Bucerius Law School, Hamburg, Germany
October 11, 2013

Thomas Vinje (Clifford Chance)
Enforcement of Standard-essential Patents: Standardizing FRAND

Innovation in complex industries such as computing and telecommunications relies on a delicate mix of competition and collaboration to flourish. Due to requirements of interoperability, it takes successful collaborative setting of industry standards at one level, such as the 3G and 4G wireless communications standards, to allow for competition and innovation at a different level, such as smartphones and mobile operating systems.

New standards often cannot be developed collaboratively without individual firms contributing their patented technology to the new standard. If such firms are not fairly compensated for the use of their technology once the standard is adopted, future standards development would be put at risk. On the other hand, if, after the standard has been adopted, right holders of such standard-essential patents (SEPs) were able freely to enforce their patents and seek injunctive relief in order to obtain royalties, they could single-handedly block access to the standard, potentially demanding excessive royalties, thus impeding the use of standards and reducing the benefits of standardization.

The FRAND-commitment is at the center of this conundrum: through it, the right holder signals to implementers that they can obtain licenses to the relevant SEPs on FRAND terms. Thus, as long as implementers are prepared to take licenses on FRAND terms, they can safely implement the standard, without fear of patent infringement lawsuits and claims of exclusivity by the patent holder.

Recent attempts by several right holders to enforce their SEPs encumbered by FRAND commitments following unsuccessful licensing negotiations with implementers have prompted SSOs, courts and antitrust regulators to consider under which circumstances the FRAND commitment might preclude requests for injunctive relief on the basis of such FRAND-encumbered patents. Does a FRAND commitment preclude injunctive relief in all circumstances? Can a FRAND commitment be equated with a license? Can implementers use SEPs without first approaching the right holder for a license? What are FRAND terms? The outcome of these analyses as well as the theories underlying them has varied. I will try to distil a number of key ingredients from these various analyses.

In interpreting the consequences of a FRAND commitment for a right holder’s available remedies and an implementer's duties to secure licenses, it should be borne in mind that FRAND is a two-way street. If injunctive relief were available too easily, this would encourage hold-up on the part of right holders, who could use the threat of seeking injunctive relief against implementers in order to demand excessive royalties. On the other hand, prohibiting injunctive relief altogether would encourage hold-out on the part of the implementer, who could refuse to pay FRAND royalties knowing that the right holder is powerless. A balance must be struck between securing access to standards and standard-essential patents on FRAND terms to those implementers willing to secure such licenses, and a right holder's ability to seek remedies against those who use the patented technology without being interested in securing a license, thereby threatening to impede incentives to contribute technology to future standards. Indeed, "willingness" to negotiate a license on FRAND terms has emerged as the key criterion to distinguish lawful from unlawful requests for injunctive relief.

But how does one define willingness? I will explore some of the many questions that remain to be addressed, including whether the ex-ante acceptance of arbitration or court adjudication of FRAND terms in case negotiations break down is a good proxy for willingness, who bears the burden of proof of showing willingness or unwillingness on the part of the licensee, and whether arbitrators and courts can actually be expected to determine FRAND terms in future licensing disputes. Can "unwillingness" be repaired, and should right holders be permitted to seek defensive injunctive relief if a willing licensee seeks injunctive relief itself? Could there be concurrent standards for willingness, and how would this work in the common cross-license scenario? Finally, what is the appropriate forum to address these issues? Antitrust enforcement and settlements in individual cases, patent courts, IP legislation, or standard-setting organizations?

This contribution aims to identify the most pertinent questions in this realm, and suggest balanced solutions in an attempt to further the debate between right holders and implementers.