COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Proposal for Regulation of the European Parliament and of the Council on standard essential patents and amending Regulation (EU) 2017/1001
Date: 2023-04-27
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs, European Commission
Subjects: European Union Intellectual Property Office, European patent, European standard, harmonisation of standards, patent law, patents licence, technical specification, technical standard

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 27.4.2023  SWD(2023) 125 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for Regulation of the European Parliament and of the Council on standard essential patents and amending Regulation (EU) 2017/1001 {COM(2023) 232 final} - {SEC(2023) 174 final} - {SWD(2023) 123 final} - {SWD(2023) 124 final}  
 
 
Executive Summary Sheet 

Impact  assessment  on  proposal  for  a  regulation  to  create  a  register  for  standard  essential 
patents, a system to evaluate essentiality of patents, a FRAND dispute resolution mechanism 
and a process for ex-ante determination of aggregate royalty for a standard. 

Why? What is the problem being addressed?  

A. Need for action 

Standard Essential Patents (SEPs) are patents that protect a technology necessary to fulfil an 
industry  standard.  Such  standards  are,  for  example,  communication  standards  (e.g.  3G,  4G, 
5G, WiFi, NFC), audio/video compression and decompression standards (MPEG, HEVC), as 
well  as  standardised  technologies  for  data  storage  and  exchange  (CD  and  DVD),  photo 
formats  (JPEG),  and  Home  Audio/Video  Interoperability  (HAVi).  In  practice  many  of  the 
communication  standards  concern  all  connected  devices  including  phones,  smart  TVs, 
connected  cars,  smart  meters  and  mobile  payment  terminals;  other  standards  are  used  in  a 
wide  variety  of  products  as  well.  The  applicability  of  SEPs  covering  all  these  standards 
(particularly for communication) is going to increase with the rise of the ‘Internet of Things’ 
(IoT), as well as with many initiatives aiming at green transition (e.g. energy conservation). 

SEPs are “essential” in  the sense that  the patented  invention  must  be used (implemented)  in 
products to comply with a technical standard. As a result, the SEP owner wields a privileged 
market  power over the implementer of standardised technology,  as  there is  no alternative to 
using their SEPs. Although there may exist different standards for some functionalities (e.g., 
video),  for  certain,  widely  used,  standards  (in  particular  cellular  connectivity  like  4G,  5G) 
there  is  no  alternative.  To  curtail  or  to  prevent  the  abuse  of  this  power,  standard  setting 
organisation in which companies are members and to which they declare  their SEPs, require 
them  to  commit  to  license  their  SEPs  on  “Fair,  Reasonable  and  Non-discriminatory” 
(FRAND)  terms  to  implementers.  Other  than  this  general  commitment  there  is  no  EU 
legislation that would specifically regulate SEP licensing.  

During  the  preparation  of  this  initiative,  the  Commission  gathered  a  significant  amount  of 
evidence from stakeholders, including SMEs, which indicated that the SEP licensing process 
is not efficient and needs more transparency and structure. Issues related to SEP licensing are 
also  regularly  raised  with  competition  authorities,  including  the  European  Commission’s 
Directorate General for Competition.  

Some key issues of concern are high licensing transaction costs and uncertainty about the SEP 
royalty burden. Due to a lack of sufficient information, implementers cannot assess their SEP 
exposure far enough in  advance to take into account the licensing costs when planning their 
product  business.  On  the  other  hand,  SEP  owners  complain  about  long  and  expensive 
negotiations,  especially  with  large  implementers.  More  specifically,  the  following  drivers  of 
these problems were identified: First, there is only limited information on who owns SEPs and 
it  is  not  certain  that  all  patents  sought  to  be  licensed  are  really  necessary  (essential)  to 
implement  a standard. Second, there is  very little information  on SEP  license fees  (FRAND 
royalty), so implementers with  little or no expertise or resources  find it impossible to assess 
the reasonableness of a SEP owner’s royalty demand.  Finally, licensing disputes can be time 
and  cost  intensive.  Therefore,  the  mere  threat  of  an  injunction  (leading  to  a  suspension  of 
production  of  allegedly  infringing  products)  and  the  probability  of  a  long  and  costly  court 
procedure can create an includible pressure on implementers, especially SMEs, to agree to a 
license at rates that may not be FRAND. For SEP owners, to seek a resolution in courts also 
consumes  a  significant  amount  of  resources  and  particularly  time,  during  which  royalty 

1 

 
 
income is not received.  

