Fair, Reasonable, And Nondiscriminatory Terms Research Articles

FRAND Access to Data: Perspectives from the FRAND Licensing of Standard-Essential Patents for the Data Act Proposal and the Digital Markets Act

This article evaluates how the principles developed for the fair, reasonable and non-discriminatory (FRAND) licensing of standard-essential patents could be applied to FRAND data access as envisaged under the Digital Markets Act and the Data Act and proposes a negotiation scheme to specify the FRAND obligations. Firstly, this article describes the access rights under the Data Act and identifies its four layers to accelerate data sharing (Section 2). Secondly, the role of FRAND data sharing in the EU Data Package is described, and the specifics of FRAND in the context of the Data Act and the Digital Markets Act are developed (Section 3). Based thereon, the differences and commonalities of data sharing as envisaged in the Acts with respect to the FRAND licensing of standard-essential patents are described, and a negotiation scheme for FRAND terms under the current Data Act Proposal is developed under adaptation of the principles from Huawei/ZTE (Section 4).

Innovation, Patents, and Competition in Modern Agriculture: A Case Study of Bayer and Monsanto Merger

The use of digital technologies to aid the agronomic decision making of farmers characterizes modern agriculture. Digital farming is expected to enhance the market power of leading innovative firms in the seed industry, which is already having a high level of concentration. The merger of two leading innovative firms—Bayer and Monsanto—is to be seen in this context. This article examines the emerging anticompetitive considerations from the deal and the contribution of the Competition Commission of India in alleviating such considerations while approving the deal. It is found that threats were emerging in three areas—traits and seeds, nonselective herbicides, and digital farming platforms. To eliminate the anticompetitive effects of the deal, both the companies were required to divest their research and development intensive trait, seed, and nonselective herbicide businesses. They were also required to license the proprietary active ingredients of nonselective herbicides, if the use of their seeds was linked to the application of such herbicides, on fair, reasonable, and nondiscriminatory (FRAND) terms. They were also required to license the agronomic data, collected from India, and used in their digital platforms, to potential users on FRAND terms.

Globalisation and FRAND - IP & Competition Law Perspective

The paper addresses the status of regulation of Standard Essential Patents (SEPs) in the era og globalisation and the diversity of ways in which FRAND (Fair, Reasonable and Non-Discriminatory) principles are being applied, the world over. SEPs represent the core innovation in an industry and protect innovation that has taken extraordinary effort to develop. Smart phones, tablets, connected cars, smart home applications, smart retail, gaming technologies and connected healthcare are some of the examples entailing use of SEPs. Reaching consensus regarding application of FRAND terms at the global level, is a utopian view of scholars and practitioners alike. However, the manner in which FRAND terms are being applied in the US and within the EU are different. Therefore, the task of arriving at a consensus is not straightforward. The paper, at first, presents the different views on application of FRAND terms. Thereafter, in the light of the recent case law – analyses the way in which FRAND terms are interpreted in different jurisdictions, specifically within the EU and the United States. In conclusion, the IP and competition law perspective is offered, as areas that potentially house some provisions that might assist in removing hurdles that stand in the way of achieving a common understanding.

Economic efficiency and field-of-use pricing of SEP licences under FRAND terms

This article is concerned with the producer market in patented technology, and whether price differentiation based on field-of-use – a common strategy adopted by businesses with high fixed costs – is economically efficient. The focus is on the licensing of Standard Essential Patents (SEPs) on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions, including also the Internet of Things (IoT) applications, and the economic growth in the digital economy, especially for small and medium sized enterprises (SMEs). The central argument proposed is that the absolute difference in the value between usages of essential standardized technologies determines whether a single price for all usages or specific field-of-use prices are economically efficient. A small difference in value should result in a single price and a large difference in different prices. Pricing policy is critical to create a world-wide sustained technology development including contributions from, and applications for, emerging markets and developed markets, thereby growing the digital economy. In this literature review, three evaluation angles of the literature are used: a market analysis under neo-classical assumptions of price-taking agents and marginal (incremental) value; an expanded market analysis where the willingness to pay (WTP) replaces marginal cost as criteria for what price should be paid for licences; and an analysis of market designs with similar characteristics as the SEP market in terms of risk, using experimental economics (behavioural) and auction theory. All analyses angles investigate the principle of field-of-use licensing, established already in the first known patent law in 1474.

