Patent pools, not legislation, are the answer to SEP licensing issues
The European Commission and MEPs are right to worry about inefficiencies and a lack of transparency in the SEP licensing market. However, a legislative intervention is not the answer – especially when a successful market driven alternative is at hand. Sisvel president Mattia Fogliacco and senior policy counsel Vincent Angwenyi explain
Sisvel is proud to be Europe’s biggest and oldest patent pool administrator. We currently run 14 programmes covering a variety of technologies. Our partners are hundreds of world class innovators and implementers of their breakthrough technologies, including many renowned European companies and research institutions.
Since our foundation in 1982, we have distributed billions of Euros to the patent holders who contribute to our pools. Much of that cash has been used to fund further R&D, leading to more innovation and more groundbreaking products that benefit consumers in the EU and beyond.
Given our knowledge and experience, we were hoping that officials at the European Commission and politicians in the European Parliament would have consulted us about the SEP licensing regulation now working its way through the legislative process, having been proposed by DG Grow in April 2023. After all, it reads directly on the work that we do and will have a significant impact on the licensors and licensees that we partner with.
Unfortunately, though – and despite many attempts at our end to initiate dialogue – policy makers have chosen not to engage with us since work on the regulation began. We regret this.
That said, the purpose of this article is not to claim that the current SEP licensing framework is perfect. We believe that many of the concerns expressed about transparency and efficiency in the system are legitimate. Instead, it is to set out what we would have told the Commission and/or MEPs if we had been given the chance to do so.
Our message is a simple one: yes, there are problems and they do need to be addressed; however, drastic regulatory intervention is not the answer. That’s because there is already a tried and tested market-driven solution to the lack of transparency and efficiency in SEP licensing. It is called the patent pool, and it is one that had been identified and supported, by officials in the European Commission itself. Perhaps they have now forgotten that.
The answer to concerns
Patent pools have a rich history of tackling the challenges the Commission seeks to address through the proposed SEP regulation. They create efficiencies that benefit both patent owners and implementers, so enabling widespread adoption of innovative technologies.
Through efficient and effective IP licensing, pools stimulate incentives for R&D activity. At the same time, the one-stop-shop effect of a single, transparent licence to an array of patents held by multiple entities enables implementers to efficiently convey the benefits of the technology to society.
The result is economies of scale and scope. Thus, an inventive loop is created; one in which intangible assets acquire real economic value and world class technologies get delivered to the market.
The Sisvel cellular IoT pool is a case in point. It currently has a membership of over 30 patent owners, with more looking to join. Entities from across the ecosystem participate in and support the programme - product manufacturers, component manufacturers, infrastructure manufacturers, telecom operators and research institutions.
The pool was specifically structured to address the kinds of concern that the Commission has expressed in the past about the lack of transparency and levels of inefficiency in the licensing of SEPs.
A robust pro-competitive framework
A legal framework that contains sufficient safeguards without stifling the ability of patent pools to meet their objectives is vital. The Technology Transfer Guidelines adopted by the European Commission in 2014 provide this. Among other things, they ensure that:
there is a transparent process for creating pools;
independent evaluators are used to determine which patents are truly essential to a particular standard covered by a pool;
highly experienced competition law counsel are retained to ensure full compliance with applicable antitrust terms and regulations;
licences are always offered on terms which are fair and reasonable and that allow access to the technology on a non-discriminatory basis;
there is freedom to challenge the validity of patents in a pool or their relevance to the technical specification; and
technologies are licensed into the patent pool on a non-exclusive basis.
This framework is coupled with sound alignment of interests across the entire ecosystem: royalty rates are determined by patent owners who are often also licensees of the pools and, in practice, royalties requested by pools are less than the sum of individual royalty requests by single patent owners.
Crucially, implementers cannot be forced to take a pool licence. The pool is an alternative to bilateral licensing negotiations, with all options outside of pool licensing preserved. A potential licensee can freely decide whether to engage or not. It is therefore critical to the success of a patent pool that the licensing terms offered are reasonable.
Streamlining complex licensing ecosystems
The best way to understand the immense value of pool licensing is to consider the alternative scenario. Put simply, without pools the potential licensee would face a daunting challenge. This would involve the negotiation of multiple licences with many patent owners, resulting in increased transaction costs and an aggregate royalty burden higher than the one a pool offers.
Furthermore, pools significantly reduce the knowledge asymmetry that is typical in bilateral licensing. Most publish information and licensing terms in a transparent manner, while keeping commercially sensitive information confidential.
On top of this there is a high level of certainty. Most pool administrators use global networks of highly qualified, independent experts to verify that patents are essential before they are included in a programme.
Institutional support for pools
In the past, the Commission has acknowledged the vital role that patent pools play in facilitating transparency and efficiency in SEP licensing. In its Communication of 29th November 2017 to the European Parliament “Setting Out the EU Approach to Standard Essential Patents”, it noted that:
The creation of patent pools or other licensing platforms, within the scope of EU competition law, should be encouraged. They can address many of the SEP licensing challenges by offering better scrutiny on essentiality, more clarity on aggregate licensing fees and one-stop- shop solutions. For IoT industries, and particularly SMEs, newly exposed to SEP licensing disputes, this will bring more clarity to licensing conditions of SEP holders in a specific sector.
It therefore came as a surprise that the Commission’s regulation proposal totally disregards patent pools. If the goal is to incentivise participation by European firms in the standards development process - and the broad implementation of standardised technologies - then the Commission should recognise that industry has already worked hard to design and implement market-driven solutions to meet the challenge.
For example, the Sisvel cellular IoT pool attracted a significant number of SEP owners from the start. They came together to develop a simple and efficient way to encourage market adoption by making their innovative technologies more widely available, more quickly, at a realistic price point.
Crucially, many of the pool’s members are licensees, as well as licensors, for a wide range of technologies. They have used their knowledge of being on both sides of the negotiating table to create a practical solution to the problems they have encountered in the past.
This initiative is clear evidence of the will of those in the industry to work together to find solutions to SEP licensing – and in a sector that the Commission has rightly identified as one with enormous upside potential.
Way forward
There is clear evidence that patent pools provide the best way to intermediate between technology innovators and implementers.
By putting all relevant patents owned by multiple entities together in a one-stop shop, pools reduce transaction costs, speed-up technology adoption, incentivise R&D and deliver products to market more quickly. This is particularly helpful to SMEs that may lack the resources to negotiate multiple bilateral licensing deals.
Instead of regulatory intervention, the EU should prioritise finding real incentives for innovators and implementers to participate in pools. This is a target that the European Commission set for itself in 2017 and on which it never delivered. Doing so now would mean maximising pools’ potential to make licensing easy and efficient. This would particularly boost the IoT sector.
So, where do we go from here? Now that the ball is in the court of the European Parliament and Council, it is important that they revisit their objectives in the decision establishing the Digital Decade Policy Programme 2030.
The proposed SEP regulation is a threat to Europe’s digital transformation and strategic autonomy. It risks reinforcing the vulnerabilities and dependencies that Europe is looking to avoid. It would be a significant setback for Europe in the quest to lead the global technological race.
Sisvel stands ready to help prevent this. We are happy to talk to policy makers and MEPs at any time to share our experiences and to provide input into the best way forward. We urge them to make use of us.
Mattia Fogliacco is President of Sisvel
Vincent Angwenyi is Sisvel’s Senior IP Counsel for Advocacy and Policy