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FRAND Licenses: When patent hold-up and patent hold-out become olden days concepts

<div class="pb-2 pt-1 row"> <div class="col-12"> <div class="container text-center w-100"> <h1>FRAND Licenses: When patent hold-up and patent hold-out become</h1> <h1>olden days concepts</h1> <h6>&nbsp;</h6> </div> </div> </div> <p><img class="d-block img-blog img-fluid mx-auto" src="/assets/frontend/images/blog-4.jpeg" /></p> <div class="blog-content container pb-4 pt-4 text-justify"> <h4>By Cyrille Amarⁱ</h4> <p class="bData">The notions of patent hold-up and patent hold-out have long fueled controversy between supporters of FRAND licensing practices that were supposed to be favorable either to the interests of essential patent holders or to those of implementers.</p> <p>These two phenomena, which some have gone so far as to deny the existence, are often perceived as the boundaries of the FRAND licensing market. Examples of recourse to these two extremes abound, both being favored by a frantic forum shopping. However, market players have the means to effectively counter both the patent hold-up and patent hold-out.</p> <p>In this article we will look at situations arising specifically from a FRAND commitment made to ETSI, governed by French law. After briefly recalling the concepts of patent hold-up and patent hold-out, we will demonstrate that these concepts belong to the past and examine the solutions available to all market players on <a href="https://www.frandavenue.com/en/">FrandAvenue</a>.</p> <h4>Patent hold up:</h4> <p>The notion of patent hold-up describes the abusive use by patent holders of the power conferred to them by the market.</p> <p>In the case of SEPs, hold-ups derive on the one hand, from the essentiality of patents protecting inventions which must be implemented by any product compatible with a given technical standard, and thus obliges any implementer to take a license. On the other hand, hold-ups derive from the fact that, through their investments, implementers are already locked into the standard when FRAND negotiations start. Indeed, the fact that there is no alternative to the standard to which the patents have been declared essential also strengthens the SEP holders&rsquo; position. This means that were the FRAND obligation not to exist or not be construed properly, SEP holders would be able to negotiate royalty rates at a higher price than the technology&rsquo;s actual worth if competing with other alternatives.</p> <p>Hold-up has thus important consequences for implementers who may find that they cannot adopt and invest in technologies implementing standards at fair, reasonable and non-discriminatory conditions. This is the raison d&#39;&ecirc;tre of the FRAND undertaking.</p> <p>In recent years, the notion of hold-up has been extended to encompass the abusive use of injunctions. Although the seeking of injunctions before courts is a legitimate remedy for patent holders, the seeking of an injunction for SEPs may constitute a breach of the FRAND undertaking and an abuse of a dominant position if a SEP holder does not comply with its obligations arising out of the FRAND undertaking and competition law.</p> <p>In fact, since injunctions may involve a prohibition of the infringing product, seeking SEP-based injunctions against willing licensees risks excluding products altogether from the market. Such threats can thus distort licensing negotiations and lead to licensees accepting anticompetitive licensing terms, which they would otherwise have rejected. Such a behaviour can be detrimental to innovation and consumers and can result in an abuse of dominant position if the conditions set forth by the Court of Justice of the European Union in Huawei v ZTEⁱⁱ are not fulfilled.</p> <p>Several competition authorities have also taken steps to curb SEP licensors&rsquo; bargaining power.^iii,iv. In all these cases, injunctions were found to be abusive when implementers were truly willing to take a license on FRAND terms.</p> <h4>Patent hold out:</h4> <p>The broadening of the interpretation of hold-up has in turn raised concerns that the balance of interests may have been disturbed to the detriment of the licensors. This gave rise to the concept of &quot;patent hold-out&quot;.</p> <p>Indeed, if SEP holders are bound by their FRAND undertaking to concede a license and thus cannot easily threaten to refuse to grant such a license, the worst possible outcome for an infringer is to be obligated by a court to pay the same FRAND rate that would have been charged for licensing in the first place. Some implementers may thus engage in &ldquo;hold out&rdquo; and deliberately choose not to seek a license. The licensor will then lose time and money fighting in court for its due, while the licensee will benefit from a royalty grace period.</p> <p>Such behaviour from an implementer can quickly turn into abuse. Its perpetrator could then be sanctioned to legal remedies for the violation of its contractual commitments while the SEP holder would regain its right to prohibit the use of its patents^v.