An Empirical Examination of Impact

In February 2015, the Institute of Electrical and Electronics Engineers-Standards Association (IEEE-SA)—one of the largest standards development organizations (SDOs)—adopted highly controversial changes to its intellectual property rights (IPR) policy. It introduced a specific definition of fair, reasonable and nondiscriminatory (FRAND) licensing terms. The aim of this article is to explore how the new patent policy has impacted different aspects of standards development within IEEE. Our analysis focuses on the IEEE 802 LAN/MAN Standards Committee (IEEE 802 LMSC), whose Working Groups have been responsible for the design and development of widely used technologies such as Wi-Fi and Ethernet. The empirical findings suggest a decline in Letters of Assurance, with several patent holders reluctant to license under the new FRAND terms. We also find that the number of new projects initiated (or Project Authorization Requests; PARs) in the intellectual property(IP)-intensive IEEE standards (namely the 802 WGs) has recently decreased, suggesting a potential slowdown of the growth rate of innovation after the policy change.

The FRAND Contract

Government agencies in various countries have issued guidelines to facilitate private negotiation to license the use of standard-essential patents (SEPs) that a patent holder has voluntarily committed to a standard-setting organization (SSO) to offer to license on fair, reasonable, and nondiscriminatory (FRAND) terms (or on reasonable and nondiscriminatory (RAND) terms, as the case may be) to a third-party seeking to implement the standard. In effect, these jurisdictions are competing in a tournament of sorts to identify the best legal framework for resolving FRAND licensing disputes. A leading candidate is the existing body of U.S. contract law. In this article, I examine the FRAND licensing of SEPs through the lens of U.S. contract law.1 I will eschew the phrase “FRAND commitment” in favor of the bulkier but more precise phrase “the FRAND contract between the SEP holder and the SSO.” That terminology helps to clarify that the license agreement potentially formed between the SEP holder and the implementer on FRAND terms is a separate, subsequent contract that is entirely distinct from the preexisting contract into which the SEP holder and the SSO have entered. I begin by asking in Part I whether the FRAND contract is enforceable. U.S. courts have found that it is, yet commentators, courts, and other tribunals have flagged various theories of unenforceability when analyzing a FRAND commitment as a contract. In Part II, I analyze the anatomy of the FRAND contract, as informed by first principles of U.S. contract law. Whether, with respect to a given implementer, a given SEP holder has discharged its FRAND duty to the SSO turns on whether the SEP holder has offered to license its SEPs to that implementer on FRAND terms. An implementer loses its rights as a third-party beneficiary of the SEP holder’s FRAND contract with the SSO if the third-party beneficiary rejects a FRAND offer or if it fails to accept that offer within a reasonable time. By underscoring the applicability of these fundamental principles of U.S. contract law, judges, arbitrators, and other decision makers would encourage both the SEP holder and the implementer to avoid dilatory tactics and orthogonal bargaining positions when negotiating license terms for the use of SEPs. In Part III, I examine some of the frameworks that other countries have recently proposed for guiding negotiations for SEPs. Although these frameworks supposedly identify principles that would facilitate the license negotiation between an SEP holder and an implementer of an industry standard, they ignore the relevance of first principles of contract law. Instead, they try to reinvent the wheel—by fashioning a sui generis bargaining protocol for SEP license negotiations that ignores the transactional efficiency of preexisting contract principles of offer and acceptance. These proposals are unlikely to be more efficacious than U.S. contract jurisprudence in defining a clear protocol that encourages the expeditious execution of bilaterally negotiated FRAND licenses. In Part IV, I offer preliminary observations on how a given SEP holder and a given implementer might agree to opt out of the FRAND contract so as to create a superior structure for concluding their bilateral negotiation of a license or, in the event of an impasse, for achieving a more expeditious and cost-effective resolution of their dispute.

