A recent European Commission proposal to cool the litigious broth about connectivity patents by institutionalizing transparency as a means of avoiding disputes is attracting feverish attention. That fever is excessive: let us calm down and refrain from predicting the end of the world. The proposal is a sensible regime that does not eliminate property rights.
Patents reward an inventor for discovering something nifty, and sharing that discovery for anyone to use — after 20 years have elapsed. During their 20-year monopoly, patentees can use the invention themselves or license it for others to use. Licensing can be lucrative, though most patents bring modest financial reward.
In some industries, manufacturers may hold dozens, even hundreds, of patents covering different aspects of the many components of a mobile phone or a car’s navigation system. The average mobile phone in 2023 embodies some 100,000 patented inventions (yes!). Whether a patent is weak or strong, litigation is unsure and costly.
The proposal is a sensible regime that does not eliminate property rights.
Sometimes the whole industry needs to agree on one single technical method, for practical reasons. For example, in times of emergency, everyone tries to call friends or family, clogging access to the internet. But emergency workers need to get priority to access a functioning signal. So, the manufacturers sit round a table to choose which of the candidate methods for prioritizing police calls shall be given precedence. The lucky inventor of that patented technology (the Standard Essential Patent or SEP) promises to make a license available on fair, reasonable and nondiscriminatory, (known as FRAND) terms. So far, so good. But what if the patentee is greedy and asks too much, or the licensee is stingy and won’t pay? What if the patents and all associated rights were sold to a third party who feels unembarrassed to demand huge royalties? What if the licensor goes to court and enjoins the licensees from using the technology, thereby paralyzing the industry from selling their mobile phones? What is the fairest way to value a nifty invention which is going to be used in making a million phones, or 100,000 car navigation systems, or 50 toy racing cars?
Such controversies have arisen frequently for nearly 20 years, with a succession of bad-tempered disputes before competition authorities (both national and European) and courts. In my days as a litigator in these battles, I have acted for good guys and bad guys, licensors, sophisticates, piracy victims, licensees and retailers. The European Commission has wrestled with the difficulty of finding the right rate (market forces are much better than public officials at determining a fair price), of keeping commerce flowing, and choosing between noisy opponents. But I never once felt that the outcome of the dispute had been perfectly fair. Litigation is a bad means of setting prices.
The solution (maybe) emerged in April, in the form of a proposed EU regulation to govern the process of licensing SEPs. Participants would have to register their patents, get some of them assessed as to whether they are ‘essential’ to the standard, and make clear the terms on which they would be available for license. Mediation would be a necessary preliminary step to avoid litigation.
Let us calm down and focus on making the regulation better, simpler, clearer.
The proposal has provoked a buzz of controversies, with some suggesting that it is an intrusion on fundamental rights of property, while others say it is too procedurally burdensome. Others say it doesn’t go far enough in compelling the availability of the licensed technology. My view is rather in the middle: the proposal seems a sensible means of deterring disputes or, at least, resolving them decently. I was startled by the passions at a recent well-attended meeting in Brussels.
Before we get too excited about the sacred rights protected by the Charter (EU) or Convention (ECHR), let’s remember that public authorities enjoy a wide margin of discretion in the eyes of both the Luxembourg and Strasbourg courts. I cannot imagine that it would be regarded as a gross intrusion upon property to require the licensor to post a public list of terms which are applicable to all customers. Restaurants have done that for at least a century. And government-decreed property losses, total losses, albeit regrettable, have likewise been upheld (the owner of the fish farm who was ordered to destroy all his fish to prevent the spread of a disease got zero compensation despite a huge loss: tough, but not a breach of his fundamental property rights, said the Court).
So let us calm down and focus on making the regulation better, simpler, clearer. The JURI committee of the Parliament should tune out the lamentations and render its advice so that we can conclude the debate with an adopted regulation before the elections. The proposal is a decent attempt to avoid disputes by compelling transparency. That is worth trying.
Ian Forrester is a former judge of the General Court of the EU.
