in a value chain should be able to determine the level of licensing

The SEP holder is the only one who should be able to determine the level of licensing

Both SEP holders and implementers should determine the level of licensing

The level of licensing should be determined by the person who asks for a licence first.

If an implementer asks first, implementers determine the level of licensing. If the SEP

holder asks first, it determines the level of licensing.

No. of replies*

55%

52%

41%

27%

23%

non-EU

55%

47%

53%

33%

12%

31-33

17-20

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

Agree Neutral

Disagree

No.

Licencing could take place at every level of the value chain

60%

32%

Licensing should take place at one level of the value chain only

47%

18%

35%

The implementers in a value chain should be able to determine the level of 42%

51%

licensing

The SEP holder is the only one who should be able to determine the level of 28%

63%

licensing

Both SEP holders and implementers should determine the level of licensing

24%

10%

66%

The level of licensing should be determined by the person who asks for a 0%

97%

licence first. If an implementer asks first, implementers determine the level of

licensing. If the SEP holder asks first, it determines the level of licensing.

Other (please specify)

75%

25%

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No

opinion” answers not taken into account

“Companies answers”

Agree Neutral Disagree No.

Licensing should take place at one level of the value chain only

56%

17%

28%

Licencing could take place at every level of the value chain

51%

41%

The implementers in a value chain should be able to determine the level of 49%

43%

licensing

The SEP holder is the only one who should be able to determine the level of 31%

60%

licensing

Both SEP holders and implementers should determine the level of licensing

15%

71%

The level of licensing should be determined by the person who asks for a 0%

94%

licence first. If an implementer asks first, implementers determine the level of

licensing. If the SEP holder asks first, it determines the level of licensing.

Other (please specify)

50%

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Q37. If licensing were taking place at one level of the value chain only, what could be some guiding

principles for the determination of that level of licensing?

“Agree and strongly agree” answers only

Licensing should take place at the level of the product which

main function is that of the standardised technology

Licensing should take place at the most upstream level of the

value chain

All

49%

38%

Compa

nies

49%

39%

Associ

ations/

trade

union

67%

40%

Academia/

Authorities/ Citizens

NGO/other

33%

13%

57%

67%

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kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

Licensing should take place at the level of the product that

incorporates most functionalities of the standardised technology

Licensing should take place where the transaction costs are most

efficient

Licensing should take place at the end level product of the value

chain

Licensing should take place where the SEP holder is able to

monitor in which application the licenced technology is used

Licensing should take place where the licensed technology

affects a significant proportion of the value-inducing

functionalities of the licensed product

Licensing should take place at a component (intermediate) level

of the value chain

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

All

36%

35%

34%

30%

26%

Compa

nies

33%

37%

33%

31%

14%

Associ

ations/

trade

union

40%

14%

33%

17%

25%

Academia/

Authorities/ Citizens

NGO/other

44%

56%

33%

44%

56%

33%

17%

43%

17%

50%

20%

54-58

“No

22%

35-36

opinion”

20%

4-7

answers

not

25%

8-9

taken

into

6-7

account

“Agree and strongly agree” answers only

Licensing should take place at the level of the product which main function is that of

the standardised technology

Licensing should take place at the most upstream level of the value chain

Licensing should take place at the level of the product that incorporates most

functionalities of the standardised technology

Licensing should take place at a component (intermediate) level of the value chain

Licensing should take place where the transaction costs are most efficient

Licensing should take place where the licensed technology affects a significant

proportion of the value-inducing functionalities of the licensed product

Licensing should take place where the SEP holder is able to monitor in which

application the licenced technology is used

Licensing should take place at the end level product of the value chain

No. of replies*

Implementers

78%

69%

42%

31%

25%

17%

24-28

SEP

Holders

24%

53%

47%

76%

88%

16-17

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No

opinion” answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

Licensing should take place at the level of the product which main function is that of

the standardised technology

Licensing should take place at the end level product of the value chain

Licensing should take place where the SEP holder is able to monitor in which

application the licenced technology is used

Licensing should take place where the transaction costs are most efficient

Licensing should take place at the most upstream level of the value chain

Licensing should take place at the level of the product that incorporates most

functionalities of the standardised technology

Licensing should take place where the licensed technology affects a significant

proportion of the value-inducing functionalities of the licensed product

Licensing should take place at a component (intermediate) level of the value chain

No. of replies*

47%

38%

34%

33%

30%

26%

23%

13%

30-33

non-EU

50%

26%

28%

44%

42%

53%

22%

37%

18-19

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

219

kom (2023) 0232 - Ingen titel

“All answers”

