Research Programs
More
What are you looking for?
Showing 9 of 385 Publications in Intellectual Property & LicensingScholarship
Regulatory Comments I. Introduction On 27 April 2023, the European Commission published its Proposal for a Regulation on Standard Essential Patents (“SEP Regulation”). The proclaimed aims of . . .
On 27 April 2023, the European Commission published its Proposal for a Regulation on Standard Essential Patents (“SEP Regulation”). The proclaimed aims of the SEP Regulation are to: 1. ensure that end users, including small businesses and EU consumers, benefit from products based on the latest standardised technologies; 2. make the EU attractive for standards innovation; and 3. encourage both SEP holders and implementers to innovate in the EU, make and sell products in the EU, and be competitive in non-EU markets.[1]
We are grateful for the opportunity to provide comments on the proposed SEP Regulation in the context of public feedback. The following is a summary of our observations:
Considering the above, it is our view is that the proposed SEP Regulation, in its current form, is unnecessary, disproportionate, and likely to harm both European innovators and Europe’s technology leadership on a global stage.
Nevertheless, this is not to say that the SEP licensing framework cannot be further refined and simplified. It may be possible to find solutions that might improve the existing system in a cost-effective, balanced, and efficient way. We propose some private ordering instruments as an alternative to regulation, which could be used to make licensing in the Internet of Things (“IoT”) more efficient and transparent.
The current system of SEP licensing consists of bilateral negotiations and collective licensing via patent pools. The overwhelming majority of licensing agreements are concluded amicably,[2] but in cases where parties cannot agree, litigation may become necessary.[3] This is, of course, a feature of commercial disputes of all kinds.[4] Over the years, courts have proven more than capable of resolving various contentious questions about SEPs. For instance, they gave promulgated guidance regarding if and under what conditions the SEP owner can request and obtain an injunction for infringement of an SEP;[5] what the FRAND rate between the parties ought to be;[6] the scope of a FRAND license, whether global or national;[7] the meaning of a FRAND commitment’s non-discrimination requirements;[8] whether FRAND commitments require SEP owners to offer licenses at different levels of the production chain;[9] and how to adjudicate allegations of patent holdup (supposedly opportunistic behaviour of SEP owners attempting to charge more than FRAND terms) and holdout (implementers intentionally delaying or avoiding the conclusion of a licensing agreement).[10] The Court of Justice of the European Union (CJEU) provided a framework in Huawei v ZTE for good-faith license negotiation. Courts of the EU Member States have subsequently become accustomed to evaluating the conduct of both parties and have produced substantial case law and guidance on the contents of good-faith licensing negotiations.[11]
Despite successful interventions by the courts, the Commission is concerned that the current SEP licensing and litigation system is fraught with problems and inefficiencies. Three alleged major problems have been suggested as justifying regulatory intervention.
First are high transaction costs and licensing uncertainties. According to the Commission, the average per-licence bilateral negotiation costs for the SEP holder and implementer are estimated to be between €2 million and €11 million.[12] The Commissions asserts that licensing uncertainties follow from insufficient transparency of SEP ownership and essentiality, lack of information about FRAND royalties, and a dispute system not adapted for FRAND determination.[13] That system is said to be dissatisfactory for both parties.
The Commission maintains that SEP owners face long negotiations and high costs of licensing.[14] To better assess the value that the technology brings to standard implementations, an SEP owner would have to wait several years (on average, between two and four) until the standard is implemented in the market and then approach companies with an offer to license.[15] Negotiations would then ensue, taking about three years. If no agreement is reached, litigation would add another one to two and a half years.[16] During all this time, the SEP owner would not receive any royalties for use of its technology. According to the Commission, this may explain why major SEP owners usually have licenses with only 100-200 implementers with sufficiently high volumes and/or sales value that would allow for the absorption of these costs.[17] Thus, SEP owners are unable to license the whole market. High licensing and negotiation costs may reduce their income base and incentive for participation in developing new standards.[18]
On the other hand, the Commission says that implementers face uncertainty about the costs of using standards, potentially discouraging them from implementing new technologies.[19] Implementers who take a licence are also worried about being disadvantaged against their unlicensed foreign competitors.[20] Of course, licensees are worried about competitors who do not take licences—it makes no difference whether they are foreign or home-grown. But the Commission seems to have not taken into account that this holdout is not only real, but is the most egregious example of anticompetitive behaviour.
The second supposed problem is the growing IoT market that increasingly uses technological standards from the information and communications technology (“ICT”) industry.[21] IoT markets are fragmented; volumes for certain applications may be small and profit margins tight. These industries are also not familiar with SEPs. The combination of these factors is said to make SEP licensing more difficult and expensive.
The third major concern is the protection of small and midsize enterprises (“SMEs”). According to the Commission, SMEs lack the resources to negotiate with SEP owners on an equal footing or to engage in court proceedings.[22] They also do not have sufficient licensing expertise. 84% of EU-based standard implementers are SMEs, totalling about 3,192 companies.[23]
The publicly available evidence relayed by the Commission, however, does not justify any significant concern with the current SEP-licensing system, much less a concern of such magnitude to justify extensive regulatory intervention. In fact, the Commission’s study found that high transaction costs and licensing uncertainties have not led to increased litigation or systemic negative effects.[24]
First, the Commission found that the volume of SEP-litigation cases has been relatively stable in Europe, while falling in the United States but increasing in China.[25] In recent years, the share of declared SEPs subject to litigation has declined.[26] They further showed that the prevalence of SEP litigation is low and has not increased over time. According to the study, there are fewer than 0.05 lawsuits per-license involving major SEP licensors and patent pools.[27] Regarding the effects of the current SEP-licensing system on the incentives of SEP owners and implementers, the study found no evidence that SEP owners contribute less to standards development.[28] The econometric evidence suggests that a significant share of contributions to standards development relies on patent-related incentives, indicating the importance of preserving innovation incentives for the success of the standards-development process. On the implementation side, the study found no evidence that SEP-licensing frictions lead implementers to switch to alternative (royalty-free) standards or to have systematically depressed or delayed standards implementation.[29]
The evidence from the mobile-telecommunications market, which some believe is hindered by SEP-licensing inefficiencies, demonstrates that it is functioning particularly well, with year-to-year increased output, lower prices, increased market entry, and billions of euros of investment in research and development (R&D) for connectivity standards and the rollout of new network infrastructure.[30] For example, the latest estimate for the mobile economy in 2022 was 8.4 billion SIM connections and 4.4 billion mobile-internet subscribers, contributing $5.2 trillion or 5% of global gross domestic product, and directly and indirectly supporting 28 million jobs.[31] In Europe, subscriber penetration was 90%, and smartphone adoption was 81%.[32] By 2035, the impact of 5G is projected to grow to $13.2 trillion in global economic output, and the global 5G value chain will generate $3.6 trillion in economic output.[33] Moreover, 5G is expected to add up to €1 trillion to European GDP by 2025.[34] In comparison, the total estimated revenue from cellular SEP licensing was estimated to be less than 0.5% of the mobile economy.[35] Other studies found that the cumulative royalty yield of 2G, 3G, and 4G SEPs was only 3.4% of the smartphone’s average selling price, or just $9.60.[36]
As to potential licensing problems in the IoT, we have yet to see the full implementation of ICT standards and corresponding SEP licensing. As such, it is too early to conclude with a sufficient degree of certainty whether there will be a systemic problem with IoT licensing. The Commission’s Impact Assessment did not provide information on the current SEP-licensing revenues obtained from various IoT sectors.[37] Thus, we do not know the current magnitude of SEP licensing in the IoT. What is certain is that IoT devices will grow in the future. According to the CRA study, cellular IoT devices represented only 20% of mobile phones in 2022, which is expected to grow to 60% by 2030.[38] As such, while licensing in the IoT may generate significant revenues, we do not at the moment have sufficient information on how many IoT devices are currently licensed.
We may observe, however, that market actors are adapting to the challenges posed by IoT. Avanci is a platform for licensing 3G, 4G, and soon 5G in the IoT.[39] It has a licensing programme for car manufacturers and has more than 120 million licensed connected vehicles.[40] Avanci includes 56 licensors and has brought together the largest SEP owners, such as Samsung, Qualcomm, Nokia, and Ericsson. It offers a one-stop solution for vehicle manufacturers with a single per unit-license of $20 per vehicle—less than a parking ticket. According to some estimates, Avanci successfully covers more than 80% of the market.[41] It may be said that SEP licensing in the automotive sector has been successfully concluded, despite the initial reluctance of car manufacturers and disputes about the appropriate level of licensing.[42]
In another example, Sisvel, a patent-pool administrator, experimented with a novel payment mechanism to address concerns that companies that take a license are disadvantaged against their unlicensed competitors. For its Wi-Fi 6 pool, it provided a licensing programme that adjusts royalty payments based on the percentage of the licensed market.[43] In other words, most royalty payments will be deferred, unless and until other competitors also pay. Such a mechanism protects licensees from patent-infringement liability, while paying only a fraction of the due royalties until the whole market takes a licence. The experience of the Avanci and Sisvel pools demonstrates that SEP owners are adjusting to the changed market realities and looking for ways to simplify licensing, with innovative structures to address the need for certainty and transparency in the IoT.
As to the supposed harmful impact of the current system of SEP licensing on SMEs, it is difficult to draw such a conclusion from the available evidence. The Commission noted that most SMEs are de facto unlicensed because licensing costs outweigh potential licensing revenues.[44] To better understand the views of SMEs, the Commission carried out two surveys—a general one in which all stakeholders could participate and a targeted one only for SMEs. The Commission received responses from nine SMEs in the general survey, while 37 SMEs participated in the targeted survey.[45] That represents a sample of only 1.15% of the 3,192 SMEs that are reported to implement standards, making it impossible to draw general conclusions from such a limited sample. The question may be asked: if SMEs face licensing problems, why have they not expressed more interest in surveys? The only answer one can reasonably draw is that there is no problem. The SME survey shows some licensing; seven out of 37 SMEs had a license.[46] It would be interesting to know, however, which SEP owners approached and licensed SMEs, as well as the licensing policies of major SEP owners toward SMEs. We do not currently possess such information.
