The recent report from Mario Draghi, The Future of European Competitiveness, makes for grim reading for anyone like me who is invested in Europe’s long-term economic success and status as a driver of innovation.

The report offers several explanations for why the EU has failed to keep pace economically with the world’s other major powers and serves as a warning to policymakers everywhere.

As Draghi points out, Europe has, “many talented entrepreneurs and researchers filing patents.” But, he adds, those entrepreneurs and patent owners are often blocked by onerous government intervention.

“We are failing to translate innovation into commercialization, and innovative companies that want to scale up in Europe are hindered at every stage by inconsistent and restrictive regulations,” Draghi states.

At InterDigital, we are a pure research business and our success depends on the commercial impact of our innovation. Without this, we would not be able to re-invest in our wireless, video and AI research, which makes mobile networks more reliable, supports the transmission of vast quantities of data over wireless networks, and enables higher quality video. In recent years we have invested around half of our recurring revenues into our research and the development of our patent portfolio, with much of our investment focused on standardized technologies such as 5G, Wi-Fi and advanced video compression.

Our engineers are some of the best in the world at anticipating how technology trends are likely to shape connectivity for years to come. We also understand that not all of our research will eventually be adopted in standards like 6G and in connected devices and services. But, thanks to the IP protection that we receive for our inventions, we can license the research that does make it into those standards to companies that use our patented technologies and generate the necessary revenue to re-invest in our R&D.

To do this, we don’t expect a regulatory environment that is tilted in our favor, but we do expect policies that balance the interests of innovators like InterDigital with those that implement our technologies in their devices and services. Policy is at its most effective when it provides the right incentives for innovation and encourages industry-led technology development.

SEPs and the proposed EU regulation

Unfortunately, in Europe, the pathway to commercializing innovation is now under threat from the kind of inconsistent and restrictive regulations that Draghi criticized in his report.

Currently a proposed new regulation on standard essential patents (SEPs) is moving through the legislative process in the EU which, if it were to come into force, would place new and particularly heavy burdens on innovators.

The reality of what has been proposed is that the regulation would give implementers who infringe intellectual property, even more leverage over innovators like InterDigital, Nokia and Ericsson. My concern is that, ultimately, it would make the EU a far less attractive place for R&D investment from companies that build the foundational technologies that drive so much of today’s connected global economy.

This interventionist stance is also in stark contrast to the recent shift in approach taken on SEP policy in the U.S. where policymakers have taken a step back from the much more heavy-handed approach taken during the Obama Administration, and have shifted to a more friendly, light-touch approach, which now assesses SEP owners’ and implementers’ behavior on a case-by-case basis. At the same time, USPTO Director Kathi Vidal has advocated for “greater investment in research and development in technologies that may become international standards.”

I would argue that the current U.S. approach is the right one to take. It is also notable that three pieces of legislation – PREVAIL, PERA and RESTORE – were recently introduced in the U.S. Congress and, while they do not directly address standards, all three would help shift IP policy in a more balanced direction.

Recommendations for SEP policy

Given this flurry of activity on either side of the Atlantic, when new SEP and innovation policy is being considered, how can it be crafted to support standards innovation? Here are a few recommendations to consider.

1. Find consensus in SEP policy

I would suggest that any policy under consideration should be subject to a thorough consultation process that takes account of the views of all stakeholders. As much as possible, any proposed reforms should be based on consensus and not simply on weight of numbers. The relatively small number of companies that develop the vast majority of contributions to standards like 5G, Wi-Fi, and the HEVC video standard are always outnumbered by the companies who implement these technologies in their devices and services.

2. Global arbitration can be a better way for resolving SEP disputes

Where disputes do arise between innovators and implementers, effective policy should encourage parties to use binding global arbitration to reach a settlement. Arbitration is more efficient than multi-jurisdictional SEP litigation, and its global scope means that it is far better suited to resolving disputes that involve global patent portfolios.

3. Take a broader view when determining SEP policy

Any policy must be viewed through a wide prism that takes into account areas such as trade and foreign policy, ways to foster R&D investment, and national security. Regulations that impact standardized technologies are about more than just IP rights and need to be viewed through a much broader prism.

