If you really wanted to beat China as global leader in emerging technologies, you’d be sure your top innovators had the property-rights and free-market incentives and rewards to win that competition. But the European Commission (EC) is moving in the opposite direction.
The EC has proposed a regulatory framework that will hamper standard-essential patents (SEP). These patents are linked to technologies adopted as consensus-based standards. Voluntary participants in private standards-development organizations determine the best technologies for achieving optimal functionality and widespread interoperability.
Today’s SEP licensing system puts innovators and implementers on a level playing field negotiating licensing rates. The royalties reflect an innovation’s true value. Private contracts, patent rights and legal recourse keep implementers honest.
But under the EC proposal, all SEPs will be registered with the European Union’s Intellectual Property Office—its trademark bureau—which lacks expertise in patents generally and SEPs particularly. The EUIPO will maintain a SEP database and require disclosure of SEP licensing agreements.
The on-the-job-trained EUIPO will set licensing rates for these highly valuable patents. Government price-setting will supplant private negotiations of private contracts between innovator and implementer, who each participated in developing the standards.
The EUIPO will decide whether a SEP is a SEP—through “essentiality checks” of sophisticated technologies. Second-guessing the standards-development process and contract terms of those with skin in the game, substituting the judgment of bureaucrat beginners, doesn’t bode well for Western innovation.
The EC regime will undoubtedly undervalue the patents it deems as SEPs, slashing R&D funding. The EUIPO will conjure an overall licensing rate level, then decide each approved SEP’s share. SEP owners are denied licensing and litigation until all the bureaucratic boxes are checked and the EUIPO spits out a royalty rate.
SEP owners lose access to national courts. The proposal mandates a form of arbitration before pursuing litigation. Thus, SEP owners cannot obtain a timely injunction to halt patent-infringers from commercially using the SEP.
If you get the sense this is a regulatory train wreck, you’re right. A government price-control agency. A lengthy process that adds red tape to standards development and SEP licensing. Displacement of superior means that function well today. This guarantees arbitrary devaluation of high-value innovations.
How will this harm American and European innovators and help Chinese competitiveness and innovation?
“When it comes to the most licensed standardized technologies, the EU [along with the United States] is a net exporter of innovation,” Brian Pomper, who leads the Innovation Alliance, says. The United States and the EU run trade surpluses in intellectual property licensing revenue.
Chinese manufacturers in markets such as wireless technology and automotive pay the lion’s share of SEP licensing revenues to EU and U.S. firms. For example, more than 90 percent of cellular tech licensing fees goes to EU companies Nokia and Ericsson and American firms Qualcomm and InterDigital.
“The European Union rightly argued [to the World Trade Organization] that denying SEP owners access to national courts to enforce their patent rights and restricting SEP owners’ ability to enter into SEP licensing arrangements violated China’s obligations under . . . the TRIPS Agreement,” six former U.S. officials from Democratic and Republican administrations write.
Now, the same trade agreement violations the EU decried by China; it commits. Moreover, national courts in the United States and Europe not only have a base of judicial precedents to follow in patent and SEP matters, they are bound by rules of due process and fairness altogether missing in the EUIPO regime.
“China will exploit this shift toward a regulatory regime and away from evidence-based decision-making by EU courts,” George Mason Law Professor Adam Mossoff says. He warns that with this EU SEP regime, the past with China is prologue. The EC gives China an anti-IP official action to use as a fig leaf to justify its lawlessness.
China has “relied on and referenced policy statements and other actions by U.S. . . . officials to justify [its] actions. It will once again use the EU’s proposed regulatory regime for SEPs as superficial cover to mask its continuing discriminatory treatment of Western innovators in favor of its own domestic industries.”
Today, SEPs make licensing of emerging technologies, such as 5G wireless and the apps and functions it enables, more efficient and economic value more realistic in royalties and licensing fees. Patent owners have secure rights. Implementers of SEP technologies can make new devices work with other makes and models. The EC SEP proposal blows this up.
You have to wonder how many innovations and how many emerging technologies the EC regime will kill or hand leadership to Chinese national champions before the EU comes to its senses and ditches its counterproductive plan.
James Edwards, Ph.D., is executive director of Conservatives for Property Rights (@4PropertyRights) and patent policy advisor to Eagle Forum Education and Legal Defense Fund. The views expressed are his own.
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