Licensing At All Levels Is The Rule Under The ETSI IPR Policy: A Response to Dr. Bertram Huber

As the former Director-General of the European Telecommunications Standards Institute (ETSI), Mr. Rosenbrock has followed with interest the various discussions and disputes regarding the application of the ETSI IPR Policy. The ETSI IPR Policy was drafted, debated and finalized during his tenure, and he was closely involved in its creation and approval and has followed further discussions within ETSI. In a recent paper, Mr. Rosenbrock explained that a promise to license Standard Essential Patents (SEPs) on fair, reasonable and non‐discriminatory (FRAND) terms and conditions, under the ETSI IPR Policy, “allows every company that requests a license to obtain one, regardless of where the prospective licensee is in the chain of production and regardless of whether the prospective licensee is active upstream or downstream”. Dr. Bertram Huber wrote a response to this paper, on behalf of a group of SEP owners called IP Europe. Mr. Rosenbrock’s new paper rebuts the arguments of Dr. Huber and those who seek to undermine the principle of “licensing at all levels”. In particular, the paper confirms: • First, that a promise to license SEPs on FRAND terms and conditions, under the ETSI IPR Policy, allows every company that requests a license to obtain one, regardless of whether the prospective licensee is active upstream or downstream; • Second, that companies like Ericsson and Qualcomm, which now oppose upstream licensing of SEPs, for many years supported it; and • Third, that “end-use royalties” could be misused to pervert the “license to all” principle.

Portfolio Licensing to Makers of Downstream End-User Devices

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.

Standard-Essential Patents and the Japanese Competition Law in Comparison with China, the U.S., and the EU

Despite having committed to FRAND (fair, reasonable and nondiscriminatory) terms, not a few standard essential patent (SEP) owners have engaged in holdup (such as suing for injunction, or levying very high royalty), which has triggered antitrust/competition actions in the U.S., the EU, China, Japan, and Korea. This article focuses on the Japanese situation, highlighting its difference with the Chinese one. The Japanese competition agency (JFTC) as well as the Japanese Intellectual Property (IP) High Court have closely studied the jurisprudence in the U.S. and the EU, coming up with solutions in line with those adopted by the U.S. and EU courts and agencies. By contrast, Chinese agencies and courts have devised unique methods for tackling SEP/FRAND issues. First, a Chinese antimonopoly agency has utilized the exploitative-abuse provision of the Chinese competition law for ordering a SEP owner to reduce its royalties to Chinese licensees, regardless of the SEP owners’ FRAND commitment. Second, a Chinese court utilized “nondiscriminatory” portion of FRAND commitment, for mandating virtually the same royalty to be levied on Chinese licensees as that levied on Apple. These methods either leave too much latitude to the agencies or lack a convincing rationale.

Alternative Remedies in Standard Essential Patents Disputes

The possibility to seek and obtain injunctions for the infringement of Standard Essential Patents (SEPs) is limited in both the US and the EU. The reasons for restricting the use of injunctions is due to concern of patent holdup, i.e. the possibility of SEP holder to force standard-implementers to accept onerous licensing terms, exceeding patent’s true economic value, as well as seeing injunctions as incompatible with the commitment given by the patent holder that it will license its SEPs on fair, reasonable and non-discriminatory (FRAND) terms. Limiting the use of injunctions by SEP holders may enable implementers to engage in a holdout, i.e. delaying taking a license for as long as possible, forcing the patentee to engage in expensive and protracted litigation in order to settle for below FRAND terms. Instead of focusing on injunctions, courts may use some procedural remedies in SEP disputes to restore the balance between the interests of patent holders and implementers. Courts could, at the beginning of the trial, order the defendant to make interim payments into escrow, or provide another type of security, reflecting the value of SEP holder’s whole portfolio, and not just for the patents in the litigation. Once interim payments are in place, courts may separate patent and FRAND issue and try patent issues first, as such could provide parties a sense of the overall strength of the SEP portfolio. Courts may adjust the level of interim payments, after patent issues have been resolved, by setting the higher amount if most of the patents have been confirmed valid and infringed or, conversely, lower the amount if most of the patents have been found to be invalid and non-infringed. Interim payments could therefore secure the interests of SEP holders and make holdout strategy more costly, while at the same time dispense the need for injunctions and mitigate the concern about holdup.

