CRA Report to the European Commission on SEP Licensing

Last month the European Commission published a study, prepared by Pierre Régibeau, Raphaël De Coninck, and Hanz Zengler of Charles River Associates (CRA) titled Transparency, Predictability, and Efficiency of SSO-based Standardization and SEP Licensing:  A Report for the European Commission, available here.  (Hat tip to Jorge Contreras for calling this to my attention.)  From the Commission's news release on the report:

In December 2016, the European Commission published a study assessing issues and solutions related to standard essential patents (SEPs) and the standardisation process.

The analysis builds on a previous report on patents and standards (PDF, 580kB) prepared for the Commission and on the responses to a public consultation on patents and standards in 2015. The analysis also covers standardisation challenges in the Internet of Things industries.

The report presents the costs and benefits of practical solutions to facilitate an efficient standardisation process and SEP licensing. Concrete recommendations are offered on different issues such as FRAND terms, over-declaration, essentiality checks, conflict resolution process and increasing transparency.

This study is part of the Commission's work to build an intellectual property rights framework enabling easy and fair access to SEPs, as described in the 2016 Communication, ICT Standardisation Priorities for the Digital Single Market.

Its results will be used to assess the interplay between standardisation and patents in the EU Single Market.

The report makes for important reading for anyone interested in SEPs, SSOs, and FRAND issues.  It provides an extensive discussion of, among other things, the economics of holdup, holdout, and royalty caps.  It also makes a number of recommendations (mostly directed at SSOs themselves) that need to be taken seriously, including requiring SSO members to make ex ante (that is, pre-standard adoption) "negative disclosures" of patents they do not intend to license on FRAND terms; introducing the random testing of declared-essential patents, to get a sense of what percentage actually are essential; and the imposition of aggregate royalty caps.  I'm inclined to think the last two proposals in particular have merit, not least because they would help in generating information that could be used in cases in which courts or arbitration panels are called upon to award FRAND royalties (see my paper on Patent Damages Heuristics, pages 44-46, as well as the CRA report p.87.) I'm also inclined to agree with the authors' recommendation against mandating the use of the "smallest tradable component" (a/k/a "smallest salable patent practicing unit," or "SSPPU") as the royalty base for SEP licensing.  Perhaps most interesting is the recommendation that "One should also consider stipulating that – in the spirit of Huawei a licensee could not be found to be 'unwilling' if the licensor insists on including a confidentiality requirement in the proposed 'full' contract that is supposed to discharge him of its FRAND obligations. Such a policy would appear useful in order to enforce the 'ND' part of FRAND" (p.88).  I kind of like the idea, but I imagine it would meet with stiff resistance from some quarters.