Reticent EU patent policy puts litigation, antitrust back in spotlight

EU Flag with Spotlight

29 November 2017. By Matthew Newman and Lewis Crofts.

Today’s EU guidance on patent litigation won’t tip the balance in the precarious relationship between holders and users of tech standards, as some had feared.

But maintaining the status quo could mean that clarity on the price of patents, in an era when every device connects to the Internet, will come through courts and conflicts rather than policymakers.

Litigants won’t be left in the dark, however. Existing EU law and antitrust decisions still give patent users a chance to complain or sue if they are being refused a license.

And patent holders will continue to sue companies that use their technology without paying. The number of devices using patented technology without a license has risen sharply over the past decade, according to a recent study*.

Internet of Things

No matter where you sit in the heated debate over patent licensing, two things are clear: the next generation of mobile technology is on its way into cars, appliances and gadgets; and more litigation will hit the courts.

The European Commission has been working for more than a year to help ease the roll-out of 5G patent standards. Officials sought to balance competing licensing models to spur innovation and get Internet-connected devices onto the shelves.

But after months of intense lobbying, both patent holders and users are likely to be disappointed. An impasse over the wording on licensing led policymakers to dial back a section that could have given a firm push to certain business models.

The final document sets out general principles but it doesn’t grapple with two key issues: fees based on a patent’s use, and who gets a license. Those two concepts posed an existential threat to parts of the industry, which unleashed all their lobbying forces to kill them off.

For its part, the EU decided it was safer not to take sides.

But that doesn’t mean the concepts are dead. Judges and antitrust officials will likely be called upon to give clarity where policymakers wouldn’t.

Stalemate

On balance, companies such as Qualcomm will be happier with the stalemate than the users of IP. Maintaining the status quo means they will continue to license their technology to smartphone makers and other end-users.

Component makers, in contrast, may be tempted to file lawsuits or even antitrust complaints against patent holders. They may try to convince judges that a refusal to license is a violation of IP holders’ commitment to license on “fair, reasonable and non-discriminatory” terms, or Frand.

They might find comfort in a 2014 antitrust decision against Motorola Mobility, where EU officials stated that device-makers could “reasonably expect” the patent holder to make its technology available to “all implementers.”

Equally, a 2015 ruling** from the EU’s highest court said companies committing to offer Frand licenses created “legitimate expectations on the part of third parties” that a license would be granted.

In the absence of policy guidance, those kind of legal references could become the new battleground. Judges and antitrust regulators will be at the forefront of clarifying these questions, perhaps through lengthy and costly procedures.

Despite that looming fight, users will themselves be happy they saw off the threat of the EU blessing a business model where, say, Ericsson could vary license rates based on the deployment of its IP.

In fact, Qualcomm and Ericsson this year have announced their planned license rates for 5G technology even though there’s no agreement on which patents will be included in the standard.

Ericsson plans a $5 cap on royalties for higher-end handsets and Qualcomm said its maximum rate will be $16.25 for phones that cost $500 or more.

All this comes at a time when the US Department of Justice, which for years has followed the same approach as the EU, has signaled a major policy shift away from favoring patent users.

But the EU document isn’t a washout. Other sections give helpful guidance on increasing transparency in the standards’ system and directing the roadmap of litigation between parties.

All of that could help reduce the amount of cases going into the system, and better managing them once they are there.

* "Patent 'Trespass' and the Royalty Gap: Exploring the Nature and Impact of Patent Holdout," Bowman Heiden and Nicolas Petit, June 7, 2017

**C‑170/13 Huawei Technologies v ZTE Corp

	Eliot Gao