The European Union is demonstrating how big-government bureaucracy by nature goes off the rails. Both procedurally and substantively, the EU is headed toward wasting taxpayer money as well as effecting a government takeover of what belongs only in private market negotiations between private parties. The action is regional, but its damage will be global.
Recently, the EU requested proposals for a study on details of specific provisions of a regulation that’s barely off the starting line. This study is way too premature to be worth a hoot should some version of the regulation be adopted.
And it’s not like the regulation is inconsequential, substantively. The proposed rule would displace private-sector, market-based negotiation of licensing standard-essential patents with a government regime of bureaucrats determining fair and reasonable SEP licensing rates.
As Ed Martin and I discuss in a recent op-ed on U.S. innovation and security: “Last year, the EU proposed a government program to determine which patents are essential to a technological standard and to set an aggregate royalty rate that would supplant market-based rates. The EU’s plan would harm all innovators, including European firms such as Ericsson and Nokia. Some European Commissioners have urged China to set up a patent price regulation program.“
The EU Parliament has passed the regulation. That’s it. Next comes a decision from the EU Council of Member States. If the EU Council approves the regulation, then begins a process to reconcile the European Commission’s, the Parliament’s and the Council’s versions of the regulation.
Plainly, the regulation is far from adoption. And if it eventually is, the final version is likely to differ from the EU Parliament's version. That’s because the Commission, the EU Council and the Parliament don’t understand to what this regulation would apply, how it would apply or its effects.
The EU request for proposals to conduct the study solicits methodologies for determining to which standards the EU SEP regulation should apply and methodologies for testing the essentiality of certain patents to a given standard developed by a standards-development organization. The essentiality checks would assess SEPs registered under the regulation.
However, the first topic for the study (i.e., which standards the regulation should cover) indicates that the EC and the Parliament don’t understand what it is this regulation would apply to. Worse, the solicitation asks potentially interested parties to answer this question!
Notably, an IP publication is closely following this mess. IP Fray writes, “SEP enforcement in the EU continues to expose the SEP Regulation’s flaws that are due to an insufficient understanding of reality (July 4, 2024 ip fray article), and the proposal is also controversial on the international stage (June 27, 2024 ip fray article). All this is compounded by the fact that the Parliament does not understand what the impact of the regulation is likely to be as indicated by their amendments to the regulation’s text.”
When pushing result-based, rather than evidence-based policy, the fact that just such a regulation stands at marked variance from reality and has sparked widespread international criticism might ought to be taken as a caution sign.
The EU threatens to screw up SEP license rate-setting by stripping it from the private parties (innovators and implementers) and handing it to government bureaucrats who have little knowledge and no stake in a prospective deal. It would harm private property rights, the incentives to innovate, economic and practical benefits of new innovations, and Western competitiveness with China.
The EU proposal is so ill-conceived it would ensure that China captures the lead in critical and emerging technologies—and thus reduce the free world’s security and innovation edge for decades to come. The wisest course is to ditch the fatally flawed regulation.
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