Standard Essential Patent License under the FRAND Commitment

Transcription

1 Standard Essential Patent License under the FRAND Commitment Steve Wang Inc. September 8,

2 A General Review of the FRAND Commitment The origin of the FRAND obligation lies in the IPR policy documents of the standard setting organization The FRAND mechanism was devised to mitigate the risk of monopolization involved in the standardization process It is necessary to strike a balance between the inventor and the implementer Standard Setting Organizations ( SSO ) - Standardization - Permit interoperability Inventor Implementer Declaration of SEPs FRAND Commitment Third-party Beneficiary Implementer Fair Return Access to the standardized technology Inventor 2

3 A General Review of the FRAND Commitment The FRAND Commitment concerns not only the specific content of the license terms, but also the process of standardization and the license negotiation In an-arm length negotiation, the potential licensee is entitled to make a fully informed decision according to the FRAND obligation SEP Declaration License Negotiation License Terms Good faith disclosure to the SSOs at the time of standardsetting Without a judicial review, the so-called SEPs are just unilaterally declared The underlying problem of overdeclaration Inventor: Present FRAND offers specifying the method and basis to calculate the licensing fee Present an exhaustive list of the declared SEPs with necessary infringement analysis and claim charts (burden of proof in infringement cases) Open to an impartial review of the parties disputes by an arbitral tribunal or a court Implementer: Diligently respond to the patentee s offers and requests Provide counter-offers The amount of the licensing fee should be FRAND Determination of a proper royalty base Determination of a proper rate Determination of proper comparables Other non-frand terms Contractual restrictions on challenging the licensing scheme 3

4 FRAND Commitment in SEP Declaration The SEP declaration is a unilateral process without an examination of the essentiality of the patents Good faith disclosure to the SSOs Intended to mitigate the risk of patent ambush Without any formal review process, the so-called SEPs are just patents unilaterally declared as potentially essential to the standard SSOs do not have a mechanism to exam the essentiality of the declared SEPs The underlying problem of over-declaration Many empirical studies have revealed the over-declaration problem Some of the declared SEPs are actually NON- Essential/Optional/Expired/Applications-Never-Been-Granted 4

5 FRAND Commitment in License Negotiation Recent judicial practice suggests obligations on both the inventor and the implementer Portfolio-based licensing scheme has a high-risk of charging overly high royalty Inventor Implementer Present an exhaustive list of the declared SEPs with necessary infringement analysis and claim charts (burden of proof in infringement cases) Diligently respond to the patentee s offers and requests Present FRAND offers specifying the method and basis to calculate the licensing fee Open to an impartial review of the parties disputes by an arbitral tribunal or a court Provide counter-offers Avoid reverse patent hold-up 5

6 FRAND License Fee A Fair Return of Contribution A FRAND rate should be a rate which would be agreed ex ante The incremental value brought by standardization should not be included value of the next noninfringing alternative value of all technologies incorporated in an entire standard value of many other standards and nonstandardized technologies that make up the actual device value gained simply because companies are forced to use the technology mandated in the standard 6

7 FRAND License Fee A Fair Return of Contribution Consideration should be given to the very characteristics of the industry Multiple Levels of Market in Telecom Industry Technology Cellular Standards (GSM, CDMA, CDMA2000, WCDMA, TDS-CDMA, LTE, etc ) WIFI (802.11, etc ) Bluetooth Flash: SD Flash: emmc AAC MP3 GPS JPEG H.264 etc Component Manufacture Baseband chipset WIFI and Bluetooth chip/module Memory (DRAM) MP3 GPS mod OS and software Mobile Device Manufacture Mobile Device Carrier China Unicom, China Mobile, China Telecom End Consumers 7

8 FRAND License Fee A Fair Return of Contribution A FRAND rate should be a rate which would be agreed ex ante The incremental value brought by standardization should not be included Whether there is already a license given to the component supplier? Whether the licensor is the supplier of the component on which the patented technology is embedded already? Exhaustion Issues? Royalty Base? Value of the component? Profit of the component? Partial value/profit of the end product with a cap? The same licensor s license terms for other licensees The royalty fee paid by the licensee to other licensors under the same standard Total royalty burden under the same standard Comparable? 8

9 FRAND License Fee Consideration of Exhaustion Issues The first sale of components exhaust the patent rights embodied in the components The patent exhaustion doctrine applies to both method and product patents The right of the patents reading into the component should be exhausted through the first sale of the component Patent exhaustion is a legal doctrine that could not be circumvented by post sale restrictions agreed in contracts Technology license Agt Patent Owners Technology license Agt Component Manufacturers End device Manufacturers Component Supply 9

10 FRAND License Fee Proper Royalty Base With so many functions/technologies integrated into one device, the value of the specific component, rather than the end device, should be the proper royalty base To use the end product price as the royalty base will lead to royalty inflation and discrimination, a violation of the FRAND principle. One device integrating multiple functions Inventor s preference to collect license fee at the end product level which would be more lucrative Risk of excessiveness A component responsible for one type of function only 10

11 FRAND License Terms Proper Comparable Comparables may be useful as key reference in the consideration of a fair, reasonable and non-discriminatory royalty Horizontal The same licensor s license terms for other licensees The problem is that these comparables are usually not accessible Even when the past license practice is available, the past license terms offered to other licensees might not be FRAND Vertical The royalty fee paid by the licensee to other licensors under the same standard This method involves a comparison of the quality and quantity of the patents owned by different licensors Whole standard Examine the total royalty burden accumulated To prevent royalty stacking This method also involves a comparison of the quality and quantity of the patents owned by different licensors 11

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