New Papers on FRAND/SEPs by Sidak, Lim, Contreras, Carrier, and Bohannon

1.  J. Gregory Sidak has a paper coming out in the Stanford Technology Law Review, titled Mandating Final-Offer Arbitration of FRAND Royalties for Standard-Essential Patents.  Here is a link to the paper, and here is the abstract: 

Mark Lemley and Carl Shapiro propose that standard-setting organizations (SSOs) mandate that their members henceforth submit to binding, final-offer arbitration (commonly called “baseball arbitration”) to set fair, reasonable, and nondiscriminatory (FRAND) royalties in licensing disputes concerning standard-essential patents (SEPs). SSOs should reject this proposal. It does not rest on sufficient facts or data, nor does it apply intellectually rigorous principles and methods of law and economics in a reliable manner. This is not to say that the voluntary use of arbitration to resolve FRAND licensing disputes is inherently problematic. However, the incremental efficiency that Lemley and Shapiro claim that their proposal would achieve over litigation or conventional commercial arbitration is illusory. For one, it is much harder to value a portfolio of SEPs over the span of five years than to value an individual baseball player for a single season. The Lemley-Shapiro version of mandatory baseball arbitration would not shed light on the question of what constitutes a FRAND offer. To the contrary, Lemley-Shapiro arbitration by design collapses questions of validity, infringement, and essentiality of the patent to the standard into a single damage calculation in which the arbitrator’s sole responsibility is to choose one of two disparate estimates of reasonable royalties. Yet, a FRAND offer contains not only a price, but also terms and conditions that (because they are nuanced and possibly tailored to the unique needs of an individual licensee) do not lend themselves to being easily standardized, let alone summarized in a single number, as the description of Lemley-Shapiro arbitration might incorrectly lead some to assume. Lemley-Shapiro arbitration would not say whether a royalty offer was fair, reasonable, and nondiscriminatory. Lemley and Shapiro claim that their arbitration proposal offers “best practices” for SSOs. That label is unsupported and misleading. The package that Lemley and Shapiro call “best practices” is in fact not a narrow proposal for binding baseball arbitration but rather a roadmap to redefine patent rights in a manner that would transfer wealth from inventors to infringers. Embedded within Lemley-Shapiro arbitration are normative changes in patent law and policy that Lemley and Shapiro have previously advocated but that SSOs and courts have not adopted. An SSO that adopted Lemley-Shapiro arbitration could expect its members to commercialize their next generation of inventions outside that particular SSO, if not outside an open standard altogether.

2.  Daryl Lim has posted a paper on ssrn titled Standard Essential Patents, Trolls and the Smartphone Wars: Triangulating the End Game, 119 Penn St. L. Rev. (forthcoming 2014).  Here is a link to the paper, and here is the abstract:

Few legal issues in recent years have captured the public’s attention more powerfully than litigation over standard essential patents (“SEPs”). This Article explains how SEP litigation overlaps with two other major centers of patent litigation – litigation involving smartphones and patent assertion entities (“PAEs”). It observes that attempting to pre-empt patent hold-ups by imposing blanket ex ante disclosure obligations and royalty caps on standard setting organizations (“SSOs”) is misdirected and counterproductive. Instead, the solution lies in clear and balanced rules to determine “fair, reasonable and non-discriminatory” (FRAND) royalties and injunctive relief. This solution will help parties make more realistic assessments of their options and help adjudicators resolve SEP disputes.

Correctly framed, implementers bear the burden of proving the breach of a FRAND commitment. FRAND royalties should, in the absence of comparable licenses, focus on apportioning the profits based on the relative importance of the patented technology in the covered product.  Royalties should be measured at the time the standard is set but generally should not be discounted for the possibility of invalidity and noninfringement. Discriminatory licenses can be hard to detect, but targeted initiatives and improved transparency would make the task easier. Injunctions should be granted based the wording and intent of the relevant FRAND commitment, conduct of the parties, and proof that the technology drove the sales of the component or product on which the relief is sought. More broadly, courts must understand both the limits and opportunities of the antitrust and patent laws. While useful in arresting ex ante misconduct, antitrust is largely irrelevant to SEP litigation; patent law has a role in both improving patent quality and deterring vexatious litigation.