While there is no evidence that the current SEP licensing framework has produced systematic negative effects, this is not to say that the system could not be improved. Evidence still shows that licensing costs are not insignificant and that it takes years to conclude licensing agreements. Moreover, it is unlikely that every SEP owner could reach every implementer in the IoT, thus creating an uneven playing field between licensed and unlicensed implementers.
It is likely possible to improve the existing system in a cost-effective, balanced, and efficient way, including through private and public ordering instruments.[47] If the aims could be achieved with less costly instruments, extensive regulatory intervention might be neither necessary nor proportionate.[48] In other words, the existence of market imperfections is necessary but not sufficient conditions for regulatory intervention. Regulators should also be mindful not to fall into the “nirvana fallacy”, striving for ideal but unrealistic solutions that produce more costs than other feasible alternatives that may not lead to ideal results.[49]
While the Regulation pursues the worthwhile goals of increasing transparency and certainty to parties in SEP licensing, it is improbable that the proposed solutions will achieve those aims. This section raises several issues that should be considered in future policy discussions.
The Regulation imposes unbalanced costs and benefits. According to the Impact Assessment, SEP owners will bear all the costs, while implementers will reap all the benefits.[50] The 10-year average approximate annual benefits for SEP implementers are estimated to be €24.4 million, while for SEP owners, the costs are €28.9 million. As such, the Regulation does not attempt to improve conditions for all actors (i.e., pursue Pareto efficiency) but directly seeks to redistribute value from SEP owners to implementers. The Commission notes that a large part of SEP owners’ costs would be due to an expected increase in patent fees, thanks to the anticipated rise in the number of patents.[51] It adds that patent fees would represent revenue to European and national patent offices, making the whole system socially profitable.
The Commission recognised that it is difficult to predict the impact of SEP Regulation on royalty level. The Regulation’s effects may go in two opposing directions: 1. potentially more firms taking a license (increasing implementation costs and income for SEP owners), or 2. potentially lower royalties paid (decreasing implementers’ costs and SEP owners’ income).[52] The latter scenario would place even more costs on SEP owners. If royalty revenues fall and licensing costs of increase, an unintended but obvious consequence could be that SEP owners may no longer find collaborative standardisation attractive and might instead pursue proprietary solutions unencumbered by FRAND commitments. A fragmented global system would surely impede innovation.
The EU-based implementers will not even be among the primary beneficiaries of the Regulation’s value-redistribution. According to the Commission’s Impact Assessment, just 8% of potential manufacturing firms are in the EU. In other words, 92% of implementers are non-EU companies. The Regulation would effectively subsidise non-EU implementers while, at the same time, harming European technology developers and Europe’s technological leadership.
It is difficult to see justifications for such value redistribution from the evidence presented on the functioning of SEP licensing. In our view, any regulation should attempt to lead to better outcomes than the perceived harms it seeks to address.
The Regulation has a very broad scope and applies to an unknown number of standards. Once it enters into force, the Regulation would catch all FRAND-committed SEPs.[53] It is not unclear why such broad scope is necessary. Concerns about SEP-licensing problems have focused overwhelmingly on just a few standards, mainly in cellular communication (3G, 4G, 5G) and Wi-Fi. Other standards licensed on FRAND terms have not been mentioned as potentially problematic. Nevertheless, the Regulation will apply to all standards licensed on FRAND terms.
The Commission noted that there were about 75,000 patent families of declared SEPs worldwide in 2021.[54] But we still lack information on how many standard developing organisations (“SDOs”) were analysed, nor the number of standards expected to be caught. An earlier 2010 study identified 251 technical-interoperability standards in a modern laptop, with 148 of those licensed under FRAND terms.[55] It is unclear why these 148 standards should be regulated, nor what market failures have been associated with them. If anything, a better understanding of the SEP-licensing system in the laptop market is required before introducing regulations.
The Regulation offers some exceptions from its full application for a few standards deemed unproblematic. By a special act, the Commission will designate standards and use cases “where there is sufficient evidence that … SEP licensing negotiations on FRAND terms do not give rise to significant difficulties or inefficiencies affecting the functioning of the internal market”.[56] In other words, there is a presumption that all standards with FRAND-licensing conditions are inefficient and affect the internal market’s functioning, with the onus placed on stakeholders to rebut this presumption.
Even for such unproblematic standards, the exceptions are limited; only the provisions on conciliators facilitating the agreement on aggregate royalty rates, the nonbinding expert opinion on global aggregate royalty rates, and the mandatory FRAND determination will not apply.[57] The costliest obligations—i.e., the registration of SEP and annual essentiality checks—will continue to apply even for these standards.
The extent of the Regulation’s reliability will depend on having qualified experts to work as evaluators and conciliators. Evaluators will need specialised knowledge of the particular technological area in which they will conduct essentiality checks. The Commission estimates that there are about 1,500 experts (650 patent attorneys and 800 patent examiners) qualified to do essentiality checks in the EU.[58]
The sheer magnitude of the task, however, will require many more evaluators and it is very doubtful that the optimal number of potential qualified experts are even available to join this process. For certain, special arrangements would need to be made with patent offices to grant patent examiners leave to conduct essentiality checks. Each year, evaluators will need to test a random sample of up to 100 SEPs if requested by each SEP owner or an implementer per standard. Thus, the amount of work may exponentially increase depending on how many standards are caught by the Regulation.
If 148 FRAND-licensed standards per laptop are to serve as a rough proxy, then we might expect more than 100-200 standards to be checked for essentiality every year. In addition, if SEP owners and implementers regularly use the possibility of testing up to 100 SEPs per standard and per SEP owner, the sheer magnitude of work may exceed the capacity of patent attorneys. Patent attorneys may find it challenging to regularly engage in such high volumes of essentiality checks while also serving other clients. And why should they do it at all unless the rate of pay is at least what they could earn in a patent law firm? To be blunt, the work would not be as much fun as acting for real clients, so the pay would probably have to be even higher to attract applicants.
Consequently, it is very unlikely that the capability even exists to annually perform a large number of essentiality checks of registered SEPs. If the requirements to become an evaluator were relaxed to address this workload, this would cast doubt on the reliability of the whole system. There is no point in building a battleship unless you are sure you can get a competent crew.
Additionally, the patent attorneys who most apt to be familiar with these technologies may well also find themselves with conflicts of interest. They will probably have worked for some SEP owners or implementers. Elaborate rules to avoid such conflicts would need to be implemented to prevent patent attorneys who were, or still are, engaged with certain clients from becoming evaluators of those clients’ registered SEPs. The conflicts problem would, of course, apply not just to individual attorneys but to their entire firms.
Conciliators would also need to be experts in the field. They might come from the ranks of retired judges, seasoned former company officials, or experienced lawyers. Conflict-of-interest provisions should also ensure their independence and impartiality in mandatory FRAND determinations. But the job would, again, have to be sufficiently attractive, both in remuneration and in work content and culture. The Commission has made no investigation as to whether a sufficiently large pool of credible individuals could be found to make the system work.
Of course, there are well-established voluntary systems of conciliators and mediators, some of which are used now to help resolve FRAND disputes. But the proposal adds the idea of compulsory mediation or conciliation. There is scant evidence that either system works in other commercial disputes around the world, and it is unclear why it should be assumed to work here.
The Regulation also raises potential competition concerns. The participation of implementers in the process of providing expert opinion on global aggregate rates could be used as a vehicle for a buyers cartel and could devalue FRAND royalty rates. Namely, it is unclear from the text of the Regulation if implementers will be allowed to coordinate their submissions to conciliators. If this is permitted, implementers could use the process to exchange commercially sensitive information and agree on the maximum global aggregate royalties they would pay. This would be tantamount to a buyers cartel, with price fixing of input costs. Even if such coordination is not allowed, by individually submitting their maximum royalty expectations—which are made with the goal of minimising input costs—implementers might attempt to devalue SEP royalties. Given that there are far more implementers than there are SEP owners, implementers might have an outsized influence on conciliators preparing expert opinions. The Regulation also lacks competition safeguards against the exchange of commercially sensitive information by SEP owners in the process of joint notification of aggregate royalty rates, which establish the value that devices derive from using the standardised technologies in question.
Moreover, from a practical perspective, the provisions’ usefulness is questionable. The Regulation appears to allow multiple groups of SEP owners to jointly notify their views. This may add even more confusion to standard implementers. For example, some SEP owners could announce an aggregate rate of $10 per product, another 5% of the end-product price, while a third group would prefer a lower $1 per-product rate. Moreover, it is unclear what difference the joint aggregate royalty-rate notifications would bring to the existing practice of unilateral announcement of licensing terms. Many SEP owners already publicly announce their royalty programmes in advance, which was recognised by the Commission’s studies.[59] To be on the safe side, SEP owners may simply notify their maximum preference, knowing that negotiations would lead to different prices depending on the unique details of various licensees. As a result, the aggregate royalty rates may not produce meaningful data points.
Nonbinding expert opinions on global aggregate royalty rates could also add to the confusion. Implementers would likely initiate the process, which would then exist in parallel with SEP owners’ joint notifications of aggregate rates. All these different and possibly conflicting estimates might lead to even greater uncertainty. Moreover, if those providing nonbinding opinions are not universally regarded as “experts”, the parties are unlikely to respect such opinions.
Aggregate royalty notifications and nonbinding opinions might be used in the top-down method for FRAND-royalty determinations. A top-down method provides that the SEP owner should receive a proportional share of a standard’s total aggregate royalty. It requires: 1. establishing a cumulative royalty for a standard; and then 2. calculating the share in the total royalty for an individual SEP owner. This may be the reason for having aggregate royalty-rate notifications and opinions. At the same time, essentiality checks are still needed to filter out which patents are truly essential, and to assess each individual SEP owner’s share.
