SETTLING FRAND DISPUTES: IS MANDATORY ARBITRATION A REASONABLE AND NONDISCRIMINATORY ALTERNATIVE?

Abstract

This article reviews the recent proposal by Mark Lemley and Carl Shapiro that standard-setting organizations (SSOs) amend their intellectual property rights (IPR) policies to require standard-essential patent (SEP) owners and willing licensees to resolve disputes over licensing terms, particularly fair, reasonable, and nondiscriminatory (FRAND) royalty rates, using mandatory binding final-offer (or “baseball”) arbitration. We first consider the fundamental underlying premise of the arbitration proposal—namely, that there are systemic problems relating to FRAND-based standardization and that current disputes are not being efficiently addressed. We find that mandatory baseball arbitration is an unnecessary intervention since there is no evidence of market failure, it will not necessarily afford better outcomes, and it is more likely to lead to decisions that undermine the standardization process.