EUROPEAN
COMMISSION

Brussels, 29.11.2017
COM(2017) 712 final

COMMUNICATION FROM THE COMMISSION TO THE EUROPEANPARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIALCOMMITTEE
Setting out the EU approach to Standard Essential PatentsEN

EN

INTRODUCTION
The interplay between patents and standards is important for innovation and growth.
Standards ensure that interoperable and safe technologies are widely disseminated among
companies and consumers. Patents provide R&D with incentives and enable innovative
companies to receive an adequate return on investments. Standards1 frequently makereference to technologies that are protected by patents. A patent that protects technology
essential to a standard is called a standard-essential patent (SEP). SEPs therefore protect
technologies that are essential for complying with technical standards and for marketingproducts based on such standards.
Standards support innovation and growth in Europe, in particular providing forinteroperability of digital technologies that are the foundation of the Digital Single Market(DSM). For example, computers, smartphones or tablets connect to the internet or otherdevices via standardised technologies such as long-term evolution (LTE), WiFi, or Bluetooth,all of which are protected by SEPs. Without the widespread use of such standardised
technologies, such interconnectivity would not be possible2.
In the hyper-connected era, interconnectivity becomes even more crucial. A wide range of
new products need to be interconnected, as to provide consumers with additional products andservices (e.g. smart house appliances) and to create new business opportunities for European
companies.
The digitalisation of the economy creates great opportunities for EU industry. The estimatedeconomic potential of IoT applications in devices for humans, homes, offices, factories,
worksites, retail environments, cities, vehicles and the outdoors will be up to EUR 9 trillion
per year by 2025 in developed countries3. The digitalisation of products and services can add
more than EUR 110 billion in revenue to the European economy per year over the next five
years4. The ability of connected devices and systems to work together is crucial for
maximising this economic potential. Without interoperability, enabled by standards, 40 % of
the potential benefits of IoT systems would not be reaped5.Without formal standardisation and
SEPs, there would be, for example, no connected vehicles. Telediagnosis or remote operations
with distant hospitals or to exchange patient information would not be possible either.
Patent holders contribute technology for developing standards within standard developing
organisations (SDOs). Once a standard is established and the holders of the SEPs have given a
commitment to license them on fair, reasonable and non-discriminatory (FRAND) terms, thetechnology included in the standard should be available to any potential user of the standard.
Smooth licensing practices are therefore essential to guarantee fair, reasonable and non1

Regulation (EU) 1025/2012 on European standardisation defines the meaning of the terms “standard” and“technical specification”. In this document the term “standard” is used with both meanings for the sake ofbrevity.
2
For instance, company X marketing residential alarm systems connected to the internet both via WiFi and LTE
to provide consumers with enhanced security in case of power cut, would need a licence for these standardised
technologies.
3
McKinsey, 2015. See also the objective set by President Juncker for 5G and the IoT in the State of the Union
speech, 14.9.2016.
4
PricewaterhouseCoopers, 2015 and Boston Consulting Group, 2015. See also: https://ec.europa.eu/digitalsingle-market/en/digitising-european-industry#usefullinks
5
See McKinsey (2015).

1

discriminatory access to the standardised technologies and to reward patent holders so they
continue to invest in R&D and standardisation activities. This in turn plays a prominent rolein developing a connected society, where new market players outside the traditional ICT
sectors (producers of household appliances, connected cars, etc.) need access to thestandardised technology.
The evidence however suggests that the licensing and enforcement of SEPs is not seamlessand may lead to conflicts. Technology users accuse SEP holders of charging excessive
licensing fees based on weak patent portfolios and of using litigation threats. SEP holders
claim that technology users 'free ride' on their innovations and consciously infringe
intellectual property rights (IPR) without engaging in good faith licensing negotiations6.
Problems may be particularly acute when players coming from new industrial sectors who are
unfamiliar with the traditional ICT business need access to standardised technologies.
Disputes and delays in negotiations between technological users and holders may ultimately
delay the widespread use of key standardised technologies. This can hamper the developmentof interconnected products in Europe, eventually affecting the competitiveness of the EU
economy.
In its April 2016 Communication on Standardisation Priorities for the Digital Single Market7,
the Commission identified three main areas where the SEP licensing environment could be
improved: opaque information on SEP exposure; unclear valuation of patented technologies
reading on standards and the definition of FRAND; and the risk of uncertainty in enforcementof SEPs. In addition, the role of open source communities in the development of standards
also should be assessed.
There is therefore a need for a clear, balanced and reasonable policy for Standard Essential
Patents in the EU with the aim of contributing to the development of the Internet of Thingsand harnessing Europe's lead role in in this context.
Conflicting interests of stakeholders in certain SDOs may make it difficult for theseorganisations to provide effective guidance on such complex legal and intellectual property(IP) policy issues. Licensing platform initiatives in this area are still at an early stage and have
not yet been adopted by implementers, who may well be hesitant given the uncertainty in thecurrent SEP regulatory environment and who have little incentive to enter into a deal in thiscontext.
In addition, the standardisation of 5G and IoT is a global issue. Europe's industry retains aleading position in many sectors in global markets. The Commission notes the important role
European standardisation plays in the global context8.
The Commission therefore considers that there is an urgent need to set out key principles that
foster a balanced, smooth and predictable framework for SEPs. These key principles reflect
two main objectives: incentivising the development and inclusion of top technologies instandards, by preserving fair and adequate return for these contributions, and ensuring smooth
and wide dissemination of standardised technologies based on fair access conditions. A
balanced and successful policy on SEPs licensing should work to the benefit of start-ups in
6

