Are patent pool royalty rates FRAND?

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]

My full article can be downloaded, here.

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[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.