Reasonable and non-discriminatory licensing

Last updated

Reasonable and non-discriminatory (RAND) terms, also known as fair, reasonable, and non-discriminatory (FRAND) terms, denote a voluntary licensing commitment that standards organizations often request from the owner of an intellectual property right (usually a patent) that is, or may become, essential to practice a technical standard. [1] Put differently, a F/RAND commitment is a voluntary agreement between the standard-setting organization and the holder of standard-essential patents. U.S. courts, as well as courts in other jurisdictions, have found that, in appropriate circumstances, the implementer of a standard—that is, a firm or entity that uses a standard to render a service or manufacture a product—is an intended third-party beneficiary of the FRAND agreement, and, as such, is entitled to certain rights conferred by that agreement. [2]

Contents

A standard-setting organization is an industry group that sets common standards for its particular industry to ensure compatibility and interoperability of devices manufactured by different companies. [3] A patent becomes standard-essential when a standard-setting organization sets a standard that adopts the technology that the patent covers.

Because a patent, under most countries' legal regimes, grants its owner an exclusive right to exclude others from making, using, selling, or importing the invention, a standard-setting organization generally must obtain permission from the patent holder to include a patented technology in its standard. So, it will often request that a patent holder clarify its willingness to offer to license its standard-essential patents on FRAND terms. If the patent holder refuses upon request to license a patent that has become essential to a standard, then the standard-setting organization must exclude that technology. When viewed in this light, the FRAND commitment serves to harmonize the private interests of patent holders and the public interests of standard-setting organizations. Many scholars have written about these topics, as well as a variety of other legal and economic issues concerning licensing on F/RAND terms. [4]

F/RAND as a contract

Standard-setting organizations commonly adopt policies that govern the ownership of patent rights that apply to the standards they adopt (the patent policy). In the United States, the patent holder's agreement to adhere by the patent policy creates a legally binding contract, as the Court of Appeals for the Ninth Circuit ruled in Microsoft v. Motorola. One of the most common policies is to require a patent holder that voluntarily agrees to include its patented technology in the standard to license that technology on "reasonable and non-discriminatory terms" (RAND) or on "fair, reasonable, and non-discriminatory terms" (FRAND). The two terms are generally interchangeable; FRAND seems to be preferred in Europe and RAND in the U.S. [1]

Some commentators argue that standard-setting organizations include the FRAND obligation in their bylaws primarily as a means of enhancing the pro-competitive character of their industry. They are intended to prevent members from engaging in licensing abuse based on the monopolistic advantage generated as a result of having their intellectual property rights (IPR) included in the industry standards. Once an organization is offering a FRAND license they are required to offer that license to anyone (wishing to access the standard), not necessarily only members of the organization. [1] [5] Without such commitment, members could use monopoly power inherent in a standard to impose unfair, unreasonable and discriminatory licensing terms that would damage competition and inflate their own relative position.

On the other hand, commentators stress that the FRAND commitment also serves to ensure that the holder of a patent that becomes essential to the standard will receive royalties from users of the standard that adequately compensate the patent holder for the incremental value that its technology contributes to the standard. [6] The development of a patented technology typically requires significant investment in research, and contributing that technology to a standard is not the only option by which a patent holder can recoup that investment and thus monetize its invention. For example, a patent holder has the option to monetize that invention through exclusive use or exclusive licensing. Technology owners might have insufficient incentives to contribute their technologies to a standard-setting organization without the promise of an adequate royalty. The promise of a F/RAND royalty address that problem: the patent holder will typically agree to contribute its technology to the standard, thus forgoing the exclusive use or the exclusive licensing of its technology, in exchange for the assurance that it will receive adequate compensation in reasonable royalties. [7]

In 2013, court decisions and scholarly articles cited FRAND commitments 10 times more often than in 2003. [8]

Definitions

While there are no legal precedents to spell out specifically what the actual terms mean, it can be interpreted from the testimony of people like Professor Mark Lemley from Stanford University, in front of the United States Senate Committee on the Judiciary that the individual terms are defined as follows:[ citation needed ]