The economic stakes are very high: for example, the royalty income for 2G, 3G and 4G standards isapproximately EUR 18 billion per year (CRA 2016).
7
The public consultation organised by the Commission in 2014 clearly shows divergent opinions on thechallenges and solutions concerning the SEP environment. See http://ec.europa.eu/growth/toolsdatabases/newsroom/cf/itemdetail.cfm?item_id=7833.
8
Patents declared to the ETSI represent 70% of worldwide SEPs (IPlytics, 2017).

2

Europe and should serve all EU citizens by giving them access to products and services basedon the best performing standardised technology.
This Communication draws on the responsibility of all actors in the SEP licensing context,
and all stakeholders are encouraged to contribute to making this framework work in practice.
It is not intended to represent a statement of the law and is without prejudice to theinterpretation of EU law by the Court of Justice of the European Union (CJEU). It does notbind the Commission as regards the application of EU rules on competition, and in particular
Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
1. INCREASING TRANSPARENCY ON SEPS EXPOSURE
Information on the existence, scope and relevance of SEPs is vital for fair licensing
negotiations and for allowing potential users of a standard to identify the scale of their
exposure to SEPs and necessary licensing partners. However, currently the only information
on SEPs accessible to users can be found in declaration databases maintained by SDOs which
may lack transparency. This situation makes licensing negotiations and the anticipation ofrisks related to SEPs particularly difficult to navigate for start-ups and SMEs. The primary
purpose of declarations is to reassure an SDO and all third parties that the technology will beaccessible to users, typically under a commitment to license under FRAND conditions.
SDO databases may record tens of thousands of SEPs for a single standard, and this trend is
growing9. The declarations are based on a self-assessment by the patent holder, and are notsubject to scrutiny regarding the essentiality of the declared patent, which can evolve in thecourse of the standard adoption procedure. In addition, stakeholders report that even in
concrete licensing negotiations licensors fail to substantiate their claims with more precise
information. This is particularly unsatisfactory in the context of IoT where new players withlittle experience of SEPs licensing are continually entering the market for connectivity. The
Commission therefore believes that measures, as outlined below, are needed to improve theinformation on SEPs.
1.1. IMPROVING QUALITY AND ACCESSIBILITY OF INFORMATION RECORDED IN SDODATABASES

The Commission believes that SDOs should provide detailed information in their databases tosupport the SEP licensing framework. While SDO databases collect large amounts ofdeclaration data10, they often do not provide user-friendly accessibility to interested parties,
and lack essential quality features. The Commission therefore takes the view that the quality
and accessibility of the databases should be improved11. First, data should be easily accessible
through user friendly interfaces, both for patent holders, implementers and third parties. All
declared information should be searchable based on the relevant standardisation projects,
which may also require the transformation of historic data into current formats. Quality
processes should eliminate also duplications and other obvious flaws. Finally, there should belinks to patent office databases, including updates of patent status, ownership and its transfer.
9

For instance, more than 23 500 patents have been declared essential to the Global System for Mobile
Communication standard and the 3G or Universal Mobile Telecommunication System standards developed at theEuropean Telecommunications Standards Institute (ETSI). Such standard apply to all smartphones and devices
having a mobile connection. For more figures, see 'Landscaping study on SEPs' IPlytics (2017) and 'Patents andStandards - A modern framework for IPR-based standardization' ECSIP (2014).
10Some SDOs require specific patent disclosures as they recognise their benefits, while others permit blanket
declarations. This section of the Communication refers to SDOs with specific patent disclosure.
11
See for example the long running 'DARE' project to improve the ETSI’s database.

