Three New Papers on FRAND Issues

1.  Matthias Leistner has posted a draft on ssrn, titled FRAND Patents in Europe in the Post-Huawei Era:  A Recent Report from Germany, which will be a chapter in a forthcoming edited volume titled SEPs, SSOs and FRAND – Asian and Global Perspectives on Fostering Innovation in Interconnectivity (Hilto/Liu eds., Springer).  Here is a link to the paper, and here is the abstract:

Since 2015, the enforcement of FRAND patents in Europe is governed by the framework laid down in the Huawei/ZTE judgment of the CJEU. Influential post-Huawei/ZTE cases have been decided in Germany and the UK. After a brief outline of the development leading to Huawei/ZTE and of the contents of the Huawei/ZTE judgment, the present paper mainly reports on recent case law from Germany (with some comparative remarks and references on case law in England, the U.S. and China). Essentially, the paper argues that the German courts have specified the framework set by Huawei/ZTE, thereby tentatively answering many of the open questions raised by the rather generally framed judgment of the CJEU. Notwithstanding some remaining problems and some contradictions between the German courts’ approach and the English High Court’s as well as the Court of Appeal’s approach in Unwired Planet/Huawei, the present paper argues that enforcement of FRAND patents in Europe has become considerably more predictable since Huawei/ZTE, and that the general framework, established by the CJEU, allows for the development of fair and workable procedural standards guiding the enforcement of SEP’s and the possible competition law defence in Europe. In addition, the paper tries to identify and specify the fundamental considerations underpinning Huawei/ZTE. This allows to consider whether and to what extent the CJEU’s Huawei/ZTE doctrine should be broadened beyond the realm of genuine SEPs, which lead to a dominant position of the right holder, in the future. Also some additional avenues for the solution of SEP problems (such as through further upstream regulation of the standardization process and institutions, contract law and/or civil procedural law) are briefly proposed, which should be further developed and tested in the future.

I enjoyed reading the paper, which gives a thorough overview of the current state of German law on the subject, and I look forward to meeting Dr. Leistner at a forthcoming conference in Munich (the details of which I will be blogging about soon). 

2.  Peter Georg Picht has published a paper titled Schiedsverfahren in SEP/FRAND-Streitigkeiten: Überblick und Kernprobleme ("Arbitration Proceedings in SEP/FRAND Disputes:  Overview and Key Problems"), in the January 2019 issue of GRUR (pp. 11-25).  Dr. Picht is one of the coauthors of chapter 5, "The Effect of FRAND Commitments on Patent Remedies," in the forthcoming edited volume Patent Remedies and Complex Products:  Toward a Global Consensus (Brad Biddle, Jorge L. Contreras, Brian J. Love & Norman V. Siebrasse eds., Cambridge Univ. Press), which I have mentioned before (see here, with links to drafts of all of the chapters).  And I'll be seeing him soon as well, both at the Munich conference and at a conference two weeks earlier in Erlangen (details coming soon).  Anyway, here is the abstract (my translation from the German):

Alternative means for settling disputes involving intellectual property rights have gained prominence, especially with regard to FRAND-committed SEPs.  The recent past has witnessed a noticeable increase in arbitration proceedings and the development of the law in this sphere.  In this context, the present essay seeks to illuminate important aspects of SEP/FRAND arbitration proceedings and provides recommendations for the further development of the relevant legal framework.

3.  Alexander Galetovic and Stephen Haber have posted a paper titled SEP Royalties:  What Theory of Value and Distribution Should Courts Apply?, available here.  Here is the abstract:

Courts are often required to determine the royalty to which the owner of a FRAND-encumbered standard essential patent (SEP) is entitled. We argue that courts should use the observed royalties charged by licensors, the market rental price of assets created by investments in R&D. This “comparables” technique is used to value virtually all classes of assets and is based on the standard theory of value and distribution, price theory. Price theory explains where value comes from, how it is distributed among inputs, and how monopoly power is exploited and measured.

We further argue that courts should discard the “bottom up” and the top down techniques. Both are based on the theory of patent holdup and royalty stacking. This theory assumes that any observed royalty is the result of “excessive royalties” wrought by the additional monopoly power conferred by standardization through patent holdup and royalty stacking. Nevertheless, the theory is incoherent and rejected by the available evidence.

Proponents of the “bottom up” technique claim that courts should value SEPs as the incremental value of the standardized technology compared with its next-best alternative, which was discarded when the SEP became part of the standard. This has never been operationalized, however, because competing technologies never made it to market. Also, the bottom up technique is based on faulty game theory that elides R&D, assumes that competing technologies are freely available, and has absurd antitrust implications for any proprietary standard and well beyond SEP intensive industries.

Proponents of the “top down” technique claim that courts should determine the value of SEPs by, first, determining the cumulative royalty that the entire suite of SEPs would have obtained competing with its next best alternative, and then apportioning it among SEP holders. The first step shares the conceptual and practical flaws of the bottom up technique. The second step assumes that each stage of production chain creates a fixed amount of value that is independent of the rest of the production chain and of consumer demand. This is contrary to the basic implications of standard economics.