Monday miscellany: New publications on FRAND

1.  Mark Lemley and Carl Shapiro's paper A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents, drafts of which have been available on ssrn for some time, is also now available in its final published form in volume 28 of the Berkeley Technology Law Journal, here.  Readers who follow FRAND matters closely are probably already familiar with the paper, but for those of you who are not here is the abstract:

A Standard Setting Organization (“SSO”) typically requires its members to license any standard-essential patents on fair, reasonable, and non-discriminatory (“FRAND”) terms. Unfortunately, numerous high-stakes disputes have recently broken out over just what these “FRAND commitments” mean and how and where to enforce them. We propose a simple, practical set of rules regarding patents that SSOs can adopt to achieve the goals of FRAND commitments far more efficiently with far less litigation. Under our proposed approach, if a standard-essential patent owner and an implementer of the standard cannot agree on licensing terms, the standard-essential patent owner is obligated to enter into binding baseball-style (or “final offer”) arbitration with any willing licensee to determine the royalty rate. This obligation may be conditioned on the implementer making a reciprocal FRAND commitment for any standard-essential patents it owns that read on the same standard. If the implementer is unwilling to enter into binding arbitration, the standard-essential patent owner’s FRAND commitment not to go to court to enforce its standard-essential patents against that party is discharged. We explain how our proposed FRAND regime would work in practice. Many of the disputes currently arising around FRAND commitments become moot under our approach. 

Jorge Contreras and David Newman also have written about the arbitration option, as I noted here.  Florian Mueller has been a notable critic of the Lemley-Shapiro proposal, see here.

2.  Danny Sokol's Antitrust Blog recently has publicized a few more new papers on FRAND.  I haven't yet read these myself.  The first, by Damien Geradin, is titled Moving Away from High-Level Theories:  A Market-Driven Analysis of FRAND in the Context of Standardization.  It is available here and is forthcoming in the (apparently now revived) Antitrust Bulletin.  Here is the abstract:

There is a large strand of legal and economic literature suggesting the FRAND regime is broken and that standardization is at risk given “hold-up and “royalty stacking” problems. A variety of proposals have been made to address these alleged problems, most of which seeking to decrease the bargaining power of essential patent holders to the benefit of standard implementers. The hold up and royalty stacking conjectures have been questioned by a number of authors essentially on the ground that these theories contained logical inconsistencies, but also that they were not based on sufficient empirical support to warrant policy reforms. Against this background, this paper explains why hold up and royalty stacking only occur in rare circumstances given the private solutions that are available to standard implementers to avoid paying license fees that are not FRAND or that would aggregate to a level that would render the implementation of the standard more difficult or even impossible. Given the dearth of empirical evidence over hold up and royalty stacking, this paper also looks at the evolution of the mobile communication sector in the past decade to see whether the alleged adverse consequences (in terms of harm to standard implementation, innovation and investment and the continuity of the standardization process) that would be created by hold up and royalty stacking can actually be observed. The available data suggests that the mobile communication device markets are healthy despite the fact that these markets have been said to be harmed by regular SEP-related abuses. Although it could be argued that these markets would be even healthier “but for” SEP abuses, the available data should give pause to those claiming that significant reforms should be made to the FRAND regime. In fact, the high degree of competition in the above markets and the presence of highly successful entrants that do not have a track record in the development of mobile communication technologies strongly suggest that the FRAND regime has largely worked in that it has stimulated the broad licensing of SEPs while maintaining a fair balance between the interests of SEP holders and standard implementers.

