Fair, Reasonable, And Nondiscriminatory Commitment Research Articles

A valuation perspective on the FRAND injunction issued in Unwired Planet vs Huawei

On August 26, 2020 the UK Supreme issued a landmark decision in the matter of Unwired Planet vs Huawei. The decision revolutionised the debate on standard essential patents as the Court held that a Global FRAND (fair, reasonable and non-discriminatory) rate can be sanctioned with an injunction in/the U.K. Against this background the article assesses whether the issuance of an injunction in that case was commensurate with the FRAND licensing rate set by the Court itself. In doing so, the article builds upon the valuation approaches contained in the judgment itself. It does so, by comparing the value of the injunction to the implied FRAND value of the SEPs that caused the British injunction. Comparing a slightly adjusted FRAND valuation approach accepted by the Court to the direct value of the injunction, shows that the direct value of the injunction outweighs the estimated value of the SEPs in question. Whether this is commensurate with the FRAND commitment should be further examined.

ARE FAIR, REASONABLE AND NONDISCRIMINATORY (FRAND) COMMITMENTS APPLICABLE OUTSIDE THE STANDARD ESSENTIAL PATENTS (SEPS) DOMAIN? — AN ECONOMIC PERSPECTIVE

To date, the Competition and Consumer Commission of Singapore (CCCS) has dealt with two cases that involved fair, reasonable and nondiscriminatory (FRAND) commitments in order to resolve the competition concerns identified. While the application of FRAND commitments outside the standard essential patents (SEPs) domain remains limited globally, we show that the circumstances that give rise to the economic justification for the use of FRAND commitments in SEP cases are not unique. Instead, such circumstances are also present in some non-SEP cases such as those involving vertical effects in mergers and acquisitions, or abuse of dominance conduct such as refusal to supply. Therefore, FRAND commitments remain a viable behavioral remedy in addressing competition concerns.

A Study on Methodology for Calculating the FRAND Royalty (Rate) to Begin with a Starting-Point-Royalty-Rate* ** - by Critical Analysis of the U.S. Methodology for Calculating the Reasonable Royalty (Rate) -

Standard-Essential Patent (SEP) holders make certain commitment, which requires that the holders license their SEP on Fair, Reasonable and Non-Discriminatory (FRAND) terms. In case of SEP patent infringement, thus, the issue is marked by determination of royalties for the SEP. In this regard, this article has thoroughly examined the meaning of the FRAND commitment, and has figured out that a core issue would be to calculate a reasonable royalty (rate) in taking a view of the FRAND commitment in terms of royalty. Furthermore, the FRAND royalty, especially the FRAND royalty rate calculation methodology has been derived by using the reasonable royalty calculation methodology in cases of non-SEP infringements as a link based on understanding of the meaning of the FRAND commitment. Recently, the importance of assessing a royalty base has been particularly emphasized due to application of apportionment ratio when a reasonable royalty is calculated for patent infringement damages, but it is because the main issue is generally to calculate a reasonable royalty rate. Specifically, this article asserts that it is necessary to have a specific formula or algorithm in determining the FRAND royalty rate, and emphasizes an importance on seeking a proper starting-point-royalty-rate. In this regard, this article has examined methodologies that the U.S. courts has considered when setting the starting-point-royalty-rate for calculating a reasonable royalty rate in patent infringement litigations. As a result, the U.S. courts tend to narrowly interpret the scope of a comparable license agreement, and therefore it is practically more difficult to find a sufficiently comparable royalty rate. Given that practical difficulty, this article suggests that Korea courts may find the starting-point-royalty-rate by considering either an average industry royalty rate in the comparable businesses technically relevant to the patents-in-suit or (if necessary) 25% rule of thumb, depending on the specific circumstances of the given cases. Similarly, this article asserts that Korea courts can apply the methodology to find the starting-point-royalty-rate for calculating a reasonable royalty rate for non-SEP infringement damages when calculating the FRAND royalty rate. Specifically, Korea courts may derive a comparable royalty rate by putting different weights on evidence for the comparable license agreements in the following order. 1) existence of an established FRAND royalty rate, 2) a rate received by the patentee for license to the SEPs-in-suit, 3) a rate paid by the licensee for the use of other patents comparable to the SEPs-in-suit. Where there is no any comparable license agreement, however, this article suggests that Korea courts may consider a rate in a patent pool related to the SEPs-in-suit, or top-down approach that is added by 25% rule of thumb, depending on the circumstances of the given cases. On the other hand, the importance of measuring an apportionment ratio cannot be disregarded, which is a different issue apart from the matter of royalty stacking. In the U.S., court’s practice has emphasized the requirement that a royalty base be smallest salable patent-practicing unit (SSPPU), but such practice has been subject to strong criticism by legal scholars. Thus, it is needed to conduct an additional study regarding the measurement of the apportionment ratio, and a follow-up research would be prepared for the future.