It’s clear that we need the right incentives to encourage ongoing investment in foundational R&D, not more red tape like the EU’s SEP regulation. That’s the key to ensuring that innovation and standards development continue to thrive.

If there’s one big takeaway from patent policy in recent years, it’s the extent to which standard essential patents (SEPs) are increasingly shaping the IP and, in some cases, the wider tech policy agenda in the U.S., Europe and Asia. That’s not surprising given the importance of standardized technologies such as 5G, but it does also mean that policymakers need to tread extremely carefully to protect the balance between innovators and those who implement these technologies in their devices.

We began 2022 knowing that the patent policy landscape was going to change and leading the way was the move by the U.S. Patent and Trademark Office (USPTO), the Department of Justice’s Antitrust Division and the National Institute of Standards and Technology (NIST) to withdraw a 2019 policy statement on SEP FRAND remedies. They also announced that a new draft policy statement would not be implemented and that the U.S. Government would review the conduct of SEP owners and implementer companies on a case-by-case basis.

This was a welcome development, not least because commercial disputes are best settled by the parties themselves or through some form of dispute resolution if the parties can’t agree – not through government policymaking.

We’re still waiting to see how that case-by-case approach might work in practice, but another encouraging development in the U.S. was USPTO Director Kathi Vidal’s strong endorsement of increasing participation in global standards by U.S. headquartered companies. The development of 5G shows that this is badly needed since there are just two U.S. headquartered innovators – InterDigital and Qualcomm – among the leading developers of the 5G standard.

In a blog post in September, PTO Director Vidal wrote, “We must continue to encourage U.S. participation in standard-setting organizations and the efficient and effective adoption of those technologies by our industries, as part of our efforts to promote innovation in the standards space and drive sustainable, long-term growth in the U.S. economy.”

I welcome the link between participation in standardized technologies and long-term economic growth, but I would argue more still needs to be done to explain how more robust patent rights provide the best incentives to innovators in areas such as 5G.

More also needs to be done to ensure that Chinese implementer companies do not holdout on taking a license to innovators’ patent portfolios. This year I have been encouraged by moves by the European Commission to take action against the aggressive use of anti-suit injunctions (ASI) by some OEMs in the smartphone space, including several from China.

The Commission is pursuing a case at the WTO to investigate the issuance of these ASIs which are designed to prevent parallel cases in an SEP licensing dispute from being heard by courts in the U.S. and Europe. ASIs are not a new legal tactic, but their most recent incarnation represents an aggressive form of over-reach which the Commission is right to target.

While Europe’s lead on ASIs is welcome, I have been alarmed by the direction that the EU appears to be taking in other areas in relation to SEPs. After a public consultation earlier this year on various matters related to SEPs, the rumors out of Brussels are that policymakers are considering asking innovators to conduct overly burdensome essentiality checks on the SEPs in their portfolios. This would add an incredible amount of time and money to companies and research organizations who are already often out-gunned financially by implementer companies and would potentially give those holding-out on taking a license yet another means of delaying in paying up for the technology they use.

If the Commission is set on this course, then I want to be very clear that it cannot only be the innovators who have to take on this burden and any essentiality checking system cannot be open to abuse by implementer companies. Additionally, if the Commission pursues this policy, safeguards must be put in place to guard against patent holdout by implementer companies. European courts have led the way recently in highlighting the problem of holdout while the continent’s innovators have played a central role for decades in advancing connectivity. The EU must not now shoot itself in the foot over poorly designed policy.

Keeping a very close eye on the direction that Europe takes on SEPs is at the top of my priority list in 2023 as standardized technologies are only becoming more valuable as we see more and more sophisticated levels of connectivity implemented across a growing number of industries. The stakes are once again high as policymakers ring in the new year.

Now, if I had one wish for 2023 (apart from the Washington Capitals winning another Stanley Cup), it would be that those in power recognize the immense value of strong patent rights and how strong patent rights incentivize and enable innovators to build on the technologies that have come before them. The kind of foundational research that engineers at InterDigital and elsewhere engage in is painstaking work and takes years to pay off. Appropriate protection for our innovation provides us with some guarantee that we can continue to invest in our engineers and help drive a new era in connectivity.

That’s worth remembering no matter where you sit on the political spectrum.