Fair relates mainly to the underlying licensing terms. Drawing from anti-trust/competition law; fair terms means terms which are not anti-competitive and that would not be considered unlawful if imposed by a dominant firm in their relative market. Examples of terms that would breach this commitment are: requiring licensees to buy licenses for products that they do not want in order to get a license for the products they do want or requiring licensees to take licenses to certain unwanted or unneeded patents to obtain licenses to other desired patents (bundling); requiring licensees to license their own IP to the licensor for free (free grant backs); and including restrictive conditions on licensees' dealings with competitors (mandatory exclusivity).[ citation needed ]

Reasonable refers mainly to the licensing rates. According to some, a reasonable licensing rate is a rate charged on licenses which would not result in an unreasonable aggregate rate if all licensees were charged a similar rate. According to this view, aggregate rates that would significantly increase the cost to the industry and make the industry uncompetitive are unreasonable. Similarly, a reasonable licensing rate must reward the licensor with adequate compensation for contributing its essential patents to a standard. Compensation is adequate if it provides the licensor with the incentive to continue investing and contributing to the standard in future time periods. [9] A licensor which has several different licensing packages might be tempted to have both reasonable and unreasonable packages. However having a reasonable "bundled" rate does not excuse having unreasonable licensing rates for smaller unbundled packages. All licensing rates must be reasonable.

Non-discriminatory relates to both the terms and the rates included in licensing agreements. As the name suggests this commitment requires that licensors treat each individual licensee in a similar manner. This does not mean that the rates and payment terms cannot change dependent on the volume and creditworthiness of the licensee. However it does mean that the underlying licensing condition included in a licensing agreement must be the same regardless of the licensee. This obligation is included in order to maintain a level playing field with respect to existing competitors and to ensure that potential new entrants are free to enter the market on the same basis.

The most controversial issue in RAND licensing is whether the "reasonable" license price should include the value contributed by the standard-setting organization's decision to adopt the standard. A technology is often more valuable after it has been widely adopted than when it is one alternative among many; there is a good argument that a license price that captures that additional value is not "reasonable" because it does not reflect the intrinsic value of the technology being licensed. On the other hand, the adoption of the standard may signal that the adopted technology is valuable, and the patent holder should be rewarded accordingly. That is particularly relevant when the value of the patent is not clearly known before the adoption of the standard. [10]

Some interpretations of "non-discriminatory" can include time-oriented licensing terms such as an "early bird" license offered by a licensor where terms of a RAND license are better for initial licensees or for licensees who sign a license within the first year of its availability.

Excluding costless distribution schemes

RAND terms exclude intangible goods which the producer may decide to distribute at no cost and where third parties may make further copies. Take for example a software package that is distributed at no cost and to which the developer wants to add support for a video format which requires a patent licence. If there is a licence which requires a tiny per-copy fee, the software project will not be able to avail of the licence. The licence may be called "(F)RAND", but the modalities discriminate against a whole category of intangible goods such as free software [11] and freeware. [12]

This form of discrimination can be similarly caused by common licence terms such as only applying to complete implementations of the licensed standard, limiting use to particular fields, or restricting redistribution. The Free Software Foundation suggests the term "uniform fee only" (UFO) to reflect that such "(F)RAND" licenses are inherently discriminatory. [13]

Related to RAND licenses are RAND-Z (RAND with zero royalty) or RAND-RF (RAND Royalty Free) licensing, in which a company promises to license the technology at no charge, but implementers still have to get the licenser's permission to implement. The licenser may not make money off the deal but can still stop some type of products or require some type of reciprocity or do more subtle things like drag out the licensing process. [14] [15] [16]

Negotiating process

The negotiating process for FRAND licenses places requirements on the patent owner and the envisioned patentee. The terms for these negotiations were set in German case law in a case regarding the Orange-Book-Standard, and these terms are often used in licensing negotiations. In 2015, the European Court of Justice interpreted FRAND licensing terms in case Huawei v ZTE (C170/13, ECLI:EU:C:2015:477 significantly diverging from the Orange-Book-Standard. [17]

See also

Related Research Articles

The Common Language Infrastructure (CLI) is an open specification and technical standard originally developed by Microsoft and standardized by ISO/IEC and Ecma International that describes executable code and a runtime environment that allows multiple high-level languages to be used on different computer platforms without being rewritten for specific architectures. This implies it is platform agnostic. The .NET Framework, .NET and Mono are implementations of the CLI. The metadata format is also used to specify the API definitions exposed by the Windows Runtime.