3

Work on improving databases needs to be combined with a stricter scrutiny on compliancewith declaration obligations as defined in current SDO policies to avoid incomplete
declarations12.
1.2. DEVELOPING AN INFORMATION TOOL TO ASSIST LICENSING NEGOTIATIONSThe Commission notes that the current declaration system in SDOs supports the technicalstandard setting process and is not geared towards future SEP licensing. However, it is clearthat there are net benefits in extending the current practice and purpose of declarations anddatabases to the creation of new transparency tools which, without losing their main purpose,can greatly facilitate licensing negotiation. Proportionality considerations are essential in thiscontext. Whilst excessive burdens for stakeholders should be avoided, it should be born inmind that in concrete licensing negotiations, patent holders necessarily have to invest in
substantiating to SEP users why patents from the patent holders' portfolio are essential to thestandard or how these patents are being infringed13. The Commission therefore believes that
proposed incremental improvements with controlled costs can substantially reduce overall
transaction costs during licensing negotiations as well as infringement risks, to benefit bothparties in negotiations14.
1.2.1. More up-to-date and precise declarations
Declarations occur early on in the standardisation process, with normally no review later on.
However, technical solutions proposed in standards negotiations evolve up until the final
standard15 is agreed. While the majority of declarations concern patent applications, the patentclaims under the final patent granted after adoption of the standard can differ considerably16,
as their content may change during the granting process. Therefore, rightholders should
review the relevance of their declarations at the time of adoption of the final standard (andsubsequent significant revisions) and when a final granting decision on the patent is taken.
Declarations should also include enough information to assess patent exposure. Patent holders
should at least make reference to the section of the standard that is relevant to the SEP and to
the link with the patent family. Declarations should also clearly identify a contact for theowner/licensor of the declared SEP.
Finally, it should be noted that SEPs on key technologies are more frequently litigated17.
Associated information is relevant for all interested licensees and can play a role in limiting
the possibility of future litigation. SDOs should therefore provide the possibility andincentives for patent holders and technology users to report the case reference and main
outcome of final decisions, positive or negative, on declared SEPs (including on essentiality
and patent validity). As companies usually only litigate a few valuable patents within aportfolio, and both patent holders and users should have an interest in reporting decisions intheir respective favour, the associated burden of this measure would be limited.

12

For further details, please see the summary report of the public consultation organised by DG GROW in 2015.
http://ec.europa.eu/DocsRoom/documents/14482/attachments/1/translations/en/renditions/native.
13
See CRA (2016).
14
See section 3 below in relation to effective enforcement.
15
For instance, a potential patent or patent application initially declared for a candidate technology may not beretained in the released standard, or the declared patent application may be revised during the granting process.
16
For instance, 71% of SEPs declared at major SDOs (73% at the ETSI) are only granted after the standard has
been released (IPlytics, 2017).
17
See ECSIP (2014).

4

1.2.2. Essentiality checks
Evidence points to the risk of broad over-declarations and makes a strong case for morereliability with respect to SEP essentiality18. Stakeholders report that recorded declarations
create a de facto presumption of essentiality in negotiations with licensees19. This scenario
places a high burden on any willing licensee, especially SMEs and start-ups, to check theessentiality of a large number of SEPs in licensing negotiations.
There is therefore a need for a higher degree of scrutiny on essentiality claims. This would
require scrutiny being performed by an independent party with technical capabilities andmarket recognition, at the right point in time. Having said this, introducing such a scrutiny
requirement to SEPs must be balanced against the cost20. However, an incremental approach,whereby scrutiny takes place at the request of either rightholders or prospective users,
calibrating the depth of scrutiny and limiting checks to one patent within a family and tosamples, could ensure the right cost-benefit balance of this measure21.
1.2.3. Means of implementation
While there are clear benefits to such increased transparency, the related burden needs toremain proportionate. Measures could therefore be extended gradually, and apply to new andkey standards only, e.g. 5G.
As a first step, stakeholders could be incentivised to value increased transparency, e.g. by wayof certification that their declared SEP portfolios comply with transparency criteria. Thiscertification could later be used in licensing negotiations and litigation. In addition, a recent
study undertaken for the Commission suggests that SDOs may consider introducing (modest)
fees for confirming SEP declarations after standard release and patent grants, to incentive SEP
holders to revise and maintain only relevant declarations22.
When considering essentiality checks, patent offices may well be natural candidates for
exploiting synergies and reducing costs23. The Commission will support further analysis of
their feasibility to ensure effective and proportionate solutions. Depending on the outcome ofthis project, an independent European body could be tasked to proceed with SEP essentiality
assessment.
The Commission:- calls on SDOs to urgently ensure that their databases comply with the main quality featuresdescribed above and will co-operate with SDOs to facilitate this process;- calls on SDOs to transform the current declaration system into a tool providing more up-todate and precise information on SEPs and will co-operate with SDOs in order to facilitatethat process;- considers that declared SEPs should be subject to reliable scrutiny of their essentiality for astandard, and will launch a pilot project for SEPs in selected technologies with a view tofacilitating the introduction of an appropriate scrutiny mechanism.
18

