Proposed EU regulation puts European SMEs and tech leadership at risk

Licensing views
January 19, 2024

Legislation on the licensing of Standards Essential Patents, tabled by the European Commission, poses major threats to key EU interests that politicians and policy makers would be well advised to consider, writes Sisvel President Mattia Fogliacco

Sisvel is a business that has spent over 40 years working to ensure that world class innovations are available to as many interested parties as possible. We pool patents underpinning breakthrough technology, owned by multiple entities, into single packages and then offer a one-stop licence to anyone who wants to use them.

To do this we have strong relationships with the patent holders involved. These include European R&D powerhouses such as Airbus DS, Deutsche Telekom, Ericsson, Fraunhofer, Orange, KPN, Philips, Siemens, Telefónica and Telecom Italia. There are dozens of others from all over the world.

But for us to succeed, those relationships are only the start. We also need detailed insights into the technologies involved, the markets in which they are deployed and the companies that use them. We must understand all this to set affordable royalty rates. After all, we want the technologies concerned to be adopted as widely as possible.

The proof that we are getting it right is not only to be found in the long list of parties with which we cooperate but also the extent of our programme offering (we have 14 currently) and, most important, the royalties we have returned to all our patent holders. The total amount is measured in the billions of Euros. That cash may then be used by our partners to fund further R&D that will find its way into future generations of products to the benefit of us all. We call this process the “Inventive loop”. It represents a win-win for all concerned, as well as downstream consumers like you and me.

European and proud

Sisvel is very proud to be Made in Europe. We are a company that was born as a disruptive start-up in Italy in 1982. We remain a dynamic SME that is now a global player with a major presence on three continents. But we hold firm to our European roots. Most of our team works out of offices in Luxembourg, Italy and Spain.

Europe is an innovation leader. This is particularly the case with connectivity and mobility. We have been at the forefront of the international standardisation process that enables different devices to interact with each other and that will drive new industries in areas such as the Internet of Things.

But it is more than that. European companies, as well as universities and research centres, are on the frontline of developing the technology that enables all of this. This is an achievement of which to be very proud.

Now, though, a threat to our leadership has emerged. Not from competitors elsewhere in the world but from developments much closer to home.

Last April, the European Commission put forward an EU regulation to govern the licensing of the standards essential patents (SEPs) that underpin global connectivity. It is currently being debated in the European Parliament and examined by the Council of Ministers.

Danger ahead

Our concern, based on 40 years’ experience working at the cutting edge of technology and in patents, is that the proposals will do the opposite of what is intended. Rather than being a spur to more innovation and a boost to SMEs and universities, they will:

  • Lead to a wealth transfer from low resource SMEs to deep pocket big corporations and from Europe to the rest of the world.

  • Present a threat to European leadership in building the global connectivity market and to European technology security.

  • Prove a disincentive to future investments in and collaboration on developing connectivity technology, resulting in job losses.

SMEs under threat

Currently, most royalties generated from SEPs are paid by big companies. A large number are based outside Europe, where they often take advantage of comparatively low labour costs. They are businesses that create great, often highly innovative, products. Many are Sisvel clients with which we have an excellent relationship.

Understandably, these companies want their royalty payments to be as low as possible. It is likely that if the regulation is adopted, their licensing costs will come down. This is probably why the proposals have such widespread support in Big Tech.

By contrast, the vast majority of SMEs in Europe currently deploying connectivity technology underpinned by SEPs in the products and services they develop are much less exposed to royalty payments.

This dynamic is likely to change should the regulation be adopted. Because its provisions would lead to lower returns from larger licensees, licensors will need to look elsewhere to maintain their margins. That may well mean a greater focus on European SMEs. What’s more, the regulation establishes a process that will enable this.

The result would effectively see European SMEs subsidising large, non-European businesses. In other words, a transfer of royalty obligations from high wealth to low wealth, from the rest of the world to Europe. Perhaps that’s another reason why Big Tech companies are so keen on the regulation. But is it really something that MEPs and member states should support?

The end of European leadership

There is an alternative scenario – but it is one that would also be detrimental for Europe. Instead of seeking more licensees further down the value chain, licensors could decide to reduce their current levels of R&D investment and jobs.

As some of the most significant SEP holders are based in the EU – think Ericsson and Nokia, for example – such an outcome would result in reduced European connectivity leadership and greater reliance on technology developed elsewhere. At a time of heightened global tension, when policy priorities are centred on ensuring essential mobility innovation takes place - and is controlled - as close to home as possible, this is not an attractive prospect. But it is what backing the regulation may well mean.

What’s more, without the current incentives to invest in connectivity R&D, the logic of ongoing standardisation initiatives becomes more questionable. Why take the time, donate the highly-skilled personnel, share the research and accept the lower margins that the creation of foundational standards technology involves, if it leads to less on the bottom line? Why not place greater emphasis, instead, on the creation of more lucrative, proprietary and exclusive tech? After all, this is a decision that many, very well-known, implementers have already made.

Still time

Over the course of the last few months, multiple technical arguments have been made against the SEP licensing regulation. They are compelling. However, as a businessperson, what worries me most are the practical, potentially significantly negative, consequences of adopting the legislation.

I have no doubt that it was put together with the very best of intentions. At Sisvel, we share many of its stated aims – we are firmly committed to transparency and powering innovation. However, I do not think that the regulation has been properly thought through. It will benefit bigger businesses at the expense of smaller ones and reduce the incentives to develop the connectivity technology upon which the development of new and exciting industries depends.

Furthermore, I do not see any serious evidence that justifies the need for change. Instead, what we are facing is the disruption of a model that functions well – one that provides multiple benefits to billions of people and for which Europe largely sets the rules.

It seems unlikely to me that the EU’s politicians and policy makers would deliberately want to dismantle a system that delivers so much. For this reason, I urge them to take another look at the regulation, and to consult more widely about its implications, before they proceed any further. There is still time to safeguard Europe's connectivity leadership and the interests of our SMEs. Let's make sure we take it.

Mattia Fogliacco is President of Sisvel International

Foto di Guillaume Périgois su Unsplash

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