</p> <h4>The strategies that implementers and licensors should develop and the solutions readily available:</h4> <p>Patent hold up and patent hold out are both unFRANDly behaviours, and with courts around the world^vi&nbsp; having acknowledged the contractual nature of the ETSI FRAND undertaking, under its applicable law^vii, patent holders and implementers should now draw important consequences:</p> <ul style="margin-left:40px"> <li>anticipate by taking preventive measures,</li> <li>act in good faith^viii while interacting with the other party, and</li> <li>keep evidence of both parties&rsquo; actions.</li> </ul> <p>We will thus look more specifically at the strategies that all SEP market players can develop to protect themselves and see how they can leverage them on <a href="https://www.frandavenue.com/en/">FrandAvenue</a>, a unique platform offering reliable data on Standard Essential Patents, a FRANDly negotiation framework, and a patent documentation marketplace.</p> <h4>How to counter patent hold-up:</h4> <p>To protect themselves against prohibitory injunctions, implementers must give tangible proofs of their desire to quickly reach a license agreement. They thus need to initiate discussions and, failing that, respond quickly to license offers. Implementers must also prepare for licensing negotiations as far in advance as possible and keep evidence of all the exchanges and actions they took to comply with their FRAND obligations.</p> <p>In practice this means that, regarding their due diligence, implementers need to:</p> <ul style="margin-left:40px"> <li>complete an in-depth study of the ETSI database to identify licensors, assess the consistency of these licensors&rsquo; patent portfolios, and, where applicable, study the terms of their licensing agreements;</li> <li>review the alleged essentiality of the declared SEP&rsquo;s at stake, their relevancy for the implementer&rsquo;s products and compare the existing portfolios with the technologies to which they have been declared essential.</li> </ul> <p>All this data is available on <a href="https://www.frandavenue.com/en/">FrandAvenue</a>, where, in just a few clicks, SEP market players can find the information they need and save it securely.</p> <p>Regarding the licensing conditions, implementers need to:</p> <ul style="margin-left:40px"> <li>prepare the conditions under which they can consider taking out a license and be ready to share these conditions with licensors. Indeed, because time is of the essence, implementers must be able to support their position and be proactive rather than just return the ball limply. This is true independently of whether implementers believe that it is up to their module suppliers to negotiate a license agreement for the SEPs they implement.</li> <li>prepare for the event that they will not be able, in good faith, to reach an agreement with licensors. They can consider mediation, but more importantly should agree in advance to submit their dispute to a court or an arbitration tribunal with the mission of evaluating the licensed portfolio at stake and/or setting its licensing conditions to avoid prohibitory injunctions. <p>Implementers may not agree with licensors on the competent jurisdiction but by displaying a plurality of reasonable choices rather than a single court in their preferred jurisdiction, they will put the odds in their favor.</p> </li> </ul> <p><a href="https://www.frandavenue.com/en/">FrandAvenue</a> negotiation deck where market players can set forth their negotiation framework and dispute resolution process, upload their portfolios, communicate their licensing and/or negotiation terms has specifically been designed to give a significant advantage to its users as well as optimize the time and costs they allocate to their licensing strategy.</p> <h4>How to counter patent hold-out:</h4> <p>To prevent patent hold-out, the rule of thumb is to avoid being dragged into negotiations that are doomed to fail and inevitably end in litigation. Indeed, when the other party does not negotiate in good faith, i.e., with the aim of reaching an agreement, then it is better to go to court without delay.</p> <p>However, the difficulty in such a case is to demonstrate the reluctance of the other party to reach a license agreement. This is why licensors need to set a negotiation framework from the start of the negotiation process. This framework will in fact specify the steps that they consider key for the smooth running of the negotiation (NDA, ATN, due diligence, discussions on the portfolio of patents, on the financial conditions, etc.), along with a stipulated timeline for each step.</p> <p>Deadlines and stages can of course be negotiated, but if it appears that the other party does not intend to commit to reasonable deadlines, or to a dispute resolution process in the event of disagreement, then licensors regain all their freedom to act before the court of their choice. In fact, they will then have enough elements to demonstrate that they have fulfilled their obligations arising from the ETSI FRAND undertaking and from the case law of the Court of Justice of the EU.</p> <p>To this end, it will be crucial to show that they have proposed to the other party to share all information of a technical, economic, and legal nature.