Licensing should take place at the level of the product which main function is

that of the standardised technology

Licensing should take place at the most upstream level of the value chain

Licensing should take place at the level of the product that incorporates most

functionalities of the standardised technology

Licensing should take place where the transaction costs are most efficient

Licensing should take place at the end level product of the value chain

Licensing should take place where the SEP holder is able to monitor in which

application the licenced technology is used

Licensing should take place where the licensed technology affects a significant

proportion of the value-inducing functionalities of the licensed product

Licensing should take place at a component (intermediate) level of the value

chain

Other (please specify)

Agree Neutral

49%

38%

36%

35%

34%

30%

26%

20%

80%

23%

18%

23%

44%

16%

21%

17%

32%

Disagree

28%

44%

41%

21%

50%

48%

57%

48%

20%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

Licensing should take place at the level of the product which main function is

that of the standardised technology

Licensing should take place at the most upstream level of the value chain

Licensing should take place where the transaction costs are most efficient

Licensing should take place at the end level product of the value chain

Licensing should take place at the level of the product that incorporates most

functionalities of the standardised technology

Licensing should take place where the SEP holder is able to monitor in which

application the licenced technology is used

Licensing should take place at a component (intermediate) level of the value

chain

Licensing should take place where the licensed technology affects a significant

proportion of the value-inducing functionalities of the licensed product

Other (please specify)

Agree Neutral

49%

39%

37%

33%

31%

22%

14%

20%

19%

49%

14%

22%

23%

39%

20%

Disagree

31%

42%

14%

53%

44%

46%

39%

66%

100%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Q40. How would you assess the following statements with regard to fair and reasonable terms and

conditions (“FR TC”)?

“Agree and strongly agree” answers only

The FR TC may depend on the functionalities of the standard that

are being implemented.

The FR TC are independent of the level of licensing.

Implementers upstream should be able to pass the cost of the

licence downstream.

The FR TC may be different for the different applications of the

standard.

The FR TC are determined based on the added value that the

patented technology brings to the product implementing the

standard.

The FR TC should be the same irrespective of how the standard

is used.

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

All

75%

68%

67%

56%

48%

Associa- Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

74%

100%

67%

70%

56%

44%

67%

50%

29%

33%

70%

60%

80%

60%

78%

50%

60%

34%

52-61

“No

38%

27-34

opinion”

43%

6-7

answers

not

11%

9-10

taken

into

33%

9-10

account

220

kom (2023) 0232 - Ingen titel

“Agree and strongly agree” answers only

The FR TC may depend on the functionalities of the standard that are being

implemented.

The FR TC are independent of the level of licensing.

The FR TC should be the same irrespective of how the standard is used.

Implementers upstream should be able to pass the cost of the licence downstream.

The FR TC are determined based on the added value that the patented technology

brings to the product implementing the standard.

The FR TC may be different for the different applications of the standard.

No. of replies*

Implementers

75%

74%

67%

66%

37%

25%

27-29

SEP

Holders

93%

75%

89%

60%

100%

9-16

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

The FR TC may depend on the functionalities of the standard that are being

implemented.

The FR TC are independent of the level of licensing.

Implementers upstream should be able to pass the cost of the licence downstream.

The FR TC may be different for the different applications of the standard.

The FR TC are determined based on the added value that the patented technology

brings to the product implementing the standard.

The FR TC should be the same irrespective of how the standard is used.

No. of replies*

81%

71%

67%

56%

40%

31%

27-32

non-EU

67%

63%

58%

55%

39%

16-20

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

The FR TC may depend on the functionalities of the standard that are being

implemented.

The FR TC are independent of the level of licensing.

Implementers upstream should be able to pass the cost of the licence

downstream.

The FR TC may be different for the different applications of the standard.

The FR TC are determined based on the added value that the patented

technology brings to the product implementing the standard.

The FR TC should be the same irrespective of how the standard is used.

Other (please specify)

Agree

75%

68%

67%

56%

48%

34%

100%

Neutral

15%

12%

29%

10%

20%

14%

Disagree

10%

20%

34%

32%

53%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

The FR TC may depend on the functionalities of the standard that are being

implemented.

The FR TC are independent of the level of licensing.

Implementers upstream should be able to pass the cost of the licence

downstream.

The FR TC may be different for the different applications of the standard.

The FR TC are determined based on the added value that the patented

technology brings to the product implementing the standard.

The FR TC should be the same irrespective of how the standard is used.

Other (please specify)

Agree Neutral

74%

70%

56%

44%

38%

100%

18%

12%

30%

21%

Disagree

18%

38%

35%

53%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

221

kom (2023) 0232 - Ingen titel

Q41. How would you assess the following statements for the assessment of non-discrimination

(“ND”)?

