Context: There are major inconsistencies between the European Commission’s (EC) different statements on, and actions surrounding, industry standards and standard-essential patents (SEPs). While formally still pushing for the adoption of the controversial EU regulation on standard-essential patents (EU SEP Regulation) (December 5, 2024 ip fray article), the EC accuses Chinese courts of devaluing SEPs (January 20, 2024 ip fray article) and in that context described SEPs as a “major area of intellectual property protection” (March 17, 2024 ip fray article). And with what is going on in the England & Wales Court of Appeal (EWCA), the point may be reached where the EU will have to bring a trade complaint about UK jurisprudence (January 26, 2025 ip fray article).
What’s new: These days, a copy of an EC strategy document named “Competitiveness Compass” leaked in various places (e.g., January 27, 2025 LinkedIn post by turnus.ai). It contains multiple statements that go in the opposite direction from the proposed EU SEP Regulation by stressing the importance of having European companies participate in standard-setting, promoting license agreements and calling for a “restart” of the virtuous innovation cycle.
Direct impact: The Competitiveness Compass is undoubtedly the most important economic policy paper that the current Commission, which took office late last year, has put together, and arguably the most important EU tech policy document in a decade or more. The pro-patent and pro-standards positions found in the Competitiveness Compass suggest that a proposal like the EU SEP Regulation would not stand a chance of being adopted by the EC under its current parameters.
Wider ramifications: While large parts of the innovation ecosystem will welcome the EC’s pro-IP statements, the EC’s plans are not going to stop (or just appreciably slow down) the bloc’s economic decline. The goals set out by the paper are unrealistic as the EU can no longer aspire to catch up with the United States or China in winner-takes-all markets. What many people like about living in Europe (such as cultural and linguistic diversity, a greater work-life balance, a more egalitarian society (including a more egalitarian education system that lacks world-class universities) and well-meant but misguided aspirations to solve the whole world’s problems) made Europe miss the Digital Economy boat. There won’t be a second chance due to company-level and cluster-level network effects. The measures proposed now are, at best, “too little, too late,” and some of them are even harmful (such as certain proposals found in the Draghi Report), but strengthening IP is one of the better ideas found in the Competitiveness Compass.
There are four references to IP and standards that are worth highlighting with a view to EU patent (and particularly SEP) policy:
“Europe’s share of global patents is comparable to US and China. Yet, only one of third of EU patents are commercially exploited. For European researchers and entrepreneurs, the route from discovery and patenting to market is littered with barriers.”
When it comes to SEPs, commercial exploitation means licensing, but those licensing revenues are needed to fund research and development. The last three words matter: “littered with barriers.” Critics of the EU SEP Regulation say that it creates additional barriers. That would be a form of littering, in an abstract sense.
“The EU must restart a virtuous innovation cycle and remedy where it falls short relative to more dynamic competitors. The Draghi report shows that productivity growth is the result of a combination of disruptive innovation brought about by new, dynamic start-ups challenging incumbents; large-scale innovation introduced by companies; and efficiency gains in mature traditional industries applying innovation. Europe falls short on all these fronts. The Commission will act on all aspects of the innovation lifecycle.”
The diagnosis is correct. For example, Europe wouldn’t have to worry all that much about the challenges facing its 100-year-old automotive companies if its economy had been as dynamic in recent decades as its U.S. and Chinese counterparts. Other companies would long have replaced, in terms of importance to the economy, those dinosaurs. But the EU’s member states have not created a single technology company of the “too big to acquire” kind in more than 50 years. The only two companies that meet that definition are SAP and ASML, both with market caps on the order of $300 billion, which is just about what NVIDIA lost yesterday. SAP will turn 53 in a couple of months, and ASML was founded as a joint venture by two old companies. All other European tech companies are acquisition targets. Actually, Microsoft or Oracle could buy SAP, or NVIDIA could buy ASML, but it would be a major effort and antitrust pushback would be ensured.
If the EU goes against Nokia and Ericsson, those companies will simply be acquired by the likes of Cisco and Samsung.
The paper is right that the innovation lifecycle must be supported by economic policy, and that must be considered in a patent policy context. Interestingly, the CEOs of SAP and ASML joined the CEOs of Nokia and Ericsson at a recent Brussels event where they discussed the dangers of overregulation (January 16, 2025 ip fray article).
“The Commission will seize the opportunity for making standard-setting processes faster and more accessible, in particular for SMEs and startups. [emphasis in original] The current European standardisation system lacks responsiveness to faster innovation cycles in emerging technologies. Engaging systematically in global standard setting processes is very important to influence outcomes aligned with EU interests, helping industry to maintain competitive positions in key technology markets, such as 5G and 6G telecommunications, AI, renewable energy technologies, electric vehicle charging infrastructure, and the Internet of Things.”
“Engaging … in global standard[-]setting processes” is, interestingly, the only context in which the 22-page paper uses the word “systematically.”
The EU SEP Regulation is also “systematic,” but its objectives run counter to the above.
“[T]he Commission will review the Technology Transfer framework[] to strengthen the role of technology licensing agreements in promoting innovation by facilitating technology dissemination and incentivising initial R&D.”
Here the EC recognizes the connection between “initial R&D” and the conclusion of “licensing agreements.”
EC officials and other proponents of the EU SEP Regulation have also argued that it will lead to more license agreements, but not a single net licensor agrees.
The only way is down, but the question is how fast: if the EU can’t solve the biggest problems, it should at least try not to create additional ones
The Competitiveness Compass starts with the following paragraph:
“In recent years, Europe has shown a remarkable ability to respond to a succession of crises. It has withstood the pandemic and the energy shock. It has made tangible progress on its twin digital and green transition and introduced new policies and new funding instruments to sustain recovery and increase economic growth.”
In reality, non-European economies recovered far better from the impact of the pandemic, and the “energy shock” is largely a homemade European insanity to be blamed on ideological (and, at least in the EU’s largest member state, counterproductive) environmentalism that amounts to little more than virtue-signaling. With President Trump having withdrawn from the Paris Agreement on climate change, the EU is left alone while emerging economies will simply pollute.
At least the report does acknowledge as “risks” what is actually the EU’s inescapable future:
“The risk for Europe is not just to be stuck in a low-growth path, with less income, less welfare, less opportunities. Sustained growth is key to fund the EU’s decarbonisation and technological transition, to provide the fiscal space to finance its social model, to muster the resources to guarantee its security and to play a global role in foreign affairs, defending its values and interests. As Draghi has warned, if Europe accepts a managed and gradual economic decline, it is destined to a ‘slow agony.’”
“The sad reality is that the EU and its member states would have had to take far-reaching structural measures at least two and more likely three or even four decades ago to position the continent for a leadership position in the Digital Economy. Some of those measures would have gone against European “values.” Some would not have been politically feasible, such as imposing a common official language on the entire EU. Now it’s game over and in 10-20 years, Europe’s benchmarking focus will have to be on Latin America and Africa rather than the United States or China.”
Florian Mueller
(Founder & Publisher of ip fray)
A more realistic way to restate that paragraph is that
- there is no chance of the EU becoming a fast-growing economy because it is, and always will be, too weak in the fields in which high growth rates (and high margins) are attainable;
- Europeans are already underpaid in key professions as compared to their U.S. counterparts, even if adjusted for purchasing power;
- Europe’s automotive industry has become a stuttering engine that fails to compete with Chinese and American rivals;
- the brain drain has already been strong (someone recently noted in a LinkedIn discussion that there are many French developers working on leading AI projects, but they are not working for French companies); and
- the combination of that economic decline with an unsolved sovereign debt crisis (France has an annual deficit of approximately 6%, twice the number allowed under the Maastricht Treaty that is a significant part of the reason for Europe’s decline, and no political majority there will take painful but necessary measures) makes hyperinflation in the eurozone only a matter of maybe one or two decades.
The picture is more than bleak. It is devastating, and you can find some facts and charts in this section of a recent ip fray article. But that is why the EU should at least avoid inflicting further unnecessary self-harm, particularly in connection with SEPs.