Monday, October 15, 2018

McGuire on FRAND

I mentioned a few weeks back that Professor Mary-Rose McGuire had published titled Wer bestimmt, was FRAND ist?  Über Rahmenbedingungen, Maßstab und Zuständigkeit für die Beurteilung der FRAND Konformität ("Who decides what FRAND is?  On conditions, standards, and jurisdiction for the determination of FRAND conformity"), in the July-August 2018 issue of Mitteilungen der deutschen Patentanwälten (pp. 297-308).  Here is my translation of the abstract:
With the Standard-Spundfass, Orange-Book-Standard, and Huawei/ZTE decisions, the case law has developed a roadmap for the assertion of the competition-law based compulsory license defense, which simulates the typical sequence of licensing negotiations.  So long as the rightsholder submits a FRAND-offer, the compulsory license defense should succeed only if--in order to avoid delay tactics--if the prospective licensee responds appropriately to it, that is, proves its willingness to license by rendering an accounting and posting security.  In place of accepting the offer, the prospective licensee can also present its own counteroffer.  This raises the question, what happens, if both rightsholder and prospective licensee submit FRAND offers, but cannot reach agreement.  This article addresses the open question, whether the court hearing the infringement action can determine FRAND-conformity, or even--as represented by the UK Patent Court in Unwired Planet--must set a concrete royalty rate.  To adopt the latter procedure, however, would unnecessarily jeopardize the efficiency of the infringement process.
I stated that I might have more to say about the article after I had reviewed it more carefully, so here is the gist.  Professor McGuire argues, among other things, that the terms "fair, reasonable, and nondiscriminatory" each have specific meanings in other bodies of law, which should inform the analysis of what they mean in this context.  Specifically, she argues that "fair" is distinct from "reasonable" and is a procedural concept, requiring the parties to have access to the same information (and thus ties into the CJEU's requirement that the patent holder make the implementer an offer prior to filing suit).  "Reasonable," by contrast, is more of a result-oriented, contract-law concept, and should be read in a manner that will provide the patent owner a lawful return on its investment.  She is not enthusiastic about having courts determine FRAND rates--indeed, doesn't think that this would be an appropriate job for a German court hearing an infringement case--but rather views the Huawei/ZTE framework as a tool for encouraging the parties to work things out on their own.  Under this view, the courts' authority is limited to determining whether each party has presented the other with FRAND-conforming terms.  She thus takes issue with other authors, including Kurtz & Straub (see here)--and, I would imagine, Schaefer & Czychowski, whose article came out at about the same time as Professor McGuire's--who would like German courts to determine FRAND royalties, based on a top-down method or something similar.  Professor McGuire argues that such methodologies would be antithetical to the contractual framework of the FRAND commitment, and would require statutory authorization (of the type Schaefer & McGuire contemplate, perhaps).  She concludes that, if both parties exchange FRAND offers but cannot reach agreement (including an agreement to have a third party determine the terms), the patent owner cannot obtain an injunction (as long as the defendant is complying with its obligations under Huawei) but (if I am understanding correctly) could recover normal patent damages for any resulting infringement.  Perhaps those damages could exceed the FRAND royalty, e.g., if they were in the nature of disgorgement of the defendant's profits?

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