“Agree and strongly agree” answers only

For the ND assessment, it matters whether a similarly situated

entity is put at a competitive disadvantage

Similarly situated entities are those that use the same

functionalities of a standard in similar or same applications

Entities at a different level in the value chain may be similarly

situated if the FR TC are independent of the level of licensing

Similarly situated entities are those that use the standardised

technology in the same applications

Similarly situated entities are those that are located at the same

level in the value chain

For the ND assessment, it matters whether a licence was taken at

the same period of time

Similarly situated entities are those that use the same

functionalities of a standard

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

All

76%

50%

43%

42%

41%

52-59

“No

Associa- Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

74%

100%

67%

78%

74%

57%

39%

36%

44%

38%

30-34

opinion”

100%

40%

29%

33%

5-7

answers

not

67%

38%

44%

56%

40%

44%

8-10

taken

into

78%

44%

67%

56%

38%

56%

8-9

account

“Agree and strongly agree” answers only

For the ND assessment, it matters whether a similarly situated entity is put at a

competitive disadvantage

Similarly situated entities are those that use the same functionalities of a standard in

similar or same applications

Entities at a different level in the value chain may be similarly situated if the FR TC

are independent of the level of licensing

Similarly situated entities are those that use the standardised technology in the same

applications

Similarly situated entities are those that use the same functionalities of a standard

Similarly situated entities are those that are located at the same level in the value chain

For the ND assessment, it matters whether a licence was taken at the same period of

time

No. of replies*

Implementers

76%

65%

57%

56%

48%

16%

25-28

SEP

Holders

94%

27%

21%

33%

76%

11-17

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Agree and strongly agree” answers only

For the ND assessment, it matters whether a similarly situated entity is put at a

competitive disadvantage

Similarly situated entities are those that use the same functionalities of a standard in

similar or same applications

Entities at a different level in the value chain may be similarly situated if the FR TC

are independent of the level of licensing

Similarly situated entities are those that use the same functionalities of a standard

For the ND assessment, it matters whether a licence was taken at the same period of

time

Similarly situated entities are those that use the standardised technology in the same

applications

Similarly situated entities are those that are located at the same level in the value chain

No. of replies*

90%

46%

45%

39%

38%

28-33

non-EU

50%

60%

25%

35%

38%

44%

15-17

222

kom (2023) 0232 - Ingen titel

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

For the ND assessment, it matters whether a similarly situated entity is put at a

competitive disadvantage

Similarly situated entities are those that use the same functionalities of a

standard in similar or same applications

Entities at a different level in the value chain may be similarly situated if the

FR TC are independent of the level of licensing

Similarly situated entities are those that use the standardised technology in the

same applications

Similarly situated entities are those that are located at the same level in the

value chain

Similarly situated entities are those that use the same functionalities of a

standard

For the ND assessment, it matters whether a licence was taken at the same

period of time

Other (please specify)

Agree Neutral

76%

50%

43%

42%

41%

100%

13%

22%

19%

29%

23%

38%

Disagree

11%

24%

31%

28%

35%

36%

21%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

“Companies answers”

For the ND assessment, it matters whether a similarly situated entity is put at a

competitive disadvantage

Similarly situated entities are those that use the same functionalities of a

standard in similar or same applications

Entities at a different level in the value chain may be similarly situated if the

FR TC are independent of the level of licensing

Similarly situated entities are those that use the standardised technology in the

same applications

Similarly situated entities are those that are located at the same level in the

value chain

For the ND assessment, it matters whether a licence was taken at the same

period of time

Similarly situated entities are those that use the same functionalities of a

standard

Other (please specify)

Agree Neutral

74%

57%

39%

36%

44%

38%

100%

13%

26%

17%

30%

27%

28%

Disagree

13%

24%

27%

30%

36%

28%

34%

No.

Note: Agree composes of “Agree” and “Strongly agree”; Disagree composes of “Disagree” and “Strongly disagree”; “No opinion”

answers not taken into account

Q42. What is the reasonable range of discounts that would not cause discrimination in the context of

a licensing of a SEP?

Discounts are “Always are discriminatory” answers only

All

Associa-

Compa- tions/

nies

trade

union

36%

25%

23%

11-13

1-2

Academia/

Authorities

Citizens

/NGO

/other

67%

50%

6-8

Annual Royalty Caps

Volume discount

Early bird discount (taking a licence at the beginning of a

licensing programme)

Early payment discount (making upfront payments of royalties)

No. of replies*

38%

33%

29%

21-24

Note: “Other (please specify)” not included in the table; “No opinion” answers not taken into account. The residual to 100% shows

those who choose rage between 1% and 50%

*range, different number of replies per question

223

kom (2023) 0232 - Ingen titel

Discounts are “Always discriminatory” answers (column %)

and average reasonable discount (column Avg.)

