The competent court is most likely to be the UPC, although it could be a national court for an European Union (EU) country if the European patent has been opted out or an EU country not part of the UPC. Is this an example of the European Commission/EU using the UPC to shape industrial policy in the single market? Will the SEP regulation upset the ecosystem that produces technical standards?

Technical standards in telecommunications

Over the last 30 years or so an ecosystem has developed, in which innovators and technology providers collaborate to produce a technical standard which allows interoperability of technical devices, perhaps from different manufacturers, which conform to that technology. Obvious examples are LTE, 4G, 5G, 6G, Wi-Fi, DVB, Bluetooth, and MPEG. The ecosystem seems to work; the public gets a technology standard and implementers can produce devices which can work with devices produced by others.

Standard essential patents

Although technology providers are collaborating, they are competing through the patent system by patenting the technology which is then incorporated into the standard; hence SEPs. Whilst implementers earn from selling the technical devices, technology providers recover their investment in research and development through the patent system by licensing SEPs. As part of the cooperation with the standard-setting bodies, technology providers agree to licence their SEPs on fair reasonable and non-discriminatory (FRAND) terms. However, there can be an imbalance in power between parties with deep pockets (that can hold out against a potential licensor) and patent holders that can demand royalties from implementers (perhaps with limited resources and with the fear of those implementers being blocked from the market through the possibility of an injunction). So establishing FRAND terms may be difficult in practice.

The laudable aims of the SEP regulation are to bring transparency and to ease licensing of SEPs on FRAND terms to the benefit of both implementers and SEP holders.

EUIPO competence centre and SEP register

The SEP regulation provides a legal framework to establish a competence centre at the EUIPO. The competence centre will establish an SEP register and evaluators will be appointed to administer essentiality checks to ensure that patents declared as essential, either directly or through a standards setting body, are indeed essential and can be published on the SEP register. It appears that a professional practice area will develop around negotiating with evaluators to have a patent entered onto the SEP register, with associated procedural law forming part of the SEP regulation.

Aggregate patent royalties

Once the SEPs are on the register, then third parties can apply for an aggregate royalty, which is a royalty for all of the patents owned by a party in order to licence that technology.

Contentious proceedings

The second role of the competency centre will be to facilitate negotiations (non-binding expert opinion, Article 18) or to establish an aggregate royalty in contentious proceedings. To this end, the competence centre will appoint conciliators. Articles 34 to 60 in the proposed SEP regulation set out a legal framework of a process of setting FRAND licensing terms, including oral proceedings (in person hearings) in the contentious sense. There are provisions for determined FRAND rates to remain confidential, with other provisions for publishing non-confidential FRAND terms and conditions determined by competent courts of member states of the UPC. The general flavour however is one of promoting transparency.

Implications for SEP owners

The proposed SEP regulation is not yet law and must now be negotiated and approved by EU member states. Whilst its aims are laudable, the regulation jars somewhat because SEP owners are typically reluctant to disclose royalty rates agreed with other parties in order perhaps to preserve their negotiating position (see ‘related article’ above right). Why would an SEP owner declare its patents and publish a royalty rate on a public register? The answer is that under the SEP regulation, within six months of publication of grant, an SEP owner must register a patent with the competency centre at the EUIPO for inclusion on the register. Under Article 26, failure to register a patent as being an SEP may result in that patent being unenforceable in a competent court. Under the UPC agreement, the competent court will be either the UPC or a court of an EU member state. What if the European patent has been opted out? Does that affect what is meant by a competent court? It would appear not.

Although not yet law, this is perhaps an early example of the UPC being used by the European commission/EU to shape industrial policy within the single market.