A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents

Abstract

Standard Setting Organizations (SSOs) typically require their members tolicense any standard-essential patent on Fair, Reasonable, andNon-Discriminatory (FRAND) terms. Unfortunately, numerous high-stakesdisputes have recently broken out over just what these “FRAND commitments”mean and how and where to enforce them. We propose a simple, practical setof rules regarding patents that SSOs can adopt to achieve the goals ofFRAND commitments far more efficiently with far less litigation. Under ourproposed approach, if an standard-essential patent owner and an implementerof the standard cannot agree on licensing terms, the standard-essentialpatent owner is obligated to enter into binding baseball-style (or “finaloffer”) arbitration with any willing licensee to determine the royaltyrate. This obligation may be conditioned on the implementer making areciprocal FRAND Commitment for any standard-essential patents it owns thatread on the same standard. If the implementer is unwilling to enter intobinding arbitration, the standard-essential patent owner’s FRAND commitmentnot to go to court to enforce its standard-essential patents against thatparty is discharged. We explain how our proposed FRAND regime would work inpractice. Many of the disputes currently arising around FRAND commitmentsbecome moot under our approach.

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