The Oregon State Legislature is considering HB 3631, a bill that would ensure that consumers have a “right to repair” their electronics devices. The legislation would require that manufacturers provide consumers and independent repair shops access to relevant repair information, as well to make available any parts or tools necessary to carry out the repair.

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On Thursday, the day after World Intellectual Property Day, the European Commission—the self-proclaimed world regulatory superpower—officially proposed a massive regulatory regime of patents that will benefit China and undermine Western innovators in both Europe and the United States.

Led by the Gaullist technocrat Thierry Breton, head of the Internal Markets Ministry, the European Commission released a new regulatory program to impose rate-setting of patents on standardized technologies like Wi-Fi and 5G, called “standard essential patents” by policy wonks in the EU Intellectual Property Office.

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An unofficial version of the EU’s anticipated regulatory proposal on standard essential patents (SEPs), along with a related impact assessment, was leaked earlier this month, generating reactions that range from disquiet to disbelief (but mostly disbelief).

Our friend Igor Nikolic wrote about it here on Truth on the Market, and we share his his concern that…

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The European Union is considering a new regulatory regime for the licensing and litigation of standard essential patents (SEPs) that will destabilize the global telecommunications market. This proposed regulatory regime is unbalanced in favoring implementers over innovators, and thus it threatens to hamstring the explosive technological and economic growth in this vital sector of the modern innovation economy. Although the EU has finally awoken to the competitive and geopolitical threat posed by China, this regulatory proposal undermines efforts by the EU and the United States to sustain their global technological leadership.

Read the full piece here.

Background: The European Commission is about to unveil draft regulation that will more tightly regulate how patents are incorporated into technology standards. The Commission’s expert report and call for comments suggest that it wants to create a regime of third-party checks that would verify whether inventors’ patents are truly essential to a technology standard (i.e., “essentiality checks”). The goal ultimately is to ensure that standard-essential patents (SEPs) are adequately disclosed to would-be licensees. There are thousands of SEPs that underpin the technologies powering the digital economy, thus making it essential that firms coordinate to develop and implement these technologies.

However… It is unclear that such regulation would improve upon the status quo. While it might not be perfect, the existing approach to essentially checks has seen SEP-reliant industries provide countless technological breakthroughs. This has led industries where SEPs are particularly relevant to occupy key geostrategic positions. By contrast, imposing heavy-handed regulation risks not only that there will be harm to consumers, but the potential that the West’s strategic position relative to adversarial foreign powers like China or Russia may be weakened.

THE ROLE OF ESSENTIALITY CHECKS

Technical standards (e.g., 5G, WiFi, USB-C, etc.) often rely on hundreds—sometimes thousands—of distinct inventions that can each be covered by multiple patents. 

Firms that commercialize goods incorporating these technologies need to know which patents are essential to those standards—thus avoiding situations where license fees are paid for technologies that are not necessary to practice a given standard.

Essentiality checks can potentially streamline this process, thereby limiting the over- and/or under-disclosure of SEPs. But this is a complex and costly endeavor. The benefits of achieving perfect disclosure of SEPs—be it via market forces or regulation—are thus unlikely to outweigh the costs.

WHO SHOULD ASSESS ESSENTIALITY?

As things stand, a patent’s essentiality is determined in various ways. These include the use of patent pools, self-assessments by inventors, and evaluations outsourced to third-party experts. 

Whatever one thinks of that heterogeneous approach, it is clear that the SEP industry has thrived under this laissez-faire paradigm, and that competition among the various inventors, implementers, and standards-development organizations (who bring inventors and implementers together) has played a useful role in optimizing these processes. Regulators should thus be wary not to upset the apple cart.

In contrast, the Commission’s expert report and its call for comments both suggest that it favors a more centralized system in which government institutions, such as patent offices, would act as backstops for essentiality checks. 

Such a system would not be without risks. Indeed, there is little evidence that SEP-heavy industries are underperforming. Any reform thus risks creating more friction than it removes.

WHAT ABOUT SANCTIONS?

There are fears that excessive sanctions for failing to adequately disclose essential patents could tilt the bargaining power in SEP-reliant industries toward implementers. In turn, this could undermine inventors’ incentive to produce new technologies.

In recent years, courts around the world have sought to strike an appropriate balance between the interests of inventors and implementers. In doing so, they have foiled attempts by several regulators to limit the royalties that inventors can extract; to prevent them from obtaining injunctions against infringers of their patents; and to determine the level of the value chain at which royalties are to be calculated. 

One concern is that the draft regulation may seek to forward those goals by assessing penalties for failing to comply with its provisions. For instance, inventors may lose the ability to bring injunctions against infringers if a third party deems their patent to be non-essential. Given the vital role that these injunctions play, such a policy would be misguided.

GEOSTRATEGIC IMPACT 

Finally, overburdening firms that are active in the SEP space could erode the West’s technological leadership relative to states with manufacturing-reliant economies whose political leaders routinely undermine the intellectual property rights of foreign firms.

Many SEPs, particularly those relevant to the telecommunications sector, are held by companies in the West and specifically in the United States. The lion’s share of implementers, by contrast, are based in China. Policies that impose significant costs on inventors and benefit implementers may thus amount to a subsidy to Chinese firms and a tax on Western innovation.

These harmful consequences are magnified in light of China’s strategic effort to shape international technology standards. With European firms systematically deterred from participating in the development of open technology standards, Chinese firms—directed by their government authorities—will gain significant control of the technologies that underpin tomorrow’s digital goods and services. The consequences are potentially catastrophic.

For more on this issue, see ICLE’s academic output on standard essential patents here and here, and our response to the Commission’s recent consultation here. 

The Minnesota Senate Commerce Committee last week passed SF 1598, the Digital Fair Repair Bill. The bill from Sen. Rob Kupec, DFL-Moorhead, would require manufacturers to provide independent repair companies access to relevant repair information.

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More than two dozen members of Congress recently petitioned the Biden administration to upend America’s patent system – a move that could wreck our economy and deprive consumers of life-enhancing new inventions.

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Various states recently have enacted legislation that requires authors, publishers, and other copyright holders to license to lending libraries digital texts, including e-books and audio books. These laws violate the Constitution’s conferral on Congress of the exclusive authority to set national copyright law. Furthermore, as a policy matter, they offend free-market principles.

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Not only have digital-image generators like Stable Diffusion, DALL-E, and Midjourney—which make use of deep-learning models and other artificial-intelligence (AI) systems—created some incredible (and sometimes creepy – see above) visual art, but they’ve engendered a good deal of controversy, as well. Human artists have banded together as part of a fledgling anti-AI campaign; lawsuits have been filed; and policy experts have been trying to think through how these machine-learning systems interact with various facets of the law.

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