Professor Jorge Contreras: The Frand Wars: Who's on First?

(via Patently O)

"Standards are powerful market tools that enable products and services offered by different vendors to interoperate: think WiFi, USB, and the pervasive 3G and 4G telecommunications standards. Yet once standards are widely adopted, markets can become "locked-in" and switching to a different technology can be prohibitively costly. Because patent holders have the potential to block others from deploying technology covered by their patents, the industry associations that develop standards ("standards development organizations" or "SDOs") often demand a trade-off from the companies that participate in standards-development: you can have a say in the technical direction of the standard, but in return you must license your patents that are essential to the standard on "fair, reasonable and non-discriminatory" (FRAND) terms.

Last month, I discussed a series of statements released by Apple, Microsoft and Google seeking to clarify how they interpret FRAND licensing commitments. Both the U.S. Department of Justice and the European Commission looked carefully at these interpretations in evaluating Google's $12 billion acquisition of Motorola Mobility, Apple's purchase of a number of Linux-related patents, and the $4.5 billion acquisition of Nortel's patent portfolio by a group including Microsoft, Apple, and RIM. The agencies concluded that these transactions did not present significant antitrust concerns, basing their reasoning in part on the interpretations of FRAND offered by Apple, Microsoft and Google.

Independently of these agency determinations, there continues to be significant disagreement among market participants over the meaning of FRAND. This disagreement arises both in reference to the level of royalties that should be considered "reasonable", and whether other tactics, such as seeking injunctive relief, are fair game when FRAND commitments have been made. Such disagreements have serious consequences because a commitment to grant a license on FRAND terms is not itself a license. A license to operate under a patent is not granted until the parties can agree on those "fair, reasonable and non-discriminatory" terms. So, if the parties can't agree on the terms of the FRAND license for a particular "standards-essential" patent, the frustrated licensee must either refrain from implementing the standard (and lose a significant market opportunity) or risk infringing the patent. The typical result: litigation.

To help get a handle on the current state of play in the courts, Table 1 offers a summary of some of the principal cases in which FRAND issues are currently being litigated in the U.S. and Europe. These disputes form only a part of the larger patent wars currently being waged across the smart phone industry. That wide-ranging litigation involves even more players and extends to patents that are not necessarily essential to the implementation of industry standards. But the more focused skirmishes over FRAND issues are important too, as some of the most basic technology needed to make mobile devices interoperate is covered by standards, and the terms on which "standards-essential" patents will be licensed will affect all players in the market, both large and small. Thus, while the scale, complexity and rapid pace of this litigation virtually guarantees that any summary will be incomplete and quickly outdated, I hope that it will be useful (at least temporarily) for those who want an overview of the current state of play regarding FRAND..."

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