Licensing of SEPs and the Determination of FRAND

Abstract

AbstractLicensing commitments are an integral part of the standards development process. Once patents essential to the development of a standard have been disclosed by patent holders, the next logical step for standards-setting organizations (SSOs) is to secure commitments from patent holders to license these patents on fair, reasonable and non-discriminatory (FRAND) terms. Although FRAND licensing commitments are sure to find a place in the IPR policies of all SSOs, what is missing though, is a lack of precise definition of “reasonable”, leaving the same to be determined by SSO participants. In most cases, when the patent holders and implementers are unable to negotiate FRAND licenses, they resort to a court-determined royalty rate. In order to determine a FRAND royalty rate, the usual course is to determine a reasonable rate and fix the royalty base, the latter of which is either the smallest saleable patent practising unit (SSPPU) or the end market value (EMV) of the product implementing the standard. Courts, however, are divided on the aspect of the correct royalty base and while most judgments involving licensing of SEPs in the United States (U.S.) and European Union (EU) have held SSPPU to be the accurate representation of the value of the patented technology, the usual market practice involves entire market value EMV as the correct royalty base for fixing FRAND royalties. There has also been divergence of opinion between courts as to whether FRAND is a single royalty rate or a range. What then is the correct interpretation of FRAND? How has it evolved under SSOs’ IPR policies and what justifies its enforcement? What parameters need to be taken into consideration for defining the three prongs of FRAND- “fair”, “reasonable” and “non-discriminatory”. This chapter answers the aforementioned questions in the larger context of licensing practices at SSOs.