Emmanuel Macron and Olaf Scholz recently urged the European Union to bolster its global competitiveness by enhancing technological capabilities to promote cutting-edge research, innovation and infrastructure. They emphasise the need to remove bureaucratic obstacles, reduce market fragmentation, and enhance skills. Their goal is to create reciprocal market access opportunities and ensure a level playing field with the EU’s trading partners.
A new report by Mario Draghi highlights the significant challenges Europe faces in maintaining sustainable global competitiveness. Mr Draghi identifies three core priorities: fostering innovation, enabling sustainable investment, and avoiding over-regulation that burdens European businesses. A key barrier to innovation, he notes, is Europe’s “static industrial structure, which produces a vicious circle of low investment and low innovation”. Mr Draghi calls on the Commission to develop “a comprehensive international intellectual property strategy and protect promising patents and innovation of relevance to the EU”. The report further finds that the EU’s competitiveness depends on “the digitalisation of all sectors and on building strengths in advanced technologies, which will drive investment, job and wealth creation”.
Implementing the Draghi report
The Mission Letters issued last week by European Commission President Ursela von der Leyen direct new Commissioners-designate to implement Mr Draghi's suggestions to make the EU more competitive, more innovative, as well as having less regulation and more evidence-based policy making.
The question is: will the Commission follow through on these recommendations, or will it continue to pursue outdated proposals which hinder the EU’s competitiveness and global trade ambitions?
One such proposal is the draft Regulation on Standard Essential Patents (SEPs). This proposal could undermine the very existence of European intellectual property that enables global technologies like 5G, WiFi, digital audio and video.
The proposed regulation was published in April 2023, despite the Commission’s own Impact Assessment finding no evidence of market harm arising from the licensing of standard essential patents. In February this year, a first reading of it was rammed through European Parliament towards the end of its term.
The Commission has now issued a tender to outsource the implementation of certain aspects of the proposed regulation. This includes selecting which standards and applications will be caught by this proposed regulation, and devising a new blanket test: whether there is or could be a "severe distortion of internal market due to inefficiencies in licensing".
The question is: will the Commission follow through on these recommendations, or will it continue to pursue outdated proposals which hinder the EU’s competitiveness and global trade ambitions?
Under European law, there can be no per se rule for blanket intervention in licensing negotiations as proposed by the regulation — unlike speed limits that bring fines regardless of whether there is any crash or injury. Should the conduct of a negotiating party give rise to a dispute or alleged violation of competition law, there must be a fact-specific and case-by-case assessment of this. Along with the proposal to fix prices, the Commission’s attempt to regulate the entire market, regardless of whether disputes or competition law issues arise, could create a roadblock to innovation in Europe.
There are no proven theories of harm here. The law assumes (one might say requires) good faith negotiation, for both the licensor and potential licensees. Aberrant behaviour — possibly even a false flag operation — by one bad actor should not taint an entire standard or application.
A risk to innovation and European competitiveness
With the new pan-Commission approach of working together to achieve global competitiveness — and thus the innovation and industrial goals — this proposed regulation on standard essential patents should be dropped from the Commission’s work program.
Member States are still deliberating whether the proposed regulation has any merit. Some struggle to accept it could comply with the EU’s international obligations, the rule of law, and the principles of proportionality, subsidiarity and Better Regulation. The proposal’s stringent administrative requirements could lead to the loss of European intellectual property rights and restrict access to European courts, jeopardizing businesses' ability to protect their innovations, generate revenue, and seek damages for infringement.
Should the proposed regulation proceed to trilogue — a negotiation between the Commission, Parliament and the Council of the European Union — it may be adopted, significantly amended or abandoned. It should be abandoned. The current proposal is unimplementable, will generate significant uncertainty for business in Europe and abroad, and severely inhibits participation in global value chains based on standardised technologies — particularly for Small and Medium-sized Enterprises, universities and research organisations.
It will also undermine major European innovators who lead development of many international technology standards and successfully license intellectual property, including Ericsson, Nokia and Fraunhofer. The primary beneficiaries of this regulation would be companies that infringe on European standard essential patents, gaining an unfair advantage in the market by dodging payment while using others’ patented technologies.
A coherent strategy for EU competitiveness
This is a critical moment for the whole Commission to demonstrate a coherent commitment to fostering innovation and achieving its ambition for global EU competitiveness. While the proposed SEP regulation aims to increase transparency and predictability for the licensing of patents in these standardised technologies, it fails to address the most pressing challenges facing both large organisations and SMEs in the EU — skills shortages and administrative burdens.
Other jurisdictions, including major EU trading partners like the US and the UK, have conducted their own whole-of-government reviews with these same objectives in mind. Using an evidence-based approach, they concluded there is no need for exceptional regulation of standard essential patents, nor price setting, as this would chill innovation. Instead, they have focused on investing in critical areas of innovation and targeted upskilling initiatives.
The well-established and most effective way to license patents is through negotiation between licensor and licensee. Licences are overwhelmingly agreed this way. To maximise this approach and strengthen global value chains based on technology standards, the EU should invest in R&D, education and upskilling in business, digitalization, and intellectual property. Instead of introducing misguided regulation to the detriment of EU innovation, the Commission should foster public and private investment in innovation and expand initiatives like IP4SME, which helps SMEs understand intellectual property valorization and protection.
Such initiatives have far greater potential to enhance the long-term global competitiveness of the EU than burdening owners of EU patents with unnecessary red tape or reducing incentives to invest in EU innovation by allowing non-market forces to operate. These are the likely detrimental consequences for Europe if the proposed SEP regulation proceeds in any form.
Keith Mallinson is an economist and telecommunications industry expert at WiseHarbor and is a Practitioner in Residence at George Mason University’s Center for Intellectual Property x Innovation. Elisabeth Opie is an award-winning international technology lawyer (German, English and Australian qualified) and the inaugural Global Research Alliance Fellow.
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