The Commission’s Draft SEP Regulation – Focus on Proposed Mechanisms for the Determination of 'Reasonable Aggregate Royalties'

28 Pages Posted: 14 Aug 2023

Date Written: August 10, 2023

Abstract

This paper comments on the EU Commission's proposed Regulation on Standard-Essential Patents (SEP), focusing on the proposal that SEP holders should agree on a ‘reasonable aggregate royalty’ for a standard. I argue that the proposal is unnecessary, as there is no convincing evidence that 'royalty stacking' is a significant problem. Furthermore, the proposed mechanisms are unlikely to elicit meaningful notifications of aggregate royalties, and have no realistic prospect of producing the significant transaction cost savings predicted by the Commission's Impact Assessment Report. In the absence of alternative suggestions how to apportion the aggregate royalty, there is a clear prospect that the proposed "top-down" approach will encourage 'patent counting'. Thus, the proposal may generate incentives for companies to over-populate the Commission's proposed SEP Register, and undermine the important goal of producing greater transparency. Furthermore, any major regulatory intervention into the determination of FRAND rates is likely to increase the risk of a fragmentation in the global SEP licensing ecosystem; and would inject significant uncertainty. I would encourage the Commission and the legislative bodies of the EU to adopt a more incremental approach, and to focus on those important aspects of the proposed regulation that are more aligned with current SEP licensing practices.

Keywords: Standard Essential Patents, aggregate royalty

JEL Classification: O34

Suggested Citation

Baron, Justus, The Commission’s Draft SEP Regulation – Focus on Proposed Mechanisms for the Determination of 'Reasonable Aggregate Royalties' (August 10, 2023). Available at SSRN: https://ssrn.com/abstract=4537591 or http://dx.doi.org/10.2139/ssrn.4537591

Justus Baron (Contact Author)

Northwestern University - Center on Law, Business, and Economics ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

HOME PAGE: http://justusbaron.org/

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