Saturday 24 February 2024

Discovering or Setting Aggregate Royalties and FRAND Rates for SEP Portfolios?

The European Parliament (EP) is due to vote on the European Commission’s proposed legislation for Fair, Reasonable and Non-Discriminatory (FRAND) licensing of Standard-Essential Patents (SEPs) on 27th or 28th February 2024. Stated objectives include increasing transparency and predictability while reducing transaction costs. Measures include (1) the setting up of a mandatory register for SEPs with essentiality checks of selected and representative random samples of SEPs, (2) a process for determining a non-binding aggregate royalty rate, and (3) a mandatory pre-litigation conciliation procedure for FRAND royalty determination, combined with (4) voluntary guidance on SEP licensing. A new competence centre within the European Intellectual Property Office (EUIPO) will be responsible for these tasks. 

The US and Europe are heading in different directions on how to determine FRAND licensing charges for SEPs. While the US has shunned rate-setting regulation by withdrawing guidance from government agencies including the USPTO, NIST and DoJ and is diminishing proposed law-making, the Commission's interventionist approach prescribes a valuation methodology which a Chinese court has recently used to drastically and defectively undercut established rates.

Whether the EP broadly accepts the Commission's proposed legislation as is, makes significant amendments, rejects some or all of it outright with demands for a radical rethink and do over, the need for sound institutional governance, fit-for purpose methods and quality standards in patent checking and for determining aggregate and individual royalties looms large.

My paper about much of the above has just been published by George Mason University Antonin Scalia Law School’s Journal of Law & Economics. In this, I compare US and European approaches to determining FRAND rates for SEPs when parties are in dispute. I also critically examine how aggregate royalties might be derived, together with the mechanics of “top-down approach” royalty rate setting. The paper with citation "Keith Mallinson, Discovering or Setting Aggregate Royalties and FRAND Rates for SEP Portfolios, 19 J.L. Econ. & Pol’y 1 (2024)" can be downloaded from SSRN, here.

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