Portfolio Licensing to Makers of Downstream End-User Devices

Abstract

Competition agencies around the globe are investigating whether a standard-essential patent (SEP) holder’s choice to license to the makers of downstream end-user devices, rather than to makers of the components of those devices, violates competition laws. Some authorities have already reached that conclusion. While much has been written about FRAND-assured SEPs, the literature to date focuses largely on the appropriateness of seeking and obtaining injunctive relief on such patents or on the meaning of “fair and reasonable,” and has largely ignored the “nondiscriminatory” prong of FRAND (fair, reasonable, and nondiscriminatory). This article analyzes what we observe to be the common industry practice of licensing on a portfolio basis at the end-user device level, and whether a patent holder’s refusal to license at only at the downstream end-user device level, and not at other levels of the production chain, may constitute an antitrust violation. We conclude that (1) whether the “nondiscriminatory” prong of the FRAND promise requires licensing at the component level is a fact-specific inquiry that depends upon the specific standard-development organization’s policy; (2) even if there is potential for a failure to comply with a FRAND assurance, that alone does not constitute an antitrust violation; and (3) the refusal to license at component level cannot be anticompetitive when the vertically integrated holder of one or more SEPs does not assert its patents against the makers of components but, instead, licenses its SEP portfolio to end-device manufacturers on FRAND terms.