March 29. 2024. 9:22

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Without the ability to license standard-essential patents fairly, SMEs will perish


The current licensing ecosystem leads to licensing costs that most SMEs can’t afford, forcing them to shut out of the market.

Mike Sax is the Founder & Chairperson, ACT | The App Association.

We live in interesting times. Over the last few years, the internet of things (IoT) has become a reality and thousands of innovative companies are building solutions that connect people, businesses, and devices. Many of these businesses are SMEs, creating tremendous value that enhances both our lives and the way our businesses operate. To make everything work together, it’s essential for these companies to implement standards, and license the patents required to do so.

In recent years, the debate surrounding standard-essential patents (SEPs) has raged in courts, at industry seminars, and in policy circles. A lack of transparency and clarity around the cost of licensing critical technologies such as 5G and Wi-Fi has significant consequences for both large established industries and SMEs.

SMEs face a complex reality when it comes to licensing principles and what is required to make them fair, reasonable, and non-discriminatory (FRAND). On April 26, the European Commission will announce a new package on SEPs. For SMEs, it is essential that this package includes measures that help protect them against SEP holders that renege on their FRAND commitments.

Unfortunately, the debate on SEPs today is primarily focused on the challenges larger players face, underscored by high-profile litigation, yet it continues to miss the potential and risk for SMEs who often form the backbone of this digital innovation and are critically reliant on fair access to standards.

The importance of SMEs to Europe’s economic growth and leadership is underscored by ACT | The App Association’s recent study showcasing that SME developers contributed an impressive €300 billion to the EU and UK economies in 2022, employing more than 1.8 million people. This is remarkable growth for an industry that did not exist 15 years ago and has fundamentally improved all our lives. And we have only scratched the surface of its overall potential.

Without enhanced clarity and transparency in the standards and SEP areas, Europe not only risks limiting SMEs’ ability to innovate, but also harming its evolving economy and the employment rate as a whole. This makes the discussion around SEPs not just about licensing, but about how these policies will affect European trade and influence internationally.

2023 is a critical year for SMEs as both the EU and the UK gear up to legislate a clearer approach for the SEP licensing ecosystem that underlies the technologies that have become a requirement for businesses and citizens alike.

Most SME IoT innovators are business essential for their customers, developing digital and often interoperable technologies that permeate across different business models. They make factories run, improve hospital efficiency, drive schools to be more communicative, and so forth. Ensuring they gain access to critical SEP licences on FRAND terms is therefore key to assuring they can remain competitive and continue offering these important services in the markets in which they operate today, as well as enter new IoT markets across consumer and enterprise verticals.

Unfortunately, there are countless examples of SEP licence holders who have disregarded their voluntary commitments to license on FRAND terms by either exploiting ambiguities in today’s system to attain supra-FRAND terms and sometimes even simply refusing to negotiate SEP licenses at all. And the known and reported instances of this SEP abuse usually involves larger businesses that can afford to withstand years of litigation, unlike SMEs that simply don’t have funds, manpower, legal knowledge, or capabilities to challenge major licence owners. The net result of these abuses, for SMEs, are exposure to liabilities and costs that draw on their bottom line and reduce the ability to use their profits for new hires and further technology development.

Because of the lack of transparency, many SEP abuses never see the light of day, and it is rare that a company is able to allocate the resources needed to take a SEP abuser to court and hold them accountable for anticompetitive SEP abuses. However, some policymakers and courts are beginning to shine a light on that abuse. For example, in a recent FRAND case, a UK court called out Interdigital Technology Corporation as an unwilling licensor of SEPs due to them demanding unfair terms and royalties, noting they attain unfair conditions from under-resourced SMEs and then using those licenses to support comparability analyses with larger SEP licensees in support of supra-FRAND demands. The decision showed that SEP abuse is real and that it is possible to fight back against abuses. Unfortunately, SMEs typically don’t have such resources, so they remain at the mercy of SEP abusers.

With the move to 5G and other advanced standards that will be a baseline for IoT, the need to use these standards to compete and innovate will only continue to increase. In fact, a recent report by McKinsey found IoT is rapidly becoming a big business, expected to generate €12.5 billion to the world economy by 2030. If we want to move forward successfully, a clear and balanced framework for SEP licensing is vital.

The way forward is simple — we need to ensure that SME innovators can use standards (and get the FRAND licenses they need to use standards) through a clear, balanced, and consistent EU-wide framework. This will give them access to critical technology that is a baseline for their success.

And it is critical that the EC sets the groundwork for a productive IoT that enables SME growth and job creation now. Not only are consistent abuses damaging the EU’s SME community, but key 2023 milestones, such as the opening dates of a European Unified Patent Court, expected in June 2023, will only aggravate the pressure on SMEs as they struggle with unfair practices. The need for rapid action becomes increasingly critical.

The technologies that SMEs develop have become a staple for nearly all citizens and businesses across the EU. A solid SEP policy will be a cornerstone to enabling continued digital SME success, boosting EU economic growth, and fostering innovation leadership. A clear-cut, balanced approach will enable the EU’s SMEs to grow and innovate further, and support Europe’s ambitions in this expanding digital field. We hope the Commission will address the existing SME-hostile imbalance of power with its new SEPs package on April 26.