1. Justus Baron has posted on ssrn a paper titled The Commission’s Draft SEP Regulation—Focus on Proposed Mechanisms for the Determination of ‘Reasonable Aggregate Royalties”. Here is a link to the paper, and here is the abstract:
This paper comments on the EU Commission's proposed Regulation on Standard-Essential Patents (SEP), focusing on the proposal that SEP holders should agree on a ‘reasonable aggregate royalty’ for a standard. I argue that the proposal is unnecessary, as there is no convincing evidence that 'royalty stacking' is a significant problem. Furthermore, the proposed mechanisms are unlikely to elicit meaningful notifications of aggregate royalties, and have no realistic prospect of producing the significant transaction cost savings predicted by the Commission's Impact Assessment Report. In the absence of alternative suggestions how to apportion the aggregate royalty, there is a clear prospect that the proposed "top-down" approach will encourage 'patent counting'. Thus, the proposal may generate incentives for companies to over-populate the Commission's proposed SEP Register, and undermine the important goal of producing greater transparency. Furthermore, any major regulatory intervention into the determination of FRAND rates is likely to increase the risk of a fragmentation in the global SEP licensing ecosystem; and would inject significant uncertainty. I would encourage the Commission and the legislative bodies of the EU to adopt a more incremental approach, and to focus on those important aspects of the proposed regulation that are more aligned with current SEP licensing practices.
2. Yi Chen has published a student note titled WIPO Arbitration: A Promising Solution to the Injunction Chaos of FRAND Disputes, 100 Wash. U. L. Rev. 1199 (2023). Here is a link to the paper, and here is an excerpt from the introduction:
This Note proposes developing the World Intellectual Property Organization (WIPO) arbitration mechanism to resolve the chaos. Part II summarizes the background of FRAND terms. Part III introduces the rationales of courts of different jurisdictions in granting ASIs and ruling on global FRAND terms, examining the most recent decisions by U.K courts and Chinese courts in 2022. Part IV analyzes how the latest issuance of an anti-ASI by the Eastern District of Texas adds complexity that will frustrate the purpose of FRAND, and it summarizes the rationales of courts of different jurisdictions in their recent anti-ASI decisions. Part V analyzes why current proposals fail and proposes a WIPO arbitration mechanism. This Note delves into courts’ detailed reasoning when issuing ASIs and anti-ASIs in different jurisdictions and proposes a dispute resolution mechanism outside the current territorial approach.
3. Bowman Heiden and Justus Baron have posted a paper on ssrn titled The Economic Impact of Patent Holdout. Here is a link, and here is the abstract:
This paper has attempted a comprehensive investigation of the economic impact of patent holdout by (1) providing a theoretical foundation of patent holdout and its economic implications, (2) operationalizing this theory into several testable economic models, and (3) testing the models with empirical data.
As a starting point, we define patent holdout as a transactional phenomenon
linked to the rational behavior of firms to willfully infringe rather than seek
to obtain a license, based on the risks and rewards of the given patent regime.
Identifying patent holdout requires a frame of reference that assesses the
reasonableness of the infringer’s behavior in light of industry context and
prevailing norms.
Following our definition, patent holdout only arises in situations where the
patent owner is prepared to make licenses available on reasonable terms. Patent
owners that commonly offer their patents for license, such as universities and
other innovation specialists, and owners of patents subject to licensing
commitments, such as declared Standard-Essential Patents, are at higher risk of
holdout than companies relying on their patents to protect their own exclusive
use of their patented technology. Thus, patent holdout can impact Hybrid
Operating Companies (HOPCOs), Non-Practicing Entities (NPEs), and Patent Assertion
Entities (PAEs), leading to different business responses, including litigation,
licensing or settling on inadequate terms, and abstaining from licensing. Thus,
much of the impact of patent holdout is not easy to observe directly.