Anti-suit injunctions for standard-essential patents: the emerging gap in international patent enforcement

The unprecedented success of standardization in the field of wireless telecommunications, with the development of 2 G, 3 G, 4 G and—currently—5G standards, has engendered a market for standards, and standard-compliant products and equipment of global proportions.1 Cooperation between technology developers and contributors to standard development organizations (SDOs) on the one side, and users of standards on the other, for the development of innovative international standards has, however, also entailed disputes regarding the licensing of standard-essential patents (SEPs). Of particular importance in SEP-litigation is the issue of which licensing terms can be viewed as fair, reasonable and non-discriminatory (FRAND). Because patents are territorial rights and major technology contributors hold SEPs in various jurisdictions, it is not uncommon—in case a FRAND outcome is not reached through bilateral negotiations—for FRAND disputes to result in lawsuits being filed in several jurisdictions. In patent infringement actions, national courts routinely review the FRAND-conformity of the conduct of both parties in negotiations before awarding the remedy of injunctive relief.2 Adding to that, the contractual nature of the FRAND commitment provided by SEP-holders to SDOs may give parties to a FRAND dispute cause of action for a declaratory judgment that a given licensing offer is, or is not, FRAND.3 Hence, a situation of overlapping jurisdiction may arise in international FRAND disputes.

Chapter 20 – Technical Standards: Fair, Reasonable and Non-Discriminatory (FRAND) Licensing

This chapter in the forthcoming case book Intellectual Property Licensing and Transactions covers licensing transactions involving standards-essential patents (SEPs), including recent legal developments regarding the disclosure (and concealment) of SEPs, fair, reasonable and nondiscriminatory (FRAND) royalty rates, non-discriminatory licensing, the availability of injunctive relief for FRAND-encumbered patents, and transfers of FRAND commitments, as well as specific SDO policy clauses and license text addressing each of these issues. [Note: updated to address Ninth Circuit decision in FTC v. Qualcomm, 8/11/20]

Injunctive Relief under Anti-monopoly Law for the Holders of SEPs

Abstract In this article we develop a simple economic model to analyse the effects of injunctions obtained by the holders of standard essential patents (SEPs), which shows that patent hold-ups involve two types of behaviours in the context of SEP-encumbered fair, reasonable and non-discriminatory (FRAND) commitments. One is general trading hold-up, which is a phenomenon described in transaction cost economics; the other is an abuse of market power prohibited by anti-trust law and/or competition policy. Therefore, it is utterly vital to identify the proper role of private governance and anti-trust intervention. A FRAND commitment does not include a waiver of the right of the holder of an SEP to seek injunctions. The holder of an SEP still can obtain injunctions. However, the granting of injunctions for holders of SEPs should be limited in special circumstances, so as to balance the interests of patentee and user. The holder of an SEP seeking an injunction against a willing licensee may not necessarily constitute an abuse of dominance; anti-trust scrutiny needs to pay much attention to anti-competitive effects. China’s Patent Law lacks provisions regarding injunctive relief. China’s Civil Procedure Law is vague with regard to the granting of injunctions, as are relevant judicial interpretations by the Supreme People’s Court. The decision in InterDigital and the draft of the Anti-monopoly Guidelines (2017) in China demonstrate there are some issues which need to be resolved for the Anti-monopoly Law and the enforcement thereof.

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

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.

What Does a FRAND Commitment Require You to Do? [Patent Reviews

Reports on a recent case involving Qualcomm that helps demonstrate what it means to commit to a fair, reasonable, and nondiscriminatory (FRAND) policy.

Ex-ante Agreements and FRAND Commitments in a Repeated Game of Standard-Setting Organizations

I study licensing and technology choice in standard setting. I find that there may be inefficient adoption of technologies, even when firms commit to a maximum royalty or price cap for the use of their patents. When firms interact repeatedly to develop standards, a commitment to set fair, reasonable and non-discriminatory (FRAND) royalty fees may lead to more efficient technologies and higher surplus for all parties. This result can explain why standard-setting organizations favor FRAND commitments over more structured licensing commitments—such as price caps—and why there are been relatively few cases of hold-up in practice, even though such opportunistic behavior has been a primary cause of concern for innovation economists.

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.

International Trade Commission Exclusion Orders for the Infringement of Standard-Essential Patents

A patent holder whose U.S. patents have been infringed may seek redress for patent infringement from the U.S. International Trade Commission (ITC) under section 337 of the Tariff Act of 1930. Section 337 authorizes the ITC, among other things, to investigate and bar from entry into the United States products that infringe a valid and enforceable U.S. patent. A holder of standard essential patents (SEPs) that has committed to license its SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms typically retains the right to file a complaint with the ITC. However, as of early 2016, no SEP holder has been able to enforce an exclusion order against an infringer of SEPs. Limits on the availability of exclusion orders for SEPs have largely arisen from concerns that that remedy might facilitate patent holdup. In 2013, President Obama, acting through the U.S. Trade Representative (USTR), echoed those concerns in vetoing an exclusion order that the ITC had issued against an infringer of SEPs on the grounds that the exclusion order would not serve the public interest. The USTR instructed the ITC to examine, in future investigations, whether there is evidence that patent holdup or holdout has occurred. However, a detailed analysis of the ITC’s patent decisions shows that the ITC considered those allegations even before President Obama’s veto. In addition, the ITC’s decisions issued since President Obama’s veto have confirmed that, even after examining evidence of patent holdup, public interest considerations will not necessarily weigh against the issuance of an exclusion order. Raising concerns about the theoretical risk of patent holdup and presenting unsupported allegations about the violation of a FRAND commitment will be insufficient to advise against the issuance of an exclusion order. In this article, I examine the evidence that should inform the ITC’s decision in investigations concerning SEPs. I explain that, to the extent that the ITC needs to consider patent holdup in its public interest analysis, the ITC should determine whether the SEP holder has made a FRAND offer to the respondent. If the SEP holder has extended a FRAND offer, any argument that the SEP holder is attempting to extract compensation above the boundaries of its FRAND commitment becomes moot. It is irrelevant, for the purposes of the ITC investigation, why the respondent failed to accept the SEP holder’s FRAND offer.

