US government policy toward licensing of standard-essential patents (SEPs) isn’t a subject that the wider tech industry follows closely. Arguably it should. Recent changes in policy point to a big shift in ethos that encapsulates industry and government concern — an admission of the need to foster innovation at a time of supply chain upheaval and geopolitical tension. It also highlights a delicate balancing act between the newfound appetite for regulation of big tech and the need to provide tools and incentives to ensure the West is competitive with China in artificial intelligence, 5G and semiconductor design and manufacturing.
On 8 June 2022, the US Department of Justice, the US Patent and Trademark Office and the National Institute of Standards and Technology announced the withdrawal of the 2019 policy statement and the abandonment of the 2021 draft statement on remedies for SEPs that are subject to fair, reasonable and non-discriminatory licensing commitments.
The result is that no guidance is being issued for SEP licensing discussions. Although the withdrawal of a statement may seem abstract or even unimportant for those unfamiliar with government policy, it essentially leaves companies to determine what constitutes good-faith negotiation under the banner of “fair, reasonable and non-discriminatory”.
This U-turn has considerable implications and shines a light on the priorities of the Biden administration. Rather than the government seeking to steer patent enforcement, US courts will be left to set precedent. This is a big shift from a 2021 draft statement that prioritized the parties using SEPs over those driving the innovation needed to create them. Neutrality has been defined as the best approach.
We see this as a positive development. As the Department of Justice stated, withdrawal “best serves the interests of innovation and competition” and will be welcomed by companies spearheading innovation in the Western tech industry. Crucially, the new approach will encourage innovation at a time when the West needs to be smoothing the path to competitiveness with China.
The challenge has been that North America and Europe are wrestling with two very different agendas, both of which are important, yet have clashed and resulted in policy conflict. As the Digital Markets Act in Europe paves the way for similar regulation in the US in the form of the American Innovation and Choice Online Act and Open App Markets Act (more on this in future articles), the need for regulation of big tech is now resulting in action rather than just rhetoric.
Although a tighter (and clearer) regulatory environment is overdue, there’s a risk that it’s too wide-ranging. A by-product of this was arguably the 2021 draft statement itself — loud calls to rein in big tech saw the US government intervening too heavily in areas such as patent policy. The industry needs investment, competition and innovation to be accelerated, not thwarted.
In China, the picture is very different. The country’s policy treats innovation, prosperity and the boosting of its domestic supply chain as paramount, awarding tax credits and incentives for investments in priority industries such as semiconductors.
Competing with China on a level policy playing field is going to be difficult for the Western world. If innovation and prosperity are to flourish, they need the right environment to be cultivated. There needs to be a healthy balance between competition, protection of intellectual property and regulation. Businesses must be able to compete on equal footing, knowing that innovation will be nurtured and protected through a system that respects the process of developing and profiting from intellectual property.
The extent to which the West can balance a more hands-on regulatory approach and the need to encourage innovation will shape the tech landscape in the coming years. There’s also the possibility that these objectives are in constant collision. However, the abandonment of a government policy on SEP licensing suggests a growing understanding of the bigger picture and the need to avoid a broad-brush approach to the regulation of big tech at the cost of global competitiveness in the long term.
We’ll be delving into the theme of regulation of big tech at our Predictions for 2023 and Beyond event from 18 to 20 October. To register for this free online event, fill in the form below or visit ccsinsight.com/predictions.
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