As we transition to 5G, and eventually to 6G, mobile networks are increasingly becoming a vital part of the digital infrastructure. Smartphones are no longer the only users of these networks. Instead, the increased connection density of 5G/6G supports a multitude of new devices and applications such as connected traffic lights, connected cars, smart meters, smart cities, and smart factories. Financial networks, energy networks, and public safety networks all rely on mobile networks. This makes mobile network developers and suppliers a critical component of the Europe Union’s technological sovereignty and strategic autonomy.
What Are SEPs?
Standard-essential patents (SEPs) are patents that cover standards such as 5G and 6G. SEPs allow innovators to share their patented technologies through licensing agreements. The ability to develop and then license SEPs incentivises private companies to invest in cutting-edge R&D.
Why Are SEPs in the Headlines?
On 27 April, the European Commission proposed a new wide-ranging SEP Regulation aimed in part to address complaints from certain implementers of the 5G/6G standards, such as US technology giants and members of the auto industry, that they are asked to pay too much for SEP licenses. The issue is contested. For instance, most of the auto industry pays just $15 per vehicle to license patented connectivity technologies. This one-time payment applies for a vehicle's whole life and is secured through the Avanci pool, a single license covering patented technologies from more than 50 companies.
What is Being Proposed?
The planned changes would seek to heavily regulate the way that SEPs are administered and enforced. Central to the model is the establishment of a new competence centre within the European Union Intellectual Property Office (EUIPO). The centre will have several responsibilities, including maintaining a register and database for SEPs, assessing the essentiality of SEPs, and determining fair and reasonable license terms and aggregate royalties.
The proposed changes are intended to enhance transparency, efficiency, and predictability in SEP licensing. The aim is to provide a more structured framework for licensing SEPs and ensure fair and reasonable terms for all parties involved. Regrettably, the draft Regulation does not deliver on these objectives and, instead, would result in delay and uncertainty.
Does Everyone Agree?
Many industry experts question whether there is a problem that needs solving. The study made for the Commission’s impact assessment concludes that ‘existing empirical evidence on the causal effects of current SEP licensing conditions is largely inconclusive.’
Additionally, many argue that the rapid growth of the cellular ecosystem demonstrates that the current system is already effective in delivering innovation, guaranteeing access to the technology, and ensuring interoperable and high-quality products for consumers at reasonable prices. They point to the extraordinarily rapid improvement of cellular technology over recent years and believe that bringing in widescale changes at this point would put that progress at risk.
Furthermore, companies that currently invest heavily in R&D to develop the cellular standards suggest that a change to the rules will act as a disincentive to further investment and erode European leadership in the development of global cellular standards. While most tech companies invest less than 10% of their revenue in R&D, European SEP holders like Nokia and Ericsson each invest close to 19% of their revenue in R&D.
Finally, it would also deprive European courts of their lead role in developing the case law regarding SEPs and send future cases to alternative venues in other parts of the world.
What Negative Impact Could There Be?
Major businesses believe the planned changes would create additional costs, excessive administration, and delay both licensing and implementation of the standard, and thereby act as a brake on current R&D investment. They are also concerned that the new regulation will introduce ambiguity that makes it difficult to determine fair and reasonable licensing terms. This could lead to more disputes and litigation, slowing the progress of new products to the marketplace and ultimately harming consumers and businesses of all sizes.
Who Will These Changes Affect?
The companies that primarily focus on developing and licensing new technology, like Ericsson and Nokia, are the most concerned. They believe the planned regulatory changes will discourage developers of the cellular standards from investing in research and development and place European leadership in global standardisation at risk.
What Happens Next?
This is a complex and technical area where unnecessary changes could result in major negative consequences for European leadership in 5G/6G. It is important that policymakers, regulators, and consumers fully understand the importance of SEPs in driving future innovation in Europe.
The technology industry, politicians, and consumers all ultimately want the same outcome - an environment that promotes collaboration and innovation, where technology firms can drive progress and maintain competitiveness on the global stage. The question is what is the best way to achieve this?
The view from Nokia and Ericsson
Two of the five global leaders in 5G/6G networks are the European-based companies: Nokia and Ericsson.
These two major businesses currently spend close to 19% of their revenues on R&D (collectively, €9 billion per year). This investment is only possible if they are fairly rewarded for new innovations that they develop and license for use by others.
According to Christina Petersson, Chief Intellectual Property Officer at Ericsson, it is clear that the impact of the proposed regulatory change will be felt by European consumers and businesses. “The SEP reform package as it stands puts one of Europe’s key advantages in the global knowledge economy under threat,” she says. “The current system has proven its ability to improve over time. The more integrated SEPs have become in the market, the more transparent the SEP licensing system has become. Upending that system – and then not giving it the resources and expertise it needs to be successful – risks undoing that progress.”
Nokia and Ericsson are two of the top 5 investors in the development of the connectivity technology that is essential for the next phase of the fourth industrial revolution. The other three are Asian companies - Huawei, ZTE, and Samsung. In an international marketplace, the proposed changes would create an imbalance, disadvantaging European innovation and benefiting international competitors.
“It is essential that legislators and regulators engage with the sector to fully understand the implications of the planned changes,” Jenni Lukander, President of Nokia Technologies, explains. “Otherwise, we could be sleepwalking into a model that harms consumers, businesses, and the wider European economy.”
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This article was produced in partnership with Nokia and Ericsson.