BOLD FRAND statements seem to be the order of the year. The IEEE Board of Governorshas just approved its new standards policy relating to patents. The IEEE is the US standards body responsible, for the creation of, among other things (the Wi-Fi standard and the 802.11 WLAN standard).
Its new policy is not dissimilar in some respects to the position in the recent Chinese MIIT paper (see our blog here) in that they both:
• remove the availability of injunctive relief in situations where the licensee has beenwilling to abide by the outcome of an independent adjudication to determine certain issues for example what a reasonable royalty would be, and
• make a FRAND commitment binding on assignees and transferees of SEPs.
Both papers are also fairly BOLD in approaching the thorny and much debated issue of how a reasonable royalty is to be assessed:
• Both suggest that a reasonable royalty should be calculated and paid by reference, among other things, to the value that the functionality of the invention contributes to the value of the “smallest saleable patent compliant unit” rather than the whole market value of the product in which the particular technology is included.
• Both the MIIT and the IEEE propose to have regard to the total aggregate royalties that may apply if other essential patent holders require similar terms.
• Both policies expressly exclude from the assessment of reasonableness any value resulting from the inclusion of the relevanttechnology in the standard. According to the IEEE, the calculation should not reflect the “cost or inability of implementers to switch from the Essential Patent Claim’s technology included in the standard.” See IEEE FAQs here.
The IEEE’s adoption of its new patent policy has been cleared by the United States Department of Justice in a business review letter. Notably, however, the DOJ was careful not to take a view on whether the IEEE’s policy choices meet the IEEE’s requirements. The DOJ commented that there is unlikely to be a one size fits all policy for all standard setting organisations and that variation may be beneficial. In approving the IEEE policy the DOJ noted that:
• clarifying the meaning of the RAND commitment before completion of the standard, should give participants in the standard-setting process greater knowledge of their obligations and rights, which may promote ex ante competition for inclusion in the standard,
• this up-front approach could aid ex ante and ex post licensing negotiations assuring patent holders that they should be compensated for the value of the technology, otherwise they may become reluctant to contribute to standards or invest in future R&D, and
• clarifying the RAND commitment may also help to reduce the instances of hold-up, help ensure access to the relevant technology comprised in the standard and remove some anti-competitive practices.
The DOJ agreed that SEP holders would be less likely to engage in patent “hold-up” –if injunctions were not available against “willing licensees. This was not surprising given previous DOJ remarks and US judicial comment which has in recent years supported the view that it is difficult for a SEP holder who has made a FRAND commitment to obtain an injunction.
Critics complain that the willing licensee test is too pro – licensee as licensees can delay paying royalties while awaiting the outcome of an independent adjudication. It is argued that this problem is acute where the patentee holder has a portfolio of patents, each of which may be subject to the same hold-out. The DOJ suggests that courts might reduce this concern by requiring potential licensees to place some money in escrow pending determination of any dispute.
Inevitably, efforts to adopt a new policy dealing with such a commercially sensitive and heated topic have led to significant disagreements within the IEEE. The outcome has seen much comment (both positive and negative) from elsewhere. Claims of bias within the IEEE have been made and concerns raised that the committee responsible for the proposals underlying the new policy had included only companies holding a narrow range of opinions. If correct and if this were an EU standards setting organisation then this could potentially give rise to competition law concerns (see the European Commission’s horizontal guidelines here). However, the DOJ rejected these claims, saying that there were ample opportunities to consider the views of all parties.
Views are deeply divided as to the merits of the new policy. While Cisco hails the policy a victory for licensees, the same policy has met with trenchant criticism and opposition by numerous prominent commercial entities. Orange has openly expressed its disappointment with the change in policy, Qualcomm is said to be “reconsidering its participation” in IEEE standards development and Ericsson and the Innovation Alliance have all been outspoken in their disagreement with the approach. Those who have been following similar debates in ETSI will be unsurprised by the degree of upset and the issues that are said to be of concern.
In sum, the IEEE policy espouses a more transparent up-front approach. It reflects to some extent views from overseas such as the MIIT in China, and yet has met with wariness from the European Commission. The European standards setting organisation ETSI has for some time been reviewing its own policy. History suggests that ETSI will not follow the IEEE in seeking to identify the best approach to the nirvana of a reasonable royalty rate, choosing the less contentious course, as has been the general trend by competition authorities in the EU, of deferring such questions to the determination of a court or arbitrator on a case by case basis.