Sunday, June 25, 2023

EU proposal on standard-essential patents envisions "Competence" Center that will never get to build competence on SEPs: major misnomer

It is par for the course in politics that action plans, measures, or entire institutions are named euphemistically or at least optimistically in the sense that they reflect a laudable goal for the future rather than a present reality. For example, the "America Invents Act" primarily made it easier to challenge patents through PTAB IPR petitions, for which there were good reasons, but which has nothing to do with encouraging more patent filings and incentivizing more inventions.

The European Commission's Directorate-General for the Internal Market (DG GROW) chose a nonjudgmental name for its proposed regulation on standard-essential patents (SEPs). It would have been unusual for the EU to do otherwise. But there is one label that is pervasive throughout the highly controversial proposal and doesn't withstand scrutiny: "Competence" Center.

It's actually just the smaller of two problems with that name that the EUIPO--which would be more accurately called EUTMO (a trademark office)--knows nothing about patents and particularly not about standard-essential patents. The EUIPO's outgoing Executive Director, Christian Archambeau, once even said the EUIPO would never have patent competence.

That smaller problem could theoretically be solved. The quality of life in the coastal town of Alicante (near Barcelona) is high, and relative to what the governments of the EU Member States pay their employees, EU public servants are well-paid. Licensing professionals who run patent pools or serve as expert witnesses and arbitrators are too much in demand and would probably not be interested, but at least the EUIPO would not be in a worse position to recruit talent than the European Patent Office (which is not an EU institution, and which according to rumor declined to get involved with this SEP regulation initiative).

So what's the bigger issue about?

It's that the proposed EU SEP Regulation makes it practically impossible for the "Competence" Center to acquire SEP competence. Ever.

Even if they hired people with the potential to learn about SEPs in technical and/or economic terms, it's not going to happen because all that they're going to do is of a purely administrative nature:

  • The envisioned SEP register will contain SEPs that are reported by the SEP holders (or by third parties) and the results of essentiality checks performed by external technical experts ("evaluators"). Even the database system will presumably be set up by consultants.

  • The FRAND determinations for entire standards or for particular licensor-implementer relationships will be made by external consultants ("conciliators").

So what will the EUIPO's SEP "Competence" Center really do?

It's just going to be an outsourcing operation. They'll see which of those SEP evaluators (who perform essentiality checks) and conciliators (who propose FRAND rates) are reliable in terms of meeting deadlines and showing up for appointments. They won't even have or acquire the internal knowledge to assess whether those external consultants do good work, except that over time there will be some statistics as to how often a SEP evaluator's findings are affirmed by another evaluator in the event a peer review is performed. Only a reasonably large statistical sample would yield meaningful results, given that a disagreement between two peer reviewers is not as instructive as a decision by an appellate body (where the appellant will challenge particular errors as opposed to a second review taking place without the benefit of an appeal that raises particular issues).

Contrary to a "Competence" Center, that is an Outsourcing Operation, or a Database Secretariat.

The executive branch of the EU government won't become more knowledgeable about SEPs, at least not significantly so. There won't be a better basis for future policy decisions--given the flaws of the proposal that is currently on the table, progress of that kind would be highly desirable and room for improvement abounds--or for giving advice to small and medium-sized enterprises (SMEs) with respect to SEP licensing.

The proposed regulation purports to tackle a problem that the underlying impact assessment is unable to show: patent hold-up. The "researchers" on whose work DG GROW relied even stated explicitly that there is no hard evidence for either hold-up or hold-out. Some of the provisions make no technical or legal sense, such as that an essentiality check of a single patent shall serve to clarify the essentiality or non-essentiality of a entire patent family. Fundamental rights would be violated, such as access to justice--an issue that I highlighted early on (shortly after the first draft leaked in March) and which has recently been raised by the president of the UPC appeals court, Judge Dr. Klaus Grabinski. "Back to the drawing board" is the best advice one can give DG GROW in this situation--and the fact that the so-called "Competence" Center won't ever become truly competent is one of various reasons for that suggestion. There's no shortage of reasons, actually...