COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Setting out the EU approach to Standard Essential Patents
Date: 2017-11-29
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, European Commission
Subjects: European patent, Internet, alternative dispute resolution, digital technology, equal treatment, information technology, innovation, patent law, patents licence, standardisation

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 29.11.2017  COM(2017) 712 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Setting out the EU approach to Standard Essential Patents  
 
 
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  make 
reference  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  marketing 
products based on such standards.  

innovation  and  growth 

in  particular  providing  for 
Standards  support 
interoperability  of  digital  technologies  that  are  the  foundation  of  the  Digital  Single  Market 
(DSM).  For  example,  computers,  smartphones  or  tablets  connect  to  the  internet  or  other 
devices 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  Europe, 

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 and 
services (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 estimated 
economic  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, the 
technology 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  non-

1  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  of 
brevity. 
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/digital-
single-market/en/digitising-european-industry#usefullinks 
5 See McKinsey (2015). 

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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 role 
in  developing  a  connected  society,  where  new  market  players  outside  the  traditional  ICT 
sectors  (producers  of  household  appliances,  connected  cars,  etc.)  need  access  to  the 
standardised technology.  

The  evidence  however  suggests  that  the  licensing  and  enforcement  of  SEPs  is  not  seamless 
and  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 development 
of  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 enforcement 
of  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 Things 
and harnessing Europe's lead role in in this context.  

Conflicting  interests  of  stakeholders  in  certain  SDOs  may  make  it  difficult  for  these 
organisations  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 the 
current SEP regulatory environment and who have little incentive to enter into a deal in this 
context.   

In  addition,  the  standardisation  of  5G  and  IoT  is  a  global  issue.  Europe's  industry  retains  a 
leading 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  in 
standards, 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  is 
approximately EUR 18 billion per year (CRA 2016). 
7  The  public  consultation  organised  by  the  Commission  in  2014  clearly  shows  divergent  opinions  on  the 
the  SEP  environment.  See  http://ec.europa.eu/growth/tools-
challenges  and 
databases/newsroom/cf/itemdetail.cfm?item_id=7833.  
8 Patents declared to the ETSI represent 70% of worldwide SEPs (IPlytics, 2017).  

solutions  concerning 

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Europe and should serve all EU citizens by giving them access to products and services based 
on 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  the 
interpretation of EU law by the Court of Justice of the European Union (CJEU). It does not 
bind 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  of 
risks 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 be 
accessible 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 not 
subject to scrutiny regarding the essentiality of the declared patent, which can evolve in the 
course  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 with 
little experience of SEPs  licensing are continually entering the market for  connectivity. The 
Commission  therefore believes  that measures, as  outlined below, are needed  to  improve the 
information on SEPs. 

1.1. IMPROVING  QUALITY  AND  ACCESSIBILITY  OF  INFORMATION  RECORDED  IN  SDO 

DATABASES 

The Commission believes that SDOs should provide detailed information in their databases to 
support  the  SEP  licensing  framework.  While  SDO  databases  collect  large  amounts  of 
declaration  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 be 
links 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 the 
European 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 and 
Standards - A modern framework for IPR-based standardization' ECSIP (2014). 
10 Some 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. 

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Work  on  improving  databases  needs  to  be  combined  with  a  stricter  scrutiny  on  compliance 
with  declaration  obligations  as  defined  in  current  SDO  policies  to  avoid  incomplete 
declarations12. 

1.2. DEVELOPING AN INFORMATION TOOL TO ASSIST LICENSING NEGOTIATIONS 

The  Commission  notes  that  the  current  declaration  system  in  SDOs  supports  the  technical 
standard setting process and is not geared towards future SEP licensing. However, it is clear 
that  there  are  net  benefits  in  extending  the  current  practice  and  purpose  of  declarations  and 
databases to the creation of new transparency tools which, without losing their main purpose, 
can greatly facilitate licensing negotiation. Proportionality considerations are essential in this 
context.  Whilst  excessive  burdens  for  stakeholders  should  be  avoided,  it  should  be  born  in 
mind  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 the 
standard 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  both 
parties 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 patent 
claims 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  (and 
subsequent 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  the 
owner/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  and 
incentives  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  a 
portfolio, and both patent holders and users should have an interest in reporting decisions in 
their 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 be 
retained 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). 

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1.2.2.  Essentiality checks 

Evidence  points  to  the  risk  of  broad  over-declarations  and  makes  a  strong  case  for  more 
reliability  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  the 
essentiality 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  and 
market  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  to 
samples, 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  to 
remain proportionate. Measures could therefore be extended gradually, and apply to new and 
key standards only, e.g. 5G.  

As a first step, stakeholders could be incentivised to value increased transparency, e.g. by way 
of  certification  that  their  declared  SEP  portfolios  comply  with  transparency  criteria.  This 
certification 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 of 
this 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 features 
described 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-to-
date  and  precise  information  on  SEPs  and  will  co-operate  with  SDOs  in  order  to  facilitate 
that process; 

- considers that declared SEPs should be subject to reliable scrutiny of their essentiality for a 
standard,  and  will  launch  a  pilot  project  for  SEPs  in  selected  technologies  with  a  view  to 
facilitating 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). 
19 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  (see 
CRA, 2016). 
21 For an analysis of cost and benefits, please see IPlytics (2017). 
22 See CRA (2016). 
23 See IPlytics (2017). 

