Government consultation outcome reveals divide in views on Standard Essential Patents and innovation

United Kingdom

The Intellectual Property Office (IPO) has published its consultation outcome on Standard Essential Patents (SEPs) and Innovation. The government, believing that SEPs and associated standards are of growing importance to the UK becoming a science and technology superpower, was interested to understand whether government intervention is required in this area. In particular, the consultation sought views as to whether the SEP ecosystem is functioning efficiently, effectively and in a balanced way.

The issues addressed in the consultation included areas such as competition and market functionality, transparency, FRAND licensing and SEP litigation. However, there was little agreement between respondents and the wide division in views between SEP holders and implementers is clear to see:

  • On competition within the industry:

    • Responses from SEP holders: implementers derive too much power from the ability to “hold-out” or delay entering into FRAND licences.

    • Responses from implementers: SEP holders use the threat of injunctions to coerce implementers to accept non-FRAND licences (so called “hold-up”).

  • On the variation of FRAND rates for different licensees:

    • Responses from SEP holders: different rates for different licensees can still be FRAND and the Supreme Court in Unwired Planet confirms this.

    • Responses from implementers: the argument that differences in value of end-product technology justifies differences in FRAND rates is flawed.

  • On emerging technologies:

    • Responses from SEP holders: the current FRAND ecosystem works well for encouraging innovation, with SEP licensing facilitating technology take-up.

    • Responses from implementers: the current FRAND ecosystem negatively affects emerging technologies due to bad faith in negotiations, court decisions favourable to SEP holders and a lack of transparency.

  • On the availability of injunctions:

    • Responses from SEP holders: injunction availability should be no different from other patent cases – they should be available.

    • Responses from implementers: because of the threat of coercion from SEP holders, injunctions should not be available or only available in rare circumstances.

  • On the global FRAND terms UK courts can set:

    • Responses from SEP holders: such a mechanism is far more efficient than pursuing litigation in multiple jurisdictions and reflects market practice of using global licences.

    • Responses from implementers: national courts overreach their judicial powers by determining global licensing terms and such a framework encourages forum shopping.

Respondents also put forward numerous ideas for improvements to the current framework designed to benefit consumers, innovation and competition, including potential roles for Standard Development Organisations, patent pools and the UK government. It remains to be seen whether the UK government will adopt any of these recommendations or other arguments put forward in the consultation response.

Overall, the IPO’s frustration with the consultation response as a whole is apparent, with it noting that there was “little consensus on the nature, extent, causes, and impact of problems… with SEP holders and implementers often advancing opposing arguments in response to the questions posed” and “little consensus on the need for government to intervene”. The IPO has allowed itself a further period to reflect on the various proposals and arguments put forward, with it due to report its finding to UK ministers in 2023. No doubt an area to watch in the coming months, with any major policy interventions likely to also be subject to consultation.