Annual Royalty Caps

Volume discount

Early bird discount (taking a licence at the beginning of a licensing

programme)

Early payment discount (making upfront payments of royalties)

No. of replies**

Implementers

50%

43%

22%

7-9

Avg.*

10%

SEP Holders

8-10

Avg.*

38%

32%

33%

28%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. ““Other (please specify)” not included in the table; “No

opinion” answers not taken into account. The residual to 100% shows those who choose rage between 1% and 50%

* Weighted average calculated using the middle of ranges, value of 0% for “Always discriminatory”

**range, different number of replies per question

Discounts are “Always discriminatory” answers (column %)

and average reasonable discount (column Avg.)

Annual Royalty Caps

Early bird discount (taking a licence at the beginning of a licensing

programme)

Early payment discount (making upfront payments of royalties)

Volume discount

No. of replies**

27%

21%

15%

11-14

Avg.*

24%

23%

21%

24%

non-EU

50%

1-2

Avg.*

23%

45%

23%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account. The residual to 100% shows those who choose rage between 1% and 50%

* Weighted average calculated using the middle of ranges, value of 0% for “Always discriminatory”

**range, different number of replies per question

“All answers”

Annual Royalty Caps

Volume discount

Early bird discount (taking a licence at the

beginning of a licensing programme)

Early payment discount (making upfront

payments of royalties)

Other (please specify)

Always

discriminatory

38%

30%

29%

25%

50%

1 to

10%

14%

13%

10%

38%

10 to

20%

10%

20 to

30 %

14%

26%

24%

13%

17%

30 to

40%

40 to

50 %

24%

17%

24%

17%

33%

No.

Avg.

17%

18%

20%

16%

19%

Note: “No opinion” answers not taken into account

* Weighted average calculated using the middle of ranges, value of 0% for “Always discriminatory”

“Companies answers”

Annual Royalty Caps

Volume discount

Early bird discount (taking a licence at the

beginning of a licensing programme)

Early payment discount (making upfront

payments of royalties)

Other (please specify)

Always

discriminatory

36%

25%

23%

33%

1 to

10%

31%

10 to

20%

17%

20 to

30 %

27%

42%

23%

30 to

40%

15%

40 to

50 %

27%

17%

67%

No.

Avg.

20%

22%

16%

30%

Note: “No opinion” answers not taken into account

* Weighted average calculated using the middle of ranges, value of 0% for “Always discriminatory”

Q43. Which of the following aspects of the licence terms and conditions are more likely to impact the

non-discrimination part of FRAND? Please indicate their (relative) impact in the overall ND

assessment below. The proposed rating below should describe the relative impact in the overall ND

assessment.

224

kom (2023) 0232 - Ingen titel

“High” and ”Very high” answers only

All

Associa-

Compa- tions/

nies

trade

union

76%

48%

52%

38%

44%

32%

24%

10%

25-30

60%

40%

20%

Academia/

Authorities

Citizens

/NGO

/other

100%

71%

75%

86%

57%

63%

43%

13%

25%

7-8

100

56%

40%

50%

40%

11%

50%

9-10

Royalty rate

Territorial scope of the licence

Product scope of the licence (narrow or broad, end-product

and/or modules)

Payment conditions (term, interest for late payments, discounts)

Patent related issues (validity)

Term of the license (e.g. a particular time-period)

Non-disclosure requirements

Legal (applicable law, competent forum/court)

Compliance (reporting obligations and auditing conditions)

No. of replies*

82%

54%

49%

45%

34%

33%

21%

19%

47-53

Note: “Other (please specify)” not included in the table; “No opinion” answers not taken into account

*range, different number of replies per question

“High” and ”Very high” answers only

Royalty rate

Territorial scope of the licence

Product scope of the licence (narrow or broad, end-product and/or modules)

Patent related issues (validity)

Payment conditions (term, interest for late payments, discounts)

Non-disclosure requirements

Term of the license (e.g. a particular time-period)

Legal (applicable law, competent forum/court)

Compliance (reporting obligations and auditing conditions)

No. of replies*

Implementers

100%

72%

68%

63%

56%

48%

43%

32%

23-25

SEP

Holders

46%

15%

25%

11-13

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“High” and ”Very high” answers only

Royalty rate

Territorial scope of the licence

Product scope of the licence (narrow or broad, end-product and/or modules)

Payment conditions (term, interest for late payments, discounts)

Patent related issues (validity)

Term of the license (e.g. a particular time-period)

Non-disclosure requirements

Legal (applicable law, competent forum/court)

Compliance (reporting obligations and auditing conditions)

No. of replies*

73%

58%

48%

46%

44%

37%

27%

19%

25-27

non-EU

87%

47%

73%

53%

50%

43%

33%

19%

12-16

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

Royalty rate

Territorial scope of the licence

Product scope of the licence (narrow or broad, end-product and/or modules)

Payment conditions (term, interest for late payments, discounts)

Patent related issues (validity)

Term of the license (e.g. a particular time-period)

High

82%

54%

49%

45%

34%

Some

16%

30%

29%

35%

23%

44%

Low

16%

17%

16%

32%

22%

No.

