17 December 2015

EU Commission: no comment on “fair” prices for patent licences

A European Commission (Commission) economist has stated that although the Commission is concerned about potential abuses by companies licensing patents that have been deemed “essential” to technology standards (Standard Essential Patents or SEPs), the Commission is not in a position to decide what constitutes a “fair” price for such a patent licence.

Eliana Garcés Tolón, deputy chief economist of the Internal Market department of the Commission, made these comments when speaking at the annual CRA conference on Economic Developments in European Competition Policy in Brussels (CRA Conference). Ms Tolón acknowledged that “[i]n principle, you would want an opinion on what's fair and what's not” but continued to explain that “it's very difficult” because the Commission doesn’t really know what is fair given the range and complexity of the companies licensing and using SEPs.

Ms Tolón’s comments will come as a disappointment to the manufacturers of electronic devices and their component parts who allege that patent holders are not fulfilling their requirement to license SEPs on fair, reasonable and non-discriminatory, also known as “FRAND”, terms. For example, some smartphone manufacturers believe that licensing should be based on the value of the component incorporating the technology (the so-called smallest saleable unit), rather than on the much higher value of the final device. Furthermore, some manufacturers of component parts (such as mobile chipsets) believe that they are being discriminated against by patent holders, who often only conclude licensing agreements with the end-users in the value chain, i.e. handset manufacturers.

Such views are gaining currency, perhaps as a result of an increasing number of products from a wide range of industries depending upon wireless technology and connectivity. A new lobbying group, the Fair Standards Alliance, has been launched which advocates licences being granted to all levels of the value chain and royalty rates being based upon the smallest saleable unit using the patented technology. Earlier this year, the Institute of Electrical and Electronics Engineers (IEEE) made changes to its intellectual property policy which included (i) a requirement that patent holders license their intellectual property to component makers as well as end-users; and (ii) a stipulation that patent royalties and damages should be based on the smallest saleable unit.

Although the Commission has not given a formal opinion on the IEEE's changes, Ms Tolón made it clear at the CRA Conference that the Commission is monitoring these developments. Ms Tolón indicated that the Commission was “launching studies to try to get more information on how licensing is affected by changing policies. We don’t have enough now to start having high-level principles on what FRAND should be, because the players are so diverse and the environment is so complex and we don’t know what outcomes [the changes] will produce”.

Patent licensing is a tricky business for the Commission. As Johannes Laitenberger, Director General of DG Comp noted at the CRA Conference, the Commission are “looking at another balance here. On the one hand, patent holders should be fairly remunerated; on the other hand, the companies that implement the standards should get access to the technology on FRAND terms.”  Whilst patent holders' business models are threatened by the proposed changes, any licensing discrimination towards manufacturers could lead to anticompetitive effects, such as higher prices for consumers.

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