</p> <p>Here again, <a href="https://www.frandavenue.com/en/">FrandAvenue</a> allows licensors to fully meet their FRAND obligations: licensors can very easily demonstrate that they have provided all the information necessary to a FRAND negotiation and record all the steps taken by the licensors in their negotiation attempts. FrandAvenue Members can thus provide evidence of their good faith, save valuable time and money, and eliminate the risk of hold-outs.</p> <p>In conclusion, patent hold-ups and patent hold-outs violate the ETSI FRAND undertaking. They can however be avoided by adopting appropriate strategies and by using the available tools created to facilitate SEP licensing negotiations such as <a href="https://www.frandavenue.com/en/home">FrandAvenue SEP toolkit,</a> <a href="https://www.frandavenue.com/en/home">FrandAvenue negotiation deck</a> and <a href="https://www.frandavenue.com/en/home">FrandAvenue analysis tools</a>.</p> <p>For more information on FrandAvenue please click here or visit <a href="https://www.frandavenue.com/en/">https://www.frandavenue.com/en/</a>. You can also contact us: <a href="mailto: cyrille.amar@frandavenue.com">cyrille.amar@frandavenue.com</a> or veronique.denis-pelliet@frandavenue.com</p> <hr /> <div class="small"> <p>ⁱCyrille Amar is the founder of FrandAvenue, a marketplace for licensing agreements. He is currently an active member of the Paris Bar and has been since 2000. His practice focuses on intellectual property, with a specific experience in licensing and litigation involving standards essential patents and FRAND terms. He has participated as co-counsel or lead counsel to more than 20 FRAND cases in France and abroad, before French courts and arbitration tribunals. He has produced expert statements regarding the ETSI IPR in court and in arbitration cases in France, in the US and in the UK. FrandAvenue provides a virtual negotiation space in which SEP licensors and implementers find all the information necessary to the negotiation of a FRAND license agreement.</p> <p>ⁱⁱHuawei Technologies v ZTE (C-170/13) EU:C:2015:477; [2015] C.M.L.R. 14</p> <p>ⁱⁱⁱDecision of the European Commission 29 April 2014 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA Agreement (Case AT.39985 &mdash; Motorola &mdash; Enforcement of GPRS standard essential patents) (notified under document number C (2014) 2892 final)</p> <p>^iv<a href="https://www.ftc.gov/sites/default/files/documents/cases/2013/07/130724googlemotorolacmpt.pdf">Federal Trade Commission v Motorola Mobility &amp; Google Inc </a></p> <p>^v(case ID: 200.221.250) Philips v. ASUS : the Court of Appeal of the Hague found that Philips had discharged its burden under Huawei v. ZTE and that Asus had failed to demonstrate its willingness to seek a FRAND licence under the Huawei criteria. The court considered that Asus had engaged in a strategy to effectively avoid having to react to Philips&rsquo; terms or enter substantial discussions on licensing conditions. Asus had thus not participated constructively to the discussions with Philips and Philips was therefore entitled to seek an injunction.</p> <p>^viAll major jurisdictions, including USA, China, India, UK, France... with the only exception of Germany, as of 9 May 2022</p> <p>^viiETSI Rules of Procedure, Annex 6, IPR , art. 6.1, art 12 and Appendix A: French law governs the FRAND undertaking</p> <p>^viiiIn accordance with art. 1112 civ. code</p> </div> </div>

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How to determine the FRAND royalty base?

<div class="pb-2 pt-2 row"> <div class="col-12"> <div class="container text-center w-100"> <h1>How to determine the FRAND royalty base?</h1> </div> </div> </div> <p><img class="d-block img-blog img-fluid mx-auto" src="/assets/frontend/images/blog-3.jpeg" /></p> <div class="blog-content container pb-4 pt-4 text-justify"> <p class="bData">The royalty base is an important factor in the negotiation of a royalty rate. There are two widely accepted methods for the determination of the FRAND royalty base: the Entire Market Value rule (EMV) and the Smallest Saleable Patent-Practicing Unit base (SSPPU).</p> <h3>What is the Entire Market Value royalty determination method?</h3> <p>The Entire Market Value rule apportions the royalty rate according to the market value of the infringing product, infringing and non-infringing features alike, provided that the patent-related feature is the basis for customer demand.</p> <p>Therefore, where the patented feature drives customer demand for the entire product, the entire revenue from the infringing product becomes the appropriate royalty base.</p> <h3>What is the Smallest Saleable Patent-Practicing Unit royalty determination method?</h3> <p>The Smallest Saleable Patent-Practicing Unit is a royalty base which has been apportioned to the smallest saleable patent practicing unit tied to the patent-at-issue. It restricts the economic base from which the royalty is calculated to the smallest unit embodying the claims of the patent. The economic assumption underlying the SSPPU royalty base is that the financial worth of the invention is fully captured by the price of the component that embodies it.