225

kom (2023) 0232 - Ingen titel

“All answers”

Non-disclosure requirements

Legal (applicable law, competent forum/court)

Compliance (reporting obligations and auditing conditions)

Other (please specify)

High

33%

21%

19%

100%

Some

16%

29%

25%

Low

51%

50%

57%

No.

Note: High composes of “High” and “Very high”; “Low or no” composes of “Low”, “Very low” and “No impact”; “No opinion”

answers not taken into account

“Companies answers”

Royalty rate

Product scope of the licence (narrow or broad, end-product and/or modules)

Territorial scope of the licence

Patent related issues (validity)

Payment conditions (term, interest for late payments, discounts)

Term of the license (e.g. a particular time-period)

Non-disclosure requirements

Legal (applicable law, competent forum/court)

Compliance (reporting obligations and auditing conditions)

Other (please specify)

High

76%

52%

48%

44%

38%

32%

24%

10%

100%

Some

21%

38%

41%

32%

48%

46%

17%

38%

23%

Low

10%

24%

14%

21%

59%

52%

70%

No.

Note: High composes of “High” and “Very high”; “Low or no” composes of “Low”, “Very low” and “No impact”; “No opinion”

answers not taken into account

Q44. How important is it to know the reasonable aggregate royalty for all SEPs relevant to a

potentially licensed product?

All

Important

Neutral

Not important

No. of replies

70%

17%

13%

Companies

61%

19%

Associations/

trade union

86%

14%

Academia/

Authorities/

NGO/other

73%

18%

Citizens

89%

11%

Note: Important composes of “Important” and “Very important”; “Not important” composes of “Not so important” and “Not

important”

Implementers

Important

Neutral

Not important

No. of replies

100%

SEP

Holders

20%

40%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. Important composes of “Important” and “Very important”;

“Not important” composes of “Not so important” and “Not important”

Important

Neutral

Not important

No. of replies

67%

19%

14%

non-EU

67%

17%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; Important composes of “Important” and “Very

important”; “Not important” composes of “Not so important” and “Not important”

Q45. How important is it to have a fair process for the determination of a reasonable aggregate

royalty for all SEPs relevant to a licensed product?

226

kom (2023) 0232 - Ingen titel

All

Important

Neutral

Not important

No. of replies

69%

17%

14%

Companies

61%

22%

17%

Associations/

trade union

71%

29%

Academia/

Authorities/

NGO/other

73%

18%

Citizens

90%

10%

Note: Important composes of “Important” and “Very important”; “Not important” composes of “Not so important” and “Not

important”

Implementers

Important

Neutral

Not important

No. of replies

93%

SEP

Holders

25%

38%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. Important composes of “Important” and “Very important”;

“Not important” composes of “Not so important” and “Not important”

Important

Neutral

Not important

No. of replies

67%

22%

11%

non-EU

61%

17%

22%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; Important composes of “Important” and “Very

important”; “Not important” composes of “Not so important” and “Not important”

Q46. The aggregate royalty may be apportioned among the various SEPs or SEP portfolios based

on an estimate of the declared SEP that are actually essential (“true SEPs”). What could be an

appropriate additional criterion for the apportionment of the aggregate royalty among the various

SEPs or SEP portfolios?

All

Number of “true” SEPs belonging to sections of the

standard identified as of significant value

Number of jurisdictions in which “true” SEPs are

protected

Number of significantly different claims

Number of sections of the standard covered by “true”

SEPs

Man hours spent in contributing in the development of the

standard at the SDO

Forward citations360

Other, please specify

No. of replies

Note: multiple answers possible

Academia/

Compa- Associations

Authorities/ Citizens

nies

/trade union

NGO/other

62%

38%

27%

19%

35%

71%

43%

29%

14%

29%

44%

56%

33%

22%

11%

22%

44%

89%

78%

22%

11%

33%

SEP

Holders

40%

65%

47%

27%

18%

35%

Implementers

Number of “true” SEPs belonging to sections of the standard identified as of

significant value

89%

360

A citation is a reference to a previous work (prior art) that is considered relevant to a current patent application.

Forward citations are patents that cite a specific patent.

