IP Insight – A Beginner’s Guide to FRAND

IP Insight is a series from Virtuoso Legal the intellectual property specialists. This entry explores the significance of the Supreme Court judgment pertaining to FRAND.

Written by Charlie Bond and Ellie Wilson

If you follow IP law, technology or business news, you may have seen some excitement following a decision of the Supreme Court of the UK relating to something called FRAND (Unwired Planet International Ltd and another v Huawei Technologies (UK) Co Ltd and another [2020] UKSC 37).

If you would like to find out more about FRAND, trainee solicitor Ellie has drafted this ‘beginner's guide’ to cover all the basics, including the recent decision, and talking points to help you navigate your way through any FRAND conversation like a pro.

What does FRAND mean?

FRAND comes from Fair, Reasonable and Non-Discriminatory. These are the requirements for licence terms between a licensor of a standard-essential patent and an implementer who uses it under a licence.

Let’s start at the very beginning, a very good place to start…

A technical standard means an established consistent “norm” of technology which allows it to be repeated consistently and work in ways that are inter-operable with other technology which uses the standard. While this may sound very complicated and abstract, it is perhaps best explained with an example: A4 paper is an example of a “standard” which allows me to know that my word processor and printer will print onto that paper. I can buy A4 paper from different suppliers and be confident that it will be compatible with my word processor and printer every time.

The technical standards which are relevant to FRAND disputes are typically standards relating to the telecommunications sector – for mobile phones and related technology.

“Who decides what is the standard, such as A4 paper, 4G, or something more complicated?” I hear you ask. Standards are set by Standard-Setting Organisations (SSOs). The SSO which sets the relevant standards for the telecommunications sector is the European Telecommunications Standards Institute (ETSI).

The inventor of technology which covers the technical standard can apply for patent protection provided it meets the requirements for said patent protection. During the development of a technical standard by an SSO, if it becomes clear that it is essential to use the technology in the patent in order to comply with the technical standard, then the patent becomes a standard-essential patent (SEP). As with any other patent, it grants a monopoly to the owner to use and manufacture the invention it covers.

The difference between any other patent and an SEP is that the inventor declares to the SSO that using the technology is essential to meet the standard. This comes with an obligation on the owner of the SEP (this would be the inventor, or whoever has purchased the patent) to grant licenses to use the technology covered by the patent on terms that are FRAND.

Don’t say: “If you want to use my patent, you’ve to get with my FRANDs”

Do say: FRAND means that the owner of a patent which covers technology which is essential to meet a technical standard must license that technology on terms that are fair, reasonable and non-discriminatory.

Why does a licence for a standard-essential patent have to be on terms that are FRAND?

The obligation to license on FRAND terms is not a matter of general national or international law. In fact, part of the terms and conditions of being a member of an SSO is a contractual agreement or undertaking to license SEPs on FRAND terms. What’s more, it is not just an obligation on the owner of the SEPs to offer a licence, but also on an implementer to accept an offer on FRAND terms. The implementer is the person who needs the licence to use the SEP in order to be compliant with the technical standard.

The obligation to be FRAND applies not just to the final licence terms, but also to the negotiation between the parties in the run-up to concluding the licence agreement.

During this period, everything might not go to plan. For example the implementer might be keen to start using the technology as soon as possible – this might mean using the technology before getting the licence, and in so doing infringing the patent. This is known as “holding out”. Conversely, an SEP owner who deliberately delays the implementers from using the standard might also be breaching their obligations to negotiate in a FRAND way by “holding up”.

Don’t say: I’m holding out for a hero ‘til the morning light!

Do say: Both parties to a licence for an SEP have an obligation to negotiate in a FRAND way to conclude a FRAND licence.

What is the Unwired Planet case all about?

There are several issues covered in the Unwired Planet Supreme Court case. Put at its simplest, the FRAND dispute is about a portfolio of SEPs owned by Unwired Planet and the terms for a licence between Unwired Planet and Huawei. For the purposes of understanding FRAND, we will focus on two important points: global licences and the non-discrimination part of FRAND.

Incidentally, if you had not heard of them before, Unwired Planet are not a telecommunications company but a patent assertion entity (PAE), sometimes also called a non-practising entity (NPE) or – less politely – a “patent troll”. These terms describe types of businesses who make their money from licensing and enforcing patents rather than creating or selling the technology themselves. The Supreme Court was very clear in its judgment that “there is no legal basis under the general law for treating PAE owners of SEPs differently from other SEP owners unless they have different interests which merit different remedies” [para 89].

