Standard Essential Patent Regulation: for European Industry’s Competitiveness

To preserve the competitiveness of European industry including SMEs, the EU must act to make licensing of standardised technologies, such as WiFi or 5G, more transparent, predictable and fair.
Fair Standards Alliance

By Fair Standards Alliance

The Fair Standards Alliance is an association created in 2015 to strengthen the voice of innovative technology companies of all sizes to ensure that licensing of SEPs required by so many smart devices is done on a fair, reasonable and non-discriminatory basis

21 Feb 2024

Virtually all of the main areas of economic activity in Europe are directly and adversely affected by current licensing practices in standardised technologies. European industry across a broad range of sectors already is or will soon become licensees for technologies such as WiFi, LTE and other wireless communications. In 2022, French and German businesses and consumers already paid as much as EUR 1bn to holders of patents for these technologies that are predominantly based in Asia and the US. These figures are set to grow exponentially. Innovative European industry is a net licensee of standardised connectivity technologies.

That is why so many voices have spoken in favour of the Standard Essential Patent (SEP) Regulation – including dozens of companies from sectors that are critical to Europe’s industrial base and the transition to a greener and more digital Europe – as well as SMEs.

Innovative industry at stake

Central to achieving digital and green transition, as well as keeping Europe competitive, are semiconductors – strategic assets for key industrial value chains, including autonomous cars, smart energy and other incalculable Internet of Things (IoT) offerings. In Europe, manufacturers of semiconductors that use connectivity standards, invest significant resources into R&D. However, “current 4G licensing system is ineffective for both European semiconductor manufacturers and their many SME IoT customers”, says Kristian Sæther, Product Director, Cellular IoT at Nordic Semiconductor, a mid-size company specialising in wireless technology for the IoT.

Smart energy solutions will play a focal role in the transition towards more sustainable demand-driven energy management ecosystems. Europe’s smart grid, smart metering, smart storage solution providers and other related infrastructure players are set to be at the receiving end of the currently unfair, unbalanced and untransparent licensing of standardised connectivity technologies. That’s why the European Association of Gas Meter Manufacturers, European Association of Water Meter Manufacturers, and the European Smart Energy Solution Providers are amongst many stakeholders supporting the SEP Regulation.

The automotive sector, which employs over 2.5m people in direct manufacturing alone, is the EU’s lead investor in R&D, spending almost EUR 173bn on innovation a year. Most businesses from other sectors leading the 2023 EU R&D Investment Scoreboard offer products and services, using standardised wireless technologies. For example, manufacturers of technology hardware, equipment and semiconductors invested more than EUR 285bn in 2022.

“This affects not only the automotive industry, but all manufacturers of connected goods and applications for the IoT”
Gilles Mabire,
CTO, Automotive Technologies, Continental

Whilst European industry invests intensely into innovation – from smart devices and connected vehicles to state-of-the-art components enabling “things” of the Internet connect – its competitiveness is threatened by highly unfair licensing of standardised technologies such as 4G and 5G. A handful of companies that hold largest patent portfolios for 5G technologies are headquartered outside of the EU. Not only do they own significant 5G patent portfolios but also sell products using 5G technologies. Unless the EU takes action to bring some balance to standardised technology licensing, Europe’s innovative industry will lose ground to competitors from overseas.

In theory, European industry should be able to use standardised technologies by getting licences on fair, reasonable and non-discriminatory (or FRAND) terms – this is what standard essential patent holders have promised. Unfortunately, there are SEP holders that don’t honour this FRAND promise,” says Gilles Mabire, CTO, Automotive Technologies, Continental. “This affects not only the automotive industry, but all manufacturers of connected goods and applications for the IoT.”

"As a medium-sized European company, we are regularly affected by SEP licensing disputes, especially with non-European players, who act with high pressure to monetise their patents for standardised technologies such as WiFi – even though many of the patents are invalid or do not comply with the standard at all,” says Dr Gerd Thiedemann, Vice President Products, AVM.

SMEs disadvantaged

“Most IoT players are SMEs. They have very limited resources or incentive to navigate a licensing system that’s unpredictable and untransparent”, notes Kristian Sæther, Nordic Semiconductor. “Innovative SMEs want simply to buy a component, such as our semiconductors enabling wireless technology for the IoT, with the licence to use the standard, and focus on innovation and product development of their core products rather than deal with a maze of business uncertainty of licensing 4G technology.”

“The current 4G licensing system is ineffective for both European semiconductor manufacturers and their many SME IoT customers
- Kristian Sæther,
Product Director, Cellular IoT at Nordic Semiconductor

“Holders of patents for standardised connectivity technologies systemically discriminate SMEs, as evidence in recent litigation confirms,” says Reinier Hendriks, CEO at Fairphone, a Dutch SME ethical smartphone manufacturer. “Patent assertion entities have an upper hand in licensing negotiations with SMEs, which are compelled to accept unreasonable licensing terms.”

Long overdue solution

The European Commission’s proposal for the SEP Regulation is “long overdue”, according to Gilles Mabire, Continental. “It is a sensible and balanced bid at making Europe’s technology licensing system more efficient.”

“We are among many companies from a broad range of sectors who have spoken in favour of the Regulation, says Linus Eklund, Vice President Patents, Volvo Group. “The proposed SEP Regulation could level the playing field, especially for SMEs, bringing more predictability, transparency and legal certainty,” adds Mr Hendriks from Fairphone.

The Commission has correctly diagnosed the many problems with licensing of standardised technologies, and based the proposal on an exhaustive Impact Assessment Report, reflecting the findings of its multi-year consultation with all major stakeholders.

The current system incentivises companies with monopoly power to drag European businesses into litigation and use the threat of market exclusion to force them to accept unfair licence terms. The lack of transparency and information asymmetry also make it difficult for companies to negotiate licensing terms that are reasonable.

While the intention of standardisation is to ensure that all market players have fair access to the relevant standards, it has in practice become a lucrative licensing vehicle for many patent holders, allowing them to use the leverage of the standard to achieve outcomes that would otherwise not have been possible”, says Nicholas Banasevic, a former Acting Director at the European Commission’s DG COMP.

A recent Commission proposal to cool the litigious broth about connectivity patents by institutionalising transparency as a means of avoiding disputes is a sensible regime that does not eliminate property rights,” notes Ian Forrester, former judge of the General Court of the EU.