Holdups have gained infamy from the image of knuckled-under implementers forced to pay patentees a premium because they are locked-in. Like shark attacks, holdups are real but their actual occurrence is sporadic enough to be treated as aberrations rather than a systematic failure in the patent system. A higher price may also reflect the premium associated with calculated convenience and certainty, a premium anyone who choses Uber’s taxi service rather than the public bus system knows. At the same time while holdups, like crimes, are not widespread, laws must still exist to deter them before they occur and address them when they do.
Patent ambushes are rare, less because of disclosure obligations and more due to the sting of possible antitrust enforcement. With FRAND disputes, patentees know injunctions are hard to come by and courts will likely map reward to technical contribution. Evidence showing intent can be useful here, as is direct or circumstantial evidence of harm. In the event negotiations fail, agreeing to submit the dispute to third party adjudication would be the clearest evidence of good faith. Harmful PAE conduct stems from features of the patent system, so the solution is to raise the bar of software patents, make it harder to initiate a suit, and punish those who bring frivolous suits.
Protagonists and antagonists exist on a spectrum that can appear flipped, depending on one ideological point of view, much like how one man’s terrorist and is another man’s freedom fighter. As with many things in life, the truth can be complicated and each choice come with its own set of tradeoffs. Deterring brinkmanship could deter innovators who would otherwise invest more heavily in new technologies or participate as intermediaries in facilitating licensing. Despite this complexity, the law must set down the ground rules for engagement. Those whose everyday lives depend on the law finding a proper balance between competing interests deserve no less.
2. Okay, so this paper isn't exactly new, but it just recently came to my attention: Anne Layne-Farrar and Koren W. Wong-Ervin have posted a paper on ssrn titled Methodologies for Calculating FRAND Royalty Rates and Damages: An Analysis of Existing Case Law, which appears to have been published in Law360 in October 2014. Here is a link to the papers, and here is the abstract:
Several federal district courts, as well as the Federal Trade Commission (FTC), have weighed in on the appropriate methodology for calculating either a reasonable royalty rate or reasonable royalty damages on a standard-essential patent (SEP) encumbered by a commitment to license on fair, reasonable and non-discriminatory (FRAND) terms. Included in these decisions are determinations about hold-up, royalty stacking, the incremental value rule, the use of comparable licenses, and the appropriate base for royalty calculations. These issues have received a lot of attention not just in the patent law community, but also by foreign antitrust regulators in China and India, which have been pursing theories based on alleged “excessive” or “unreasonable” prices based on a patent holder’s practice of charging royalties as a percentage of the end-user product as opposed to a component product such as the chipset.
While the additional clarity on the appropriate method for calculating FRAND royalties that decisions like these can provide is welcome, likely to benefit industry stakeholders and consumers alike, we are still it the early days and the decisions are far from providing a consensus on FRAND licensing. Decisions to date include: Judge Posner in Apple v. Motorola; Judge Robart in Microsoft v. Motorola; Judge Holderman in In re Innovatio IP Ventures; Judge Davis in Ericsson v. D-Link, Wi-Lan v. Alcatel-Lucent, and CSIRO v. Cisco; Judge Whyte in Realtek v. LSI; Judge Koh in GPNE Corp. v. Apple, Inc.; and Magistrate Judge Grewal in Golden Bridge Techn. v. Apple Inc. These rulings exhibit a number of differences, as we discuss, but some common principles have emerged as well:
• FRAND royalties must provide the patent holder with reasonable compensation;• FRAND royalties should limit the patent holder to a reasonable royalty on the economic value of the patented technology itself, apart from the value associated with the patent’s incorporation into an industry standard; and• In determining a FRAND royalty rate, courts should consider comparable licenses.
The primary disputed and open issues include questions regarding:• Whether methodologies for determining FRAND royalty rates or damages must take into account concerns about patent hold-up and royalty stacking or whether implementers must provide proof of actual hold-up or royalty stacking;• Whether courts should apply the incremental value rule in determining FRAND rates and damages;• What constitutes a “comparable license” for benchmarking purposes; and• Whether the appropriate royalty base is limited to the “smallest salable patent practicing unit,” and what that actually means (i.e., whether a patent is fully implemented by the end-user device such as the handset or a component part, such as the chipset).
In this three-part series, we focus on these issues of FRAND royalty rates and damages in the context of patent infringement or contract litigation within the United States. We review the case law to date and discuss its implications. In this first installment, we focus on two of the most prominent debates over FRAND: the potential for market power abuses that lead to hold-up and royalty stacking. In part two, we turn to appropriate benchmarks and methods for determining FRAND terms. Finally, in part three, we analyze an issue that permeates the spectrum of FRAND issues: the appropriate base for royalty calculations.
3. Elizabeth Rivera has published an article titled Old Rivals Becoming FRANDs: Using Antitrust Law to Determine Remedies in Cases Dealing with SEPs in 24 Federal Circuit Bar Journal 677 (2015). From the introduction:
The Federal Circuit has not yet had the opportunity to definitively state the extent to which companies can use FRAND agreements against SEP holders to prevent the imposition of cease-and-desist orders, how SEP holders can assert their rights over their patents, and what redress they are allowed upon infringement. Part I of this Article provides an overview of ITC § 337, codified at 19 U.S.C. § 1337, with particular emphasis on 19 U.S.C. § 1337(j)(2), its legislative history, and background information regarding SEPs and FRAND agreements. It will also discuss the few instances in which the presidential veto has been used, provided by 19 U.S.C. § 1337(j)(2), and the reason given for each use. Additionally, it will show that there has been a trend, in district and circuit courts, towards diluting the rights that an SEP holder has over its patents. It introduces the cross-section between antitrust law and patent law. Part II discusses the similarities between patent and antitrust law and why theses regimes should be compared. It describes how doctrines derived from antitrust law could be used to protect SEP holders' rights to continue encouraging innovation in patents while not allowing those same patent holders to force unreasonable terms on others in their industry. Maintaining SEP holders' rights while not conferring on them market power to impose high prices on their competitors is possible by determining what remedies should be imposed upon infringement and calculating damages with methods used in dominant firm antitrust cases. Making litigation in the area of SEPs more standardized would allow SEP holders to know the extent to which their patents are protected rather than having to depend on uncertainty. This Article recommends that the Federal Circuit adopt the method of calculating a fair and reasonable price for FRAND governed SEPs in litigation from antitrust law doctrines. Adopting the alternate method for calculating “damages” will allow the Federal Circuit to more easily determine whether FRAND agreements are reasonable and to what extent they should be enforced in any given situation.