The licensing revenue market is significant. In 2015 it was estimated at around USD 18 billion 
worldwide for just cellular standards. Assuming that EU companies are paying a proportional 
share to the EU GDP, at least around EUR 3 billion of royalties are paid by EU implementers 
every  year.  There  are  around  261  active  SEP  licensors  globally,  with  31  located  in  the  EU 
(key players are Nokia, Ericsson, Phillips and Siemens) which hold around 15% of worldwide 
SEPs. The number of potential implementers in the EU is estimated at 3 800. 

What is this initiative expected to achieve?  

This  initiative  aims  at:  (i)  ensuring  that  end  users,  including  small  businesses  and  EU 
consumers benefit  from  products based on the latest  standardised technologies at  reasonable 
prices;  (ii)  making  the  EU  an  attractive  place  for  innovation  and  standards  development 
(including  for  global  participants);  and  (iii)  ensuring  that  both  EU  SEP  owners  and 
implementers  innovate  in  the  EU,  make  and  sell  products  in  the  EU  and  are  competitive  in 
non-EU global markets. 

To  achieve  this  result,  the  initiative  strives  to  facilitate  SEP  licensing  negotiations  and  to 
lower transaction costs for both SEP owners and implementers by (i) providing more clarity 
on who owns SEPs and which SEPs are truly essential; (ii) providing more clarity on FRAND 
royalty and other terms and conditions; and (iii) facilitating SEP dispute resolution. 

What is the value added of action at the EU level?  

Action  at  EU  level  is  expected  to  save  costs  for  stakeholders,  both  SEP  owners  and 
implementers,  and  for  Member  States.  For  instance,  there  would  be  one  SEP  register,  one 
essentiality  check  per  patent  family,  one  common  methodology  for  such  checks,  and  a 
streamlined and transparent conciliation process for FRAND determinations. SEP owners and 
implementers would not have to incur the same costs in each EU Member State which would 
be the case with national solutions, especially in a situation where most standards are regional 
or global. 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a 
preferred choice or not? Why?  
Policy options are built incrementally, each is adding new elements to the preceding one.  

  Option 0: No policy change. 

  Option  1:  Voluntary  guidance.  It  is  going  to  establish  non-binding  guidance  on  SEP 
licensing.  A  competence  centre  on  SEPs  created  within  the  EUIPO1  would  provide  free 
advice  to  SMEs  on  licensing  negotiations  (including  trainings)  and  monitor  the  SEPs 
market, conduct studies on SEP licensing and promote alternative dispute resolution. 

  Option  2:  SEP  register  with  essentiality  checks.  SEP  owners  seeking  to  license  their 
SEPs for royalty and to enforce them in the EU would have to register their patents in the 
SEP register. To control the quality of the register, essentiality checks would be conducted 
by  an  independent  evaluator  pursuant  to  a  methodology  to  be  determined  by  the 
Commission at EU level and a system administered by the EUIPO. Sub-options are to (i) 
check  all  registered  patents  or  (ii)  check  a  small  number  of  patents  pre-selected  by  SEP 

1 European Union Intellectual Property Office 

2 

 
 
                                                           
owners/implementers and a random sample of patents registered by each SEP owner.  

  Option  3:  SEP  register  with  essentiality  checks  and  conciliation  procedure.  Before 
launching  a  litigation,  parties  to  SEP  licensing  dispute  would  have  to  go  through  a 
mandatory conciliation process (with some exceptions). An independent conciliator would 
seek to help parties reach mutually acceptable licensing terms and conditions. At the end of 
the  process  the  conciliator  will  issue  a  non-binding  report  with  recommendations  on  the 
FRAND rate (with a confidential and a non-confidential part). 

  Option  4:  Aggregate  royalty  for  SEPs.  Processes  for  determining  an  aggregate  royalty 
(i.e., the total  maximum price) for using  a standard before or shortly after its publication 
would be established. SEP owners would be expected to agree on such royalty (potentially 
with the help of an independent facilitator from the competence centre). Additionally, both 
implementers  and  SEP  owners  could  request  an  expert  opinion  on  the  aggregate  royalty, 
where all the interested parties would be able to present their views. Finally, an aggregate 
royalty  could  be determined  during  the  conciliation. This  aggregate  royalty  would  not  be 
binding and would be published in the SEP register. 

  Option  5:  SEP  clearing  house.  Establishment  of  a  one-stop-shop  for  implementers  to 
acquire SEP licenses by depositing an aggregate royalty  with the competence centre. SEP 
owners should inform the centre how to allocate the aggregate royalty among them, absent 
which  they  would  not  be  able  to  collect  their  royalty  payments.  They  should  also  sign 
license  agreements  with  any  implementer  who  would  make  a  deposit.  Any  royalties  not 
collected  by  SEP  owners  within  a  year  from  the  deposit  would  be  returned  to  the 
implementers.  

