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Licensing SEPs: When are License Terms Fair, Reasonable and Non-Discriminatory?


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By Jorge L. Contreras

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Licensing SEPs: When are License Terms Fair, Reasonable and Non-Discriminatory?

  1. 1. Licensing SEPs: When are LicenseTerms Fair, Reasonable and Non-Discriminatory? European University Institute Florence, Italy October 12, 2018 Moderator: Jorge L. Contreras University of Utah
  2. 2. 1. Standardization Ecosystem 2. Patent Access Requirements and FRAND 3. FRAND commitment a. (Fair and) Reasonable b. Non-discriminatory 4. What terms/behavior are subject to FRAND? 5. How is FRAND compliance measured? a. Contract law b. Damages law c. Competition law
  3. 3. Standards Development Organizations (SDOs) or Standard Setting Organizations (SSOs)
  4. 4. • Apple • AT&T • Broadcom • Cisco • Ericsson • Intel • Juniper • Microsoft • Motorola • Nokia • Qualcomm • Sony • Toshiba • ZTE • etc, etc. =
  5. 5.  IEEE 802.11 (Wi-Fi networking)  3000 patents  ETSI GSM (2G mobile telephony)  4700 patents  ETSI UMTS (3G mobile telephony)  7,700 patents 251 Standards Blind (2011), Innovatio (2013), Biddle et al (2011)
  6. 6. Selected Sources  Bekkers, Rudi, BartVerspagen and Jan Smits. 2002 . “ Intellectual Property Rights and Standardization: the case of GSM ,” 26 Telecommunications Policy 171.  Contreras, Jorge L. 2015. “A Brief History of FRAND:Analyzing Current Debates in Standard Setting and Antitrust through a Historical Lens ,” 80 Antitrust LawJournal 39.  Contreras, Jorge L. 2017. “Origins of FRAND LicensingCommitments in the United States and Europe” in Cambridge Handbook ofTechnical Standarization Law,Ch. 9 (Jorge L. Contreras, ed., Cambridge Univ. Press 2017)
  7. 7.  38 transport companies conspired to prevent competitors from utilizing “every feasible means of railroad access to St. Louis”  Supreme Court: unlawful restraint of trade  D’s must open membership to “any existing or future railroad” on “such just and reasonable terms as shall place such applying company upon a plane of equality in respect of benefits and burdens with the present proprietary companies.” U.S. v.Terminal Railroad Assn. of St. Louis (U.S. 1912)
  8. 8.  1940s: increased antitrust scrutiny of patent arrangements  DOJ actions against major cartels using patents to reduce competition: glass, aluminum, gypsum, lead, electric lighting  Most cases resulted in remedial orders (consent or contested decrees): “[The defendant shall] grant to any applicant therefor absolutely unrestricted licenses or sublicenses to manufacture, use, and sell without any conditions except that a reasonable and nondiscriminatory royalty may be charged…” United States v. American Bosch Corp. (S.D.N.Y. 1942)  1945: Hartford-Empire (U.S. 1945)  Supreme Court validated RAND consent decree
  9. 9. Alcoa (SDNY 1942) Am. Bosch (SDNY 1942) Hartford-Empire (U.S. 1945) National Lead (U.S. 1947) Rudenberg v. Clark (D. Mass. 1948) Textile MachineWorks (SDNY 1950) U.S. Gypsum (U.S. 1951) Besser (U.S. 1952) General Electric (U.S. 1953) American Securit (3rd Cir. 1969) Scott Paper (E.D. Mich. 1969) Glaxo (U.S. 1974) Manufacturers’ Aircraft Association (SDNY 1975) Xerox (FTC 1975) 11
  10. 10. A. Non-Discrimination: All Applicants B. Non-Discrimination: UniformTerms C. Judicial Royalty Determinations D. Arbitration E. Burden of Proof F. Royalty-Free Licensing G. Licensee’s Refusal to Accept H. Preclusive Effect I. Reciprocity J. Auditing of Compliance K. Public Notifications L. BindingTransferees 12
  11. 11.  1932 - ASA Policy “[A]s a general proposition patented designs or methods should not be incorporated in standards. However each case should be considered on its merits, and if a patentee be willing to grant such rights as will avoid monopolistic tendencies, favorable consideration to the inclusion of such patented designs in a standards might be given”  1956 - 1st consent decree in DOJ case againstAT&T/Western Elec., including open access requirements to long-distance lines  1959 - ASA Policy revised 11.6 Patents. Standards should not include items whose production is covered by patents unless the patent holder agrees to and does make available to any interested and qualified party a license on reasonable terms or unless other unpatented competing items are included within the standards and the patented item would suffer if left out
  12. 12. American National Standards (ANS) may include technologies covered by known patents, so long as the relevant SDO receives a written assurance from the patent holder that a license will be made available either with or without consideration “on reasonable terms that are demonstrably free of any unfair discrimination.”
