The EU Study – Europe Needs Concrete Solutions (Some are Proposed Here)

You can find my first post on the “Follow-up study on the application of the Directive on the Enforcement of Intellectual Property Rights” (“EC Study”) here: "Inconsistency" - Europe Dithers Some More.  I wanted to take another look at the EC Study since there is so much to unpack in its 132 pages (not to mention the multiple attachments). 

This post focuses on patent assertion entities (PAEs) and their relationship to other identified problems.  The EC Study defines PAEs as entities that own patents “only to enforce [their] exclusive rights and grant licenses to others that may be infringing the patent claims.”  They thus exclude from this definition the Interdigitals of the world – those entities that do not themselves make or sell useful products but which are, in some way no matter how small, “involved in research and development activities.” 

As I previously said, the EC Study accurately identifies problems but then suggests wholly ineffective “solutions” that clearly will not lead to resolution of any issues.  At the end of this post, I suggest several concrete things the EU could do to help solve the problems identified in the EC Study, at least as they relate to SEPs.

Let’s start with a quote from the EC Study that accurately identifies several inter-related and significant problems related to patent thickets, proportionality and PAEs (see EC Study at 28):

The rise in patent applications (24), particularly due to rapid developments and a multitude of innovators in the Information and Communication Technology (ICT) and computer technology markets has led to the formation of so-called ‘patent thickets’, where overlapping sets of patent rights require innovators to reach licensing agreements for patents (25). This not only complicates the clearance process but may also hinder innovation due to the high costs and uncertainty surrounding patent validity. The patentability of small technology components increases the risk of accidental infringement (26). Dynamic competition in these markets can moreover lead to parallel innovation, with products often incorporating numerous patented components, thereby increasing the risk of unintentionally infringing on any of the multitude of patents.

ICT and computer technology markets are also vulnerable to patent holdup, where the threat of an injunction is leveraged to extract inflated royalties from an alleged infringer who has already made substantial investments in the design, production, and marketing of a product. The role of non-practicing entities (NPEs), especially patent assertion entities (PAEs) in this context may present an additional concern, with PAEs focusing on monetising large patent portfolios, often through aggressive litigation.

Nonetheless, the EC Study concludes that PAEs are not a significant problem in most EU courts – except for Germany (see p.58).  Germany again – wonder why that is? 

“Germany is also popular with patentees due to the fact that ‘German infringement actions proceed quickly, and when infringement is proven, virtually always result in an injunction barring future infringement even when the patentee does not practice the patent’” (emphasis added).

In other words, PAEs (and others) gravitate to Germany because German courts do not consider (or pay only lip service to) the proportionality principle.  Because of that, the German courts do not seriously consider that it would be disproportionate and against the public good for PAEs – which do not make or sell any useful products and whose sole purpose is to make money from licensing – to obtain injunctions against companies that do make and sell useful products. 

As the EC Study also accurately notes, the problem is worse in SEP-related matters where it is clear that German courts are not following Germany’s laws on proportionality. 

The 2022 amendment in the German Patent Law had not affected SEP cases as of June 2024. In all 11 published SEP cases where a proportionality defence was raised after the law on proportionality in Germany came into force, the proportionality defence was dismissed.

This is despite the fact that SEPs are in many cases asserted by PAEs that attack complex products incorporating a high number of inventions and which are subject to a voluntary undertaking that the SEP holder will licence third parties on FRAND terms to monetise its patents rather than seek market exclusivity.

It is hard for me to fathom why, if the EC Study correctly identifies that German courts are not even following German law, let alone the IPRED, the only proposed solution is to wait and see and have discussions about how correctly to apply the IPRED. 

These are significant unsolved problems and the milquetoast “wait and see,” “soft law,” “discussion” approach advocated in the EC Study has been in place for years and has singularly failed.  The EU needs to stop dithering and take a different approach to solving these “priority” problems. 

Here are some concrete steps that the EU could take to address these issues (with a focus on SEPs of course):

1. Amend the IPRED to include clear proportionality provisions to assess proportionality consistently across all EU courts.  This was discussed in the EC Study and rejected because “The study found that the proportionality principle is generally recognised across the selected EU MS.” (EC Study at 50).  I’m not sure how they came up with this statement when their own data shows that proportionality was considered in less than 0.6% of patent cases.  SEP cases obviously involve additional proportionality concerns.  It remains shocking to me that an EU court issued an anti-suit injunction to try to prevent a different court from issuing a license in a case involving patents for which the patent owner had committed to licensing on fair, reasonable and non-discriminatory terms.

The EU should not wait for the “coming years” to evaluate whether coordinating “discussions” among judges in various EU jurisdictions and providing further “guidance” about the proportionality principles changes how the courts apply it.  The identification of a serious problem in the EU should not be met by irresolution – and dithering – simply because some SEP holders like the current system.  Waiting and seeing and “discussions” have not solved the problem over the past many years.  The time for action is now.

2. Adopt the EU Proposal for SEPs.  The proposal is not perfect – legislation rarely is.  But it is a considered and reasonable solution to the issues identified in the EC Study, at least as they relate to SEPs.  The EC should withdraw its opposition to moving forward with the EU Proposal.  The time for action is now.

3. Impose conditions on deals involving standard-essential patents.  There are some questionable actors who are doing deals together and with PAEs.  See for example, Pirates on the Move. Given the competition law concerns related to standard development and standard adoption (see Back to Basics – An Overview of Competition Law, Standard Development and Standard Setting), competition law authorities should be routinely reviewing these deals and considering their impact on competition and the public good.  European competition law authorities have the power to impose conditions on the sale of patents, at least in the SEP space, when the sale impacts competition.  Closer review by competition law authorities, and more conditions on such sales, which could include requiring the new SEP owner not to seek injunctions, should be routine in SEP sales. The time for action is now.

   
   

4. Investigate Whether there is collusion in the standard space. European competition law restricts groups of competitors from engaging in activities “which have as their object or effect the prevention, restriction or distortion of competition.”  The question of whether and to what extent certain SEP holders are colluding together to prevent, restrict or distort competition bears much deeper investigation by the European competition law authorities. 

It is past time for Europe to take concrete steps to solve these "priority" problems. The time for action - not dithering - is now.