Some New Papers on FRAND

1.  Stanley Besen has published a paper titled Why Royalties for Standard Essential Patents Should Not Be Set by Courts, 15 Chi.-Kent J. Intell. Prop. 19 (2015).  Here is a link to the paper, and here is the abstract:

Although Standard Setting Organizations (SSOs) generally require patent holders to agree to license their technologies on Reasonable and Non-Discriminatory (RAND), or Fair Reasonable and Non-Discriminatory (FRAND), terms as a condition of including their technologies in a standard, SSOs have generally declined to accept responsibility for clarifying the meaning of these commitments. Despite this, a consensus has emerged among most commentators as to how F/RAND royalties should be determined for Standard Essential Patents. According to the consensus view, a F/RAND royalty should be the cost of obtaining a license just before the patented invention is declared essential to compliance with an industry standard, which should, in turn, reflect the value of the invention over its best alternative. However, based upon the way in which F/RAND royalties were determined in a number of recent cases, this article argues that courts generally will not have the information needed to implement the consensus view and that, as a result, greater effort should be taken to have these royalties determined before standards are adopted.

2. Edward Sherry and David Teece have posted a paper on ssrn titled Assessing RAND Royalties: A Response to Contreras and Gilbert, 'A Unified Framework for RAND and Other Reasonable Royalties'.  Here is a link to the paper, and here is the abstract:

In a recent working paper, Profs. Contreras and Gilbert propose a “unified framework” for assessing royalties for both (a) patents that are subject to a FRAND commitment and (b) patents that are not. We believe that these two classes of patents are different (if for no other reason than in the former case, but not the latter case, the patent holder has agreed to give up the exclusive right to use the patented technology granted by the patent law), so that using a “unified approach” risks ignoring an important difference. They urge the use of an “incremental value” approach to evaluating royalties, while downplaying the fact that measuring “incremental value” requires identifying the next-best alternative, and ignoring the fact that there is a very big difference between the situation in which the next-best alternative is in the public domain (and thus freely available for others to use at no charge) and the situation in which the next-best alternative is itself patented. We conclude that their proposal for using a “unified approach” to evaluate royalties for both FRAND-encumbered and non-FRAND-encumbered patents ignores significant differences between the two types of patents.   

For previous mention on this blog of the Contreras & Gilbert paper, see here.  In our paper The Value of the Standard, Norman Siebrasse and I discuss some of these issues as well--agreeing with Contreras & Gilbert that FRAND and reasonable royalties should be treated alike, but agreeing with Sherry & Teece that patented and nonpatented alternatives should be treated differently.  On that first issue, though, of whether FRAND and non-FRAND royalties should be determined in the same manner--thus rendering the FRAND commitment relevant only for purposes of determining whether there is a contract or contract-like commitment on the part of the patent owner to give up the right to seek an injunction--Sherry and Teece make much of the fact that in the non-FRAND context the patent holder has not given up the right to the exclusive use or exclusive licensing of its technology.  But I think that confuses the issue.  In my view, the first issue to consider is whether the patent owner is entitled to an injunction.  Applying the eBay factors (or, better yet, the relevant economic factors for which eBay is at best a proxy), I would conclude that if the patent owner's business model is one of exclusive use or exclusive licensing, it should rarely be denied an injunction.  If, on the other hand, its model is one of nonexclusive licensing and all it wants is a royalty, then other relevant considerations such as a risk of holdup would weigh against granting an injunction.  But the injunction question should be settled first.  At that point, if the patent holder is not entitled to an injunction (or is not even seeking one), the question arises what an appropriate ongoing royalty should be.  The answer should be some portion of the objective value of the technology to the licensee, but I don't see why the portion (that is, the rate) should be any different in the case of a FRAND- or non-FRAND-committed patent once we have arrived at this step.   And I certainly don't agree with the implication Sherry and Teece make at p.8 that the owner of a non-FRAND-committed patent should be able to extract holdup value--hard to see what justification there could be for setting a royalty that reflects such value.

3.  Sherry and Teece have coauthored another paper with Peter Grindley titled FRAND Commitments in Theory and Practice: A Response to Lemley and Shapiro's 'A Simple Approach'.  Here's a link to the paper, and here is the abstract:

We respond to a recent proposal by Profs. Lemley and Shapiro for compulsory binding final-offer (baseball-style) arbitration for disputes over licensing FRAND-commited standards-essential patents. We demonstrate that, contrary to their suggestions, their proposal is not "best practices" for any standards-setting organization and suffers from a number of practical and conceptual problems.