We caution strongly against relying too much on the top-down approach for FRAND-royalty determinations. It is not used in commercial-licensing negotiations, and courts have frequently rejected its application. Industry practice is to use comparable licensing agreements. The top-down approach was applied in Unwired Planet v Huawei only as a cross-check for the rates derived from comparable agreements.[60] TCL v Ericsson relied on this method, but was vacated on appeal.[61] The most recent Interdigital v Lenovo judgment considered and rejected its use, finding “no value in Interdigital’s Top-Down cross-check in any of its guises”.[62] Moreover, the top-down approach, as currently applied, relies only on patent counting. It does not consider that not every patent has the same value, nor that some patents may be invalid or not infringed by a specific device. Crucially, the top-down approach and aggregate royalty notifications/opinions would be related to global FRAND royalties, while the registration of SEPs and corresponding essentiality checks are limited only to EU SEPs. In other words, the SEP Regulation has extraterritorial effects, the consequences of which are discussed below.
As a result of the high costs imposed by the Regulation and the likely delays caused by mediation/conciliation, SEP owners may realistically decide to enforce their patents outside the EU, in such countries as the United Kingdom, the United States, China, and India—all of which have had SEP litigation. This would allow firms to avoid application of the Regulation entirely.[63] Judge Klaus Grabinski, president of the Court of Appeal of the Unified Patent Court, went out of his way to note just that at the Court’s opening ceremony in Luxembourg.[64] In truth, the Regulation constitutes a statement of lack of faith that the new Court (or, indeed, any court) can do their job.
The evidence already shows that SEP litigation in China is rising, while the United States—historically, a major venue for SEP litigation—may see a renewed increase in cases should Europe become an unattractive option.[65] The UK is also a major forum that has witnessed important cases clarifying many aspects of FRAND licensing.
For its part, Europe has built an impressive case law in implementing the Huawei v ZTE judgment and clarified the steps in good-faith licensing negotiations, but it could be left behind in shaping global SEP-licensing practices if the Regulation serves to shift litigation to other jurisdictions.
As currently drafted, the SEP Regulation has exterritorial effects, which may lead to unintended consequences. It applies to SEPs in force in one of the EU Member States. Such SEPs should be registered with the SEP Register and will be subject to essentiality checks. This is in accordance with the principle of territoriality.
The Regulation then provides, however, for a nonbinding expert opinion that will relate to a global royalty rate, and that FRAND determination shall concern a global FRAND license (unless otherwise specified by the parties). In other words, while SEP Register and essentiality checks apply only for patents in force in EU Member States, aggregate royalties and FRAND determination will be worldwide, covering portfolios in other countries.
This exterritoriality may lead to three effects. First, if the SEP Register and the result of essentiality checks for EU SEPs are used in global aggregate royalty and FRAND determinations, they will produce inaccurate results. Some patent owners focus on the United States and U.S.-based SDOs and do not patent as much in Europe. There may also be many SEPs in China and other Asian countries that do not have European counterparts.[66] It is a euro-centric view to assume that European SEPs are a sufficient basis to determine global aggregate and FRAND rates. The Commission’s Impact Assessment notes that the EU’s share of SEPs is only 15%, compared to the United States and South Korea’s shares of 19% and China’s 30%.[67]
Second, while it is true that standards are global and commercial practice is to license globally, it is a different matter altogether when legislation requires its institutions to adopt measures with extraterritorial effects. Conciliators determining global aggregate and FRAND rates would indirectly rule on foreign portfolios held by foreign companies. Other countries will not look on this favourably.
The third and principal unintended consequence is that other countries may introduce similar regulations and could easily justify their actions as incorporating a simple “best practice” from Europe. Imagine a situation in which similar regulations are adopted by other countries: requiring notification of national SEPs, conducting local essentiality checks, determining global aggregate royalty rates for a standard, and setting global FRAND-licensing terms. It would effectively transfer SEP disputes from courts into the hands of national regulators.
Moreover, the costs to SEP owners for enforcing SEPs would be compounded, since they would need to notify and pay for essentiality checks in multiple countries. The effects of these increased costs of SEP enforcement and licensing on innovation incentives and participation in collaborative standardisation would need to be assessed. A radically changed and fragmented SEP-licensing environment would also lead to even more uncertainty for both SEP owners and implementers.
An SEP regulation implemented by other countries might easily backfire and could be used as a strategic tool to devalue the royalties of innovative European SEP owners. China might be especially receptive to the idea of regulating SEP licensing. Jonathan Barnett has provided evidence regarding how China has strategically deployed competition and patent law to reduce royalties for SEPs held by foreign companies to the benefit of domestic manufacturers.[68] The EU has also launched a complaint before the World Trade Organization (“WTO”) against China’s practice of issuing broad anti-suit injunctions to prevent the enforcement of SEPs in other jurisdictions.[69] Instead of using competition and patent law, a regulation similar to the one proposed by the European Commission could attain the same industrial policy and protectionist aims.
Taken together, the proposed SEP Regulation makes licensing SEPs more costly, provides solutions that are likely to prove unworkable in practice, and risks countervailing measures by other countries that might be detrimental to European SEP owners and innovation.
Here, we suggest some measures as alternatives to the proposed Regulation. Consistent with the principle that extensive regulatory intervention might not be necessary or proportionate if the aims could be achieved with less-costly instruments, we believe small changes in the institutes of private ordering might improve the existing system in a cost-effective and balanced way. If regulatory action is to be pursued, however, then the application of the Regulation could be limited at first to only a few selected standards and/or use cases to tests its effects.
According to the Commission, most standard implementers are SMEs.[70] They are currently de facto unlicensed since the transaction costs apparently outweigh the expected licensing revenues. They will remain unlicensed until they achieve sufficient market scale for the licensing to become profitable. Nevertheless, there is some evidence that a small number of SMEs have a licence, but we do not have information on how many, or which SEP owners licensed those SMEs.[71]
The situation for SMEs is thus characterised by uncertainty. While most SMEs will not be approached for a license, a small number might still be targeted by some SEP owners. Those SMEs that took a licence would be disadvantaged compared to the unlicensed majority of SMEs. Additionally, SMEs are uncertain at what point they would be considered sufficiently large to trigger the interest of SEP owners.
A private-ordering solution could be for SEP owners to give a binding pledge not to enforce SEPs against SMEs. The Commission might investigate how much support such a measure has with SEP owners. Such a pledge could be given to relevant SDOs and made public. To avoid any doubt, a definition of an SME should also be provided. For example, the Commission considers an entity an SME if it has less than 250 employees and a turnover of no more than €50 million or a balance sheet of no more than €43 million.[72] Other definitions could also be considered. For instance, there may be successful companies in the IoT that employ less staff but generate large turnover and capture a significant share of the relevant market. In any event, a clear threshold should be set so that companies may know in advance at what point they would need to take a license and might expect to be approached by SEP owners.
The downside of binding pledges not to enforce SEPs against SMEs is that SMEs represent an important part of the market. As mentioned, 84% of standard-implementers in the EU are estimated to be SMEs. While it might not be profitable to license them individually, they may generate significant collective royalties. Thus, SEP owners would be renouncing a potentially substantial royalty income. A better option might be to consider ways to simplify and reduce the costs of licensing to SMEs, as discussed in the next proposal.
One way for SMEs to get licensed simply and efficiently would be to form special license-purchasing groups (“LPGs”), as proposed by Ruud Peters et al.[73] LPGs would comprise SMEs with up to 15-20% share of the relevant market, and an LPG administrator experienced in patent licensing would take care of licensing negotiations on behalf of member SMEs. This option would simplify licencing for SMEs and reduce transaction costs for both sides. SEP owners would negotiate with just one entity and, with one license, could cover hundreds or thousands of SMEs that are not profitable to license individually. The benefits to SMEs would be that they could delegate licensing negotiations to experienced professionals and be ensured that they will receive a license on the same terms as other SMEs in the LPG.
It is important to note that this proposal differs from the licensing-negotiations groups (“LNGs”) suggested by the SEP Expert Group, which raise serious competition-law risks and may be considered a façade for buyers’ cartels among implementers.[74] In an LPG, there will be no discussion of product prices, profit margins, market share, the maximum amount of royalty, or licensing level. The tasks of the LPG administrator are only to check if an SME needs a license (i.e., if it produces standard-implementing products) and to negotiate such a license with individual SEP owners and pools based on their licensing programmes. In licensing negotiations, the LPG administrator would ensure that LPG members receive an appropriate volume discount, so that SMEs would not be disadvantaged relative to larger companies with significant volumes; guarantee that members comply with reporting obligations and royalty payments to qualify for a discounted rate for compliance; and attempt to negotiate a discount on past sales. If an SME that is a member of LPG does not accept a license negotiated by the LPG administrator, it would be considered an unwilling licensee, and the SEP owner might be able to sue and obtain an injunction in accordance with Huawei v ZTE.
Therefore, with appropriate competition safeguards and mechanisms against holdout, LPGs might be a vehicle for SMEs to receive a license in an efficient, inexpensive, and secure manner, and for SEP owners to cover the whole market, which is currently untapped because of the unprofitability of bilateral licensing with SMEs.
Patent pools may be an effective solution for IoT use cases characterised by many implementers and where no-cross licensing is involved. We are already witnessing Avanci and Sisvel preparing and modelling new licensing programmes for different IoT applications. Patent pools would resolve many of the Commission’s concerns about transparency: they provide certainty that truly essential patents are included in a pool, and if many SEP owners accept the pool, it serves as a de facto aggregate royalty rate for a standard.
The Commission might explore ways to assist the creation of pools. The first step may be to initiate a dialogue with patent owners and pool administrators to understand what help they may need in setting new licensing programmes. Concrete measures could then be taken to incentivise and support pool formation. For example, a pool’s implementation costs are often substantial,[75] and the Commission might consider subsidising initial essentiality checks of patents included in a pool, which would be repaid after the pool starts generating licensing revenues.
If the Regulation is to be adopted in the present shape, which we think would be a mistake, its scope of application could be limited to only a few selected standards and/or use cases for which the Commission has evidence of licensing inefficiencies, and which would serve as a real-world test of the usefulness of new regulatory measures. In this way, we may observe in real time how regulatory measures would be applied in practice and their effects on SEP-licensing markets. After evaluating their effectiveness, the Regulation might later be expanded to include other standards where licensing inefficiencies have been identified, or it may be changed or completely repealed if the solutions proposed by the Regulation prove to be ineffective, burdensome, and costly, as we and many others predict they would be.
