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FRAND divergence stifles global licensing strategies

With the growing disparity between FRAND rulings in different jurisdictions, some in-house counsel say the global licensing landscape is becoming increasingly confusing

With a steady divergence of what constitutes fair, reasonable and non-discriminatory (FRAND) terms in licences for standard essential patents, some in-house counsel say the disparate treatment of IP across the world is stifling their global licensing strategies.

Sources at InterDigital and elsewhere explain that the stark differences between FRAND matters – such as in Unwired Planet v Huawei in Germany and the UK and in HTC v Ericsson in California, which all came to different conclusions – are making the global licensing landscape more confusing.

They note that while it is accepted and normal that countries and jurisdictions should govern themselves, operating in a global economy makes it difficult to keep up with the various legal decisions made on FRAND terms and respond appropriately by setting up different business models where necessary. 

The challenge is exacerbated by the number of questions surrounding what FRAND means. These include whether licensors should charge the same amount to everyone for a particular piece of technology or change their rates based on the size and worth of the licensee. Where a licensor should seek to sell a licence within a supply chain is another issue.

“The big thing now is the play between patents and antitrust rules,” says the senior vice president at an electronics manufacturer in Silicon Valley. “I worry about the disparate treatment of IP by countries around the world.

“We have a global economy, and for companies that are big in the 5G space and other global players, it can be a difficult thing for companies to change global business models five or 10 separate ways.

“It does get confusing and it slows the pace of innovation when you have different rules,” he says.

Tim Berghuis, chief licensing officer at InterDigital in the US, similarly says the court decisions in different jurisdictions have been less than helpful in allowing companies to streamline their global licensing practices.

“We try to stay up to speed on all the issues surrounding SEP licensing and we strongly believe that we have a FRAND global licensing programme,” he says.

“But the divergence is something we are keeping an eye on because if you look at the EU and what is happening there, each country has a bit of a different twist on what constitutes FRAND terms. That is also true of different state jurisdictions in the US.

“FRAND rulings have not been clearing up the global landscape – they are making it much cloudier.”

He adds that his external counsel plays an important role in keeping him up to speed with the latest SEP licensing news.

From the US to Germany

There has been a marked difference between the FRAND rulings of the Eastern District of Texas, for example, and those handed down in California. Judge Gilstrap in Texas ruled in HTC v Ericsson earlier this year that Ericsson’s end-product-based offers to HTC of $2.50 or 1% with a $1 floor and a $4 cap per 4G device were FRAND. In contrast, Judge Selna of the Central District of California ruled in TCL v Ericsson last year that Ericsson’s licensing terms were not FRAND even though its conduct did not breach its FRAND commitment.

The England and Wales Court of Appeal’s decision last year in Unwired Planet v Huawei that global licences can be FRAND was again different to TCL v Ericsson, HTC v Ericsson and several other US and European rulings.

The Higher Regional Court of Düsseldorf found in the German iteration of the Unwired Planet v Huawei case in March 2019 that Unwired Planet had not complied with its FRAND obligations because it had not sufficiently shown that its licence offer was non-discriminatory compared to previous licences granted for the SEP.

The senior licensing manager at a car manufacturer in Munich warns that the German courts have recently been unfriendly towards patent owners and that the Düsseldorf decision poses a danger to patent owners by creating a “downwards spiral on FRAND rates.”

“That ruling says that if you as a patent owner have set a rate, that is the highest rate you may offer to someone else. I’m not sure whether that decision will survive appeal at the federal courts but, should it be followed, you will have to be extremely careful that you will not be forced to give a licence that may be below FRAND,” he says.  

Sources have also raised the question of whether global companies that apply different FRAND rules across jurisdictions might be in breach of their commitment even if they operate in the correct way. If a company is committed to the rules of ETSI (an international telecoms standards institute that operates under French law), for example, but fails to apply European FRAND terms to a global licence done in the US, it could be argued that the rate violates policy and thus is not FRAND.

Diverging opinions

But not all in-house lawyers are worried about the divergence in FRAND rulings. Kent Baker, head of IP licensing and strategy at wireless semiconductor and module manufacturer u-Blox in San Diego, says it is a bit of a non-issue because licences are written with a global perspective.

He adds that divergence might only be a problem for licensors that look to break the same licences into geographic areas to maximise their profit from area to area.

“Licensees try to resist that sort of pricing because of the accounting and auditing involved,” he says.

James Bradley, head of legal at car manufacturer Lotus in the UK, similarly contends that keeping up with FRAND divergence is not difficult for his business.

“There is an overall consistency surrounding FRAND and SEP licensing rules in the EU and the US, which are our biggest markets. There are slight disparities, of course, but the basic principles are the same.

“The most important thing for us is that a worldwide licence is okay – that is all we will ever ask for.”

He adds that the company will try to avoid holding out in negotiations and refusing to take a licence because of the risk involved, knowing that licensors similarly want to avoid litigation where they might be exposed to public denigration. Beyond that, keeping up with FRAND largely comes down to communication.

“Keeping up is reasonably straightforward. There is a lot going on but I talk to people and read what is available, and by doing those things it is quite easy to keep up,” he says.

“Every auto company should do that; and if they do not, they are going to be in trouble.”

Depending on your licensing strategy and the type of company you work in, the steadily diverging rules around what is FRAND can be confusing. In-house counsel and their external partners need to keep a close eye on the landscape to ensure they’re not reprimanded by the courts for unreasonable business practices as interpreted by a particular jurisdiction.

With the disparity between FRAND rulings in different jurisdictions, and even within individual countries, the uncertainty around licensing practices is unlikely to lift anytime soon.

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