A standard essential patent (SEP) is essential for implementing a specific industry standard. In the auto industry, SEPs are typically related to cellular connectivity standards for vehicles. As cars become increasingly connected, standards like 5G are crucial for enabling features such as in-car WiFi and connected services like navigation and entertainment. 

The EU currently lacks comprehensive legislation governing SEPs. Aside from generating legal uncertainty, this provides significant authority to SEP holders, such as large telecommunications companies, at the expense of SEP implementers, like vehicle manufacturers.  

The EU’s SEP proposal attempts to deal with the current asymmetrical system by increasing transparency and providing implementers with more information about what SEPs exist (database registration), which patents are essential for a standard (essentiality checks), and what the total licensing costs may be (aggregate royal determination) – all of which are improvements welcomed by vehicle makers.   

Typically, when offering licences to vehicle manufacturers, SEP holders try to extract higher royalty payments that far exceed the true value of their invention. They also threaten vehicle manufacturers who use their technology with injunctions. Thus, vehicle manufacturers are forced to make excessive royalty payments to avoid time-consuming and costly litigation or production stoppages.  

Disagreements between SEP licence holders and implementers often result in costly court proceedings. The proposed fair, reasonable, and non-discriminatory (FRAND) determination procedure will reduce burdensome litigation and help restore balance in the EU’s legal system, which is currently heavily tilted towards SEP holders. The new procedure will provide parties with a binding ruling after a maximum of nine months – much faster than litigious court proceedings.   

Today, SEPs related to wireless communication standards such as Wi-Fi and 3G/4G/5G are at the centre of today’s disagreements. Indeed, over four-fifths of 5G patents are held by non-European companies (China 33%, South Korea 27%, the US 14%, Japan 9%), while the EU only owns 17%. In the auto sector, SEP holders often refuse to provide licences for the use of these technologies to auto suppliers, diminishing their incentive to invest.  

Although the proposal is a step in the right direction, the EU must be more ambitious and oblige SEP holders to offer licences to any willing licensee on FRAND terms, regardless of its position in the supply chain. To create a level playing field, they should also permit SEP implementers to set up “licensing negotiation groups” to hold collective discussions with SEP holders, who can already create “patent pools” for this purpose. 

“Europe’s auto industry is at a critical juncture as the push for connected vehicles accelerates. The proposal to reform standard essential patents (SEPs) offers much-needed transparency and fairness, crucial for levelling the playing field between SEP implementers and holders. With an eye on innovation and competitiveness, the EU must seize this opportunity to ensure equitable access to essential technologies to safeguard a competitive European auto industry,” noted Sigrid de Vries.  

To learn more about the benefits of SEP reforms, please consult our guide ‘SEPs Decoded: Six essential FAQs’ below.

ACEA supports the European Commission’s proposal to improve the regulatory framework on standard essential patent (SEP) licensing, urging swift adoption from law makers.