We would like to thank the European Commission for the opportunity to comment on the proposed SEP Regulation. We believe that the available evidence used by the Commission in preparation for this Regulation does not show the existence of market failure in SEP-licensing markets that justify regulatory oversight. Quite the opposite, the mobile-telecommunications sector, which is alleged to be the most problematic, is seeing continuous growth, innovation, and market entry. The incidence of SEP litigation is low and has been declining over the years, with no systemic negative effects on SEP owners and implementers.
In our opinion, the proposed SEP Regulation would complicate SEP licensing even further and may alter incentives to innovate in the open-standardisation environment. It unevenly distributes all the benefits to implementers and costs to SEP owners, raising the costs of licensing even more. Its broad scope will capture all standards licensed on FRAND terms, despite not establishing with a sufficient degree of certainty that all these standards are problematic. The increased costs of enforcing SEPs may shift the litigation away from Europe to other parts of the world: the United States, United Kingdom, China, and India.
European courts have over the years have built impressive case law clarifying the contents of FRAND licenses and good-faith licensing negotiations. It would be a shame to see Europe lose its place in influencing the future SEP-licensing framework. Crucially, other countries may be inspired by the Commission’s SEP Regulation and decide to adopt similar regulatory regimes. Regulations implemented by other countries might easily backfire and be used for protectionist purposes and as a strategic tool to devalue the royalties of innovative European SEP owners. The primary beneficiaries of the Regulation might be non-EU based implementers, to the detriment of European innovators and Europe’s technological leadership.
While we believe the proposed SEP Regulation is unnecessary and disproportionate, this is not to say that the SEP-licensing framework cannot be further refined and simplified. The challenge, however, is to find solutions that improve the existing system in a cost-effective, balanced, and efficient way. We believe market-based mechanisms should be supported and sought over government regulation. It must also be emphasised that there is no one size-fits-all answer. Different solutions may be applied in different markets, and appropriate competition-law safeguards must be put in place to guarantee efficient market outcomes.
[1] European Commission, Explanatory Memorandum for Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, COM (2023) 232 Final (“Explanatory Memorandum”).
[2] Justus Baron, Pere Argue-Castells, Armandine Leonard, Tim Pohlman, & Eric Sergheraert, Empirical Assessment of Potential Challenges in SEP Licensing, European Commission (2023), p. 112.
[3] See European Commission, Impact Assessment Report Accompanying the Document Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents and Amending Regulation (EU) 2017/1001, SWD(2023) 124 final (“Impact Assessment”) p. 26 (“about 70% of the implementers take a license without litigation according to the results from the public consultation”).
[4] Adapting Carl von Clausewitz’s aphorism: “Litigation is the continuation of negotiation by other means.”
[5] C-170/13 Huawei v ZTE, ECLI:EU:C:2015:477
[6] Unwired Planet v Huawei [2017] EWHC 711 (Pat).
[7] Sisvel v Haier, KZR 36/17 Federal Court of Justice (05 May 2020)
[8] Unwired Planet v Huawei; Huawei and ZTE v Conversant [2020] UKSC 37; Philips v Wiko, 6 U 183/16 Karlsruhe Higher Regional Court (30 October 2019); HEVC (Dolby) v MAS Elektronik, 4c O 44/18 Dusseldorf Regional Court (7 May 2020).
[9] Nokia v Daimler, 2 0 34/19, Mannheim Regional Court (18 August 2020); Sharp v Daimler, 7 O 8818/19 Munich Regional Court (10 September 2020).
[10] See, Sisvel v Haier, KZR 36/17 Federal Court of Justice (05 May 2020), 61 (that implementers should not engage in patent holdout by exploiting the structural disadvantage, which SEP holders face due to the limitation of their rights to assert patents in court); Optis v Apple [2022] EWCA Civ 1411, 115 (“Apple’s behaviour …. Could well be argued to constitute a form of hold out … while Optis’ contention … would open the door to holdout”); Ericsson v D-Link, 773 F.3d 1201, 1234 (Fed Cir 2014) (“The district court need not instruct the jury on hold-up or stacking unless the accused infringer presents actual evidence of hold-up or stacking. Certainly something more than a general argument that these phenomena are possibilities is necessary.”)
[11] An electronic database of court cases implementing Huawei v ZTE is available at: https://caselaw.4ipcouncil.com/guidance-national-courts.
[12] Impact Assessment p. 13.
[13] Id. at 17.
[14] Id. at 14.
[15] Id. at12.
[16] Id. at 12.
[17] Id.
[18] Id. at 16.
[19] Id. at 14.
[20] Id. at 16.
[21] Id. at 23.
[22] Id. at 17.
[23] Id. at 11.
[24] Baron et al., supra note 2.
[25] Id. at 109-110
[26] Id. at110
[27] Id. at 108, 112.
[28] Id. at 164.
[29] Id. at 164.
[30] For some of the voluminous literature, see: Alexander Galetovic, Stephen Haber, & Ross Levine, An Empirical Examination of Patent Holdup, 11(3) Journal of Competition Law & Economics 549 (2015); Keith Mallinson, Don’t Fix What Isn’t Broken: The Extraordinary Record of Innovation and Success in the Cellular Industry Under Existing Licensing Practices, 23 George Mason Law Review 967 (2016); David Teece, The “Tragedy of the Anticommons” Fallacy: A Law and Economics Analysis of Patent Thickets and FRAND Licensing, 32 Berkeley Technology Law Journal 1490 (2017); J. Gregory Sidak, Is Patent Holdup a Hoax, 3 Criterion Journal on Innovation 401 (2018); Alexander Galetovic, Stephen Haber, & Lew Zaretzki, Is There an Anti-Commons Tragedy in the Smartphone Industry, 32 Berkeley Technology Law Journal 1527 (2018); Daniel F. Spulber, Licensing Standard Essential Patents with FRAND Commitments: Preparing for 5G Mobile Telecommunications, 18 Colorado Technology Law Journal 79 (2020); Dirk Auer & Julian Morris, Governing the Patent Commons, 38(2) Cardozo Arts & Entertainment Law Journal 291 (2020).
[31] The Mobile Economy, GSMA (2023), available at https://www.gsma.com/mobileeconomy/wp-content/uploads/2023/03/270223-The-Mobile-Economy-2023.pdf.
[32] Ibid.
[33] The 5G Economy: How 5G Will Contribute to the Global Economy?, IHS Market (2019).
[34] The Impact of 5G on the European Economy, Accenture (Feb. 2021).
[35] Bowman Heiden, Jorge Padilla, & Ruud Peters, The Value of Standard Essential Patents and the Level of Licensing, 49(1) AIPLA Quarterly Journal 1, 5-6 (2021).
[36] Alexander Galetovic, Stephen Haber, & Lew Zaretzki, An Estimate of the Average Cumulative Royalty Yield in the World Mobile Phone Industry: Theory, Measurement and Results, 42 Telecommunications Policy 263 (2018); Keith Mallinson, Cumulative Mobile SEP Royalties (19 Aug. 2015); J. Gregory Sidak, What Aggregate Royalty Do Manufacturers of Mobile Phones Pay to License Standard-Essential Patents?, 1 Criterion Journal of Innovation 701 (2016).
[37] The Commission noted that SEP royalty payments in the mobile-telecommunications industry generate between EUR 14–18 billion per year (see Impact Assessment, supra note 3, at 9).
[38] Raphaël De Coninck, Christoph von Muellern, Samuel Zimmermann, & Kilian Müller, SEP Royalties, Investment Incentives and Total Welfare, CRA Study 2022, (2022), at 18-19.
[39] https://www.avanci.com.
[40] Avanci Vehicle 4G, https://www.avanci.com/vehicle/4g.
[41] Victoria Waldersee & Supantha Mukherjee, Automakers Tackle Patent Hurdle in Quest for In-Car Tech, Reuters (21 Sep. 2021), available at: https://www.reuters.com/business/autos-transportation/automakers-tackle-patent-hurdle-quest-in-car-tech-2022-09-21.
[42] Igor Nikolic, Injunctions Facilitate Patent Licensing Deals: Evidence from the Automotive Sector, CPI Columns Intellectual Property (Jun. 2022).
[43] LIFT: Accelerating Market Penetration and Levelling the Playing Fields, Sisvel (18 Jul. 2022), available at: https://www.sisvel.com/blog/wireless-communications/lift-levelling-the-playing-field-for-early-licensees.
[44] Impact Assessment, supra note 3, at 17.
[45] Id. at 63, 68.
[46] Impact Assessment, supra note 3, at 67; Another study found that only one out of 12 surveyed SMEs had a licence, see Joachim Henkel, Licensing Standard-Essential Patents in the IoT – A Value Chain Perspective on the Markets for Technology, 51 Research Policy 104600 (2022).
[47] Bowman Heiden & Justus Baron, A Policy Governance Framework for SEP Licensing: Assessing Private Versus Public Market Interventions (2021) available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3872493.
[48] Auer & Morris, supra note 30.
[49] Harold Demsetz, Information and Efficiency: Another Viewpoint, 12(1) The Journal of Law and Economics 1 (1969).
[50] Impact Assessment, supra note 3, at 58.
[51] Id.
[52] Id. at 50.
[53] Article 1(2) of the SEP Regulation.
[54] Impact Assessment, supra note 3, at 8.
[55] Brad Biddle, Andrew White, & Sean Woods, How Many Standards in a Laptop? (And Other Empirical Questions) (2013) available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1619440.
[56] Article 1(4) of the SEP Regulation.
[57] Article 1(3) of the SEP Regulation
[58] Impact Assessment, supra note 3, at 101.
[59] Impact Assessment, supra note 3, at 84-85.
[60] Unwired Planet v Huawei [2017] EWHC 711 (Pat).
[61] TCL v Ericsson, Case No. 8:14-cv-003410JVS-DFM (C.D. Cal. 2018); TCL v Ericsson, 943 F.3d 1360 (Fed. Cir. 2019)
[62] Interdigital v Lenovo [2023] EWHC 539 (Pat) 733.