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2.  GENERAL PRINCIPLES FOR FRAND LICENSING TERMS FOR SEPS  

The  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  faith 
negotiations. Currently, licensing is hampered by unclear and diverging interpretations of the 
meaning 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  new 
technologies,  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, with 
the  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 PRINCIPLES 

As  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  to 
establishing 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 over 
time. For this reason, the Commission encourages stakeholders to pursue sectoral discussions 
with a view to establishing common licensing practices, based on the principles reflected in 
this 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  in 
principle  should  not  include  any  element  resulting  from  the  decision  to  include  the 
technology 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 2017 
26  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 

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methods, such as the relative importance of the technology in the standard compared 
to 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  this 
objective. It can be addressed further, within the scope of EU competition law, by the 
creation  of industry licensing platforms and patent pools, or  based on indications  by 
standardisation participants on the maximum cumulative rate that could be reasonably 
envisaged or expected. 

2.2. EFFICIENCY AND NON-DISCRIMINATION 

The  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  and 
depending 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  the 
negotiation  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 a 
case 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  by 
offering better scrutiny on essentiality, more clarity on aggregate licensing fees and one-stop- 
shop  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  specific 
sector. 

29 The present value is the value discounted to the time of the conclusion of the licence agreement. Allowing for 
the discounting over time is important against the backdrop of licence agreement running over several years in 
sometimes 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 to 
develop a product for a specific, geographically limited area are not placed at a disadvantage.  
33 Unwired Planet v. Huaweï [2017] EWHC 711 (Pat). 

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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  from 
licensing  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  and 
research  may  be  unnecessarily  duplicated  at  serious  cost  to  the  parties  involved.  More 
accessible  FRAND-related  information  could  increase  predictability  for  businesses  such  as 
IoT players, facilitate the licensing process in general and provide support and benchmarks in 
dispute 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  be 
based on the basis of the following principles: 

-  There  is  no  one-size-fit-all  solution  on  what  FRAND  is:  what  can  be  considered  fair  and 
reasonable  can  differ  from  sector  to  sector  and  over  time.  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.  

- Determining a FRAND value should require taking into account the present value added of 
the  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 for 
the 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 the 
licensing  of  a  large  number  of  implementers  in  the  IoT  environment  (especially  SMEs),  via 
patent  pools  or  other  licensing  platforms,  while  offering  sufficient  transparency  and 
predictability. 

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  the 
relationship 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  the 
enforcement 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 this 
area. 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  a 
licence on FRAND terms. At the same time, safeguards are needed against the risk that good-
faith  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 SEP-
licensing  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 considered 
willing to enter into such a licence. 

The Commission considers that the elements below  – which arise from national case-law in 
applying 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). 
36 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 to 
grant 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  of 
which 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, this 
being a matter which must be established on the basis of objective factors and which implies, in particular, that 
there are no delaying tactics. 

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  non-
discrimination 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 third-
party determination of the royalty. It should also contain information on the exact use of the 
standard 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 can 
be  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 trade-
off between the time considered as reasonable for responding to the offer and the detail and 
quality of the information provided in the SEP holder’s initial offer. In this respect, measures 
that 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 to 
react 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  the 
calculation method of damages in SEP cases. 

3.2. PROPORTIONALITY CONSIDERATIONS 

When  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 PORTFOLIOS 

In  line  with  the  Huawei  judgment,  which  refers  to  recognised  commercial  practices  in  the 
field43,  national  courts  have  also  considered  portfolio  licences  granted  outside  national 

40 OLG Düsseldorf, Case I-15 U 66/15, Order of 17 November 2016 and OLG Karlsruhe, Case 6 U 58/16, Order 
of 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. 
43 Case 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  to 
accept  a  licence  for  these  other  patents  as  well.  The  general  non-willingness  or  non-
acceptance 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)  to 
develop  and  use  consistent  methodologies,  such  as  sampling,  which  allow  for  efficient  and 
effective  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 such 
as 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 transparency 
of  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  a 
pool  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  and 
arbitration  tools  with  the  view  to  facilitating  the  further  roll-out  of  IP  mediation  and 
arbitration 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 to 
be established under the Unified Patent Court - has sufficient safeguards to protect against the 
potentially 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  the 
European 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. 

11 

 
                                                            
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 good 
faith,  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 STANDARDS 

In the context of current advances in technology, open source software (OSS) implementation 
is, in addition to standards, also driving innovation, and is becoming increasingly widespread, 
including  in  the  area  of  ICT  standards.  Integration  between  open  source  projects  and 
standards  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  for 
interoperability  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 and 
SDOs  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 In relation to Cloud computing, see the report on standards and open source: bridging the gap. 
52 OASIS, ECMA, ITU-T, ETSI, etc. 

12 

 
                                                            
The  Commission  will  work  with  stakeholders,  open  source  communities  and  SDOs  for 
successful  interaction  between  open  source  and  standardisation,  by  means  of  studies  and 
analyses. 

5. CONCLUSION 

For  Europe  to  reap  the  full  benefit  of  the  Single  Market  and  the  Digital  Single  Market,  a 
balanced  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. 

13