227

kom (2023) 0232 - Ingen titel

Implementers

Number of jurisdictions in which “true” SEPs are protected

Number of significantly different claims

Number of sections of the standard covered by “true” SEPs

Man hours spent in contributing in the development of the standard at the SDO

Forward citations

Other, please specify

No. of replies

52%

33%

22%

15%

SEP

Holders

40%

20%

53%

Note: Implementer: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; Holder: those who disagreed,

were neutral or had no opinion on Q2 and agreed with Q3; multiple answers possible.

Number of “true” SEPs belonging to sections of the standard identified as of

significant value

Number of jurisdictions in which “true” SEPs are protected

Number of significantly different claims

Number of sections of the standard covered by “true” SEPs

Man hours spent in contributing in the development of the standard at the SDO

Forward citations

Other, please specify

No. of replies

62%

44%

32%

21%

32%

non-EU

58%

37%

21%

16%

42%

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; multiple answers possible.

Q47

361

. If there were an obligation to complete the “steps” provided in the Judgment of the Court of

Justice of the European Union (“CJEU”) of 16 July 2015, Huawei v. ZTE

362

within certain time

limits, which period would be reasonable? Please note that we ask for average reasonable time limits

with due account taken of the fact that the analysis would have to be conducted on a case-by-case

basis

363

“Fixed time limits are not desirable” answers only

All

Compa

nies

52%

45%

50%

42%

45%

47%

43%

33-42

Associ

ations/

trade

union

86%

100%

Academia/

Authoritie

s/NGO

/other

33%

44%

33%

44%

33%

44%

Citiz

ens

8-10

The implementer expresses its willingness to conclude a

licensing agreement on FRAND terms

The SEP holder presents to the implementer a specific, written

offer for a licence on FRAND terms

The implementer responds to that offer (potentially with a

counter offer)

If applicable, the SEP holder rejects the counter offer

If applicable, the implementer provides appropriate security

If applicable, parties may agree on arbitration

If applicable, the SEP holder requests an injunction

No. of replies*

46%

44%

45%

41%

42%

44%

57-66

Please note that there was an error in encoding this question into the EUSurvey system. The answers “3 to 5 months

after the prior step”, “5 to 7 months after the prior step” and ““more than 7 months after the prior step” appeared in two

columns each instead of one. That is e.g. there was a separate column allowing for answering “3 to 5 months” followed

by column “after the prior step”. For the purpose of numerical analysis, these two columns were added together.

362

Judgment of the Court of Justice of 16 July 2015,

Huawei Technologies Co. Ltd v ZTE Corp. and ZTE Deutschland

GmbH,

C-170/13, ECLI:EU:C:2015:477,

https://e-justice.europa.eu/ecli/ECLI:EU:C:2015:477.

363

The reasonable amount of time needed for the implementer to express its willingness to obtain a license may vary

depending on a number of factors, such as the number of patents at issue, the complexity of the technology, the level of

knowledge the implementer may have about the technology and other.: The implementer expresses its willingness to

conclude a licensing agreement on FRAND terms.

361

228

kom (2023) 0232 - Ingen titel

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

“No

opinion”

answers

not

taken

into

account.

Implementers

Fixed time Months after the prior step

limits are

1 to 3 3 to 5 5 to 7 > 7

not

desirable

15%

14%

11%

13%

19%

11%

17%

23%

18%

11%

Other No. Avg.

months

27 1.0

28 1.2

28 1.4

30 1.8

30 2.1

The implementer expresses its willingness to conclude 67%

a licensing agreement on FRAND terms

The SEP holder presents to the implementer a specific, 64%

written offer for a licence on FRAND terms

The implementer responds to that offer (potentially 68%

with a counter offer)

If applicable, the SEP holder rejects the counter offer 57%

If applicable, the implementer provides appropriate 57%

security

If applicable, parties may agree on arbitration

64%

If applicable, the SEP holder requests an injunction 64%

7% 7%

10% 7%

0% 28 1.5

11% 28 1.6

Note: Implementer: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3;“No opinion” answers not taken

into account

* Weighted average calculated using the middle of ranges, for the “Fixed time limits are not desirable” value of 0, for the last open

range value of 8 assumed; “Other” column not taken into account for average calculation.

SEP Holders

Fixed time Months after the prior step

limits

are

1 to 3 3 to 5 5 to 7 > 7

not

desirable

50%

44%

38%

33%

22%

10%

13%

17%

22%

30%

15%

Other No. Avg.

months

13% 16 1.1

16 1.2

The implementer expresses its willingness to conclude 31%

a licensing agreement on FRAND terms

The SEP holder presents to the implementer a specific, 38%

written offer for a licence on FRAND terms

The implementer responds to that offer (potentially 31%

with a counter offer)

If applicable, the SEP holder rejects the counter offer 33%

If applicable, the implementer provides appropriate 39%

security

If applicable, parties may agree on arbitration

30%

If applicable, the SEP holder requests an injunction 40%

13% 16 1.6

18 2.1

20 3.2

20 2.9

15% 10% 5%

20% 10% 5%

Note: Holder: those who disagreed, were neutral or had no opinion on Q2 and agreed with Q3; “No opinion” answers not taken into

account

* Weighted average calculated using the middle of ranges, for the “Fixed time limits are not desirable” value of 0, for the last open

range value of 8 assumed; “Other” column not taken into account for average calculation.