[63] The Regulation requires that patent owners register SEPs if they want to litigate them against infringers in the courts of Member States (Article 20(1)). Patent owners may simply decide to litigate outside the EU. As a result, they do not register SEPs and completely avoid conducting essentiality checks or going into mandatory FRAND determinations.
[64] Rory O’Neil, Breaking: UPC Chief Urges EU to Rethink SEP Plan, ManagingIP (30 May 2023), available at: https://www.managingip.com/article/2bqbfr0uyrki1fniy9ou8/breaking-upc-chief-urges-eu-to-rethink-sep-plan.
[65] Baron et al., supra note 2, at 110.
[66] Florian Mueller, EU-Only SEP Register Can’t Serve as a Basis for Global FRAND Determinations: Proposed EU Regulation on Standard-Essential Patents Suffers from Incongruent Provisions, FossPatents (4 Jun. 2023), available at: http://www.fosspatents.com/2023/06/eu-only-sep-register-cant-serve-as.html.
[67] Impact Assessment, supra note 3, at 8.
[68] Jonathan Barnett, Antitrust Mercantilism: The Strategic Devaluation of Intellectual Property Right in Wireless Markets, Berkeley Journal of Law & Technology (forthcoming); see also Jeanne Suchodolski, Suzanne Harrison, & Bowman Heiden, Innovation Warfare, 22 North Carolina Journal of Law & Technology 175 (2020).
[69] DS611: China-Enforcement of Intellectual Property Rights, World Trade Organization (2022), available at: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds611_e.htm.
[70] Impact Assessment, supra note 3, at 11 (84% of EU-based standard implementers are SMEs).
[71] Impact Assessment, supra note 3, at 67.
[72] European Commission, Recommendation of 6 May 2003 Concerning the Definition of Micro, Small and Medium-Sized Enterprises (2003) C 1422.
[73] Ruud Peters, Igor Nikolic, & Bowman Heiden, Designing SEP Licensing Negotiation Groups to Reduce Patent Holdout in 5G/IoT Markets in Jonathan Barnett & Sean O’Connor (eds), 5G and Beyond: Intellectual Property and Competition Policy in the Internet of Things (Cambridge University Press 2023).
[74] Contribution to the Debate on SEPs, Group of Experts on Licensing and Valuation of Standard Essential Patents (2021), available at: https://ec.europa.eu/docsroom/documents/45217; for commentary, see Nikolic, supra note 59.
[75] Michael Mattioli & Robert P. Merges, Measuring the Costs and Benefits of Patent Pools, 78(2) Ohio State Law Journal 281 (2017).
Amicus Brief Interests of Amici Curiae and Introduction The New Civil Liberties Alliance (NCLA) is a nonpartisan, nonprofit civil rights organization devoted to defending constitutional freedoms from . . .
The New Civil Liberties Alliance (NCLA) is a nonpartisan, nonprofit civil rights organization devoted to defending constitutional freedoms from violations by the administrative state.[1] The “civil liberties” of the organization’s name include rights at least as old as the U.S. Constitution itself, such as jury trial, due process of law, the right to be tried in front of an impartial and independent judge, and protection against government taking of private property without just compensation. Yet these self-same rights are also very contemporary—and in dire need of renewed vindication—precisely because Congress, administrative agencies, and even sometimes the courts have neglected them for so long. NCLA aims to defend civil liberties—primarily by asserting constitutional constraints on the administrative state.
The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public policy debates and has longstanding expertise in the evaluation of antitrust law and policy. ICLE has an interest in ensuring that antitrust promotes the public interest by remaining grounded in sensible legal rules informed by sound economic analysis.
In establishing a patent system, Congress sought to spur invention of new and useful products by conferring property rights on those who, through investment of substantial time and resources, successfully develop such products. As evidenced by its amicus curiae filing in this case, the Federal Trade Commission has sought for decades to weaken the patent laws by invoking antitrust law to pare back the scope of the property rights conferred by Congress on pharmaceutical patent owners. The Supreme Court’s decision in FTC v. Actavis, 570 U.S. 136 (2013), rebuffed those efforts to a significant degree. Appellants—the Direct-Purchaser Plaintiffs, the Retailer Plaintiffs, and the End-Payor Plaintiffs—largely parrot the FTC’s misinterpretation of patent and antitrust law.
NCLA and ICLE have no connection, financial or otherwise, with any of the parties before the Court. They are filing this brief for the sole purpose of providing the Court with their economically informed assessment of relevant statutory principles. In particular, NCLA and ICLE agree with the district court’s holding that, in determining whether a patentee’s payment to an alleged infringer qualifies under the Actavis standard as ” large,” the proper focus is on the “net” payment to the alleged infringer (that is, the amount by which the payment exceeds the value of what the patentee receives in return), not the “gross” payment. See D. Ct. ECF 438 (Second Op.) at 15 n.9.
Based on NCLA’s and ICLE’s reading of the district court’s opinions and the parties’ briefs, amici agree with Appellees that the complaints fail to state claims upon which relief can be granted. However, because amici have not closely studied the patent-litigation settlement documents, they do not have a well-informed view on whether Appellants have met the antitrust pleadings standards established by Bell Atlantic Corp. v. Twombly, 530 U.S. 544, 556-59 (2007), and do not address that issue in this brief.
Bystolic is a prescription drug approved by the Food and Drug Administration for the treatment of high blood pressure. Forest[2] obtained two patents covering Bystolic: the ‘”040 Patent” (which issued in 2003 and expired in 2021) and the ‘”580 Patent” (which issued in 1998 and expired in 2015). In 2011, seven generic-drug manufacturers (the “Generic Manufacturers”) filed Abbreviated New Drug Applications (ANDAs) with FDA, seeking authority to market generic forms of Bystolic. All seven ANDAs claimed that the ‘040 Patent and the ‘580 Patent were invalid and that their generic formulations would not infringe the patents. Those claims essentially forced Forest to file patent infringement suits against the seven Generic Manufacturers (which it did in March 2012); otherwise, FDA could have immediately approved the ANDAs.
Over the course of the next 20 months, Forest entered into separate settlement agreements with each of the Generic Manufacturers. The litigation-settlement agreements were all lengthy and included a variety of side deals. Appellants allege that each included the following two terms: (1) Forest licensed each of the seven Generic Manufacturers to sell generic Bystolic beginning September 17, 2021 (three months earlier than sales would have begun had they awaited expiration of the ‘040 Patent); and (2) all seven agreed to drop their invalidity/noninfringement counterclaims and not to begin marketing until September 17, 2021—unless another one of the Generic Manufacturers entered the market earlier.
Appellants allege that Forest and the Generic Manufacturers violated federal and state antitrust laws by conspiring to restrain trade. They allege that the Generic Manufacturers agreed to delay their entry into the Bystolic market in return for large payments from Forest. In January 2022, the district court dismissed their complaints for failure to state a claim, with leave to file amended complaints. D. Ct. ECF 354 (First Op.).
Appellants filed amended complaints in February 2022, and Forest and the Generic Manufacturers again moved to dismiss the complaints. On February 21, 2023, the district court granted the motions and dismissed the complaints with prejudice. Second Op. at 3.
The court recognized that Forest, in connection with the patent-litigation settlements, entered into side deals that entailed payments to each of the Generic Manufacturers. It concluded, however, that Appellants’ factual allegations failed to show that any of the side-deal payments were “large and unjustified,” as those terms are defined in Actavis. Id. at 19. The Court explained that whether a payment is “large” within the meaning of Actavis should be determined based on the patentee’s “net” payment (i.e., the gross payment minus the value received in return). Id. at 15 n.9.[3] After carefully examining Appellants’ factual allegations regarding the settlement agreements, the court concluded the allegations “d[id] not suffice to state a claim” because Appellants had “not asserted facts as to any of the factors that would suggest conduct inconsistent with a pro-competitive justification.” Id. at 20.
Congress has long mandated that courts should strive to maintain a balance between the sometimes-competing claims of the patent law and antitrust law, and that antitrust law should not be used to shortchange the rights of patent holders. Simpson v. Union Oil Co., 377 U.S. 13, 14 (1964). In its Actavis decision, the Supreme Court sought to maintain that balance in the context of drug-patent litigation settlements between brand-name and generic drug companies. It sought to steer a middle ground between the “presumption of unreasonable restraint” approach espoused by FTC and adopted by the Third Circuit,[4] and the “scope of the patent” test adopted by other federal appeals courts,[5] under which such “reverse payment” settlements were not subject to antitrust scrutiny so long as their anticompetitive effects did not extend beyond the exclusionary potential of the underlying patents. Actavis, 570 U.S. at 158-160.
The Court held that when a generic drug company agrees, in connection with a patent-litigation settlement, to drop its challenge to patent validity, the agreement is subject to antitrust scrutiny under a rule-of-reason analysis if, but only if, the settlement also includes an “unusual,” “large,” and “unjustified” “payment” from the brand-name drug company to the generic company. Id. at 147, 158. The Court explicitly rejected FTC’s argument that “reverse payment settlement agreements are presumptively unlawful” and that such agreements should be examined under a “quick look” approach rather than applying “a rule of reason.” Id. at 158-59.
Although the Court did not define with specificity when a settlement-agreement payment should be deemed “unusual,” “large,” and “unjustified” (and thus subject to antitrust scrutiny), it provided several guideposts to assist lower courts in making that determination. First, a payment is not “unjustified” if it consists of granting a license to market the patented product in advance of the patent expiration date. Id. at 158. Second, the Court held that a payment is not “large” (and thus not actionable under antitrust law) if it is less than the litigation expenses the brand-name company could be expected to incur if it did not settle. Id. at 159. Third, the magnitude of any payment from the brand-name company (whether provided in cash or in the form of a non-cash benefit) is to be measured by the “net” benefit (i.e., the gross value of the benefit minus any goods or services the generic company is required to supply in return), not the gross value. Id. at 156. Determining whether a payment is “large” based solely on the amount of cash transferred to the generic company makes little sense, because that rule would not account for the many types of non-cash benefits that can flow between the parties. Fourth, a payment is not “unusual” or “unjustified” if it is one “supported by traditional settlement considerations.” Id. at 154.
