Diverging SEP guidelines will have little to no impact on negotiations say stakeholders

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Reacting to the publication of new SEP licensing guidance for 5G and the IoT from the originator and implementer camps, counsel at Audi, Philips and BSH Home Appliances tell Patent Strategy how the documents will affect them and that they would like to see a more united direction emerge

After the publication of conflicting sets of guidelines for standard essential patent (SEP) licensing in Europe, some in-house counsel say they will largely continue to approach licensing as they always have, while others say the guidelines could make negotiations more onerous.

Senior sources at Audi, BSH, Philips and elsewhere agree, however, that they might like to see less divided guidance or at least a more balanced approach taken by one side or the other.

The so-called CWA2 guide from two trade bodies, the App Association (ACT) and Fair Standards Alliance (FSA), called Core Principles and Approaches for SEP Licensing was published on June 12.

On the same day IP Europe, a collation of R&D intensive organisations, published CWA1 guidance called Principles and guidance for licensing Standard Essential Patents in 5G and the Internet of Things.

Both documents were endorsed by standard-setting bodies the European Committee for Standardization (CEN) and the European Committee for Electrotechnical Standardization (CENELEC).

Sources say that the competing guidelines have managed to set out the licensing positions of the originator (IP Europe) and implementer (FSA and ACT) camps but have failed to establish a reasonable middle ground.

Matthias Schneider, chief licensing officer at Audi in Munich, says the publication of these documents will have no impact on the way his company conducts it licensing practices.

“These guidelines will not change my negotiation behaviour or my daily work in any way,” he says, adding that pending and recent court decisions surrounding fair, reasonable and non-discriminatory terms, such as FTC v Qualcomm or the European Commission’s complaint against Nokia, are much more important.

The chief IP counsel at a European telecoms company agrees that there is little to be gained from the guidelines because they largely reiterate well-known views that it will be up to the courts to agree or disagree.

“We have long tried to develop a licensor position compatible with how we wish to behave as a licensee and we want to stay away from the extremes, which is why these camps do not interest us.” 

Thomas Buchholz, senior patent counsel at BSH Home Appliances in Munich, says the two sets of guidelines have been useful in that they have decreased licensing confusion in the industry by establishing two aggregated positions. But he adds that any hopes for a more united approach to the matter were dashed by the competing documents.

“The team at CENELEC started in one group to agree on licensing practices, but after much quarrelling, they decided to split up in two groups,” he says. “It was inappropriate in the first place to assume that the licensors and licensees can agree on a common set of principles. Their interests are simply too different.”

Speaking from a company that has signed up to the IP Europe (CWA1) approach, Philips’s principal licensing counsel Kevin Scott adds that the most likely onerous impact from these publications will come from the implementer document.

Emphasising the point that his company is both an implementer and licensor, he says that it is now likely to see more instances of licensees citing the CWA2 guidance and making unjustifiably lengthy requests for information.

“In more pragmatic discussions with licensees, we have not had to do that,” he says. “The guidance will make negotiations more onerous.”

ACT and the FSA, which back a CENELEC-CEN workshop supported by companies such as Apple, Honda and Volkswagen, published their guidance in draft form in January this year.

Representatives from technology companies including Nokia, Ericsson and Orange formed a committee backed by IP Europe aiming to establish an industry-wide code on best practice for licensing SEPs in October 2017.

Kerry Miller, head of IP regulatory affairs at Nokia and chair of the originator CENELEC-CEN workshop, tells Patent Strategy that he hoped the document would help clarify what companies need to think about to get a licence by offering practical guidance.

Both sides say that their guidelines are intended to provide direction to SEP licensing with the emergence of 5G and IoT technologies. Patent Strategy reported in May that licensors were concerned that many 5G users’ relative inexperience with licensing could stall negotiations unless they were given some educational tools. 

Guidance views

Giving his personal views and not those of company, Schneider at Audi says the reason these guidelines will not affect his role is that neither set is usable.

“IP Europe has been a little more polite, so to speak, and tried to make the topic more digestible for others, but is very strong on the point that licensing must be done at the end product level – which I believe is very wrong.”

IP Europe’s approach, he says, is too heavily based on the idea that FRAND licensing is the same as global portfolio licensing. He agrees with the organisation, however, that SEP licensing only makes sense when a licence is offered of all essential patents, because the definition of ‘essential’ is that a product cannot be made without it.

“The foremost property of an SEP is that you must use it. Either you must show that the patent is not essential or take a licence.”

Schneider says the FSA and ACT have been much more political in their approach, and that many of the policies set out by the CWA2 guidelines are not supported because they overstate the level for information that can be requested from licensors.

The guide is based on a defensive approach that assumes many negotiations will end in litigation. It states, for example, that companies should be able to set values for individual patents; which does not make sense, according to Schneider, in negotiations outside litigation.

Scott at Philips, on the other hand, says that while the CWA1 guidance that his company has signed up to is not perfect, it has done a better job at trying to establish a reasonable approach to the subject.

“There is more explanation going through the CWA1 guide that is generally in line with what is reasonable,” he says. “The other one is very much driven by the Apple view on licensing and is trying to set out an entire process that follows the example of the Institute of Electrical and Electronics Engineers; which basically provides implementers with the opportunity to hold out from taking necessary licences.”

He adds that the IP Europe guidance is also a high-level document, which is useful to licensors that are looking to discern whether a SEP user is a willing licensee or an unwilling licensee wearing a mask of willingness.

“The danger of being too prescriptive on what must be done is that the provisions do not allow for flexibility in negotiations. That flexibility gives a willing implementer negotiation room and gives licensors the opportunity to see if a company is just trying to hold up the process.”

“In view of some of Philips’ publicly known litigations, some implementers think paying court fees for a few years is better than paying reasonable licence rates.”

Scott says there is less balance from the implementer guidance, which pushes opinion as fact when it is not. He says the document selectively examines the Huawei v ZTE judgment from the Court of Justice of the EU and ignores matters such as a recent Netherlands court of appeal decision that looked at willingness and the steps needed to take a licence and took a more balanced view of what Huawei v ZTE actually requires.

With hundreds and perhaps thousands of companies entering the 5G and IoT space with little experience of SEP licensing, these organisations’ desire to put out some direction is commendable.

But clearly there needs to be a little more unity in their approaches; because so long as there are competing guidelines, companies desperate to avoid taking sides will simply continue to do things their way and firms that do pick a side with inevitably be frustrated in their negotiations with entities that take the other.