<span class="mw-page-title-main">Injunction</span> Legal order to stop doing something

An injunction is an equitable remedy in the form of a special court order that compels a party to do or refrain from specific acts. "When a court employs the extraordinary remedy of injunction, it directs the conduct of a party, and does so with the backing of its full coercive powers." A party that fails to comply with an injunction faces criminal or civil penalties, including possible monetary sanctions and even imprisonment. They can also be charged with contempt of court.

<span class="mw-page-title-main">License</span> Legal concept

A license (US) or licence (Commonwealth) is an official permission or permit to do, use, or own something.

The Organization for the Advancement of Structured Information Standards is a nonprofit consortium that works on the development, convergence, and adoption of projects - both open standards and open source - for cybersecurity, blockchain, Internet of things (IoT), emergency management, cloud computing, legal data exchange, energy, content technologies, and other areas.

An open standard is a standard that is openly accessible and usable by anyone. It is also a common prerequisite that open standards use an open license that provides for extensibility. Typically, anybody can participate in their development due to their inherently open nature. There is no single definition, and interpretations vary with usage. Examples of open standards include the GSM, 4G, and 5G standards that allow most modern mobile phones to work world-wide.

A royalty payment is a payment made by one party to another that owns a particular asset, for the right to ongoing use of that asset. Royalties are typically agreed upon as a percentage of gross or net revenues derived from the use of an asset or a fixed price per unit sold of an item of such, but there are also other modes and metrics of compensation. A royalty interest is the right to collect a stream of future royalty payments.

A standards organization, standards body, standards developing organization (SDO), or standards setting organization (SSO) is an organization whose primary function is developing, coordinating, promulgating, revising, amending, reissuing, interpreting, or otherwise contributing to the usefulness of technical standards to those who employ them. Such an organization works to create uniformity across producers, consumers, government agencies, and other relevant parties regarding terminology, product specifications, protocols, and more. Its goals could include ensuring that Company A's external hard drive works on Company B's computer, an individual's blood pressure measures the same with Company C's sphygmomanometer as it does with Company D's, or that all shirts that should not be ironed have the same icon on the label.

Rambus Inc. is an American technology company that designs, develops and licenses chip interface technologies and architectures that are used in digital electronics products. The company, founded in 1990, is well known for inventing RDRAM and for its intellectual property-based litigation following the introduction of DDR-SDRAM memory.

Copyright misuse is an equitable defence to copyright infringement in the United States based upon the doctrine of unclean hands. The misuse doctrine provides that the copyright holder engaged in abusive or improper conduct in exploiting or enforcing the copyright will be precluded from enforcing his rights against the infringer. Copyright misuse is often comparable to and draws from the older and more established doctrine of patent misuse, which bars a patentee from obtaining relief for infringement when he extends his patent rights beyond the limited monopoly conferred by the law.

An essential patent or standard-essential patent (SEP) is a patent that claims an invention that must be used to comply with a technical standard. Standard-setting organizations (SSOs) normally require their members to agree to license their essential patents on fair, reasonable and non-discriminatory terms. Determining which patents are essential to a particular standard can be complex.

In patent law, a patent pool is a consortium of at least two companies agreeing to cross-license patents relating to a particular technology. The creation of a patent pool can save patentees and licensees time and money, and, in case of blocking patents, it may also be the only reasonable method for making the invention available to the public. Competition law issues are usually important when a large consortium is formed.

