Fair Standards Alliance welcomes European Commission’s forward-looking Standard Essential Patent (SEP) Guidelines

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Brussels, 29th November 2017 – The Fair Standards Alliance (FSA) today welcomed the European Commission’s decision to issue forward-looking guidance to European industry on the licensing of Standard Essential Patents (SEPs). In particular the decision to not include any reference to ‘use-based’ licensing within the SEP guidelines is fully in-line with recommendations offered by the FSA to the European Commission in the run-up to today’s decision. Furthermore, the FSA welcomes the European Commission’s emphasis on the need for greater transparency in SEP licensing practices. The European Commission’s action today is an important step to ensuring Europe has a leading role in developing the Internet of Things (IoT) – especially the future rollout of autonomous vehicles supporting jobs and growth across companies of all sizes in the European car and tech sectors.

“The FSA welcomes today’s SEP Guidelines from the European Commission which do not include any language endorsing ‘use-based’ licensing as a model for the IoT. Today’s decision is a victory for all European consumers and innovative businesses – especially Europe’s car industry and the hundreds of SMEs active in the growing IoT sector which back European and internationally recognised ‘licensing for all’ principles for standard essential patents. It is also a clear signal to SEP holders to abide by commitments to transparent, fair and reasonable licensing, and to refrain from using the notion of ‘use-based’ licensing as a justification for creaming extra profit off the downstream innovation of other companies.” stated FSA Chairman Robert Pocknell.

The Fair Standards Alliance – which is dedicated to patent protection and ensuring fair and transparent licensing of SEP’s to any company implementing standards in the Internet of Things (IoT) – had voiced its concern, on a number of occasions, that the general endorsement of ‘use-based’ licensing would ultimately risk creating a tax on the value of downstream innovation. It would have made no sense for the Commission to argue that SEP holders should charge different rates for the licencing of the same technology – just because the end-use of the technology is different. Europe’s economic future will depend on the harnessing the IoT’s potential including benefiting from the innovation that IoT companies develop on top of the standard. Openly endorsing ‘use-based’ licencing would have jeopardized IoT’s take-off and growth.

For example, it would make no sense that a SEP owner can charge more for licencing the use of identical SEP technology in a very expensive gold-plated smartphone compared to a normal smartphone. A brick is, for example, not more expensive because it is incorporated into an architect-designed skyscraper compared to a backyard shed. The brick may be more expensive if it is better built, stronger or bears specific characteristics, but such value is irrespective of its end-use.

Another example, would be for the holder of a now rather basic SEP connectivity technology (e.g. 2G/3G) to charge much higher licence fees for its use in a luxury high-end brand German car as part of its autonomous driving kit but much less for the identical SEP to be used in a high-tech fridge to ensure restocking alerts. Ultimately, ‘use-based’ licencing would inflate profits for a few multinationals, but increase prices on future IoT products – with costs being passed on to consumers.

At the very heart of why the notion of fair, reasonable and non-discriminatory (FRAND) licensing of Standard Essential Patents (SEPs) exists within industry – and why it is vital for the IoT – is the concept that any company anywhere along the value chain should have the right to be granted fair and transparent licensing terms of any required SEP. This includes tens of thousands of patents that have been declared ‘essential’ to ensure the interoperability of products today and in the future with the IoT. In fact, SEP-owners benefit from being able to make solid profits from the massively increased volume of devices implementing those SEPs, and the fair and reasonable compensation that is being paid by users of the technology. This is clearly not free-riding but rather the intended purpose of the SEP framework.

Today’s guidelines are, therefore, an important step towards clarifying the meaning of fair, reasonable and non-discriminatory (FRAND) licensing and the framework within which standardized technology is licensed. The guidelines also offer strong backing on the need for ‘proportionality of injunctions’ – a key objective and value supported by the FSA and all its members – whereby an injunction (or the threat of injunction) by SEP holders on SEP users should be a last resort to avoid an innovation freeze – especially amongst SMEs with limited legal means of support.

Furthermore, the FSA looks forward to working with the European Commission on all issues related to Standard Essential Patents and participating as an active member in the proposed expert group which must be open to all stakeholders, companies and industry sectors up and down the value chain.
FSA Chairman Robert Pocknell added, “Common sense has prevailed and the European Commission has clearly listened to the voice of European industry. The FSA looks forward to continue working with the European Commission and the proposed expert group to ensure Europe and all its consumers are able to reap the social and economic benefits of the IoT in the decades to come.”

Background on the FSA www.fair-standards.org

  • The FSA is an alliance of European and international companies – both large and small – across a range of sectors but united by one goal: to champion Europe as a leader in the development and rollout of the Internet of Things (IoT).
  • Our 30+ members include SMEs, global and European companies such as Volkswagen, BMW, Deutsche Telekom, Harman, Intel, Cisco, Fairphone, AirTies and Nordic Semiconductor. The full list is available on the FSA website.
  • The members of the FSA contribute to the EU economy by employing more than one million people in the EU alone.
  • The FSA groups a number of the world’s largest innovators. It includes companies that spend billions of Euros annually on R&D, developing technologies, participating in standards development and licensing Standard Essential Patents to others.
  • Annually, the aggregate turnover of the Alliance members is close to 2 trillion Euros, and on aggregate our members spend more than 100 Billion Euros on R&D and innovation and have more than 300,000 patents that are either granted or pending.

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