Licensing Standard Essential Patents with FRAND Commitments: Preparing for 5G Mobile Telecommunications

Intellectual Property, Patents, Interoperability and Standards

Article Snapshot

Author(s)

Daniel Spulber

Source

Colorado Technology Law Journal, Vol. 18, pp. 79-159 (2020).

Summary

As 5G mobile telecommunication technologies develop, some have proposed that courts or administrative agencies should regulate licensing of Standard Essential Patents (SEPs).

Policy Relevance

Courts should look to industry practice in resolving SEP disputes. Courts should avoid ongoing court supervision of licensing.

Main Points

  • Generally, SEP holders agree to license SEPs on Fair, Reasonable, and Non-discriminatory (FRAND) terms.
     
  • During standard setting, Standard Setting Organizations (SSOs) build consensus on FRAND commitments, balancing the interests of patent owners and implementers (firms that implement patents in building 5G products and services).
     
  • Some propose that patent licenses be negotiated before standardization, giving implementers more choice among competing technologies; however, SSOs use consensus-building processes like supra-majority voting to choose the best technologies, and commercial patent license negotiations during standard setting would be incompatible with this process.
     
  • Some implementers refuse to negotiate licenses, anticipating that patent holders will fail to assert their rights (“patent holdout”); policies that limit the right of SEP holders to enjoin patent infringement worsen holdout problems.
     
  • Requiring SEP holders to license individual patents to many small component manufacturers rather than licensing patent portfolios to major firms would make negotiations complicated and costly.
     
  • Problems like “patent holdup,” “royalty stacking,” and “patent thickets” rarely occur in practice; FRAND commitments are not intended to address these theoretical issues.
     
  • Courts should avoid regulatory approaches in resolving FRAND disputes.
     
    • Regulatory decrees create an ongoing supervisory relationship between the court and the SEP holder.
       
    • Courts should consider SSO policies, standard industry practice, the common law, and comparable license terms.
       
    • Courts should not impose price caps on royalties, which reduce incentives to innovate.
       
  • In setting royalties, some assume that a SEP’s value is comparable to that of a hypothetical substitute technology before standardization; this approach reduces incentives to innovate by understating the value that SEPs add to the standard.
     

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