The Institute of Electrical and Electronics Engineers Standards Association is an operating unit within IEEE that develops global standards in a broad range of industries, including: power and energy, artificial intelligence systems, internet of things, consumer technology and consumer electronics, biomedical and health care, learning technology, information technology and robotics, telecommunication, automotive, transportation, home automation, nanotechnology, information assurance, emerging technologies, and many more.

A patent ambush occurs when a member of a standard-setting organization withholds information, during participation in development and setting a standard, about a patent that the member or the member's company owns, has pending, or intends to file, which is relevant to the standard, and subsequently the company asserts that a patent is infringed by use of the standard as adopted.

Motorola Mobility v. Apple Inc. was one of a series of lawsuits between technology companies Motorola Mobility and Apple Inc. In the year before Apple and Samsung began suing each other on most continents, and while Apple and High Tech Computer Corp. (HTC) were already embroiled in a patent fight, Motorola Mobility and Apple started a period of intense patent litigation. The Motorola-Apple patent imbroglio commenced with claims and cross-claims between the companies for patent infringement, and encompassed multiple venues in multiple countries as each party sought friendly forums for litigating its respective claims; the fight also included administrative law rulings as well as United States International Trade Commission (ITC) and European Commission involvement. In April 2012, the controversy centered on whether a FRAND license to a components manufacturer carries over to an equipment manufacturer incorporating the component into equipment, an issue not addressed in the Supreme Court's default analysis using the exhaustion doctrine in Quanta v. LG Electronics. In June 2012, appellate judge Richard Posner dismissed the U.S. case with prejudice and the parties appealed the decision a month later.

<i>Microsoft Corp. v. Motorola Inc.</i> United States court case about software licensing

Microsoft Corp. v. Motorola Inc., 696 F.3d 872 was a United States Court of Appeals for the Ninth Circuit case about Reasonable and Non-Discriminatory (RAND) Licensing and foreign anti-suit injunction.

JVC Kenwood Corp. v. Nero, Inc., 797 F.3d 1039, 2015 U.S. App. LEXIS 14402, is a 2015 decision of the United States Court of Appeals for the Federal Circuit concerning the rights of end users who purchase products subject to fair, reasonable, and nondiscriminatory (FRAND) licensing under an industry-wide patent pool of standards-essential patents, and of suppliers of software to the end users. The Federal Circuit held that, where the patent holder had authorized sales to end users of optical discs compliant with the standard, which embodied the patents' essential features and were reasonably intended only to be used to practice the patents, the patent owner had no direct infringement claim against the end users without proof that the end-users were using unlicensed discs. The patent holder therefore had no claim for contributory infringement or induced infringement against a software company for selling software to the end users for use with the licensed discs. The decision is said to be an important one for clarifying the rights of downstream users and their suppliers in the context of patent pools and FRAND licensing.

Hartford-Empire Co. v. United States, 323 U.S. 386 (1945), was a patent-antitrust case that the Government brought against a cartel in the glass container industry. The cartel, among other things, divided the fields of manufacture of glass containers, first, into blown glass and pressed glass, which was subdivided into: products made under the suction process, milk bottles, and fruit jars. The trial court found the cartel violative of the antitrust laws and the Supreme Court agreed that the market division and related conduct were illegal. The trial court required royalty-free licensing of present patents and reasonable royalty licensing of future patents. A divided Supreme Court reversed the requirement for royalty-free licensing as "confiscatory," but sustained the requirement for reasonable royalty licensing of the patents.

Internet Video Coding is a video coding standard. IVC was created by MPEG, and was intended to be a royalty-free video coding standard for use on the Internet, as an alternative to non-free formats such as AVC and HEVC. As such, IVC was designed to only use coding techniques which were not covered by royalty-requiring patents.

<span class="mw-page-title-main">Jorge L. Contreras</span>

Jorge L. Contreras is an American legal scholar and attorney who is recognized as a leading global authority on intellectual property law, technical standardization and the law and policy of human genomics.