Why SEPs have been involved in Antitrust Cases – From A Chinese Scholar’s Perspective

Abstract If patents have been included in a technical standard and thus have become standard essential patents (SEPs), the SEP holders normally have to commit to the Standard Setting Organization (SSO) to license their SEPs on fair, reasonable and non-discriminatory (FRAND) terms. Although the FRAND commitments already put constraints on the patentees, more and more disputes over FRAND licensing fees involving SEPs are reaching antitrust enforcement agencies and courts, perhaps due to the fact that the FRAND commitments are often not workable. As demonstrated in the case Huawei v. IDC in Chinese courts, SEPs have special characteristics compared to non-SEPs, i.e. the licensing of SEPs relates more to the public interest, the holders of the SEPs may be thought to have dominant positions in the licensing market of their SEPs, the holder of the SEPs often have made commitments to license on the FRAND terms, and the holder of the SEPs should be allowed to use the injunctive relief only in limited circumstances. This article also proposes that Article 55 of the Chinese Antimonopoly Law (AML) should be reconsidered because it exempts the undertakings who exercise their IPRs in accordance with the laws and administrative regulations on IPRs from the application of the AML. However, as this article shows, the excessive royalty requested or the injunction sought by the holder of SEPs may not violate the patent law, but nonetheless may violate the antitrust law.

FRAND Arbitration: The Determination of Fair, Reasonable and Non-Discriminatory Rates for SEPs by Arbitral Tribunals

At the core of most disputes concerning the licensing of standard-essential patents (SEPs) lies the inability of the SEP holder and the standard implementer to agree on fair, reasonable and non-discriminatory (FRAND) license terms. As an alternative to court litigation, a growing number of academics, agency officials and private practitioners have advocated arbitration of SEP-related disputes, and there is anecdotal evidence that are increasingly relying on arbitration to settle such disputes. The purpose of this paper is to discuss based on the author’s personal experience how arbitral proceedings to set FRAND terms work in practice, as well as the various challenges faced by arbitrators, parties, and counsel involved in such proceedings.

Standard Essential Patents and Antitrust: A Comparative Analysis of the Approaches to Injunctions and Frand-Encumbered Patents in the United States and the European Union

This paper looks at the holdup problem stemming from the apparent incompatibility between Standard Essential Patents — those subject to fair, reasonable and nondiscriminatory (FRAND) licensing — and the use of injunctions, and analyzes the potential complementary use of antitrust rules to strike the right balance to optimize competition and innovation.I conclude that in the U.S., patent law and the ruling in eBay provide courts with sufficient tools to avoid the holdup problem, though the FTC could still have a policing role under Section 5 of the FTC Act. In the E.U., the fragmentation of remedies in patent law calls for antitrust enforcement by the European Commission, in line with the safe harbor approach adopted in the Samsung case.Prior to eBay, antitrust enforcement in the United States was limited to the scope of Section 5 of the FTC Act and its associated remedies, i.e. cease and desist orders. However, current patent law counts on judicial tools to identify and prevent holdups created through the threat of injunctions. In particular, the eBay test has enabled courts to limit the potential anticompetitive effects of an injunction sought against a willing licensee. Once courts have signaled the unlikelihood or practical impossibility of obtaining an injunction against such a licensee, holdup issues disappear and any threat to seek injunctions losses all credibility. Courts can then establish damages for past infringement and to set ongoing royalties.In Europe, remedies for patent law breaches diverge across jurisdictions and while some seem more in line with the eBay balancing test (the Netherlands), others still use injunctions as the default remedy (Germany). The potential benefits of an Ebay-style balancing test are thus not available across the E.U. Meanwhile, patentees can continue to leverage the threat of injunctions to obtain unfair licensing terms. The European Commission has stepped up to take a decisive stance against injunctive relief in the presence of Standard Essential Patents as stated in its decisions in the Motorola Mobility and Samsung cases. The European Commission has the authority to establish an adequate framework for negotiation under FRAND under the Samsung decision. It should exercise this power to set an ex ante expectation that no injunctive relief will be granted and that parties will have to reach to an agreement sooner or later or leave it for the courts to decide the FRAND terms.