We operationalize and test for evidence of the impact of systematic patent
holdout through several methods, including (1) evidence of a royalty gap in
cellular standards, (2) evidence from previous PAE studies, and (3) evidence
from indicators of patent value. These investigations produced the following
results:
• The royalty gap analysis in cellular licensing produced a patent holdout
range of $7-28 billion per year in 2021.
• An analysis of the institutionalization of patent holdout in the aggregate
royalty base resulted in a total revenue base of $1,603 per year in comparison
to the average smartphone cost of $392 per phone, suggesting a 4x higher
royalty base in 2017.
• An analysis of the missing SEP market segments (i.e. the indemnification
effect) whereby small implementers go unlicensed and small SEP holders are
unable to collect royalties. The former effect was estimated between $600-1200
million per year in 2015.
• The evidence of patent holdout based on previous PAE studies was estimated at
approximately $500 billion over the timeframe of 1990-2010.
• The analysis of systemic patent holdout from patent renewal data showed that
while declared SEPs have historically been more valuable to their owners than
other patents, more than half of this historical advantage has dissipated
between 2006 and 2022. Over the same time period, patents first assigned to
universities have similarly lost value compared to patents assigned to other
organizations.
To the authors’ knowledge, this is the first study of the economic impact of
patent holdout, which is crucial to understanding the empirical reality, not
only the theoretical potentiality. Continued research in this field will be
helpful to provide companies and policymakers with better information on the
direction and extent of patent holdout and holdup in support of policies that
create more efficient markets for technology and greater social welfare from
innovation.
I may have more to say about this one in a future post.
4. Jack Lu has published an article titled Introducing the LES Build-up Method to Determine Royalty Rates in the September 13 issue of IAM Magazine. The article is behind a paywall, here. The abstract (below) is on ssrn, and I understand that the paper will be too after October 13:
Royalty rate determination has been studied extensively over the years. Still, there are no quick answers for some of the questions encountered frequently in IP licensing and litigation. These include:
- When converting a nonexclusive license to an exclusive license, or vice versa, how should the royalty rate be adjusted accordingly?
- How can you determine a royalty rate for a patent license with mature technology based on the royalty rate in a previous license with early-stage technology in the same field?
- How much should you increase a royalty rate by when a patent licensee asks for additional IP such as trade secrets, know-how, designs or drawings?
This article introduces the build-up method for royalty rate determination developed by License Executives Society (LES) USA and Canada and illustrates how this method can be used to answer such pressing, critical questions in licensing and litigation.
Specifically, it will present the premiums or discounts associated with certain license features or parameters such as exclusivity, technology development stage, and IP types licensed, among others. It will then demonstrate how to apply the premiums or discounts in royalty rate determination when negotiating license agreements with or without certain parameters.
The analysis will also describe the steps that employ the LES build-up method to decompose a royalty rate from a “good, yet imperfect, comparable” (in the words of the IRS) license to identify and quantify the value contributions of various parameters of the license. The quantified value contribution of each parameter will then be used to calculate a comparable royalty rate for the license agreement to be negotiated based on the specific parameters.
Finally, the article will discuss further adjustments needed to conclude a reasonable royalty rate.
5. Victor Vaibhav Tandon and Ashwini Siwal have published a paper titled SEP Litigations & Issues in Determining FRAND License, 28 J. Intell. Prop. Rts. 438 (2023). Here is a link, and here is the abstract:
Lately, there have been several multi-jurisdiction litigations involving SEPs. In large part this is because of the complexity of executing FRAND licenses for SEP portfolios. This work focuses on, and explains, some of the issues that arise in the context of FRAND licensing- including, the problem of over-declaration by SEP holders, the possibility of patent hold-out, difficulties associated in court determination of terms of a global FRAND license for SEP portfolios, lack of awareness regarding the nuances of SEP/FRAND space, and the intrinsic informational imbalances that exist in any FRAND negotiation. The issues discussed here are by no means exhaustive and many of them do not have easy answers.
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