As has been mentioned on a few other blogs recently (see here and here), on Tuesday the UK’s Intellectual Property Office (IPO) released a Consultation on Standard Essential Patents. The agency’s principal concerns of relevance here are that, in the current environment, there is a lack of transparency regarding SEPs, essentiality, and FRAND rates, which poses special risks to small and medium-sized enterprises (SMEs); and relatedly, the high cost of litigating FRAND cases. In this regard, the agency is soliciting input from the public on certain initiatives that the agency may present to Parliament, including (1) the introduction of a Rate Determination Track (RDT), under which SEP owners or implementers could initiate proceedings before the Intellectual Property Enterprise Court (IPEC) for a binding (albeit subject to appellate review) SEP rate determination; and (2) a government service providing information on SEPs, possibly including essentiality checks. With regard to the RDT in particular, the process would be “limited to cases where infringement, validity and essentiality are not in dispute,” and there also would be “an expectation that ADR mechanisms will have been used before use of the RDT” (para. 66). The UKIPO solicits comments on, among other things, whether the RDT process would serve the “objectives of providing fast and efficient rate determinations,” how the mechanism should be structured, what methodologies it should use, and whether publication of decisions would enable “transparency or discourage use of the RDT.” The agency also seeks responses relating to the appropriate remedies for SEP infringement, including injunctive relief.
The Consultation document closes with two Annexes, one a report prepared by Professor Jorge Contreras titled Rate-Setting for Standard-Essential Patents: International evidence and analysis, which is also available on ssrn, and the other an estimate of case volumes over the next ten years for the proposed SEP Rate Determination Body. In regard to the latter, the agency estimates a high of between 50 and 100 cases in Year 2, after which it foresees a gradual decrease. The Consultation also predicts the estimated costs and benefits of the RDT at paras. 109-17. It foresees “a long-term average cost of running the RDT of £85-£210k per year” (para. 109), based inter alia on estimated use and the cost of employing three “expert panel members paid at a rate of £50-£100 per hour” and each case taking “between 20-30 hours” (para. 111). This strikes me as rather low, though I can’t say that I necessarily know better than the agency does what to expect. I assume that the agency expects the RDT would mostly (exclusively?) be employed by SMEs, which would be consistent with placing it within IPEC; it’s not clear to me from the document whether the agency expects the RDT process to result in global rate determinations and what exactly the jurisdictional bases would be.
As for Professor Contreras’ report, which is worth reading even aside from the UKIPO Consultation, here is the abstract on ssrn:
The UK Intellectual Property Office commissioned this Report to collect and analyze evidence regarding: (1) the creation of a SEP rate setting board to determine (on a non-binding basis) FRAND rates that can be used in SEP negotiations (i.e., on a bilateral basis between a SEP holder and an implementer), and (2) the determination of an aggregate FRAND royalty rate (i.e. total maximum price) for the SEPs covering a particular standard, before or shortly after its publication.
The Report evaluates the feasibility of these policies, and their potential effectiveness in improving price predictability in SEP licensing, whilst maintaining innovation incentives and consumer welfare. Royalty determination and distribution proceedings conducted by rate-setting bodies in a range of industries share similarities with the types of determinations that would be required of a FRAND rate-setting tribunal for SEPs. Namely, multiple parties with divergent interests are involved; the parties are initially permitted to work out an arrangement amongst themselves, but if they cannot, the tribunal’s procedures are activated; and the tribunal is empowered to compel discovery, conduct hearings, and otherwise adduce all relevant evidence. Accordingly, this Report first summarizes, in Part II, the historical and theoretical basis for governmental rate-setting. It then describes in some detail rate-setting procedures in other fields that can offer instructive models for a potential FRAND rate-setting body. These include rate-setting for US interstate transport, one of the first regulated industries and, at certain points in its history, one of the largest; public utilities such as gas, water and electricity; copyrighted works in the UK and US that are subject to compulsory licensing schemes; pharmaceutical products in the UK and US that are subject to price control and regulation, and the statutory interpleader cause of action in the US that enables multiple parties having claims on a single asset pool to petition a court to assess their claims in a single action to divide those assets equitably.
The Report then turns in Part III to current methods of rate-setting for SEPs, including the private setting of aggregate royalty rates by patent pools, and judicial FRAND rate setting in and non-judicial alternative dispute resolution (arbitration and mediation). Part IV then summarizes recent proposals that have been made to establish FRAND rates for SEPs by other means. This includes the European Commission’s proposed EUIPO SEP Competence Centre, which is intended to maintain a database of European SEPs, to check the essentiality of SEPs to the standards under which they are declared on a sampled basis, and to determine, on a non-binding basis, aggregate FRAND royalty rates for all SEPs covering a particular standard, and rates for particular SEPs and SEP portfolios. This section then describes the proposed US Standard Essential Royalty Act (SERA), which would limit the ability of non-US courts from establishing FRAND royalty rates for US SEPs by creating a new US judicial body having the exclusive authority to determine FRAND rates for US SEPs. Next, it addresses a series of SDO and academic proposals concerning group negotiation of aggregate SEP royalty rates and caps, and an academic proposal for an international, non-governmental tribunal for setting aggregate SEP FRAND rates and allocations. This section then summarizes related proposals that may affect FRAND rate-setting, such as ex ante rate disclosure prior to the publication of a final standard, systems for “checking” the essentiality of declared SEPs and systems for checking the validity of declared SEPs. Finally, Part V applies the evidence presented in Parts II, III and IV to the specific features of a FRAND rate-setting system that are the subject of IPO’s inquiry, including its legal and institutional setting, decisional scope, and procedural design aspects.
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