Monday, June 12, 2023

IP Europe's call for do-over of EU SEP Regulation proposal is supported by absence of evidence and growing chorus of voices that matter

In policy debates the challenge is always to understand what's in the public interest despite different stakeholders pursuing their particular interests. Stakeholders are inherently self-serving, but that doesn't necessarily make every concern a pretext.

What's unusual about the proposed EU regulation on standard-essential patents (SEPs)--but can be adequately explained with the complexity of the topic--is that it has flaws that even those seeking to benefit from it can't deny with a straight face. For instance, the effort of performing countless essentiality checks of (samples of) existing SEPs, as opposed to merely updating an existing database as new SEPs are declared, would require years of full-time work by more experts than there are on this entire planet. The Commission's Directorate-General for the Internal Market (DG GROW) does not provide evidence of the feasibility of what is envisioned.

If the debate was over whether under the current legal framework SEP holders have too much of an opportunity to engage in hold-up or whether it is too easy for unwilling licensees to engage in hold-out, everyone would obviously be entitled to their opinion. But there are hard facts that make the EU SEP Regulation proposal unworkable and objectively unhelpful, such as the one I mentioned above (the effort of performing the initial essentiality checks) or the geographic incongruence I discussed in my previous post on this subject.

On Thursday, IP Europe--an industry body whose members are net licensors of SEPs--published its position paper, which calls for a new impact assessment. In order to do the necessary homework and fix some of the obvious and serious issues with the proposal, the Commission would have to withdraw the current one or at least the legislative process would have to be put on hold. IP Europe asks the EU Council (where the EU Member States cast their votes) to:

"(1) demand a thorough impact assessment of the Commission’s detailed proposals; (2) convene subject-matter experts to comment on the proposals; and (3) if necessary, ask the Commission to withdraw the entire SEPs proposal pending further review and amendments."

None of that is the ordinary course of business in EU legislative processes. But rarely is a Commission proposal as flawed as this thing put forward by DG GROW.

The impact assessment does not address some questions that must be answered. It appears that the proposal took a different direction shortly before a first draft leaked in late March. FRAND determinations were not part of the original plan. The absence of evidence in that context is striking. For instance, DG GROW's impact assessment does not refer to any data (much less to any truly empirical study) when claiming that up to 70% of all SEP infringement litigation could potentially be obviated by performing a FRAND determination first. That number is just someone's opinion (and we don't even know whose). Theoretically, any change to the legal framework could even help parties avoid 100% of all litigation. But why 70% in this case? Why not 5%, 50%, or 95%? They have no facts, no numbers, just an agenda.

The impact assessment doesn't even take into consideration that the FRAND determination stage often doesn't have to be reached: many cases settle simply because an unwilling licensee gets sued and then takes a license. There are parties who hope for years that they're not going to be sued: someone else will. The EU proposal would result in FRAND determinations in many disputes in which they would never be needed.

Absence of evidence is not evidence of absence, but in this particular case there is evidence of the absence of serious evidence.

Throughout this process I will form my own opinions every step of the way. At this stage, I agree with IP Europe that--in other words--the Commission can do better than that, the EU deserves better than that, and the co-legislator institutions (Council and Parliament) should be provided with quality work so they can start to do their job.

IP Europe keeps updating a blog post that summarizes key third-party comments on the proposal for an EU SEP Regulation. Some of that was already mentioned on this blog, too, but I've found some new information, particularly what a Dutch ministry told its country's parliament. I also believe decision-makers should take note of a paper (PDF) by the European Association of Research and Technology Organizations.

I'll discuss it in a dedicated blog post soon, but I also find the editorial quality of the proposal and the impact assessment shocking. The density of linguistic errors and typos contrasts starkly with every other official Commission document I've seen. Even at the height of the COVID pandemic, when time was of the essence, the policy proposals and statements that were cranked out by the Brussels machinery were more or less impeccable. The substantive issues with the proposal are obviously the more pressing reason for an overhaul, but it would also be in the Commission's institutional interest to withdraw an utter embarrassment for the institution as a whole (though only a small number of people are to be blamed).