  13. 13.  1985/86 - DCR (digital radio telecommunications) Agreement - German, French, Italian, UK national operators: if any element of a GSM standard adopted by CEPT is covered by a patent held by a contractor to one of the parties, it must grant a “non exclusive free of charge operating license” to “any competent third party of European countries being represented in CEPT that would wish either to produce equipment referring to these standards or to sell them or also to use them”  1988 - ETSI formed  1992 - EC Statement on GSM/ETSI “whenever public authorities incorporate standards into legislation and thereby confer upon them a more binding character than their normal voluntary status, they must satisfy themselves that … the standards in question are available for use by all interested parties .”  1993/94 - ETSI “interim” IPR Policy To the extent that an ETSI member holds a patent essential to an ETSI standard, ETSI will request that the member sign an undertaking to grant licenses under such patents on “fair, reasonable and non-discriminatory terms and conditions.”
  14. 14.  F/RAND licensing policies originated to correct for competitive imbalance caused by abuse of patent positions  SDOs originally disfavored patented standards, but adopted F/RAND policies to ensure full access when standards were patented
  15. 15. 1. Licensing Commitment ▪ SEP holder shall offer/grant a FRAND license to … 2. Terms of Granted License But NOT the SDO policy itself…
  16. 16. What is subject to FRAND analysis?  Royalty rates  Manner of negotiation  Seeking of injunctions  Scope of offerees (refusals to license)
  17. 17. What is subject to FRAND analysis?  Royalty rates  Reciprocity  Grantbacks  Defensive suspension  Term/duration  Coverage of future releases of a standard See ABA Standards Development Patent Policy Manual (Jorge L. Contreras, ed., ABA Publishing: 2007)
  18. 18. SDO patent policy itself is not subject to FRAND restrictions  The policy creates the FRAND obligation  There is no extrinsic FRAND obligation  The policy can create limitations on FRAND obligation  Opt-out  No injunctions  ADR  The policy can specify aspects of FRAND obligation  Calculation of royalties (SSPPU, etc.)  Universal access/level discrimination  These provisions are subject to normal antitrust/competition law analysis independent of FRAND
  19. 19. 1. Contract Interpretation  Do the terms coincide with what the SDO members envisioned when adopting their FRAND requirement? 2. Damages Analysis  Apply conventional legal tests borrowed from patent damages law to determine “reasonableness” (usually of royalty rates) 3. Competition Law  Do the terms distort or impair competition?  i.e., assume that SDO’s desire was to ensure a procompetitive environment/level playing field
  20. 20.  What was the understanding/intention of the SDO members when they approved the SDO’s FRAND policy?  Rambus v. FTC (FTC 2006)  Broadcom v. Qualcomm (Fed. Cir. 2008)  Factors considered  Text of policy  Testimony of participants  Useful for non-royalty terms  Disclosure obligation  Level discrimination (Contreras & Layne Farrar, 2017)
  21. 21.  Do offered royalties meet test for “reasonable royalties” under U.S. patent damages law (35 USC 284)  Microsoft v. Motorola (9th Cir. 2013)  Ericsson v. D-Link (Fed. Cir. 2014)  Factors considered:  Georgia-Pacific “hypothetical negotiation” framework  “Comparable” licenses  Top-down analysis  Useful for royalty rates  But less convenient in jurisdictions where “reasonable royalty” is not the standard measure of damages
  22. 22.  Consistent with FRAND’s origins as a mechanism to preserve or restore competition in markets adversely affected by patents  Explicit analysis of offered terms under EU competition law  Unwired Planet v. Huawei (EWHC 2017)  Analysis of FRAND “offer” for purposes of determining whether SEP holder seeking an injunction violatesTFEU 102  Huawei v. ZTE (CJEU 2014) ▪ Assesses both SEP holder and implementer conduct (i.e., holdout)  Also useful for non-royalty terms  Qualcomm (KFTC) (grantbacks, etc.)  Unwired Planet andTCL v. Ericsson (Non-discrimination)
  23. 23.  SDO FRAND commitments derive from well- known mechanisms to provide access to patents to improve (or restore) competition in a market  The FRAND analysis is a multi-dimensional one  Which terms are being analyzed?  Under which standard(s)?  For what purpose?
  24. 24. Jorge L. Contreras University of Utah S.J. Quinney College of Law Salt Lake City, UT SSRN page: