Licensing Standard Essential Patents: What is Fair, Reasonable, and Non-Discriminatory?

Abstract

The 5G mobile telecommunications standard is focusing increased attention on licensing of Standard Essential Patents (SEPs). SEP holders and technology implementers commit to negotiate license agreements on terms that are Fair, Reasonable, and Non-discriminatory (FRAND). Standard Setting Organizations (SSOs) establish coordinated FRAND commitments by consensus decision making. SEP holders and implementers create negotiated FRAND commitments through patent license agreements. Courts specify adjudicated FRAND commitments in SEP license disputes. The article argues that SSO coordination, market negotiation, and adjudication precisely define FRAND commitments. The courts have successfully applied common law principles and comparable license agreements to interpret FRAND commitments. The article argues that administrative or judicial regulation would reduce standardization, impede innovation, and constrain market negotiation of patent license agreements. The article introduces the concept of the “patent run-around” to describe potential effects of “licensing to all” regulations. The article cautions that because of some landmark court decisions, there is a risk that the provisions of patent license agreements could be determined more by judicial regulation than by negotiation in competitive markets. Problematic developments include the imposition of arbitrary aggregate rate caps and basing royalties on the estimated incremental value of standardized technology. The article recommends that courts avoid formulating one-size-fits-all FRAND commitments in 5G mobile telecommunications and other innovative industries. Licensing SEPs does not justify increased antitrust enforcement or administrative regulation.