The guideposts cited above are highly relevant to the district court’s decision that the complaints fail to state a cause of action. To survive the motion to dismiss, Appellants were required to allege facts sufficient to render plausible their claims that the payments from Forest were “large”; and for purposes of determining whether a payment is “large,” that figure is computed by subtracting, from the amount of cash paid by Forest, the value of goods and services Forest contracted to receive in return. Moreover, simply alleging facts showing that the cash paid exceeds the value of goods and services received in return does not suffice to demonstrate the requisite “large” payment; the payment is not “large” unless it exceeds the expected litigation costs saved by settling the lawsuit. Finally, entering into “side deals” in conjunction with a litigation settlement (deals that by definition entail benefits flowing from both settling parties) is a “traditional settlement consideration” and does not by itself provide cause to subject the settlement to antitrust scrutiny.
[1] No counsel for a party authored this brief in whole or in part, nor has any person or entity, other than amici curiae and their counsel, made a monetary contribution intended to fund the preparation and submission of the brief. All parties consented to the filing of the brief.
[2] The developers and marketers of Bystolic are collectively referred to herein as “Forest.”
[3] As the district court explained, “If the payment reflects fair value for goods or services, it would say nothing about the patentee’s belief in the validity of the patent.” Ibid.
[4] In re K-Dur Antitrust Litig., 686 F .3d 2012 (3d Cir. 2012), vacated, 570 U.S. 913 (2013).
[5] See, e.g., In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006).
ICLE Issue Brief The European Union has opened the door for national policymakers to expand preexisting policies to support or favor domestic content by placing new obligations on foreign streaming providers to invest in EU member states’ domestic markets. The risk, however, is that member states have such broad latitude in implementing these provisions that they stoke inflationary pressures that distort local content markets.
In the ever-evolving landscape of digital entertainment, European consumers enjoy a broad variety of viewing options, including substantial availability of non-European content offered by large international streaming services. This availability has raised red flags for some EU policymakers, however, who are concerned that the supply of and demand for domestic cultural products might suffer. Prompted by these concerns, the European Union has opened the door for national policymakers to expand preexisting policies to support or favor domestic content by placing new obligations on foreign streaming providers to invest in EU member states’ domestic markets. The risk, however, is that member states have such broad latitude in implementing these provisions that they stoke inflationary pressures that distort local content markets.
Amended in 2018, the EU Audiovisual Media Services Directive (AVMSD)[1] has two relevant provisions: 1. Article 13(1) sets a requirement that 30% of the works that on-demand audiovisual media service (“VOD”) providers carry be European in origin, and that these works be given those works prominent placement; and 2. Article 13(2) provides that member states may impose additional financial obligations on VOD providers and broadcasters (“media service providers”) based on the revenues these services generate in, or that are targeted toward, the member state’s territory, with the proceeds used to support the production of European works.
The second set of obligations, which depend on a member state enacting enabling legislation, can be pursued either through direct investment in the production of European works (sometimes with very prescriptive local language or independent producer sub-quotas, among other limitations), or through contributions to a national fund. Providers with no significant presence in a local market (i.e., with low turnover or an exceedingly small audience) are not typically subject to these obligations. Member states also may waive such obligations where they would be impracticable or unjustified due to the nature or theme of the audiovisual media service in question.[2]
The AVMSD can thus be characterized as “a unique blend of the barrier lifting liberal market approach typical of the EU’s single market and classic protectionism stemming from a history of concern that American content and media services would dominate European screens, threatening its cultures and industries.”[3]
It is understandable, on many levels, why member states would want to ensure local production of cultural products.[4] The history of this sort of regulation in the EU and the basic economics underlying these schemes, however, both point to the risk of serious unintended consequences if lawmakers do not take market realities adequately into account.
The AVMSD amendments are part of a long history in the EU of regulating media distribution, with at least a partial eye toward culture-specific measures.[5] Although the EU has more recently been concerned with foreign streaming services, the early history of these regulations were focused on broadcast media. Under those different regulations, “EU institutions were required to take values such as cultural diversity into account. They also had to respect the fundamental contribution of public broadcasters to the ‘democratic, social and cultural needs of each society.’”[6]
Notably, pursuant to the Television without Frontiers Directive (TwFD) of 1989, member states were required to ensure that broadcasters reserve a minimum of 50% of television programming to European works and a minimum of 10% of either their transmission time or programming budgets to independent productions.[7]
Further, the previous version of the AVMSD (2010) imposed a general commitment for member states to ensure that VOD service providers promoted, “where practicable and by appropriate means,” the production of and the access to European works.[8] Such promotion could “relate, inter alia, to the financial contribution made by such services to the production and rights acquisition of European works or to the share and/or prominence of European works in the catalogue of programmes offered by the on-demand audiovisual media service.”[9]
Finally, member states are also permitted to sustain European audiovisual production through state aid (i.e., direct funding or tax incentives), which is considered an important tool in this regard by the European Commission. According to the Commission’s Communication on State Aid for Films and Audiovisual Works:
It is difficult for film producers to obtain a sufficient level of upfront commercial backing to put together a financial package so that production projects can proceed. The high risk associated with their businesses and projects, together with the perceived lack of profitability of the sector, make it dependent on State aid.[10]
Nonetheless, these efforts had not fully delivered the expected results. Notably, analysis of the European audiovisual market between 2011 and 2016 found that, while broadcasters met the requirements set in the AVMSD 2010 to reserve a proportional majority of their transmission time for European works, when it came to nonlinear media services, European works were significantly less present in the catalogues of VOD service providers and non-European audiovisual works dominated audience demand.[11] Against this background, the 2018 AVMSD provisions were introduced to better harmonize the treatment of traditional audiovisual players and VOD providers.[12]
Indeed, the European audiovisual market has been described as “a collection of diverse markets, with different languages, cultures and market sizes.”[13] In this sense, market factors (i.e., small market size and a limited number of companies) and linguistic and cultural differences make it more difficult to make profitable audiovisual content in Europe. Given that reality, the revised AVMSD aimed to provide member states with new opportunities to support their local audiovisual markets.
Earlier regulations were also not without side effects. Quotas have proven ineffective at ensuring cultural diversity and encouraging the circulation of European works. They also risk diminishing the quality of works and undermining the creation of a pan-European audiovisual industry.[14] Moreover, although the ultimate goal of cultural diversity should be achieved through promoting the production and distribution of European works,[15] these regulations encouraged the production of local works without adequately addressing pan-European distribution. That is, while member states would pour resources into creating new local works, they remained insufficiently committed to distributing the works of other member states. This caused an oversaturation in local markets and dried up opportunities for creators to generate revenue for their work across the EU.
National implementation of AVMSD Article 13(2) may duplicate this problem, insofar as it involves approaches that can promote “continued fragmentation” among EU member states, and “reinforce [] focus on production over circulation, and domestic over nonnational European works.”[16] Of course the AVMSD does not aim to do this, but is explicitly designed to promote European works generally. It is, instead, implicit in the design of the AVMSD, insofar as it empowers member states to determine how to impose national sub-quotas. The history noted above suggests that member states will continue to interpret these provisions in ways that preference national content rather than pan-European content, thus exacerbating the fragmentation problem.
Indeed, an analysis of the member states that have decided to introduce such measures suggests that these assessments have contributed to a highly fragmented regulatory framework, as the obligations differ significantly both in terms of form (i.e., levies, direct investments, or joint obligations for both levies and direct investment) and amount, ranging from 0.5% to 25% of VOD services’ revenues.[17] Further, as national policymakers have been interested primarily in protecting domestic works, rather than supporting nonnational European content, some member states have mandated sub-quotas that direct the total share of revenues disproportionately toward the promotion of national works. These new provisions, moreover, threaten to drive up the cost of local production and ultimately crowd out many smaller local producers.
As reported by the European Audiovisual Observatory,[18] and recently corroborated by the European Commission,[19] the quota requirement under Article 13(1) AVMSD 2018 is already essentially met. Despite ongoing concerns regarding difficulties in monitoring prominent placement on VOD services,[20] the share of European works in VOD catalogues currently amounts to between 32% and 37%.[21] Further, in transactional VOD services, there is no significant gap between the share of European works in catalogues and their share of promotion.[22]
While quota obligations originated in an era dominated by broadcast television, they have been extended over time to nonlinear services, where they have encountered a different set of challenges in securing compliance. Since the concept of “prime time” loses its essential meaning in nonlinear services as a tool to secure visibility of certain works, nonlinear providers rely on other measures of prominence. For example, some have created distinct platform categories to group European or domestic works or tags to ease search for those works.[23]
Significant doubts arise, however, about the effectiveness of Article 13(1) quotas to ensure cultural diversity and encourage the circulation of European works. Further, as previously mentioned, quotas may have the unintended consequences of lowering the quality of works and undermining the creation of a pan-European audiovisual industry.
But given that more dramatic problems can accompany poor implementation of the optional Article 13(2) AVMSD 2018, the remainder of this paper will consider the economic features of the latter, and offer recommendations for how member states should weigh the risks and benefits of various strategies to implement this provision.
As noted above, Article 13(2) financial contribution requirements take several different forms. Member states can require some mixture of direct investment in local markets by VOD providers and/or mandate, by levies, contributions to national cultural funds. The former can take a number of forms, including co-production, direct development of content, or acquisition of existing rights.
It is useful to think of this scheme as a form of Pigouvian tax. Pigouvian taxes work by imposing a tax on activity that creates a negative externality.[24] The goal is to force producers to internalize the costs of the negative externality, rather than forcing society as a whole to bear those costs. Typically, a Pigouvian tax is levied directly on the externality itself.[25] A classic example is a tax imposed on the production of goods that create pollution or health harms, such as cigarettes. The goal of the tax is to increase the cost of producing harm such that, as a consequence, the final price of the goods will rise to a level that maximizes social benefits.