3.  Jorge Contreras has posted a paper on ssrn titled A Market Reliance Theory for FRAND Commitments and Other Patent Pledges, Utah L. Rev. (forthcoming 2014).  Here is a link to the paper, and here is the abstract:

Patent holders are, with increasing frequency, making public promises to refrain from asserting patents under certain conditions, or to license patents on terms that are “fair, reasonable and non-discriminatory” (FRAND). These promises or “patent pledges” generally precede formal license agreements and other contracts, but are nevertheless intended to induce the market to make expenditures and adopt common technology platforms without the fear of patent infringement. But despite their increasing prevalence, current contract, property and antitrust law theories used to explain and enforce patent pledges have fallen short. Thus, a new theory is needed to secure the market-wide benefits that patent pledges can offer.

This article proposes a novel “market reliance” theory for the enforcement of patent pledges. Market reliance is rooted in the equitable doctrine of promissory estoppel, but adds a rebuttable presumption of reliance borrowed from the “fraud-on-the-market” theory under Federal securities law. Under this approach, a patent holder’s public commitment is enforceable by any participant in the relevant market, absent a showing that it knowingly rejected the commitment. The market reliance theory offers a robust means for enforcing legitimate patent pledges by third party market participants, and extends the effect of such pledges to downstream purchasers of patents. As such, the market reliance theory could fill a critical gap in the existing patent enforcement landscape and give greater assurance to the technology markets that depend on them.

I mentioned an earlier version of this paper on this blog, here, last October.  Professor Contreras himself discussed the paper on the Patently-O Blog recently, under the title Why FRAND Commitments Are Not (Usually) Contracts. 

4.  Michael Carrier has posted a short paper on ssrn, to be published in Competition Policy International, titled What You Need to Know About Standard Essential Patents.   Here is a link to the paper, and here is the abstract:

In the past several years, standard essential patents, or “SEPs,” have exploded onto the scene. Courts and enforcement agencies around the world have grappled with the nuances they present. What exactly are SEPs? What do attorneys need to know about SEPs?

This article answers these questions. After presenting the setting in which SEPs arise, it addresses three issues: (1) injunctions; (2) antitrust enforcement (in the US, EU, China, India, and Germany); and (3) the determination of fair, reasonable, and nondiscriminatory (“FRAND”) royalties.   

5.  Mark Bohannon has posted a paper on ssrn titled Out of the Murky Lagoon and Into...Is There a Emerging Consistent US Government Policy on Standard Essential Patents (SEPs)?  Here is the link, and here is the abstract:

In January 2013, the USDOJ and USPTO issued a Policy Statement on remedies for Standard Essential Patents (SEPs) which concluded, that while an Section 337 exclusion order issued by the US International Trade Commission (ITC) for infringement of encumbered SEPs may be appropriate in some circumstances, “depending on the facts of individual cases, the public interest may preclude the issuance of an exclusion order in cases where the infringer is acting within the scope of the patent holder’s F/RAND commitment and is able, and has not refused, to license on F/RAND terms.” Contemporaneously, the FTC entered into a settlement with Google which defined what constitutes an SEP and demarcates specific steps to determine what is, in fact, an unwilling licensee, proscribing unilateral action by the SEP holder seeking damages or injunctions.

Together, these action bring some order to what has been a murky area in telecommunications standards. But, unlike the FTC in its settlement agreement, the USDOJ/PTO Policy Statement, went further, evidencing what appears to be an overreaching regarding U.S. Government (USG) policy on voluntary industry standards (and how patents relate to them), even though the factual situations arose in the peculiar industry of telecommunications. This paper explains how that sector differs from others, focusing especially on standards for software, Internet and Web fields, analyzes the risk (and inconsistency with other USG policies) for assuming that there is one approach for how patents are treated in standardization activities across all sectors, and outlines next step considerations for policy makers.