See IPlytics (2017) and CRA (2016) and the summary of DG GROW public consultation on SEPs (2015).
A number of studies on various key technologies suggests that when rigorously tested, only between 10% and
50% of declared patents are essential (CRA, 2016 and IPlytics, 2017).
20
The cost of essentiality checks may be negligible compared to licensing revenues for key technologies (seeCRA, 2016).
21
For an analysis of cost and benefits, please see IPlytics (2017).
22
See CRA (2016).
23
See IPlytics (2017).
195

2. GENERAL PRINCIPLES FOR FRAND LICENSING TERMS FOR SEPSThe Commission considers that the parties are best placed to arrive at a common
understanding of what are fair licensing conditions and fair rates, through good faithnegotiations. Currently, licensing is hampered by unclear and diverging interpretations of themeaning of FRAND. The debate is particularly heated when it comes to valuation principles.
Divergent views and litigation over FRAND licensing risk delaying the uptake of newtechnologies, standardisation processes and the roll-out of IoT in Europe. The Commission
considers therefore that it is both necessary and beneficial to establish a first set of key
signposts on the FRAND concept, so as to provide for a more stable licensing environment,
guide parties in their negotiations and reduce litigation.
The guiding elements set out below are based on the results of a public consultation24,
analysis of best practices25, studies26, as well as national case law27. The Commission
encourages stakeholders to engage in dialogue with each other and with the Commission, withthe view to achieving further clarification and developing best practices. The Commission
will monitor progress achieved and take complementary action on FRAND licensing, as
needed.
2.1. LICENSING PRINCIPLESAs the CJEU has confirmed, an 'undertaking to grant licences on FRAND terms creates
legitimate expectations on the part of third parties that the proprietor of the SEP will in fact
grant licences on such terms'28.
Both parties must be willing to engage in good faith negotiations, with the view toestablishing licensing conditions that are fair, reasonable and non-discriminatory. Parties to a
SEP licensing agreement, negotiating in good faith, are in the best position to determine the
FRAND terms most appropriate to their specific situation.
Efficiency considerations, reasonable licence fee expectations on both sides, the facilitation of
the uptake by implementers to promote wide diffusion of the standard should be taken into
account. It should be stressed in this respect that there is no one-size-fit-all solution to what
FRAND is: what can be considered fair and reasonable differs from sector to sector and overtime. For this reason, the Commission encourages stakeholders to pursue sectoral discussions
with a view to establishing common licensing practices, based on the principles reflected inthis Communication.
The Commission considers that the following IP valuation principles should be taken into
account:Licensing terms have to bear a clear relationship to the economic value of the patented
technology. That value primarily needs to focus on the technology itself and inprinciple should not include any element resulting from the decision to include thetechnology in the standard. In cases where the technology is developed mainly for the
standard and has little market value outside the standard, alternative evaluation

24

Public consultation on patents and standards: A modern framework for standardisation involving intellectual
property rights.
25
Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases, JRC 201726
Study on Transparency, Predictability and Efficiency of SDO-based Standardization and SEP Licensing,Published on: 12/12/2016, (CRA study).
27
See, in particular, Unwired Planet v. Huaweï [2017] EWHC 711 (Pat).
28
Case C-170/13 Huawei Technologies, EU:C:2015:477, paragraph 53

6





methods, such as the relative importance of the technology in the standard comparedto other contributions in the standard, should be considered.
Determining a FRAND value should require taking into account the present value
added29 of the patented technology. That value should be irrespective of the market
success of the product which is unrelated to the patented technology.
FRAND valuation should ensure continued incentives for SEP holders to contribute
their best available technology to standards.
Finally, to avoid royalty stacking, in defining a FRAND value, an individual SEP
cannot be considered in isolation. Parties need to take into account a reasonable
aggregate rate for the standard, assessing the overall added value of the technology30.
The implementation of measures on SEP transparency can already support thisobjective. It can be addressed further, within the scope of EU competition law, by thecreation of industry licensing platforms and patent pools, or based on indications bystandardisation participants on the maximum cumulative rate that could be reasonably
envisaged or expected.

