As the Commission’s call for feedback on its Inception Impact Assessment (IIA) concerning revision of the two Block Exemption Regulations for horizontal cooperation agreements (HBERs) and the Horizontal Guidelines (HGL) closes, we reflect on one aspect highlighted in our submission: the need to reflect hold-out .
As we have highlighted in our previous blog-posts, hold-out threatens future investment in open standards and undermines European leadership in 5G and 6G. It is disappointing therefore that there is no mention of hold-out in its Staff Working Document (SWD) published by the Commission in advance of the IIA.
On 6 May 2021, the Commission published a SWD outlining the results of a 20-month public consultation on the HBERs and HGLs. The Commission simultaneously published a report on a Supporting Study it had commissioned to assess the effectiveness, relevance, and efficiency of the existing regime.
The Supporting Study acknowledged the call for the HGL to address hold-out. It also noted the need to consider the potential impact of opportunistic refusals by implementers to agree on royalties vis-à-vis FRAND-abiding patent holders, in order to depress prices, increase litigation, and reduce incentives to invest in standard-related innovations.
By contrast, and despite the growing body of compelling evidence, nowhere in the 120 pages of the SWD is any mention of hold-out in the SEP environment.
There is no shortage of evidence of hold-out in the real world, and it has been recognized by European policymakers and courts, alike:
Based on the evidence, we are of the firm belief that the ongoing review of the HGL should recognise the real and present problem of hold-out, not only the theoretical risk of hold-up, as part of a balanced approach. The HGLs should acknowledge FRAND as a two-way street.
Specifically, Chapter 7 of the HGLs should be modified to: (1) address hold-out, and (2) take into consideration the potential impact of opportunistic refusals by implementers to agree on royalties vis-à-vis FRAND-abiding patent holders in order to depress prices, increase litigation, and reduce incentives to invest in standard-related innovations, consistent with the growing body of evidence and policy initiatives.
Hopefully the Commission will grasp this vital opportunity to support European leadership in 5G and 6G and protect long-term investment in open standardisation.