“Fixed time limits are not desirable” answers (column %)

and average reasonable period in months (column Avg.)

The implementer expresses its willingness to conclude a licensing

agreement on FRAND terms

The SEP holder presents to the implementer a specific, written offer

for a licence on FRAND terms

The implementer responds to that offer (potentially with a counter

offer)

If applicable, the SEP holder rejects the counter offer

If applicable, the implementer provides appropriate security

If applicable, parties may agree on arbitration

If applicable, the SEP holder requests an injunction

No. of replies**

47%

46%

48%

43%

52%

54%

32-35

Avg.*

1.4

1.9

1.6

1.9

2.3

1.8

non-EU

65%

58%

57%

48%

43%

17-23

Avg.*

0.7

1.6

1.3

1.5

1.9

2.5

3.0

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account. The residual to 100% shows those who choose rage between 1% and 50%

* Weighted average calculated using the middle of ranges, for the “Fixed time limits are not desirable” value of 0, for the last open

range

value

assumed;

“Other”

column

not

taken

into

account

for

average

calculation.

**range, different number of replies per question

229

kom (2023) 0232 - Ingen titel

“All answers”

Fixed time Months after the prior step

limits

are

1 to 3 3 to 5 5 to 7 > 7

not

desirable

30%

24%

23%

25%

17%

11%

14%

13%

19%

22%

25%

12%

Other No. Avg.

months

57 1.3

62 1.8

The implementer expresses its willingness to conclude 46%

a licensing agreement on FRAND terms

The SEP holder presents to the implementer a specific, 44%

written offer for a licence on FRAND terms

The implementer responds to that offer (potentially 45%

with a counter offer)

If applicable, the SEP holder rejects the counter offer 41%

If applicable, the implementer provides appropriate 42%

security

If applicable, parties may agree on arbitration

42%

If applicable, the SEP holder requests an injunction 44%

10% 60 1.8

64 2.1

64 2.3

9% 8%

5% 64 2.5

14% 11% 12% 66 2.6

Note: “No opinion” answers not taken into account

* Weighted average calculated using the middle of ranges, for the “Fixed time limits are not desirable” value of 0, for the last open

range value of 8 assumed; “Other” column not taken into account for average calculation.

“Companies answers”

Fixed time Months after the prior step

limits

are

1 to 3 3 to 5 5 to 7 > 7

not

desirable

18%

17%

18%

11%

18%

16%

11%

21%

20%

21%

17%

Other No. Avg.

months

33 1.4

38 2.2

36 1.9

38 2.3

40 2.7

The implementer expresses its willingness to conclude 52%

a licensing agreement on FRAND terms

The SEP holder presents to the implementer a specific, 45%

written offer for a licence on FRAND terms

The implementer responds to that offer (potentially 50%

with a counter offer)

If applicable, the SEP holder rejects the counter offer 42%

If applicable, the implementer provides appropriate 45%

security

If applicable, parties may agree on arbitration

47%

If applicable, the SEP holder requests an injunction 43%

11% 8%

11% 6%

8% 8%

15% 10% 3%

8% 11% 3% 38 2.4

12% 14% 10% 42 2.9

Note: “No opinion” answers not taken into account

* Weighted average calculated using the middle of ranges, for the “Fixed time limits are not desirable” value of 0, for the last open

range value of 8 assumed; “Other” column not taken into account for average calculation.

Q48

364

. Do you consider that the scope of the obligations imposed on both the SEP holder and

implementers by CJEU Huawei v. ZTE is clear or needs to be clarified with regard to the following

aspects?: The initial offer of the SEP holder must be FRAND

“Unclear” answers only

All

Associa-

Compa tions/

nies

trade

union

39%

42%

35%

31%

71%

57%

40%

Academia/

Authorities

Citizens

/NGO

/other

20%

33%

63%

38%

63%

25%

The initial offer of the SEP holder must be FRAND

The amount of the security should be fair and reasonable

The counter offer of the implementer must be FRAND

A SEP holder cannot request an injunction before making a

FRAND offer, even if the implementer has not expressed its

willingness to take a licence

No. of replies*

43%

36%

31%

51-56

29-31

5-7

9-10

Note: “Other (please specify)” not included in the table; “No opinion” answers not taken into account

*range, different number of replies per question

364

Please note that there was an error in encoding this question into the EUSurvey system. It was not possible to select

answer “Not clear”. The tables below present thus only those who chose “Somewhat unclear” responses.