</p> <p>The SSPPU doctrine was introduced by the US Federal Circuit Court in Cornell University v Hewlett-Packard Co1, and developed notably in LaserDynamics v Quanta 2and In re Innovatio3.</p> <h3>How come there are different methods to determine the royalty base?</h3> <p>Since the late 90s the mobile telecommunications market has drastically changed. Indeed, while the companies that contributed to the development of the first generations of the standards were also those producing telecommunication equipment, the new players who entered the booming mobile phone market had a different business model. At the same time, large portfolios of SEP were assigned to non-practising entities.</p> <p>This led to a shift in the SEP licensing market and in the royalty determination methods.</p> <h3>What factors can be used in a negotiation about the royalty base?</h3> <p>The scope of the licensed claims is a key element that the parties must take into account when they negotiate a FRAND agreement. The extent to which a given portfolio covers specific use cases depends upon the scope of protection of the inventions claimed by the licensed patents in that portfolio. This is a key negotiation point when discussing the royalty base because the latter very much depends upon what is the claimed in the patent. Some patents are drafted in such a way that the use case is covered, thus potentially allowing an EMV discussion, while others will be limited to a narrower embodiment, for which the SSPPU method may seem more accurate. This is why the parties need to understand how the portfolio at stake &lsquo;reads&rsquo; on the standard and at which technical level it is or may be implemented by the licensed products. Check the implementation analysis tools on <a href="http://www.frandavenue.com">www.frandavenue.com</a></p> </div>

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What are the different generations of mobile communications?

<div class="pb-2 pt-2 row"> <div class="col-12"> <div class="container text-center w-100"> <h1>What are the different generations of mobile communications?</h1> </div> </div> </div> <p><img class="d-block img-blog img-fluid mx-auto" src="/assets/frontend/images/blog-2.jpeg" /></p> <div class="blog-content container pb-4 pt-4 text-justify"> <p class="bData">There are five generations of mobile communication systems that have been developed since the 1980s. The term &ldquo;generation&rdquo; abbreviated as G in 1G, 2G, 3G and 4G refers to the major innovations in the state of mobile technology and associated services.</p> <p>These innovations include the move from analog to cellular, development of data transmission capability, the integration of Internet protocols associated with convergence to multiple forms of communications media, and the wide array of services that are increasingly available on mobile devices.</p> <div class="pb-0 pt-2 row"> <div class="col-lg-4"><img class="d-block h-100 img-fluid mx-auto" src="/assets/frontend/images/blog-mobile-generations.png" /></div> <div class="col-lg-8"> <h3>2G or Second generation</h3> <p>The most widely known 2G wireless technology is known as GSM. The 2G wireless networks expanded the range of applications to more advanced voice services and provided data and fax transfer as well as a range of other value-added services. 2G systems are not, however, suitable for web browsing and multimedia applications.</p> <h3>3G or Third Generation</h3> <p>Third generation of mobile telecommunication systems, such as UMTS, uses high-speed data transfer and radio terminal technology. These enable multimedia and other dynamic features. The 3G systems found application in wireless voice telephony, mobile Internet access, fixed wireless Internet access, video calls and mobile TV.</p> <h3>4G or Fourth Generation</h3> <p>LTE is a global standard for the fourth generation of mobile broadband. LTE has been developed to offer greater capacity and speed over the mobile network to cater for the enormous growth in mobile data and the number of users. 4G provides, in addition to the usual voice and other services of 3G, mobile broadband Internet access. Potential and current applications include amended mobile web access, IP telephony, gaming services, definition mobile TV, video conferencing, 3D television, cloud computing mobile broadband and other mobile broadband Internet access. Current applications include amended mobile web access, IP telephony, gaming services, high-definition mobile TV, video conferencing, 3D television, and cloud computing.</p> <h3>5G or Fifth Generation</h3> <p>The Fifth generation of mobile telecommunication provides according to the European Commission &ldquo;virtually ubiquitous, ultra-high bandwidth, &ldquo;connectivity&rdquo; not only to individual users but also to connected objects&rdquo; and &ldquo;will serve a wide range of applications and sectors including professional uses&rdquo; (Opinion of the European Committee of the Regions &mdash; The review of the telecom package (2017/C 207/15)</p> </div> </div> </div> <div class="pb-4 pt-2 shadow"> <h2>What 5G is about</h2> <img class="d-block img-blog img-fluid mx-auto" src="/assets/frontend/images/blog-mobile-5g.png" /></div>

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