The second paper is by Urŝka Petrovčič and is titled Patent Hold-up and the Limits of Competition Law:  A Transatlantic Perspective, 50 Common Market Law Review 1363 (2013).  The abstract, which is available on ssrn (the full text of the paper is not), reads as follows:

The problem of patent hold-up is currently one of the most discussed antitrust topics in the European Union and in the United States. On both sides of the Atlantic, competition authorities addressed the opportunistic conduct of patent owners through the provisions of competition law. The reach such provisions have in addressing the patent owner’s opportunistic licensing practices remains however unclear. The present article brings some clarity to this picture by analyzing the applicability of the antitrust provisions to cases of patent hold up. The analysis shows that the provisions of the two jurisdictions have different scopes when addressing these cases. Whereas in the EU, the European Commission might be able to address a large specter of patent owners’ opportunistic licensing practices, most conducts would escape the liability under US antitrust law. The divergent outcomes are however not attributable to the application of different legal tests, or different views of the competition authorities. Rather the contrary. Competition authorities share the concerns on patent hold up, but are unable to reach similar outcomes because of the divergent prohibitions embodied in the antitrust provisions of the two jurisdictions. The analysis also shows that in neither of the systems does competition law provide a definitive solution to the problem of patent hold-up.

A third is by Mathias Dewatripont and Patrick Legros and is titled 'Essential' Patents, FRAND Royalties, and Technological Standards, 61 J. Indus. Econ. 913 (2013).  The abstract, which is available on ssrn, reads as follows:

Standard Setting Organizations have developed FRAND agreements in order to prevent firms from holding up other participants once a standard is created. We analyze here the consequences of such agreements - in particular the requirements of fairness and non‐discrimination - for the creation of technological standards that require the participation of existing patent holders. We abandon the usual assumption that patents bring known benefits to the industry or that their benefits are known to all parties. When royalty payments are increasing in one's patent portfolio, as is implicitly the case in FRAND agreements, private information about the quality of patents leads to a variety of distortions, in particular the incentives of firms to ‘pad’ by contributing patents that are ‘inessential’ for the given standard, a phenomenon that seems to be widespread. Several results emerge from the analysis: (i) the number of inessential patents co‐varies positively with the number of essential patents; (ii) there is over‐investment relative to the second‐best, that is when padding cannot be avoided and (iii) the threat of disputes reduces incentives to pad but at the cost of lower production of strong patents; (iv) mitigating this undesirable side‐effect calls for a simultaneous increase in the cost of padding, through a better filtering of patent applications.

Finally, Einer Elhauge has a paper titled Treating RAND Commitments Neutrally, available here.  The abstract:

This Article argues that the same legal standards should apply to RAND commitments whether they are made to standard-setting organizations or not. The arguments for concluding that RAND commitments should limit injunctive patent relief or trigger antitrust liability turn on whether the commitment reasonably induces lock-in that generates hold-up effects or market power when that commitment is breached. But RAND commitments can induce such lock-in effects when they are made outside of standard-setting organizations and do not always induce them when they are made to standard-setting organizations. Thus, any special legal rules for RAND commitments should turn on whether the commitments induced such lock-in, rather than on the institutional context. The arguments against using special legal rules for RAND commitments turn on the extent to which lock-in might fail to generate holdup problems, denying patent injunctions might generate reverse-holdup problems, and contract or promissory estoppel remedies might obviate the need for antirust liability. But those arguments likewise apply equally inside and outside of standard-setting organizations. Thus, however one resolves the arguments for and against applying special legal rules to RAND commitments, the resulting legal standards should be the same whether or not the commitment is made to a standard-setting organization.

3.  Relatedly, Foss Patents has coverage of (1) the Mannheim courts' February 28 decisions to dismiss IPCom's SEP claims against HTC and Apple (which included the $2.2 billion claim against Apple), see here, and (2) the Korea Fair Trade Commission's decision to clear Samsung of antitrust liability for pursuing injunctive relief for the infringement of FRAND-encumbered SEPs by Apple, see here.  The Essential Patent Blog also has coverage of the IPCom matter, see here, and of a February 26 jury verdict awarding a FRAND royalty of 0.19% in Realtek v. LSI, a case pending before Judge Whyte in the U.S. District Court for the Northern District of California, see here. Update:  Story in today's Wall Street Journal about the IPCom case is available here.