On 15 June 2021, ACT | the App Association held an event covering the fundamental issues companies may experience when trying to license patents in the internet of things (IoT) context. Although Nokia and Daimler reached a licensing agreement, and the Court of Justice of the European Union (CJEU) will, therefore, not give an opinion on the matter, the larger problems remain unsolved. Certain holders of standard-essential patents (SEPs) continue to refuse to grant licences to willing licensees, and potential licensees have to overcome disproportionate barriers to demonstrate their willingness to take a licence. During the webinar the speakers presented these issues from a broader perspective and highlighted that these issues do not just exist in the automotive industry but affect all sectors that involve IoT devices.
Moderated by Jim Beveridge, an Innovators Network Foundation intellectual property fellow, our panellists included:
- Brian Scarpelli, Senior Global Policy Counsel, ACT | The App Association
- Suzanne Munck, Counsel, Davis Polk & Wardwell, Former Deputy Director and Chief Counsel for Intellectual Property at the United States Federal Trade Commission
- Evelina Kurgonaite, Secretary-General, Fair Standards Alliance
- Claire Grossmann, EU Affairs Manager, The European Smart Energy Solution Providers
- Michael Schlögl, Head of IP SEP, Continental
The panel was preceded by opening remarks by the App Association’s general manager for Europe, Morgane Taylor, and a keynote speech by Nikolaus Thumm, former senior fellow of the European Joint Research Centre.
Welcoming the participants, Ms Taylor kicked off this event, highlighting the importance of IoT and the opportunities it presents for SMEs and App Association members who are at the forefront of innovation. Transparency in the licensing process is essential for SMEs to continue innovating and make good business decisions on a level playing field.
After being introduced by Mr Beveridge, Mr Thumm explained how the world of innovation is becoming more complex and involves more and more SEPs. He stated that governments can regulate the market and enhance transparency but should not be involved in rate-setting or similar actions. As 50 to 75 per cent of SEPs are declared non-essential after the fact, essentiality testing is a useful tool to address this increasing complexity. In a recently conducted study, the European Commission concluded that essentiality assessment is feasible both institutionally and technically. Therefore, the report recommends that policymakers develop an essentiality assessment system for the European Patent Office and national patent offices to carry out. Mr Thumm also presented his study on how to set up a system of essentiality testing conducted with Dr Ruud Peters. In conclusion, Mr Thumm highlighted that the design of essentiality checks is fundamental and is a trade-off between the trust that will be put into the system, the price, and the quality of the outcome.
Panel: Standard-Essential Patent Policy as Industrial Policy
Ms Evelina Kurgonaite, secretary-general of the Fair Standards Alliance, started off her remarks by outlining the most alarming concerns for the licensing of SEPs, including the refusal to license and selective licensing. These behaviours are driven by the recent developments in the Nokia v. Daimler case, as industry players were eager to obtain legal certainty by the Court’s decision. Ms Kurgonaite emphasised that the FRAND commitment is a competition tool that was created in particular to tackle potential abuses of power by patent holders. Further, Ms Kurgonaite reminded webinar participants that the Commission found it was indeed a violation of Art. 102 of the Treaty on the Functioning of the European Union (TFEU) to seek an injunction on a willing licensee. She acknowledged that even the mere threat of an injunction can cause damages to the implementer. In conclusion, Ms Kurgonaite explained that the latest settlement does not solve any of the problems of the industry, as it simply resolves the licensing of one licensor to one licensee under the threat of injunction.
Mr Michael Schlögl, head of IP and SEPs at Continental, provided an executive summary of the litigation between Nokia and Daimler. Out of the 10 cases Nokia is involved in in Germany, five of the debated patent rights are expired or were declared non-essential, which raises questions about the overall validity of Nokia’s patent portfolio, according to Mr Schlögl. Because of the recent settlement between Nokia and Daimler, Mr Schlögl noted the CJEU will now regrettably not comment on this SEP and FRAND licensing case. He also highlighted the importance of patent claims for useful case information. Using the example of claim EP 2 087 629, Mr Schloegl explained how it refers to the processor, and thus, means the chipset instead of the final product, thereby making Daimler and its suppliers patent infringers. Considering that any infringer of an SEP is entitled to a FRAND licence, the licensing should not have any discrimination capacity on the target, Mr Schlögl concluded.
Claire Grossmann, EU affairs manager at the European Smart Energy Solution Providers, explained how the technologies built to perform smart metering are using wireless communications standards through the installation of cellular chipsets and module providers. Some cellular SEP holders, however, are not providing the licence to component manufacturers anymore, Ms Grossman said. Instead, SEP holders approach the smart meter manufacturers to take the relevant licences. Ms Grossman emphasised that by choosing not to license to an entire tier of the supply chain, SEP owners hinder downstream innovations and generate uncertainty and potential financial exposure for the smart meter manufacturers. Considering the larger picture, Ms Grossman expressed concerns that the refusal to license in the smart metering sector could ultimately endanger the clean energy transition. SEP holders should receive reasonable compensation for their innovations but should not receive a remuneration that is unrelated to their own innovative contribution. Ms Grossman urged SEP holders to respect the FRAND principles and policymakers to stop patent owners from refusing licences to willing implementers.
Brian Scarpelli, senior global policy counsel at the App Association, stressed that standardisation and SEP licensing are key drivers of the modern economy and innovation through the rise of IoT. IoT provides new development patterns for SMEs across different sectors, Mr Scarpelli said. However, SEP licensing abuses present a roadblock to the uptake of these modern technologies. Therefore, he emphasised that the European Commission urgently needs to create guidelines for SEP licensing that align with the goals of the European Industrial Strategy. The App Association, together with the Fair Standards Alliance, drafted detailed SEP licensing best practices within CEN-CENELEC, from which the Commission should draw. According to Mr Scarpelli, the most important issues the App Association works to address regarding SEP licensing are ensuring SEP licence availability to any willing licensee, transparency throughout the standards and SEP licensing process, and attaining FRAND licensing rates.
Suzanne Munck, counsel at Davis Polk & Wardwell and former deputy director and chief counsel for intellectual property at the United States Federal Trade Commission, shared some predictions on what to expect from the Biden Administration in the SEP space. Ms Munck highlighted that the role of federal agency enforcement actions in addressing many FRAND issues is one of the consistencies in the U.S. context. Ms Munck noted that former Assistant Attorney General for Antitrust Makhan Delrahim focused on contract law and patent law to resolve these issues, arguing that there was no role for antitrust. However, she expects a more harmonised approach from the Biden Administration that should include support for a greater role for antitrust law to resolve SEP and FRAND issues.
After a brief question and answer session with the audience, the webinar wrapped up. We thank all our panellists for their participation and excellent interventions and look forward to the next event on SEPs after the summer. If you missed the event, you can watch the recording here!