This question sits at the intersection of licensing practice, competition policy, and judicial interpretation. Courts, regulators, and industry participants often look to patent pools for guidance in determining FRAND[1] rates. Yet doing so risks a fundamental mistake. Patent pool rates — whether characterised as FRAND, sub‑FRAND,[2] or otherwise — are structurally unsuited to serve as benchmarks for bilateral licensing.
I asked several attendees this headline question at the
recent Patents and Standards conference in London — in informal conversations
during coffee breaks. I also posed the question to fellow panellists there in
our session entitled Platforms and Pools: Where Next? While Sisvel panellist Matteo Sabattini was
proud to inform us emphatically that courts had found patent pool Sisvel’s
rates FRAND, most others answered equivocally.
This question is also under consideration by the UK Supreme
Court. In December 2023, Tesla raised proceedings seeking, among other
requests, a declaration of FRAND terms for a license to SEPs in the Avanci 5G
Platform. Before opining on FRAND terms, the UKSC must determine if those are applicable
in that case.
There’s extensive effective and efficient SEP licensing
based on FRAND commitments — bilaterally and in patent pools. However, pool
rates are typically below bilateral FRAND rates for various reasons. For
example, pooling is well-known to reduce transaction costs and so these savings
can be passed on in lower royalty rates.
Pooling rates that might be considered sub-FRAND in
bilateral licensing shouldn’t be deemed a breach of SEP owners’ FRAND
commitments. Voluntarily offering relatively low royalty rates
non-discriminately is not harmful to any licensee. Similarly, unilaterally
offering licensing to all royalty-free is also harmless.
As patent pool terms are generally regarded as FRAND it should
be accepted that the range of FRAND rates might be very large, given the
various other differences in licensing structure and terms versus bilateral
licensing.
Alternatively, perhaps Standard-Setting Organisations (SSOs)
and others should regard collective licensing including patent pooling as
another, distinctly different kind of
licensing arrangement to bilateral licensing — just as royalty-free is already
recognised as distinct from FRAND licensing by some SSOs?[3]
Either way, patent pool rates are inapplicable benchmarks
for bilateral licensing — and vice versa — in the same way that the existence
of royalty-free patent pooling should not impose that pricing as an obligation
on SEP owners who choose not to join such an arrangement.[4]
[1]
Fair, Reasonable and Non-Discriminatory (FRAND) is generally regarded as being
the same as Reasonable and Non-Discriminatory (RAND).
[2] This
contentious term seems to describe rates that fall below the range that would
be considered suitable FRAND benchmarks in bilateral licensing determinations.
See subsequent section on UK High Court Judgment in Samsung v. ZTE.
[3] The
Patent Policies of IEEE SA
and ITU-T/ITU-R/ISO/IEC
accommodate “without compensation” and
“free of charge”, respectively, (i.e. royalty-free) as well as RAND licensing.
[4] Bluetooth
SIG participation requires reciprocal, “without compensation” (i.e.
royalty‑free) cross‑licensing. Google and others have asserted that open source
video codecs including VP8, VP9 and AV1 can be implemented without paying any
license fees to anyone. Nevertheless, various patents that are not available
royalty-free read on those standards. Google
paid off pool administrator MPEG LA so that free proposition could be
maintained for VP8 implementers. Sisvel
offers a licensing platform for patents essential to VP9.