How Essential are Standard-Essential Patents?

Courts, commentators, and companies have devoted enormous time and energy to the problem of standard-essential patents (SEPs) – patents that cover (or at least are claimed to cover) industry standards. With billions of dollars at stake, there has been a great deal of litigation and even more lobbying and writing about problems such as how if at all standard-setting organizations (SSOs) should limit enforcement of patent rights, whether a promise to license SEPs on fair, reasonable, and non-discriminatory (FRAND) terms is enforceable in court or in arbitration, what a FRAND royalty is, and whether a refusal to comply with a FRAND commitment violates the antitrust laws. In this study, we explore what happens when SEPs go to court. What we found surprised us. We expected that proving infringement of a SEP would be easy – they are, after all, supposed to be essential – but that the breadth of the patents might make them invalid. In fact, the evidence shows the opposite. SEPs are more likely to be held valid than a matched set of litigated non-SEP patents, but they are significantly less likely to be infringed. Standard-essential patents, then, don’t seem to be all that essential, at least when they make it to court. At least part of the explanation for this surprising result comes from another one of our findings: many SEPs asserted in court are asserted by non-practicing entities (NPEs), also known as patent trolls. NPEs do much worse in court, even when they assert SEPs. And the fact that they have acquired a large number of the SEPs enforced in court may bring the overall win rate down significantly. Our results have interesting implications for the policy debates over both SEPs and NPEs. Standard-essential patents may not be so essential after all, perhaps because companies tend to err on the size of over-disclosing patents that may or may not be essential. The failure of NPEs to win cases even with what seem like they should be a strong set of patents raises interesting questions about the role of NPEs in patent law and the policy efforts to curb patent litigation abuse.

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.

Level Discrimination and FRAND Commitments Under EU Competition Law

Standards are of fundamental importance in our economy and competition law has an important role to play in ensuring that standard setting procedures are not distorted so as to result in negative effects on technological progress and social welfare. This article examines the practice of level discrimination, which occurs when the holder of a standard essential patent (SEP), having made a commitment to license the SEP on fair, reasonable and non-discriminatory (FRAND) terms, decides to license only undertakings at a given level of the supply chain, typically, the end-product manufacturers, rather than the component manufacturers. Level discrimination is significant in practice and raises novel questions in the interpretation and application of Article 102. This article examines the economic and policy arguments for and against level discrimination and discusses whether the practice may amount to an abuse of a dominant position under Article 102 TFEU, distinguishing the position of practising and non-practising entities.

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.

Hedonic Prices and Patent Royalties

A hedonic model explains a good’s price in terms of its characteristics. In this article, we use hedonic prices to estimate the permissible range for a reasonable royalty for a standard-essential patent (SEP) subject to its owner’s commitment to offer to license the patent on reasonable and nondiscriminatory (RAND) terms. Our methodology is equally applicable to the calculation of fair, reasonable, and nondiscriminatory (FRAND) royalties for SEPs. Hedonic price analysis provides a scientifically rigorous means to satisfy the Federal Circuit’s directive in Ericsson v. D-Link to disaggregate the value of having a standard of any sort from the incremental value of the chosen standard, and then to disaggregate further the incremental contribution that a given SEP or portfolio of SEPs makes to the overall value of the technologies that allow the chosen standard to operate. The common additive form of the hedonic regression model is the most appropriate econometric model to meet that directive. When implemented in an appropriate and thoughtful way, hedonic price analysis provides an expert economic witness — and, ultimately, the finder of fact — with a reliable methodology to determine whether a given license offer satisfies the reasonableness requirement of a RAND or FRAND commitment. If asked or required to set a specific RAND or FRAND rate for a specific portfolio of SEPs, a court or arbitral panel could take our analysis one step further, by determining where within the RAND or FRAND bargaining range a bilaterally negotiated royalty between the parties would most likely fall. Hedonic price estimation can also inform the calculation of a reasonable royalty in conventional patent litigation that does not involve standard-essential patents. Consequently, the use of hedonic price estimation is a conceptual breakthrough in the calculation of reasonable royalties for patent infringement, both for SEPs subject to a RAND or FRAND commitment and for patents that are not declared essential to any standard.

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.

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.

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.