Licensing Standard Essential Patents with FRAND Commitments: Preparing for 5G Mobile Telecommunications
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ARTICLE 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.
KEY TAKEAWAYS
- 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.
- Regulatory decrees create an ongoing supervisory relationship between the court and the SEP holder.
- 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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About Daniel Spulber
Daniel F. Spulber is the Elinor Hobbs Distinguished Professor of International Business and Professor of Strategy at the Kellogg School of Management, Northwestern University. He is also Professor of Law (Courtesy) at the Northwestern University Pritzker School of Law. His research is in antitrust, technology and innovation, intellectual property, platforms and two-sided markets, industrial organization, international economics, management strategy, and law.
