FSA Advice on EC’s SEP Communication Outline: “Use-Based” Licensing Risks Significant Harm to European Economy, Businesses and Consumers

The FSA recently provided its input into the principles the European Commission is considering as part of the SEP Communication, which it announced at a workshop held on January 25 to be issued later this year. While the specific content of the document remains unclear, various press reports and Commission presentations have outlined some of the approaches being considered by the Commission.
The FSA is concerned that the principles being considered are detrimental to growth and innovation in Europe, in particular in the field of IoT. While the paper addresses a number of key issues, the FSA in particular highlights (1) problems with so-called use-based licensing, and (2) unfairness associated with refusals to license some members of the supply chain.
The FSA expresses grave concerns that use-based licensing could harm the European economy at a critical time for development and proliferation of IoT and 5G technologies. Under use-base licensing, SEP holders would be able to charge different rates depending on the use of the technology, even though the technology is the same. Downstream innovators would therefore be required to pay a portion of the values they themselves create to upstream SEP holders. As the FSA states, use-based licensing would risk that an SEP holder can “seek compensation for value that it did not create, for technologies that it did not invent, and for innovations for which it cannot rightfully claim credit.” Such practices will “hinder – rather than enable – the take-up of these digital technologies.”
The FSA likewise raises concerns over any effort to restrict the scope of companies that are entitled to benefit from the FRAND promise. As noted in its paper, “

[t]olerating discriminatory refusals to license SEPs threatens to undermine incentives for a wide variety of standard-setting participants, who will be prevented from licensing the standard they helped to develop.” The FSA warns against any approach to SEP policy that would create exceptions to the obligation to license on FRAND terms, and urges the Commission to stay true to its guidance in the Horizontal Guidelines that FRAND requires licensing to “all third parties” so that European companies will be able to sell and to purchase fully licensed standardized components, and not be disadvantaged as against their international competitors.

To read the full input paper, click here.