In case of all options, the competence centre would charge fees for the costs of its activities as 
well as of activities by external experts involved (essentiality evaluators and conciliators). 

Who supports which option?  
The  options  have  been  designed  after  extensive  analysis  of  existing  literature,  including  the 
contribution of the SEP Expert Group and the industry during the Webinar series. They have 
been  discussed  with  practitioners  with  relevant  experience.  Most  of  the  options  can  be 
compared with proposals made by the SEP Expert Group which received significant support 
from  its  members.  In  addition,  during  the  public  consultation  there  was  strong  support  for 
more  public  information  on  SEPs  and  FRAND  royalty,  including  on  aggregate  royalty 
(especially  coming  from  SEP  implementers).  Around  53%  of  the  respondents  found 
arbitration useful and around 35% found mediation useful. The respondents noted that those 
instruments  are  not  sufficiently  used,  primarily  because  they  are  confidential.  The 
shortcomings  of  the  existing  mechanisms  have  been  addressed  by  the  proposed  conciliation 
(FRAND determination) process. SMEs in particular noted their lack of resources to negotiate 
with  SEP  owners,  which  indicates  their  support  for  all  measures  reducing  their  transaction 
costs. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?  

Option 4 is the preferred option. The option reduces information asymmetry between a SEP 
owner  and  an  implementer  by  providing  the  latter  with  information  who  the  relevant  SEP 
owners are, how many SEPs they have registered in the register and what their essentiality rate 
is (derived from a representative random sample of all registered SEPs) and what the potential 
(or maximum) total cost of using a standardised technology (aggregate royalty) is. A pre-trial 
obligatory  conciliation  is  likely  to  reduce  SEP  dispute  settlement  costs  to  about  1/8  as  the 

3 

 
 
conciliator will assist both parties in reaching an agreement. A competence centre will provide 
objective information, guidance and support to SMEs in relation to SEPs and SEP licensing. 
Benefits and costs are presented in the table below 

Table 1: Average approximated annual costs and benefits of the preferred option per affected party and 
localisation (EUR million). 

SEP implementers 

Costs 
Benefits 
Net 
Costs 
Benefits 
Net 
Subtotal (net effect for implementers and holders) 
EPO/NPO benefit 

SEP holders 

* concerns non-EU implementers with subsidiaries in the EU;  
Note: numbers rounded which may affect totals 

Total net benefit 

36.8 

EU 

non-EU 

Total 

-0.77 
12.89 

-0.77 
13.03 

12.11 

12.26* 

24.4 

-8.13 
3.79 

29.0 

-4.33 
7.8 

-46.04 
21.50 

-24.54 
-12.3 

-12.3 

-28.9 
-4.5 

24.5 

-1.5 
25.9 

-54.2 
25.3 

29.0 

What are the costs of the preferred option (if any, otherwise main ones)?  

The majority of the costs of the preferred option would be borne by SEP holders, largely from 
outside of the EU. These costs mainly consist of SEP registration fee and remuneration of the 
essentiality  evaluators.  Additionally,  there  are  uncertain  costs  due  to  indirect  effects  of  the 
option, which might induce patenting activity and thus increase the patent maintenance costs. 

How will businesses, SMEs and micro-enterprises be affected?  

There are relatively few SMEs among EU based SEP owners (in the single digits). SME SEP 
owners currently lack the resources to license their SEPs efficiently. The register would give 
visibility  of  and  a  positive  assessment  on  their  SEP  portfolios,  the  aggregate  royalty  would 
help  justify  their  royalty  demands  and  the  FRAND  determination  (conciliation)  procedure 
would offer them an opportunity to seek licensing without entering into costly litigation (see 
explanation under step 3). SME SEP owners would also benefit from reduced fees.  

Around 85% of the identified 3 800 potential SEP implementers are SMEs. Innovative SMEs 
have already been creating multiple applications using standards such as cellular, Wi-Fi, and 
NFC. Therefore, the question of how to license those technologies is relevant for such SMEs. 
This initiative addresses important problems SMEs face during SEP negotiations or business 
planning,  such  as  the  size  of  SEP  portfolios,  aggregate  royalty,  and  FRAND  determination. 
Additionally,  the  initiative  offers  to  SME  implementers  reduced  fees  for  the  use  of  the 
competence centre’s services and free advice on SEPs. 

Will there be significant impacts on national budgets and administrations?  
No. The envisaged system will be financed from fees collected by the EUIPO for registration, 
essentiality checks, access to its resources and conciliation. 

Will there be other significant impacts?  
There are no other significant impacts to be expected. 

D. Follow-up 

When will the policy be reviewed?  
The first evaluation should be done five years after the entry into force of the regulation.  

4