Avanci is an operator of patent licensing platforms established in 2016 in the information and communications technology (ICT) space and more specifically in the Internet of things (IoT) and broadcast spaces. By licensing patents from multiple owners under a single agreement, Avanci provides licenses to standardized technologies for manufacturers in the IoT and broadcast industries. The company is based in Dallas, Texas, operating through offices in Dublin, Beijing, Tokyo, and Seoul.

References

  1. 1 2 3 Layne-Farrar, Anne; Padilla, A. Jorge; Schmalensee, Richard (2007). "Pricing Patents for Licensing in Standard-Setting Organizations: Making Sense of FRAND Commitments". Antitrust Law Journal. 74: 671.
  2. ↑ Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 884 (9th Cir. 2012); In re Innovatio IP Ventures, LLC Patent Litig., MDL No. 2303, 2013 WL 5593609, at *4 (N.D. Ill. Oct. 3, 2013).
  3. ↑ "ICT Standards, standardization, GSM, TETRA, NFV, GPRS, 3GPP, ITS, UMTS, UTRAN, M2M, MEC, Mobile, IoT, Security, standardisation". ETSI. Retrieved January 27, 2019.
  4. ↑ J. Gregory Sidak, A FRAND Contract's Intended Third-Party Beneficiary, 69 FLA. L. REV., https://www.criterioneconomics.com/a-frand-contracts-intended-third-party-beneficiary.html; Thomas F. Cotter, Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties, 22 TEX. INTELL. PROP. L.J. 311 (2013); Mark A. Lemley & Carl Shapiro, A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents, 28 BERKELEY TECH. L.J. 1135 (2013); Tim W. Dornis, J. EUR. COMP. L. & PRACT. 11 (2020), 575 ff.
  5. ↑ Salant, David J (2007). "Formulas for fair, reasonable and non-discriminatory royalty determination". Munich Personal RePEc Archive. Retrieved December 11, 2011.
  6. ↑ J. Gregory Sidak, Apportionment, FRAND Royalties, and Comparable Licenses After Ericsson v. D-Link, 2016 U. ILL. L. REV. (forthcoming), https://www.criterioneconomics.com/apportionment-frand-royalties-comparable-licenses-ericsson-dlink.html.
  7. ↑ Memorandum from J. Gregory Sidak, Chairman, Criterion Economics LLC to the Ministry of Commerce & Industry, Department of Industrial Policy & Promotion of India (Mar. 30, 2016), https://www.criterioneconomics.com/standard-essential-patents-indian-ministry-commerce-industry.html.
  8. ↑ "" FRAND ": statistical comparison between cases and research papers". Concurrentialiste Review (in French). January 27, 2014. Retrieved January 27, 2019.
  9. ↑ J. Gregory Sidak, The Meaning of FRAND, Part I: Royalties, 9 J. COMPETITION L. & ECON. 931, 989–90 (2013), available at http://www.criterioneconomics.com/meaning-of-frand-royalties-for-standard-essential-patents.html
  10. ↑ Mariniello, Mario (2011) Fair, Reasonable and Non Discriminatory (FRAND) Terms: A Challenge for Competition Authorities - Journal of Competition Law and Economics, Oxford University Press, Vol. 7, n. 3; Tim W. Dornis, J. EUR. COMP. L. & PRACT. 11 (2020), 575 ff.
  11. ↑ "FRAND" is a FRAUD Free Software Foundation, 2012
  12. ↑ "FRAND". End Software Patents. Retrieved October 9, 2016.
  13. ↑ Words to Avoid gnu.org
  14. ↑ "A Buyer's Guide to Standards". September 20, 2002. Retrieved May 23, 2011.
  15. ↑ "Patent Licensing Assurances in Standards Organizations". August 6, 2007. Retrieved May 23, 2011.
  16. ↑ Standardization Feedback for the National Science and Technology Council (PDF), retrieved May 23, 2011
  17. ↑ "The European Court of Justice on enforcement of FRAND patents: Huawei v. ZTE". Lexology . Retrieved August 4, 2015.; Tim W. Dornis, J. EUR. COMP. L. & PRACT. 11 (2020), 575 ff.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.