Portfolio Licensing at the End-User Device Level: Analyzing Refusals to License FRAND-Assured Standard-Essential Patents at the Component Level

Competition agencies around the globe, including in India, Korea, and Taiwan, have recently initiated investigations involving a standard-essential patent (SEP) holder’s refusal to license patents at the component level. Other competition agencies, including in China and Japan, have recently issued revised final or draft guidelines that seem to increase scrutiny of such conduct. SEP holders usually commit to license on fair, reasonable, and nondiscriminatory (FRAND) terms. 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 appropriate royalty rate and the meaning of “fair and reasonable” (FR), and has largely ignored the “nondiscriminatory” (ND) prong of FRAND. This paper analyzes the common-industry practice of licensing on a portfolio basis at the end-user device level and whether a refusal to license at all levels of the production chain may constitute an antitrust violation, concluding that: (1) whether the “ND” prong of FRAND requires licensing at the component level is a fact-specific inquiry that depends upon the specific standard-development organization’s (SDO’s) Intellectual Property Rights (IPR) Policy at issue; and (2) regardless, even if there is potential a failure to comply with a FRAND assurance, that alone does not constitute an antitrust violation. In addition, while U.S. antitrust agency practice and law highly disfavor imposing antitrust liability for refusals to license, such liability (including in Europe and elsewhere) would at the very least require a showing of anticompetitive harm such as foreclosure. Through a simple model, we show that due to the FRAND commitment and because most FRAND-assured SEP holders do not assert their patents at the component level, there is likely no foreclosure or exclusionary conduct or otherwise harm to competition. Our model features two SEP holders, one of which is vertically integrated with a component manufacturer, and a competing non-integrated component manufacturer. Some have alleged that, by refusing to license at the component level, the vertically integrated SEP holder allegedly bundles its component (the bundled product) with its SEP portfolio (the bundling product). While we disagree with this alleged theory of harm and characterization, we show that, even if the offer of the vertically integrated SEP holder could de facto be characterized as a bundle, its conduct will not lead to the foreclosure of the component market if (i) the vertically integrated SEP holder does not assert its patents at the component level, and (ii) it licenses its SEP portfolio to end-devise manufacturers on FRAND terms irrespective of whether they source components from its own subsidiary or from the non-integrated rival. Intuitively, when (i) and (ii) hold, the bundle offered by the vertically integrated SEP holder can be replicated competitively by end-device manufacturers by mixing and matching the component sold by the non-integrated component supplier and the patent portfolio of the integrated SEP holder. Finally, we note that there are a number of legitimate business reasons for the common industry practice of licensing at the end-user device level. One of the primary reasons is the nature of the technology, for e.g., many SEPs related to 2G, 3G, and 4G wireless cellular standards do not relate to components, but to the systems and networks whose functions and efficiencies these inventions are designed to optimize. Other reasons include avoiding patent exhaustion, reducing administrative costs, and ease of monitoring or verifying the number of units sold. These efficiency reasons motivate the decision of both vertically integrated and, tellingly, non-integrated SEP holders to license at the end-user device level only.

A FRAND Contractts Intended Third-Party Beneficiary

The FRAND contract gives an implementer the right to obtain an offer to license a portfolio of standard-essential patents (SEPs) on fair, reasonable, and nondiscriminatory (FRAND) terms. By making a FRAND offer, the SEP holder gives the implementer the power to accept and execute that offer in a binding license agreement on FRAND terms. If the implementer rejects the SEP holder’s FRAND offer, either explicitly or by operation of law, the implementer extinguishes its rights as an intended third-party beneficiary of the FRAND contract and thereafter has no rights under the FRAND contract. After the unlicensed implementer has extinguished its rights as a third-party beneficiary, the SEP holder may request and obtain an injunction against the implementer, charge the implementer more than a FRAND royalty, or refuse to license its SEPs to the implementer. The implementer also may not invoke the FRAND contract to demand extraneous license terms. The FRAND contract gives the implementer no more rights to SEPs than what the SEP holder intends to convey to a third-party beneficiary. In particular, there is no evidence that the SEP holder intended to give the implementer the right to demand a la carte licensing of individual SEPs. For a court to construe the FRAND contract otherwise — so as to compel the SEP holder to license its SEPs individually on demand — is to assume that the SEP holder and the SSO would not have cared about the absurdly high transactions costs of licensing that such a contractual provision would cause. The SEP holder, of course, never would have found it commercially reasonable to agree to make that duty part of its FRAND commitment to the SSO. For the same economic reason, the observed norm within a standardized industry such as mobile telecommunications — the usage of trade, in the parlance of contract interpretation — is that SEP holders license their SEPs in portfolios.