2.2. EFFICIENCY AND NON-DISCRIMINATIONThe non-discrimination element of FRAND indicates that rightholders cannot discriminate
between implementers that are 'similarly situated'31.
Given that FRAND is not one-size-fits-all, solutions can differ from sector to sector anddepending on the business models in question.
As mentioned above, FRAND negotiations imply good faith negotiations from both parties.
Efficiency considerations can come into play as well. Transaction costs relating to thenegotiation of a licence should be kept to the minimum necessary. Furthermore, in sectors
where cross-licencing practices are widespread, efficiency gains related to such practices
should be taken into account. These points need to be taken into account when assessing on acase by case basis whether a licensing offer is compatible with FRAND.
In line with the approach presented above, the Commission considers that the same principles
of efficiency support the practice of SEP portfolio licensing for products with global
circulation32. As noted in a recent ruling33, a country-by-country licensing approach may not
be efficient and may not be in line with a recognised commercial practice in the sector.
2.3. PATENT POOLS AND LICENSING PLATFORMS TO FACILITATE SEP LICENSING
The creation of patent pools or other licensing platforms, within the scope of EU competition
law, should be encouraged. They can address many of the SEP licensing challenges byoffering better scrutiny on essentiality, more clarity on aggregate licensing fees and one-stopshop solutions. For IoT industries, and particularly SMEs, newly exposed to SEP licensing
disputes, this will bring more clarity to licensing conditions of SEP holders in a specificsector.

29

The present value is the value discounted to the time of the conclusion of the licence agreement. Allowing forthe discounting over time is important against the backdrop of licence agreement running over several years insometimes technologically fast moving business environments.
30
On royalty stacking see CRA study.
31
Unwired Planet v. Huaweï [2017] EWHC 711 (Pat).
32
However, FRAND licensing requires remuneration to be calculated in a manner that implementers wishing todevelop a product for a specific, geographically limited area are not placed at a disadvantage.
33
Unwired Planet v. Huaweï [2017] EWHC 711 (Pat).

7

Measures to encourage the setting up of pools for key standardised technologies should be
encouraged, e.g. facilitating access to pool management offers and technical assistance by
SDO34. The Commission will consider further measures if these efforts are ineffective in IoT
sectors.
2.4. EXPLOITING AND DEEPENING FRAND EXPERTISE
There is a need to increase accessibility of experience, expertise and know-how around
FRAND determination. Valuable insight has been gained and approaches developed fromlicensing agreements, mediations, arbitrations and court decisions over many years.
Significant resources and efforts have been devoted to clarifying, analysing and valuing
patents and technology. As there is no common repository for such expertise, work andresearch may be unnecessarily duplicated at serious cost to the parties involved. Moreaccessible FRAND-related information could increase predictability for businesses such as
IoT players, facilitate the licensing process in general and provide support and benchmarks indispute settlement.
The Commission will therefore set up an expert group with the view to gathering industry
practice and additional expertise on FRAND licencing. In addition, the Commission will use
all appropriate tools available to obtain further information to support its policy making with
sufficient evidence.
In view of current developments, the Commission considers that SEP licencing should bebased on the basis of the following principles:- There is no one-size-fit-all solution on what FRAND is: what can be considered fair andreasonable can differ from sector to sector and over time. Efficiency considerations,reasonable licence fee expectations on both sides, the facilitation of the uptake byimplementers to promote wide diffusion of the standard should be taken into account.
- Determining a FRAND value should require taking into account the present value added ofthe patented technology. That value should be irrespective of the market success of the
product which is unrelated to the value of the patented technology.
- In defining a FRAND value, parties need to take account of a reasonable aggregate rate forthe standard.
- The non-discrimination element of FRAND indicates that rightholders cannot discriminate
between implementers that are 'similarly situated'.
- For products with a global circulation, SEP licences granted on a worldwide basis may
contribute to a more efficient approach and therefore can be compatible with FRAND.
The Commission calls on SDOs and SEP holders to develop effective solutions to facilitate thelicensing of a large number of implementers in the IoT environment (especially SMEs), via
patent pools or other licensing platforms, while offering sufficient transparency andpredictability.
The Commission will monitor licencing practices, in particular in the IoT sector. It will also
set up an expert group with the view to deepening expertise on industry licensing practices,
sound IP valuation and FRAND determination.
34

For instance, the creation of pools may be encouraged by means of measures such as strengthening therelationship between SDOs and pools, providing incentives to participation and making universities and SMEs
more aware of the advantages of becoming a licensor in a pool (ECSIP, 2015).

