The more experts take a look at the leaked draft of an EU regulation on standard-essential patents (SEPs), the more issues are found. It's remarkable that just when one would think that the list should be complete, even more problems are identified.
In my previous post on this topic I focused on the international dimension (extraterritorial overreach and trade implications). Toward the end of that post, you can find a link list that points you to a dozen other posts.
Just after I published the previous post, I saw this brand new write-up by two partners of leading European IP boutique Bardehle Pagenberg. That article raises issues worth highlighting now.
Before I get to its content, two "meta" aspects:
Bardehle Pagenberg is both a patent prosecution and litigation firm. In infringement cases, they represent almost exclusively operating companies (Intellectual Ventures being the only exception I know), including automotive industry players (for instance, they represented two of the Daimler suppliers who intervened in the dispute with Nokia). They defend and they enforce (such as on OPPO's behalf against Nokia, with a Munich trial scheduled for next Thursday). Their perspective is pretty balanced, and over the years I've experienced that firm as being tactically very advanced (whether in an offensive or a defensive role).
It's a funny coincidence that's going to confuse a lot of people going forward: the two authors' names are Dr. Tilman Mueller (who just joined Bardehle this spring from Hamburg-based Eisenfuhr Speiser) and Professor Dr. Tilman Mueller-Stoy. That's a nightmare for autocomplete purposes.
I strongly recommend reading the entire write-up if you're interested in that EU SEP regulation, and I'm not going to provide a summary of everything. Here I only wish to highlight three types of shortcomings:
Essentiality cannot be determined based on only one patent per family
Making some SEPs drop out of the register could be strategically advisable
Violations of right to be heard can give rise to constitutional complaints
1. Essentiality cannot be determined based on only one patent per family
Bardehle Pagenberg's non-exhaustive list of practical concerns starts with this item:
If only one patent per family is reviewed for essentiality as planned, the register will not provide any transparency. According to the draft, the evaluation of one patent shall apply for the entire family, but a singular review does not allow any assumption as to whether or not other patents from the same family are standard essential. Similar problems apply with respect to different patent claims in the same patent.
The part about claims vs. entire patents (last sentence of the quoted paragraph) already came up in some of my posts, such as this one on flawed or missing definitions. I agree with the two Bardehle partners that the register will be useless if only a single patent per family undergoes an essentiality checks. Sometimes claims from multiple members of a patent family are standard-essential. For instance, the Mannheim Regional Court deemed Nokia's EP'103 and EP'560 so similar that there wasn't a need to distinguish them at trial. But there could also be a case where only one family member contains essential claims. Now, if one of the family members that has no essential claim gets checked, the family as a whole will be erroneously declared non-essential (a false negative). That takes us to the next item because such findings will sometimes--and I know it's counterintuitive--even be in a patentee's interest.
2. Making some SEPs drop out of the register could be strategically advisable
I've previously mentioned that the EU SEP regulation lacks a mechanism for putting a patent back on the register. It's also not clear what will happen if a patent is deemed essential/valid in one EU Member States and non-essential/invalid in another. Also, even though the draft EU SEP regulation indicates some people's utter contempt for the fundamental principle that appeals must be reasonably available, such decisions by national courts or the UPC will be appealable. And I've also said that SEP holders may benefit from a few strategic underdeclarations so they have patents they can enforce in court that can be enforced without regard to the EU SEP regulation.
The problem of no clear rules for re-registration of a temporarily-removed patent is serious. Bardehle Pagenberg discusses the potential conseqeuences of a patent having been removed from the EU register, but if the patent (or, more likely, one or more claims) were to be found standard-essential by a national court:
"It would be in conflict with constitutionally protected property rights to further suspend the SEP owner’s access to justice (and to further deprive them of claims for past use) by making them go back to square one and ask for registration and a FRAND determination at the EUIPO again. If, in contrast, the SEP owner was free to continue to litigate without taking that step, there may be an incentive for SEP owners to trigger removals from the register which would contravene the intended transparency."
The first part highlights a rather general problem with those FRAND determinations: the parameters are in flux. Even during a determination, or subsequently to that one, yet prior to a final judgment in an infringement action, all sorts of things may change. What would clearly be unreasonable is to delay the enforcement of a given patent twice only because of its erroneous temporary removal from the register.
The second sentence raises an issue that implementers should be concerned about: SEP owners even benefit from the removal of a SEP from the register as they are then free to enforce it anytime without having to await a FRAND determination.
It obviously wouldn't be in a patent holder's interest to have most of its declared-essential patents removed from the database. But if a few "litigation-grade" patents are available for enforcement outside the purview of the EU SEP regulation, that's a virtue. Bardehle Pagenberg is right that in a worst-case scenario, SEP holders might even "trigger removals." To do so would mean to act in bad faith, but it would be hard to prove.
One doesn't even have to trigger removals if there's a patent family of which only one member's essentiality is checked and results in a false negative...
3. Violations of right to be heard can give rise to constitutional complaints
In one of my recent posts I discussed potential conflicts between the draft EU SEP regulation and the national constitutions of certain EU Member States. Bardehle Pagenberg's article also raises such issues, and let me focus on only one of them:
Although the EUIPO FRAND determination is said to be non-binding, it may well be factually binding and serve as a safe harbor / factual precedent. It is doubtful how that could be compatible with the right to be heard of a third party which was not involved in the initial FRAND rate determination.
Let's face it: if a litigant prevailed on a constitutional complaint, an entire proceeding might have to be repeated after years of costly and time-consuming litigation.
Sadly, there are myriad ways in which the draft SEP regulation would result in violations of the right to be heard. Here are some examples:
Third-party intervenors will become involved only at the stage of an enforcement action. Defendants from the automotive and telecommunications industries sometimes have approximately ten suppliers (example: Nokia v. Daimler) behind them. Any one of them could assert its constitutional right to be heard after not having been able to participate in that EUIPO-led FRAND determination.
A SEP holder might name defendants to an enforcement action who would (potentially meritoriously) be able to claim they were not heard. If a defendant's parent company is involved in the proceedings, subsidiaries may not be able to claim that their right to be heard was violated--but what if they were acquired at a time when it was too late to participate in the FRAND determination?
A company who contributes to a standard after the initial determination of an aggregate royalty determination will typically not have participated in that one. Given the EU's envisioned top-down approach, a party that was not heard when the aggregate royalty rate was determined would still be impacted by it further down the road.
Defendants will often claim that they didn't have any basis to participate in the aggregate royalty determination, and may not even have had a product that implements the standard. But at some point they will be affected by that determination.
Art. 50(1) could also give rise to such complaints:
"The FRAND determination panel may hear witnesses and experts requested by either party provided that the evidence is necessary for the FRAND determination and that there is time to consider such evidence." (emphases added)
That's just not how it works in the civilized world. If the evidence is relevant, the mere fact that the FRAND determination is supposed to be concluded within nine months does not justify violations of the right to be heard. There can be deadlines by which evidence has to be proffered, but if those deadlines are met, all that matters is the relevance of such evidence.
Bardehle Pagenberg's conclusion is this: "Nice try but please try again." The article also suggests that "[t]he Commission should go back to the drawing board to significantly improve the draft or even withdraw it in its entirety. I can't see how cosmetic changes would solve the partly fundamental and even structural problems that have been identified. What DG GROW has in mind is simply not workable. It won't be conducive to the Commission's reputation if the patent law experts in the national ministries in charge of patent policy had to conclude in a Council working group that the draft is fatally deficient (and had to communicate that conclusion to the political decision-makers). The Commission undoubtedly needs help in the form of feedback to specific ideas.