Apportionment, Frand Royalties, and Comparable Licenses After <I>Ericsson V. D-Link</I>

Standard-setting organizations (SSOs) usually require that their members clarify whether they are willing to provide access to their technology essential to a standard under development on fair, reasonable, and nondiscriminatory (FRAND) terms and conditions — or, in American parlance, reasonable and nondiscriminatory (RAND) terms and conditions. After the patent holder has agreed to license its standard-essential patents (SEPs) on FRAND terms, a licensor and a licensee negotiate the exact licensing terms for the use of the SEP portfolio. In the few cases in which parties cannot agree on the exact terms, they might ask a court or an arbitration tribunal to determine a FRAND royalty. The decision of the U.S. Court of Appeals for the Federal Circuit in Ericsson, Inc. v. D-Link Systems, Inc. identifies important economic principles for determining a FRAND royalty for the use of SEPs. Ericsson is the owner of several patents essential to the 802.11(n) standard — the standard promulgated by the Institute of Electrical and Electronics Engineers (IEEE) that is commonly known as Wi Fi — and committed to license those patents on RAND terms. When negotiations between Ericsson and several manufacturers of multicomponent devices that incorporated the Wi-Fi standard failed to result in a license, Ericsson sued in the U.S. District Court for the Eastern District of Texas and demanded a jury trial to determine the RAND royalty that the manufacturers should pay to use Ericsson’s SEPs. Relying on evidence from comparable licenses — that is, licenses that Ericsson had signed with third parties similarly situated to the defendants to use Ericsson’s patents essential to the Wi Fi standard — the jury awarded damages of roughly $10 million to Ericsson. In reviewing the case on appeal, the Federal Circuit confirmed that royalties specified in comparable licenses provide accurate and reliable evidence of the value of a patented technology for calculating a FRAND royalty. The Federal Circuit rejected the defendants’ argument that a chipset (rather than the mobile device) should represent the royalty base to calculate a FRAND royalty. (In simple terms, one typically calculates total damages by multiplying a royalty rate by a royalty base). The Federal Circuit also reiterated the fundamental principle that a party should support allegations about abstract conjectures, such as patent holdup and royalty stacking, with relevant evidence. Unsupported allegations about the SEP holder’s supposedly opportunistic licensing practices should not influence the determination of a FRAND royalty. Finally, the Federal Circuit said that a FRAND royalty should not include the value that a technology acquires by virtue of its inclusion in a standard. Although the Federal Circuit was correct in reiterating that a FRAND royalty, like any other royalty for the use of a patented technology, should compensate the SEP holder for the incremental value of its patented technology, the Federal Circuit’s decision should not be interpreted as excluding any of the standard’s value from a FRAND royalty. To the contrary, when a patented technology creates part of the standard’s value, only a FRAND royalty that includes part of that value will adequately compensate the SEP holder for its contribution.

Comment on the Japan Fair Trade Commission's Draft Partial Amendment to the Guidelines for the Use of Intellectual Property Under the Antimonopoly Act

This comment is submitted in response to the Japan Fair Trade Commission’s (JFTC’s) request for public comments on the Draft Partial Amendment to the Guidelines for the Use of Intellectual Property under the Antimonopoly Act (Draft Amendment). The Draft Amendment specifies that seeking injunctive relief to enforce a standard essential patent (SEP) encumbered by a commitment to license on fair, reasonable, and nondiscriminatory (FRAND) terms against a party that is willing to take a license on FRAND terms “may” constitute an unlawful exclusion of business activities in violation of Article 3 of Japan’s Antimonopoly Act (AMA) (Draft Amendment Part 3(1)(e)) or an unfair trade practice in violation of Article 19 of the AMA (Draft Amendment Part 4(2)(iv)). The Draft Amendment is premised upon the assumption that seeking injunctive relief “generally makes it difficult to research & develop ... products adopting the standards,” which in turn deters widespread adoption of standards. This assumption lacks empirical support. Further, as we explain, ordinary contract law makes an AMA sanction unnecessary to deter any instances of anticompetitive patent holdup that might arise; indeed, an AMA sanction is likely to reduce incentives to innovate and deter participation in standard setting, thereby depriving consumers of the substantial procompetitive benefits of standardized technologies. For these reasons, we respectfully recommend that Parts 3(1)(e) and 4(2)(iv) be deleted in their entirety. Should the JFTC decide to retain these provisions, however, they should at the very least be amended to limit liability to situations when there is proof that a FRAND-encumbered SEP holder has engaged in patent “holdup,” i.e., that the patent holder used the threat of injunctive relief to demand supra-competitive royalties.