230

kom (2023) 0232 - Ingen titel

“Unclear” answers only

The initial offer of the SEP holder must be FRAND

The counter offer of the implementer must be FRAND

The amount of the security should be fair and reasonable

A SEP holder cannot request an injunction before making a FRAND offer, even if the

implementer has not expressed its willingness to take a licence

No. of replies*

Implementer

78%

67%

63%

48%

23-27

Holder

13%

27%

Note: Implementers: those who agreed with Q2 and disagreed, were neutral or had no opinion on Q3; SEP Holders: those who

disagreed, were neutral or had no opinion on Q2 and agreed with Q3. “Other (please specify)” not included in the table; “No opinion”

answers not taken into account

*range, different number of replies per question

“Unclear” answers only

The initial offer of the SEP holder must be FRAND

The counter offer of the implementer must be FRAND

The amount of the security should be fair and reasonable

A SEP holder cannot request an injunction before making a FRAND offer, even if the

implementer has not expressed its willingness to take a licence

No. of replies*

42%

36%

39%

31-33

non-EU

33%

20%

36%

17%

12-15

Note: EU – respondents from EU except citizens; non-EU – respondents from non-EU countries except citizens. Corrections to self-

identification have been made based on the headquarters location of the respondent; “Other (please specify)” not included in the

table; “No opinion” answers not taken into account

*range, different number of replies per question

“All answers”

The initial offer of the SEP holder must be FRAND

The amount of the security should be fair and reasonable

The counter offer of the implementer must be FRAND

A SEP holder cannot request an injunction before making a FRAND offer, even

if the implementer has not expressed its willingness to take a licence

Unclear

43%

36%

31%

Neutral

16%

33%

18%

24%

Clear

41%

31%

46%

45%

No.

Note: Unclear composes of “Not clear” and “Somewhat unclear”; Clear composes of “Clear” and “Somewhat clear”; “No opinion”

answers not taken into account

“Companies answers”

The amount of the security should be fair and reasonable

The initial offer of the SEP holder must be FRAND

The counter offer of the implementer must be FRAND

A SEP holder cannot request an injunction before making a FRAND offer, even

if the implementer has not expressed its willingness to take a licence

Unclear

42%

39%

35%

31%

Neutral

35%

19%

23%

21%

Clear

23%

42%

48%

No.

Note: Unclear composes of “Not clear” and “Somewhat unclear”; Clear composes of “Clear” and “Somewhat clear”; “No opinion”

answers not taken into account

Q49. Which of the behaviours of an implementer listed below could indicate “willingness” to take a

licence, and to what extent is that behaviour relevant?

“Somewhat relevant” answers only

All

Associa-

Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

94%

91%

86%

100%

88%

67%

Submits a FRAND counter-offer

Agrees in writing to be willing to take a licence on FRAND terms

and conditions, while reserving the right to challenge

essentiality, validity, and infringement in Court

Provides a security at a fair and reasonable amount

When reference materials provided by SEP holder are not

sufficient, such as not identifying the SEPs or not including claim

charts, promptly requests the SEP holders to provide such

materials

Agrees on arbitration of the FRAND terms and conditions

93%

88%

75%

70%

77%

63%

86%

67%

91%

89%

38%

78%

51%

50%

29%

80%

38%

231

kom (2023) 0232 - Ingen titel

“Somewhat relevant” answers only

All

Associa-

Academia/

Compa- tions/

Authorities/ Citizens

nies

trade

NGO/other

union

23%

19%

14%

67%

33%

44%

14%

Informs the relevant SDO that it uses the standard, version,

section and product category

If it disagrees with the scope of the licence (in particular the

validity and essentiality of the patents), it files relevant court

proceedings in a timely manner

No. of replies*

Note: “Other (please specify)” not included

*range, different number of replies per question

the

table;

33%

20%

55-59

“No

30-33

opinion”

6-7

answers

not

9-11

taken

into

7-9

account

“Somewhat relevant” answers only

Agrees in writing to be willing to take a licence on FRAND terms and conditions,

while reserving the right to challenge essentiality, validity, and infringement in Court

Submits a FRAND counter-offer

Provides a security at a fair and reasonable amount

When reference materials provided by SEP holder are not sufficient, such as not

identifying the SEPs or not including claim charts, promptly requests the SEP holders

to provide such materials

Agrees on arbitration of the FRAND terms and conditions

Informs the relevant SDO that it uses the standard, version, section and product