8

3. A PREDICTABLE ENFORCEMENT ENVIRONMENT FOR SEPS
Disputes on SEPs are an important factor in the licensing system when negotiations fail. A
balanced and predictable enforcement environment has particularly positive effects on parties’
behaviour during negotiations, which in turn can speed up the spread of standardised
technologies. IoT stakeholders report however that uncertainties and imbalances in theenforcement system have serious implications for market entry. SEPs show a higher degree of
litigation than other patents35, which reinforces the need for a clear dispute framework in thisarea. While this Communication focuses on specific guidance on Standard Essential Patents,
the Guidance on certain aspects of Directive 2004/48/EC of the European Parliament and of
the Council on the enforcement of intellectual property rights36 clarifies the IPRED regime
more generally. The possibility to enforce is one of the key aspects of intellectual property
rights37. The debate in the SEPs area has mainly focused on the availability of injunctive
relief. Such relief aims to protect SEP holders against infringers unwilling to conclude alicence on FRAND terms. At the same time, safeguards are needed against the risk that goodfaith technology users threatened with an injunction accept licensing terms that are not
FRAND, or in the worst case, are unable to market their products (hold-ups).
3.1. AVAILABILITY OF INJUNCTIVE RELIEF UNDER THE HUAWEI VS ZTE JURISPRUDENCE
In its Huawei judgment38, the CJEU established obligations applying to both sides of a SEPlicensing agreement, when assessing whether the holder of a SEP can seek an injunction
against a potential licensee without being in breach of Article 102 TFEU. SEP holders may
not seek injunctions against users willing to enter into a licence on FRAND terms, and the
CJEU established behavioural criteria to assess when a potential licensee can be consideredwilling to enter into such a licence.
The Commission considers that the elements below – which arise from national case-law inapplying the Huawei judgment39, provide useful additional guidance for stakeholders.
A number of courts have stressed that a prospective SEP licensee has to receive sufficiently
detailed and relevant information to determine the relevance of the SEP portfolio and

35

ECSIP (2014).
COM(2017)708
37
Directive 2004/48/EC of 29.4.2004 on the enforcement of intellectual property rights, pub. OJ L 195 of
2.6.2004, recital 3
38
Case C-170/13 Huawei Technologies, EU:C:2015:477.
39
The CJEU held that Article 102 TFEU must be interpreted as meaning that the proprietor of a patent essential
to a standard established by a standardisation body, which has given an irrevocable undertaking to that body togrant a licence to third parties on fair, reasonable and non-discriminatory (‘FRAND’) terms, does not abuse its
dominant position, within the meaning of that article, by bringing an action for infringement seeking an
injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture ofwhich that patent has been used, as long as:(1) prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement
complained about by designating that patent and specifying the way in which it has been infringed, and,secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND
terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular,
the royalty and the way in which it is to be calculated, and(2) where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently
responded to that offer, in accordance with recognised commercial practices in the field and in good faith, thisbeing a matter which must be established on the basis of objective factors and which implies, in particular, that
there are no delaying tactics.
36