THE MEANING OF FRAND, PART II: INJUNCTIONS

Under what conditions may the holder of standard-essential patents (SEPs) seek to enjoin an infringing implementer without breaching the SEP holder's contract with the standard-setting organization (SSO) to provide access to those SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms? I show that the SEP holder's contractual obligations still permit it to seek an injunction. A FRAND commitment requires the SEP holder to offer a license for the SEPs on FRAND terms (or otherwise to grant implementers access to the SEPs). Extending an offer containing a price within the FRAND range discharges the SEP holder's contractual obligation. Thereafter, the SEP holder may seek to enjoin an implementer that has rejected a FRAND offer. This analysis indicates the imprudence of categorically banning injunctions for the infringement of SEPs, as some scholars have advocated and as one of the world's most significant SSOs—the Institute of Electrical and Electronics Engineers (IEEE)—actually did in 2015 in amendments to its bylaws. Such a ban would invite opportunism by implementers and is unnecessary. Courts already can prevent opportunism by SEP holders by conditioning an injunction on the implementer's actual or constructive rejection of a FRAND offer.

Injunctions on Standard Essential Patents: in Search of a 'Clear Bright Line'

If an intellectual property (IP) infringer has the ‘aptitude’ to agree on fair, reasonable, and non-discriminatory (FRAND) licence and pay royalties, the holder of a standard-essential patent (SEP) must take certain steps before seeking an injunction, Advocate General (AG) Melchior Wathelet advised the Court of Justice in November 2014. Unless the SEP holder can prove that an IP infringer was aware of the existence of the patent, they should warn the infringer in writing—identifying the infringement and the relevant SEP—as well as make an offer to license on FRAND terms, before going to a court for injunction, Wathelet said. The infringer on their part must respond with a counter-offer in a ‘serious and diligent manner’—the SEP holder would be entitled to seek an injunction if the infringer acts ‘purely tactically and dilatory’. The Advocate General distinguished the Huawei/ZTE dispute from Orange-Book-Standard case emphasising that the latter concerned de facto standard and there was no obligation for the SEP holder to grant licences on FRAND terms. ‘Even though I consider that mere vague and non-binding willingness of the infringer to negotiate cannot limit the right of the SEP holder to exercise an injunction’, the Advocate General said, applying either one or the other position would lead to an excess or a defect in the protection of SEP holders, of the users of the patents technique, or of consumers, he concluded. An SEP holder seeking injunctions by can be abusive if the infringer has been ‘objectively willing and able to acquire the licence’, added the Advocate General. These questions had earlier been investigated by the Commission in several cases, two of which were decided on 29 April 2014.

The Meaning of Frand, Part II: Injunctions

Under what conditions may the holder of standard-essential patents (SEPs) seek to enjoin an infringing implementer without breaching the SEP holder’s contract with the standard-setting organization (SSO) to provide access to those SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms? I show that the SEP holder’s contractual obligations still permit it to seek an injunction. A FRAND commitment requires the SEP holder to offer a license for the SEPs on FRAND terms (or otherwise to grant implementers access to the SEPs). Extending an offer containing a price within the FRAND range discharges the SEP holder’s contractual obligation. Thereafter, the SEP holder may seek to enjoin an implementer that has rejected a FRAND offer. This analysis indicates the imprudence of categorically banning injunctions for the infringement of SEPs, as some scholars have advocated and as one of the world’s most significant SSOs — the Institute of Electrical and Electronics Engineers (IEEE) — actually did in 2015 in amendments to its bylaws. Such a ban would invite opportunism by implementers and is unnecessary. Courts already can prevent opportunism by SEP holders by conditioning an injunction on the implementer’s actual or constructive rejection of a FRAND offer.