Here, the good in question is local-content production and the users/consumers in question are the producers of said content. The underlying presumption of the AVMSD seems to be that the operation of foreign streaming services displaces production and distribution of local content, and that this represents a negative externality for which foreign providers need to take account. In theory, at least, the financial obligations are intended to force VOD providers to internalize this cost.
Of course, this is not strictly a textbook case. Where member states require the tax to be directed into a national fund, it looks much more like a Pigouvian tax. Where providers are obligated to devote some percentage of their turnover directly to local production, it may look less so, depending on how those obligations are structured. Nonetheless, the basic dynamics of Article 13(2) are close enough for our purposes here.
To be clear, we do not believe that audiovisual products—whether local or foreign—should actually be regarded as harmful in the same ways that smoking or sugary foods are. But the utility of this example is to demonstrate the regulatory equivalence implicit in treating nonnational content as damaging to local cultures, particularly when local consumers have chosen to select that content.
Moreover, there is an obvious problem with the presumptions underlying the AVMSD that should serve as a limiting principle when considering possible implementation of Article 13(2). It should not be so readily assumed that foreign entities are actually or disproportionately displacing local content. The VOD providers have every incentive to provide local audiences whatever it is they want to consume, and evidence suggests that audiences demand local content.[26]
Indeed, this underlying reality points to a very real distortion that exceedingly high financial obligations can produce. If local content production is overstimulated, as was the case under earlier versions of the legislation, member states may drive up the prices for local production, while at the same time oversaturating local markets and providing little avenue for local creators to distribute and market their works more broadly.
Member states’ goal is to seek the best outcome for their audiovisual sectors. Even if we assume that a tax on VOD providers is necessary in some cases, that still leaves the questions of which cases and how much the tax should be. Without answers to those questions, there is little hope of achieving a socially beneficial tax assessment or of doing more than, at best, distorting local market signals or, at worst, undermining local audiovisual production. Thus, the EU and member states need to both continue and deepen their examinations of the state of the sector, identify any market failures, and address these with the regulatory tools at their disposal. If, as a result of this analysis, any financial obligations are to be put in place—which Article 13(2) AVMSD 2018 grants them the option to do, although it does not require it—then member states should tailor any such taxes to tackle the identified problems.
Indeed, implicit in the idea of Pigouvian taxes is the notion that we do not seek a costless end: there are always tradeoffs among competing goals. That is the very essence of using levies to mitigate externalities: there is some benefit that society is reaping, and some harm for which it has incorrectly accounted. Accounting for the harm will necessarily reduce some of the good.
One of the main problems that can arise with taxes of this type is the introduction of perverse incentives. As William Baumol noted of Pigouvian taxes:
[T]he appropriate price (compensation) to a user of a public good (victim of a public externality) is zero except, of course, for lump sum payments. Thus, perhaps, rather than saying there is no price that will yield an optimal quantity of a public good (externality), it may be more illuminating to say that a double price is required: a nonzero price (tax) to the supplier of the good, and a zero price to the consumer.[27]
In essence, treating a Pigouvian tax as a sort of transfer payment creates a system that encourages overconsumption of the public good. Thus, to the extent that member states mandate that foreign VOD providers contribute directly to local content production—that is, via direct payments to local content producers to produce more local content—we would expect an overproduction of such content.
Even with levies to mandate contributions to national funds, there will be some of this dynamic, although national authorities may be positioned to moderate the effect. National authorities face tradeoffs, insofar as any investments they make are, to some degree, uncoupled from organic demand. Thus, these national investments will generate at least some inefficiencies, to the extent that they divert investment from opportunities that would have otherwise been realized in the marketplace.
National authorities may, for instance, determine that there is little harm in having too many locally produced movies and television shows, particularly when digital storage is next to costless. But content does not spring into existence ex nihilo. It depends on the use of a vast array of scarce local labor and resources. In short, that means that financial obligations to contribute to local production can bid up the price of every resource involved in production, leading to fewer local producers being able to afford to compete. Eventually, this will make local production relatively more dependent on a smaller number of firms that can absorb the higher costs.
More broadly, these sorts of interventions also risk distorting investment by nonlocal firms in a way that discourages entry and encourages exit, thus resulting in overall less production than would have otherwise occurred without an intervention. This is particularly true to the extent that national authorities fail to consider the profitability of their investments. Over time, funding unprofitable projects will exacerbate this dynamic by making local production more reliant on subsidies (which, in effect, means that consumers are insufficiently interested in the product). Decoupled from demand, there will be an ever greater need to demand payment from nonlocal firms to prop up relatively unsuccessful local productions.
When these financial obligations go too far, they can create inflationary pressures that may dry up local production altogether. A recent study for the European Commission identifies “[i]ncreasing costs across the board, and in particular for costs on technical crew and creative talent” as principal risk factors for European audiovisual producers.[28] Financial obligations force streamers to demand more production. As the study observes, the resulting cost increases are “no surprise,” since “increased demand would normally increase supply, which would explain the inflated costs upstream.”[29]
In a world of normal production incentives, if a particular market reaches capacity and becomes expensive, the production community will shift to a different market in a different country to avoid the higher prices. To the extent that local content production remains (thanks to the financial-contribution requirements), while the cost of production will go up, the actual volume of production might not increase very much.
In order to find the optimal level of contributions (that is, the level at which they minimally inflate local costs of production while maximally ensuring cultural production), authorities need to engage in an incremental learning process. In short, member states will need to discover a proper equilibrium that prevents the tax from instigating a cost spiral. This argues for regulatory caution. As Baumol further noted:
[S]uch a learning process always involves wastes and irreversabilities, just like the process of convergence of competitive prices to their equilibrium values in the absence of externalities. But if we follow the usual practice of assuming away these costs, one can show that the process may be expected to converge to the optimum, provided the equilibrium is unique and stable. That is, there is then nothing inherently different about gradually moving taxes and prices towards their equilibrium here, and the process of adjustment toward competitive equilibrium when there are no externalities.[30]
Thus, national authorities considering how to structure these obligations should bear in mind that: 1. There almost certainly will be some bidding up of prices; 2. At a certain point, the gains from trying to increase local content production will be swamped by these inflationary pressures; and 3. There is necessarily a learning process inherent in setting such financial obligations, owing to the serious danger of provoking a cost spiral.
Financial obligations imposed under Article 13(2) AVMSD 2018 may generate further unintended consequences.
As already illustrated, the extraordinary diversity of consumer preferences in, and resulting from, fragmentation of the European audiovisual market represents the main barrier to the circulation of European works. In particular, the significant linguistic and cultural differences that contribute to Europe’s celebrated cultural vibrancy also make it less feasible to treat Europe as a single audiovisual market and more challenging to produce profitable content in Europe. The hurdles represented by language and cultural specificities have been confirmed by a recent study reporting that Netflix users have a strong preference for domestic productions.[31]
From this perspective, it is worth acknowledging, as noted in the literature, that “it took a U.S. player to develop a service that increased the pan-European circulation of audiovisual content and gave European audiences increased access to nonnational EU content, in an accessible and user-friendly manner.”[32]
Against this backdrop, Article 13(2) AVMSD 2018 may serve to further increase fragmentation of the European audiovisual market. Indeed, its implementation by some member states places greater emphasis on supporting domestic works than on supporting (nonnational) European content more broadly.
As a result, the AVMSD financial obligations provision will also preserve “a varied fabric” of European producers, making the emergence of European VOD service providers able to compete against foreign players on a level playing field even more unlikely.
Member states that have chosen to implement Article 13(2) have taken various approaches. Most of them have opted to introduce both direct investment obligations and levies to support a fund. Italy is the only country that has introduced a direct investment obligation as the sole option, while at least two member states (Germany and Poland) have introduced levies without any direct investment obligation thus far.[33]
Further fragmentation can be observed in disparities in the rates applied to turnover achieved in the respective member states. Even the base may sometimes differ. With regard to direct investment obligations, while some member states have employed fair measures, a handful have begun to impose steep obligations on VOD service providers.[34] On the more careful end are the Czech Republic, Netherlands, Portugal, Croatia, Spain, and Greece, which assess their direct investment obligations in the 1-5% range.[35] On the less careful end are countries like France (15%-25%) and Italy (18%-20%). With regard to indirect investment obligations, the rate is usually around 2%, with the exception of Denmark, Spain, Portugal, Romania, and France, where the rate is in the 4-6% range.[36]
The regulatory caution needed to avoid trapping local content-production industries in destructive cost spirals is embodied in the “proportionality principle,” which essentially requires that the costs of regulatory intervention not be disproportionate to the benefits sought.[37] Indeed, the risk of disproportionate implementation of Article 13(2) was so palpable to its drafters that they expressly mandated that any financial contribution required of a service provider “shall be proportionate.”
More data are needed to assess optimal financial contribution levels, but it appears highly risky to venture out as far on a limb as France and Italy have done. Assessing a total 20-25% financial obligation—whether in the form of a national fund levy or investment obligations on the turnover of multiple companies (some of them quite large)—in order to fund local production could easily have dramatic inflationary effects on local content markets.[38] Perhaps a large and wealthy country like France can absorb and offset some of these effects, but it would only be through heavy subsidization of the very industries the financial obligation otherwise threatens to destroy.
Moreover, this approach fails to deal with the distribution problems that these sorts of regulations have historically created in the EU. There is such a thing as too much content and too little distribution. Huge local catalogs can be generated and never adequately shared across member states. Indeed, as noted above, large VOD providers like Netflix have, to a large extent, actually solved this historical problem. Penalizing these providers for offering such solutions is a curious move.
An alternative approach, already pursued in some member states, is for local cultural authorities to use much more modest financial obligations to enhance cross-EU commercialization strategies for their local producers.
Of course, it should not be forgotten that member states are entirely at liberty not to implement 13(2) at all, a direction a number have taken.[39] This option is entirely consistent with preserving a vibrant audiovisual market based on the demand of local consumers, who are free to demand as much local content as they wish.
Ultimately, however, much care should be taken, particularly for member states with markets smaller and less subsidized than France.[40] As some members choose to experiment with these financial contribution rates, they should start with impact assessments and proceed from there incrementally, consistent with the principle of proportionality.
