This document summarizes a presentation on determining whether licensing terms for standards-essential patents (SEPs) are fair, reasonable, and non-discriminatory (FRAND). It discusses the origins of FRAND commitments in antitrust decrees to promote competition. It also examines how FRAND compliance is measured using contract, damages, and competition law. Specifically, it analyzes what terms are subject to FRAND, and factors considered under the different legal standards like the Georgia-Pacific framework for reasonable royalties.

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. 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

5. Standards Development Organizations (SDOs) or
Standard Setting Organizations (SSOs)

6. • Apple
• AT&T
• Broadcom
• Cisco
• Ericsson
• Intel
• Juniper
• Microsoft
• Motorola
• Nokia
• Qualcomm
• Sony
• Toshiba
• ZTE
• etc, etc.
=

7.  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)

8. 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)

9.  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)

10.  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

11. 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

12. 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

13.  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

14. 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.”

15.  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.”

16.  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

18. 1. Licensing Commitment
▪ SEP holder shall offer/grant a FRAND license to …
2. Terms of Granted License
But NOT the SDO policy itself…

19. What is subject to FRAND analysis?
 Royalty rates
 Manner of negotiation
 Seeking of injunctions
 Scope of offerees (refusals to license)

20. 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)

21. 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

23. 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

24.  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)

25.  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

26.  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)

27.  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?

28. Jorge L. Contreras
University of Utah
S.J. Quinney College of Law
Salt Lake City, UT
jorge.contreras@law.utah.edu
SSRN page: http://ssrn.com/author=1335192