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EU – The Data Act: A FRANDly approach to data licensing
EU – The Data Act: A FRANDly approach to data licensing
2 February 2024
Series
Blogs
2 February 2024
On 13 December, the EU adopted Regulation (EU) 2023/2854 on harmonised rules on fair access to and use of data, also known as the “Data Act”. Among other things, this legislation addresses access to non-personal data arising out of use of connected devices in all sectors, e.g. virtual assistants, connected cars, connected fridges etc. The Data Act mandates that this (and other) data is made available on fair, reasonable and non-discriminatory (FRAND) terms. We consider whether the principles developed for the FRAND licensing of standard essential patents can be applied to FRAND access to data.
The number of devices connected to the internet is steadily increasing. However, most of the data generated by connected devices is only available to a few large companies. The Data Act addresses this by imposing new obligations on those providing “connected products” (i.e., devices that collect data and communicate that data via an electronic communications service) and related services. These obligations generally relate to “product data” which is data retrieved from the connected product.
In particular, the Data Act mandates that if a user asks for this data to be provided to a third party, wherever it is readily available it must be made available easily, securely, in a machine-readable format and, where feasible, continuously and in real time. The recipient may have to pay to access the data. However, large technology companies, designated as “gatekeepers” under the EU’s Digital Markets Act, are not eligible to receive data at a user’s request.
Where a data holder is obliged to make data available under the Data Act, it must also be made available under “fair, reasonable, and non-discriminatory” (FRAND) terms. These terms are not further defined, save that the Data Act specifies explicitly that data holders may not discriminate between comparable categories of data recipients.
This FRAND obligation also appears to extend to data sharing obligations under any EU law (or national law adopted in accordance with it), not just under the Data Act. Moreover, there are express FRAND data sharing obligations elsewhere in the EU’s new digital package, including in the Digital Markets Act, under which designated “gatekeepers” are required to share “ranking, query, click and view data” with other search engines on FRAND terms. FRAND data sharing obligations may therefore become increasingly important as the EU continues to legislate for the data economy.
“FRAND” is not a new concept. Over the last two decades, a significant body of law has been developed in the context of the FRAND licensing of standard essential patents (SEPs).
SEPs are patents that would inevitably be infringed by putting into practice a technology specified in a technical standard set by a standard setting organisation (SSO). For example, ETSI is a European SSO in the field of information and communications. It publishes more than 2,500 technical standards every year, including those that specify the requirements of key global technologies such as 5G. Standardising technology in this way is intended to promote and protect quality, compatibility, and interoperability. Where compliance with a standard would inevitably infringe a patent, that patent is an SEP.
Patent holders can typically freely decide whether to license their patents to other operators. However, where a patented technology is included in a standard, that gives the SEP holder significant market power over implementers. To address this imbalance, SSOs typically require any party that participates in standard development and wishes to declare patents essential to a standard to commit to offering implementers a licence to those SEPs on FRAND terms. Failure to do so may have consequences under private law and under competition law (e.g. breach of Article 102 of the Treaty on the Functioning of the European Union which prohibits abuse of a dominant position).
In Europe, while there is no binding definition of “FRAND”, judicial guidance in the context of SEP licensing has come, most notably, from the CJEU in Huawei v ZTE , the UK High Court in Unwired Planet v Huawei and the UK Court of Appeal decision in the same case, and certain other subsequent national court decisions such as the German Supreme Court’s judgment in Sisvel v Haier.
While there are key differences between the regulatory FRAND obligations on data holders and the private law and competition law FRAND obligations on SEP holders, some of the lessons learned from SEP licensing may be applicable to FRAND access to data:
1. FRAND obligations relate to the negotiation process, not just the licence terms.
In Huawei v ZTE, the CJEU provided a framework of steps that must be followed in FRAND licensing negotiations before an injunction can be pursued by an SEP holder against an implementer without abuse of dominance (i.e. notification of the infringement by the SEP holder; implementer’s response demonstrating willingness to conclude a licence on FRAND terms; offer of a licence by the SEP holder; and acceptance/counter offer by the implementer). Each party should negotiate transparently and in good faith, responding promptly to correspondence and demonstrating its willingness as a licensor or licensee. While the specific steps set out above will not apply to data access negotiations (not least because any negotiation would typically have to be initiated by a would-be recipient requesting access to data), it is very likely that each party’s conduct will be key to a finding of compliance with FRAND obligations.
2. There is no single set of FRAND terms.
The UK Court of Appeal in Unwired Planet v Huawei has held that what is fair and reasonable in any case may be within a range. Provided a SEP holder has offered at least one set of terms that is FRAND, they will have complied with their FRAND obligations. The counterparty is not able to insist on a different set of terms, even if those terms would also be FRAND. This approach is likely to be equally applicable to FRAND access to data.
3. The FRAND licensor has informational duties to the licensee.
In the context of SEP licensing, a FRAND licensor must inform the implementer that it has infringed its SEP, specifying the patent, applicable standard and method of infringement. Then, once the implementer has shown itself to be a willing licensee, the FRAND licensor must provide the implementer with a specific, written offer for a licence, specifying the royalty and explaining the way in which it is has been calculated. The royalty calculation must be detailed and transparent, taking into account different markets and specific patents. If, presented with a clearly willing implementer, the licensor does not provide this information, it is not a FRAND licensor.
Data licensors similarly have a range of informational duties towards the data recipient. The data licensor must provide the data recipient with information regarding the calculation of the compensation in sufficient detail that the data recipient can assess whether the requirements of Data Act are met. That is likely to require it to provide information concerning the volume, format, and nature of the requested data; the costs incurred in making the data available (including formatting, storing and disseminating it); and any margin. The data recipient will also be required to provide all necessary information to the data holder to verify its status, e.g. as a “gatekeeper” under the Digital Markets Act with limited recipient rights, or a SME with extended recipient rights. Failure to do so is likely to result in a finding of non-FRAND behaviour.
4. Comparables can be key to FRAND royalty calculations.
FRAND SEP royalty rates are often (but not exclusively) assessed on the basis of comparable licence rates, e.g. those granted by the SEP holder to similarly situated entities in previous negotiations. Where the circumstances are adequately comparable, those licensing rates can be useful points of reference in assessing the reasonableness of the offered licensing rate and/or calculating a FRAND rate (usually by taking the rate from the comparable licence and applying an appropriate adjustment factor). While other methods of calculation have also been used, extrapolating from comparable licence rates is typically a central strand to FRAND royalty assessments. This is likely to apply equally to assessments of FRAND royalty rates for data sharing. Data holders are expressly prohibited from discriminating between comparable categories of data recipient, meaning that benchmarking based on licensing of similar datasets to similarly situated categories of data recipient may be particularly important.
5. Different rates can be offered to different licensees.
In SEP licensing, while all licensing must be non-discriminatory, the UK courts have held that this requirement is not “hard edged”, i.e. a licensee who was offered a "fair and reasonable" rate was not discriminated against merely because another licensee had been given lower rate. A fair rate is not necessarily the lowest rate the licensor has offered in the past, so FRAND does not mean that every licensee is entitled to the same rate. This principle, i.e. that differential pricing is not objectionable per se, is very likely to apply equally in the context of data licensing.
FRAND principles have been identified in the context of SEP licensing slowly and somewhat painfully over several decades by negotiation, contracting and litigation. Even now, the FRAND determination framework is continually evolving and remains complex and difficult to navigate, so much so that the EU has proposed a SEPs Regulation, designed to increase transparency, reduce information asymmetries, and facilitate agreement on FRAND licences. No doubt the EU aspires to avoid these issues in the context of data sharing. One way it proposes to do so is by requiring every EU Member State to establish a dispute settlement body to oversee disputes relating to FRAND terms and conditions for, and the transparent manner of, making data available in accordance with the Data Act. These entities would do well to look to, and continue to monitor, the conclusions drawn in the context of FRAND SEP licensing.