9

compliance with FRAND40. The concrete requirements may vary according to the individual
case, but the Commission believes that to assess a FRAND offer and make an appropriate
counter-offer, clear explanations are necessary on: the essentiality for a standard, the allegedly
infringing products of the SEP user, the proposed royalty calculation and the nondiscrimination element of FRAND.
Concerning the counter-offer, it follows from Huawei that it should be concrete and specific,
i.e. it cannot be limited to contesting the SEP holder’s offer and a general reference to thirdparty determination of the royalty. It should also contain information on the exact use of thestandard in the specific product. The willingness of the parties to submit to binding third-party
FRAND determination - should the (counter-)offer be found not to be FRAND - is however
an indication of a FRAND behaviour.
In terms of timeliness of the counter-offer of the potential licensee, no general benchmark canbe established, as case-specific elements play a role. These include the number of asserted
SEPs and the details contained in the infringement claim. However, there is a probable tradeoff between the time considered as reasonable for responding to the offer and the detail andquality of the information provided in the SEP holder’s initial offer. In this respect, measuresthat improve the upstream transparency on SEP exposure41 will have a very positive impact
on the enforcement system.
If more reliable information on SEPs is available upfront via the declaration system, as
highlighted in section 1 above, the number of declared SEPs would be considerably reduced.
This should be taken into account when assessing acceptable response times for SEP users toreact to a FRAND offer.
With respect to the security to be provided by the SEP user as protection against an
injunction, the amount should be fixed at a level that discourages patent hold-out strategies.
Similar considerations could apply when assessing the magnitude of damages. The
Commission will support an exchange of best practice by experts and stakeholders on thecalculation method of damages in SEP cases.
3.2. PROPORTIONALITY CONSIDERATIONSWhen assessing the availability of injunctive relief, courts are bound by Article 3(2) of the
IPR Enforcement Directive42, and notably the requirement to ensure that injunctive relief is
effective, proportionate and dissuasive. Given the broad impact an injunction may have on
businesses, consumers and on the public interest, particularly in the context of the digitalised
economy, the proportionality assessment needs to be done carefully on a case-by-case basis.
The Commission feels that considerations need to be given to the relative relevance of the
disputed technology for the application in question and the potential spill-over effects of an
injunction on third parties.
3.3. LITIGATION ON THE BASIS OF PATENT PORTFOLIOSIn line with the Huawei judgment, which refers to recognised commercial practices in thefield43, national courts have also considered portfolio licences granted outside national40

OLG Düsseldorf, Case I-15 U 66/15, Order of 17 November 2016 and OLG Karlsruhe, Case 6 U 58/16, Orderof 8 September 2016.
41
See section 1 above.
42
Directive 2004/48/EC of 29.4.2004 on the enforcement of intellectual property rights, OJ L 195 of 2.6.2004, p.
16.
43Case C-170/13 Huawei Technologies, EU:C:2015:477 (para 65)

10territories to be compliant with FRAND, provided that the portfolio is limited to all the SEPs
that a licensee needs to produce/market its product (see section 2.2 above). In this context,
SEP holders may offer more patents, including non-SEPs, but cannot require a licensee toaccept a licence for these other patents as well. The general non-willingness or nonacceptance to offer or accept all SEPs that a licensee needs may be an indication of bad faith.
In order to be FRAND, the counteroffer needs to be related to all SEPs that a licensee needs
and cannot be based on individual patent(s) only. Portfolios should however not include
competing technologies, but only complementary technologies if necessary44. While putative
licensees may always question the validity/essentiality of individual patents, the licensing of
all SEPs that a licensee needs can be particularly efficient. The Commission will therefore
work with stakeholders (including where appropriate courts, arbitrators and mediators) todevelop and use consistent methodologies, such as sampling, which allow for efficient andeffective SEP dispute resolution, in compliance with the industry practice of portfolio
licensing.
3.4. ALTERNATIVE DISPUTE RESOLUTION
The Commission takes the view that alternative dispute resolution (ADR) mechanisms suchas mediation and arbitration can offer swifter and less costly dispute resolution45. While there
can be no obligation for parties to use ADR, the Commission believes that the potential
benefits of this tool are currently underexploited.
Recourse to ADR is often hampered by unpredictability and criticised for lack of transparencyof previous decisions. The success of such mechanisms depends not only on appropriate
procedures, but also on the quality of experts. When it enters into operation, the Unified
Patent Court should provide a dedicated arbitration and mediation centre benefitting from apool of specialised judges, thus ensuring high quality and efficient proceedings, coherent
practice and limited scope for forum shopping. As announced in its November 2016 strategy
on IP for SMEs, the Commission is, together with the EUIPO, mapping IP mediation andarbitration tools with the view to facilitating the further roll-out of IP mediation andarbitration services, for SMEs in particular46.
The Commission considers that the outcomes of disputes should also be included in SDOs'
databases as mentioned in the chapter on transparency47.
3.5. PATENT ASSERTION ENTITIES AND SEPS
Patent Assertion Entities48 (PAEs) are becoming increasingly involved in the SEP licensing
market. Studies49 suggest that the European litigation system - including the one that is due tobe established under the Unified Patent Court - has sufficient safeguards to protect against thepotentially harmful effects of certain PAEs in the EU50. PAEs should be subject to the same
rules as any other SEP holder, including after the transfer of SEPs from patent holders to
44