[1] Directive (EU) 2018/1808 Amending Directive 2010/13/EU on the Coordination of Certain Provisions Laid Down by Law, Regulation or Administrative Action in Member States Concerning the Provision of Audiovisual Media Services (Audiovisual Media Services Directive) in View of Changing Market Realities, [2018] OJ L 303/69.
[2] Ibid. at Article 13(6).
[3] Sally Broughton Micova, The Audiovisual Media Services Directive: Balancing Liberalisation and Protection, in Research Handbook on EU Media Law and Policy (E. Brogi and P.L. Parcu, eds.), Cheltenham:Edward Elgar Publishing (2021) at 264.
[4] It is important to note a latent tension, however, between the AVMSD’s focus on European content, which suggests a pan-European preference, versus the practical reality that member states may choose to preference their own national content. The latter would actually frustrate the general goal of the AVMSD in some important respects.
[5] Joe?lle Farchy, Gre?goire Bideau, & Steven Tallec, Content Quotas and Prominence on VOD Services: New Challenges for European Audiovisual Regulators, 28 Int’l J. Cultural Pol’y 419 (2022).
[6] Catalina Iordache, Tim Raats, & Karen Donders, The “Netflix Tax”: An Analysis of Investment Obligations for On-Demand Audiovisual Services in the European Union, 16 Int’l J. Comm. 545, 548 (2022).
[7] Directive 89/552/EEC on the Coordination of Certain Provisions Laid Down by Law, Regulation or Administrative Action in Member States Concerning the Pursuit of Television Broadcasting Activities [1989] OJ L 298/23, Articles 4 and 5.
[8] Directive 2010/13/EU on the Coordination of Certain Provisions Laid Down by Law, Regulation or Administrative Action in Member States Concerning the Provision of Audiovisual Media Services (Audiovisual Media Services Directive), [2010] OJ L 95/1, Article 13(1).
[9] Ibid.
[10] European Commission, Communication on State Aid for Films and Other Audiovisual Works, (2013) OJ C 332/1, para. 4.
[11] Attentional, KEA European Affairs, and Valdani Vicari & Associati, supra note 3, at 17. It should be noted, further, that in this time period, providers were still early in their efforts to develop the VOD market. Thus, the relative immaturity of that market shaped these outcomes to some extent.
[12] Marlen Komorowski, Catalina Iordache, Ivana Kostovska, Stephanie Tintel, & Tim Raats, Investment Obligations for VOD Providers to Financially Contribute to the Production of European Works, a 2021 Update, Studies Media Innovation Technology (2021) at 31, available at https://smit.vub.ac.be/wp-content/uploads/2021/06/A-European-comparison-of-investment-obligations-on-VOD-providers-to-financially-contribute-to-the-production-of-European-works_Report-2021_FINAL.pdf.
[13] Ibid. at 7.
[14] See Piero Papp, The Promotion of European Works: An Analysis on Quotas for European Audiovisual Works and their Effect on Culture and Industry, Stanford-Vienna European Union Law Working Paper No. 50 (2020), available at https://law.stanford.edu/wp-content/uploads/2020/10/papp_eulawwp50.pdf; and Sally Broughton Micova, Content Quotas: What and Whom are the Protecting? in Private Television in Western Europe: Content, Markets, Policies (K. Donders, C. Pauwels, and J. Loisen, eds.), Hampshire: Palgrave (2013) at 245.
[15] AVMSD 2010, supra note 8, at Recital 69.
[16] Iordache, Raats, & Donders, supra note 6, at 551.
[17] Investing in European Works: The Obligations on VOD Providers, European Audiovisual Observatory (2022), available at https://rm.coe.int/iris-plus-2022en2-financial-obligations-for-vod-services/1680a6889c.
[18] Yearbook 2022/2023 – Key Trends, European Audiovisual Observatory (2023), available at https://rm.coe.int/yearbook-key-trends-2022-2023-en/1680aa9f02.
[19] The European Media Industry Outlook, European Commission (2023), available at https://digital-strategy.ec.europa.eu/en/library/european-media-industry-outlook.
[20] Daphne R. Idiz, Kristina Irion, Joris Ebbers, & Rens Vliegenthart, European Audiovisual Media Policy in the Age of Global Video on Demand Services: A Case Study of Netflix in the Netherlands, 12 J. Digital Media & Pol’y 425 (2021).
[21] European Audiovisual Observatory, supra note 17, (finding 32%). The more recent European Commission study, supra note 19, found that EU works alone constituted 28% of VOD catalogs (evenly divided between national and nonnational works), while UK works (qualifying as European for AVMSD purposes) constituted an additional 9%, for a total of 37%.
[22] The Visibility of Audiovisual Works on TVOD – Edition 2021, European Audiovisual Observatory (2021), available at https://rm.coe.int/visibility-of-av-works-on-tvod-2021-edition/1680a59bc2.
[23] But according to the European Media Industry Outlook of the European Commission, supra 19, “Consumers are quite open to the country and language of origin.” And further: “Four out of five (80%) EU consumers say that they are likely to watch films or series from the US, followed by 76% that say they are likely to watch films or series from their home country. About seven in 10 (71%) EU consumers say that they are likely to watch films or series coming from other European countries.”
[24] See, e.g., William J. Baumol, On Taxation and the Control of Externalities, 62 Am. Econ. R. 307, 312 (1972).
[25] Ibid. at 307.
[26] For example, a recent report from the European Commission on the audiovisual market found that EU consumers expressed a roughly equal demand for both U.S. and national content. European Commission, supra 19, at 23. U.S. works represent just less than half (47%) of VOD providers’ catalogs, while EU works (national and nonnational) comprise 28% and UK works comprise 9%. Id. at 26. The report does not indicate from whence the remaining 16% originate, but we can surmise that it is material sourced from around the world.
[27] William J. Baumol, supra note 24, at 312.
[28] European Commission, supra note 28, at 48.
[29] Ibid.
[30] Ibid. at 315.
[31] Annette Broocks & Zuzanna Studnicka, Gravity and Trade in Video on Demand Services, JRC Digital Economy Working Paper 2021-12 (2021), available at https://joint-research-centre.ec.europa.eu/publications/gravity-and-trade-video-demand-services_en.
[32] Iordache, Raats, & Donders, supra note 6, 557.
[33] Svitlana Buriak & Dennis Weber, Investment Obligations and Levies on VOD Media Service Providers and Cultural Policies of Member States, 15 World Tax J. 2, 3-4 (2023), available at https://www.ibfd.org/shop/journal/investment-obligations-and-levies-vod-media-service-providers-and-cultural-policies.
[34] Ibid.
[35] Ibid. at 4.
[36] Ibid. at 28-30.
[37] The principle of proportionality requires that the legislator considering adoption of a new measure consider “the need for any burden” that that legislative act is likely to create “to be minimised and commensurate with the objective” pursued. Article 5, Protocol (No 2) on the application of the principles of subsidiarity and proportionality (OJ C 115), 9.5.2008, p. 206-209.
[38] See, e.g., Economic Analysis of the French Audiovisual Industry Main Trends and Focus on the Costs of High-End Fiction In France, Arcom (2023) at 13-18, available at https://www.arcom.fr/sites/default/files/2023-04/Presentation%20economic%20analysis%20of%20the%20french%20audiovisual%20industry_0.pdf.
[39] Svitlana Buriak & Dennis Weber, supra, note 33 at 4.
[40] In particular, smaller member states should take notice of the fact that France is pushing for aggressive obligations against the backdrop of a 2023 budget of 4.2 billion euros for the French Culture Ministry. See, Ministry of Culture Budget 2023 – Finance Bill, Ministere de la Culture (Sep. 28, 2022), https://www.culture.gouv.fr/en/Presse/Dossiers-de-presse/Budget-2023-du-ministere-de-la-Culture-Projet-de-loi-de-finances#:~:text=In%202023%2C%20the%20Ministry%20of,(up%20€527%20million).
Presentations & Interviews ICLE Academic Affiliate Adam Mossoff appeared as a guest on the Patently Strategic podcast to discuss the topic “Why Patents Exist.” The full episode is . . .
ICLE Academic Affiliate Adam Mossoff appeared as a guest on the Patently Strategic podcast to discuss the topic “Why Patents Exist.” The full episode is embedded below.
Scholarship Abstract Generative AI is set to become a critical technology for our modern economies. If we are currently experiencing a strong, dynamic competition between the . . .
Generative AI is set to become a critical technology for our modern economies. If we are currently experiencing a strong, dynamic competition between the underlying foundation models, legal institutions have an important role to play in ensuring that the spring of foundation models does not turn into a winter with an ecosystem frozen by a handful of players.
TOTM 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 . . .
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.
Read the full piece here.
Scholarship Introduction Over the last two decades, standard essential patents (SEPs) have been at the centre of a lively debate among scholars, courts and competition authorities, . . .
Over the last two decades, standard essential patents (SEPs) have been at the centre of a lively debate among scholars, courts and competition authorities, mainly on the competitive implications of the successful adoption of a standard. Indeed, standards are key to ensuring interoperability and technical compatibility across a broad range of modern industries, but at the same time, they come with exclusionary effects for companies precluded from practicing the standard. For these reasons, standards development organisations (SDOs) typically adopt disclosure and licensing rules, requiring firms taking part in a standardisation initiative to disclose the existence of any intellectual property right (IPR) that might cover a technology considered to be implemented into the standard and clarify whether they would be willing to offer a licence to such IPR on fair, reasonable and non-discriminatory (FRAND) terms if the technology is implemented into the standard.
Much of the attention has so far been devoted to the economic and legal meanings of FRAND commitments as a mechanism to avoid hold-up and reverse hold-up problems between licensors and licensees, thus preventing SEPs holders from demanding excessively high royalties when implementers are locked-in to a standard and licensees from engaging in strategic practices to escape the payment of royalties or depress prices, respectively. However, SDOs’ disclosure rules also deserve similar consideration.
Popular Media 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 . . .
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.
TOTM 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 . . .
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…