Don’t say: with FRANDs like these, who needs NPEs?

Do say: PAE or NPE owners may not produce or sell goods, but their income comes from enforcing and licensing patents. They are obliged to negotiate and grant licences on FRAND terms for their SEPs.

Global licenCes decided by English courts?

Patents are territorial, which means an inventor needs to apply in every country for which they would like patent protection. However, the licences to use SEPs are generally global, particularly for telecommunications as there is a worldwide market for them.

When this case first came to the High Court, Mr Justice Birss examined the obligation to license on FRAND terms. That obligation is derived from the undertaking between the parties and ETSI (which is based in France) to license on FRAND terms, but having made that agreement the English courts can decide on a dispute related to FRAND terms. Looking to real-word examples of how licences are drawn up, Birss J observed that rather than licensing a large portfolio of patents country-by-country, the FRAND approach was to grant a global licence.

On appeal, the Court of Appeal agreed that it may be the case in any circumstance the only possible FRAND terms of a licence would be on a global basis.

In its recent decision, the Supreme Court agreed that the court had the jurisdiction to decide whether the terms of a global licence were FRAND. Although Huawei argued that this seems to be setting up the English courts as a “de facto” tribunal to determine FRAND licences, the Supreme Court pointed out that the courts in Germany, the US and China had also held in principle that those national courts could adjudicate on the FRAND terms of licences [see para 84].

The Supreme Court also observed that while there is no tribunal or forum to determine the terms of FRAND licences, the only appropriate way to get a binding decision on them is from a national court. The national court can not decide on the validity or infringement of patents outside of that country, but it is where the SEP owner and implementer would go to make determinations should a dispute arise relating to infringement or validity. The Court can decide whether a worldwide licence is FRAND or not, and can grant injunctions to enforce the SEP’s patents in that country.

Don’t say: It’s not just me and it’s not just you, this is all around the world.

Do say: It may be that a worldwide licence is the only FRAND way to licence between two parties.

The Non-Discrimination requirement

Another key question about the FRAND terms is whether the non-discrimination requirement means there is a general obligation about not being discriminatory in dealings between prospective licensees or it is, to use the term coined by Birss J, “hard-edged”.

The “hard-edged” element in this case relates to an earlier licence granted by Unwired Planet to Samsung for a comparable portfolio of patents. The rates of that licence were lower due to the specific circumstances at play when it was granted. At the time Unwired Planet had just been acquired by another business with a view to forming a strategic relationship with Samsung, and Unwired Planet was in financial trouble and needed to bring in licence revenue.

The SSO in this case (ETSI) had previously considered and rejected a “most-favourable” element to the licence term obligations, instead, settling on a “non-discriminatory” requirement. The Supreme Court as well as the lower courts relied on this in finding that the non-discriminatory requirement does not mean that if a licensor has offered licences on reduced rates in the past (even to comparable implementers), it does not have to offer licences on those same terms to meet the non-discrimination requirement, as long as the terms of the licence are FRAND.

Don’t say: All’s well that NDs well!

Do say: the non-discrimination requirement of FRAND is not the same as being required to offer every licensee the lowest rates. If rates were reduced during the equivalent of a “fire sale” to bring money into the business, then as the UK Supreme Court says, the licensing value of that portfolio would be reduced permanently!

OUR INSIGHT

The Supreme Court upheld the findings of the High Court and the Court of Appeal in this case, that the UK courts can adjudicate on the global terms of FRAND licences. This is a milestone moment as more FRAND litigation moves on and parties are considering where to bring disputes.

There have only been a handful of FRAND cases settled in the Court of Justice of the EU, and these disputes had tended to focus on the FRAND relationship with competition law. It remains to be seen whether other national courts grasp the nettle when it comes to deciding cases on FRAND worldwide licences or, on the basis of its unique experience in dealing with FRAND in the Unwired Planet cases, the UK courts do become the de facto forum for, and experts in, FRAND litigation.

The Supreme Court’s decision in particular is rooted in practicality. In this sense it cuts through some of the more challenging or abstract questions that can arise in FRAND disputes – what about patents in the portfolio which are later invalidated? What about patents which are declared to be essential but are not truly essential to the technical standard? If the licensor offers a set of FRAND terms and the implementer refuses them but proposes an alternative set of FRAND terms, what happens then? and so on – by emphasising the real value for money that an implementer of standard technology gets by taking a FRAND licence. They are acquiring the right to legally access the market and use the technical standard.

The developing area of FRAND litigation will certainly be one to watch going forward.