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Myths on the Standard Essential Patents reform - abstract image of electrical flow

EU Standard essential patents (SEP) regulation debate: sorting fact from fiction

5 Myths on the proposed SEP regulation debunked

The proposed standard essential patents (SEP) regulation has been the subject of intense debate for the best part of a year, but that time hasn’t brought clarity. There’s still a lot of noise around the topic, and that’s where we can help. From claims that SEP licensing in Europe is broken to concerns about excessive licensing fees and a surge in litigation, here we debunk some of the most common myths in the EU SEP regulation debate.

 

 

Myth #1: The SEP licensing regime in Europe is fundamentally broken, placing far too much power in the hands of large SEP holders

False.

Today’s SEP licensing system is not broken – even the supporting study from the European Commission’s own Impact Assessment says soi. There’s nothing about today’s framework that “systematically discourage[s] innovators from engaging in standards development or implementers from using standards potentially subject to SEPs in their products and services”, the study finds.ii That’s because the current system strikes a reasonable balance between the interests of technology developers and implementers, with mutual duties that incentivize good faith negotiations (see Huawei v ZTEiii). 

Rather than improving the system, the proposed SEP Regulation will be putting its thumb on the scale. The Impact Assessment comes to a clear conclusion that “the majority of quantifiable benefits [of the reform] will accrue to standards implementers, while SEP holders are expected to face additional costs.”iv 

Very few companies are willing to take the financial risk of investing in developing technology standards, given that there is no guarantee of return. While membership of 3GPP, the partnership project for telecommunications standards development, has increased over the years, only a tiny subset of participants is responsible for the contribution of technologies that underpin cellular standards: for 5G, less than 1% of 3GPP members are responsible for more than half of the contributions.v 

Increasing cost and risk – as the proposed SEP Regulation would – threatens to force these few innovators away from standardization and scare new entrants away from contributing to standards in the first place. That would mean breaking the cycle of innovation that has long benefited developers, implementers, and consumers alike.

Nothing about today’s framework “systematically discourage[s] innovators from engaging in standards development or implementers from using standards potentially subject to SEPs in their products and services"

Supporting study for the European Commission’s Impact Assessment

Myth #2: SEP holders use their inherent market power to control market entrance, limiting competition in European markets and, ultimately, harming consumer welfare

The price of 1 GB of mobile data has dramatically fallen from the equivalent of $98 in 2012 to $2.1 in 2023

Statista trend report on 3GPP

Not true.

SEP licensing hasn’t held smartphone manufacturers – the largest implementers by sector – back from innovating and meeting global consumer demand. The unprecedented growth and commercial success of the cellular technology ecosystem is proof that today’s SEP licensing system works for standards developers, implementers (including new market entrants), and consumers alike. For European consumers, for example, the price of 1 GB of mobile data has dramatically fallen from the equivalent of $98 in 2012 to $2.1 in 2023 – all as network performance continues to improve from generation to generation.vi 

This success is further witnessed by the wide implementation of cellular standards in different sectors and the development of many new IoT applications. The European Commission’s own Impact Assessment estimates the total number of cellular IoT connected devices is expected to grow from 1.7 billion in 2022 to 5.4 billion in 2030vii. With the standardized cellular technology being readily accessible to those wishing to implement it, consumers are offered a broad range of connected products and services, such as smart wearables, drones, smart bins, and connected cars. 

In fact, the automotive industry stands to create up to $1.5 trillion of additional revenue in 2030 through connectivity enabled by global standardsviii. The fee per lifetime of a connected car available for licensing these transformative technologies is hardly higher than the cost of a single carwash (see www.avanci.com). 

Myth #3: Licensing of connectivity SEPs in particular has led to the surge of litigation in recent years

False.

The opposite is true: according to a study commissioned by the European Commission, cases of SEP-related litigation have only gone down since 2014.ix While in 2014 there were 249 citations of “FRAND” in worldwide patent litigation, in 2019, 2020, and 2021 there were 52, 32, and 3 respectively.x 

In most cases, parties sign a license without recourse to litigation. A closer look at European case-law has identified that when litigation has occurred, it is often the result of ‘hold-out’ strategies from bad-faith implementers.xi

Cases of SEP-related litigation have only gone down since 2014

Supporting study for the European Commission’s Impact Assessment

Myth #4: Innovative European industry is a net licensee of standardized connectivity technologies

Some of the world’s largest SEP holders are EU companies, most SEP implementers are based outside of Europe

Hudson Institute policy memo

No.

Today, Europe is a net exporter of innovation, so it’s no wonder why the most vocal advocates of the Regulation are large foreign tech companies. While some of the world’s largest SEP holders are EU companies, most SEP implementers are based outside of Europe.xii For example, in smartphones – clearly the largest SEP implementers by sector – none of the world’s top 10 manufacturers are European companies. Similarly, the majority of production in IoT devices and cars is headquartered in the Asia-Pacific region – not the EU.xiii 

As a result, licensing revenues for the 2G, 3G, 4G and 5G standards mostly come from implementers based outside of Europe. 

Myth #5: Shares of European companies, such as Nokia and Ericsson, in 5G patents are much lower than for 3G and 4G. This can be explained by a lack of innovation compared to their competitors and not as a result of the proposed regulation

Wrong.

European companies have maintained their leadership in mobile connectivity into 5G. In fact, Ericsson holds the world’s strongest portfolio of 5G essential patents when you actually take essentiality and jurisdictional quality into account.xiv Thanks to this innovation, around 290 5G networks are in commercial service around the world.xv Ericsson is leading the 5G market by powering 160 live networks in 68 countries.xvi Around 50 percent of the world's 5G traffic, outside China, is carried over Ericsson's networks.xvii 

Mobile connectivity increasingly represents a key enabler of digitalization, where Europe is looking to protect its technological sovereignty. While Europe is playing catch-up with the rest of the world in AI, chips, and digital platforms, mobile connectivity is one of the few remaining strongholds of European innovation. Two of the world’s top six global connectivity standards contributors, Ericsson and Nokia, hail from Europe.xviii

Now, the proposed SEP Regulation is set to give foreign competitors a leg up in developing the next generation of these critical technologies. 

Ericsson is leading the 5G market by powering 160 live networks in 68 countries

Ericsson data as of April 2024