SEPs and FRAND Terms

As discussed in my previous post here, when a patent is included in a Standard the patent holder has to mandatorily sign the IPR policy of the Standard Setting Organisation (SSO). As per this policy, the patent holder undertakes to license the particular standard-essential patent (SEP) on Fair, Reasonable and Non-Discriminatory (FRAND) terms.

In UK, such terms are referred to as FRAND terms, whereas in the U.S. these terms are referred to as RAND terms i.e. Reasonable and Non-Discriminatory terms.

FRAND terms ensure that a  SEP holder does not indulge in a patent hold-up.

A patent hold-up is said to occur when a patent holder puts unreasonable conditions (excessive pricing, unreasonable terms and conditions etc.) over the licensing of its patents.

Courts in different jurisdictions have interpreted the term FRAND/RAND in a different manner. However, the baseline for every interpretation is somewhat same, as shall be seen from the subsequent posts where I will discuss case laws on SEPs and FRAND.

The issue with FRAND commitment is that it is still unclear as to who enforces such terms. It is to be kept in mind that the patent holder enters into an agreement with the SSO and not with the general public for licensing the SEP on FRAND terms, and the SSO is not a governmental organization – it is an autonomous body.

In case you wish to read in-depth about FRAND at one place, you may find this article here helpful.

The entire issue that revolves around SEPs and FRAND terms may be divided into two type of situations/cases:

In the first type of cases, an aggrieved party generally moves the court alleging failure of a SEP holder to license its SEP on FRAND terms, thereby, violating its commitments. The aggrieved party prays to the Court either to set FRAND terms in the matter or to check whether the SEP holder is abiding by its FRAND commitments. As a result, the Court has to, after prima facie satisfaction that the patent is a SEP, deal with the issue of whether or not the conditions which were put during the licensing negotiation were fair, reasonable and non-discriminatory?

In the second type of cases, that you may come across relating to SEPs and FRAND, the facts are generally as follows: A SEP holder reaches out to a potential licensee apprising that it is infringing a couple of the SEP holder’s patents. The SEP holder then offers to disclose the details of the alleged patents and the offered license only after the potential licensee enters into a Non-Disclosure Agreement with the SEP holder. After a series of strained negotiations, and no likely result, one of the two parties files a suit. In case it the SEP holder who files the suit, it alleges patent infringement. If the potential licensee files a suit, it alleges breach of FRAND commitments. In either of the two situations, the Court has to deal with the issue of whether or not the conditions which were put during the licensing negotiation were fair, reasonable and non-discriminatory

An approach of the respondent in a patent infringement suit is to start with the Gillette Defence, i.e. arguing that the alleged product is working within the ambit of prior art, and if the patent holder claims that the alleged product is infringing its patent, then surely the particular patent is also under the ambit of the prior art (To put it in bookish language, it means to say that the patent is anticipated by prior publication, prior use or prior knowledge and therefore, must be revoked).

Knowing these two type of situations will help you understand all cases involving SEPs and FRAND, thereby allowing you to appreciate the facts, issues and the judgement of the case.

A key thing to note in all the SEPs and FRAND cases (in the second type of cases) is that the Court finally sets a FRAND royalty rate for licensing the SEP – for those patents that finally emerge successfully out of the Gillette Defence. Additionally, in case the Court is positive about patent infringement, the Court awards damages to the SEP holder as well. Thus, the third element of SEPs and FRAND dispute is the methodology adopted by Courts to set our FRAND royalty rate and damages.

In the subsequent posts, I will be discussing more on FRAND terms through case laws. I will also be discussing the several methods adopted by Courts for ascertaining FRAND royalty rates and award of damages. This post will serve as an essential background for understanding the facts of the cases, the issues involved, and the final decision of SEP and FRAND cases.

Siddhant Sharma

Siddhant is a Patent and Intellectual Property lawyer. He finds joy in exploring and writing about niche areas of law. He is finding better ways to describe the patent profession to a five-year old and a sixty-five year old.

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