See mutatis mutandis Guidelines on the application of Article 101 of the Treaty on the Functioning of theEuropean Union to technology transfer agreements, OJ C 89, 28.3.2014, p. 3, paragraph 250-55.
45
Different ADR mechanisms already exist, such as the WIPO's Arbitration and Mediation Centre.
46
Commission Staff Working Document, 'Putting intellectual property at the service of SMEs to foster
innovation and growth', SWD(2016)373 of 22.11.2016.
47
See section 1.2.1 above.
48
For the attempt of a definition see the JRC study 'Patent Assertion Entities in Europe', chapter 3.
http://publications.jrc.ec.europa.eu/repository/bitstream/JRC103321/lfna28145enn.pdf
49
http://publications.jrc.ec.europa.eu/repository/bitstream/JRC103321/lfna28145enn.pdf
50
JRC study above.

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PAEs. Increased transparency and predictability should further reduce the margin for abuse.
The application of the proportionality principle by courts provides yet another safeguard. The
Commission will closely monitor the ongoing impact of these market players on the SEP
licensing market in Europe, in particular once the EU unitary patent is operational.
3.6. AWARENESS RAISING
There is a need for relevant stakeholders, in particular SDOs and SEP holders, to proactively
raise awareness of the FRAND licensing process and its implications, particularly for SMEs
(both patent holders and implementers of the standards). The Commission will support
awareness actions on this issue.
The Commission considers that the FRAND process requires both parties to negotiate in goodfaith, including responding in a timely manner. Injunctive relief can, however, be sought
against parties acting in bad faith (i.e. parties unwilling to take up a licence on FRAND
terms), but it must be used proportionally.
The Commission will:- work with stakeholders to develop and use methodologies, such as sampling, which allow
for efficient and effective SEP litigation, in compliance with the industry practice of portfolio
licensing;- further facilitate the roll-out of mediation and alternative dispute resolution tools; and- monitor the impact of PAEs in Europe.
4. OPEN SOURCE AND STANDARDSIn the context of current advances in technology, open source software (OSS) implementationis, in addition to standards, also driving innovation, and is becoming increasingly widespread,including in the area of ICT standards. Integration between open source projects andstandards development processes is a win-win situation: on one side the alignment of open
source and standardisation can speed-up the standards development process and the take-up of
ICT standards (especially for SMEs) and on the other side standards can provide forinteroperability of open source software implementations51. Activities in this direction are
taking place within different SDOs52.
Open source and standardisation processes both have similarities in common (e.g.
collaborative open processes, contribution to innovation) and differences (IPR policies,
agility, maintenance, transparency, balance of the processes etc.). There is therefore a need to
pay attention to the interaction between open source community projects and SDOs processes.
The Commission supports open source solutions, i.e. through R&I projects funded under
Horizon 2020. Flexible and effective interactions between standardisation and open source
communities will promote and accelerate the uptake of advanced technology developments.
The Commission will continue to collaborate with stakeholders, open source communities andSDOs to promote an effective relationship between standardisation and open source. It will
also fund studies to analyse complementarities, ways of interacting and differences between
the two processes, and recommend solutions for smooth collaboration between the two
communities.
51
52

In relation to Cloud computing, see the report on standards and open source: bridging the gap.
OASIS, ECMA, ITU-T, ETSI, etc.

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The Commission will work with stakeholders, open source communities and SDOs for
successful interaction between open source and standardisation, by means of studies andanalyses.
5. CONCLUSIONFor Europe to reap the full benefit of the Single Market and the Digital Single Market, abalanced IPR framework is needed that supports a sustainable and efficient standardisation
ecosystem and SEP licensing environment.
This Communication proposes a holistic approach and sets out key principles for SEP
licensing taking into account how industrial sectors are organised as well as efficiency
considerations. Working together with all stakeholders will be necessary for a successful
implementation of the principles and to ensure concrete results of the actions announced,
notably by fostering the participation of start-ups in the roll-out of the Internet of Things. The
Commission therefore invites all stakeholders to actively engage in their implementation.
The Commission will closely monitor the SEP licensing markets with a particular focus on
IoT technologies, by making use of the expert group that will be created and launching further
studies if necessary. It will take stock of progress achieved and assess the need for further
measures to ensure a balanced framework for smooth, efficient and effective licensing of
SEPs on that basis.

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