There was a leak, there was speculation and finally the formal proposal for a EU Regulation on standard essential patents issued on 27 April 2023.  So what does it say and what would be its effect?

What is proposed?

The Regulation proposes that the European Union Intellectual Property Office (EUIPO) is given responsibility for various SEP matters in the EU. (The EUIPO is a EU organization based in Alicante, Spain that to date handles EU design and trade mark applications). In particular the EUIPO will:

• maintain an electronic register of technical standards 
• maintain details relating to an aggregate royalty for a technical standard 
• maintain an electronic register and database for SEPs 
• administer a process for assessment of the essentiality of SEPs 
• administer a process for determination of license terms and conditions on Fair, Reasonable And Non- Discriminatory (FRAND) terms 
• manage rosters of evaluators and conciliators 

What are the key takeaways from the Regulation?

• A SEP may not be enforced until its registration with EUIPO
• A SEP Holder is not entitled to royalties or damages for infringement of a SEP until its registration with EUIPO 
• FRAND determination must be initiated
  • prior to any initiation of a SEP infringement claim in a competent court of a Member State 
  • prior to any request for the determination or assessment of FRAND terms and conditions of a SEP licence in a competent court of a Member State 
• Essentiality checks are conducted on a random selection of SEPs each year, but SEP Holders and Implementers may propose a list of SEPs each year 
• Aggregate Royalty determination is not mandatory 
• The date of registration of a SEP is the date the request is received by EUIPO

So let's unpack all of this. 

Maintain an electronic register of technical standards (Art 14)

The onus is said to be on "Holders of a patent in force in a Member state" to notify to EUIPO information relating to a Technical Standard. The information comprises: the commercial name of the standard, a list of relevant technical specifications that define the standard, the date of the publication of the latest technical specification, and details of implementations of the standard known to the SEP holder.  An "Implementer" (a person that implements, or intends to implement, a standard in a product, process, service or system) may also notify EUIPO. "Stakeholders" (anyone with a "legitimate interest in SEPs") may comment and then EUIPO publishes the information relating to the standard.  

This information is in relation to a standard and no details of any SEPs are required at this stage. So who will actually do this and when are interesting questions. Various time limits are given but no consequences if "Holders of a patent in force in a Member state" do not notify the EUIPO of a standard.  

Maintain details relating to Aggregate Royalty for a technical standard (Art 15-18)

Holders of SEPs "may" notify EUIPO of an aggregate royalty for the SEPs covering a standard and also may ask EUIPO to appoint a conciliator to mediate discussions for a joint submission of an aggregate royalty.  In the latter case, an opinion is published for all to see.  However, neither of these steps is mandatory.

Again, this raises the questions - who will actually do this and when?  Various time limits are given but again no consequences if the time limits for this voluntary process are not met.  

Maintain an electronic register and database for SEPs (Art 20-25)

Now we start to get interesting.  As mentioned above, the EUIPO is to maintain an electronic register and database for SEPs. And the consequences of a SEP Holder not registering a SEP with EUIPO are severe: 

• A SEP may not be enforced until its registration with EUIPO (Art 24)
• A SEP Holder is not entitled to royalties or damages for infringement of a SEP until the SEP’s registration with EUIPO (Art 24)

The date of registration of a SEP is the date the request is received by EUIPO (Art 21). 

So registration of a SEP will be mandatory on SEP Holders that wish to enforce their SEPs in the EU. The time limits are interesting - within 6 months of entry of the standard in the register (or 6 months from grant of the SEP if it was not granted when the standard was entered in the register).  Again no consequences in the Regulation if this time limit is not met. 

However a competent court of a EU Member State (national courts of a EU Member State and the UPC from 1 June 2023) that is requested to decide on any issue related to a SEP in force in a Member State "shall verify whether the SEP is registered as part of the decision on admissibility of the action" - so this looks like the courts in the EU will consider an action as inadmissible if the SEP is not registered.

One other point to note "The registration fee shall include, in case of medium and large enterprises, the expected costs and fees of the essentiality check" (Art 20(6)). There is no indication at this point of the scale of the registration fee but it will be the SEP Holder paying it.  

Administer a system for assessment of the essentiality of SEPs (Art 28-33)

Essentiality checks will be carried out each year on a sample of SEPs. There is no indication how large this sample will be. SEP Holders and Implementers can each propose up to 100 SEPs each year to be checked for essentiality.  If there has been a decision in a EU Court relating to essentiality of a SEP in relation to the standard, then no essentiality check will be carried out by the EUIPO. 

