There may be EU rules to improve transparency around the use of standard essential patents. This should make the landscape of these important patents for, for example, the 5G and IoT sectors more transparent for small companies and help them with innovation.
The European Commission has drawn up an Intellectual Property Action Plan to accelerate innovation, digitization and economic recovery in the EU. One of the main goals of this action plan is to facilitate intellectual property sharing. The Commission considers it important to improve access to important intellectual property, especially in the current time of crisis. Part of this are the so-called standard essential patents. The Commission will make proposals to improve transparency and predictability in the licensing process for these patents. According to the Commission, this is of great importance as these patents are identified as a key element in the digital transformation of the European industry, specifically mentioning the release of connected cars and other IoT products.
Standard Essential Patents
Standard Essential Patents are particularly important because they are crucial to the further development of a particular technological standard. In order to develop a standard, the industry establishes certain requirements and characteristics by means of a standard setting organization to which the large and relevant companies from the relevant sector are usually affiliated. These organizations must not only ensure efficient standardization and working technology, but also ensure a situation where the technology can actually be used by everyone. This can be tricky, however, because a standard, such as UMTS or LTE, is a description of many technologies. These are sometimes all laid down in separate patents and thus owned by many different companies. Parties wishing to apply the standard often cannot ignore these patents, because they are essential.
Normally, a company can thwart the use of a patent, as if it were an exclusive right. Because this can hinder the adoption and development of a standard, standard essential patents are usually licensed on so-called Frand terms. This is an abbreviation that stands for fair, reasonable and non-discriminatory, in short, licensing the patents under reasonable conditions. So the idea behind this is that if the owner of a standard-essential patent refuses licenses or demands far too high royalties for the use of such a patent, that disrupts the market or limits the adoption and development of the standard. This principle of standard essential patents should create a relatively transparent landscape, where the patented technology can be used without much hassle.
Nokia vs Daimler
Practice shows, however, that litigation often takes place with standard essential patents, for example because patent holders and users do not always agree on exactly what Frand conditions are. An example is the legal battle between Nokia and Daimler, in which the parent company of the Mercedez-Benz cars, among others, wants access to certain UMTS and LTE technology from Nokia, which Daimler sees as crucial for the use of communication and navigation services in are cars. Nokia has set up a patent pool together with others such as Qualcomm and Sharp, with a fixed royalty amount of 15 dollars per vehicle to obtain a license for the implementation of the 4G standard. Daimler believes this is too expensive and believes that it should be able to access the standardized technology through its suppliers in a reasonable and non-discriminatory manner. Nokia states that it has also offered this, but that Daimler has nevertheless used Nokia’s inventions, without permission and proper compensation.
In August, a German court ruled in this case, which could force Nokia to force Daimler to stop selling cars in Germany. That was a potentially explosive judgment. However, the sale has not yet been discontinued, partly because Nokia must set a deposit of 7 billion euros, according to the court. If Nokia wants to actually impose and enforce the sales ban, the company must pay this amount as collateral. The idea behind this is that if Nokia eventually loses the case, and the sales ban was already in effect, Daimler can claim that amount as compensation for its lost income.
The fear is that if Daimler eventually loses the case, it could also affect the wider adoption of IT in cars. It may also be that Nokia wants to fight this battle not only in the automotive sector, but much more broadly, addressing other sectors that make use of Nokia’s mobile technological inventions. The Finnish company earns EUR 1.4 billion annually in royalties for licensing its patents.
Steps from European Commission
The European Commission does not refer directly to this case between Nokia and Daimler. Commissioner Margrethe Vestager specifically points to the importance for small and medium-sized businesses not to get bogged down in unnecessary procedures and hassle, which can harm innovation and economic prospects.
According to her, the current situation surrounding standard essential patents is undesirable, in the sense that there are no tools for small and medium-sized companies to quickly reach effective licensing agreements: “There is quite a lot of litigation. industry is figuring out how to set up forums to facilitate discussion and mediation so that perhaps more cases can be left out of court, “Bloomberg writes. She does not think the current system is very transparent and from that point of view she is considering taking steps that should lead to the establishment of an independent body that examines how essential the standard-essential patents really are for the standard in question. It does not rule out the introduction of new regulations.
Incidentally, the action plan is broader than the subject of the standard essential patents and has a number of main objectives: improving the protection of intellectual property, facilitating the sharing of intellectual property to accelerate the use of technology in industry, combating counterfeiting, improving enforcement of intellectual property rights and promoting a level playing field at the global level.