Interpreting FRAND/SEP: best practice in licensing disputes

February 2021  |  FEATURE  |  INTELLECTUAL PROPERTY

Financier Worldwide Magazine

February 2021 Issue

One of the many issues facing the manufacturing industry is the standardisation and interoperability of technologies, which has led to disputes over the licensing of standard-essential patents (SEPs), particularly fair, reasonable and non-discriminatory (FRAND) royalty rates.

While disputes of this nature can and do end up in litigation, the majority are dealt with via recourse to alternative dispute resolution (ADR) mechanisms such as mediation and arbitration. These neutral, fact-finding procedures are well-known for their flexibility and efficiency in dealing with often extremely complex factual issues.

According to the 2019 report ‘Arbitration in SEP/FRAND Disputes: Overview and Core Issues’, due largely to increased digitalisation, the importance of FRAND licensing of SEPs is likely to increase, and with it the need for appropriate dispute resolution. This is where ADR can come into play due to its flexibility and efficiency – settling disputes faster and cheaper than going through the judiciary.

Moreover, the resolution of FRAND/SEP disputes through ADR is also supported by administrative and judicial bodies and institutions, such as the International Court of Arbitration of the International Chamber of Commerce (ICC) and the World Intellectual Property Organization (WIPO), both of which have considerable experience in this field.

“Licensing disputes involving consideration of FRAND value have been seen in leading jurisdictions for some years,” says Sophie Lawrance, a partner at Bristows LLP. “Manufacturers of mobile phones and other products which rely on standardised technology have no choice but to license patents which read onto those standards. Valuing such portfolios is challenging, and the high values which licensors sometimes claim create an incentive for manufacturers to contest the rates in litigation, rather than quickly agreeing to a licence.”

Key cases

Illustrating the prevalence, as well as the complexity, of FRAND/SEP dispute resolution are a number of recent judgements that could potentially have far-reaching consequences, including increasing litigation over technology patents, an uptick in satellite litigation and greater clarity on the rates businesses reliant on communications technologies will be required to pay for using the technology.

One key case was the dispute between Chinese technology company Huawei and patents owner Unwired Planet, which centred on the licensing of wireless communications patents that have been declared to be essential to the 2G, 3G and 4G communications standards. The 2020 judgement by the UK Supreme Court confirms that English courts may set the terms for global FRAND licences to portfolios of declared standard essential patents.

In the view of Ms Lawrance, the following four questions have been a focus of recent disputes, including FTC v Qualcomm in the US, Huawei v. Samsung in China, Nokia v. Daimler in Germany, as well as Unwired Planet v. Huawei.

First, can courts determine FRAND terms on a global basis? According to the UK Supreme Court judgement in Unwired Planet v. Huawei, the answer is yes. This, in turn, means parties may seek anti-suit and even anti-anti-suit relief as a way to secure jurisdiction in their favoured court.

Second, can patentees seek injunctive relief against reluctant licensees? There is now a greater consensus that they may, provided they have made a FRAND offer or accept court-determined FRAND terms – for example, the Unwired Planet v. Huawei decision and the Sisvel v. Haier decision of the Federal Court of Justice in Germany.

Third, can manufacturers demand that patentees ‘license to all’, regardless of whether they manufacture components or end products? US courts suggest no, as reflected in FTC v. Qualcomm, while German patent courts lean toward probably not, as demonstrated by Nokia v. Daimler, and recent Japanese guidance points to yes.

Fourth, how are FRAND terms calculated? UK and US courts favour comparator licences and rates established in licensing programmes (e.g., Unwired Planet v. Huawei and Ericsson v. HTC), whereas Chinese courts have prioritised patent counting methodologies which seek to apportion value between all essential patents (e.g., Huawei v. Samsung).

Refining best practice

As standardisation and interoperability become more prevalent among manufacturing businesses, the number of FRAND/SEP disputes is likely to expand accordingly, with resolution best practices constantly evaluated and refined.

“While many cases do end up in litigation, they remain the tip of the iceberg,” says Ms Lawrance. “Many licences are concluded without recourse to litigation or result from settlements at an early stage. ADR is used especially between large manufacturers that require a cross-licence.”

In terms of what best practice within the FRAND/SEP licensing dispute arena should look like, Ms Lawrance makes three key recommendations: (i) step up existing measures to reduce over-declaration of standard essential patents, so that the total patent landscape is clearer to all involved; (ii) develop policies which discourage parties from racing to court, and encourage meaningful negotiation; and (iii) put in place appropriate dispute resolution mechanisms for lower-value disputes in particular.

Looking ahead, although the disruption caused by the coronavirus (COVID-19) pandemic has undoubtedly slowed arbitral and judicial proceedings to a significant extent, this drop-off can only be viewed as a temporary scenario, particularly in FRAND licensing of SEPs matters where disputes are almost as predictable as night following day.

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BY

Fraser Tennant