SEP Holders are informed if one of their SEPs has been selected and may submit a claim chart and any additional technical information that may facilitate the essentiality check. Stakeholders may submit observations concerning the essentiality of the selected SEPs and the SEP Holder may comment on these.  

An evaluator selected by EUIPO (and not disclosed to the SEP Holder) carries out the essentiality check. If the evaluator considers that the SEP is not essential to the standard, the SEP Holder may request a peer evaluation. 

The (non-binding) result and reasoned opinion of the essentiality check are published and may be used as evidence before courts, arbitrators etc.

And who pays for this? As mentioned above, the initial SEP registration fee is planned to cover the expected costs and fees of the essentiality check.  But if a SEP Holder or Implementer has proposed a SEP to be checked for essentiality then it appears that they pay for the essentiality check (Art 62).  

So, an essentiality check is not mandatory and it is open ended when an essentiality check on a SEP will be carried out by EUIPO.  The SEP Holder may participate in the essentiality check but this does not appear to be mandatory.  Some SEP Holders may decide not to participate to distance themselves from any essentiality check carried out by EUIPO. And who pays is unclear at this time. 

Administer the process for FRAND determination (Art 34-58)

FRAND determination is the majority of the Regulation.  The Regulation says this starts with a "Request and Response" procedure between a Requesting Party and a Responding Party (typically these will be a SEP Holder and an Implementer as a potential licensee) and that the procedure must be concluded within 9 months.  This appears to be 9 months from the conclusion of the "Request and Response" procedure.  

The FRAND determination must be initiated by a SEP Holder or an Implementer:

• prior to any initiation of a SEP infringement claim in a competent court of a Member State (Art 34)
• prior to any request for the determination or assessment of FRAND terms and conditions of a SEP licence in a competent court of a Member State (Art 34)

It is not clear from the Articles of the Regulation whether a SEP infringement claim/request for FRAND determination can be initiated in a competent court of a Member State once the FRAND determination has been "initiated".  The Recitals to the Regulation appear to suggest that a party should not be exposed to litigation during the time of the FRAND determination. But also that any party that commits to comply with the outcome of the FRAND determination while the other party fails to do so should be entitled to initiate proceedings before the competent national court pending the FRAND determination. 

It is clear from the Regulation that, if one party commits to the FRAND determination but the other party does not, the one party does not have to wait for the outcome of the FRAND determination before initiating court proceedings in the EU. However the position is not so clear in relation to a situation in which neither party commits to the FRAND determination. According to Art 38, this results in termination of the FRAND determination, with the consequences of this not being set out.     

The Regulation also states that, where a parallel proceeding has been initiated in a non-EU Member State before or during the FRAND determination, the FRAND determination shall be terminated upon the request of any other party.

In the FRAND determination procedure, a conciliator has around 4 months to reach an initial recommendation of a determination of FRAND terms and conditions (having engaged with both parties) and then by 45 days from the end of the 9 month period the conciliator must submit a final reasoned proposal for a determination of FRAND terms and conditions to the parties (after both parties have had the opportunity to comment on the initial recommendation). 

The EUIPO shall keep confidential the determination of FRAND terms and conditions, any proposals for determination of FRAND terms and conditions submitted during the procedure and any documentary or other evidence disclosed during the FRAND determination which is not publicly available, unless otherwise provided by the parties.

However "the methodology and the assessment of the determination of FRAND terms and conditions by the conciliator" is NOT kept confidential.

And who pays for the FRAND determination? The costs are borne equally by the parties, unless they agree otherwise, or the conciliator suggests a different apportionment based on the level of participation of the parties in the FRAND determination (Art 62).  Again, there is no indication at this time regarding how much these fees are likely to be. 

Manage rosters of evaluators and conciliators (Art 26-27)

Finally, the EUIPO will need to find a large pool of experts in SEPs to be evaluators and conciliators and how this will work in practice is yet to be seen, as these people tend also to be expert witnesses in court proceedings around the world. 

Can you picture your next job already, in sunny Alicante?  

What happens next? 

Once a Regulation is proposed by the EU Commission, it is considered by the EU Parliament and Council.  The process starts with Parliament appointing a committee to consider the Regulation and prepare a report, recommending either amending the Regulation, adopting it without amendments or rejecting it altogether.  The Regulation can undergo up to three readings before Parliament and Council.  

There is no set time limit by which either Parliament or Council must conclude its first reading. So it is likely to be some time before we find whether and in what form this Regulation becomes EU law.  But a lot of lobbying will now be taking place so we wait to see if one of the stated aims of the Regulation comes about...